Americans Favor Savings Accounts

March 13, 2002 • Commentary
This article appeared in The Hartford Courant on March 13, 2002.

A.T. Papathanasis provides a detailed, but flawed, analysis of President Bush’s plans to reform Social Security using Individual Savings Accounts [Other Opinion, March 8, “Social Security Still Beats President’s Plan”].

Rather than analyze the proposals of the president’s reform commission, Papathanasis bases his analysis on a simple example given by President Bush: A worker who invested his payroll taxes in a stock mutual fund could retire today with an income more than three times greater than with Social Security.

Contrary to Papathanasis’ claims, President Bush’s example excluded taxes paid to survivors and disability portions of Social Security, which under the president’s reform proposals wouldn’t change. Social Security’s actuaries find that even when all retirement, disability and survivor benefits are included, Social Security’s real annual return for an average single male born today will be just 1.2 percent.

Papathanasis claims administrative costs would equal 3 percent of the account’s value. Social Security’s independent actuaries estimate costs of just 0.3 percent. Some experts believe they could be lower.

President Bush’s plans also do not assume that workers invest only in stocks; they could also choose government and corporate bonds. The default portfolio was assumed to hold only 50 percent stocks. Workers nearing retirement would likely move entirely into bonds.

Despite Mr. Papathanasis’ claims, more than 20 countries have successfully addressed their public pension problems by adopting reforms based on personal accounts. A recent Gallup poll showed two‐​thirds of Americans still favor ISAs.

About the Author
Andrew G. Biggs
Former Social Security analyst and Assistant Director of the Project on Social Security Choice