Let’s take a look at the Bush proposal for Social Security private accounts. Below is a table which shows the results of allowing workers to set aside $1000 in year one and increase that investment by $100 per year from their Social Security taxes. The column on the right shows the cumulative balance using an 8% compounded rate of return. As you can see, the amount of money that a worker would have at retirement under the Bush plan is NOT significant unless you participate for 20- 25 years or more.
Thus, even if Bush can come up with the trillions of dollars to replace the amount transferred to the individual accounts plus the trillions of dollars to fully fund the benefits for older workers or people who do not select the individual accounts, only workers under the age of 40 would benefit in any way from this proposal. If we borrow the money required for Social Security, the interest on the trillions needed will eliminate any benefit even to the youngest worker:
Year Annual Contribution Cumulative balance Cumulative balance with
Per the Bush plan Before earnings 8% compounded earnings
1 $ 1,000 $ 1,000 $ 1,080
2 1,100 2,180 2,354
3 1,200 3,554 3,838
4 1,300 5,138 5,549
5 1,400 6,949 7.504
6 1,500 9,004 9,724
7 1,600 12,924 13,958
8 1,700 15,658 16,910
9 1,800 18,710 20.206
10 1,900 22,106 23,875
11 2,000 25,875 27,945
12 2,100 30,034 32,449
13 2,200 34,649 37,420
14 2,300 39,720 42,898
15 2,400 45,298 48,922
16 2,500 51,422 55,536
17 2,600 58,136 62,786
18 2,700 65,486 70,725
19 2,800 73,525 79,408
20 2,900 82,307 88,892
21 3,000 91,892 99,243
22 3,100 102,343 110,531
23 3,200 113,731 122,830
24 3,300 126,129 136,220
25 3,400 139,620 150,789
If the yield of 8% net after expenses is not achieved, the reduction in the totals will be significant.