Finals blog outsourcing — Brad DeLong carries the ball on Bush’s plan to let you invest your personal account in Treasury bonds.
From the press conference Thursday:
I know some Americans have reservations about investing in the stock market, so I propose that one investment option consist entirely of treasury bonds, which are backed by the full faith and credit of the United States government. Options like this will make voluntary personal retirement accounts a safer investment that will allow an American to build a nest egg that he or she can pass on to whomever he or she chooses.
What the Federal Reserve is telling us is that the 20-year TIP [an inflation-protected Treasury bond] is currently providing a real yield of 1.87% per year. What Bush is not telling you is that, under the Bush plan, if you divert $1000 from your Social Security to private accounts, that amount is clawed back–charged to an account associated with your normal Social Security benefit, that amount is then compounded at 3% per year plus the rate of inflation, and then after you retired deducted over time from your normal Social Security benefit.
If you are 45 and if Bush’s plan were available today…
Follow George W. Bush’s advice, divert $1,000 into your private account, invest it in TIPS, and at the 1.85% per year interest rate you will indeed by able to collect an extra amount worth $10.11 a month in today’s dollars when you retire at 65…
But the clawback would reduce your normal Social Security benefit by $14.16 a month. You’re $4.05 a month behind.
“Building a nest egg.” Feh!
Did nobody inside the White House bother to run the numbers? Did nobody care?
And media coverage of Bush’s “progressive indexing” plan since the press conference has been ridiculous – falsely claiming he would increase benefits for the poor, suggesting his plan would only cut benefits for the rich, and failing to clarify that it would cut benefits substantially relative to current law (see Media Matters here and here as well as Kevin Drum).