If I'm for SS Privatization..

Great Debates
21

[QUOTE=Debaser]
Yeah. I want in, too.

Czarcasm, I’m getting great returns the past couple of years. Since I’m invested in 75% US stocks and 25% international stocks I expect my long term rate of return to be about 12%. (My funds are low fee unmanaged index funds.)

kunilou, your post cuts right to the heart of the matter. Many people insist that folks are too stupid to be trusted with their own retirements. I think the opposite is true. Nobody but YOU should be trusted to take care of your retirement. People who are educated about the stock market and how it works don’t panic and sell at the first downswing, because it’s the wrong thing to do.
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Ben Stein (who has seen the light) had a good column in the Times on Sunday about why it made no sense for people to whine about the low-quality mortgage market collapsing. His point was that people seemed to forget that high returns entail high risk, and high risk comes back to bite you.

While selling at the first downturn is one sin, holding on to sinking stocks way too long is another common one. Just like most people think they are above average drivers, most people think they are above average investors. In the market, no problem, but if we as a society are committed to not having our elders starve, I think setting aside money as a safe investment is not that unreasonable.

After all, pre-1929 people could invest their retirement savings all they wanted - how did that work out?

I can laugh having just sold Google at 500. If only I was so clever in all my decisions!

22

[QUOTE=RTFirefly]
The way the system works overall, as we know, is that current workers pay in, and their payments aren’t saved; they get spent on benefits for today’s retirees. (We’re temporarily generating a surplus to be saved for a portion of the boomer retirements, but that’s not a permanent feature.)

[/quote]

Yep. That’s the problem. You’ve put your finger right on it. :wink:

That’s my solution exactly. This is America: when you get in trouble, tax the rich! If we remove the cap on payroll taxes the money flooding in could pay for the transition costs. Or, we could just ask Bill and Melinda. Nicely.

23

[QUOTE=scotandrsn]
And word on the fact that the privatizers have no plan to compensate those of us who’ve paid thousands of dollars into the system already.
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Do you have a cite handy of any person in favor of privatization stating that they don’t want to compensate people who have been paying into the system? On this board? Anywhere?

Be honest. Sure, there are issues around paying for the transition costs. Maybe you think those issues are insurmountable. I don’t, but whatever. But please, don’t pretend those of us on the other side of the issue want to simply cut you all off without being paid out. It’s just not true.

24

[QUOTE=Voyager]
In the market, no problem, but if we as a society are committed to not having our elders starve, I think setting aside money as a safe investment is not that unreasonable.

[/quote]

But the money is being spent, not invested. That’s the problem. Some leftovers are invested, but only a small amount. Most is just paid out right away.

Heck, if you want to do private accounts and only invest in safe investments like TBills I’d argue that’s not the best way to go. But it sure would be a helluva lot better than the current system. The returns would be exponentially higher.

It worked out just fine. If you were investing in lots of stocks for the long term the 1929 crash didn’t cause you to lose money at all.

25

[QUOTE=Debaser]
Do you have a cite handy of any person in favor of privatization stating that they don’t want to compensate people who have been paying into the system? On this board? Anywhere?

Be honest. Sure, there are issues around paying for the transition costs. Maybe you think those issues are insurmountable. I don’t, but whatever. But please, don’t pretend those of us on the other side of the issue want to simply cut you all off without being paid out. It’s just not true.
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I’ve never seen a discussion where the inevitably necessary compensation plan has been laid out. I won’t claim my experience in comprehensive.

26

[QUOTE=Debaser]
Yep. That’s the problem. You’ve put your finger right on it. :wink:

That’s my solution exactly. This is America: when you get in trouble, tax the rich! If we remove the cap on payroll taxes the money flooding in could pay for the transition costs. Or, we could just ask Bill and Melinda. Nicely.
[/QUOTE]
IOW, you have no solution. Since I know you’re being facetious about taxing the rich, you’re saying those who’ve paid in over the decades should be left high and dry.

No. The problem is that good intentions of doing something extremely difficult don’t amount to an ability to do it.

‘Issues’ is a bit of an understatement.

Like scotandrsn, I’ve never seen a plan that remotely attempts to deal with this.

Bush’s ‘plan,’ to the extent that it was outlined, made no promises to those under 55 years old. And even then, most Social Security revenues would have continued to pay the retirement benefits of those over 55.

It’s a nice sentiment. But again, until you explain where several trillions of dollars needed to cover the hole will come from, it’s a pretty meaningless sentiment.

Tomorrow, I think I’ll build a time-travel machine, after I get back from my cruise to Mars on my near-light-speed antigravity craft.

27

[QUOTE=Largo62]
It seems to me that the only people who are for privatizing Social Security are those young enough not to need it in the foreseeable future.
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Wrong! I’m not that young anymore. I care about my kids, grandkids hopefully, my country, etc. SS privatization would be great for all of us. And even if I look at it selfishly, there’s no chance that I’ll get what they’re promising me anyway under the current system.

The one thing that Marx said that I liked was that the workers should own the means of production. This is exactly what would happen with privatization.

Do you have a problem with poor people owning stocks and retiring rich?

28

[QUOTE=RTFirefly]
I keep hearing about how even most mutual fund managers do worse than index funds. And you’re saying that every Tom, Dick, and Harriet has the skillz to manage his/her own retirement funds.

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Exactly the point! Yes, they have the expertise to invest in index funds.

This liberal arrogance is amazing. And you say that the conservatives are bigots. If you’re smart enough to earn it, you’re smart enough to spend it. If you don’t agree, please just admit it.

29

[QUOTE=Plan B]
Wrong! I’m not that young anymore. I care about my kids, grandkids hopefully, my country, etc. SS privatization would be great for all of us.
[/quote]
I’m glad you think so. Care to rebut some of the arguments to the contrary in this thread?

System’s fully funded through somewhere in the 2040’s. By then, gramps, you should be dead or close to it.

And after that, it should be able to pay 75% of currently promised benefits until the end of time.

I have a problem, as I’ve pointed out, with the 50 year gap that this would create - of people paying in to Social Security, who would no longer have a revenue stream to finance their Social Security benefits.

If you can take care of that, and enable poor people to retire rich off their stock investments, then I’m all for it.

But those trillions of dollars to close the gap have to come from somewhere. And neither you nor Debaser seems to have an explanation of where.

I’ve got an idea, though: rather than (1) turning Social Security payroll taxes into the financing of individual accounts, and (2) finding funding elsewhere to make whole those of us who have been paying in all these years, in expectation of benefits someday, how about this: (1’) we keep running the Social Security system as is, with full benefits to everyone who’s paid in so far, unless they want to opt out of benefits, but everyone who hasn’t paid in yet doesn’t get Social Security benefits; (2a’) as those who’ve paid in to Social Security die off, the Social Security taxes go to private accounts; but (2b’) the mysterious trillions of ‘gap-filling’ revenue are used to finance the beginnings of the private-accounts system until Social Security tax revenue can take over.

That should be a wash transaction, right? So I’m sure this is perfectly okay with you and Debaser.

30

[QUOTE=Plan B]
Exactly the point! Yes, they have the expertise to invest in index funds.
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Well, who doesn’t? But if that’s all they have the expertise for, why not make it automatic? And why not have one big pooled fund, rather than a hundred million individual ones?

  1. Funny, I always thought ‘spend’ and ‘invest’ were two very different activities.

  2. Why does conservatism so often come down to the freedom of ordinary people to be poor instead of secure?

I’ll let you decide whether I’m arrogant or not. But the fact is, we see things differently at different times of our lives. And when you’re 72 years old and eating cat food to survive, it’s too late to say, “I’ll go back and invest in index funds this time, rather than making the piss-poor decisions I did with my retirement fund.”

I’ve done a couple of mid-course corrections with my life, and never blamed anyone but myself for my earlier bad decisions. But that’s because I’m still at a point in my life when I’m capable of remaking my life to a fair extent.

But the vast majority of us will reach a time when that won’t be true anymore. And the question will be: do we let old people who can no longer fend for themselves starve because they were idiots when they were younger, or do we set up some system to ensure that they have some sort of minimal income, no matter what they did along the way?

If asserting the rightness of the latter option is arrogance, then I’m arrogant. But I have a problem with the idea of letting old people starve.

31

[QUOTE=Debaser]
Huh? I’m not saying that every Tom, Dick and Harriet become a mutual fund manager. I’m confused as to where you came up with this.

I’m saying that they should buy index funds and hold them for the long term. They’ll make money without doing any active management at all, and as you said, it’s quite possible they will do better than actively managed funds.
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Over the long term the equity market outperforms the debt market by 1% and the debt market outperforms risk free government securities by 1%. Ignoring the distortive effect that dumping the social security fund (even over decades) would have, you are missing the entire point of social security.

It helps protect society against things like the great depression. It provides a minimal income to retirees. It is extremely progressive so that the wealthy get far lower returns on their money than the poor.

The best thing we can do with social security is remove the social security cap which in turn will allow us to lower the social security tax rate by a few percentage points.

32

[QUOTE=Dangerosa]
And those old enough but wealthy enough not to need it, who will get much wealthier with a huge influx of cash into the stock market.

I think privatizing SS is a really bad idea, mainly because I know several people who were "about to retire comfortably and young " in 2000, SSI was going to be “extra” income later - and are still working in 2007 having just recently made up their losses - or retired much more dependant on SSI than they ever intended to be. Seven years when you are 40 or even 55 and looking to early retirement, not horrible. Seven years if the stock market goes out from under you at 65 and there is no SSI…

Yeah, yeah, those people didn’t diversify - why weren’t they in bonds! Its their own darn fault that they bought into the “new economy” hype.
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Social security is not supposed to be a 401K.

33

[QUOTE=RTFirefly]
And then there’s the 50-year gap that any privatization plan has to somehow paper over.

The way the system works overall, as we know, is that current workers pay in, and their payments aren’t saved; they get spent on benefits for today’s retirees. (We’re temporarily generating a surplus to be saved for a portion of the boomer retirements, but that’s not a permanent feature.)

Let’s say everyone’s Social Security gets turned into an individual investment account tomorrow. I’ve been paying in for the past 37 years, since my first summer job. Where has that money gone? To past and present retirees. It’s gone. So I’m left with 14 years, say, of paying into my individual account, to come up with a Social Security substitute. It’s a bit late to get started, isn’t it? And I did start early, but that money’s been spent, and nobody’s giving me that money back, with or without appropriate compounding.

Those that have already retired, of course, suddenly and simply don’t have Social Security.

People in between my age and retirement age have no Social Security coming, and even less time to save.

People in their 40s have ‘only’ lost 2-3 decades’ worth of pay-ins, and have 2-3 decades to save up. Their investments had better do pretty well.

Maybe those in their 20s and 30s come out OK, but everyone else really gets pounded. Unless someone coughs up trillions upon trillions of dollars to make everyone whole who’s been paying into the system all these years.
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That is pretty much the entire thing in a nutshell. People of my generation see this bulge in social security payments coming up and don’t want to carry the burden. The biggest problem is actuarial, men used to die after 5 or 10 years in retirement, now its just the midway point for a lot of people, so maybe we need to push the retirement age back. The second biggest problem is that we have had about 20 years of low taxes, we probably need to remove the cap on social security taxes (heck we could even reduce the effective rate that way). These two things would make probably make the social security fund solvent.

Perhaps one lesson to learn is that we shouldn’t be pushing off expenses to future generations like we did with social security. We probably need to increase taxes to the point where we are actually paying for our own expenses so that our children will not wonder how the heck to manage the national debt when the wheels start falling off.

34

[QUOTE=Debaser]
But the money is being spent, not invested. That’s the problem. Some leftovers are invested, but only a small amount. Most is just paid out right away.
[/quote]

Nope, the social security fund LENDS money to the US government and gets a government bond that yield government bond rates. This privitization kick is to try to improve those rates of return by one or two percent depending on whether you invest in debt or equity.

Well, the returns on that T-Bill would be lower than the return on the fairly long term bonds that the social security fund currently invests in. But depending on who you were, your returns would be higher with the bonds (basically anyone making more than about 30K/year wold probably get better returns with the bonds).

“In the long term” we’re all dead. I think you confuse how the “stock market” has performed versus how a dollar invested in the stock market would perform, you see companies go bankrupt and a lot of com[panies went bankrupt in 1929. So a lot of people lost money in 1929, not just the speculators. The Dow Jones lost 90% of its value over 5 years, it took 30 years for the Dow to get back to 1929 levels. So assuming you retired at 55, didn’t need any money until you were 85, you wouldn’t have lost any money and that is assuming you weren’t heavily invested in companies that went belly up.

I am constantly surprised by the confidence that people of my generation have in the free market.

35

[QUOTE=RTFirefly]
Well, who doesn’t? But if that’s all they have the expertise for, why not make it automatic? And why not have one big pooled fund, rather than a hundred million individual ones?
[/QUOTE]

No I didn’t say that’s all they have the expertise for, you did. Please re-read my post. I have too much respect for people to make statements like that.

Wrong…OK, they’re not identical but the important point is that both refer to allocation of resources. I can buy a new car or I can buy Toyota stock. Very similar.

I think security is a great thing, or at least a great ideal, since it doesn’t exist in nature. Read Free to Choose, by Milton Friedman. He makes the point that societies chose between freedom and security. Those that choose freedom get both. Those that choose security get neither. If we choose security we wind up like the USSR or NK. No freedom, no security.

When you use extreme examples like eating cat food it’s hard to take anything you say seriously. How many people in the US have to eat cat food to survive? The big problem with cost of food now is that it’s so cheap that obesity is the big problem.

Now you’re worried that people wil starve? You’re getting more pessimistic each minute. A cat food shortage, perhaps?

Actually, the best protection is a strong economy where anyone who wants to work can get a job. And studies consistently show that the less government interference, the stronger the economy. And stronger economies lead to more charity. I forget the exact numbers but I believe annual giving in the US is in the hundreds of billions. And, as you know, conservatives donate a lot more than liberals.

If you want to stay updated on the strength of the US economy check out The Futurist: http://futurist.typepad.com/ If you’re content with your pessimism, don’t bother.

36

[QUOTE=Plan B]
And even if I look at it selfishly, there’s no chance that I’ll get what they’re promising me anyway under the current system.
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Those projections are based on some pessimistic assumptions.

37

Something like 30 percent of SS recipients are on disability and younger than retirement age. Since they’re disabled and can’t work I wonder where they’ll find this investment money when their SS stops or is trimmed back.

38

[QUOTE=Plan B]
Exactly the point! Yes, they have the expertise to invest in index funds.

This liberal arrogance is amazing. And you say that the conservatives are bigots. If you’re smart enough to earn it, you’re smart enough to spend it. If you don’t agree, please just admit it.
[/QUOTE]
I’ll admit it. I think the public is stupid. (Is this what you’re getting at?). I think when the the current US savings rate is NEGATIVE and the median retirement account for a boomer is sitting at only $2000 within decades of retirement that that’s probably evidence that people aren’t very good at managing money efficiently. (Hell I’ve got almost $2000 in my retirement account and I’m 23).

They absolutely have the ability to to invest in index funds. They’re not GOING TO though. They’re going to invest in hot stock tips, IPOs, options, “the next Google,” anything they think can make them an overnight zillionaire.

Early in the thread Kunilou made a very astute point I think. It was a stock market pullback that lost millions their retirement that made us INSTITUTE this system. So now we’re going to protect our money from the market’s fluctuations by…investing our money back in the market? :dubious:

39

[QUOTE=col_10022]
Social security is not supposed to be a 401K.
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I’m not saying it is, and I have no idea where you are getting that idea from.

Privatizing SS on the other hand appears to be turning it into a 401k.

40

[QUOTE=RTFirefly]
IOW, you have no solution. Since I know you’re being facetious about taxing the rich, you’re saying those who’ve paid in over the decades should be left high and dry.

[/quote]

I’m not being facetious about taxing the rich. I’m certainly not saying those who’ve paid in should be left high and dry. In fact, I’ve already specifically stated that this isn’t what I or anyone else in favor of privatization wants.

Respond to my actual arguments, not stuff you’ve made up and attributed to me. It makes for a better debate.