Markets best way to save in long haul

A joke making the rounds suggests that if America really wants tomake Osama bin Laden miserable, all we need to do is send him his401(k) statement. The tumultuous economy indeed has chewed away atthe bottom line of many Americans' privately funded retirementinvestment programs. Yet, according to a recent survey of workingAmericans conducted by Mathew Greenwald & Associates Inc., 95 percentof the 500 respondents have not made any changes to their 401(k)plans since Sept. 11. They understand that history shows the marketto be a winner for long-term investors.

The American Enterprise Institute cites a Texas A&M Universitystudy that looked at every overlapping 35-year period stretching back128 years. The average annual return after inflation for a portfolioconsisting of the 500 stocks of the Standard & Poor's benchmark index(or its predecessor) was 7 percent. Over the very worst 35-yearperiod--which includes the Great Depression--annual returns came to2.7 percent. How does that compare to Social Security? Virtually allyoung people entering the labor market can expect a rate of return ontheir Social Security taxes of less than 2 percent. Markets win handsdown.

During the presidential campaign, candidate George W. Bushproposed allowing Americans to privately invest at least some of thecontributions now sent to Social Security. This week, a commissioncharged with making a recommendation on reforming Social Securitycame up with, alas, three proposals. Perhaps that's to be expectedgiven that for years Social Security has been considered the thirdrail of politics--deadly to touch. Or perhaps the commission's sizeand makeup--16 members split between the two parties--may have madeit unwieldy. Two of the plans would cut government benefits forretirees long in the future--which makes it unlikely that Congresswill rush to act before the elections. But, most significantly, allthree plans would allow for younger workers to set up voluntaryprivate accounts.

Those 55 or older would be protected from benefit cuts, but forlater retirees reductions seem inevitable. Still, any cuts envisionedby the panel would be offset by earnings from the private accounts.Demographic changes are forcing reform on Social Security. In 1940,there were 42 workers for every retiree; today, the ratio is 3.3-to-1. By 2030, every working couple will be supporting a retired person.As commissioner Gerald Parsky put it, "The program is financiallyunsustainable in its current form. Doing nothing is not a realoption." The panel's report makes clear that privatized accounts arepart of the solution. Americans ought to have a say in theirpreparation for retirement.