If I'm for SS Privatization..

[Debaser]

@RTFirefly

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

Yeah, it’s “fully funded” so it can continue to pay out the basically 0% returns after inflation that it’s poor design allows. :rolleyes:

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.

There are plenty of ways to do it. As I said, we could remove the cap and the money that would flood in could be used to pay for the transition. Or, we could simply pay out of the general tax revenue.

Another idea would be to gradually let people move to private accounts. With the money they’d make in the market you’d have enough to pay for both if you slowly transitioned over.

Let’s look at your idea:

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.

I’m not sure I follow. Under (1’) of your plan, as a thirty year old worker, I could opt out of getting benefits from SS, or paying into SS? Sounds good to me.

But (2a’) doesn’t make sense. Where would extra money to invest in private accounts come from? Once some people leave the system the amount coming in would go down, as would the amount being paid out later. But, that’s a net break even, not a gain.

I’m listening if you want to explain further.

[Debaser]

@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?

Are you kidding me? That would be great! Fantastic!

Private accounts would be better because they represent individual ownership and can be passed on to loved ones when you die. But pooling the money and investing it would be much preferrable to the system we have now.

If this was a real compromise in the debate about Social Security I’d go for it in a second.

[Debaser]

@col_10022

Over the long term the equity market outperforms the debt market by 1% and the debt market outperforms risk free government securities by 1%.

Cite, please.

You’re just flat out incorrect, here. If there were only a 2% difference between the equity market and guaranteed government securities then no one would ever buy stock.

[quoteo]
Ignoring the distortive effect that dumping the social security fund (even over decades) would have, you are missing the entire point of social security.

[/quote]

I’m not missing anything. I get it. I understand it. I just disagree with it. There’s a difference.

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.

and this would waste the one easy option we still have on the table to get ourselves out of this mess.

Sure, if we remove the cap we’d flood the system with money and it would be able to continue to limp along providing basically no returns for a few more generations before it once again started to run out of steam. But it would be a much better route to use that money to move to private accounts that take advantage of compounding interest. The returns would be exponentially higher.

[athelas]

@Cyberhwk

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.

Sure they will…if the lack of the SS safety net (percieved) is not enough, after the first generation goes through without having saved enough, you can bet that future generations will. And this time, they won’t be expecting government handouts as their due.

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:

It was people being too lazy to travel across the Atlantic by boat that led to the construction of the Hindenberg, but they did drop that design pretty quick.

[Debaser]

@col_10022

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.

This is incorrect.

The social security fund that is invested in government bonds is only what’s leftover after paying out all the existing retirees. It’s just scraps that are leftover. You seem to think that all of it’s being invested. It’s not.

The main benefit of privatization isn’t that the return is higher, although it is much higher than just one or two percent. It’s more like 6-8% higher. The goal of privatization is investing all of the money, not just the leftovers.

If I’m getting in $100 a month, and I’m spending $98 a month, I’ve only got $2 leftover to invest. It doesn’t matter what I invest in. My rate of return on the $2 invested can be 0% or 12% and my return on my $100 isn’t going to be very high. Changing the amount invested will make much more of a difference than just changing the type.

It continues to amaze me how many people against privatization have no idea even the most basic ways the current system works.

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).

I’d rather invest in stocks because the return is higher, but I’d take anything over the current system. Government TBills, Bonds, whatever. Anything would be much preferable to just spending most of it without investing at all. That’s the problem, get it?

Oh, and I give up: Why does ones income have anything to do with the rate of return on the bond market? (Hint: It doesn’t.)

“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.

I know what all those words mean. But, put together like that? It just doesn’t make any sense.

What’s the difference between how the “stock market” performed and how a dollar invested in the stock market performed?

If during a given 1 year period the total stock market index performs at 10%, then it’s also true that $1 invested in the total stock market index would have a 10% return. The two are the same.

The Dow Jones lost 90% of its value over 5 years, it took 30 years for the Dow to get back to 1929 levels.

Anti-stock people love talking about the Dow. The reason is that it’s the only example you have. That’s because it’s only 30 stocks. If you look at any large group of stocks in an index they do much better. The more stocks you have the less risk of an individual stock hurting your overall performance. This concept, called diversification, is why any financial advisor would insist that their clients never only hold a fund of 30 stocks. You should own hunreds, thousands, or better yet: All of them.

No one is suggesting that we invest social security account money into single stocks or small groups of stocks like the Dow. Big index funds are the way to go.

[RTFirefly]

@Debaser

Yeah, it’s “fully funded” so it can continue to pay out the basically 0% returns after inflation that it’s poor design allows. :rolleyes:

I was responding to Plan B’s contention that he likely wouldn’t see any of the Social Security benefits he’s due.

But if you want to use that as an excuse to beat that dead horse, be my guest. :rolleyes: :rolleyes:

There are plenty of ways to do it. As I said, we could remove the cap and the money that would flood in could be used to pay for the transition. Or, we could simply pay out of the general tax revenue.

So, let’s see some estimates of how much new revenue we’d need, and how much lifting the cap would raise. My understanding is that lifting the cap wouldn’t raise anything like the right order of magnitude of income.

Another idea would be to gradually let people move to private accounts. With the money they’d make in the market you’d have enough to pay for both if you slowly transitioned over.

I don’t see how that does much of anything, unless you’re planning a multicentury transition. Are you going to take money out of people’s private accounts, under what circumstances, and how much is this really likely to raise?

I’m not sure I follow. Under (1’) of your plan, as a thirty year old worker, I could opt out of getting benefits from SS, or paying into SS? Sounds good to me.

I used the word ‘benefits.’

But (2a’) doesn’t make sense. Where would extra money to invest in private accounts come from? Once some people leave the system the amount coming in would go down, as would the amount being paid out later. But, that’s a net break even, not a gain.

I’m listening if you want to explain further.

Let’s say the new system starts on January 1, 2008.

A) Everyone keeps paying Social Security taxes after that as they are now.

B) Everyone who hasn’t yet paid into the Social Security system before that date will have their retirement funded through a private account.

C) Everyone who’s paid into the system in or before 2007 gets to choose whether they want to receive Social Security benefits as currently mandated, or whether they want to stake their retirement on private accounts.

D) The persons who receive Social Security benefits will die off over time, leaving the Social Security tax to gradually go over time from funding 0% of the private accounts and 100% Social Security benefits to the reverse of that.

E) In the meantime, some other source of funding will be necessary to fund the private accounts at the same rate the Social Security taxes still going to fund Social Security benefits would have otherwise been able to do so.

So your other source of funding would have to start off being equivalent to that proportion of the Social Security tax cash flow coming from persons either born after 1/1/08 or having opted for private accounts, and would have to stay at that (increasing) level until people opting for private accounts started to hit retirement age, at which point, since the Social Security tax won’t need to fund their retirements, the transition can start, and the revenues from the other source of funding can gradually tail off.

Does that make sense? If so, all you’ve got to do is find that other source of revenue. And if it involves taxes, convince people to go along with the associated tax increase.

[Ludovic]

@athelas

It was people being too lazy to travel across the Atlantic by boat that led to the construction of the Hindenberg, but they did drop that design pretty quick.

And with no good reason, until jetliners came along.

[Debaser]

@RTFirefly

But if you want to use that as an excuse to beat that dead horse, be my guest. :rolleyes: :rolleyes:

It’s not a dead horse. It’s the heart of the entire argument. The fact that social security mostly isn’t invested and doesn’t provide any returns is the problem that many of us have with social security.

It can’t be repeated enough because even on the SDMB with it’s generally well informed posters, every single social security thread has people who just don’t get this basic premise.

Let’s say the new system starts on January 1, 2008.

A) Everyone keeps paying Social Security taxes after that as they are now.

OK. Everyone. Even people who start their first job ever on Jan 2, 2008?

B) Everyone who hasn’t yet paid into the Social Security system before that date will have their retirement funded through a private account.

You’ve already lost me.

People who haven’t started working yet (and thus haven’t paid any payroll taxes yet) will get a private account?

So, instead of paying 15% into payroll taxes as they do now, they’ll pay 15% into a private account?

C) Everyone who’s paid into the system in or before 2007 gets to choose whether they want to receive Social Security benefits as currently mandated, or whether they want to stake their retirement on private accounts.

That’s great, but does this choice affect where they make their payments to? If I choose to “stake my retirement” on a private account does that mean I get to put my payroll taxes into that account?

If not, it’s meaningless. I should just put it into my 401(k). At least then I get a tax break. Maybe I’m misunderstanding you. If so, please correct me. I’m not trying to construct a strawman.

D) The persons who receive Social Security benefits will die off over time, leaving the Social Security tax to gradually go over time from funding 0% of the private accounts and 100% Social Security benefits to the reverse of that.

This sounds just like my idea earlier that you mocked. We ween ourselves off the system by getting the younger workers in private accounts and letting it work itself through the system.

I think we could get it done much faster than this, but this idea is a step in the right direction for sure.

E) In the meantime, some other source of funding will be necessary to fund the private accounts at the same rate the Social Security taxes still going to fund Social Security benefits would have otherwise been able to do so.

So your other source of funding would have to start off being equivalent to that proportion of the Social Security tax cash flow coming from persons either born after 1/1/08 or having opted for private accounts, and would have to stay at that (increasing) level until people opting for private accounts started to hit retirement age, at which point, since the Social Security tax won’t need to fund their retirements, the transition can start, and the revenues from the other source of funding can gradually tail off.

Does that make sense? If so, all you’ve got to do is find that other source of revenue. And if it involves taxes, convince people to go along with the associated tax increase.

I think I’m understanding you. Explain where the payroll taxes would go for workers who opt into private accounts and I’ll respond more to the end of your post.

The short version is: We end the cap, and enact a means test on bennies. That would raise a ton of money. If it’s not enough, you could tax the earnings (not the contributions) of the private accounts to make up the difference.

[RTFirefly]

@Plan B

No I didn’t say that’s all they have the expertise for, you did. Please re-read my post.

I did. You didn’t state or imply any further expertise.

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.

I think Uncle Miltie was talking through his hat on this. Plenty of societies in Europe and east Asia have opted for providing a hefty dose of economic security - a more secure retirement than we provide, universal health care, etc. - but still have vibrant economies. They got freedom and security by pursuing freedom and security.

The fact is, some elements of security can increase the willingness of ordinary people to take economic risks. If my retirement is secure, I am free to take gambles with my work life that I can’t if I’m worried about not having enough to ever stop working. I can quit my job and start a business, knowing that the consequences of failure are real but still ultimately limited. Ditto health care - if I don’t have to hold onto my current job for its health insurance, I’m more free to seek other jobs, or create my own.

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.

Oh, I’m sorry, I thought you said you were a grandfather.

I’m not, but I remember reading stories in the paper when I was a kid about old folks eating cat food in order to get by.

Actually, the best protection is a strong economy where anyone who wants to work can get a job.

In the immortal words of Si Kahn:

Without our unions and the E.R.A.
We’ll all have twice the jobs at half the pay.

Jobs need to pay a living wage, or the whole thing falls through.

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.

A strong economy doesn’t mean ordinary people are benefiting. The U.S. economy has grown substantially under Bush. Median household income has declined.

Must not be enough of that charity.

I’d also ask just what conservatives give to. Richard Mellon Scaife giving money to AEI or Heritage doesn’t count in terms of this debate.

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.

I’m hardly a pessimist, but I sure am a skeptic.

And I’ll take my updates on the strength of the US economy - and its connection (or lack of one) with the well being of typical Americans - from the official stats, thanks, not from some blogger.

[Sunrazor]

@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.

Not necessarily. I, too, would prefer a private investment scheme as opposed to a publicly funded welfare, and I’m 55. I do not want my two sons and their wives to be burdened with the cost of Social Security 20 or 30 years from now just because my generation was too stupid or lazy to invest a few bucks a month in a decent retirement fund. Social Security is NOT a retirement fund – it’s supposed to be welfare for those who have no other options.

I’m also a member of AARP, but I’m pretty damn sick of that organization’s obstruction of every attempt to bring some kind of rational reform to Social Security. Yes, I write letters – every time I send 'em money. Fat lot of good it does me.

[Voyager]

@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.

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.

Your problem has nothing to do with the investment strategy, but that we have a defined benefits instead of a defined investment plan. The payout is set by law - if the surplus were invested in something higher paying than T-Bills, perhaps we could delay tax increases, but no recipient would see a penny more. That’s totally independent from the return on investment for the Social Security recipient, which strongly depends on their payment into the system and how long they live. I’ll need to compute the return on investment for my father and father-in-law, who are both over 90, but I strongly expect it is better than anything they could have gotten with similar payments. (They both have other investments, and are doing fine.)

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.

In the long term we are all dead - as would many of the people whose investments tanked in 1929 be before the market recovered.

[Voyager]

@Plan B

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.

No wonder we have a negative savings rate! Does the term “depreciation” mean anything to you at all?

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.

In nature we sleep in the rain and get eaten by predators. That we are not secure in nature is not a good argument for anything.

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.

There were plenty of articles about seniors having to do with the cheapest stuff they can find. I’m a bit dubious about the cat food story, my dog’s food isn’t cheap! But how many more would go hungry without Social Security? Food may be fairly cheap, but if you’re paying for essential medicines there may not be much left over to buy it.

[Voyager]

@Sunrazor

Not necessarily. I, too, would prefer a private investment scheme as opposed to a publicly funded welfare, and I’m 55. I do not want my two sons and their wives to be burdened with the cost of Social Security 20 or 30 years from now just because my generation was too stupid or lazy to invest a few bucks a month in a decent retirement fund. Social Security is NOT a retirement fund – it’s supposed to be welfare for those who have no other options.

Totally incorrect. Social Security was made mandatory precisely because it was for everyone and not meant as a charity for those in need. For the same reason it is not welfare - everyone pays, everyone gets (except for Congress, of course.)

[Voyager]

@col_10022

“In the long term” we’re all dead.

In the long term we all quote Keynes.

Debaser does have a bit of a point about how much of social security inflow is going directly out again, though in the last thread on this I gave him a cite showing the “scraps” of surplus were in the hundreds of billion dollars a year range. But that actually refutes his point. If the non-surplus started going into private accounts, it would have to be made up in other ways, primarily by borrowing, and more debt is the last thing we need.

The surplus could be invested in index funds instead of Treasuries, but then the government would have to borrow the money elsewhere, there would be substantial market implications about pouring that much money into any index fund that does not consist of every stock there is, and we also have the government voting problem. (The government would own a substantial part of some companies - not something I’d like to see.) There is also the safety problem. Investing the surplus in other ways has fewer problems than privatization - fans of privatization should really research the reasons why this is not done.

[RTFirefly]

@Debaser

It’s not a dead horse. It’s the heart of the entire argument. The fact that social security mostly isn’t invested and doesn’t provide any returns is the problem that many of us have with social security.

Hmmm. That’s kind of an odd thing to ask of one’s tax dollars at work. What sort of ROI do you get on your highway taxes, by comparison?

What you’re saying is that you’re ticked that a dollar earns zero interest in zero days. I’d like a pony too.

It can’t be repeated enough because even on the SDMB with it’s generally well informed posters, every single social security thread has people who just don’t get this basic premise.

Yeah, even if you’ve got to pretend it undermines a completely unrelated claim.

OK. Everyone. Even people who start their first job ever on Jan 2, 2008?

Everyone.

You’ve already lost me.

People who haven’t started working yet (and thus haven’t paid any payroll taxes yet) will get a private account?

They will when they start working.

So, instead of paying 15% into payroll taxes as they do now, they’ll pay 15% into a private account?

(a) It’s 14.4%, and (b) no. Read all the way down, please.

That’s great, but does this choice affect where they make their payments to? If I choose to “stake my retirement” on a private account does that mean I get to put my payroll taxes into that account?

If not, it’s meaningless. I should just put it into my 401(k). At least then I get a tax break. Maybe I’m misunderstanding you. If so, please correct me. I’m not trying to construct a strawman.

Read down, then yammer. Geez.

This sounds just like my idea earlier that you mocked. We ween ourselves off the system by getting the younger workers in private accounts and letting it work itself through the system.

It’s the same idea, except that the funding you say is so easy to find now funds your new alternative, rather than the existing program. Your idea, your assertion, your risk.

I think I’m understanding you. Explain where the payroll taxes would go for workers who opt into private accounts and I’ll respond more to the end of your post.

They go into the pool that fully funds Social Security as currently defined. Once there are leftovers, they help finance - and ultimately fully finance - the system of private accounts.

The short version is: We end the cap, and enact a means test on bennies. That would raise a ton of money. If it’s not enough, you could tax the earnings (not the contributions) of the private accounts to make up the difference.

Ending the cap and a tax on the private accounts’ earnings? If you say so; it’s your deal.

An additional means test on bennies? (There already are a couple, you know.) And why should my program be cut to finance yours? I don’t get that part.

[Scylla]

@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.

I’m thinking that’s a great idea in theory, but completely disproven by the facts.

This incorrect on several levels. If for purposes of argument we accept your assertions at face value, your conclusions does not follow from your statements. The performance of mutual fund managers does not reflect on the competance of individual investors.

But, if for the purposes of argument we pretend it does, than who is cometant to manage Joe Public’s retirement assets seeing as he’s too stupid to do so himself?

You? The Government?

I find little scarier than someone such as yourself (or anyone for that matter) deciding what the public is or is not competant to do, and arguing to take matters into your own hands and make decisions for people without their consent.

People have the right to succeed or fail on their own.

Your argument though is actually a false one. Their is ample evidence to show that Joe Public can take care of himself, and that can be witnessed by the enormous success of self-directed pension plans.

Your statements however are somewhat misleading. I’ve widely heard it quoted that 85% of mutual fund managers fail to beat their representative index, but I’ve not seen the study cited.

I monitor mutual fund performance through Lipper Analytics. Sadly, this is a subscription service, and the metrics I use are propietary so I can’t share what I will describe. If however you subscribe to Morningstar or a similar service you may be able to confirm or infer what I descrive.

In taking a casual perusal of mutual fund performance I do that the Lipper mutual fund aggregate usually does fail to beat it’s representative index. However, not by all that much.

I find this unsurprising and expected. Not all mutual fund managers are good. Assuming a lot or bad, why does that reflect on the good ones? The metric however is misleading when considered in a vacuum. For many mutual funds, their goal is not to beat their index but rather to provide efficiency of returns.

For example, if XYZ index has returned an average of 10% with a standard deviation of 10% per annum, and a given mutual fund (MF) has returned 9.5% with a standard deviation of 5%, than the latter is a superior investment from an efficiency standpoint as measured by risk.

Frankly, there is little advantage to a mutual fund over an index in a bull market. A good mutual fund however will net out the bulk of an index’s upside in good years, but only a fraction of the downside in a bad year.

[Scylla]

I too, am in favor of the privatization of Social Security. SS was founded as a way for the government to cheat its citizens by disguising a tax as a benefit.

When founded in 1935, there were relatively few retirees and lots and lots of workers. Life expectancies being what they were only a fraction of the populace was expected to live to recieve benefits and those that did were unlikely to live long enough to receive them for long. This would leave a very large surplus that the goverment could spend as it wishes.

Incoming money was placed into a trust fund and loaned out to the government at unmarketable terms, and things hummed along for a while.

The Vietnam war was expensive and in order to pay for the Vietnam war they took all of the money from the Social Security Trust Fund and spent it. Since that time the trust fund exists as strictly a hypothetical. There is noseperation of SS funds from any other government revenue source.

The current “trust fund” is not a seperate account and contains no assets it is a hypothetical that contains imaginary securities that have been created special for SS. They cannot be purchased by anybody else and the SS trust fund cannot purchase anything but these imaginary securities (since they only have imaginary money this works out ok.) This also works out ok because nobody else would want these imaginary securities even if they were real because they suck.

Social Security is a ponzi scheme. It generates no assets or returns but instead depends on a constant flow of new investors to pay the previous ones. A ponzi scheme can fail when its obligations overtake its inflows which usually occurs because of a lack of new investors. SS is dependant upon a constantly growing base as are all ponzi schemes.

There is an intersting argument that while ponzi schemes are generally immoral or against the law this really doesn’t apply when we are talking about a government, because the government prints the money. For complex reasons which we won’t get into there is… some merit to this argument.

Generally speaking though, I am against taxes disguised as benefits. I beleive that freedom should be increased and that people should be allowed to make their own decisions, and that they are in general much more competant than RTF seems to give them credit for.

If I could do whatever I want with Social Security, I would do the following:

We need to meet the current and future obligations that has SS has incurred. In order to do so, people will not be able to opt out. Instead, they may be given several choices:

A worker may opt out of social security benefits entirely and pay a reduced SS tax equal to an amount necessary to subsidize their proportionate share of the SS obligation.

They may continue on as they are now under the current plan with the exception that their taxes will be held in a seperate account and earn interest based on a competitive market rate (say, the Lehman Tips index)

Annually, when they file their taxes they may apply for a SS “refund” and elect to roll their SS contributions (minus the obligation portion) into an SS IRA and invest it as they wish with the proviso that it is fully taxable and subject to a 50% penalty if withdrawn before age 59 1/2 (subject to the other exceptions with IRAs)
With this strategy, the obligations of SS to its contributors remains guarranteed, the safety to current contributors is increased as a seperate account is established for the trust fund, and those who would prefer to opt out or invest for themselves are allowed to do so. Everybody should be happy.

How’s that?

[RTFirefly]

@Scylla

This incorrect on several levels. If for purposes of argument we accept your assertions at face value, your conclusions does not follow from your statements. The performance of mutual fund managers does not reflect on the competance of individual investors.

Of course not. You’ve got to figure that most people who do this as their day job will be better at it than most people who are managing their investments in their spare time.

But, if for the purposes of argument we pretend it does, than who is cometant to manage Joe Public’s retirement assets seeing as he’s too stupid to do so himself?

You? The Government?

Neither. As both Debaser and I have agreed in this thread, Social Security as it exists is not an investment program.

I find little scarier than someone such as yourself (or anyone for that matter) deciding what the public is or is not competant to do, and arguing to take matters into your own hands and make decisions for people without their consent.

See above.

[RTFirefly]

@Scylla

If I could do whatever I want with Social Security, I would do the following:

We need to meet the current and future obligations that has SS has incurred. In order to do so, people will not be able to opt out. Instead, they may be given several choices:

A worker may opt out of social security benefits entirely and pay a reduced SS tax equal to an amount necessary to subsidize their proportionate share of the SS obligation.

They may continue on as they are now under the current plan with the exception that their taxes will be held in a seperate account and earn interest based on a competitive market rate (say, the Lehman Tips index)

Annually, when they file their taxes they may apply for a SS “refund” and elect to roll their SS contributions (minus the obligation portion) into an SS IRA and invest it as they wish with the proviso that it is fully taxable and subject to a 50% penalty if withdrawn before age 59 1/2 (subject to the other exceptions with IRAs)
With this strategy, the obligations of SS to its contributors remains guarranteed, the safety to current contributors is increased as a seperate account is established for the trust fund, and those who would prefer to opt out or invest for themselves are allowed to do so. Everybody should be happy.

How’s that?

I have no problem with that, actually, if I understand you correctly. (My only query is with respect to the “They may continue on” option, where I assume they only get to separate and get a return on the portion of their Social Security taxes above the obligation amount.)

Just be prepared for little to be left over after the obligation amount, because as Debaser again correctly points out, the vast majority of Social Security taxes paid in go to current beneficiaries.

If I’m wrong on that, it doesn’t change my position; if there really is a substantial leftover, then that’s great, and I’d be all for the individual Social Security taxpayer having the opportunity to invest it on his/her own behalf. I just don’t think that’s the case, that’s all.

[Scylla]

@RTFirefly

Of course not. You’ve got to figure that most people who do this as their day job will be better at it than most people who are managing their investments in their spare time.

In my experience this is not true. A dedicated amateur who does his does his due diligence can expect to outperform a fund manager because he has several advantages in that a fund manager is burdened by a whole host of constraints (which I’ll be happy to describe, if you like) that need not affect an individual investor.

In most cases though, an individual investor would probably do well to hire a mutual fund manager rather than invest themselves simply because its not interesting and it’s a lot of work to do so, and most people just aren’t that dedicated (though some are.)

Your assertion is false. An individual investor need not compete against a mutual fund manager. They need only to be able to identify and hire a good one.

It’s quite simple, really. If one asserts that 85% of fund managers fail to beat their index, than as an investor, no expertise in investments is needed to succeed. You need only do enough work to identify the 15% that consistently do beat their indexes and buy those funds.