In the recent vice presidential debate, Joe Biden referenced the Bush/Ryan Social Security reform attempt of 2005 and posed the question, “Had it been passed into law Can you imagine where seniors would be today”? Good question. The Bush/Ryan Social Security Reform bill would have allowed employees to divert 4 percent of their FICA withholdings, up to $1,000 per year, to a private investment.
Let’s say they had invested that money in a Dow Jones Index fund on Oct. 11 each year between 2005 and 2012. On that day in 2005, the Dow stood at 10,253. On Oct 11, 2012 the Dow was at 13,325, so that initial $1,000 would now be worth $1,299.60. A $1,000 investment in succeeding years would have experienced similar growth, with the exception of the money invested in 2007, which would have shown a loss on Oct. 11, 2012 of only $49.23. Only two times on subsequent Oct. 11 dates was the Dow below the initial 2005 level. That was in 2008 and 2009. But that was good; the money invested in those years achieved the greatest amount of growth because the cost basis was lower.
Consequently, due to “dollar-cost averaging,” a senior who invested $1,000 per year from 2005 until now would end up with a 24 percent return on investment, and if he dies before that money is used, it goes to his heirs. That is not the case with our current Social Security system.
So where would seniors be today if the Bush/Ryan Social Security reform had been enacted? They would be a lot richer.