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Author: knows09 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5267  
Subject: Other Suggestions?? Date: 2/4/2005 5:27 PM
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Forgive me if this has come up before, but can anyone come up with an alternate plan for fixing social security besides privatization??

Privatization is NOT the answer, for the single reason that Social Security was created to help those who lost their shirts in the stock market crash of 1929. It's a total slap in the face to those who created Social Security in the first place. Privatization will just force us into the 2nd Great Depression.

Now, there is no question that Social Security needs to be addressed. It may not be now (and really shouldn't be now), but at some point, something needs to be done. Any ideas? Raise the retirement age, raise taxes. All done before. Can't anyone come up with an original idea that doesn't involve privatization?

I think we first need to look at what Social Security really is. Most look at it as a retirement fund. In fact, almost everyone factors in the benefits when figuring out how much they will need/want for retirement. But its really not a retirement account. It's basically a type of insurance, there to take care of those who didn't have the ability or know-how to save sufficiently enough for their retirement. It should pay the most to those who need it the most and vice versa.

So instead of coming up with a payout ratio based on the average income over the last 35 years of employment, why not base it on average income during retirement?? And do it inversely for that matter (ie - those who have more get less). So Joe six-pack who worked minimum wage all his life and barely saved anything collects the maximum allowable by social security. But Bill Gates who may have $1 trln saved by retirement gets the minimum allowed.

Ex: I just went to www.ssa.gov and calculated benefits based on a 55 year old with $40,000 earnings and a 55 year old with $1,200,000 earnings.

$40,000 = $2,768 @ age 70
$1,200,000 = $4,510 @ age 70

Total = $7,278


Now if we keep the benefits for the $40,000 earner the same but lower the $1,000,000 earner to maybe 1/3 of the other, we'd have:

$40,000 = $2,768
$1,200,000 = $1,503

Total = $4,271



I know this goes against the natural thinking of most people, but why not do it? Any comments? Could this ever work?

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Author: ziggy29 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: 3635 of 5267
Subject: Re: Other Suggestions?? Date: 2/4/2005 5:50 PM
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>> Privatization is NOT the answer, for the single reason that Social Security was created to help those who lost their shirts in the stock market crash of 1929. It's a total slap in the face to those who created Social Security in the first place. Privatization will just force us into the 2nd Great Depression. <<

That's almost certainly a gross overstatement.

While stock investing is never without risk, the regulation of the industry -- and prudent invstment options -- weren't really around in 1929. Today you can invest in allocations of index funds which, over a 30 to 40 year time horizon, have never underperformed a basket of Treasury securities. Nope, not even when 1929-32, 1973-74 or 2000-02 are included.

That's no guarantee it *can't* happen, but history is overwhelmingly on its side.

No sane privatization plan today would allow a 64-year-old to invest 100% of their portfolio in a small number of individual high-risk stocks if this account was going to be a major source of their retirement income. In 1929, that could happen -- which made it easier to lose everything.

I'm not completely sold on privatization, but there really is a lot of ridiculously alarmist (and unrealistic) FUD being spread out there by its opponents.

Besides, if we ever had a 30-, 40- or 50-year period where bonds outperformed equities, our economic system would be in such a shambles that Social Security might be the least of our concerns.

>> I know this goes against the natural thinking of most people, but why not do it? Any comments? Could this ever work? <<

That's excessively redistributionist. If you're dead-set against privatization and you're more interested in making the wealthy pay for shoring up the system, you can address about 3/4 of the "crisis" by simply eliminating the $90,000 cap on earnings subject to Social Security withholding. The other quarter could be handled by modest means-testing, by taxing all benefits for recipients in upper-middle-class and above tax brackets, or by slowly raising the retirement age beyond age 67 starting in 1961 (the last hike in age affected 1938-60) until it's about 70 and index according to life expectancy after that.

Ultimately, I suspect any "fix" will include a combination of private accounts and some of the above options, as the only way this can get to a vote in the Senate is to avoid filibuster, which means getting a few Democrats on board.

#29

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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: 3638 of 5267
Subject: Re: Other Suggestions?? Date: 2/4/2005 6:14 PM
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Ex: I just went to www.ssa.gov and calculated benefits based on a 55 year old with $40,000 earnings and a 55 year old with $1,200,000 earnings.

$40,000 = $2,768 @ age 70
$1,200,000 = $4,510 @ age 70

Total = $7,278


THIS is the true problem with SS (BTW $120,000/year yields $4500), the person that makes more, and can likely save more, gets more. A person that makes $25,000 gets $2022 at 70.

Your second example is one of the possible need based plans and is more appropriate than the current SS. If you cut off everyone making $100,000/year or more, then you are down to only paying out the $2,768 in your example.


Keith

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Author: ziggy29 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: 3639 of 5267
Subject: Re: Other Suggestions?? Date: 2/4/2005 6:18 PM
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>> Your second example is one of the possible need based plans and is more appropriate than the current SS. If you cut off everyone making $100,000/year or more, then you are down to only paying out the $2,768 in your example. <<

Heck, you could also just give benefits up to (say) double the poverty line, cut withholding taxes (probably) in half and let those who won't receive anything invest the difference for their *own* retirement.

#29


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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3640 of 5267
Subject: Re: Other Suggestions?? Date: 2/4/2005 6:39 PM
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knows09: "Ex: I just went to www.ssa.gov and calculated benefits based on a 55 year old with $40,000 earnings and a 55 year old with $1,200,000 earnings.

$40,000 = $2,768 @ age 70
$1,200,000 = $4,510 @ age 70"


Can you show the math you used. I tend to doubt the numbers, especially the second one. Earnings over the SS cap are irrelevant for purposes of calculating benefits under the current formula

From my notes: "The benefit formula is a three step formula based on AIME (Average Indexed Monthly Earnings). The annual earnings on which this average earnings figure is based have the same caps as were used on the tax side. The formula for the benefit is then 90% of the first $x of AIME plus 32% of the next $y of AIME plus 15% of the balance of AIME. x and y are indexed yearly."

Also from my notes: "Social Security is expected to replace about 40 percent of pre-retirement earnings of average earners; 80 percent for the lowest earners; and 27 percent for those at the maximum taxable wage base of $80,400, according to the Social Security Administration."
[caps wer 2001 was $80,400; 2002 was $84,900; 2003 was $87,000; 2004 was $87,900; 2005 was $90,000]

27% of 90,000 is $24,300 or slightly more than $2000/month, a far cry from $4,510.

http://www.ssa.gov/OACT/COLA/examplemax.html

From the chart, an age 70 retiree in 2005 who earned maximum amount since age 22 would have a monthly benefit of $2,252.

Curiously, JAFO





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Author: ziggy29 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: 3641 of 5267
Subject: Re: Other Suggestions?? Date: 2/4/2005 6:45 PM
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>> Can you show the math you used. I tend to doubt the numbers, especially the second one. Earnings over the SS cap are irrelevant for purposes of calculating benefits under the current formula

...

From the chart, an age 70 retiree in 2005 who earned maximum amount since age 22 would have a monthly benefit of $2,252.
<<

The numbers you question are presumably future (inflated) dollars and for a 55-year-old who will be retiring 15 years from now -- a 2020 retiree, not a 2005 retiree.

#29

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Author: hopmama45 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3642 of 5267
Subject: Re: Other Suggestions?? Date: 2/5/2005 2:28 AM
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I have had low paying jobs all my life and the most that So Sec said I would get was $486 a month. As it is I got hurt on my job and had to go on Soc Disability and I get $493. Now I get $460 widows and won't get my hubbys full So Sec till reach age 66. now there was a over payment on my widows when it frist started and so I have to pay back $268 so the are taking $25 a month out of my check and will for the next 10 1/2 mos. I get more because I got hurt than I would if I had been able to work longer. So go figure.

When So Sec give a cost of living increase things seem to go up besides medicare and so some of us who worked hard all our life at low paying jobs with no nothing as the companies was to cheap to offer anything. beside health insurance which we had co-pays.

I was a certificated Nurse Assistant and a Certificated Home Health Assistant

they call us CNA and CHHA) now I made $6 a hour as a CHHA but they charged the client $35 hr. Now the gal in the office made $8 a hour. And we did more work than she did. but she got more a hour. I did a little better in the convelscent hospital I made $8 a hour.

So my yearly income is below what I was making working. Now with the $25 cut in my check my income will be $928 a month now without the cut my yearly income is $11.466 per year. Now when I was working I paid tax's on income of $13.500 to 14.500 and to make that a year I had to work a full time job and a part-time job. I know a lady who gets $576 So Sec a month and so she get around $6.912

So for me to invest my hard earned income in stocks that may work and then again it may not. But I can't work anymore so I learn to live from the 3rd of the month to 3rd of the month and hope and pray nothing big happens and a new bill pops up or my space rent goes up. I don't get to go on vacation and lay-away is a way of life for me and so are second hand store's for new things like a chair or a sofa it my be second hand but hey its new to me.

Now that is my 2 cents

Ma

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Author: OldOne Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3643 of 5267
Subject: Re: Other Suggestions?? Date: 2/5/2005 3:01 AM
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Ma:

The plan proposed will not decrease your SS payment, and there is no plan for you to "invest my hard earned income in stocks that may work and then again it may not."

The private accounts are only for people who are under 55 and will be phased in slowly.

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Author: hopmama45 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3644 of 5267
Subject: Re: Other Suggestions?? Date: 2/5/2005 8:52 AM
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Oh good as I sure don't need a cut...Wow can't afford that as I have my eye on a lamp at the Goodwell.:):)

MA

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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: 3658 of 5267
Subject: Re: Other Suggestions?? Date: 2/5/2005 10:03 PM
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>>Forgive me if this has come up before, but can anyone come up with an alternate plan for fixing social security besides privatization??<<

You must be new here. As I've said lots of times, the best solution is to invest the trust funds for a better return than they are getting now!

And eventually make SS self-sustaining.

But that's apparently not politically possible yet. (Why, I can not fathom.) So privatization is a good stop-gap untill the above can be implemented.


>>Privatization is NOT the answer, for the single reason that Social Security was created to help those who lost their shirts in the stock market crash of 1929. It's a total slap in the face to those who created Social Security in the first place. Privatization will just force us into the 2nd Great Depression.<<

That is ridiculous. First of all, the average worker did not invest in the market in the 20's, though the Crash certainly affected everyone, mainly because stocks were bought with borrowed money, which could not be repaid, and simply disappeared.

Second, returning billions to the economy will bring prosperity and increasing wealth. Yes, future government borrowing will be a problem, but we'll survive it. For one thing, the wealth created by privitization will increase tax revenue.

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Author: stochasticgirl Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3868 of 5267
Subject: Re: Other Suggestions?? Date: 2/25/2005 11:21 AM
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You must be new here. As I've said lots of times, the best solution is to invest the trust funds for a better return than they are getting now!

Hear, hear! Personally, I think that we should take the trust fund and invest some of the trust fund in equity indexes, rather than letting individuals invest their own "private accounts" in equities. I see several advantages to this reasoning:

1) We all know that the market gets better returns than Treasury and Special Obligation government bonds. Even in the worst performing years in the 20th Century, the market returned what, about 6%?

2) By keeping the trust fund structure as we have it now and investing the fund as a whole rather than in millions of individual account, we'd be saving ourselves the recordkeeping nightmare that would result from having private accounts. I work for a major private retirement provider, and it's difficult enough keeping records for a single state retirement plan - the horror of having to keep records for 50!

3) By investing in broad stock indexes, the federal government would also be lending its capital support to private industry, be it small cap, mid or large. (I suppose this could get into sticky issues of the government having too much control and influence, a la CALPERS, but if the trust fund were invested in thousands of businesses via index funds, could this still be a potential problem?)

Any thoughts on this plan? I'm not sure of what the best diversification mix might be for something like the Social Security Trust Fund - I suppose we could base it on the actuarial assumptions of whatever current demographics are prevalent in a particular year. Still, I see this as a viable alternative to Privatization that no high profile politicians have brought up yet, though they claim to be looking for bipartisan solutions.

Suggestions/comments would be greatly appreciated!

(PS, I'm also new here, so I hope you don't hold that against me!)

Judy

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Author: AlaskaSteve100 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3869 of 5267
Subject: Re: Other Suggestions?? Date: 2/25/2005 10:00 PM
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<<<You must be new here. As I've said lots of times, the best solution is to invest the trust funds for a better return than they are getting now!>>>

Well, lets see. Currently, any surplus paid into Soc. Sec., the source of any "Trust Fund" accounting balance, goes to fund general government operations. Because these dollars are available, income tax rates are lower than they otherwise would need to be. This, in turn, allows folks to invest "Trust Fund" dollars in the economy based upon expected market risks and returns.

Now, exactly how do you propose to generate returns for the "Trust Funds" in excess of those garnered by stocks, corporate bonds, private businesses, etc.?

Privatization does nothing to increase the amount of capital available for investment, nor does it do anything to address any theoretical or real solvency problem.

If it were truly a simple matter of generating higher returns for the Trust Funds, we could just declare: "Trust Funds earn 20% per year."

Sorry. The Free Lunch Theorum is remains alive and well.

Ak Steve


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Author: ziggy29 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: 3870 of 5267
Subject: Re: Other Suggestions?? Date: 2/25/2005 10:39 PM
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>> Hear, hear! Personally, I think that we should take the trust fund and invest some of the trust fund in equity indexes, rather than letting individuals invest their own "private accounts" in equities. I see several advantages to this reasoning: <<

Sounds good in principle, and I'm all for it in the best-case scenario.

But right now, we have a lot of government borrowing and large budget deficits which create more debt.

Though it's a suboptimal investment vehicle in terms of returns, the demand Social Security creates for government debt helps keep the cost (and interest expense) of government borrowing down. If Social Security suddenly stopped investing in Treasury securities and bought stocks, interest rates on government debt might rise sharply. That could cause significant economic problems, not just by increasing annual government interest expense but also increase long interest rates in general, slow econmic growth and sink the residential real estate market.

Don't get me wrong -- in principle, I am totally for the SS trust fund holding a prudent and relatively long-term low-risk stock/bond mix (perhaps between 40/60 and 60/40) -- but until we get deficits under control, it's not as simple as just moving the trust fund into stocks.

First things first, I say. First, get the deficit under control and balance the budget. THEN you don't have to worry as much about the cost of debt to the government, and THEN it would be a good opportunity to start putting some of the current surplus into equities.

#29

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Author: AlaskaSteve100 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3871 of 5267
Subject: Re: Other Suggestions?? Date: 2/26/2005 12:57 AM
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<<<If Social Security suddenly stopped investing in Treasury securities>>>

But Soc Sec doesn't invest in Treasury securities now. The Trust Funds are not in the form of marketable instruments. It is just an accounting entry. The bookkeeping entry is called "special issue Treasury securities", but in reality, there exists no instrument that has any market value. One could certainly argue that without payroll taxes being diverted to general revenue accounts acknowledged debt or income taxes would have to rise, but so what? Why live on borrowings that are not recorded as liabilities?



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Author: kahunacfa 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: 5260 of 5267
Subject: Re: Other Suggestions?? Date: 11/7/2011 5:41 PM
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There is nothing wrong with Social Security as it currently exists. The problem with Social Security, in part, is including Merdicare/Medacare benefits as part of their charter. That happened during the LBJ admistration. LBJ should bwe rwequired to bail-out Social Security.

Kahuna, CFA
Venture Capital
Portfolio manager

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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: 5261 of 5267
Subject: Re: Other Suggestions?? Date: 11/7/2011 6:03 PM
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<<There is nothing wrong with Social Security as it currently exists. The problem with Social Security, in part, is including Merdicare/Medacare benefits as part of their charter. That happened during the LBJ admistration. LBJ should bwe rwequired to bail-out Social Security.

Kahuna, CFA
Venture Capital
>>



Sorry Kahuna --- I have no idea what this means.


Seattle Pioneer

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