Yeah, cause you know those investments ALWAYS turn out very well … Enron, Worldcom, the dotcom bubble burst … those are all just strange dreams that have nothing to do with how wise it is to privatize social security … riggggghhhhht …
Well, this would not have corrected social security problems, but I take your point.
Well, again, as we went over before, the largest part of the deficit was due to a revenue short fall from economic problems. But I’ll agree that we should also balance the budget as well as fix social security.
I’d rather do it through spending cuts. But again, I’ll meet you half way. A couple tens of billions from this program, a couple tens of billions in higher taxes pretty soon we’ll have this budget thing licked! 
Unfortunately, the current adminstration thinks they can fix the problem with tax cuts and unprecedented spending. I think in four years, the people who voted for the bastards should be grabbed like puppies and have their noses rubbed in the mess they made.
Enron and Worldcom are not relevent at all. No one is suggesting that workers invest all their savings into a single company stock.
Pointing at a couple of failed companies and claiming that any investment in corporations is bad is just foolish. It’s like pointing at a broken down car on the side of the road and saying “You see! Cars aren’t any good. Nobody should drive cars. Lets get rid of all of them!”
The dotcom bubble burst was a normal and health thing for have happenned. Many companies needed cash to build new high tech infastructure. That money was generated by the stock market and stocks went up a lot. Eventually, the job was done and stocks got a bit overvalued so there was a downturn. It was fine. If you are investing in a long time period (20 years or more) these kinds of fluctuations ALWAYS still end up in a positive value for the stocks. (Again, I’m talking about index funds which are widely diversified.) This is a fact. It’s not up for debate by anybody who knows what the’re talking about.
One concern I have is that if all the SS contributions and employer matches were to go into the stock market, that is one serious load of money. Can the market absorb all that money? One might think that with the laws of supply and demand, a steady but massive influx of money into the stock market would tend to inflate prices as there would be a huge increase on the buy side and not on the sell side. Then if the market rises too rapidly and has a huge correction, will a lot of people lose their shirts and/or would that trigger a Depression?
No…We did not learn this at all. All we learned from your cite was that the in 2002 when we were in recession (or just beginning to recover) and when most of the tax cuts had not yet been phased in, most of the shortfall was due to economic problems. And, after all, if the deficits we have now and being projected over the next several years were still due primarily to economic problems, then we ought to have kicked out the incompetent President who has embarked on an incredibly expensive program to supposedly stimulate the economy!
Unless you were indexing Nasdaq in 2000 with 50% of your portfolio at age 64. Or the Nikkei in the early 1990s. I could go on, but those are not the points I want to make.
One is that social security isn’t a retirement investment fund. We’ve gone over that.
Two is that, to provide similar retirement protection as social security in a “self”-directed manner, government will have to mandate how people can invest.
Losing even 5% of your portfolio immediately prior to retirement has FAR more dire consequences than at age 40. It screws up your entire annuity schedule, and is much more difficult to overcome by just “working another year” (not something you or anyone on this board have proposed, Debaser, so please do not take it as an accusation). There is no doubt that the stock market trends up over time, but in down cycles (or simply when good funds underperform), soon-to-retires are greatly affected. And remember, even “safe” investments, like non-FDIC money market funds and government bonds can lose value.
Yes, but it should be. That’s the debate.
(I don’t really think it’s accurate to call social security “insurance” as some have claimed, either. It’s kind of a unique animal. Part insurance, part investment. Insurance you don’t ever hope to collect from. Social Security most people count on collecting from.)
We already do this. Mutual funds have lots of rules they must follow. 401K’s and IRA’s have limits and rules. This isn’t a new concept.
I don’t know how to make this point any clearer. I’ve repeated myself already and tried using an analogy and still people just don’t seem to get it.
If you lose of your investement right before retirement, that is OK, because you still have much more money than you would have if you never invested at all.
some. It’s OK to lose some of your investment shortly before retirement, because you are still better off than if you never invested at all.
Fine. But this fact is not sufficient. “A positive value” could mean a lot of things. I seem to recall that there were some 20 year periods where that gain was pretty measly. (Besides which, the fact that this has always been true in the past does not mean it will necessarily be true in the future, but that is another issue.)
Social security, by contrast, has its payouts indexed by wages. So, perhaps, in some sense the question becomes, has the stock market always outpaced wage rises? (Although a full analysis will be a little more complicated than that…)
It’s something like a hundred billion dollars a year. Remember you’d still have to pay current benificiaries. Also no one is suggesting that all of the money be put into the stock market.
This all depends on the sizes we are talking about. Yes the amount of money which could be potentially added to the stock market is very large. But the size of the stock market is much much larger. Take a look at my post #55 but be sure to see the correction I made after jshore noticed an error in post #61.
And I’m saying no, it is not, and I’m in danger of repeating myself as to why.
SS is a guaranteed wage at retirement age that will be there no matter what happens in the market. Obviously, how much Uncle Sam deigns to give us in 4 decades at your retirement age or my 2+ decades is up in the air. But it is not going to fluctuate simply because we are in a bear market (it’s going to fluctuate because our politicians tend to be fiscally irresponsible - regardless of which party is in charge).
From your revived thread, if you lost 5% of your $8 million upon retirement ($400,000), regardless of how much you are up, your retirement plans (which hopefully you have been making prior to saying goodbye, if you are a conscientious investor who can earn 12% annually for 40 years) are shot, and they will never recover. Whatever payouts you expected are cut - drastically. Hits at the end of the term have a disproportionate effect on your portfolio.
Your rosy picture expects 300 million people to make 8-to-12% annually. That, quite simply, is not going to happen. And if you give everyone a 12.5% “raise” and stop deducting, you are going to have a large swath of Americans reaching retirement age with nothing (I don’t believe you are advocating making retirement planning fully voluntary, but just in case).
How government handles budgets should be a crime. How the Social Security Administration administers social security would probably be a crime for any other private defined benefit plan. I am not saying the system is perfect, and that it couldn’t be made better. I will say that is should remain more as an insurance or defined benefit pension plan than an investment vehicle.
I agree that this comparison has to be made. But if we make this comparison, then we have to include whatever alternative proposal will allow those wage indexed benifits to be paid to 90s and 2000 cohorts. No?
Thanks for enlightening me, pervert. Looks like you had it pretty well covered.
But are you not arguing that the market is less reliable than the government? Does your argument encompass the fact that under current law those benifits cannot be paid in 40 years? How does losing 5% of your earnings just before retirement compare to losing 20% of your benifits after retirement?
These may be contradictory. Shot is not the same as cut, even drastically.
Well, I’m not sure about Debaser’s rosy picture, but the plan under consideration expects much less than 300 million people (there are not nearly that many people in the labor pool) to make something like 6% on their money.
This part makes sense as a general principle. But why not allow people to diversify? How about keeping a portion of Social Security as an defined benifit insurance type of investment while at the same time allowing them to benifit from investing in the stock market? Additionally, how about making participation in the market portion entirley volunary. Is it really a problem to diversify in this way?
I’ve been following Kevin Drum’s comments on the issue. The relevant quote:
I’d read that one. But I’d only skimmed this post from Tuesday, which seems to say that over the long haul, a portfolio’s growth rate ~ GDP rate + dividend rate (assuming reinvestment of dividends, which would be the case here). Dividends, in turn, are some fraction of earnings (not particularly close to 100%, since retained earnings finance growth), and P/E ratio tells you about earnings.
So these days, a 20:1 P/E ratio is pretty respectable, so earnings are 1/20, or 5%, of stock price. If 60% of that goes into dividends, then dividends are 3% of stock price, and portfolio growth should be ~ GDP growth + 3%.
At least, that’s how I’m reading it. I’d still desperately like a practicing economist’s critique.
But in the post you cited, the blog was citing the Social Security report, so barring misrepresentation, it’s a pretty respectable cite.
And in the post I cited, Kevin was citing one professional economist (Dean Baker) posting on another economist’s (Max Sawicky) blog. (I went back and read the original, and it seems to back him up.)
There are firmer cites, of course, but these will do.
Quasi-correction. In two instances, a couple of them have worked for the federal government for many, many years. Seems the government had their own version of SS pension for government employees. So they do not/will not collect Social Security. Another guy worked as a fireman and does not collect SS benefits either. I may have mis-spoken by suggesting they have not paid into it regardless. The fact is, I do not know if they have or have not. Sorry for that.
Thank you for your time. Now back to our regularly scheduled question…
For those in favor of privatization, what happens if you outlive your savings?
[QUOTE=Sam Stone]
It would be much better if Social Security were completely private, for lots of reason:
[list]
[li]As it stands, you can contribute all your life, die before you collect, and that money is just eaten up by the state. In a private system, you could leave your retirement nest-egg to your family. [/li][/QUOTE]
Perhaps, but this is not one of the reasons, unless you die without having married and with no children. As mentioned prior, FICA taxes cover OASDI: old age, survivor’s and disability insurance. If you die before you collect, or even after you start collecting, your surviving spouse (if age 60 or over, or disabled) will be eligible for ancillary benefits. But ancillary benefits are not limited to the surviving spouse. Any child age 16 or under is also eligible, as his the mother (or father) if she is in care of a child age 18 or under whether or not she is eligible in her own right as a surviving spouse. In some cases, a surviving parent may be eligible. And these ancillary benefits are not limited to old age benefits, but apply even if the primary insured is disabled and not age 65 or over.
As you well know, the purpose of Social Security benefits has been to provide a nest egg, and not to make one wealthy. It has been a fail-safe mechanism, wherein if all else fails, the recipient won’t starve to death. If you wish to change the purpose, all well and good, but that has been the purpose. Being single and without children, I certainly would have been much better off if it were privatized a long time ago.
But that’s not all. FICA taxes also cover Medicare, Part A (the “HI” in the OASDIHI, if you wish to extend the abbreviation). And once eligible for Part A, for a relatively small monthly premium, you can purchase Part B, which is a real life saver if you ever need the services of a hospital, home health care, nursing home, or therapy of any sort. It is Medicare that is really bankrupting the system. One individual can rack up many thousands of dollars in a very short time, health care being as expensive as it is. Now, of course, privatization is not going to affect these benefits… Or would it?
The quote you included assumes that for the dire predictions about social security to be true GDP growth has to be below 2%. This is not the case. Look at the CBO sites I’ve been linking to especially post #18 towards the end. The problem with this sort of assumption is that you need GDP growth to be at a certain level without affecting benifit liabilities. The current law has them tied to wages. As GDP grows, wages grow and promised benifits grow. The question is not so much what is our expected GDP growth over the next century, but what is the expected benifits liability as a percentage of GDP.
For reference here is the quoted paragraph from post #18.
"Even under a wide range of assumptions, CBO’s projections point to a financial imbalance in the Social Security system over the long run. Changes in economic growth can affect the system’s finances. But because the initial benefits paid to new recipients are indexed to the overall growth of earnings, the effect of such changes is muted. For the most part, the future financial status of Social Security will be driven not by economic conditions but by long-term demographic shifts–most notably, the aging of the population. That trend is generally predictable, because anyone who will receive retirement benefits during the next 62 years has already been born."
Its from this CBO report: The Outlook for Social Security.
I agree with the principle that we need to watch out for making dire assumptions when condemning the current SS laws while making rosy predictions while computing the possible outcomes from Individual Accounts. I don’t think that’s what the CBO has done though.
That is the reason we do not abandon the non privatized portion of social security. One of its largest purposes, after all, is as poverty insurance for the elderly. Its just the other part, the retirement benifit part, that we want to modify.