Privately Owned Retirement accounts better than current SS system?

Question

Do you think that private social security accounts (i.e. you own it) would give you more at retirement than the current system?

I did some number crunching and came up with these numbers.

Fund 401(k) for 45 years
Annual Income of $ 20,000.00- increasing 2% per year
Beginning Balance= $ .0
Contribute 7.65% of Salary -Invested Twice Monthly
Your Employer will match 100% up to 7.65% of salary - Annually
(hint: the above is the same as current system deducts from everyone's earnings which means that you'd feel nothing in your pocket book to make this happen.)
Annual Interest Rate = 7% - Compounded Annually
ending balance at age 65 = 1,154,983.81
yearly interest earned at 3.3% = 38,748.55
that's 3,229 per month.

Currently, the SS system gives us around 1,079 per month or a total of 12,948 per year.

Which way would be better for everyone?

For those who don't understand what a 401k is, you can easily be fooled by those who try and scare you with the “it’s Enron all over” hyperbole. That was all about employee stock options, not 401k investments.

A 401k would be owned by you. The employer would contribute the 7.65% just like they do now into FICA, only this contribution would go into a 401k owned by you. The investment portfolio of the 401k would be diverse enough to allow for major market fluctuations with little change in it's own earning potential. Unlike employee stock options, a 401k can be rolled over to a new company (which means it follows you) but I was not saying this would be a 401k, but rather, an investment fund you’d own forever that would work much like contributions to a 401k work.

Answer 1

Soooo, where does the money come from to provide for our elderly, disabled, handicapped kids? The folks who cannot provide for themselves? Should we throw them all into the street?

Answer 2

You are, of course, exactly right. To those concerned about Enron type problems, there is already a Federal regulation that limits how much of any one company's stock you can invest in with your 401k. Everyone would be far better off if the Federal Government stuck to those things it is supposed to be doing and got out of the: Education business, Agricultural business, Energy business, Health Care business, etc.

Your living expenses would be so much less and your disposable income so much higher you would not believe it. The all powerful "nanny" is expensive.

.

Answer 3

This is complicated. And obviously the 401k works better. But the way he was setting up his plan(Bush) would give very different numbers.

Chile has a privatized system with big problems and it was a better plan than Bush offered. One very large problem is that Chile's plan is administered not by the government by a few large corporations who take as much as 10% annually in fees. So, take that 7% annual compounded rate, subtract 10% and...what the heck!

The financial institutions made money, the people are not looking at a good retirement.

That is the problem-the fees. It has to be government administered with controlls on the fees-these companies can't help it, they are greedy. Profits drive their stock, drive their bonuses.

I used to work in the investment industry and they will hide fees and doublebill, anything for a buck.

By the way, watch your fees in your 401k or IRA. They are likely hidden. It's legal to bury fees somewhere in the tiny print in the prospectus.

Answer 4

assuming that you are lucky enough to work for a company that offers 401k investment, lets suppose you ended up working for a company like Enron...which bankrupted both employee and company funded contributions of many of their employee's 401k's.

like any investment, the greater the risk, the greater the potential for both loss and return.

how much would you be willing to gamble? is a 300% increase vs. a sure 1k per month worth the possibility of a 100% loss?

Answer 5

I love the plan.
Unfortunately, you will never ever convince the Liberals, who are SURE the government can run your life better than you can, that entitlement programs aren't as good as responsibility and self-accountability.

Answer 6

So EVERYONE gets a 401K!!!! Yippeee, sign me up!!!!
Sorry, this is not going to happen. Some employers don't even offer health insurance, and now they are going to match 100%????
lol.