In a January 5 Associated Press article, AP writer Leigh Strope made the unsupported claim that, under the Bush administration proposal to reduce promised Social Security benefits and supplement the system with private investment accounts, the combined retirement income of the two “would be expected” to equal or exceed benefits promised to retirees under the current system.
For example, a person retiring in 2012 with an annual income of $35,277 is promised $1,194 in monthly benefits, in 2001 dollars. If the formula is changed, the monthly benefit would be reduced by 0.9 percent to about $1,183 per month.
The younger the worker, the more dramatic the cuts. For a person retiring in 2075, the monthly promised benefit of $2,032 would be cut by 45.9 percent to $1,099 a month.
In each case, income from the worker's private account, funded with a portion of their Social Security tax, would be expected to at least make up the difference.
The Bush administration has not yet released a fully detailed proposal or offered concrete estimates of the proposal's expected effect on future retirement income. But The Washington Post paraphrased chief Social Security actuary Stephen Goss, who based his comments on a plan that “Republicans close to the White House” outlined for the Post, as saying that if such a plan is enacted, total expected retirement income -- including guaranteed Social Security benefits and income from the new private accounts -- “would not match the benefits currently being promised.” The Post reported the example of a middle-income worker retiring in 2052 whose expected combined income would be 6 percent less than that promised under the current system.
Under any private account proposal, a portion of this income would depend on the performance of individual workers' investments. The numbers cited reflect expectations about average investment returns and would not apply equally to all workers. The average retiree would receive less retirement income than promised under current law, while others would potentially receive even less.
As Media Matters for America has previously noted, some economists believe that the assumptions about future equity returns -- on which the provided numbers are based -- are overly optimistic.