Progressives in this country hate the Chilean privatized retirement model. The dumber ones try to call it a failure, backing their assertion with towering stacks of lies, but the smarter ones studiously ignore it, because the facts cannot be refuted.
Getting the Government out of the Pension Fund Business
The point of privatization is to get old age pensions off the federal government's books, but the transition is not cheap...
“For the U.S. right now it would be impossible,” said Alejandro Micco, who was the chief economist at Chile’s Finance Ministry until last year. To change to a private pension system “you either need to have a very big fiscal surplus to pay retirees without income from workers, or go into debt.” (Cain's Social Security Model)We're already deep in debt, so I don't see how we would accomplish privatization. Regardless of the system, private or public, there will always be problems...
The bank found that exorbitant fees and other costs charged by private pension fund managers eat up as much as 15 percent of the contributions made by average Chilean workers, and even more for poorer workers. Investment returns have been far more modest than the hefty 11 percent return claimed by the private managers. The Chilean government's pension superintendent says actual returns for someone earning Chile's minimum wage were only 3.7 percent between 1994 and 2000.
A recent report by the Chilean government brought more grim news, forecasting that as many as half of all workers won't be able to save enough to receive the minimum pension when they retire—even after paying into their accounts for 30 years—and will therefore rely on government subsidies. More than 17 percent of Chile's retirees now continue working because they can't afford to live on their pensions, according to that study, and another 7 percent want to work, but can't find jobs. (Mother Jones)All true, but misleading...
Returns were 11% during the boom times, and even at 3.7%, the Chilean model still beats our social security theoretical average return of 1-2 %. Also, we will always have the situation where some at the low end of the earning scale simply cannot save enough for their own retirement, especially when their savings is so small that the interest it earns is eaten into by flat fees that the big savers absorb much easier since those fees are proportionally smaller the more money you have in the account.
Finally, you need a lot of money to throw off the chains of wage slavery, and it's got to come from somewhere, regardless of the system. Far short of privatization, there are a few easy things government could do to help us all save money for our retirements: Stop taxing our money after we earn it, and stop inflating the currency, which is a silent, insidious tax on us all.
No Easy Answers
There are no easy answers, especially when standing in a deep chasm of our own making. This is not a sexy topic, but I find it interesting, and collected some links while researching this, so I thought I would share what I found for those who are interested.
More Links:
Freeman – How We Privatized Social Security
New American – Chile’s Privatized Social Security System is 30 Years Old
For Social Security, a Birthday Makeover
Social Security Administration – The Chilean Experience
No Easy Answers
There are no easy answers, especially when standing in a deep chasm of our own making. This is not a sexy topic, but I find it interesting, and collected some links while researching this, so I thought I would share what I found for those who are interested.
More Links:
Freeman – How We Privatized Social Security
New American – Chile’s Privatized Social Security System is 30 Years Old
For Social Security, a Birthday Makeover
Social Security Administration – The Chilean Experience
