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Argument: Privatized social security accounts vulnerable to downturns

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[http://tcf.org/media-center/pdfs/pr46/12badideas.pdf Greg Anrig and Bernard Wasow. "Twelve reasons why privatizing social security is a bad idea." The Century Foundation]: "REASON #6: WHAT YOU GET WILL DEPEND ON WHETHER YOU RETIRE WHEN THE MARKET IS UP OR DOWN. In the twentieth century, when stocks generally grew significantly, there were three twenty-year periods over which the market either declined or did not rise. The volatility of investment markets means that it matters a great deal whether you retire during an upswing or downturn. For example, a worker who invested his or her retirement fund in a stock portfolio that matched the Standard & Poor’s 500 index and cashed out upon retirement in March 2000 would have a nest egg almost a third larger than someone who retired just a year later using exactly the same investment strategy because the stock market plunged over those twelve months. [http://tcf.org/media-center/pdfs/pr46/12badideas.pdf Greg Anrig and Bernard Wasow. "Twelve reasons why privatizing social security is a bad idea." The Century Foundation]: "REASON #6: WHAT YOU GET WILL DEPEND ON WHETHER YOU RETIRE WHEN THE MARKET IS UP OR DOWN. In the twentieth century, when stocks generally grew significantly, there were three twenty-year periods over which the market either declined or did not rise. The volatility of investment markets means that it matters a great deal whether you retire during an upswing or downturn. For example, a worker who invested his or her retirement fund in a stock portfolio that matched the Standard & Poor’s 500 index and cashed out upon retirement in March 2000 would have a nest egg almost a third larger than someone who retired just a year later using exactly the same investment strategy because the stock market plunged over those twelve months.
-Gary Burtless of the Brookings Institution demonstrated how much timing matters under privatization by examining what would have happened to workers with forty-year careers who retired in each year from 1911 until 2002.12 Following Burtless’s method, Figure 2 assumes that each worker put 7 percent of his or her earnings in the stock market every year (reinvesting dividends) and earned the actual historical return, year by year."+Gary Burtless of the Brookings Institution demonstrated how much timing matters under privatization by examining what would have happened to workers with forty-year careers who retired in each year from 1911 until 2002.12 Following Burtless’s method, Figure 2 assumes that each worker put 7 percent of his or her earnings in the stock market every year (reinvesting dividends) and earned the actual historical return, year by year. It shows the wide variation in the retirement income workers would have received. Clearly, some workers would do much better than others based simply on when they happened to retire—which would be a major change from today’s system."

Revision as of 19:56, 29 November 2010

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Supporting quotations

Greg Anrig and Bernard Wasow. "Twelve reasons why privatizing social security is a bad idea." The Century Foundation: "REASON #6: WHAT YOU GET WILL DEPEND ON WHETHER YOU RETIRE WHEN THE MARKET IS UP OR DOWN. In the twentieth century, when stocks generally grew significantly, there were three twenty-year periods over which the market either declined or did not rise. The volatility of investment markets means that it matters a great deal whether you retire during an upswing or downturn. For example, a worker who invested his or her retirement fund in a stock portfolio that matched the Standard & Poor’s 500 index and cashed out upon retirement in March 2000 would have a nest egg almost a third larger than someone who retired just a year later using exactly the same investment strategy because the stock market plunged over those twelve months.

Gary Burtless of the Brookings Institution demonstrated how much timing matters under privatization by examining what would have happened to workers with forty-year careers who retired in each year from 1911 until 2002.12 Following Burtless’s method, Figure 2 assumes that each worker put 7 percent of his or her earnings in the stock market every year (reinvesting dividends) and earned the actual historical return, year by year. It shows the wide variation in the retirement income workers would have received. Clearly, some workers would do much better than others based simply on when they happened to retire—which would be a major change from today’s system."

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