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Author: rainphakir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 59776  
Subject: A fix for social security and medicare Date: 3/15/2007 4:23 PM
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How about this:

$20,000 growing at 10%/year will reach $1.25M or so in 42 years.

IF YOU ASSUME:
1. that the future LONG TERM returns in the stock market will continue to be about the same as in the past...then 10% in an index mutual fund is do-able.

2. that 'retire-ment age' is 65 years of age... then age 23 is 42 years prior.

3. that 'saving' $20,000 by age 23 or 25 is do-able

THEN...
Starting with a person's FIRST paycheck...let's divert 1/2 of the SS and 1/2 of the income tax paid to an Index Mutual Fund, until that person has saved $20,000 OR has reached age 25.

There might even be a clause that allows continued contributions... and I suppose there would have to be some thought about college graduates and their age/benchmarks.

Upon reaching the 'benchmark', the wage earner (now earning more $$) would pay SS and income tax in the normal amount paid for 'being a member of society'.

This would allow individuals to have a 'nest egg' that potentially would grow to meet her/his future needs.

What do you think?
ralph
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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3371 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 4:28 PM
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I don't think 10% after taxes is doable

I don't think saving $20,000 by age 23 is doable.

Means test SS and raise the NRA

buzman

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Author: cattleman22 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3372 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 4:30 PM
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{{Means test SS and raise the NRA}}

Do away with SS and simply provide welfare for those in need. There is no need for the sham that currently exists.


c

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3373 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 4:40 PM
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AS I have said before, I do think that helping your kids think about retirement early on is an appropriate part of their upbringing even if they are grown. My older daughter is 26, working long hours as the editor of a very small town newspaper while her husband is in DO school. Her annual salary is less than his annual tuition. Since she graduated, I have been giving her a small amount of money each year so that she can apply it to a Roth IRA while she is earning a small amount of money and has little to invest.

I also loaned them a small amount of money to buy a small brick rancher so that they would not have to rent.

If her husband becomes an emergency room doc and they start making more money, I would like for them to already have some conception of the value of saving and of the time value of money, and of the idea that it does not matter how much you make if you spend it all.

I do that partly because, as a small time lawyer, I have represented people who earn hundreds of thousands of dollars and who could not afford to stop working for 30 days, and others, like firemen, policemen, teachers and laborers who earn relatively modest amounts of money but could survive 6 months or more without a job if they had to.

I just started doing the same with my younger daughter when she finished at Va Tech.

Saving $20,000 per year at the age of 23 is not doable for many people. I couldn't come close to that starting out with a law degree from W&M nearly thirty years ago. It makes more sense to me to come up with ANY savings plan that a person can do those first few years out of school so that the ball starts out rolling in the right direction.

My older daughter was tickled that her IRA grew by over a thousand dollars last year. Maybe if her husband does earn signicantly more money when he finishes school they will have the incentive to save a significant amount.


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Author: rainphakir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3374 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 4:49 PM
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Hi Buz
I don't think 10% after taxes is doable
so... put it in a NONtaxable account such as an IRA or 401k/403b... I'm sure our legislators could hook it up :-)

I don't think saving $20,000 by age 23 is doable.
Have you ever bought a car? (on time?;-)

let's skip the 1/2 and go with straight SS and Income tax paid...

a 'back of the envelope' calculation:
$7/hour X 40/week X 4 weeks = ca $1000/month... 15% of that is $150/month...

how much would SS be on a $1000/month salary? $50? is that a reasonable guess?
150 + 50 = 200

200/month X 12 month's = 2400/year (let's round to make the math more simple) to $2500

age 18 to 23 is 5 years... 5 X 2500 = $12,500
18 to 25 is 7 years... 7 X 2500 = $17,500

Looks to me like we're getting close to 20K :-)
So perhaps the 'benchmark' would be 8 years after starting to earn a paycheck??

ralph


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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3375 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 4:54 PM
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I don't think saving $20,000 by age 23 is doable.


when i was 27, $20k was about half my annual gross (as IBM salesguy)-- not doable (IMO).

probably more doable now ....
but Everything gets multiplied

( during that time ... S+P went from 104 to about 1400 ... what's the average rate of return? )



-j
..... something else has long puzzled me about "Put SS all in Index Fund" ... where does money invested in index fund go? Wouldn't tonnes of money invested that way affect the market?




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Author: rainphakir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3376 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 5:02 PM
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Hi jgc

I'm sorry. I did NOT intend to imply that they should be saving 20,000 per YEAR, that is clearly not 'do-able' for most folks early in their work life... I want to demonstrate a mechanism that would allow them save an annual amount until reaching a total of 20,000...

The funds would come out of the amount that the govt would 'take' anyway... and would not necessarily affect the individual's 'take home' pay. The govt would sacrifice monies for SS and income tax payments at a time in when those payments are small.

Thanks for helping me clarify this point :-)

It is easy to find references to the "if a 20 year old person saves $2000/year until age 26 and then stops saving... he will have more money at age 65 than a 35 yr old person who starts saving 4000/yr and continues to save til age 65..."

hth
ralph

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3381 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 5:36 PM
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<<My older daughter was tickled that her IRA grew by over a thousand dollars last year. Maybe if her husband does earn signicantly more money when he finishes school they will have the incentive to save a significant amount.>>


Heh, heh! Understanding emotionally that you can earn money without having to work for it through investing is often an eye opening revelation for people.



Seattle Pioneer

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3383 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 5:50 PM
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Ralph,

I like the proposal. As Goofy points out we now need to work out the details like how do we minimize fees and other costs.

Also upon reaching "retirement age" the government might need to set a payout of that money at a sustainable rate (e.g. 4% SWR).

Jim

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3384 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 5:57 PM
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IF YOU ASSUME:
1. that the future LONG TERM returns in the stock market will continue to be about the same as in the past...then 10% in an index mutual fund is do-able.


To get 10%, you need to earn 12-13% pre-tax. That's not doable. Indeed, there are some decades where the market has not moved at all. What do you do with the people who started at the beginning of that decade?

3. that 'saving' $20,000 by age 23 or 25 is do-able

That's not do-able for many, perhaps most. When I bought my first house (condo, actually) at age 30, I needed $15,000 down, $5,000 of which came from my parents. Lest you think I was living high, I spent most of my 20's in rooming houses or one-room apartments, for part of it I had a beat-up Volkswagen, and for part of it I had no vehicle at all.

Starting with a person's FIRST paycheck...let's divert 1/2 of the SS and 1/2 of the income tax paid to an Index Mutual Fund, until that person has saved $20,000 OR has reached age 25.

You get out of college at age 22 or 23. Maybe you can save a couple thousand a year if you really scrimp. Nobody is going to have "$20,000" at age 25. If you go to vocational school, or are merely a high school graduate, your earning power is consequently less and you will not have saved $20,000 by age 25. Ain't gonna happen in any significant numbers.

And by the way, getting a 23 year old to focus on "retirement" is about as unlikely a scenario as I have heard. That's why nobody does it, and why about half of the country isn't prepared even 40 years later when it is staring them in the face.

And that's why Social Security was invented, to create a system whereby everyone will have something in their old age, rather than filling up the countryside with poorhouses and having Aunt Ethyl living in the attic above her daughter.

What do you think?

I think Social Security works pretty well, and that's why there's some form of it in every advanced country on the globe. It would be nice if people would do it for themselves, but about half don't. About half didn't before Social Security was invented, about half don't now.

However having the program does give the morally superior radical right-wingers something to obsess about, and perhaps kills a few of them early via heart-attack, so in all it's probably a good thing.
 


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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3385 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 5:57 PM
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heh,

When I was 23, $20,000 was 83% of my salary :)

Jim

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3386 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 6:11 PM
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Nobody is going to have "$20,000" at age 25.

I certainly didn't. I didn't have $20,000 in the bank until age 32. At age 29, having that much savings seemed like unachievable wealth, and I rather resented my then-boss for doing things like taking vacations in Cancun when I was barely making my $500 / month rent.

And by the way, getting a 23 year old to focus on "retirement" is about as unlikely a scenario as I have heard.

The first time I had any surplus money at all - $5000 - was at age 26. Though I didn't know it at the time, it was something of a temporary high water for me, but I was feeling kind of wealthy and successful. So I tried talking to a professional about investing, and all he wanted to talk about was IRA's. An IRA? Was he crazy? I wanted to make money for now, not for 40 years in the future!

And keep in mind that I'm one of the people who did figure it out on his own, eventually. If it was that difficult for me to plan for the future, imagine what it's like the majority.

- Gus

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3387 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 6:12 PM
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Goofy,

To get 10%, you need to earn 12-13% pre-tax. That's not doable. Indeed, there are some decades where the market has not moved at all. What do you do with the people who started at the beginning of that decade?

Assets "held" by SS now are not taxed. Why do you assume that they would under this variant?

True, there are periods in which the market has performed poorly. However, the longer the time period you use for comparison, the more positive the results. Also why do you assume all of the assets would be invested in the stock market?

I agree with you that a lot needs to be examined with any possible alternative but why refuse to even consider potential solutions to these problems???

Jim

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3388 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 6:15 PM
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And by the way, getting a 23 year old to focus on "retirement" is about as unlikely a scenario as I have heard.

Wrong.

I started saving for retirement at age 22 (as soon as I started full-time employment). I'm not unique. I know many others who started at the same time they started full-time employment - that was in the '80s.

On the other hand, the majority of the new hires that I've discussed saving for retirement with recently almost refuse to even consider it. It's difficult to even discuss this with them as it's really something they do NOT want to hear.

Jim

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3389 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 6:25 PM
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Wrong.

Well, no, actually. "Right" is the word you were looking for. You yourself provided evidence that most people in their early 20's don't think about retirement. Just because you thought about it doesn't mean it was different in the 80's. I began full time work in 1986, and worked part-year starting in 1982, and my experience was that none of my peers gave it any thought.

Anecodotal evidence of course means nothing, but we have plenty of statistics demonstrating that most people do not save for retirement at that age. Of those that do, most do so because their employer has a formal program in place where the employer, not the employee, contributes to the retirement fund.

On the other hand, the majority of the new hires that I've discussed saving for retirement with recently almost refuse to even consider it.

This has ever been true. The problem isn't "today's youth," it's "youth."

- Gus

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3391 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 6:31 PM
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I began full time work in 1986, and worked part-year starting in 1982, and my experience was that none of my peers gave it any thought.

Granted my experience when I was young could very well have been just that my "cohort" of friends and acquiantences could have been exceptional. Then again they were all engineering & scientists types :) .

Jim

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Author: joseph714 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3393 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 6:51 PM
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heh,

When I was 23, $20,000 was 83% of my salary :)

Jim
---------

Funnier yet, when I was 23 (actually 25 since I had grad school tacked on), that was about 150% of mine.

Of course I did indeed choose to run a the clinical division of a sheltered workshop, & most glad I did.

Some rewards do tend to show up beyond material gain.

Can't say that this is everyones cup of tea, but then again I wouldn't change a thing.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3395 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 6:59 PM
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Assets "held" by SS now are not taxed. Why do you assume that they would under this variant?

So you're going to create a lifetime tax exemption for people to put money in the stock market so they can get money later, assuming the stock market performs for them and big chunks aren't blown to over-trading, or management fees, or underperformance just as they go to redeem? OK.

Also why do you assume all of the assets would be invested in the stock market?

Because it's hard to get 10% returns out of T-bills. ;)

I agree with you that a lot needs to be examined with any possible alternative but why refuse to even consider potential solutions to these problems???

Nobody is "refusing" to consider your solutions. I have "considered" them. I find them wanting. There is a difference.

I'll go back and remind that not everybody makes a lot of money right out of school. In some fields you make nothing. I worked for 10 years for minimum wage, because that's how the radio field is set up - you go to work in the tall grass to learn the craft. If you are good, and if you are lucky, you move up to the bigs and make a bunch. What happens to the people who don't make anything for their first decade? How much do you think a single-mother who is a waitress can reasonably save by age 25? How about actors who work nearly free, hoping for a break into the well-paid ranks?

Tons of people couldn't possibly "save" much in their 20's. By the time they get to their 30's and 40's, one hopes that many or even most will be in a position to save something, perhaps a lot, perhaps only a little. And there will certainly be plenty of people who have made bad choices, have 5 kids and no education, and who, frankly, I don't want panhandling at my front door when they're 71. They will have paid something along the way to Social Security, they'll get something along the way back when they need it.

Wrong.

I started saving for retirement at age 22 (as soon as I started full-time employment). I'm not unique. I know many others who started at the same time they started full-time employment - that was in the '80s.

On the other hand, the majority of the new hires that I've discussed saving for retirement with recently almost refuse to even consider it.


This is pretty funny stuff. Performance art?



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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3397 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 7:14 PM
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Funnier yet, when I was 23 (actually 25 since I had grad school tacked on), that was about 150% of mine.

Of course I did indeed choose to run a the clinical division of a sheltered workshop, & most glad I did.


When I was 23, I made about $12k as a work-study computer consultant for the U.

6

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Author: alaskack Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3398 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 7:15 PM
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I like the proposal. As Goofy points out we now need to work out the details like how do we minimize fees and other costs.

There already exists a mechanism for doing this. Divert the funds into an employer 401k plan. Place the reporting and management burden on the employer, which won't be that much more than what's currently required. There still would be details to work out, such as employers without 401k plans, changing jobs and how to keep it separate from regular 401k savings.

The main con would be it might keep some from saving regular 401k funds because of the forced savings.

Calvin

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Author: FCorelli Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3399 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 7:26 PM
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Nobody is going to have "$20,000" at age 25. ???

This is where it all falls apart. Right outta da chute
It ain't good enough if the best you can say is, it is do-able. Basically it is an appeal to whimsy. It means you can dream it. How do you DO IT?

What is required for the plan to work is: It must be guaranteed in all cases. Otherwise all they're talking about is who wins or loses Life's lottery ...AGAIN! That's the only way any of these plans can be discussed. What we humans are in the business of doing is attempting in as many cases as possible to avoid blind reliance on Life's Lottery, the whip and whim of Fate, to save our asses and improve things. So, simple a caveman can do it, but all that'll get you is a cave and a 30 yr lifespan. We can do better.

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3400 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 7:47 PM
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When I was 23, I made about $12k as a work-study computer consultant for the U.


so you only had to save 83% to save 20k by age 25 ....


unless the 12k is gross pay ....



=
..... kinda freaky actually ... had to go look it up, but i made about 9k when i was 23 ... at least 20 yrs before you were 23 (fica limit was 7800.00)

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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3401 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 7:50 PM
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"Nobody is going to have "$20,000" at age 25."

Wrong.

My nephew graduated college at age 21. Got a job making $70,000/year. Lived at home. Was saving over $30,000 per year for the first few years, and starting making $90,000/yr. thinking about buying a house.

Now he is 26. Changed jobs. Making well over $100,000/yr. Has his own apartment. Still drives 10 year old car which he bought from his dad. You don't think he can't save?

Has serious girlfriend, so savings might be about to drop as he contemplates family.

Is this 'retirement savings'? Dunno, but he socked away at least 6%/yr in the company saving plan, plus a personal IRA.

Smart kid, in many ways.


t.





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Author: alaskack Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3402 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 8:01 PM
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Nobody is going to have "$20,000" at age 25. ???

This is where it all falls apart. Right outta da chute
It ain't good enough if the best you can say is, it is do-able. Basically it is an appeal to whimsy. It means you can dream it. How do you DO IT?


Instead of saying that it can't be done, why don't we explore what might be doable. For instance, if we change the age to 30, $30,000 will get you to $1 million by age 67. Is $30,000 doable? Assuming 12 years of working before age 31, that would be an average of $2,500/year. If your average salary was $20,000 over that period, you'd likely make it. For those whose average income looks to be less than $20,000, maybe the % of SS and tax could be increased.

Calvin

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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3403 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 8:01 PM
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When I was 23 (1970) I was making about $10,500/yr. Then again, you could live on that amount of money. Had room mates for several years to save on living expenses. When I graduated from college, I had to pay for car ($1500 used car - with car loan) and had $3000 in college loans. That was over 30% of a years pay. You have to think percentages here. Paid off all loans within 18 months. Had two roommates the first year to share expenses. My share of rent was $60/month. I was making about $800/month before taxes.

In 1971, I started making $13,500 and could easily save 20% of that. My rent was $150/month for 2 bedroom duplex. Utility bills maybe another $80/month. New cars cost a couple thousand. (like $4200). Life was good. I didn't buy a new car until 1975. Never had a car loan after 1971. Paid cash for cars.

When I retired, I was making $92K/yr, and that was in 1999.

New college grads in EE start at well over $55K/yr. A determined LBYM could save $10K/yr easy in most parts of the country. And pay off college debt in a few years.

Many college grads can easily save 10-20% of their income IF they wish to do so. They can also spend 120% of their income.

Too many want it 'all' immediately. Have no desire to save for anything. It is the 'charge it' mentality, as if the money fairy is going to pay for everything they buy.

t.


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Author: FCorelli Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3404 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 8:21 PM
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Nobody is going to have "$20,000" at age 25. ???

This is where it all falls apart. Right outta da chute
It ain't good enough if the best you can say is, it is do-able. Basically it is an appeal to whimsy. It means you can dream it. How do you DO IT?
------------------------------------------------------------
Instead of saying that it can't be done, why don't we explore what might be doable. For instance, if we change the age to 30, $30,000 will get you to $1 million by age 67. Is $30,000 doable? Assuming 12 years of working before age 31, that would be an average of $2,500/year. If your average salary was $20,000 over that period, you'd likely make it. For those whose average income looks to be less than $20,000, maybe the % of SS and tax could be increased.Calvin


Youre doing it again. Patty-caking the numbers. Banging on pots and pans until it sounds like "Take the 'A' Train".

You used the word.. do-able. Whimsy. Read my last post. Of course you can claim that anything is do-able. Will this work in everbody's case? Does capitalism have any intention or possibility of paying everyone enough money? MAKE THAT WORK. Then you can talk schemes. All youre saying here is this, if we beat the numbers hard enough we can paint a theorhetical case that will work for everybody except the ones for whome it does not work.

Pay people enough so that money will never be a factor. Just like the Rich. Failing that, and it is primo failure of every system --period--, you have to use alternate means of keeping the trickle-down trickling
down. Continuallyu concentrating risk down to the individual level is NO WAY to attain any kind of wealth or security (and wealth and security are what we're takling about so no BS about how bad security is vs freedom) and every rich person knows that and every business model is based on NOT concentrating risk.

yes, almost everything is or can be depicted as "do-able" but A) IS it?/How do-able? And B) Let's see if there's something better

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3405 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 8:42 PM
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Then again they were all engineering & scientists types :)

The same was true for me. Programmers, mechanical engineers, doctors, etc. No real scientists in the bunch, granted. But certainly people who were well educated and intelligent.

- Gus


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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3406 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 8:47 PM
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"Nobody is going to have "$20,000" at age 25."

Wrong.

My nephew graduated college at age 21. Got a job making $70,000/year. Lived at home. Was saving over $30,000 per year for the first few years, and starting making $90,000/yr. thinking about buying a house.

Now he is 26. Changed jobs. Making well over $100,000/yr.


That's a great example, and very typical too.

Now that I've complimented you on your example, how about responding to mine:

The single mother, age 24, working as a waitress. How much is she going to save by age 25?
 


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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3407 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 8:49 PM
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It is easy to find references to the "if a 20 year old person saves $2000/year until age 26 and then stops saving... he will have more money at age 65 than a 35 yr old person who starts saving 4000/yr and continues to save til age 65..."


o well ....

as it happens (as it was supposed to happen), i have a spreadsheet of S+P data since 1950 ...

if your hypothetical guys start in 1950 ... 2d guy has 2.3 x 1st at age 65 (ie --MORE)
if they start in 61 ... 3.2 times
if they start in 66 ... 2.6 x



=
..... not that i doubt that there are lots of references ...

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3408 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 10:10 PM
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<<Now that I've complimented you on your example, how about responding to mine:

The single mother, age 24, working as a waitress. How much is she going to save by age 25?

>>



Apparently she can afford to "save" the 15% Social Security and Medicare take from every dollar of her paycheck.



Why is it you benevolent types think you can charge people whatever amount you want in taxes and imagine everyone can afford that, but that few people can afford to save on their own?



Seattle Pioneer

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Author: rainphakir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3409 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 11:24 PM
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Hi Goofy
I'm not proposing that the person save AFTER tax monies... I'm proposing that the govt take the monies that WOULD be paid to SS and income tax for a few years and put those monies into a nontaxable account, such as an IRA or 401k or some such. i.e. the person pays no SS or income tax... that money is put into an account for that person's future needs.

No, it will not save 20,000/year but it WILL save close to 2500/year and in 8 years that will add up to 20,000. This could serve as the nest egg needed for compound growth to mature into a sizeable retirement fund.

SS is reportedly set up for a fall in a few years... we need to be looking at alternatives so that todays young folks have a 'plan b'...

I don't see 'means testing' or any of the other 'fix it when they get old' strategies successfully meeting the retirement needs of the young people who are just starting their work life...:-)

fwiw
ralph



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Author: ogrecat Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3410 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 11:29 PM
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SS is reportedly set up for a fall in a few years.

Link?

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Author: rainphakir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3411 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 11:33 PM
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How much do you think a single-mother who is a waitress can reasonably save by age 25?

I think that she probably pays $2500/year in SS and income tax... IF that money were put, instead into a nontaxed account... it would at least have the possibility to accumulate to 20,000.

As for the vagaries of the stock market and the burden of fees, etc... that's why I suggested that the accounts be limited to 'index funds' such as the Vanguard and Fidelity funds provide.


Again, I see lots of 'proposals' for how to save the SS benefits for our current crop of retirees and soon-to-be-retirees..

I don't see many proposals that address the problem from the outset - the beginning of one's work life - when compound growth could complement the task.
:-)
ralph

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Author: rainphakir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3412 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 11:39 PM
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Link?

LOL pick your favorite money mag, talking head, pundit, etc :-)
I don't know that it really is gonna fail... or not.

But I do know some young folks TODAY, who don't believe that SS will be around when they reach retirement age
Are they being scammed?
:-)
ralph



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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3413 of 59776
Subject: Re: A fix for social security and medicare Date: 3/15/2007 11:58 PM
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Link?

http://www.ssa.gov/OACT/TRSUM/trsummary.html

Projected OASDI tax income will begin to fall short of outlays in 2017, and will be sufficient to finance only 74 percent of scheduled annual benefits in 2040, when the combined OASDI trust fund is projected to be exhausted.

Any questions?

Some other interesting facts:

http://en.wikipedia.org/wiki/Social_Security_(United_States)#Demographic_and_revenue_projections

Increased spending for Social Security will occur at the same time as increases in Medicare, as a result of the aging of the baby boomers. One projection illustrates the relationship between the two programs:
From 2004 to 2030, the combined spending on Social Security and Medicare is expected to rise from 7% of national income (gross domestic product) to 13%. Two-thirds of the increase occurs in Medicare.


The special series, non-marketable bonds currently held in Social Security Trust Fund are off-balance sheet and are excluded from the U.S. national debt calculation. Unlike traditional bonds, the bonds held in the Fund cannot be sold on the open market. Due to these unique features, some have argued that the bonds held in the trust fund are only "IOUs" that the government has written to itself. The Social Security and Medicare Trustees note:

Since neither the interest paid on the Treasury bonds held in the HI [Hospital Insurance] and OASDI Trust Funds, nor their redemption, provides any net new income to the Treasury, the full amount of the required Treasury payments to these trust funds must be financed by some combination of increased taxation, increased Federal borrowing and debt, or a reduction in other government expenditures. (Status of Social Security and Medicare Programs: A summary of the 2005 annual reports) [16]

This means that these bonds represent a promise to pay the trust fund later, whether by increasing taxes, by cutting benefits, or by borrowing more money. While this is true of all bonds[17], bonds are normally funded by an immediate income from a private source, when the bond is purchased. The bonds placed in the trust fund are placed printed and in the trust, with no external source of money. The Federal government "buys" the bonds from itself.


http://rationalrevolution0.tripod.com/blog/index.blog?entry_id=647053



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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3414 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 12:08 AM
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<<Hi Goofy
I'm not proposing that the person save AFTER tax monies... I'm proposing that the govt take the monies that WOULD be paid to SS and income tax for a few years and put those monies into a nontaxable account, such as an IRA or 401k or some such. i.e. the person pays no SS or income tax... that money is put into an account for that person's future needs.

No, it will not save 20,000/year but it WILL save close to 2500/year and in 8 years that will add up to 20,000. This could serve as the nest egg needed for compound growth to mature into a sizeable retirement fund.
>>



Goofyhoofy is convinced that Social Security and Medicare are as sound as a dollar, but perhaps that's the problem.


Goofyhoofy is depending on Gen X, Y and Z to be willing to continue to send their money in to Social Security even though a large portion of those generations don't expect the programs to be there for them.


That's an unrealistic expectation, in my view. Just as you suggest above, more young people are going to want THEIR tax money to be there for THEM. Democrats were able to sink Bush's private accounts plan this time, but it will be back. And if it's packaged as payments into people 401K plan, something people understand, it will probably have a lot more popularity.


Goofyhoofy casually dismisses any suggestion that Social Security and Medicare are financially unsound, when in fact they are utterly dependent on the willingness of younger people to send huge amounts of money to fund benefits for someone else, rather than to fund their own retirement.


While the left resists descriptions of Social Security as a Ponzi scheme, that's just what it resembles. And if young people get the chance to direct the money into savings plans that belong to them, this fallacy will result in the failure of these mostly unfunded programs.




Seattle Pioneer

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Author: alaskack Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3415 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 12:15 AM
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Youre doing it again. Patty-caking the numbers. Banging on pots and pans until it sounds like "Take the 'A' Train".

And you don't seem to have an answer other than it can't be done. Okay, in your mind, how much do you think can be accumulated by diverting SS and tax withholdings to a 401k type of account by age 25 or 30? This isn't money that has to be saved from take home pay. it's tax money. So how much do you think can be saved or do you just assume nothing can be done.

Pay people enough so that money will never be a factor.

So how are you planning for that to happen?

Calvin

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Author: alaskack Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3416 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 12:55 AM
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The single mother, age 24, working as a waitress. How much is she going to save by age 25?

One solution would be to supplement her savings from a pool created from people who met that goal prior to 25. There are many solutions to ensure everyone is at the same level at 25. Actually, I think $30,000 at 30 is easier to obtain.

Calvin

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Author: alan81 Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3417 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 12:57 AM
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I guess it comes down to if you consider ten years or thirty years to be "a few".
I think you have done a reasonable job of articulating the problem, which hopefully leads to some better discussion on the topic. IMHO, the proposals so far are just balloon squeezing. They move the problem around, but don't solve it. A greater and greater percentage of our economy is going toward medical care. Furthermore, a greater and greater percentage is going toward taking care of the elderly/retired. I think that is the problem, or perhaps that is the question. Can we afford to move to a society where greater than 10% or perhaps even 15% of our GNP is going to retired folk, or should we find a way to maintain that expense closer to the current 6% number?

I am concerned that the proposals I have heard actually increase that number (percent GNP spent) rather than reducing it. The general message I hear is give the people greater control over their retirement investing, and they will do a better job managing it than big brother. My concern, as stated earlier, is this really just increases the sigma (variation) in expense from person to person, rather than resulting in some overall improvement. I do believe that many here think if they invest it they will have more money to live on when they retire. If that is the case, it confirms my suspicion that the overall percentage of the economy falling into this bucket will increase.

As I have mentioned, I believe the current proposals are balloon squeezing. For every person that ends up with a greater income during retirement, there will be another person that is worse off under any of the new systems that allow greater "control".

I view SS and medicare as a safety net, not the retirement savings plan some see them as. We need to make sure they are good enough to catch people, and not much more. I think that is what we should find the money to afford, by whatever means. To the extend that the current funding provides more than a basic safety net, this is an area where we can cut spending. To the extent that the current funding levels fall short, that is where we need to raise the tax. I really don't know which case we have when...

To the extent you want to control your own retirement money, there are IRA's and 401K's, and SEPs, and SERPs, and whatnot that allow for just that. I think it silly to add YET ANOTHER program to this soup. I think it safe to assume that any money that is controlled by an individual can quickly go to zero... we have all seen it happen. As such, we need to have the safety net to catch them if they fall. To the extent that some are going to zero, others are going to very large numbers... and that is OK too... but lets not confuse the process that generates the safety net with the process that allows some to prosper and others to falter.
--Alan

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3420 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 8:28 AM
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Goofyhoofy is convinced that Social Security and Medicare are as sound as a dollar, but perhaps that's the problem.

You are a liar. I have never said any such thing.

Goofyhoofy casually dismisses any suggestion that Social Security and Medicare are financially unsound

You are a liar. I have never said any such thing.

While the left resists descriptions of Social Security as a Ponzi scheme, that's just what it resembles.

You are a liar. It does not fit the definition of a Ponzi scheme.

Goofyhoofy is depending on Gen X, Y and Z to be willing to continue to send their money in to Social Security

Yes, I am. I also expect them to pay their income taxes, even though they disagree with how the money is spent. I'm guessing they will even pay their credit card bills, even though they think the rate is too high.

even though a large portion of those generations don't expect the programs to be there for them.

I'm not surprised. With liars such as yourself running around screaming "bankrupt" (a lie) and "Ponzi scheme" (a lie), and with the complicity of the right-wing media, you have managed to undermine one of the great programs of American history, and one which has served the populace well for nearly a century. It is perfect? No. I never said so. Does it deserve to be dismantled, as you and your radical lunatic fringe theories suggest? Absolutely not.

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3422 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 9:20 AM
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The last time I called a liar a liar I got FA'ed for it and the liar's lies remained.

Knowledge of that "idiosyncracy" about tmf is often used by some of our visitors here who care not one whit about the actual truth or falsity of claims as long as they sell.

You may have to find ways to point out lies without using the liar word.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3425 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 10:32 AM
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<<Goofyhoofy is depending on Gen X, Y and Z to be willing to continue to send their money in to Social Security

Yes, I am. I also expect them to pay their income taxes, even though they disagree with how the money is spent. I'm guessing they will even pay their credit card bills, even though they think the rate is too high.

even though a large portion of those generations don't expect the programs to be there for them.

I'm not surprised. With liars such as yourself running around screaming "bankrupt" (a lie) and "Ponzi scheme" (a lie), and with the complicity of the right-wing media, you have managed to undermine one of the great programs of American history, and one which has served the populace well for nearly a century. It is perfect? No. I never said so. Does it deserve to be dismantled, as you and your radical lunatic fringe theories suggest? Absolutely not.

>>


Your expectation that people will be willing to send ever larger amounts of money to fund a program they don't expect to benefit them contains a large element of uncertainty in my opinion. And of course if they choose to do so the mostly unfunded nature of these programs exposes them to failure, just as I have described.


You have suggested that these programs are financially sound except for the need for "minor tweaking" (further tax increases) but efforts to increase taxes will inevitably expose these programs to the risk of radical revision. Whether you can convince Gen X, Y and Z to continue paying for the retirement of others when they are convinced those programs will not be there to pay benefits for them is an interesting question.

At a minimum, I expect that any tax increases approved will be twinned with further means testing of these programs, which will vindicate the worries of Gen X, Y and Z that these programs will not pay off for them. This will expose the nature of these programs as welfare programs for the financially incompetent, which will undermine them further.



In the end, they will be seen to be a house of cards, with significant risk of collapse.


You can deny that all you like Goofyhoofy, but the mostly unfunded nature of these programs creates the risk of failure because they are Ponzi schemes in the end. Ponzi schemes fail when the hidden nature of the financially unsound nature of the program becomes exposed, and people refuse to throw more good money into paying people who "invested" early. That's just the risk Social Security and Medicare are facing.


You can deny the Ponzi scheme nature of these programs as much as you like, but that essential nature is what causes the risk and prospect of collapse of these programs.



Seattle Pioneer

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Author: MDGluon Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3432 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 11:06 AM
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You may have to find ways to point out lies without using the liar word.

The simple statement "mis-read" will do nicely and we all can understand it to be really the word liar...code words meaning something else entirely are hard for the Conservative TMF monitors to FA.

md



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Author: cattleman22 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3434 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 11:12 AM
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Goofyhoofy is depending on Gen X, Y and Z to be willing to continue to send their money in to Social Security


Yes, I am.


Your expectation is irrational. How many retirees did your generation support with each worker? Wasn't it between 1/16th to 1/4th? Why do expect my generation to pay for 1/2 of a retiree when you did not pay anywhere close to that amount?


c

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Author: JustWhoIAm Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3464 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 4:35 PM
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While the left resists descriptions of Social Security as a Ponzi scheme, that's just what it resembles.

You are a liar. It does not fit the definition of a Ponzi scheme.

Goofyhoofy is depending on Gen X, Y and Z to be willing to continue to send their money in to Social Security

Yes, I am. I also expect them to pay their income taxes, even though they disagree with how the money is spent. I'm guessing they will even pay their credit card bills, even though they think the rate is too high.


Let's say that Gen X, Y, and Z vote in legislators that decide to drop the benefits of Social Security to the point that it is phased out by 2055. Would this action not prove that it is a Ponzi scheme--or resembles one? The whole plan is built in the idea that others will support it by paying in after the current set pays in their share.

Keith

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Author: PKnudsen Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3475 of 59776
Subject: Re: A fix for social security and medicare Date: 3/16/2007 6:12 PM
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rainphakir wrote:

What do you think?
ralph


I could support that. But even better would be investing ALL new SS contributions into an index off all stocks and bonds.

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Author: Latinus Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3493 of 59776
Subject: Re: A fix for social security and medicare Date: 3/17/2007 5:13 AM
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>>You can deny that all you like Goofyhoofy, but the mostly unfunded nature of these programs creates the risk of failure because they are Ponzi schemes in the end.<<
-
Hi, S.P.
You left out an important comma in the above sentence.
As for "Ponzi schemes", I doubt that you know what Charles Ponzi did.
-
Over the years, S.P., I have seen many good posts written by you.
But on this thread, you are out of your depth.
-
When you get to be old enough to collect Social-Security payments, I hope that you will appreciate them.

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3496 of 59776
Subject: Re: A fix for social security and medicare Date: 3/17/2007 11:16 AM
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"But on this thread, you are out of your depth."

On this board....


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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3513 of 59776
Subject: Re: A fix for social security and medicare Date: 3/17/2007 6:21 PM
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True, there are periods in which the market has performed poorly. However, the longer the time period you use for comparison, the more positive the results. Also why do you assume all of the assets would be invested in the stock market?


The real return for the stock market over VERY long periods (30+) years from normal valuations is usually 6% (after inflation). From this point in time on out, the real return in the long run is about 4% because of high valuations.

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Author: cattleman22 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3568 of 59776
Subject: Re: A fix for social security and medicare Date: 3/19/2007 8:46 AM
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{{When you get to be old enough to collect Social-Security payments, I hope that you will appreciate them.}}


Why should this make a difference? Just because I receive a benefit from government does not mean that the benefit is worthwhile or just.


c

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Author: cattleman22 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3569 of 59776
Subject: Re: A fix for social security and medicare Date: 3/19/2007 8:48 AM
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{{On this board....}}


It is almost impossible for SP to have a discussion on this board as he rational and in touch with reality while many posters on here are irrational and refuse to accept basic concepts.


c

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3579 of 59776
Subject: Re: A fix for social security and medicare Date: 3/19/2007 11:01 AM
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<<{{On this board....}}


It is almost impossible for SP to have a discussion on this board as he rational and in touch with reality while many posters on here are irrational and refuse to accept basic concepts.
>>



There is just a gap in values for the most part. It's quite common for people to be isolated from people with different values and to take their own values so much for granted that they can't recognize that other people may have reasonable reasons for disagreeing with them. Because they are so isolated dissonance applies and they need an explanation for that gap in values.

The easy explanation is that people who disagree with you are ignorant, uneducated or morons.


This is quite natural even for those who like to imagine themselves promoting and believing in "diversity." The fact is, in a good many cases, the only believe in diversity if people agree with all their political and social positions.



Pretty funny to observe over and over again, though.




Seattle Pioneer

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