Study: Retirees Would Get Less Money Under Bush Plan

Most workers who choose the “default” investment option under President Bush's plan for Social Security personal accounts would do better under the existing system.

That's according to Yale University finance economist Robert J. Shiller, who has concluded that nearly three-quarters of workers who opt for the “default” life-cycle accounts, which automatically make investments more conservative over time, would do worse than the traditional system 71 percent of the time, The Washington Post reported.

The 71 percent figure is based on global rates of return. Shiller says global return rates would more closely track future conditions, although other economists dispute this. Using historical rates of return in the U.S., nearly one-third of workers would bring in less money than if they stayed in the traditional Social Security system, Shiller determined.

Shiller, a leading researcher in stock volatility, became well known in the late 1990s for predicting a stock market bubble. His study may add to worries that the White House is making too-rosy predictions about how retirees would fare under Bush's proposed personal investment accounts.

The life-cycle accounts were created to counter fears that stock market investments would be too risky, so the plan calls for shifting assets from stocks to bonds as the worker ages. The analysis shows “a disappointing outlook for investors,” Shiller said.

Shiller is "documenting what's well known, that bond returns have just been terrible," said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute and a supporter of personal accounts. "If we are excessively conservative, we will really be hurting workers."

David C. John, a Social Security analyst at the Heritage Foundation and a supporter of the Bush proposal, said it is not fair to use international markets as a benchmark for future returns. "He's bringing the U.S. [financial] market, essentially the most vibrant in the world, down to the level of stock markets in South America, Asia and various parts of Europe," John said. "I frankly find this study to be a stacked deck."

Trent Duffy, a White House spokesman, said the administration is not considering changes to the proposal at this point.

Read the entire study at

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