Looks like candidates Newt Gingrich and Herman Cain were onto something when they proposed using the Chilean model to reform Social Security during the GOP primary debates.
Of course they were mocked by U.S. radicals and labor union leaders, who said that the market-based Chilean model was too risky. But today Investor’s Business Daily has a story on how successful the Chilean pension system is. Headline: "Yes, Chile’s Private Pension Model Works, Big Time."
In Chile, a major study shows the nation's private retirement accounts provide workers pensions worth 87% of their salaries, 73% of that from profits on savings. So much for the canard about the perils of markets. …
The study of 28,000 households by Dictuc, a consultancy affiliated with the Catholic University of Chile, showed that male workers who contributed just 10% of their salaries to their retirements for 10 years or more on average earned retirement checks worth about 87% of their top salaries. No 401(k) account needed.
Chile had a social security system that went bankrupt and was replaced by the current market-based system in 1981 by Chile Labor Minister Jose Pinera. The new system redirected social security to a market-based plan that required workers to make certain choices about investing.
But isn’t the market dangerous?
The study shows that saving for retirement through the market is actually far less dangerous than relying on the government for pensions. Workers' returns on Social Security in the U.S. for those currently retiring is zero. For workers just starting their careers, the return is forecast to be negative as the trust fund goes bust.
More to the point, anyone who has to live on Social Security income alone is condemned to a life of poverty on those returns. The only alternative is for workers to double-down by opening 401(k) or IRA accounts.
If ObamaCare topples of its own weight, as seems more likely by the minute, the collapse could signal the unraveling of the entire entitlement society. What would that mean for people who in today’s world would get a chunk of retirement money from Social Security? Maybe it’s time to consider the Chilean system.
When Gingrich and Cain raised the issue in 2012, Democrats assured us that ObamaCare was going to make our lives better. So how's that working out for you?
Perhaps the collapse of ObamaCare—and with it the philosophy that brought it to us—is our only hope for finally doing something constructive.
Gingrich and Cain were men ahead of their times.