Skip to comments.Should the U.S. adopt the Chilean pension system?
Posted on 03/12/2008 12:09:36 PM PDT by qam1
Long hailed by free market economists as the model for how to create a pension system, news out of Chile that it plans on making payouts to low income seniors, has government interventionists jumping for joy.
The AP writes:
The new $2 billion-a-year program will expand public pensions to groups left out by private pensions - the poor and self-employed, housewives, street vendors and farmers who saved little for retirement - granting about a quarter of the nation's work force public pensions by 2012.
The fact is that this move is the way that governments should generally function. Stay out of things unless there is a real need to do something. No one is of the opinion that low income seniors should be thrown out into the street. Of course they should be helped. I would rather see the community take care of them and set up a network of charity, but if that doesn't work, then the government should step in.
What government interventionists miss is just how successful the 1981 pension reform has been.
The AP report cites a study by Estelle James, a former World Bank economist.
The private funds earned an average 10 percent return since their start, ensuring that typical workers who contributed since 1981 now collect about 85 percent of their final wage upon retirement. That's more than double the average 40 percent paid to full-career, middle-income Social Security recipients in the U.S.
For young workers this has been huge. They have basically been assured that they will have a very secure retirement. This is a far cry from the U.S. Social Security system where twenty and thirty-somethings keep paying in, but have no real idea if they will even see a penny back when they hit retirement.
It's time for the U.S. to follow Chile's lead and create privatized pension savings accounts. Where needed, the government can still play a limited role, taking care of those with no savings or low income seniors.
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Should it? Yes
Will it? No
This topic is one of the first I discovered when I first discovered FR back in 1999.
There are many positive points to the Chilean system, but there is also a large negative, market fluctuations outside the control of the pensioners’ control can greatly affect the retirement of particular age cohorts. The pension monies distribution over time becomes very unequal.
Since the government is determined to confiscate my money for a so-called retirement fund, the Chile system is an improvement. When I was living in Chile, I paid into my maid’s fund and she will do quite nicely when she retires. It isn’t a bad system and the Chileans are quite happy with it.
When Steve Forbes was running for president he had a presentation that illustrated retirement income based on the Chile system...I figured out that since my first contribution when I was a paper boy at 16, by the time I retired I would have a fixed income of around $85k per year.
One of the reasons I’ll never vote for a democrat. They (democrats) put up a big fuss and stopped it early in Reagans term. The market was hanging around 1000 back then. Now, I can look forward to my 40%.
Yes. Those of us in academe already have it, thanks to Andrew Carnegie: TIAA-CREF, with a basket of diversified funds we can move our money around among according to our own investment strategy, day-one vesting, complete portability.
It should consider it and model it to compare it to Social InSecurity.
“The new $2 billion-a-year program will expand public pensions to groups left out by private pensions - the poor and self-employed, housewives, street vendors and farmers who saved little for retirement - granting about a quarter of the nation’s work force public pensions by 2012.”
How does Chile intend to pay for this program? Will this program provide incentive for people to become eligible for it? Will Chile expand this program to provide for other groups left out?
Easy now, I completely agree that we should switch. It’s just never going to happen just like we’ll never switch to a flat tax or the fair-tax.
We should switch, but we won’t. There just isn’t enough political will on the conservative and conservative-libertarian side to get this done.
There’s no viable economic education going on in the public screwels, and the AARP and government employee unions (of which I sadly belong to) would scream bloody murder.
The Chilean retirement system was created on the advice of the late great Milton Friedman.
After the socialists were deposed by Gen. Pinochet - Pinochet set out to create economic reforms that would result in a more stable country. He was fairly successful. Later, after Pinochet stepped down, the voters tended to lean towards socialists - but the socialists have to be careful not to destroy the retirement nest eggs of millions of voters.
This is a big reason Democrats don’t want any privatized social security system, because any economic down-turn that hurt the market would hurt retirement accounts, which would result in voters taking the retribution on politicians who had steered a course away from forces that keep the markets healthy!
The Chilean social security idea is a great idea ....but credit belongs to the American - Milton Friedman.
There's another big reason: both Democrats and Republicans have been borrowing Social Security funds and using them for other purposes for years, in order to buy votes for themselves.
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