March 3, 2005
MARCH 3, 2005-Personal
retirement accounts created from a portion of the payroll taxes
workers now pay would let a typical Indiana couple build a $115,000
retirement nest egg, according to a report released today by The
"Indiana workers and their families would get a much better deal
from Social Security if the system let them channel some of their
payroll taxes into personal accounts," said lead author William
The report found that, under the current system, a typical Hoosier
couple born in 1970 can expect to reap only a 1.25 percent annual
return on their Social Security tax investment-far less than what
that money would earn if invested in a certificate of deposit at a
The study projected that if just part of those taxes were invested
in a conservative mutual fund of stocks and bonds, the couple would
amass personal retirement savings large enough to assure (through
the purchase of annuities) steady retirement income equal to-or, if
they elected-greater than what Social Security could provide. They
also would have money left over to pass on to their heirs.
In another case study, the report found that if Social Security
contained a personal account component, a typical two-income
Indiana couple born in 1963 would be able to enjoy greater
retirement income than today's Social Security can afford to pay
and be able to leave their three children an inheritance of more
than $38,000 each.
While Social Security is a poor investment for most Hoosiers, the
report noted, some make out even worse than others. For example, a
typical single black man, born in 1970, likely will never get back
from the system as much as he paid in. Heritage calculated his
expected annual rate of return at negative 1.75 percent.
By way of contrast, the study found, even a low-income black male
could amass a considerable sum in a personal account. A single,
black low-income male born in 1970, for example, would accumulate a
$35,000 nest egg by age 54. Even if he were to die before reaching
retirement age, he would be able to pass this money on to loved
"Look at it as
seed money for Indiana's low-income community," Beach said. "Even
modest nest eggs, when passed on, can help the next generation get
a good education, buy a home or start a business, putting them on
the path to far greater financial success." Under the current
Social Security system, he noted, workers don't "own" any of their
tax payments; money paid into the system stays in the system upon a
The Heritage study found Social Security's rates of return vary
from congressional district to congressional district, reflecting
differences in demographics and earnings. For a white, two-income
couple born in 1970, the return rate ranged from a high of 1.54
percent in Indiana's 9th District to a low of 0.97
percent in the 1st District. For a single black male
born in 1970, the rate of return was negative in all districts,
ranging from -1.55 in the 8th to -2.55 in the
The full report, "
Personal Accounts Would Make Social Security a Better Deal for
Indiana Families" is available online at heritage.org.
Personal retirement accounts created from a portion of the payroll taxes workers now pay would let a typical Indiana couple build a $115,000 retirement nest egg, according to a report released today by The Heritage Foundation.
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