WASHINGTON – For the average American in search of truth about Social Security,further confusion is just a few mouse clicks away.
Claiming to show the exact potential of President Bush's proposed personal investment plan,a bevy of Social Security calculator tools can be found on the Internet,but they vary greatly in size,complexity and – unfortunately – results.
The Center for Economic and Policy Research unveiled the Accurate Benefits Calculator on Tuesday,which is sometimes offline for final edits. It asks users for age,marital status and salary,among other factors,and compares their monthly retirement benefits under the current and proposed systems.
Given multiple scenarios,it consistently shows Bush's plan will result in reduced benefits.
In contrast,the Cato Institute,a think tank devoted to Social Security reform,has a calculator that shows the exact opposite.
CEPR's calculator says a 25-year-old single man making $35,000,about the U.S. average,would get $13,956 per year upon retirement,but Cato's says he would get $28,970.
For a 35-year-old married woman making $50,000,the predicted yearly benefits are $17,376 and $29,598. For a 45-year-old married man making $80,000,CEPR's calculator says $21,492 per year; Cato's says $34,187.
These contradictions are rooted in differing variables – investment return rates,for instance – that the calculators use and keep behind the scenes for the sake of simplicity.
“A lot is probably going to be confusing to a lot of people,” said Dean Baker,CEPR co-director. “More sophisticated users could find this information,but it's not going to be in everyone's face. A lot of people,we assume they're not going to be very familiar with price-to-earnings ratios.”
The CEPR calculator uses an investment return rate of 4.35 percent,while Cato assumes 6.5 percent per year. Dean Knepper,a certified public accountant and certified financial planner,said these factors can be confusing.
“In general,most of them are being too optimistic. By using calculators,you're going to get a false impression if (stocks) are safe enough,” he said.
Meanwhile,a calculator posted last week by congressional Democrats,“Social Insecurity,” emphatically states in bold letters that future retirees will lose money under Bush's plan. Users must download a separate document to learn that the calculator factors in price indexing and uses a 3 percent rate of return on investments,a number derived from a June Congressional Budget Office report.
Rea Hederman,a senior policy analyst for the conservative Heritage Foundation,criticized the Democrats' calculator.
“One of the more valid criticisms is the fact that they assume a 3 percent rate of return on all equities,which seems extremely low,” he said. He pointed to a different Social Security analysis by the CBO in July that estimated a 4.9 percent rate of return on investments. He called the 3 percent estimate from the previous study a “more risk-adjusted number.”
“We believe that equities,generally speaking,have a higher rate of return,” he said.
Heritage has had a Social Security calculator online since 1999. However,it compares the current system to the potential earnings if all of an employee's Social Security payments – 12.4 percent,including the employer match – were invested,rather than the 4 percent in the president's plan.
“The purpose we had was to show people what we think is the superiority of personal retirement accounts versus the current Social Security payout,” Hederman said.
Heritage plans to post a new calculator next week that follows the Bush plan,Hederman said.
Still more Social Security calculators exist in other corners of the Internet. The National Center for Policy Analysis has one. A blog called Political Calculations has one. Of course,the Social Security Administration's Web site has one,too. It estimates benefits under the current system.
Perhaps most worrisome about the multitude of independent Social Security calculators is the one thing they all have in common. Given the same information,they all provide estimates for benefits under the current system that are significantly higher than the calculator provided by the Social Security Administration itself.
Knepper said that planning for retirement is too complicated to pack into an online gizmo.
“If you really want to get a good idea,you need to sit down with a professional,” he said.
To try the calculators for yourself,go to:
Center for Economic Policy and Research – http://www.cepr.net/pages/sscalculator.htm
Cato Institute – http://www.socialsecurity.org/reformandyou/sscalc/sscalc.php
Congressional Democrats – http://democrats.senate.gov/ss/calc.html#
Heritage Foundation – http://www.heritage.org/research/features/socialsecurity/