- The Washington Times - Tuesday, June 19, 2001

When President George W. Bush proposed privatizing just a small piece of Social Security, the opposition wailed it was a "risky" scheme that could impoverish the aged if the stock market tanked.
Since we havent had any privatization to date, what has the governments suppposedly stable Social Security system done for our aged? After workers and employers have been paying in 12.4 percent of their payroll for a good part of the last 45 years what has been the retirement payoff at age 65?
According to the latest figures from the Social Security Administration, the average retirement check is now $845 a month, just enough to keep our aged in near-poverty.
The Social Security return on taxpayers FICA money has averaged less than 2 percent, a pitiful performance. The return on Standard & Poors 500 Index fund over the last 45 years, with dividends and interest reinvested, has been 11.6 percent, or some sixfold as much, say S&P; statisticians.
However, the recent drop in the Nasdaq from 5,000 down to some 2,000 has frightened many. Maybe the stock market is too "risky," nervous legislators and workers are muttering.
Lets say thats true, which it probably isnt. Arent there risk-free privatization alternatives to the stock market?
Of course, and its been staring us in the fiscal face for years. Its right there in three forms of government-guaranteed investments. The first is our own savings accounts, passbooks that have typically brought in 3 percent a year and are guaranteed by the FDIC, the Federal Deposit Insurance Corp. The second is even more attractive CDs, or Certificates of Deposit, that normally grant 5 percent interest and are equally guaranteed.
There is a third, and even better, non-risky investment. Thats the bonds of the Fannie Mae, Freddy Mac and Ginny Mae all implicitly guaranteed by Uncle Sam. They pay some 61/2 percent annual interest, more than threefold the return on the government "pension" you should excuse the expression.
The presidents plan is to privatize only 2 percent of the 12.4 percent, or a mere $800 of the $4,960 annual FICA taxes for a $40,000 wage earner. The money would be placed directly into the numbered account of every Social Security taxpayer where he can watch it grow through the mathematical miracle of compound interest. So if the FICA taxpayer made $40,000 a year (in todays dollars) for 45 years, how much cash would he or she have on retirement?
The numbers are extraordinary. The smallest one, the savings account privatization, would be worth $76,401 at age 65, and twice that if the retiree had paid in the maximum Social Security tax on an $80,000 income. The Certificate of Deposit Social Security account would be worth $134,148, and double that for high earners. The Fannie Mae (etc.) bond account would be worth $209,869, and more than $400,000 for those who make the maximum FICA contribution.
A bit better than the present poverty-level check, wouldnt you say?
And the money is theirs to invest, keep, or pass on to heirs in case of death.
And what if the taxpayer wanted to put his privatized money in a "risky" S&P; 500 stock index fund. (Perhaps the new privatized system should not permit investing in individual stocks..) That small 2 percent investment would be worth $1,066,750 for the $40,000 wage earner and more than $2 million for the maxi-payers. Just the income in the last year before retirement would be $110,881.
Of course, the big bucks dont end there. All during retirement, without contributing another cent, the privatized fund continues to grow.
What about the ultimate every American a millionaire? Its no flower persons psychedelic dream. Just start now with the 2 percent deduction, then every seven years the government should add another 2 percent privatization to our FICA contribution until the whole 12.4 percent is placed in absolutely safe individual investment accounts.
How much would you be worth on retirement? Hold your fiscal hat.
The CDs would have government-guaranteed (by using several banks) cash of $817,000 at age 65. And for the heavy earners, $1,634,000. For those wise enough to invest in Fannie and Ginny Mae, the numbers are staggering $1.26 million for the typical $40,000 Joe, and twice that for the $80,000 wage earner.
And what if you held your nose and dived into a "risky" S&P; index fund? You dont want to know. Its a mere $6.6 million.
(Increase all the numbers for two wage earners in the family.)
Whos holding up this independence for all aged Americans? Naturally, its all the prior White House administrations and our overpoliticized Congress. If we could educate them all in mathematics, especially the beauty of compound interest, we could start counting our millions as we all age.
But theres only one hitch. Who could want to take in more than $6 million in cash and risk losing the governments munificent $845 a month?

Martin L. Gross current book is "The Government Racket 2000 and Beyond," published in trade paperback by Harper Collins.



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