May 1 marks the 30 years since Chile became the first nation to privatize its social security system. By turning workers into investors, the move solved an entitlement crisis much like the one America faces today.
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Instead of paying a 12.4% Social Security tax as we do here, Chilean workers must pay in 10% of their wages (they can send up to 20%) to one of several conservatively managed and regulated pension funds. From the accumulated savings, they get a life annuity or make programmed withdrawals (inheriting any funds left over).
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In 2005, New York Times reporter John Tierney worked out his own Social Security contributions on the Chilean model and found that his privatized pension would have been $53,000 a year plus a one-time payout of $223,000. The same contributions paid into Social Security would have paid him $18,000.
Tierney’s example show how much we Americans are getting screwed by Social Security and the politicians who defend it.