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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: of 5267  
Subject: Re: Social Security Reform -- I'm Confused Date: 2/27/2005 10:58 AM
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<<To me, reorganizing the SS system to look a lot more like TSP could do nothing but help people-- the ones who take ownership over their own financial future (Fools) would benefit greatly, while non-Fools would still have money invested in their behalf for the future. It works for federal workers and the military-- why not extend the same type of thing to the civilian population? It would pay huge dividends for the economy-- more $'s invested in the market, rather than being held in a fund like SSTF, would definitely stimulate the economy.

Chris

>>


The problem with this line of reasoning (with which I agree) is that it doesn't address why Social Security has been so popular with the elderly.

It's been popular because the amounts paid in have had little to do with the benefits paid out. For the most part, Social Security has paid out vastly more in benefits than was ever contrinuted in tax dollars. Discrepancies were made up by ever higher taxes on people earning a living.

Look at two changes in calculating benefits made in the 1970s. One indexed benefits paid out to inflation during a period of very high inflation. That enormously increased benefits paid out compared to taxes paid in.

The second, a few years later, indexed the wage base on which benefits are calculated to wage rates. So if someone had an income of $3000 in 1950, benefits when they retired might be computed as if they had earned $30,000.

Most annuities sold never index benefits paid out for inflation, or if they do you pay a high price for that. And of course, if you buy an annuity no one is going to give you $30,000 for the $3000 you earned in 1950, unless you earned that much in investment income over the decades.

The basic difficulty with Social Security reform is the jackpot mentality presently built into the system, which promises to pay out far more in benefits than people paid for.



Seattle Pioneer
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