Focus Point - Trusting the Market for Retirement

Commentary by Pete du Pont

I'm Pete du Pont with the National Center for Policy Analysis. The soft stock market may have given some people second thoughts about using stock market investments as part of social security reform.

The market has returned an inflation-adjusted 10.1 percent on investments over the last 75 years. So does that translate into an acceptable standard of living for a retiree? A recent NCPA study says it does.

The rule of thumb is that one can maintain one's standard of living if retirement income equals 70 percent of one's last year's wage - the so-called replacement rate.

Starting in 1926, there are 30 possible 45-year investment periods, the last ending in 2000. The worst ever replacement rate was 65 percent. The best was 124 percent. By contrast, the average income workers' replacement rate from social security is scheduled to be only 37 percent.

At their worst, market-based retirement benefits are about 76 percent greater than social security's pay-as-you-go benefits, and cost 43 percent less.

What's to be scared of?

Those are my ideas, and at the NCPA we know ideas can change the world. I'm Pete du Pont, and I'll see you next time.