Nikola Drobac – 2/27/05

This page was last updated on February 27, 2005.

Retirement could be illusory; Nikola (Nick) Drobac; Beaver County Times; February 27, 2005.

This is the 13^th anti-Bush and/or anti-Republican rant by Mr. Drobac since July 1^st. This activity must be one of his hobbies. <g>

Below is a detailed critique of the subject letter.

“Tuesday on the Pennsylvania Cable Network, Republican Rick Santorum said that, ‘401(k) plans are skewed towards the rich.’”

[RWC] I have been unable to locate a transcript of Mr. Santorum’s appearance so I don’t know the context of the statement. I see no problem with the comment, but a lot of letter writers quote people out of context to make it appear someone said something they didn’t.

For example, Mr. Santorum’s full comment on this topic could have been, “401(k) plans are skewed towards the rich because the funds for 401(k) plans come after Socialist Security takes 12.4% of your wages. After the government takes over one-eighth of your paycheck off the top, a lot of people find it hard to save for retirement. A personal SS account would enable even low income workers to designate nearly one-third of the SS taxes they already pay to go into a 401(k)-like plan, thus giving them an option to build wealth they didn’t have before.”

“In other words, the rich are in a better position to invest more money into their 401(k) plans. As a result, under the right conditions, the rich will be able to finance their entire retirement program.”

[RWC] I hope Mr. Drobac doesn’t believe this is a news flash. That said, you don’t need to be “rich” to finance your retirement. Nearly anyone who is fiscally responsible through their life can save and invest enough for a comfortable retirement. Socialists, though, don’t want you to believe you can retire without the help of the government.

Anyone who counts on Socialist Security for a “comfortable” retirement is in for a rude surprise, even at historical benefit levels. An average worker can count on Socialist Security providing benefits equal to only about 42% of his earnings. Who wants to live on nearly 60% less in retirement than they’re living on now?

“However, statistics show that those individuals making less than $55,000 a year will never save enough money in their 401(k) plans to finance their retirement program. About 90 percent of all Americans make less than $55,000 a year.”

[RWC] There are a few potential problems with this paragraph.

First, Mr. Drobac fails to note people could save more if Socialist Security didn’t take 12.4% of their paychecks right off the top. Indeed, a lot of misinformation leads people to believe they don’t need to save for retirement because of Socialist Security.

Second, Mr. Drobac says his income figure is for “individuals” instead of a “household.” For a family, household income is more relevant.

Third, Mr. Drobac says his figure is for “all Americans.” This means the figure likely includes young workers and older workers (65+ years old). Both demographic groups skew the data. It’s true many young workers don’t save because they either don’t make much or don’t worry about a day 45 years into the future. Older Americans don’t save because they are in the stage of life where they are consuming their savings, not building their savings.

Mr. Drobac didn’t cite the source of his data so I can’t confirm my suspicions.

“A 401(k) plan is a private account, similar to what Republican President Bush wants to do with Social Security.”

[RWC] Mr. Drobac forgets one big difference between a 401(k) and the proposed Socialist Security personal account. Your 401(k) contributions are voluntary; Socialist Security taxes are not. Whether or not you choose the personal account option, the same amount of your earnings will go into Socialist Security.

By saying “Republican President Bush,” Mr. Drobac wants us to believe this is some diabolical Republican scheme. Mr. Drobac would probably hate to admit it – assuming he even knows this, but the proposal to allow personal accounts in Socialist Security was originally proposed in 1998 by Sen. Daniel Patrick Moynihan (D-NY) – Hillary Clinton’s immediate predecessor – and no one can question his liberal credentials. The Americans for Democratic Action – a liberal advocacy group – gave Mr. Moynihan an 83% lifetime “Liberal Quotient” based on his votes for liberal issues. His average LQ for the 1990s was 90%. All but two years of the 1990s his LQ ranged from 90% to 100%. After Moynihan left office in 2001, President Bush appointed him to co-chair the bipartisan Commission to Strengthen Social Security. Personal accounts were a recommendation of that commission.

“Plus, Bush wants to eliminate the cost-of-living-adjustment benefit of Social Security. A COLA is an extremely important benefit in times of inflation and something not found in 401(k) plans.

“During periods of high inflation, without a COLA, the fixed retirement incomes of all retirees could be reduced to almost nothing.”

[RWC] Intentionally or not, Mr. Drobac is wrong. President Bush does not want to eliminate the COLA. Below is what the White House says about the SS COLA in documents at http://www.whitehouse.gov/infocus/social-security/200501/strengthening-socialsecurity.html.

“Because benefits are tied to wage growth rather than inflation, benefits are growing faster than the rest of the economy. This benefit formula was established in 1977. As a result, today’s 20-year old is promised benefits that are 40% higher, in real terms, than are paid to seniors who retire this year. But the current system does not have the money to pay these promised benefits.”

As noted above, the formula currently used to calculate the Socialist Security COLA causes the COLA to increase faster than the cost of living. This is one of Socialist Security’s solvency problems. There is talk about fixing the COLA formula to get it in line with the cost of living. There is no talk of eliminating the COLA.

Mr. Drobac attempts to mislead readers when he says 401(k) plans don’t have a COLA. 401(k) plans – as IRA offerings – offer a list of investments from which the individual selects. You choose the investments you believe will provide you with the greatest growth. One of the criteria you take into account is the ability of the investment to surpass the cost of living. If you choose the moral equivalent of putting your investment “under your mattress,” you’ll fall behind the cost of living. Over the long term, most investment offerings in responsible 401(k) plans significantly outpace the cost of living.

“For those who are less informed, this means that there is a very good chance that the majority of younger Americans (those under 55 years old) may never realize their dream of retirement. They simply will not have sufficient retirement income if Bush is successful in his attempts to change the Social Security system for the worse.

“The sad part is that these younger Americans will not realize the fallacy of the Bush plan until 20 to 40 years from today.”

[RWC] “Those who are less informed” will fall prey to letter writers like Mr. Drobac. For those of us who don’t remember, Mr. Drobac wrote a letter (“GOP messing things up”; October 29, 2002) in which he hoped to be able to laugh as all Republicans face financial ruin in retirement. Should anyone listen to someone who would be that mean spirited?