Can You Explain Bush's Social Security Plan?

Dave explains the basics of President Bush's Social Security plan.

QUESTION: A listener asks Dave to explain Bush’s Social Security plan so she can understand it.

 

ANSWER: Bush’s plan says that the government will not mess with the Social Security plan for citizens age 55 and over. 

Bush also says that the there will be a stop loss provision, which means all your money could not possibly be lost by investing in the stock market.

Federal government employees, including the military, already have a retirement plan similar to what Bush is suggesting.  It’s called the thrift savings plan (TSP).  It is the federal government version of a 401-K and is based on indexes.  In the investing world there are index funds, which are mutual funds that attempt to mirror an index.  An example of an index would be the SNP500 or the Dow Jones Industrial.  The SNP500 is the stock market’s top 500 companies and what they do as a whole is the SNP500 index.

In the TSP, there is a C fund, which is like a growth stock mutual fund.  It allows investors to get a high rate of return over the long term in a broadly diversified grouping of stocks of large and medium-sized companies.

The S fund is a small-cap fund, which offers an aggressive, high-risk investment that can give a higher rate of return.

The I fund is the international fund, made up of overseas companies.  

The G fund allows investors to put their money into a long-term government security.  It’s like a government bond fund.

The F fund is an index that acts like a money market. 

I recommend C, S, and I funds for people who are investing long term. 

Here’s an example:

If you make $7.00 an hour, working 40 hours a week, 52 weeks a year, that comes out to be $14,560 a year.  If you invest 4%, that comes out to $48.00 a month.  If you do that for 50 years – this is assuming that you never get a raise - you’d have $1,253,000.  That would give you $8,300 a month after you retire. 

Privatizing Social Security is a good thing!