One of the strangest arguments against voluntary personal accounts is the claim that those who choose such accounts will earn a lower rate of return than those who do not. This argument is not odd because I disagree with it, but because if it were persuasive, then young people could be easily persuaded to shun personal accounts. If personal accounts were really an inferior choice, then few would choose them and Social Security would remain pretty much the way it is now -- a bunch of empty promises dependent on the generosity of future taxpayers.

 Most critics of personal accounts seem unconvinced of their own arguments, and therefore scared to death that many would jump at the chance to put a bit less into Social Security (and take less out), in order to build a retirement account they own and control.

 Indeed, the latest Washington Post poll (oddly described as bad news for President Bush) finds that "68 percent of adults 18 to 29 years old said they support investing some Social Security contributions in the stock market. That support falls with the respondents' age, to 60 percent among those 40 to 49, 53 percent among those 50 to 64, and 37 percent among those 65 and older." The only age group that doesn't like the idea is ineligible and unaffected.

 The first phase of this debate began with strained efforts to show that those lucky enough to have defined contribution plans, such as a 401k, have not fared so well if you pick a period short enough to be dominated by the market's decline in 2000-2002. Tom Luricella's Wall Street Journal piece last December thus cited a study claiming amateur investors earned "only" 6.4 percent a year over the 10 years ending in 2002, while funds managed by experts earned 6.8 percent. That proved nothing, because the figures were not adjusted for risk. Professional investors may have just invested a larger share in risky small-cap stocks and less in cash.

 Looking only at 10 years ending in the bear market of 2002 also made investor returns look much worse than usual. The S&P500 index returned 10.9 percent a year over the past 15 years, and several of the largest, most popular managed funds did significantly better. Even if you shave off a few percentage points to compensate for inflation, the real return on stocks over any extended period has been enough to double the real size of a pension fund every 10 years. It might not be that good on the particular year you turn 65 or 67, but it would be absurd to compel people to liquidate or annuitize their account at such a young age. And, contrary to a New York Times report, retirees can buy annuities that leave any leftover money to heirs.

  Desperate critics of personal accounts, tired of being caught fibbing about actual investment experience, have switched to hypothetical estimates of future investment returns. To make these hypothetical returns as low as possible, they first assume no more than half is invested in the stock market.

 Jonathan Weisman of The Washington Post cites figures from Robert Shiller concerning a "life cycle" account that would have only 15 percent in stocks by age 60. Since Shiller calculates that U.S. stocks have long earned 6.8 percent a year in real terms, after adjusting for inflation, while bonds earn a more-variable 3 percent, any life cycle plan requiring a tiny share in stocks after middle age guarantees a low median return of only 3.4 percent. That is, he notes, "considerably below the 4.6 percent that the Social Security actuaries have assumed," because the actuaries assumed 50 percent in stocks (which is also much too low most of the time).

 Weisman neglected to mention that Shiller found, "Workers could do better, of course, if they eschewed the life cycle accounts and went for 100 percent stocks. In this case ... the median net account is ... 10 times as large as with the baseline life cycle account. ... Workers who choose the 100 percent stocks option lose only 2 percent of the time."

 In 1999, when Bill Clinton was president, Shiller appeared more worried about overtaxing younger people to subsidize retiring baby boomers. "We should do more yet to encourage saving," he wrote; "The younger people already have their own income concerns and needs without also having to bear the burden of the risks of the retired." Continued...