Investment Expert Says President Bush's Proposal on Social Security Has Flaws

The flaws included in President Bush's April 28, 2005 press conference on Social Security are discussed by Eric L. Prentis, Ph.D., author of a new book on stock market investing, which is the cornerstone of Bush's proposal.

(PRWEB) May 9, 2005 -- Social Security, as it is today, will never run out of money, will never go bankrupt, and if you are qualified in the system, you will always receive a retirement check from the U.S. government," says Eric L. Prentis, Ph.D., author of The Astute Investor" ISBN: 0-9759660-0-6. People will always be working in the United States and paying a portion of their earnings into the Social Security system, so money will always be flowing to retirees, Prentis says.

President Bush said in his April 28, 2005 press conference that since baby boomers are about to retire and fewer workers per beneficiary will be paying into Social Security, that this has put the Social Security system on the road to bankruptcy.

Eric L. Prentis disagrees. Rather than using the politically charged numbers that President Bush uses to color the Social Security discussion, since these numbers are generated by his Social Security and Medicare Boards of Trustees, lets be fair and use the more balanced numbers presented by the Congressional Budget Office (CBO)," he said.

The CBO reports that the Social Security trust fund is good until approximately 2052, and all benefits are assured for the next 47 years. The baby boom generation, born between 1946 and 1964, will be close to being completely passed away -- they are projected to be between 88 and 106 years old by the time the trust fund runs out of money in 2052 -- and will then no longer be an issue.

During President Bushs 60 Stops in 60 Days" Social Security sales outing he stopped at the Bureau of Public Debt, home of the Social Security trust fund, which is currently invested in approximately $1.7 trillion dollars of U.S. government Treasury bonds. President Bush said that day that he saw no trust fund, just IOUs. Saying there is no trust fund, and comparing U.S. government Treasury bonds, which have the full faith and credit of the U.S. government behind them, to just anyones IOUs seems careless," says Prentis.

Ironically, the president actually contradicted and caught himself in his own pretense. President Bush said in his April 28, 2005 press conference that Americans are leery about investing in the stock market and proposed a U.S. government Treasury bond option because government bonds are backed by the United States. Why is it that individuals are going to be better off investing in U.S. government Treasury bonds when the Social Security trust fund is currently invested in U.S. government Treasury bonds?

President Bush said in his April 28, 2005 press conference that to remain fair, he wants future generations to be paid benefits at the same level or higher than seniors currently receive. Prentis says, This is a non-issue."

If we do nothing to Social Security, based on CBO figures, workers who retire in 2052 will receive 81% of projected promised payments which already guarantees more benefit payments than go to todays seniors," says Prentis. That is because Social Security benefits are calculated based on the increase in national wage rates during ones working years. Prentis says that wages tend to rise faster than inflation -- the average inflation rate is 3.5% per year while the increase in real wages averages approximately 2.0% a year." Therefore, Social Security benefits are already increasing by approximately 5.5% per year during ones working life. After retirement, Social Security benefits currently increase by the inflation rate, which is not included in the presidents proposal. Younger workers should be made fully aware of these facts before deciding on something as important as their secure retirement.

President Bush said in his April 28, 2005 press conference when discussing privatized Social Security accounts that younger workers may be able to do better by investing their money than the returns currently available within Social Security. Just because money is saved and invested doesnt mean that it will produce a higher return than Social Security currently pays.

The Social Security privatized accounts favored by President Bush have a hurdle rate of 8.8%," says Prentis, meaning that privatized retirement investments would have to overcome the hurdle rate to beat current Social Security returns, plus the offset being sent to the government, and increased management fees which includes: 1) inflation rate per year: 3.5%: 2) increase in real wages: 2.0% per year; 3) offset money going to the government: 3.0% per year; and 4) increased management fees: 0.3% per year." Money invested solely in U.S. government Treasury bonds -- an option that President Bush specifically approved in his April 28, 2005 press conference -- returns on average approximately 6.4% per year. Clearly a negative return on a Social Security U.S. government Treasury bond investment account (6.4% - 8.8% = - 2.4%) would result," says Prentis, with younger workers being the losers if they elect the presidents option."

Eric L. Prentis, Ph.D., is the author of The Astute Investor" -- ISBN: 0-9759660-0-6, and is an expert on the stock market. He has held a professional position as a registered investment adviser, and was on the faculty teaching in the graduate business program at the University of Southern California. This makes him superbly and uniquely qualified, from the standpoint of the stock market, to comment on President Bushs proposal to privatize Social Security.

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