The President mentioned that the workers would get up to 4% of the SSA withholding to invest in private accounts. They currently contribute 7.5%, so GWB is proposing 4/7.5 or 53.3% of their withholding to invest. See the numbers below to see where that fits in the scheme of things.

I heard somewhere that some critics were saying this will reduce SSA benfits by 40%. By my calulations, that should only reduce bennies by 26.7%, since the employers contribution and 47% of the employees contribution are still going to the old SSA funds.

I missed an opportunity last night. The phone rang and a mechanical voice said “This is a political poll, it will take about 45 seconds, Did you watch the Presidents’ State of the Union Address?” This was like five minutes after the speech, while the Democrats were starting their response.

I had listened to it on radio (NPR) and was sort of watching the video on NBC. It is strange to watch the delayed video with the radio audio. Works a lot better with Football games. I wonder if NBC was delaying their feed in case they had to bleep the President.

Anyway, I thought a second and hung up on the machine. If it had been a live voice I probably would have responded. It would have been interesting to find out what sort of questions the pollsters were asking after the speech.

I don’t think the President has defined what is “broken” about Social Security and how his private accounts would “fix” it. SS is working the way it was designed, it’s not broken. The original design parameters don’t appear to be valid anymore.

It may be time to design a new system from the ground up. Of course, people who have worked on implementing new computer programs know the difficulties of implementing a new system that does what the old does plus more features that meet the new environment while keeping the old one active. I don’t know, I am still looking into the problem. (Since I am one of those under 55, I am in potential trouble. I don’t actually hit 65 until 2018, the year SSA goes red.)

Social Security Reform – For 2003 there was about 533.5 billion dollars collected from 156 million workers (plus employers).

That comes down to $3420 per worker/employer or $1710 per worker per year. (Employer matches an equal amount per worker to SSA)

The SSA Reformers are suggesting that the worker gets to put some of the SSA money into private accounts that the workers would control on their own, a la an IRA. How much should they gamble with? Let the Employers match stay with the SSA. That leaves up to $1710 to invest. No one is really suggesting that the entire $1710 go to Wall Street; what about a half, a third, a quarter?

Numbers:
57% = $979
50% = $855
33% = $564
30% = $513
25% = $427
20% = $342
10% = $171

So, in 2003, SSA took in $533,500M and spent $470,728M, leaving a surplus of $62,772M. Let’s use this number as an investment target.

That would mean that the average worker could move $402 to an investment account and leave the SSA with enough to balance the income and disbursements. That’s about 25% of the SSA contribution.

< Alternate Reality >
So, in 2003, including interest on investments, SSA took in $631,866M and spent $479,086M, leaving a surplus of $152,780M. Let’s use this number as an investment target.

That would mean that the average worker could move $979 to an investment account and leave the SSA with enough to balance the income and disbursements. That’s about 57% of the SSA contribution.

< / Alternate Reality > (they really don’t like you putting in faux tags)

The percentage to invest will be a topic of much discussion.

Unless there is some sort of guarantee that the SSA accounts will have a strict limit on the fees charged, a worker can come out of this experiment with nothing, not even the original $20K-30K contributed over the course of a lifetime. Of course, those that have maxed out on the SSA contributions at $5450 per worker per year will have a better chance to get something out of it all. (Have you noticed that the max contribution is 3 times the average contribution? I wonder if that means anything.)

Most workers will start out small and gradually work their way up to the contribution cap. Over 45 years, a worker will average about 45*1710= $76,950, or $153,894 with employer match, in contributions to the SSA Trust Funds. (Using the 2003 dollars noted above.)

So, if they direct 50% of their SSA contribution to a private account, do they then receive 50% benefits when they retire? Actually, it should be 75% since the employer is contributing the full amount to the SSA account. (50% of 50% is 25%)