Damn AARP fruitcakes!

The BBQ Pit
101

RTF: since retirement age for people in their 20s now is 67, I assumed a 27 year old man making $20K annually. Cato says SocSec will pay $13,685 annually; Schumer’s said $14,282.

By the way, that Schumer SS-calculator site also compares the projected benefits under Bush’s partially-privatized plan. Under Bush’s plan, this same hypothetical worker would get $5883 annually in traditional SS benefits along with $4136 from his private account, for a total annual benefit of $10,019.

Even if a completely privatized plan of the sort Weirddave advocates really would provide significantly more in benefits than the current SS system, it’s clear that what the SS “reformers” are actually pushing now would in fact provide significantly less than the current system.

You know, I’m beginning to suspect that the reason for some neocons’ attacking the AARP with a smear campaign (hey! remember that? the original topic of the thread? my, it looks a little dusty!) is that maybe the pro-privatization wing has simply decided to give up on garnering support among the elderly. Perhaps they’re pinning their hopes instead on being able to frame the SS debate as a sheer generational conflict.

Perhaps they’re hoping that if they simply get enough disgruntled naive young people to ignore the evidence and believe that teh sux0r SS is a terrible unjustified burden that their mean old parents are trying to inflict on them, then they simply won’t need to care what the AARP thinks about it.

I sincerely hope that there aren’t many young people in the US naive enough to get behind “reforms” like these without reading the fine print very carefully. But unfortunately, just going by the level of skepticism and critical thinking revealed in the papers some of my students hand in, I’m afraid there might be!

102

Which would be precisely why I have been defending the idea of SSP, and not specifically the “plan”, as we’ve seen it so far from Mr. Bush’s speeches.

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Weirddave: * Since we’re on the subject, the Cato Institute’s 6.2 percent solution is exactly the kind of plan that I would support.*

Ack, Weirddave, I beg of you, don’t just believe the summary, read the fine print! On page 7 of your linked PDF file, the Cato report talks about other changes that its proposal would implement in “traditional Social Security”. Specifically, it says that the formula used to calculate benefits “would be indexed to price inflation rather than national wage growth”.

That is exactly the same switch—price-indexing rather than wage-indexing of benefits—that the Bush plan proposes, and that’s why the SS benefits under Bush’s plan are so small. Switching SS to price-indexed benefits, everyone agrees, would significantly reduce future benefit levels.

Yeah, no wonder Cato’s “individual account option” would provide benefits “substantially higher” than “traditional Social Security”! Because they drastically cut the “traditional Social Security” benefits, that’s why! But that’s “exactly the kind of plan you would support”, huh?

Sheeit, if you cut the traditional SS benefits enough, you can make just about any alternative plan provide higher benefits! You have to pay attention to the details of what a plan is proposing to do!

Oh man. These kids are gonna be so screwed. I sure hope the AARP digs its heels in on this one.

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Weirddave: Which would be precisely why I have been defending the idea of SSP, and not specifically the “plan”, as we’ve seen it so far from Mr. Bush’s speeches.

Well, if you can’t come up with any real-life SS privatization plan that actually produces significantly better results in practice, then why are you defending the “idea” of it? How is “idea” in this case any better than “pipe dream”?

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Yeah, I have been known to crunch a number or two in my time. :slight_smile:

[hijack]
Which reminds me, anyone following the Frank Luntz playbook story?
[/hijack]

No prob.

I think this kinda gets down to the question, why do we have Social Security to begin with? What’s it supposed to be?

Why we have it is to keep old people from being poor at a time in their life when they can’t do much about it anymore. Social Security really isn’t supposed to be the bulk of anyone’s retirement package (although there are far too many people for whom that’s true), but rather, it’s supposed to be a floor - something that’s supposed to pay you enough to live in a rather ascetic style. But hopefully you’ll supplement that with some combination of pensions, 401-k’s, and other investments, and those pieces will add up to a more comfortable retirement.

IMHO, there’s plenty of room for ownership and risk in those other components of the retirement-savings picture. But if one can risk the floor, it’s no longer a floor. The question is, under privatization, what do we do for retirees whose investments didn’t pan out? Will we say it’s OK to have a bunch of homeless 75 year olds wandering around? I’d hope not. And Social Security is the program that prevents that. If we privatize Social Security, we’ll be faced with a choice down the road of either building a second Social Security system to do what the one we’ve got now does already, or being willing to live with a lot more elderly poor than we have nowadays.

It makes sense to risk that which we can afford to risk. My Social Security, IMHO, should be secure. On top of that, I have my employment-based 401k’s - TIAA-CREF and the governmental Thrift Savings Plan, which allow for a certain degree of choice and flexibility. And then there’s my investments on top of that, where I can throw darts at the stock pages to determine my investments if I damn well feel like it. If my wife and I were to do that, and all our resulting investments went belly-up, we’d have a less affluent retirement, but we’d still have one. The point is, that’s money we can speculate with.

But if the government’s gonna come and rescue you (or anyone else) from total poverty in your old age, it has to be able to take some money from us all along the way to fund its ability to do so. If you want your paycheck to be 100% yours, then you’ve got to be willing to live in a land where the government won’t keep you from having to eat out of dumpsters in your old age.

That’s a legitimate philosophical position, and I won’t criticize you for taking it. There is no “I’m right, you’re wrong” here; we’re talking different assumptions about the way the world should work. But it’s important, in selling this to the public, not to gloss over the reality that this is part of the ‘choice’ in Social Security choice.

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I’m a bit leery of trusting anyone’s calculator about Bush’s plan, because different assumptions can make things come out very differently. But I figured that if Cato’s and Schumer’s calculators gave me essentially the same result for the present system, that result was reliable.

107

Wait a second. This doesn’t make sense.I played around using Sen. Schumer’s SS benefit calculator to determine an individual’s current benefit in different circumstances:

Age 22, average income 20K: $15,183
Age 22, average income 50K: $27,578
Age 22, average income 100K: $36,057

Age 40, average income 20K: $12,184
Age 40, average income 50K: 22,130 Age 40, average income 100K: 28,935
Using the [url="http://www.socialsecurity.org/reformandyou/sscalc/sscalc.php.old"Cato Institute’s calculator for benefits under their 6.2 plan:

Age 22, average income 20K: $17,936
Age 22, average income 50K: $44,840
Age 22, average income 100K: $79,809

Age 40, average income 20K: 13,082 Age 40, average income 50K: 27,824
Age 40, average income 100K: $ 42,993

Every single one of those is greater under the privatization plan versus the current SS payout. Where’s the bait and switch?

108

Ack! Brother can you spare a bracket?

109

Again, what happens if your 6.2% doesn’t perform to market average? What happens if you were invested in Enron, WorldCom and Tyco?

110

Short answer: You can’t, at least not exclusively. The idea is not to give everyone money so they can play day trader. The money goes into a broadly diversified portfolio, spreading the risk over dozens or hundreds of historically strong companies. Bonds too. Also, once the money goes in, it stays there. That’s the real key to long term growth. If a couple of companies go bust, it would have a negliable effect on your entire portfolio.

111

I’ve been looking at a certain mutual fund where I’ve parked some money between '94 and '96. It is quite diversified and not very agressive. It has only recently gotten back to being equal with the contributions I made to it back in the 90s. Had I reached retirement age during the several years it was in the red, I’d been pissed.

Are you suggesting that there is no way huge numbers of people could lose significant money in a privitization plan? Is that a tolerable risk? Are there to be no social guarantees of keeping our old folks out of the poor house? Is there no limit to the poverty we’re willing to overlook so Wall Street can prosper?

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Wd: Where’s the bait and switch?

As far as I can see, it may be in footnotes #4 and #6 of the Cato calculator result sheet. The annuity figure they show in the results is the “maximum annuity purchased at NRA” if the entire account holdings are annuitized. It doesn’t tell you what kind of annuity it is. If it’s anything but a guaranteed lifetime and survivor benefit, as SS benefits are—if it’s calculated on twice your life expectancy, for example, as the scheduled withdrawal option is—then it’s not really comparable to the SS benefit. Also, if the annual benefits shown are calculated for a flat payment rate with no increases over time, it’s also not comparable.

(By the way, I note that our hypothetical 27-year-old $20K earner who works for 40 years, according to that Cato calculator which gives him a 6.5% average rate of return on the stock part of his portfolio, ends up with an account worth slightly less than $200K, not “almost $400K” as you suggested earlier.

I checked out some other annuity calculators for the benefit levels of guaranteed-lifetime-with-full-spousal-benefits annuities beginning at age 67, for an account balance of $200,000, and the monthly benefit level seemed to run about $1250, as flat payments with no adjustments for inflation. If you want increasing payments, then the initial monthly annuity payments would be more like $900. 'Course, there could be differences in projected start date affecting these figures.)

The second point is the “recognition bond”, more or less the “trade-in value” of your accrued traditional SS benefits when you opt for the private account. Footnote #4 says that this bond is estimated according to the full “actuarial present value” of those benefits. However, in the actual report it says that the recognition bonds “may be valued at something less than the full present value of accrued benefits because we believe that workers will attach a value to receiving a tangible asset.”

So my guess is that the Cato calculator is “massaged” to produce the most optimistic-looking individual projection, while the options actually being advocated in the report to make SS solvent, and fund the huge transition costs, would produce somewhat less rosy projections.

You’re quite right, though, that the Cato projections as presented appear to be higher than projected benefits under the current “traditional SS” system, not only under the slashed-benefits system that Cato’s advocating.

Wd: *Also, once the money goes in, it stays there. That’s the real key to long term growth. *

However, growth for any particular account depends not just on what the average rate is over an indefinite period of time, but on where the rates happen to be around the endpoints of that particular investment period. If you happen to start working during a boom, when investments are expensive, and reach retirement age during a slump, when investments lose value, you are not likely to meet the average rate of return. Similarly, even within the past 75 years of overall average growth, there have been several ten-year or longer periods when returns in the market were nearly flat, or even negative. Not everybody is going to be able to put in a solid 35–45 years of paycheck collection (many divorced women, for example, are badly off in retirement because they spent a lot of time out of the workplace as homemakers but are no longer entitled to spousal benefits).

So it would be very unwise to assume that the average rate of return, even if it continues to be high over the long term, is going to be achieved by all or even most individual private SS accounts—which is another rosy assumption that the Cato calculator is making. It would be more realistic if they randomly factored in a few market slumps and booms to show you the range of actual returns that you might expect.

And I agree with RTFirefly that a comfortable average return isn’t good enough, if the low end of the range is too low. SS is supposed to be a guaranteed support, not a gamble. (That is one point on which I don’t fault the Cato plan, though, as they have a minimum guaranteed benefit no matter what your earnings are. It’s not much, but at least it’s there.)

113

Oh, and another “over-rosy” aspect of that Cato calculator, which I noticed just after I hit “submit” on my previous post (of course!):

It’s that “recognition bond” thing again. The Cato calculator always calculates the value of your recognition bond (that is, the lump sum you get as a “trade-in” for your traditional SS benefits) according to its value assessed for a full working lifetime.

But of course, many people would have had gaps in their working lifetime—prolonged unemployment, a decade or so as a homemaker, what have you—by the time they entered the Cato plan. So such people would be getting an over-optimistic projection from the Cato calculator of what the “trade-in” value of their traditional benefits would be worth, which would artificially inflate their total account value.

114

If investing social security funds is such a dandy-peachy idea, why not pool them all together into one (or several) mutual funds for that purpose? What advantage is gained by “ownership” on an individual basis? Overlooking, of course, the potential ongoing windfall profits to be gained by stockbrokers and their ilk, who can screw individual small investors rather than fuck around with the Gov.

And while it is true that investment in the stock market on such a massive scale will necessarily make stock prices rise (goody!), it will mostly bless those persons who already have stock…their net worth will rise! The rest of us poor dumb shmucks will be buying them dinner. Might as well, they already ate our lunch.

Hence, the rich will get richer. And the poor will keep a respectful distance. This is God’s Plan. (Ref: The Motivational Lecture on the Mount)

115

Actually, I kind of like the sound of that.

116

As I understand it, this would be illegal. I really don’t have that big a problem with that idea either, although I like private ownership for philosophical reasons. The more people think of themselves as in charge of their own destiny and the less they have a mindset of depending on the government, the better.

117

Can you point me to this part of the Cato plan? AFAICT, a young person entering the labor force when it took effect, who chose the individual account option wouldn’t be guaranteed anything.

The question is, what do we do for that person at retirement if his/her investments haven’t done well enough over the years to pay for even a subsistence-level retirement?

118

I think the only realistic answer to that is ‘Support them on the public dole’. The American electorate, for all its ability to be all over the map, wouldn’t support a ‘starve in the streets’ policy.

119

RTF: AFAICT, a young person entering the labor force when it took effect, who chose the individual account option wouldn’t be guaranteed anything.

AFAICT from the Cato calculator, there is a guaranteed minimum amount calculated as 120% of the elderly poverty threshold, which they work out to an annual benefit of about $11,200. You also wouldn’t be allowed to do anything with your account balance on retirement that might stick you with an income lower than that guaranteed minimum benefit would provide over, I believe, twice your life expectancy. Type in various low annual wage amounts in that calculator and you see that the projected benefit “floors out” at $11,198.

Again, I’m dubious about whether the cheery predictions in the calculator for individual returns are borne out by the assumptions in the actual report, because of the discrepancies I mentioned earlier. But there’s no question that the calculator at least claims to provide a guaranteed minimum floor, and for that I give them credit. Jonathan is right, however, that the guaranteed minimum at the very least requires some redistribution from the payroll taxes of the wealthier to the poorer, just as the current system does.

Wd: I like private ownership for philosophical reasons. The more people think of themselves as in charge of their own destiny and the less they have a mindset of depending on the government, the better.

As I just pointed out to Debaser in a concurrent GD thread, though, these philosophical reasons (basically translating into emotional attachment to what one thinks of as “one’s own money”) are fundamentally PR rhetoric. Privatization would not give individuals substantially more practical control over “their” money than SS contributors currently have. Nor would it magically prevent the government from changing the laws applying to private accounts in the future. In realistic terms, the money in private accounts would still be taken, managed, and paid out by the government according to the choices made by politicians currently in power.

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** Reads Weirddave’s post #88 **

Bravo! :smiley:

That’s good stuff, man.