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?