Nice post and discussion. Small warning on the equity returns point. Your math is right or close enough. The problem is that what you are proposing -- a government willingness to mix equity and treasuries to achieve better returns -- is NOT what Pres. Bush has been proposing. Your idea is a good one. Returns are better, money is managed by a small group of highly motivated and professional managers (a la CalPers), etc. There is a real scale issue -- how can such a fund be managed effectively without moving the market -- but still.

What Pres. Bush in his infinite wisdom actually proposed is not the above. He proposed individual retirement accounts. You "get your money" and you invest it. This is basically the same as saying "you're on your own." Point of SS is to provide a social safety net in retirement. What Bush proposes effectively aims at ending the program (in pieces, I'll grant you, but the accounts are the first step in dismantling SS). The people who benefit when individual investors suddenly have a bucket of cash they are untrained to invest and lack the buying power and coordination of a professional manager of the entire fund? Well, it's the investment advisory industry. GW's good pals. They get an enormous new market of untrained customers to fleece with the government's blessing. How long before retirees start the horror stories of being robbed blind by those guys, either literally or through the endless hidden fees and abuses of info the industry routinely practices today? The feeding frenzy will truly be something to behold and by the end of it, you can kiss your 6% real returns goodbye unless you're the provider of financial "planning." Instead, you'll be left with a bunch of folks with negative real returns and a smug Republican lobby telling us about "self-reliance" while the advisory firms' stocks go through the roof.

Nothing wrong with mixing in equities provided they're managed professionally and by educated managers who can squeeze every last penny out of the relevant middlemen. Allows better returns and still the elements of a social safety net. But eviscerating ss with phony arguments to be left in a lurch is hardly that.