Only poorly informed Americans support Bush's plan

"When the going gets tough, the tough change the rationale." With the privatization of Social Security, like the Iraq war, the rationale has been changing on a daily basis but there are reports that Americans are buying none of it this time. In fact, as ad dollars get pumped by conservative groups, the effect is actually negative. The more President Bush has campaigned the less Americans like his idea. In a USA TODAY/CNN/Gallup Poll conducted Friday-Sunday found that just one in three Americans approved the idea. A slightly different poll done by Associated Press found similar opposition to president's ideas. The reason for this change is simple. As the debate has come out in the open and more details have come out, informed Americans are realizing that there is nothing in it for them. Only the poorly informed Americans (and the percentage is rapidly falling) seem to support the idea. (Related article: Bush fails in his marketing of privatization)

And they are right. While retirement planning, saving, personal retirement accounts, wealth creation, and ownership society are all noble goals, unfortunately President Bush has none of these on his minds. He simply wants to dismantle a system that conservatives hate, well, because it is "social." It helps American people when they most need it and that runs counter to conservative philosophy which essentially says that "you are on your own, Buddy!"

Why are American people right?

1. Private retirement accounts, as envisioned by President, Bush do nothing to reform Social Security.
2. The debt and transition costs that could run into trillions will unnecessarily future generations. Even Chairman Alan Greenspan is highly concerned about privatization of Social Security and is advising caution.
3. The upside potential with private retirement accounts is low and the downside potential is high. So most financial advisors are telling Americans that even if they support the president's plan, when it comes to their own retirement planning, they should not choose these accounts. On the other hand, they should simply stay with guaranteed income. (Related article: Americans advised to stay away from private retirement accounts if they become available)

So what can you do in the meantime?

1. Follow the debate closely and watch out for the details. In this case, the devil is really in the details. A lot of bad information about private retirement accounts is not being given out in sound bites and election style television and radio ads.
2. Do not believe anything that you see or read until you have researched it yourself. There are reports that even the Social Security Administration (SSA), a government agency, has been hijacked by the administration. A recent analysis reveals that the agency has systematically altered agency publications, press releases, PowerPoint presentations, website content, and even its annual statements to foster the impression that Social Security is "unsustainable" and "must change." The agency's new pessimistic tone and emphasis echo President Bush's warnings about the future of Social Security.
3. Let not the decision be a political one for you. Social Security privatization is a personal finance and retirement planning decision and no matter someone tries to tell you, you have to crunch your own numbers to find out what works for you.

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Americans ready for a working retirement

When MoveOn recently used a "working retirement" TV commercial, they were attacking President Bush's plan for privatization of Social Security. The group was widely criticized by conservative supporters of Bush's proposal but a recent study shows that MoveOn is probably right, at least to the extent that Americans do want a "working retirement."

In a survey by Merrill Lynch, baby boomers are not interested in pursuing a traditional retirement of leisure. The majority of boomers relate they plan to keep working and earning in retirement, but will do so by cycling between periods of work and leisure, thus creating a new model of retirement. (Related article: Americans prefer retirement security over wealth)

The New Retirement Survey offers a complex and illuminating preview of the kind of lifestyles, workstyles and recreation activities that boomers envision for their future. Some of the other highlights of the survey are:

1. The new retirement "turning point." While 76% of boomers intend to keep working and earning in retirement, on average they expect to "retire" from their current job/career at around 64 and then launch into an entirely new job or career. Taking advantage of their "longevity bonus," boomers will create a whole new life stage. Since Social Security established the "normal" retirement age at 65, life expectancy for a 65-year-old has increased by over seven years and continues to lengthen. As a result of living longer, this generation plans to be "younger" longer and work longer. Most boomers (65%) will stop working for pay and retire in the traditional sense at some point. However, that phase is more likely to begin in the late 60's, than at age 60 or 65. (Related article: Retirement planning tips for baby boomers)
2. Boomers reject a life of either full-time leisure or full-time work. When probed about their ideal work arrangement in retirement, the most common choice among boomers would be to repeatedly "cycle" between periods of work and leisure (42%), followed by part-time work (16%), start their own business (13%) and full-time work (6%). Only 17% hope to never work for pay again.
3. The unpredictable cost of illness and healthcare is by far boomers' biggest fear. They are three times more worried about a major illness (48%), their ability to pay for healthcare (53%) or winding up in a nursing home (48%), than about dying (17%). (Related article: Even American millionaires are worried about retirement income)
4. Boomer women are better educated, more independent, are simultaneously juggling more work and family responsibilities and are more financially engaged than any generation in history. Married boomer women are more than six times more likely to share responsibility for savings and investments compared to their mothers' generation (33% now vs. 5% then). Boomer women are dreaming of retiring to Mars while boomer men hope to retire to Venus. Boomer men are looking forward to working less, relaxing more, and spending more time with their spouse. While boomer women view the dual liberations of empty nesting and retirement as providing new opportunities for career development, community involvement and continued personal growth. (Related article: Women likely to be hurt by privatization of Social Security)
5. Financial preparedness is the gateway to retirement freedom and the antidote to retirement-phobia. Accumulating the resources boomers believe they need for retirement freedom (81%), rather than age (56%) or any other variable, was cited as the most decisive factor for when they choose to retire. And, recognizing the growing uncertainty of government entitlements, boomers who have a plan and feel prepared are twice as optimistic and far less fearful compared with those who do not.

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Americans need retirement help

Survey after survey points to one clear message: We are not prepared for retirement. According to the latest survey from Prudential, although near-retirees acknowledge they must take personal responsibility for their retirement security, a mere seven percent have formal plans in place to help them manage such issues as generating income, identifying expenses, and utilizing savings. This is very scary because if Social Security is privatized, then we are simply
not ready for the new world in which retirement income is expected to get lower and unstable. And if health insurance is any indicator of what to expect from retirement, we will neither save nor invest better, we will simply slide into poverty. (Related article: Retirement planning for those who have never planned)

In addition, more the one-third (34 percent) of participants in the survey say they need assistance to understand products and concepts -- such as income annuities and systematic withdrawal strategies -- that can help generate the predictable retirement income they seek. And a large percentage (35 percent) have yet to calculate the savings they need for a comfortable retirement or what their projected monthly living expenses might be in retirement (36 percent). In other words, Americans are simply living in denial.

Even more disturbing, when asked to give themselves a grade on their retirement preparedness, 53 percent awarded themselves a "C" or lower, casting grave doubt on the ability of older workers to "graduate" to a secure retirement. (Related article: Are you prepared for retirement?)

Other Notable Findings

1. With retirement imminent, few near-retirees can estimate how much income they need to generate in retirement. The majority (90 percent) of near-retirees are either guessing how much income they would have or, even worse, simply do not have any idea of how much income they will be able to generate for themselves during retirement. (Related article: Personal finance tips for retirement)
2. Near-retirees need to shift their focus from "accumulation" to "distribution." Although retirement for many Americans is imminent, more than six in ten near-retirees still focus on accumulating assets or achieving better returns instead of planning on how to generate a steady stream of retirement income. (Related article: Tips on asset management)
3. The fear of outliving savings prevents many near-retirees from fully utilizing their financial resources to generate retirement income. Too often, near-retirees simply "do the best I can" with retirement planning, instead of focusing on specific, retirement-critical goals such as a targeted level of income. (Related article: Retirement planning tips for baby boomers)
4. Nine in 10 near-retirees agree it is "very important" not to run out of money in retirement. This concern, however, may lead to "hoarding." Just 22 percent say they would tap into their savings for income early on in retirement, while most would try to hold on to their assets for as long as they could.

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Tips for guaranteed retirement income

Americans aged 55-64 overwhelmingly agree that having a guaranteed stream of income during retirement is their top goal, but the vast majority do not know how to convert their retirement savings into a regular retirement "paycheck," focusing instead on simply saving as much as they can, according to a study released by Prudential Retirement finds. These findings are in line with other previous studies that show that Americans prefer guaranteed retirement income over wealth. (Related article: What is an ownership society?)

But such surveys also point out that even if we appreciate the value of saving and investing for retirement, we lack the knowledge to use all the tools available to create wealth for us. While availability of online trading accounts and 401(K) plans has brought more Americans directly into the stock market, vast majority of Americans are not truly prepared for the stock market, and definitely not for its extreme swings.

According to Prudential Retirement's fourth annual Workplace Report on Retirement Planning, despite a nearly unanimous desire for a guaranteed retirement income - as traditional pension plans provide - few older American workers are aware of or plan to use financial options that provide the steady paycheck they say they want. The study confirms that older workers are actively saving for retirement, but few are aware of the income distribution options currently available. In short, this latest Prudential report highlights that near-retirees simply do not know what to do with their retirement nest eggs once they stop working. (Related article: Americans still careless about retirement planning)

Studies like this show that retirement planning, something that is so important for us, is not a priority for most Americans. There is very little information on retirement planning and whatever that is available is still too complex to understand. Do you know the difference between an IRA and a Roth IRA? Have you heard of an ETF? In other words, someone has to make life simple for Americans so that they can use the options that exist today. Unless an IRA becomes as simple to understand and open as a checking account, not many people will embrace it. (Related article: How to get started with retirement planning?)

According to the Prudential survey, for instance, when Americans were asked if they would choose an income annuity to create a retirement paycheck (the only option available to guarantee a stream of income that one cannot outlive), fewer than half (44 percent) had even heard of the income annuity option, and just nine percent said they would use it. (Related article: How to take personal finance decisions?)

"We believe our survey should be a 'wake-up call' to employers, to retirement-plan providers and to the nation as a whole that those nearing retirement need help in managing the payout phase of retirement, especially in light of current discussions on Social Security," John Kim, president, Prudential Retirement says. "Our survey also underscores the need for better education -- targeted specifically to the needs of older workers -- on distribution options and strategies that deliver a predictable, guaranteed income in the increasingly do-it-yourself world of retirement planning. We need to work together to ensure that American workers have access to the tools and resources they need to build a more-secure retirement," Kim added. (Related article: Personal finance tips for retirement)

So what can you do to get ready for retirement?

1. Do your own research. It might come across as somewhat intimidating but if you start the research by spending time on personal finance and retirement planning websites, you will start to learn quickly.
2. Never miss a chance to attend an educational seminar organized by your employer or 401(K) plan provider or even a brokerage house like Schwab in your area.
3. If you can afford to, seek professional help. American Express financial advisors are easy to work with if you have an American Express credit card. Or simply talk to your tax preparer, that is if you do not already do your taxes online.

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Ownership society; what is it?

Mark from Wichita writes, "When I first heard the term 'ownership society' from President Bush I did not pay much attention since I thought that it was a term like 'weapons of mass destruction' or 'axis of evil'. But when I heard Chairman Greenspan use it, I was intrigued. What is it? What does it mean for Americans?" (Related article: How to take personal finance decisions?)

The term "ownership society" means many things to many people. For many conservative thinkers who are driving the push for privatization of Social Security, an ownership society is a perfect America in which Americans are these wonderful people who know everything about personal finance, retirement planning, asset management, and portfolio management. They also invest wisely, and live with enormous wealth that they create through their private retirement accounts. (Related article: Most Americans not yet ready for the stock market)

The liberal thinkers call it the "Buddy, you are basically on your own" society. There is nobody watching out for you even if you are a citizen of the richest country in the world. So if you fall into poverty or if you lose your health insurance or if are a child abandoned by her parents, there is no system in place to help you out. (Related article: Americans prefer retirement security over wealth)

Ironically enough, there is no ownership society yet in the developed world (and UK had a horrible experience trying to develop one) but there are many examples of it in the developing or under-developed world. Let us take India for an example, which has several elements of the ownership society the way American conservatives like to think about it. Apart from a few million people (in a country with a billion people) who work for the federal and state governments, there is no retirement benefits program. Similarly, there are no programs whatsoever for senior citizens or poor children or widows (who in India are almost always mistreated by the society) or the disabled. In other words, if you are an Indian, you are basically on your own. So for those Americans who don't have an idea how the American ownership society will look like, India is a good case study.

While most Americans are horrified to see the living conditions for the masses in India, there are definitely some good parts of the story. Since there is no one watching out for them, Indians save as much as they can even if they can barely afford three meals a day. The family values in India are very strong since parents almost always live with their children during old age. It is not uncommon for extended family members to help widows, disabled, and children.

So what does an ownership society mean for Americans?

1. A good example to look at is the number of uninsured in America. Among the developed countries, America has the worst record when it comes to healthcare. The richest country in the world has the highest percentage of people without any health coverage. While we develop the best drugs, medical devices, and surgery procedures, at least 45 million Americans cannot take advantage of them.
2. While one would have hoped that with no national healthcare program, Americans would have gotten the message and started saving to pay for health insurance. On the other hand, the number of uninsured Americans continues to grow each year. It is unlikely that Americans will start saving simply because the retirement benefits programs are eliminated by President Bush.

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Bush fails in his marketing efforts

"You can fool some people (red states) all the time. You can fool some people (blue states) some time. But you can't fool all the people (all Americans) all the time." That is exactly what has happened with the marketing of Social Security privatization to American people. While Americans may not like to save or may not be the best prepared for retirement, but when it comes to being deprived of their hard-earned money, they can see right through it. (Related article: Americans prefer retirement security over wealth)

So President Bush has finally admitted defeat that he could not sell his idea so far either to American people or even to Congress. "I agree, you can't cram an issue down people's throats. As a matter of fact, the best way to get this issue addressed in the halls of Congress is for the American people to say, why don't we come together and do something. And so the first priority of mine is to convince the people we have a problem," President Bush admitted, recognizing that despite spending millions of dollars of taxpayers' money and traveling all over, vast majority of Americans are not buying into his plan that helps no one but his friends in the financial services industry. (Related article: Support slips for President's ideas on personal retirement accounts)

Even Federal Reserve Bank Chairman Alan Greenspan has offered support only in principle and that is exactly where most Americans stand. Private retirement accounts (PRA) are, in principle, and excellent idea. And so is an "ownership society." But how to get there? Both Greenspan and American people are saying that if these two ideas mean that Social Security problems will not be solved, retirement benefits will actually go down, and we may need to borrow trillions of dollars, then we need to slow down and think how we can do it better. (Related article: Greenspan does not support president's current proposal)

During his press conference, the President basically admitted that even the United States Congress does not believe that there is a crisis situation with the Social Security. Alan Greenspan was even more eloquent in disagreeing with the president. "Crisis to me usually refers to something which is going to happen tomorrow or is on the edge of going into a very serious change," he said. "That is not going to happen (in the case of Social Security)."

"Let me repeat what I said before -- and I fully understand this -- that this idea is going nowhere if the Congress does not believe there is a problem. Why should somebody take the hard path if they don't believe there's a problem? And so I'm going to spend a lot of time reminding people there is a problem," the president said in answer to a question, apparently frustrated that he is the only one who sees things this way. He had expected that Americans and members of Congress will believe his made-up story about the crisis as they did his made-up stories about WMD. (Related article: Imaginary WMD and the Social Security crisis)

Greenspan said that private retirement accounts funded with a portion of the Social Security payroll tax will not address the program's solvency issue, as initially argued by the supporters of privatization. While private accounts are going to help many Americans become part of an ownership society, Greenspan repeated that higher government borrowing to finance the move to private accounts poses a risk of higher deficits and interest rates. (Related article: Transition costs of privatization to hurt US economy)

President Bush has floated the idea of borrowing to make up for money lost to private accounts. Those funds would eventually be paid back by cutting Social Security benefits in the future. The idea is that Americans would eventually get enough of a benefit from the private accounts to make up for the loss of guaranteed payments from Social Security. This is a point of disagreement among Americans who are concerned that market volatility may wipe out their retirement savings. (Related article: Not all Americans ready for the stock market)

In his testimony, Greenspan emphasized the risks of a strategy that is based on borrowing to build an ownership society. Making the transition to private accounts could require borrowing $2 trillion or more, according to some estimates. It is not clear, either, that future benefit cuts can produce enough savings to pay off that debt. Plus, it is also obvious that current deficit reduction measures are not working either.

Greenspan said it is possible that financial markets may react to the government taking on all this debt by raising interest rates, and that could in turn harm the US economy. He warned lawmakers to go slow on any transition to private retirement accounts, as envisioned by the president.

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Greenspan does not support President's plan

It seems that Chairman Alan Greenspan is finally realizing that he may not know it all about the future. With a lot of confidence, he used to talk about problems with the US economy due to unusually large surpluses. He was so worried in 2001 that he suggested that tax cuts was the only solution to avoiding huge surpluses. He did not realize who he was dealing with. In 2005, we are now dealing with deficits that are so huge that as far as the eye can see most economists cannot imagine us getting out of the danger zone. It is definitely hurting the US economy and impacting the life of American people. (Related article: Greenspan and the Social Security)

So it was heartening that Greenspan is now suggesting a more measured and deliberate approach to Social Security privatization. The reason that he is doing so is because we have no good model to follow. The models that we do have all indicate that privatization (in the form envisioned by President Bush) is simply a terrible idea. If we look at the experiences with privatization in the UK and in Chile, what we seem to have now is the best system of all. It does not mean that it could not be made more robust and strong; but private retirement accounts are not a way to do it since they benefit no one other than the Wall Street investment banks. (Related article: Financial advisors suggest that Americans avoid private retirement accounts)

It was, therefore, no surprise that Greenspan said, "And if we were to go forward in a large way and we were wrong, it would be creating more difficulties than I would imagine." But that is not what President Bush wants to do who wants to move with privatization at Iraq-war style speed - no need to think or plan; just go ahead and do it, no matter what. After all, the consequences will be borne by American people, not President Bush or his campaign contributors from the financial services industry who will literally float in money after private retirement accounts are started. (Related article: Americans prefer retirement security over wealth)

"So if you're going to move to private accounts, which I approve of, I think you have to do it in a cautious, gradual way, and recognize that there is yet another problem involved, which is this: Unlike almost all of the other programs with which we deal, moving to a forced-savings account technically does not materially affect net national savings. It merely moves savings from a government account to a private account," Chairman Greenspan warned. So like most financial analysts and planners, he agrees that helping Americans save for retirement is a good idea but it does nothing to solve the so-called, imaginary "Social Security crisis" in Bush's head.

Chairman Greenspan also warned about debt that President Bush has decided not to mention in his marketing pitch to American people. It is important that American people understand that privatization is estimated to cost somewhere between hundreds of dollars to a few trillion dollars and all of that will have to come from American taxpayers. "I do say, as I said previously, that I would be very careful about very large increases in debt. But I do believe that relatively small increases are not something that would concern me...I would say over a trillion is large," he warned again.

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Greenspan to speak on privatization

When Federal Reserve chairman Alan Greenspan testifies before the Senate Banking Committee on Wednesday, it will be the first time he will comment publicly on President George W. Bush's proposal to privatize Social Security. Great weight will be given to his statements. But in light of Greenspan's long, tortured relationship with Social Security, his views should be treated with the same skepticism that Dr. Phil shows toward his guests. (Related article: Americans prefer retirement security over wealth)

Greenspan famously chaired a bipartisan commission that in 1983 issued recommendations for strengthening Social Security. Those reforms, which President Reagan signed into law in April of that year, made a promise to American workers: your payroll taxes will be increased in order to finance the build up of trust funds, which will secure Social Security benefits when you retire in the 21st Century. The Greenspan Commission's plan has worked even better than imagined, with projections today showing that promised benefits can be paid in full until 2052, according to the Congressional Budget Office. (Related article: Bush's approach to privatize Social Security questioned)

When President Ronald Reagan signed the Greenspan Commission's reforms into law, he pronounced, "This Bill demonstrates for all time our nation's ironclad commitment to Social Security. It assures the elderly that America will always keep the promises made in troubled times a half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire." (Related article: Private retirement accounts will result in lower incomes)

But Greenspan himself, in an interview with the New York Times just weeks after the signing ceremony, said, "Do I like the present Social Security system? No. If you asked me whether it would be necessary in the ideal society, I'd say no. Our type of economy is far removed from where I would like to see it, but you have to be careful about moving from one type of society to another." (Related article: All Americans not yet ready for the stock market)

Over the past two decades, Greenspan has repeatedly argued that Reagan's "ironclad commitment" should be broken. Year after year, he has said that the benefits promised to future retirees are unaffordable, that the retirement age should be delayed further, and that other ways of reducing benefits should be considered. And yet in 2001, Greenspan endorsed the Bush tax cuts, which mainly benefited the highest income Americans. If made permanent, those tax cuts would amount to more than three times the size of Social Security's projected shortfall over the next 75 years, according to the Center on Budget and Policy Priorities. In Greenspan's view, the Social Security benefits that his own commission promised to future retirees are not affordable, but tax cuts for the wealthy are. (Related article: Support slipping for personal retirement accounts)

We will learn more on Wednesday about what Greenspan thinks of the president's proposal to allow workers to divert payroll taxes to private investment accounts, reducing the money available to finance currently promised benefits. In the past, in his ever- cryptic fashion, Greenspan has expressed an openness to privatization. In a December 1996 speech, for example, he said, "Perhaps the strongest argument for privatization is that replacing the current unfunded system, which apparently discourages saving, with a fully funded system, is that such a change could boost domestic saving. But, in any event, we must remember it is because privatization plans might increase savings that makes them potentially viable, not their particular form of financing." (Related article: Are you prepared for retirement?)

President Bush's proposal would raise the national debt by $4.5 trillion over its first 20 years - substantially more than the shortfall projected for Social Security over the next 75 years - because new money would be needed to pay for the accounts while continuing to pay current beneficiaries. On the surface of it, that added federal debt in and of itself should be anathema to a Federal Reserve chairman who has long preached the virtues of fiscal responsibility. But remember, Alan Greenspan "doesn't like the present Social Security system." We will soon find out how much he dislikes it. (Related article: No gain for younger Americans from Social Security privatization)

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- by Greg Anrig, The Century Foundation

Taking personal finance decisions; how to

Retirement planning (or for that matter all personal finance decisions) should be not only non-political, they should be non-emotional as well. That is what Americans are saying and many are disgusted by the idea that Social Security privatization has become such a politically-charged issue. (Related article: Americans want retirement security, not politics)

Any program that helps Americans save for retirement and generally improve their personal finances is good public policy. Unfortunately, that is not how the debate about Social Security is playing out right now. Ken Mehlman, the chairman of the Republican National Committee, openly tells fellow members that Social Security privatization is just preparation for the 2006 mid-term elections to turn out the base of conservative voters. (Related article: Support slips for personal retirement accounts)

Or in other words, drag the debate till then, divert the attention from Iraq war, unemployment, etc. and make Democrats look as if they are somehow an obstruction to Americans retiring rich on a beach in Florida - courtesy President Bush. In a February 11 memo, Mehlman writes, "...Social Security reform is not only good policy, it's also good politics...Support for PRAs and reform is particularly high among ticket splitters, swing voters and some groups that historically vote Democrat...Personal Retirement Accounts (PRAs) are popular with the GOP voters, swing voters and young Voters...widespread support is seen among traditional swing voters and non-Republicans...Turning out our base will be critical to success in 2006." (Related article: No net gain found yet for even younger Americans from personal retirement accounts)

There are even reports that some anti-gay Christian conservatives groups are making their support for Social Security privatization contingent upon pushing their agenda.

It is perfectly fine to support whatever you believe in but financial decisions should be taken with an analytical mind. Here are more tips on how to think about this issue as you make up your mind about opening a personal retirement account:

1. Any policy change related to Social Security will have far-reaching consequences in how Americans live their lives today and for decades to come.
2. Politicians who are pushing for these changes today may not be there a few years later to be held accountable for their actions. It is American people who will have to live with the consequences.
3. Emotions should be reserved for romantic situations. Not when you are trying to figure out your assets management strategy.
4. If you have a difficult time deciding for yourself, seek help from a professional financial advisor (they are very affordable, for example, if you have an American Express credit card).

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Americans prefer retirement security over wealth

It seems that President Bush might have a better chance of Social Security privatization if he simply keeps his mouth shut. The more he has been talking in recent weeks, the more Americans think that he is simply launching an Iraq-style war on Americans this time - "phony crisis, urgency to do something right away, no need to deliberate, and let me do it alone because I know the answer". In our analysis, what Americans are saying is that they want to have a more secure retirement and they are willing to make sacrifices, if needed, but not the way President Bush wants. Or in other words, this is a financial decision and politics should be kept out of it. (Related article: Americans want retirement security but not the politics)

The other reason Americans are withdrawing from private retirement accounts now is that what seemed like a good idea in principle, it turned out to be a terrible idea the way President Bush envisions it. While initially it was positioned (falsely) as a way to fix Social Security, as more details came out, now it is very clear that these accounts will actually hurt the Social Security even now. No wonder, AARP, that supposedly speaks on behalf of people who will be unaffected, is up in arms against the proposal. They are afraid, and rightfully so, that as money is siphoned out of Social Security, these seniors have no guarantee that they will get the benefits in the future. (Related article: Support slipping for personal retirement accounts)

A series of polls continues to show that Americans are simply not aligned with the president's proposals despite being very realistic and reasonable about the challenges ahead. In fact, the push to privatize Social Security and to cut government programs that help so many low-income Americans has people so scared that their confidence (as measured by CASH index) has reached a 16-month low. The Ipsos Consumer Attitudes and Spending by Household (CASH) Index is designed to provide a single, handy number that summarizes movement across an array of consumer attitudes, including current assessments and near-term expectations about the economy and personal finance, job security, confidence in the ability to save and invest for the future, and comfort level with making major purchases and other household purchases. This number dropped to 79.1 in February, down sharply from 92.5 in January. February's showing was the worst since October 2003.

What else has been going on that is scaring Americans?

1. Dismal job gains in January when people expected that as companies started the new year they would hire more. An analysis by Archstone Consulting shows that while revenues increased by 9.3% in 2003 (the latest year for which data is available for all companies), the cost management index (a measure of costs of doing business) dropped by 40 basis points. In other words, companies are floating in money but not investing it in the United States to create jobs.
2. Rising interest rates. While in absolute numbers the interest rates are still low, in relative terms they have more than doubled since June 2004. As Americans pay their mortgage payments any any other loans that are tied to the prime rate, they feel the pain.
3. The government plans to cut many programs. While some of these programs will mean direct loss of benefits to many, others will simply lose their jobs. Consumers are also worried that state and local governments will need to raise taxes.

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Americans want retirement security, not politics

Americans are not buying most of the arguments by President Bush to privatize Social Security. They definitely do not agree with the President that there is a "crisis", but being very reasonable, they realize that something needs to be done to make the system better. However, there is no support for any of the President's proposals to reform Social Security. These findings come from surveys jointly conducted by The Washington Post, Kaiser Family Foundation, and Harvard University and another survey conducted by Gallup poll. (Related article: Are Americans prepared for retirement, though?)

It will not delight the marketing team for President Bush to know that since he started to make his sales pitch for privatization of Social Security, the number of those who think that there is a crisis has actually gone down. In 1997, for example, one in three Americans thought there was a crisis; that number has now dropped to just one in four. (Related article: Support slipping for personal retirement accounts)

Interestingly enough, Americans are saying exactly opposite things that the president has been saying in speeches that seem so similar to how he successfully misled Americans on weapons of mass destruction (WMD) prior to the Iraq war:

• Americans want the government, not the individuals, to be mainly responsible for ensuring that retired elderly people have at least a minimum standard of living. (Related article: Americans concerned about retirement income)
• Those who oppose the private retirement accounts oppose it very strongly and are unlikely to change their opinions any time soon.
• Among those who support the accounts, the support drops quickly once they realize that it Social Security privatization may cost as much as $700 billion and will mean that it also means reduction in growth in benefits for future retirees and lowering guaranteed benefits (as per Bush's plan). Related article: Retirement income to fall under Bush plan
• Like other polls, while those who support the private retirement accounts do so for the possible rewards, they do not want to take the risk themselves. 50% of these supporters of private accounts want a minimum guaranteed standard of living in retirement, even if it means the government decides how all of their Social Security taxes are invested.
• Unlike the president, the priorities of American people are war in Iraq, health care, war against terror, and education. Then comes the Social Security. (Related article: Personal finance advisor advises Americans to stay away from personal retirement accounts in their current form)

In a related development, Americans are disgusted by the politicization of the debate. In dozens of messages that we have received, Americans do not like how this debate is playing out. They want the issue to be dealt with in a way that it is fair to senior citizens rather than a way to transfer wealth from working people to select few. Kevin Bogardus of The Center for Public Integrity is predicting that election style ads will soon show up on a television set in your living room. "In recent weeks, a half-dozen organizations have begun fundraising, television and print campaigns to promote or oppose President Bush's plans to revamp the Social Security system.," he writes. Those who favor Bush's plan are conservative groups. Most anti-privatization groups are worker rights group.

Recommended article: Retirement planning

Sources: The Washington Post Kaiser Family Foundation Harvard University

Are you prepared for retirement? Probably not.

More than one-quarter of consumers may be overly optimistic about how well they are planning and saving for retirement, according to a Wachovia Retirement Fitness study. The comprehensive survey of 2,100 consumers nationwide revealed that 26% of consumers feel confident about retirement planning and consider themselves experienced investors, yet they may need to do more to prepare. The survey showed that many of these individuals, when compared to those who are better prepared, typically do not have a retirement savings strategy and are saving less in 401(k) plans and IRAs. (Related article: Americans still careless about retirement planning)

Some of these fears have amplified since details about personal investment accounts have been disclosed. The fact that these accounts clearly carry a high probability of lower retirement incomes has made even many young Americans lose their enthusiasm. In addition to that, the rising cost of healthcare, the job uncertainty, and rising local/state taxes has even millionaires worried about their retirement.

The Retirement Fitness study examines consumers' emotions along with their actions, or what they are doing to prepare for retirement. Four retirement fitness categories were developed from the results.

• Fitness evaluation may be useful (26% of respondents). Consumers in this group are not concerned about their retirement savings, even though they may not be as financially fit for retirement as they think. They tend to see themselves as experienced investors and prefer to do investing on their own. They admit they could be saving more and are generally optimistic about their job security and the future of Social Security and pension plans. (Related article: Most Americans not yet ready for the stock market)
• At the starting line (36%). Consumers in this group are concerned about saving for retirement and may not be doing enough to prepare. Though many are financially able to save more, nearly half say they prefer to enjoy life now rather than save for the future. They tend to consider themselves inexperienced investors and feel they will need to work during retirement. (Related article: American workers concerned about retirement incomes)
• Looking fit (11%). Consumers in this group are concerned about saving for retirement but they appear to be on the right track. More than any other group, they are likely to feel overwhelmed with too many choices of where and how to invest. They tend to consider themselves inexperienced investors but are willing to make sacrifices to save for retirement.
• Peak Performer (27%). Consumers in this group are not concerned about retirement and appear to be on the right track. They tend to consider themselves experienced investors and are willing to make sacrifices to save for the future. They are less likely to feel the need to work during retirement.

In terms of demographics, women were more likely than men to feel concerned about retirement planning and saving. Households with children were less likely to be doing as much to prepare for retirement and appeared to be more financially stretched. (Related article: Women are more likely to be hurt with privatization of Social Security)

Consumers considered in this study to be financially fit for retirement generally are willing to make sacrifices to save and invest for the future. They tend to make higher contributions to retirement plans such as 401(k) plans and IRAs, have retirement savings strategies and know how much they will need at retirement and work with professional advisors. (Related article: Personal finance tips for retirement)

How to be financially fit?

Indeed, you must try to join the "looking fit" group right away particularly with the expected privatization of Social Security that will take away guaranteed retirement benefits. Plus, a look at the proposed budget by President Bush clearly indicates that the low- and middle-income Americans are going to be hurt the most with cuts in various programs. In other words, the government is not watching out for Americans and they need to prepare for retirement on their own.

Recommended article: Retirement planning tips

Transition costs to hurt US economy

So far Social Security privatization has been presented to American people as the ultimate solution that will fix everything and all the retirement income problems of Americans will simply disappear because they will become part of an "ownership society" and will control their own destiny. (Related article: How to get started with retirement planning?)

Unfortunately, the private investments accounts (in and by themselves a good idea, but not in the format suggested by the president), do nothing to "reform" Social Security or to eliminate the so-called "crisis". On the other hand, if anyone who opts for private retirement accounts but fails to get a high enough return on the investment is going to see a significant drop in retirement income. And those who see huge gains will not get to keep all the money to themselves. (Related article: Americans advised against choosing personal retirement accounts in the interest of better personal finance)

Plus, there are additional costs to American taxpayers. These are the costs associated with taking money out of Social Security and putting it into the stock market through the individual accounts. Bush administration has acknowledged that these "transition costs" will be $754 billion for the first six years but independent analysts say the full cost could be as high as $2 trillion over 10 years. That is a huge burden on the American taxpayers. Since almost all of this money will be borrowed, it will keep the deficits at a very high level. A high budget deficit means higher interest rates and lower value of dollar. Both of these will hurt the American economy.

President Bush has not included these costs (along with the cost of the war in Iraq) in his budget so that he can present a rosy picture of the economy. Then while no one seems to be talking about it but both Medicare and Medicaid are huge liabilities on the government. Last year alone, Congress added $8 trillion to Medicare's unsustainable costs by agreeing to pay for prescription drugs. (Related article: Social Security, Medicare, and Medicaid are the new challenges)

What does it mean for Americans?

There are two dimensions of the privatization issue. One is your personal financial decision and our analysis shows that you should not select private investment accounts and simply opt for a guaranteed retirement income. The other dimension is that while you can take the first decision in your best self interest, you also need to think about the US economy and the future of the country. In that sense, it will be in the best interest of all Americans if a better approach to "saving" Social Security is developed.

Recommended article: Support slipping for personal retirement accounts

Personal finance tips for retirement

Unfortunately what should have been a purely financial decision for most Americans has become a political decision. Planning for retirement and investing money are very individual decisions since each person's financial situation, goals, appetite for risk, and lifestyle are unique. But the Social Security privatization debate is evolving largely along political lines and may be that is exactly how President Bush wanted it.

If you support the president, you should support his privatization plan, seems to be the argument presented by those who support creation of personal investment accounts. But as more details about these accounts have been leaked, even those Americans who side with the president on almost everything else are revolting because the privatization is going to hurt them, where it hurts most - in their wallets. (Related article: Support slips for personal investment accounts after risks and costs become clear to Americans)

Our analysis shows that no matter what your political affiliation, how young you are, and how much you love the president, it does not make sense for Americans to select private investment accounts. As Gallup Organization writes in its analysis, "...the privatization issue is rapidly becoming more partisan. The concept is now being actively promoted by a Republican president, and widely criticized by his Democratic congressional opposition. This suggests that public opinion on Social Security could devolve into nothing more than a referendum on the president." (Related article: Americans are advised to avoid personal retirement accounts in the interest of personal finance and retirement planning)

Republicans are citing polls that suggest that there is widespread support for privatization. Indeed that has been the case for years since saving for retirement is a virtue that we all believe in. But when risks and costs of privatization are pointed out, the support for President Bush's plan drops immediately. According to Gallup, "Questions that focus on the financial risks to individual investors -- those stating that the plan would reduce guaranteed benefits to retirees without mentioning that this would be compensated for by private investment-account earnings -- find larger majorities opposed. " (Related article: Americans ill-prepared for retirement)

So what can you do with regards to planning for your retirement?

"Reliance on government for our financial well-being is one of the dangers I've been talking about for years," says Robert Kiyosaki, author of 'Rich Dad Poor Dad' and founder of The Rich Dad Company. "And before we can expect the average American to manage his or her money for retirement, we must teach the basics of financial literacy. In our country today, schools don't even teach students how to balance a checkbook. How can we realistically expect the average American to invest wisely for the future?" he asks. (Related article: Not all Americans ready yet for the stock market)

So it is very important to understand that Americans lose either way. If Social Security is privatized and you opt for a private investment account, then the retirement income is likely to drop significantly and there is a high risk that you will fall into poverty at a very vulnerable time in your life. If it is not privatized and nothing else is done (which is unlikely since even if Bush fails in his efforts, subsequent presidents will make necessary changes in coming years), then many Americans may not have a stable source of income from Social Security. So the best option right now and the most selfish one is that no matter what happens, you should not select the personal investment option. (Related article: Retirement planning for those who hate to plan)

What else can you do? Prepare smartly for your retirement. Robert Kiyosaki has some excellent personal finance tips that you should read to get started.

Recommended article: Getting what you want every time

Americans advised to avoid personal retirement accounts

As details of personal retirement accounts have come out, we now know about how these accounts will work and what do they mean for Americans. We asked Peter Foss, our lifestyle expert and advisor on personal finance matters, to explain in simple words what does it all mean.

Q. What is your advice to Americans regarding personal retirement accounts as proposed by President Bush?

Foss: I am glad that you added the words "as proposed by President Bush", because that makes the answer simple. My advice is that Americans who are interested in purely personal finance advice is that they should not opt for them. The personal retirement accounts will lower your retirement income and expose you to a lot of uncertainties at a time in your life when you don't want them. (Related article: No net gain even for young Americans from personal retirement accounts)

I am very disappointed that I have to give this advice since a personal retirement account in principle is a good idea but President Bush has made these accounts worthless because it seems that he was not interested in the financial welfare of American people. He is simply pushing a an agenda . This is what Americans should do:

1. Do not opt for personal retirement accounts when you have a choice (if and when the Social Security is privatized). Let the savings stay as they are.
2. If you have not signed up for a 401(K) account or an IRA, do it as soon as you can and invest it in a way that you can use this account for stock market investments. If your employer does not offer a 401(K) account or a similar program, open an online trading account and try to take advantage of the stock market growth potential. But remember that stock market is the riskiest of the investment options but is a good option to diversify your portfolio.
3. Regularly balance your portfolio by moving investments from high risk to low risk investments as you approach retirement. (Related article: How to get started with retirement planning?)

Q. If personal retirement accounts are a poor choice then why is President Bush pushing them?

Foss: I am also disappointed the way this whole thing has turned out. I have never seen such strong reaction from Americans. I know that President Bush is not the smartest guy on the planet and is not known for his understanding of complex issues like Social Security, but his advisors could have done a better job. For instance, use of words like "bankrupt", "save", and "crisis" were simply designed to mislead and scare Americans since none of these words are true. (Related article: Bush's real reasons for privatizing Social Security)

It seems that he has surrounded himself from people that feed him with an agenda and since he never reads a newspaper or listen to news or meet with anyone who differs with him, he simply believes everything that his close advisors tell him. He is clearly not proposing something that is in the best interest of Americans.

Q. What else would you tell our readers?

Foss: Based on what I am seeing, it is pretty obvious that the message to American people is that they are on their own. With the severe cuts in government programs in the budget and the poor design of the Social Security privatization program, it is pretty clear that Americans need to rely on themselves to plan for retirement. I know it is going to be hard to save for retirement, particularly with higher local and state taxes (the budget this year will cut federal support to states that will force them to raise taxes), but Americans need to accord much higher priority to personal finance. A 401(K) program is an excellent choice because the contribution is deducted from your paycheck and in many cases there is an employer match. In summary, my advice is that do what you can but please do save for retirement.

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Support slips for personal investment accounts

A majority of Americans (56-percent) now say that investing Social Security money in the stock market is too big a risk, (Related article: Americans not yet ready for putting their retirement money into the stock market) according to the latest Newsweek Poll, while 36 percent of those polled (and 48% of 18-34-year olds) say it's a necessary risk to improve the rate of return of Social Security funds. These numbers are still not indicative of true picture because the details on Social Security privatization including the structure of personal investment accounts are still coming out and not yet fully understood by the people. As news leaks out about the fine print of individual retirement accounts, our analysis shows that personal investment accounts are actually a bad deal to even younger Americans, in contrast to what was believed just a week or so ago. (Old article now replaced by this article: Younger Americans likely winners from personal investment accounts) Accordingly, we are withdrawing our recommendation that younger Americans opt for these accounts. This advice is based on purely basic personal finance principles and what is the best way to plan for retirement. (Related article: No net gain to younger Americans from private investment accounts)

Thirty-six percent of all those polled say they oppose Bush's proposed changes; 26 percent approve them and 30 percent say they're not aware of them. Notice the last number. Almost one third of Americans either don't care or haven't fully understood what is going on. They could make all the difference in coming weeks as more details are disclosed and as media covers the news more. (Related article: Americans take their retirement lightly)

The plan doesn't fare better in age group breakdowns, but the young are more likely to be evenly divided than older Americans: among 18 to 34-year-olds: 28 percent approve and 29 percent oppose, the poll shows. Among 35 to 44-year-olds: 28 percent approve; 33 percent oppose. Among 45 to 54-year-olds: 30 percent approve, 34 percent oppose and in the 55 and older age group, 22 percent approve and 45 percent oppose.

We would have expected that in the 18-44 year old segment, the support would have been much higher (as has been claimed in many news reports during recent weeks), but apparent that is not the case, largely because this is also the most media-savvy group. While President Bush provided only the positive news related to his plan and conveniently ignored the cost of privatization of Social Security and the risks that Americans face of either completely losing all or most of their retirement savings, online media and print media have highlighted these details. (Related article: Bush tries to convince skeptical Americans why we should privatize Social Security)

In general, forty percent of all those polled say the best way to run Social Security is to tax one generation to pay for the retirement of another, the way the system has operated since it started in 1935. But almost as many (39%) say the best way is for the government to direct workers' money into the stock market in an effort to generate a higher rate of return on retirement savings. But there is a significant generation gap: 53 percent of 18 to 34-year-olds say using the market to get higher returns is the best way, rather than having one generation pay for the retirement of another; while, 54 percent of 55-year-olds and older say that the current system is the best way to fund Social Security. This part simply shows how divided the nation is. (Related article: Opting for personal investment accounts means income instability during retirement)

Other surveys, however, indicate that when younger Americans are told that the stock market investments mean that they would no longer have guaranteed benefits during retirement, the support for private retirement accounts drops immediately. If people's investments in Social Security individual retirement accounts perform poorly and lose money, 60 percent of those polled think the government should be responsible for protecting them in some way from that loss; 34 percent say it shouldn't be responsible. In other words, Americans want the best of both worlds, which they are unlikely to get.

The one point where almost all of Americans agree is that they oppose cutting Social Security benefits to retirees. Only 12 percent of Americans say they would support cutting Social Security benefits to retirees; a full 85 percent would not, including: 83 percent of Republicans, 86 percent of Democrats, 84 percent of Independents; 82 percent of 18 to 34-year olds, 83 percent of 35 to 44-year olds, 85 percent of 45 to 54-year olds and 87 percent of those 55 years old and older.

Recommended article: How to get started with retirement planning?

Americans not ready yet for stock market

Most experts agree that growing a generation of financially responsible Americans is a great idea. Letting more Americans enjoy the rewards of investing in the stock market and appreciating the risks of investing and trading helps them become financially savvy. When average Americans understand the concept of portfolio management and retirement planning, it is good for everyone. (Related article: Retirement planning for those who hate to plan)

The debate, therefore, right now is not if private investments accounts are good or bad. Everyone agrees, they are good. The main point of difference between supporters and critics of privatization of Social Security is if this goal should be achieved by carving out the accounts from the Social Security funds. While investing in the stock market cannot be truly compared to gambling, all smart investors know that they should be ready to lose everything when they pick a stock. (Related article: Personal investment accounts means income instability)

The President said in the State of the Union that, "We'll make sure there are good options to protect your investments from sudden market swings on the eve of your retirement." Many financial planners and Wall Street brokers are joking that they would like to know the secret to investing that the American president has discovered to take advantage of the upside without getting exposed to the downside. (Related article: No net gain to younger Americans from personal investment accounts)

But jokes aside, is it possible to turn every American into a savvy investor? Nearly 30 percent of Americans have only a high school diploma or less and 44 million Americans read at first-grade level or below. Millions of Americans do not have even a checking account or a credit card and not even basic knowledge of Math. How can these people be trusted to invest in the stock market without spending some serious money on education? (Related article: