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Workers Would Lose up to $152,000 if Social Security Is Privatized

President George W. Bush stepped up his campaign to privatize Social Security during his State of the Union speech Feb. 3, predicting a dire future for Social Security unless Social Security is privatized.

But his scare-tactic rhetoric masked the true cost behind Bush’s efforts to cut retirement benefits.

“He didn’t say that working people would end up with lower benefits under Social Security privatization. He didn’t talk about the high price working families would pay for privatization—in benefit cuts, new government debt and the potential Enron-ization of America’s most successful family protection program,” says AFL-CIO President John Sweeney.

“Government-issued privatization plans will take away our benefits. If I want to invest in a private account, I can already do that on top of Social Security,” says 27-year-old Lindsey Prestud of Portland, Ore., who watched the State of the Union address at a special Oregon AFL-CIO and AARP roundtable.

Privatizing Social Security Would Cut Guaranteed Benefits as Much as $152,000

Bush claimed his privatization blueprint would be voluntary and workers could chose to remain in the traditional Social Security program with guaranteed benefits. But even workers who don’t choose private Social Security accounts would face big benefit cuts. A young worker would lose 30 percent or more in guaranteed benefits, according to the Social Security Administration and other groups. That adds up to as much as $152,000 in retirement benefits lost in the 20 years after retirement, according to a study by the Center for Economic and Policy Research.

“It’s wrong to replace the guaranteed benefit that Americans have earned with a guaranteed benefit cut. Make no mistake that’s exactly what President Bush is doing,” says Senate Minority Leader Sen. Harry Reid (D-Nev.).

A preview of what’s in store for retirees under Bush’s blueprint is contained in a new government report from the Congressional Research Service. The report shows if the benefit formula that a secret White House Social Security memo proposes for Bush’s privatization blueprint had been in effect in 1940—rather than the current formula—“the initial benefit in 2003 would have been 58.6 percent lower than under current law.”

Workers Could Lose 50 Cents for Every Dollar in Private Accounts

Workers who chose private accounts would see shockingly low returns when they retire.

“The government would take back 50 cents for every $1 in the account on top of the 30 percent cut in guaranteed benefits,” Sweeney says.

According to a Washington Post analysis of the private accounts’ returns, if a young worker sets aside $1,000 a year for 40 years and earns 4 percent a year on the investment after inflation, the account would grow to $99,800 in today’s dollars, but the government would keep $78,700—about 80 percent—leaving the worker with $21,100 after 40 years of savings.

Privatizing Social Security Will Cost Taxpayers $2 Trillion in First 10 Years

Privatizing Social Security would cost taxpayers $2 trillion in the first 10 years alone—a cost that would explode the nation’s deficit past its already record level.

“That’s an immoral burden to place on the backs of the next generation” Reid says.

Today’s risk-free, guaranteed Social Security benefit relies on U.S. Treasury bonds, but Bush’s blueprint would allow politicians to hand-pick Wall Street firms to control the investment accounts, a process easily corrupted by politics.

Decisions about Americans retirement security should not be “tied to politicians’ wealthy friends or companies that have political influence,” says Sweeney.

“Privatization is much too risky. I don’t want my Social Security put at the mercy of companies like Enron and WorldCom,” says Suzanne Bonamici, 50, who also attended the Portland event.

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