NCPA - National Center for Policy Analysis

Social Security Debate Gets Personal (Retirement Accounts)

May 26, 2000

Former Federal Reserve Governor Lawrence B. Lindsey, an adviser to Gov. George W. Bush, is taking issue with Al Gore over Social Security. Gore has made an issue of Lindsey's own personal retirement portfolio, charging Lindsey bailed out of the stock market years ago "because of inherent risks."

But Lindsey compares the expected return on his contributions to Social Security to his investments, and finds that Social Security is far more "risky" than investment in the market.

  • Actually, says Lindsey, some of his retirement funds are in the stock market, since he has contributed to TIAA-CREF -- a defined contribution retirement plan for college professors that predates Social Security.
  • According to Lindsey's statement from TIAA-CREFF, he and his employers contributed $46,000 and his account had grown to $153,000 by the end of 1999.
  • That has given him an average yield of about 5.5 percent per year after inflation.
  • By his 66th birthday, the 45-year-old economist's account will grow to $458,000, and he will be able to buy an annuity paying him about $3,500 per month.

By contrast, says Lindsey, his Social Security benefits statement says he and his employers have paid $121,452 in Social Security taxes, and assuming he continues earning at the current rate, he will be eligible for an inflation-adjusted benefit of $1,771 per month at age 66.

Of course, by then, he and his employer will have to pay another $193,700 into the system. And with the tax on 85 percent of his benefits because of other retirement income, he will do worse than many other younger workers, who may get a return of about 1.7 percent on Social Security.

However, Lindsey notes, his Social Security statement points out that by 2034, the payroll taxes collected will be able to fund only 71 percent of his benefits, and thus his benefits could be cut 29 percent.

Source: Lawrence B. Lindsey, "I'm No Social Security Hypocrite," Wall Street Journal, May 26, 2000.


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