No. of Recommendations: 5
I'm probably by far the youngest poster here (23) but it's mainly because you're a great group of posters and heck you are all pretty smart too. I wanted to post this some time ago as it brought a large smile to my face. I try to read quite a lot of financial articles from various sources on a weekly basis and the first paragraphs of one article by a fund manager I believe on Quicken.com, brought back to mind something that I had completely forgotten and was curious to get some feedback from here.
He was basically stating, to my total agreement, how all talks at the beginning of the Bush era were for the inclusion of part of people's social security to allowed to be invested in the stock market. This issue is one I had discussed at length in one of my classes on the social security issue my generation will probably be facing, and it's absolutely obvious for me that this current market demonstrates how bad an idea it would be to allow people to invest in the market. I have several reasons why I believe this besides the political impact. First of all the most obvious is that everyone is not educated enough to take wise decisions with their money, even most of us Fools have made mistakes that I'm sure if they were at retirement (which might be the case if you held Worldcom or Enron) or during your investment careers would be too large to overcome. That's the fear I had with this proposal. Sure it was great if we had 20 years of the 1990s but that isn't going to be the case. Secondly, I think it's just a safer bet to know that the money that people have been putting aside to the government is safe and that if all else fails and the millions of Enron linked retirees need income, they have that at least. I'm more then happy to hear from what you might think of my opinion but it was jus a thought that had drifted away and came back suddenly. Thanks.
Print the post Back To Top
No. of Recommendations: 2
Belgoboy writes,

He was basically stating, to my total agreement, how all talks at the beginning of the Bush era were for the inclusion of part of people's social security to allowed to be invested in the stock market. This issue is one I had discussed at length in one of my classes on the social security issue my generation will probably be facing, and it's absolutely obvious for me that this current market demonstrates how bad an idea it would be to allow people to invest in the market. I have several reasons why I believe this besides the political impact. First of all the most obvious is that everyone is not educated enough to take wise decisions with their money, even most of us Fools have made mistakes that I'm sure if they were at retirement (which might be the case if you held Worldcom or Enron) or during your investment careers would be too large to overcome. That's the fear I had with this proposal. Sure it was great if we had 20 years of the 1990s but that isn't going to be the case. Secondly, I think it's just a safer bet to know that the money that people have been putting aside to the government is safe and that if all else fails and the millions of Enron linked retirees need income, they have that at least. I'm more then happy to hear from what you might think of my opinion but it was jus a thought that had drifted away and came back suddenly. Thanks.

I agree. Giving the average person the ability to invest his Social Security contributions should mirror the performance of the average 401k account, see link:

http://www.dallasnews.com/business/scottburns/columns/archives/1998/980906SU.htm

We'll have more losers than winners under the "invest your own" system. I don't have a problem with a defined minimum Social Security benefit at about the poverty level.

Now if we wanted to let the Gov't put 10% of the Social Security surplus into a broad index fund, that's fine, but the anti-gov't folks would squeal like stuck pigs.

intercst
Print the post Back To Top
No. of Recommendations: 8
First of all the most obvious is that everyone is not educated enough to take wise decisions with their money,

If the answer to the possibility of stupidity is to prohibit intelligence, then why do we have schools?
Print the post Back To Top
No. of Recommendations: 29
I'm probably by far the youngest poster here (23)...

This issue is one I had discussed at length in one of my classes on the social security issue my generation will probably be facing, and it's absolutely obvious for me that this current market demonstrates how bad an idea it would be to allow people to invest in the market.


If I were 23, and I was not too long ago...

I would want nothing more than to be able to direct my SS into the stock market precisely right now.

Golfwaymore

Print the post Back To Top
No. of Recommendations: 6
golfwaymore writes,

<<<<I'm probably by far the youngest poster here (23)...

This issue is one I had discussed at length in one of my classes on the social security issue my generation will probably be facing, and it's absolutely obvious for me that this current market demonstrates how bad an idea it would be to allow people to invest in the market.>>>

If I were 23, and I was not too long ago...

I would want nothing more than to be able to direct my SS into the stock market precisely right now.


I would, too, but unfortunately we're in the minority. In the face of today's stock market, most folks would be putting their self-directed SS contributions into 2% CDs and hoping that their "special personality" will allow them to retire above the poverty level.

intercst

Print the post Back To Top
No. of Recommendations: 21
<<I agree. Giving the average person the ability to invest his Social Security contributions should mirror the performance of the average 401k account, see link:

http://www.dallasnews.com/business/scottburns/columns/archives/1998/980906SU.htm

We'll have more losers than winners under the "invest your own" system. I don't have a problem with a defined minimum Social Security benefit at about the poverty level.

Now if we wanted to let the Gov't put 10% of the Social Security surplus into a broad index fund, that's fine, but the anti-gov't folks would squeal like stuck pigs.
>>


I absolutely disagree.

Firstly, we have a government run system that has just about nothing in reserves to cover the truly staggering payouts promised. The government claims to be proud of this ponzi scheme, which relies on the next generation to be as foolish as the baby boomer generation was to continue funding this absurd "system".


So ANY equity is a big improvement over nothing at all.


And I recall three years ago when a good many of my blue collar co-workers and I had $100,000-$150,000 in 401K plans, and suddenly saving and investing was a bigger status symbol than buying a new pickup truck with 5 year financing. Probably a good many of those people have taken hits on those investments, but they have a priceless vision of the kind of payoff savings and investing can and does provide.


Personally, I am reasonably confident that Gen X, Y and Z isn't going to stand for the taxes to finance the retirement of a lot of well off baby boomers. I'm expecting Social Security to pay benefits to the indigent and poor, but to means test benefits and cut off the middle class from most Social Security payments. Meantime, if you want Gen X,Y and Z to buy into this failing system, the best way is to sucker them with SOME kind of equity they own in an otherwise failing system.

Maybe they will make lousy investment decisions, but they will be a hell of a lot better than the virtually zero equity the politicians have left us with now.


The accounting scandals in the private sector that are raising such a stink are northing compared to the outrages of government "accounting."




Seattle Pioneer
Print the post Back To Top
No. of Recommendations: 1
SeattlePioneer writes,

Maybe they will make lousy investment decisions, but they will be a hell of a lot better than the virtually zero equity the politicians have left us with now.


Why leave them to make lousy investment decisions. Just put everyone's "self-directed" SS contribution into an index fund. There's a wealth of research that shows 80% of the people left to their own devices do worse.

I favor putting part of the SS contributions into "investments". I just question whether it should be "self-directed".

intercst
Print the post Back To Top
No. of Recommendations: 3
Just a couple of notes:

However you want to describe it -- and Ponzi scheme is one of the more inaccurate, professional grifters would regard the analogy as an insult -- the system is still basically a pay as you go operation. The cash surplus – money that is left over after paying current benefits – is around $150 billion (perhaps a lot less, how the government accounts for the SS surplus is rather byzantine, surprise, surprise.)
So, unless we want to completely transfer SS payments over to the general budget -- which would translate in much, much, larger Federal deficits as far as the eye can see -- we are looking at perhaps 4% reduction in the average payroll tax; less for higher incomes because of the SS cap.
(It would be terribly ironic if the reduction in SS taxes were to be negated by a rise in other taxes to stop the deficit from going ballistic.)

Yes, if all the money not taken goes into personal retirement accounts, the potential benefits would be greater (for average income taxpayers, very low income payers arguably get a better “return on investment” from SS than a private plan is likely to provide). But it would be interesting to calculate the return on investment using a slow, gradual phase out of the system over several decades for a 23 year old with a median lifetime income.

Second, some of the unintended consequences of a national mandatory equity investment program should be considered. They could range from the “too big to fail” syndrome where the governement is pressured by the public to support the markets against major corrections – the Plunge Protection Team being a formal body instead of a quasi-fantasy. To a disconnect between valuation and price: stocks go up simply because money is thrown at them automatically (hmmm, didn't we just go through a bout of that?). To an offset in retirement money invested outside Social Security. To the rather troubling question of whether we should restrict the withdrawal rate of retirees in order to keep the markets from being pressured.

I won't go into the other questions about the solvency of the SS system, or its faults as a pension plan. It is quite late, and frankly, for the most part I've found that most people have made up their minds on the subjects one way or the other. So, fa lo stesso.


Print the post Back To Top
No. of Recommendations: 4
My 2 cents worth:

Replacing the public defined benefit plan of Social Security with a public defined contribution plan has the potential to be just as detrimental as the shift from DB plans to DC plans in the private sector.

Like any program three generations old, modifications are necessary. However, jingoistic slurs such as "Ponzi scheme" do little to address a very complex issue.

I commened Belgoboy for a well reasoned analysis of a very difficult question.

My 22 yearold son often lurks here, I wonder what he would say?

buzman




Print the post Back To Top
No. of Recommendations: 9
Now if we wanted to let the Gov't put 10% of the Social Security surplus into a broad index fund, that's fine,

I absolutely disagree.

Firstly, we have a government run system that has just about nothing in reserves to cover the truly staggering payouts promised. The government claims to be proud of this ponzi scheme, which relies on the next generation


Think about all the bad laws created because politicians wanted to look like they were doing something about a problem, where the law actually hurt things. I've heard a whole bunch of proposals because the market has gone down recently. It's as if the pols think they can legislate constant annual returns. Luckily most of these bad legislative proposals lose steam. Imagine, though, if the politicians were getting screamed at by people who felt that social security had gone down! The clamor to "do something" could be too loud to let good judgment intrude. Imagine some of the big companies whose stock makes up a disproportionate part of the S&P500. (GE was between 3.5% and 4% at one time!!!) The CEO and board of directors want to make some good long term decisions at the expense of the next quarter or two, and then they recall that the politicians will be breathing down their necks. Worse yet, instead of the politicians, what if it's a committee, unacountable to voters or congress directly, who enforces whatever rules they came up with? We think we have too much short term thinking now!

It makes me think of a coworker who was gripicng about his 60% loss caused by "the greed of CEOs." Whose greed was it that kept him from having a balanced asset allocation? Whose greed forced him to invest exclusively in tech stocks? Whose greed made him put his short term money (kids' college money--one and two years off) in stock?

People might *say* that they'd rather have a good long term return at the expense of short term volatility, but look at the recent near-panic. Recall all the people getting in at P/Es of 60, but selling like crazy at 22. If we start putting social security money in stocks, there'll be too much impetus for bad regulations on the stock market and on companies' financials. Also, the money we pay today isn't really invested--it's spent on today's retirees. It so happens that we have more money in than paid out in ss alone, but that "excess" is spent on other items. (How's that for a "balanced budget?" The ss overage was used to balance out the spending that exceeds federal income tax receipts.)

Finally, here's a strategy for people who might like to use their social security to increase their tax exposure: Regard your ss income as a bond. So, if you want to have an 80/20 allocation between stocks and bonds, reverse calculate the "value" of a bond that would pay interest in the amount you get from ss. Count that value towards your bond allocation. You could do the same with your pension income, and even the value of "rent" you don't have to pay if your home is paid off. You can see that doing all of this would result in holding a lot more in stock. For that, I have two comments--
1. If an 80/20 mix is appropriate for someone with no pension or ss payment coming in, and also having to pay rent, then a person who is on the opposite side of the fence really can hold a lot more stock.
2. As with any other rules of thumb or guidelines, if it doesn't pass your "common sense test" (aka, the "scratch-n-sniff" test), then don't do it. Many on this board have made a case for 33/33/33 allocation of stocks, bonds and real estate. However, I like having several ways of looking at an issue. When those ways have vastly divergent results you can see the implications of your decisions. When those ways all result in the same outcome, you can feel a lot of reief that you won't make an enormous mistake with your decision.
Print the post Back To Top
No. of Recommendations: 5
Here's a modest proposal for reforming social security: How about allowing people to opt out? If an individual can show that they have certain minimal disability coverage and that they have made certain contributions towards retirement, then they would be exempted from a portion of the ss tax.

--David
Print the post Back To Top
No. of Recommendations: 0
<<SeattlePioneer writes,

Maybe they will make lousy investment decisions, but they will be a hell of a lot better than the virtually zero equity the politicians have left us with now.


Why leave them to make lousy investment decisions. Just put everyone's "self-directed" SS contribution into an index fund. There's a wealth of research that shows 80% of the people left to their own devices do worse.

I favor putting part of the SS contributions into "investments". I just question whether it should be "self-directed".

intercst >>


Fine in theory, but before very long interests groups are going to be leeching off a centrally controlled and directed pot of money. I am sure it would be taxed to serve the numerous noble causes for which politicians want money.


There's really no way to avoid that except eternal vigilence, like the National Rifle Association or other interest groups do on behalf of their concerns. But the interest of the public is fickle, and the interest of special interest groups is eternal and unsleeping.

After all, that's really what happened to Social Security. Instead of beiong administered in the interests of the people who were actually paying the taxes, and holding their money in interest bearing funds, politicians found it a lot more attractive to keep paying out ever larger benefits to people whose payments didn't cover expanded benefits, turning what might have been a decent and equitable system into a ponzi scheme.



Seattle Pioneer
Print the post Back To Top
No. of Recommendations: 1
<<Like any program three generations old, modifications are necessary. However, jingoistic slurs such as "Ponzi scheme" do little to address a very complex issue.

I commened Belgoboy for a well reasoned analysis of a very difficult question.

My 22 yearold son often lurks here, I wonder what he would say?

buzman
>>


I suggest that if he were smart, he'd be looking for a way to dump his obligation to pay Social Security taxes, since he's probably going to pay huge amounts of taxes all his life only to discover that he gets little or nothing back in a means tested system.

That's why I consider "ponzi scheme" to be entirely appropriate. Any other label assumes you will be able to hold up American workers for 15% or more of their wages forever. In fact, it is far more likely in my view that Social Security will be means tested and will quit paying benefits to people who don't need them

Under the law, people have no "right" to a nickel in benefits. The political winds are already shifting --- proposals for a federal drug benefit for the elderly are all means tested in various ways. The normal retirement age is being raised from 65n years to 67 years and hald of Social Security benefits are subject to income taxes for wealthier people. I merely suggest that these trends will continue.

And the first baby boomers have yet to collect a retirement check from Social Security!




Seattle Pioneer
Print the post Back To Top
No. of Recommendations: 0
This is going to be the political demand of Gen X, Y and Z as they confront the demand that they pay 15% or more of their income into a failing Social Security system. I predict they wont get it, but they will get concessions that will shake Social Security to its foundations.


The basic problem is HOW do you get Gen X,Y and Z to keep paying Social Security taxes when they can see and are increasing being convinced that there wont be much left for them when they retire. George Bush is already making the opening effort: give people ownership over at least some of what they pay in taxes.

This is really a smart move, and Social Security advocates are missing an opportunity to try to sell a method to get Gen Xers and such to buy into the Social Security Scheme at a low price ---considering that the alternative is what David proposes above ---opting out and abandonning the scheme altogether.




Seattle Pioneer
Print the post Back To Top
No. of Recommendations: 2
"If the answer to the possibility of stupidity is to prohibit intelligence, then why do we have schools?"

You ought to teach in our public schools. It's a real eye opener. There are a few really good teachers and some really good students; but for the most part ~ 75%, it's nothing more than a warehouse to babysit kids while their parents are at work. Trust me on this one. If you don't believe me just give out a questionaire to kids at the mall asking them questions you think they should know. Like "what state is New York City in?" - Art
Print the post Back To Top
No. of Recommendations: 1
I love the remarks that Seattle Pionner has left and wish to thank buzzman for the complement and intercst for repeating what I believe is the true problem.

<<SeattlePioneer writes,

Maybe they will make lousy investment decisions, but they will be a hell of a lot better than the virtually zero equity the politicians have left us with now.

Why leave them to make lousy investment decisions. Just put everyone's "self-directed" SS contribution into an index fund. There's a wealth of research that shows 80% of the people left to their own devices do worse.

I favor putting part of the SS contributions into "investments". I just question whether it should be "self-directed".


I have not really worked long enough at all to have a stronger for or against opinion. I try to think of the greater good. Seeing how badly equities are doing frightens me in the sense that even if I do feel comfortable with the plan I wish to establish, without sounding pompous or superiour, I really don't see the benefits (for most of the population) of allowing them to invest part of their ss tax in equities. I agree that the option should exist, sort of a counterstatement I know, but it's a scary thought nevertheless given the obvious examples of well respected companies going bankrupt like Enron and Worldcom, and Kmart. It's probably the same problem I have with 401k and people putting all their eggs in one basket.
If you think abou the grocery clerk who puts half of her retirement income with the supposed knowledge that you always make more money in stocks based on all the media coverage we're blasted with, it's hard not to ignore that she might invest randomly in a "big safe company" like Kmart all but to see it all go to waste. That's the issue I have with it Seattle Pionneer. I can't really agree with it being a Ponzi scheme. It has its faults but it's a system that I "like" because if all else fails its one of the only safety nets that Americans have with unemployment.
If the government had clear brochures demonstrating to people who want to opt to invest that holding shares over 20 years like Jeremy Siegel suggest have higher returns and that that actually allows them to understand the benefit fine. Perhaps allowing them to allocate 5-20% in an index fund (equity or cash) sort of like a government brokerage firm. But I do have a problem if that option arrived at my doorstep saying that I can choose to invest x percent of my ss money without any knowledge of what the benefits/drawbacks are. It's not because over 50% of american families own stock or mutual funds that they know what they are investing in. Before the fool I considered myself totally clueless and even after being on these boards for over a year I still see how much more there is for me to learn before even considering myself comfortable with my investments. I always do appreciate your insight because its well thought through and as opposed to other board members found on the Fool you don't go about saying "It's my way and that's it."
Print the post Back To Top
No. of Recommendations: 3
but they will get concessions that will shake Social Security to its foundations. wrote SP

Couldn't agree with you more, like I said changes are necessary.

George Bush is already making the opening effort: give people ownership over at least some of what they pay in taxes.

Pure pablum, it's a payoff to his Wall ST. cronies at worst or an attempt to attract Gen X votes at best. Who knows, it may have helped him in some close races, like Florida, oops, sorry about that. <grin>

Demonizing Social Security solves little, glib phrases make cute sound bites but do liitle to cure the problem.

It's more complicated than that.

buzman



Print the post Back To Top
No. of Recommendations: 0
If the gov't wants to eliminate people from risking their social secrity money in the stock market, why don't they just allow people invest in Ginne Maes, an intermediate bond fund that earns consistent returns of approximately 6 - 7 % per year over the long run.
Print the post Back To Top
No. of Recommendations: 0
If the gov't wants to eliminate people from risking their social secrity money in the stock market, why don't they just allow people invest in Ginne Maes, an intermediate bond fund that earns consistent returns of approximately 6 - 7 % per year over the long run.

danpat24,

Bonds, like all financial instruments, are subject to the basic element of Price theory: Supply and demand.

If a bond with a $100 par value is issued with a 7% yield, and demand for that bond is high, the value goes up (you have to pay more than $100 for the bond) and the yield therefore declines.

If huge amounts of retirement capital are poured into bonds, you can expect that the average yields will significantly decline -- which to some extent is what is happening right now in treasury bond market (not the corporate, there, basis points spreads are getting rather troubling).
Print the post Back To Top
No. of Recommendations: 0
Here's a modest proposal for reforming social security: How about allowing people to opt out? If an individual can show that they have certain minimal disability coverage and that they have made certain contributions towards retirement, then they would be exempted from a portion of the ss tax.

The problem is, Washington doesn't need to tax you so much for your retirement or disability, they need the money to pay for current retirees plus other projects and programs that should be funded by income tax (or shouldn't be funded at all, but that's a completely different debate).
Print the post Back To Top
No. of Recommendations: 0
My biggest problem with this whole idea is with the government owning businesses. Who will vote the proxies? The individual? If so and you are treating the account as theirs, why not just let the individual take home more pay and invest it as they see fit. Who knows, the Excursion they buy may just become a valuable collecter's item someday! (Probably a better investment than Tyco) Of course, the government wouldn't allow it to be their's cause then Congress would have trouble taking it away when they want to pay Ted Turner to not grow corn. No doubt under this scheme of "private" accounts many whole businesses would be owned outright by the government (as trustee? HA!).

If you want a government that owns the businesses move to Cuba.. at least the weather's nice.

FoolNBlue (Who would much rather invest in oversized SUVs than the Social Security System)
Print the post Back To Top
No. of Recommendations: 4
Belgoboy

I was hoping that it would not be necessary for me to respond to this thread. I find it necessary because there seems to be much confusion about what is actually being proposed. These are the general guidelines for the changes in the social security system:

1. Everyone would be able to opt out at any time.
2. At least initially, no one would be able to invest less than a couple of decades. If you are over 45 years old, forget it. You are not eligible.
3. You could only invest a fraction of your social security contributions (i.e., taxes). The rest would be in the normal social security system and it would provide an ultimate safety net.
4. You would not be able to invest in individual stocks.
5. Most likely, your investments would be limited to index funds similar to those in the Federal Government's Thrift Savings Plan (TSP).
6. The issue of ownership is highly important. Investments are to be owned by individuals.
7. There would be a phase in period during which the general fund supplements the social security system.

In terms of your concerns:

1. Periodic investments (similar to dollar cost averaging) in the overall stock market over long periods of time...in this case decades...has always been a good investment choice. We are not talking about the kind of two or three year stretch that bothers you.
2. The Thrift Savings Plan currently consists of (a) the G fund, which is very much like a money market fund but with a very high interest rate (currently around 5%), (b) the F fund, which is a bond index fund and (c) three stock funds, the C fund, the S fund and the I fund. The C fund tracks the S&P 500 index. The S fund tracks a small cap index. IIRC, the Russell 2000. The I fund tracks an international equity index. IIRC, the EAFE equity index. Money in the G fund is guaranteed to increase. Dollars in the other funds fluctuate. At times, they decrease.
3. The biggest problem with defined contribution plans has been because people choose not to invest or they invest very little. Because social security contributions are mandatory (i.e., they are actually taxes), individuals would not be allowed to make this mistake.

In terms of the kinds of issues that need to be resolved:

1. Exactly what happens when someone opts in the private investment program in some years and opts out in other years? This is much more complex than it might seem at first since the social security payouts are very high (relative to contributions) for lower income people and they are much lower (on a percentage basis) for higher income people.
2. Many people over age 45 would like to invest. This cutoff age during the transition period is an obvious source of contention.
3. Many people would like to invest more than about a quarter or a third of their social security contributions. (This is about one sixth of the total contribution. The employer pays the other part.)
4. Many people would like a wider selection of funds to choose from. Almost every mutual fund company would like to offer all of its funds. There is a lot of money to be made.
5. Many politicians would like to have the Government own the investments. This would allow them to introduce policy decisions into investment choices and it would allow them to influence corporate management decisions. (This is generally known as national socialism. But I am sure that there are a host of fine grain distinctions with variety of different names.)
6. Tapping the general fund during a transition period has always been part of any change in social security including beefing up medicare and medicaid. For political purposes, it is often claimed that current retirees would be in danger because social security revenues would be diverted. What actually causes a bitter contention is that money from the general fund would come from current discretionary programs (plus some deficit spending). There would be many spending cuts during the transition period. (Some of these would be actual cuts, not simply a reduction in a projected rate of growth.)

I hope that I have increased your appreciation as to what is involved, why it is a good idea and, at the same time, why it is so difficult.

Fool On,

John R.
Print the post Back To Top
No. of Recommendations: 4
I hope that I have increased your appreciation as to what is involved, why it is a good idea and, at the same time, why it is so difficult.

You post some of the issues, but ignore others. For instance, a portion of Social Security payments go to people who have never contributed. Widows of recipients, for instance, and children.

The reason your "return" looks lower is because you are not guaranteed to get back what you put in. You may get more or you may get less. In this way, SS functions as an insurance system, where many pay, and the benefit is divided unequally according to the parameters of the system set-up.

So let's take the "I have my own account, it's mine and nobody else's" model. Your return in "your portion" of the stock market does well (let's say.) Now the widows, orphans, and disabled need to be paid out of the even smaller portion which is left in the "government" part.

Ten years from now everybody says "Holy Cow! Look how well we're doing with "mine" and look how terrible the government is doing with "theirs which should be mine"!!" Rinse, lather, repeat.

You also ignore the portion of people who will have saved "mine", but who empty the "mine" bank account long before they die. Presumably we will pay them out of the "government" portion as well, which will make that part look even worse. Or we will stop paying them anything and be back where we were before the system began.

Then there are the people who "die early" and whose "mine" portion (I guess?) is willed to heirs, meaning it cannot be used to pay those people who are drawing "more" because of the life lottery. Is that how it works, or does the "mine" portion evaporate? (Indeed, that's what happens now, although it is invisible since there is no delineation between "mine" and "theirs", and therefore there isn't any political pressure to "keep it.")

It sounds very much like a car insurance plan where the company sends you back your premium at the end of the year "if you didn't use it", but nobody explains where the money comes from to pay the extraordinary costs of car repair or medical bills for those who do.
Print the post Back To Top
No. of Recommendations: 3
<<It sounds very much like a car insurance plan where the company sends you back your premium at the end of the year "if you didn't use it", but nobody explains where the money comes from to pay the extraordinary costs of car repair or medical bills for those who do. >>


Clever exageration of parts of a complex system of benefits.


The retirement benefits portion of the Social Security system dwarfs that of its other parts and functions, and is the reason the system is a dead man walking.


The Congress reasonably objected to private pension systems that failed to accumulate reserves to fund their long term liabilities. Instead of doing the same thing for Social Security beginning in the 1960s or so, the Congress then spent the enormous revenues pouring into the system on raising benefits that hadn't been promised or earned for people who didn't need them. It was good politics ---short term.


But the long term is arriving. I do not expect Gen X,Y and Z to be agreeable to paying ever higher payroll taxes to support a benefit scheme that will not pay off for them.

Why should the younger generation pay so heavily to pay benefits to people that don't need them? Means test Social Security and pay a benefit to the indigent elderly. The rest of us can and should be looking after ourselves.




Seattle Pioneer

Print the post Back To Top
No. of Recommendations: 3
Belgoboy. A clarification.

There is another guideline that I failed to mention:

8. The insurance features of social security would remain unchanged.

Goofyhoofy is right in drawing this to our attention. The portion of social security contributions available for the ultimate safety net is lower than I might have led you to believe. If one sixth of the total contributions (wage earner plus employer) were invested, a person's ultimate safety net would be less than five sixths of his normal social security income.

Goofyhoofy is also right to point out that people would be in a position to blow their retirement investment nest egg. If so, they are stuck with the ultimate safety net, which is significantly lower than what might have otherwise. I am not aware of any currently imposed guidelines that would prevent this. It might be worth adding some restrictions, at least at first. At some point, however, we must insist that social security recipients take responsibility for their actions.

On a highly superficial level, numerous commissions and panels have concluded that equity investment would help social security (including medicare and medicaid). As soon as anyone has mentioned any of the details, there have been a whole lot of arguments. I think that you can tell that not only from my comments but also from the rest of this thread.

The two decades prior to this current bear market placed the stock market in a highly favorable light. Some of those who have favored stock market investments are now reexamining their assumptions and asking better questions.

I will continue to insist that a stock market option for social security is a good idea. But I think that you are beginning to appreciate how difficult this issue becomes once you get into the details.

Belgoboy. A couple of additional remarks.

Since you are new to investing (i.e., you have less than two decades of investing experience), this is a wonderful time for you to start. You are learning what a bear market is like while you are young enough not to get wiped out. Keep in mind that just about everybody who starts out likes high risk (especially in terms of volatility) when it generates high returns on the upside. You really have no idea of your own risk tolerance until you see those large fluctuations on the downside. Also, do not assume that high risk automatically means high returns. You should only tolerate high risk when you have a reasonable expectation of making a high return. Insist that you get paid well for taking on any risk.

This is a good place for you to visit. You will find that many people have learned a whole lot about themselves and their investments over the last two years.

Have fun.

John R.
Print the post Back To Top
No. of Recommendations: 3
Clever exageration of parts of a complex system of benefits.

It certainly is a complex system of benefits. I think it is not an exaggeration, and here's why: (if my logic fails, please advise)

At some place on the distribution curve, there is a half-way point where "some people don't get back as much" and "some people get back more" than they put in. I'll presume that it's age related, since unlike insurance (with wildly uneven distributions to accident victims) the Social Security payouts are relevatively even across time to all contributors (within their assigned payment range.)

That means that half of the payments are "more than put in". This is not "an exaggeration", I think.

Wait! It gets better. Now we look at "widows, orphans and disableds". I'm surely willing to acknowledge that the number of people receiving these benefits are a small fraction of the total.

However, the majority of Social Security payout is found in the difference between "eligible" and "death" for elders, which works out to about 10 years for men and 15 years for women (assumption: start at "compromise of 62 & 65, or 63.5; expectancy 74M, 79F).

The payout on a disability to a young worker is potentially five times that of an "old age" payout, that of a child is double. So while there are fewer numerically, from a dollars standpoint, this group pulls a disproportionate amount out of the "insurance" pool.

I now remind you that half of the insurance pool is being drawn by people who "don't deserve it" merely by age because they outlive the "average", and we now have another group "who don't deserve it" because of other circumstance.

This doesn't seem important when it is "all Social Security", but I submit it will seem incredibly important when people think of the account as "mine" and "the other", and "the other" is tapped to pay for the folks "who don't deserve it." It will be magnified further when the "mine" is taken out of the pool and passed on to heirs rather than paying for the more than half of recipients who get more than they put in. Those monies have to come from somewhere. They will come from the "not mine" pile, which will make the "government" return look geometrically worse.

The Congress reasonably objected to private pension systems that failed to accumulate reserves to fund their long term liabilities.

Yes, because many of them disappeared with companies which went out of business or which were incompetently or corruptly managed. I forgive the government for thinking they will not go out of business. We can argue about whether Social Security is incompetently or corruptly managed.

beginning in the 1960s or so, the Congress then spent the enormous revenues pouring into the system on raising benefits that hadn't been promised or earned for people who didn't need them. It was good politics ---short term.

Agreed.

But the long term is arriving. I do not expect Gen X,Y and Z to be agreeable to paying ever higher payroll taxes to support a benefit scheme that will not pay off for them.

Also agreed. The Social Security payments will be in surplus until 2013 (latest estimate I have read). After that there will be deficits, however nobody seems to be terribly upset about deficits right now, are they? Did you write to Congress and say "Don't pass that tax cut?"

I note that there is a pony in the woodpile, and a bill to be paid. There are also solutions, some of which - in more radical form than necessary, methinks - you have advocated. Some are to ratchet down the COLA which overstates the increases for people who are not consuming so much of those things on which the COLA is based (mortgage, health care (provided elsewhere), movies, and so on.) Others include simply "inflating" our way out of it, a dirty trick, but one which works and shares the pain. It's also politically do-able.

You are correct, I am not so pessimistic as you about the future of the system. Neither am I sanguine, but I don't fret about it or think it is the end of our way of life - as I seem to hear in other people's (not yours) posts.
Print the post Back To Top