Tuesday, March 03, 2009

What if your Social Security had been invested in a private account in 2008?

Imagine being 66 years old today, having invested your Social Security benefits through a private account, and having retired after the markets collapsed in 2008. How would you be feeling today?

Just fine! So Andrew Biggs, former Deputy Commissioner for Policy of the Social Security Administration, tells us....

In the Retirement Policy Outlook I published through AEI in November, I showed that an individual retiring in 2008 who held a personal account his entire career would have increased his total Social Security benefits by around 15 percent.

I also simulated full-career account holders retiring in years ranging from 1915 through 2008, showing that they would have increased their total benefits by between 6 and 23 percent, with an average increase of around 15 percent...
Read the whole thing.

The next time someone warns you that Social Security shouldn't invest in markets because markets have bad years, remember how Social Security produces below-market returns for today's workers every year. (Nifty chart!)

Markets can be risky -- but to guarantee a loss over 40 years takes a government.