Anyone who wants to forsake their own money is perfectly welcome to do so. But keep your hands off my money. I earned it, and I aim to get it back.
Indeed, whatever other uncertainties there are about this program, I don’t think anyone will argue about which way stock brokers and the like would vote on SS privatization.
This is something I was wondering about. With 2 trillion dollars entering the stock market, what does that do to the value of stocks. I think that’s what your explaining here, but I don’t know much about how the market works, could you dumb it down a bit for me. My gut feel is the opposite of what your saying, that more $$ means more demand means that stockprices will jump.
The Onion recommends a similar SS plan.
OK, so who is going to create this new government that is going to get its books in order? Clearly the Teeming Millions are incapable of doing so (being as how you just explained that they’re too dumb to manage their own personal money, much less the national budget).
You do know that the current plan is entirely voluntary right?
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I’m not sure exactly what you want a cite for.
Yes, and show me how it is relevant to this discussion.
You’re begining to sound like me. I am not sure you are not putting me on. This sentence is a very good summary of the problem with social security.
No and yes respectively. They are looking after themselves as well, but only in the sense that they want to be re elected and think this is an issue that will help.
As I asked above, you don’t seem to understand that participation in the Individual Accounts is entirely voluntary. Don’t like it? Prefer to trust you rmoney to Congress instead? Go for it.
Perversly enough I did exactly this. I did not find a single source worth citing. Can you?
You see, it is posts like this which make me think you are not really on the left of this issue. It makes me think you are making fun of the right in terms that actually make fun of a strawman of the left. If this is the case, please stop. You are not portraying any of the lefts arguments accurately.
Well, it will immensely help those who already own stocks when the plan starts to take effect – they will benefit from the increased value of the stocks and bonds.
But, since yield = earnings/price, when price goes up, and earnings remain constant, yield goes down. Thus, the ones who buy stocks and bonds during this era will get less yield, since they bought at a higher price. For instance if XYZ corp paid $1 a share per year in dividends, I would be getting less yield if I bought a share of stock for $200 that paid $1 a year in dividends, versus buying two shares of that stock at $100 apiece paying $2 in dividends total.*
Assuming of course, the economy doesn’t expand due to this plan (and who knows? More capital available to expand businesses versus businesses worrying about the huge national debt is hard to calculate.)
*Complicated version: stock returns are also composed of earnings that are not given out in dividends, as well as adjustments to the price for inflation and growth of the company (as well as more speculative reasons.) My expected reduction in effective yield does not affect these last two, but does affect the all earnings whether re-invested, saved by the company, or given as dividends. After all if a company has a 2 Trillion market cap and earns 2 billion, it’s still only going to give back $.001 to the investor no matter what the company does with the money.
The plan that the CBO looked at called for using up to 4% of individual payroll taxes of those younger than 54 (in 2007) up to a maximum of $1,000. The article you linked to suggests this is the plan President Bush favors. This comes out to significantly less than 5% of all of social security’s revenue, I think.
Thank you very much for the link. It does indeed contain the 1-2 trillion number. It seems to be a short term shortfall over the begining period. However it leads to much less of a total shortfall than not changing anything.
And help me learn something to boot. I kind of got disenchanted with that other thread with all the talk about the article linked to in that OP. Maybe I’ll wander over there again. Thanks again.
You do understand, right, that the 1 or 2 trillion is over 10 years? That’s 100 to 200 billion a year. With a total capitalization of something like 15 trillion the NYSE will hardly be swamped with new money. Besides which, most of that money in the first few years would have simply gone into the special treasury bills that the Social Security Surplus is invested in anyway. So, it was involved in the investment market in one form regardless.
This is true. If you retire during a downturn you could lose a portion of your savings. But, you admit that this would still leave you very much in the black and overall you still would be making money no matter what. With SS not investing the money at all there is no money made at all.
This argument is simply lost on me. It’s like you need to compete in a race. SS is the equivilent of standing still. Investing is like running. Sure, you might fall down towards the end of the race. But, even if you do you are still virtually guaranteed to get further than if you stand in one place!
With some basic steps this could be prevented from ever happenning. Only let people invest a certain limited amount as Sam suggests. Or, force them to invest in well diversified index or mutual funds. Or, set stop loss limits. Or, move the funds to bond and money markets as retirees near retirment age.
Any of these things would ensure that the portfolio’s perform over time. There will simply be no one for the nation to say “screw them” to.
Yes, but this scenario would only apply to investors in an individual stock. I’m not recommending this as an option.
I’m saying TBills should be done at a very minimum. Obviously investing in Bond funds is a better option. Investing in Stock index funds is a better option still.
My point was that even making a paltry 3-4% is better than the big fat “0” that I’m getting for my money now.
If I had a clue as to how to get altruistic people interested in the ovreall national good making a national budget (and the same at state and local levels), I would hold it forth. Unfortunately, we’re either stuck with the representatives we have, or can replace them with a similarly compromised representative.
And yes, of the 280 or so million people in the US, I really don’t think half of the adult population are (half are? half is? my grade school grammar fails me) capable of handling retirement planning without heavy hand-holding. Privatize SS and you’ll have to start regulating how people can invest, and have greater regulations on the people the money is invested through (all those early morning commercials touting futures and currency speculation - hey, that’s a good place for my retirement funds…I can retire 10 years earler!). Suddenly, all that “freedom” to invest your money where you want it is gone.
Well, you tripped and fell down. But, I bet your a lot farther along than if you never left the starting point and just stood still.
Even if investments take a sudden downturn (they will), you are still much better off than if you just put your money under the mattress and don’t make any compounding interest at all - which is what SS is doing.
This is a secondary concern. It’s not the potential collapse of the SS system that bothers me as much as the failure in the design of the system to take advantage of compounding interest as it should.
Back in March, 2003 I started a GD thread: Social Security is ripping me off!
In that thread I used actual numbers from my annual SS statement and compared their results with what I could do with that money being invested on my own:
With the same investment I could either have the current $1611 a month that SS is paying me or eight million dollars that is in an account I control and can pull as much or as little out as I want. (All the supporting math is in the thread.)
“Special treasury bills”!= market investment! They don’t pay competitive market rates.
And the NYSE itself says that:
So, according to them, all of American companies are worth approximately $12 trillion.
That is something I knew, and did not do the math before I posted in this thread. So I must take back my statement that it would consitute a “royal screw job”, even in the latter phases. However, remember that $1 or $2 trillion is not the expected final phase.
I still maintain that all the influx of capital means that the last people to invest in the market under a totally privatized SS would not get the rosy outcomes calculated by the proponents due to a distorted capital market.
Well, I know why it centers around this at least from the point-of-view of those who want to change the system in this way. And, that is because this is a really dramatic benefit cut in comparison to what the benefits would have been under the old system. Over time, as long as the real GDP per capita continues to grow, it guarantees that the non-privatized portion of social security will become a less and less important contribution to one’s finances in retirement.
Not saying that something along these lines doesn’t need to be considered…But, it is a pretty draconian change and is worthy of a lot of discussion. T
Yes, it is true that it is voluntary. However, by making the change in the indexing of social security, they are making keeping the option of keeping that money in S.S. rather than putting it into the retirement account much less attractive. What they are really saying is: You have the choice between participating in these account or keeping all your money in S.S. which is now going to have benefits cut over what they would have been otherwise.
All your arguments in this thread are off in la-la land until you explain what you are going to do to cover the shortfall that you create by switching from a pay-as-you-go to one that works the way you want it to. In other words, you are either going to renege on paying some S.S. benefits over the short to intermediate time period or you are going to incur costs that will necessitate higher taxes or more borrowing to pay for them.
I mean, I could also do better by reneging on my mortgage and simply taking the money that would have gone to mortgage payments and instead investing it (assuming that the bank didn’t come and take my house away), but I don’t see that argument as having much relevance.
And, by the way, you also haven’t shown how you calculated the rate of return that you are getting from social security. You claim it is zero but give no cites for this. In fact, it is quite complex and the “return” one effectively gets depends on the person.
Oh yeah, and I should have added the point that if one assumes that the Bush plan is to go with this “Plan 2” of the President’s commission, then the part of your money that remains in (the non-privatized part of) social security is going to get a much lower effective rate of return than it is now because of the change in the indexing method.
Of course not. I did not mean to equate them at all. I merely meant that the money going into those treasury bills would either come from social security or they would come from the private market for treasure bills. Or, as a third possibility, the money would come to the federal government from taxes. I probably should mention the possibility that the governmetn would not spend the money at all, but that’s just silly.
And the NYSE itself says that:So, according to them, all of American companies are worth approximately $12 trillion.
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Yes, that is the NYSE. This site also from the NYSE suggests that the total capitalization is much higher.
I’m not sure I understand what you mean. The 1 or 2 trillion is the amount which must be made up from the general fund over 10 years to keep the trust fund growing or nuetral. In 2003, according to the CBO social security taxes amounted to $713 billion. Assuming the total participation in individual accounts was 4% that would mean that we should see 28 billion go into the markets. That number is significantly too high. The plan only allows individuals to participate up to 4% and only up to $1000. Also, it does not apply to all workers. Those above a certain age do not qualify. Now, I should also say that the figure I cited above of some $30 trillion capitalization is not the right number either. The funds from Social Security would only be allowed to invest in certain funds. I don’t know if your top 100 companies are the right ones, but that $5 trillion number is a good working hypothoses. That still means that we wold be adding something less than $30 billion into a market which is capitalized at something like $5 trillion. I don’t know how much the trading volume fluctuates from day to day, but this seems like a very small number to me.
According to this paper (PDF Warning its small though) the total value of trading for 204 was over $10 trillion dollars. From month to month it was very close to $1 trillion dollars. Even if we assume that $30 billion will be invested from SS, and even if we assume that the money will all be hoarded and invested in one single day, it will hardly register a blip on that sort of trading volume.
Perhaps I have made a mistake in my math or have misinterpreted some of these sites. I am not a stock broker and am willing to admit that I may not understand some subtlety of the market. But at first glance, it looks like the current plan will not produce any meaningful changes in the operation of the stock market.
This may be true. I don’t see it myself. Even under a totally privatized Social Security system we would only be seeing an additiional $1 trillion dollars enter the market each year. That’s a months worth of trading on the NYSE. Meanwhile there is no plan to totally privatize social security in this way. No one has ever suggested such a scheme.
I agree. This seems to be a much bigger change. I can understand this sort of thing from the Bush administration, but I don’t understand why there are not more democrats saying that price indexing is a more important change than privatization of 4% up to a maximum of $1000. They seem to be much more fixated on the idea that privatization is evil in and of itself. Is it some emotional attachment to Social Security and the new deal? I have no idea and propably should not speculate.
As I understand it, price indexing is supposed to make benifits relative to current benifits (adjusted for inflation and such) instead of the actual wages of the recipient. It includes an increased minimum benifit as well. I’m not an actuary, but this seems to me to make quite a bit of sense. It makes social security more of a social safety net and less of an investment or even insurance scheme.
Quite. But this is hardly the sort of characterization that cricetus was making. He was trying to claim that Bush was merely attempting to abscond with money from social security so that some of his rich friends could retire to the Carribean. Sort of the Micheal Moore theory of SS privatization. 
I’m not sure how much less attractive price indexing is really going to make SS as an investment. I suppose some, but its already pretty unattractive now. As I understand it, any money put into an individual account would further reduce the benifits paid from the non privatized portion of SS by an amount equal to 1% less than the T-bill rate. That is, a participant will see his benifits reduced by as if his Individual Account money had earned this T-bill-1% rate. This fact alone will make IAs less attractive to older participants. The analysis from the CBO sort of assumed full participation. I doubt very much if we will see anything like full participation. I expect it will be very high, but I expect older people to participate less than younger people. Just MHO.
But over the short term, this cost may not be that great. Remember, Social Security is in surplus right now. That gives us some shimmy room. If the surplus is projected to last for 10 years, the cost per year of a switch is relatively minor (1 to 2 trillion over 10 years [BTW do you know which 10 years? the first, or the second?]), and it comes with guarantees that we will make any shortfall in the trust fund up from the general fund, this seems like a good comprimise. We give the younger generation some aspect of ownership in the Social Security system. We give current and near term retirees a guarantee that will will honor thier benifits (at current levels). And we make the Social Security system more solvent into the future.
What’s not to like?
By the way, I am beginning to wonder whether you are misinterpretting this “4%” figure. You seem to assume it means 4% of the amount of money you have going into social security. However, I think what it might really mean is 4% of your wage income, i.e., between your contribution and that of your employer, you have ~12% of your wage income or so going into social security. This plan, says that you can take ~one third of it (or 4% of your wage income) up to a maximum of $1000 and put it into the private accounts, with the other approximately 8% of your income going into the traditional system.
The reason I think this interpretation is the more reasonable one is that I don’t see how 4% of anybody’s social security tax payments can amount to more than $1000. After all, that would mean you paid $25,000 in social security taxes and how can you possibly pay that when the cap above which you don’t pay any S.S. tax on wages is something like $90,000?
Anyway, the correct interpretation should be apparent if we read the plan closely enough.
And if ‘everyone’ is investing in the stock market how can ‘everyone’ earn an 8% annual return because it looks like the stock market is a zero sum game in the grand scheme? It doesn’t make sense, wouldn’t that system eventually collapse too?
You are correct that this is a problem, and a significant one at that. But, it does not make all of my points moot.
My strategy is simple: Lets all agree that Social Security the way that it is run now is foolish and wasteful because it doesn’t take advantage of compounding interest. Once we are in agreement and even a portion of workers want to get out of the system, then we can devise a means for this to happen.
It can be gradual. Heck, I’ll let you keep all the money I’ve paid in so far. You can use that to pay for the existing retirees. I don’t ever want it back when I retire. Just let me take a portion of my SS payments now and invest them. Then you won’t have to pay me when I retire. As more and more people opt to do the old style of SS they will get in less and less money. But, the system will also have less and less people to pay out as time goes on.
The money isn’t being invested. My claim of zero is based on this fact. The money is being spent on existing retirees or being sent to the general government spending fund. This fact is not in dispute by anyone, is it?
The stock market is not a zero sum game. The values consistently go up for all stocks, when looked at as a whole and over a long enough timeline. The average return for stocks is about 12%. Bonds is about 6%. Money market funds such as TBills is about 3%. When these investment vehicles go up, there isn’t any counterbalance required to go down, like in accounting.