The proposal to create individual equity or bond accounts in Social Security subjects future retirement income to changes in the market. Earlier, I was a securities salesperson and have an understanding of the stock and bond markets as well as retirement planning. To adequately plan for one’s retirement requires a combination of investments including things that are relatively certain, Social Security and pension plans, as well as investments that may fluctuate with the market. I planned to retire in 2003 however when my wife got cancer it changed my retirement to 1998. For us my earlier retirement had a positive impact on our retirement income. Had I a retired as planned in 2003, our investment income would have been significantly less than it is today.
What President Bush is suggesting is to convert the floor of Social Security into an elevator by creating individual accounts that are subject to market changes. For some these accounts could increase their retirement income but for others they could result is less income upon retirement. There is no denying the market, over time, goes up and down. President Bush suggested that a bond fund could protecting retirees future investments from market changes. The president isn’t telling you that in a period of rising interest rates, like we are starting today, bonds actually dropped in value and you can have a huge capital loss in bond funds or an individual bonds within your investment portfolio during periods of rising interest rates.
There is a place for equity investments in retirement planning. The correct place is in ADDITION to the guarantees of Social Security and pensions. Thus in addition to the fact that the individual accounts DO NOT solve the Social Security funding issue, they also fail to be a sound component of good retirement planning based on market fluctuations that such investments experience.