Sunday, April 24, 2005

Tomorrow in Investor's Business Daily - Demographics

IBD Editorial : "new data from the Census Bureau underline a harsh reality, especially for Social Security: America's getting older, fast... By 2030, according to the latest Census report, 87 million Americans will be over 64 years of age. Today, there are just 35 million.
Ten states by that date will have more elderly people than kids, the report adds. Today, no state — not even retirement haven Florida — has reached that status. And in 26 states, the retirement age population will double, putting massive strains on everything from pension plans to hospitals.

This, of course, has major implications for Social Security — not just for the number of retirees who must be cared for, but also for the health of the economy that must support the system... That's where personal accounts come in. As now structured, Social Security is a massive disincentive for Americans to save. It's one of the reasons the U.S. personal savings rate has been hovering around a measly 1% the past couple of years...

We now pay about $700 billion a year to support Social Security. Much of that simply goes to the government, which borrows it, spends it and replaces it with an IOU. Imagine the broad economic benefits if a third to a half of that amount were going into the economy...those participating in Social Security will see average returns of just 1.8% or so. If you got a return that low on your portfolio in the private sector, you'd fire your broker, no questions asked. After all, the stock market's average annual return over the last century has been 7%. As Bush pointed out, the difference between the two rates of return isn't trivial. At 1.8%, you double your money in 40 years; at 7%, you double it in 10. Pretty easy choice, it seems to us.

The real power from personal accounts will come down the road — not just for individuals, but also for the overall economy. All that new saving channeled into productive investment means a bigger economy — one better able to keep its promises to our senior citizens without bankrupting our youth."

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