More than Two-to-One Support for Personal Retirement Accounts

I am pleasantly shocked to see that a healthy majority of respondents favor partial privatization of Social Security. I knew support was reasonably strong several years ago, but I feared that the financial crisis would have made Americans more leery of financial markets. I also wondered whether the idea was discredited by its association with the Bush Administration. But a new Pew survey shows very good results, so maybe Republicans will feel more comfortable about developing a "secret plan" for Social Security reform.

...a majority favors a proposal to allow some private investments in Social Security... The latest Pew Research/National Journal Congressional Connection poll, sponsored by SHRM, conducted Sept. 9-12 among 1,001 adults, finds that 58% favor a proposal that would allow workers younger than age 55 to invest a portion of their Social Security taxes in personal retirement accounts that would rise and fall with the markets; 28% oppose this proposal. Majorities across all age groups -- except for those ages 65 and older -- favor this proposal. ...Support for the general concept is comparable to support for a similar plan advocated by former President George W. Bush in 2004. As he sought reelection in the fall of 2004, 58% of registered voters that September favored allowing younger workers to invest a portion of their Social Security; 26% said they opposed this change. However, after Bush won reelection and debate about the proposal began, support weakened. By March 2005, the public was largely split (44% favor, 40% oppose) and the proposal was not enacted.

P.S. The same poll shows that people are not sympathetic, however, to reforming Medicare, however, so the Social Security silver cloud does have a dark lining.

Chile's Private Social Security System a Big Success

Unlike the United States and most European nations, Chile does not face a long-term Social Security crisis. This is because lawmakers shifted to a system of personal accounts almost 30 years ago. As a result, Chile's economy is much stronger, the financial system is healthy, workers are better off, and taxpayers are protected. It also turns out that a system of personal accounts has a positive impact on the labor supply of older workers. Instead of getting lured into retirement by a punitive tax-and-transfer government system, they remain active to reap the rewards of a system that rewards them (rather than tax collectors) for continued work. A former World Bank expert has the details in a new report from the National Center for Policy Analysis.

American workers live longer each decade but they continue to retire early. They often begin receiving Social Security benefits, quit working and stop contributing to national output well before age 65. Reversing these trends must be an important objective when designing long-term reforms to balance revenues and expenditures on elderly entitlements. Chile faced similar problems prior to 1981. It had a traditional pay-as-you-go defined benefit system, like Social Security in the United States. Workers had strong incentives to start their retirement benefits as soon as possible, because postponing pensions and adding contributions did not increase benefits commensurately. Labor force participation dropped dramatically when workers became eligible for pensions. This changed with reforms in 1981 that replaced the defined benefit system with a defined contribution system. All new workers were required to join the defined contribution system while existing workers had a choice. Most workers are now in the new system and are required to contribute 10 percent of their wages to an individual account. Contributions are invested in a pension fund chosen by the worker and accumulate a market rate of return. Payouts take the form of inflation-protected annuities or gradual withdrawals during retirement. The new system increased incentives for older workers to postpone retirement and continue working. The response was dramatic....Following the 1981 policy changes and reforms, and after controlling for other sources of change in retirement behavior, the percentage of individuals receiving early benefits fell significantly: The proportion who received benefits before age 65 decreased by about 8 percentage points. The proportion of individuals who started receiving retirement benefits by their early 60s fell by about a quarter. The proportion who started receiving benefits by their 50s was cut in half. Postponing the commencement of benefits could be due to market returns on additional contributions, which made workers more willing to continue working in order to save more money for retirement. Or it could be due to tighter preconditions on early retirement, which required more individuals to continue working until age 65. Tighter preconditions seem to dominate, as the percentage of individuals who receive benefits after 65 has not changed. More older workers kept working following the reform, after controlling for other factors: Labor force participation rates for individuals in their 50s rose 12 percentage points. Labor force rates rose 13 percentage points for those aged 65-70. Individuals aged 60-64 increased their labor force participation the most - by 19 percentage points. The biggest change in labor force participation was for individuals who had started receiving benefits from their retirement accounts: Participation rates rose by 15 percentage points for pension recipients in their late 60s. Rates rose by 28 percentage points for those in their 50s and early 60s. Among all pension recipients under age 70, the proportion who continued working more than doubled.

"I Wish Republicans Had a Secret Plan for Personal Accounts"

Here's my debate on Larry Kudlow's show about Social Security personal retirement accounts.

Personal Accounts Are Better than Empty Promises from Social Security

My Cato colleague Jose Pinera makes a powerful argument for "privatizing" Social Security, which is something that has happened in about 30 nations.



My Ph.D. dissertation was on Australia's private system, so I've always had a soft spot for this issue. Sadly, Washington is busy creating new entitlements instead of fixing the ones we already have.

A Funny Joke, but Future Retirees Won't Think it's Very Amusing

Young Chuck, moved to Texas and bought a Donkey from a farmer for $100.00. The farmer agreed to deliver the Donkey the next day. The next day he drove up and said, "Sorry son, but I have some bad news, the donkey died."

Chuck replied, "Well, then just give me my money back."

The farmer said, "Can't do that. I spent it already."

Chuck said, "Ok, then, just bring me the dead donkey."

The farmer asked, "What ya gonna do with him?"

Chuck said, "I'm going to raffle him off."

The farmer said, "You can't raffle off a dead donkey!"

Chuck said, "Sure I can Watch me.. I just won't tell anybody he's dead."

A month later, the farmer met up with Chuck and asked, "What happened with that dead donkey?"

Chuck said, "I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $898.00."

The farmer said, "Didn't anyone complain?"

Chuck said, "Just the guy who won. So I gave him his two dollars back."

Chuck now works for the government, in the Social Security Administration.

Is Viagra a Secret Weapon for Social Security Reform?

A weird headline for a blog post, to be sure, but that's the implication of this report from Brazil. Older men are marrying young ladies, who then become eligible for decades of government pension payments when their husbands die. This is apparently so common that it has become a large fiscal drain and politicians feel pressure for reform. It is highly unlikely that Brazil's politicians will choose the right reform, but hope springs eternal. Perhaps if they pop some little blue pills before the debate, they'll be willing to do something...um...manly, such as personal retirement accounts:

The widespread tendency in Brazil for men to remarry women several decades younger -- called the "Viagra effect" -- is undermining the country's pension system, researchers warned Tuesday. The report, by Brazil's National Social Security Institute (INSS), showed that a trend of men in their 60s marrying women half their age was leaving a big pool of young widows collecting benefits for much longer than anticipated. "The social security system was planned so that the wife receives her husband's pension for only 15 years or so. With growing life expectancy and remarriages with much younger women, benefits today stretch out over 35 years," the author of the study, Paulo Tafner, explained to AFP. He said the younger-wife phenomenon was commonly called the "Viagra effect." ...Of the separated men, 64 percent of those aged over 50 remarry women younger than them. In the 60-64 age range, the proportion is 69 percent. And the marked preference is for women aged 30 years younger. ...Under current laws, when a retired man dies, his wife continues to receive his full pension until her own death. According to the INSS, 94 percent of pensions go to women. "This is a grave and serious challenge for the future of the country, and it's going to require a reform of the pension system," Tafner said.

Social Security Administration Bureaucrats Have a Party…and Taxpayers Pick Up a $700,000 Tab

With so much money being squandered in Washington, $700,000 does not even rise to the level of an asterisk. But when that much money is being wasted so that senior bureaucrats from the Social Security Administration can enjoy a party (oops, a training session) at a four-star resort in Arizona, it becomes a symbol of Washington profligacy. An referenced in an earlier post, conservatives already have been complaining about this waste of taxpayer funds, but kudos to ABC news for running a story on this travesty. Make sure to watch the embedded video of bureaucrats "reducing stress" at your expense:

...nearly 700 executives from the Social Security Administration (SSA) gathered for a lavish three-day conference in Phoenix, AZ last week, costing taxpayers about $700,000. ...The conference, which included a performance by a motivational dance company that was captured on tape by Phoenix affiliate ABC15, was held at the Arizona Biltmore, a hotel described as the "Jewel of the Desert" with an oasis of 39 acres of lush gardens, swimming pools and a golf course. SSA executives were invited to join in the dancing.