The Social Security reform debate is over for now. But as any ostrich can tell you, sticking your head in the sand doesn't solve the problem. According to the Annual Report of the Social Security and Medicare trustees, the Social Security benefits we've promised but cant pay rose more than $200 billion last year alone.
If nothing happens by 2030, the midpoint of the boomer generations retirement years, Social Security and Medicare will consume not only their dedicated revenue but also one in every two income tax dollars. Our Social Security system will eventually become a major source of insecurity for the aged.
Over 20 years ago, workers in Chile were given the choice of putting their ten percent payroll tax into privately managed, personally owned Personal Retirement Accounts (PRA). Ninety-five percent of Chilean workers opted for a PRA system. The average Chileans income from a PRA is 78 percent of his pre-retirement income, a level that is strictly fantasy for most U.S. Social Security beneficiaries.
In Chile, workers choose between five mutual funds with contrasting bond/equity ratios. Older workers are required to own more secure investments, while younger workers may embrace more risk. No one is allowed to make lousy financial decisions and the money is always there when retirement arrives.
Chileans have real financial security. Why should Americans settle for less?
Tom Patterson is Chairman of the Goldwater Institute. A longer version of this article originally appeared in the East Valley Tribune.
-East Valley Tribune: Chile's privatized retirement plan is worth emulating
-Jose Pinera: Empowering Workers: The Privatization of Social Security in Chile
-The Board of Trustees, Federal Old-Age and Survivors Insurance: 2007 Annual Report