Senator Schumer has posted a calculator to determine what your social security benefit will be under the current system and under Bush's proposed reforms. Click here, enter your average annual income and year of birth (after 1950), click the button, and see the comparison.
Kevin Drum provides access to the CATO institutes' calculator, then points out the very different assumptions that go into each result. Needless to say, Chuck Schumer's assumptions are a lot more realistic. Most people's income does not increase 4% per year over the working life, and the CATO institute's assumption of 4.95% return on investment over the life of the investment does not consider the management fees (probably 1% to 1.5% per year on the balance.)
Switching Social Security to private accounts is simply switching from a defined benefit plan to a defined contribution plan.
Anyone who thinks that private accounts are the way to go should ask why companies have been phasing out defined benefit retirement plans and replacing them with defined contribution plans such as 401(k)s. In every case it is for the benefit of the company and at the cost of most of the potential retirees. One big element of that is that in a defined benefit plan, the risk is on the company. In a defined contribution plan, the risk is shifted to the retiree.
Remember that the company can afford to hire actuaries to lay out what the risks are and what they are likely to cost, then advise managers how to deal with those risks. In a defined contribution plan, the retiree is on his own to guess what those risks might be and guess how to deal with them. Very few people are good at that. Instead, retirees are left to essentially roll dice and hope for good numbers.
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