Personal Retirement Accounts Are (Still) Superior to Social Security

October 31, 2025 by Dan Mitchell @ International Liberty

Here’s a video I narrated nearly 15 years ago explaining why personal retirement accounts are superior to a government pay-as-you-go regime.

Given the passage of time, it’s worth revisiting the issue to see what’s changed.

 

Some information needs to be updated.

• The Social Security system now has a far bigger long-run deficit, $65.8 trillion. That’s more than twice the size of the shortfall in 2011.
• There are now more nations that have shifted to personal retirement accounts, meaning wealth accumulation rather than taxes and spending.

So let’s now look at a new analysis of why Social Security reform is desirable, authored by Scott Beyer for the Independent Institute.

As these passages show, the argument for reform has not changed. Personal accounts are better for the nation…and better for workers.

 

…the SS system has quietly made Americans poorer. By removing trillions of dollars from private investment and placing them in the hands of a slow, bureaucratic system that earns virtually no return, the program has robbed the average worker of what could have been generational wealth. …let’s compare two scenarios. In the first, we’ll look at what would happen if an average American worker were allowed to keep their SS contributions and invest them in the U.S. stock market. In the second, we’ll look at what they actually get under today’s SS system. It’s a stark difference in lifetime asset accumulation. …

The median American worker today earns roughly $60,000 per year. Over a 50-year career—say, from age 17 to 67—that worker and his employer will pay a combined 12.4% of every paycheck into the SS system, or $7,440 per year. …Since 1957, the S&P 500 has averaged a 10.4% annual return, or about 7% after adjusting for inflation. Using a standard compound interest model, $7,440 invested annually at 7% for 50 years would grow to roughly $3,244,000. …

Now let’s look at what that same worker actually gets. …For an average worker earning around $60,000, the expected monthly benefit at full retirement age (67) is roughly $1,900 per month. …If that person lives to 85, they’ll collect those benefits for 18 years, totaling $410,000 in lifetime benefits…equivalent to around $380,000 in today’s dollars… That’s a far cry from $3 million.

Needless to say, it would have been better to have reformed the system back in 2011, when the above video was released.

And I recently shared some analysis of why we would be better off if the program was reformed when George W. Bush was president.

But how many people know that we came close to reforming the program when Bill Clinton was in the White House?

Here are some excerpts from an article by Kristin Tokarev and Ryan Yonk for the Daily Economy.

 

Twenty-five years ago, Bill Clinton was gearing up to “save” Social Security. The year was 1998, and…there were discussions about bringing the American spirit of innovation and personal freedom to one of the most stagnant policy areas: Social Security and retirement options more generally. … 

Chile had implemented the world’s first fully funded system of personal retirement accounts, empowering workers to invest their own money, choose among private firms, and build wealth. President Clinton’s team took notice. In 1996, Mack McLarty — Clinton’s special envoy to the Americas and former chief of staff — visited Chile and wrote upon his return, “Without a doubt, the reform of Chile’s pension system has been a critical contributing factor… 

to Chile’s ongoing economic success… I believe we can learn a great deal from your country’s bold initiative.” …By 1998, Clinton stood at the podium for his State of the Union address and declared: “I will convene the leaders of Congress to craft historic bipartisan legislation… a Social Security system that is strong in the twenty-first century.” It was a moment. A window. A 

shot at real reform. But soon, Clinton, impeached, diminished, and drained of political capital, was sidelined. Personal retirement accounts, once on the verge of becoming law with growing bipartisan support, became just another “what if” in the annals of American policy. In 1999, Clinton made one last effort. “With the number of elderly Americans set to double by 2030,” he said, “I propose that we… establish universal savings accounts.”

Needless to say, Clinton was much better on the issue than Obama and Biden. Heck, he was much better on the issue than his wife!

The bottom line is that personal retirement accounts were the best option then, they are the best option now, and they will remain the best option in the future.

P.S. Just in case anyone wonders whether personal retirement accounts are practical, they already exist in dozens of nations, including Australia, Chile, Switzerland, Hong Kong, Netherlands, the Faroe Islands, Denmark, Israel, and Sweden.