New York Times columnist John Tierney praised Chile's privatized pension system for providing financial incentives to work longer and delay retirement. In fact, many Chileans who continue working into their 60s do so because they are too poor to retire. Tierney also falsely suggested that Chile's system replaces a larger portion of workers' pre-retirement income “than what the typical American gets from Social Security.”

In his June 14 column, Tierney credited Chile's system with “a big change in working habits” among elderly workers, including “a 30 percent increase in the labor force participation by workers in their 60's.” By contrast, Tierney wrote, most elderly Americans are capable of working beyond retirement age, but choose not to because Social Security “in practice promotes greed and sloth.” He offered the Chilean system as a work-promoting alternative:

Once Chileans accumulate enough money in the account to finance a pension that pays at least half their salary (which is better than what the typical American gets from Social Security), they can start collecting the pension and still go on working. In fact, they have an extra incentive to go on working because they keep more of their paychecks: elderly Chileans, unlike Americans, are freed of the obligation to continue making pension contributions.

Tierney failed to mention that most Chileans never actually “accumulate enough money in the account to finance a pension that pays at least half their salary,” so this incentive is meaningless for them. The New York Times has reported that “only half of workers are captured by the [privatized] system” because "[t]he government continues to direct billions of dollars to a safety net for those whose contributions were not large enough to ensure even a minimum pension." But this minimum guaranteed pension equals only “about 25% of the average wage,” according to an academic paper that Tierney cited to support his praise for Chile's system. The fact that half of all workers have private accounts that cannot replace even 25 percent of their pre-retirement income (without a government subsidy) strongly suggests that the overwhelming majority of accounts are not large enough to replace “at least half their salary,” though Media Matters for America could not locate precise statistics on what percentage of Chilean workers meet this threshold. (The academic paper Tierney cited also notes that the portion of a worker's pre-retirement income a Chilean worker's personal account must replace before the government allows the worker to stop contributing and begin drawing on it “was just raised to 70 percent” from the 50 percent that Tierney reported.)

For the same reason, Tierney's suggestion that the Chilean system often provides a benefit that is “better than what the typical American gets from Social Security” is also false. Again, half of all Chilean workers depend on the government-subsidized minimum pension, which replaces only 25 percent of average pre-retirement income. By contrast, in 2005, Social Security will replace 42 percent of pre-retirement income for an average U.S. worker.

The reality of relatively meager private accounts in Chile supports the findings of a Chilean government-sponsored study, which reported that a significant portion of elderly Chilean workers continue working in their 60s and beyond out of necessity, not incentive. “More than 17 percent of Chileans 65 and older keep working because their pensions are inadequate, according to a government-commissioned study,” The Boston Globe reported on February 28.

Tierney also praised the Chilean system by falsely claiming that “Chileans who control their own private-account pensions don't have to count on politicians or groups like AARP to decide when they can retire. It's a personal choice, not a public battle.” In fact, for all workers whose personal accounts fail to meet the 50 percent (now 70 percent) replacement rate threshold -- which is the vast majority, as explained above -- the Chilean government sets a minimum retirement age for its pension system, just as the U.S. government does for Social Security. Again, the academic paper that Tierney cited proves him wrong: “At the 'normal' retirement age (65 for men, 60 for women) workers can start withdrawing regardless of the amount in their accounts. But those who accumulate enough to purchase a pension that meets a specified threshold may start withdrawing and stop contributing earlier.”

Tierney also claimed that “with the help of groups like AARP, the elderly have learned to fight for the right to retire earlier and get bigger benefits than the previous generation.” But such efforts by AARP have apparently had little impact on the “right to retire earlier.” The Social Security reforms of 1983 imposed a steady increase in the age at which retirees become eligible for full Social Security benefits, from 62 in 1983 to 67 by 2027. Beginning in 1983, retirees born in 1938 or later could still begin collecting benefits at 62, but the system imposed a penalty in the form of a lower monthly benefit. This penalty increases steadily over time, so Social Security will provide an ever-smaller benefit to workers who retire early, even if no changes are made. Currently, a worker who begins collecting Social Security benefits at 62 will lose roughly 20 percent of his or her total benefit, but workers born after 1959 will lose 30 percent of their total benefit if they chose to retire at 62.

Tierney first discussed the Chilean retirement system in an April 26 Times column, in which he wrote: “The relative risks of the Chilean and American systems are a question for another column.” Tierney's June 14 column is the third time (the first two appeared April 26 and May 7) he has discussed the Chilean retirement system without mentioning its significant shortcomings.