The stock market had a brutal day today, another one of several. Which got me to thinking.
A few years ago, George W. Bush floated the idea of diverting a portion of Social Security into private retirement accounts. One of the arguments of the pro-privatization side was “the market has its ups and downs, but since World War II, it has never, ever lost money over a 10-year period.”
On Friday, August 3, 2001 the S&P index closed at 1214.35. The next Monday, it closed at 1200.48. Today, 10 years later, it closed at 1200.07.
Of course the Dow Jones and NASDAQ are other guides that investors use, and they’re still a little higher than 10 years ago. But the S&P is the one that’s supposed to be the big three indices’ most reflective of the overall market. And in the real world, an investor would probably be re-investing dividends, stock splits, etc.
But if you’re a retiree who’s depended on those dividends and stock splits for your income over the past decade, you’re now watching your principal erode.
So now that it’s been proven that the markets can actually fall over a long-term period, what do you think? Pay a higher tax to stabilize Social Secuirty for another generation, or move toward a privatized system?
Any current retiree who has their money in equity stocks would be an idiot. IIRC, the plans floated did not allow it – people who were drawing on the funds were required to move them into bonds or other securities.
But for me, at 41? Yes, I’d happily take every dime in my SS “account” and put in into a 401k.
And for a retirement fund, a bad decade isn’t necessarily “long-term.” If you started working in ~1990, you’re still better off with the market.
I’d happily take every penny of my future Social Security contributions, move them into private funds, and waive forever any claim against Social Security. I’ve been working since I was fifteen, and I’d happily sign away every benefit I had for those years. That’s public spirit.
If you take some arbitrary period of time you can make the stock market look like a bad investment. Look at, say, 1965 to 1975…a 10 year period. If you base whether the stock market is a good investment or bad one based solely on that time window then the obvious conclusion is that it’s a bad one and that you’d be better off hiding your money under a mattress.
social security looks great if you believe that 20-40 years from now when you get to retire both you and United States of America will be sufficiently alive/functional for the latter to pay the former a meaningful amount of money. Whereas for people pessimistic about life expectancy for both American citizens and American government institutions, it would not look like a good deal at all.
Meh, Social Security isn’t an investment - folks should be doing that on their own anyways.
It’s a retirement insurance plan, coupled with disability insurance and a survivors benefit. Looking at it as a money-marker is missing the point. It’s the promise we’ve made that nobody that has worked their entire life will live their retirement with zero income.
My 401K took a major hit when the real estate bubble burst. It has made up some ground but still not what it should be*. A lot of people lost their asses in that debacle. And that’s not even including the ones duped into a pyramid scheme.
[sub]* meaning 'what I want it to be[/sub]
Seems the conclusion here is that most people aren’t smart enough to be able to manage their finances, so might as well let the government do it for them.
Not sure if facts are appropriate in this forum, but right now the S&P is down 1.18% from 10 years ago (and that doesn’t include any dividends). It was down as low as 47% (from 10 years before) in March of 2009. That period of negative 10 year return lasted from Oct 2008 until Jan 2011.
The day before the crash the 10 year return was around 25%.
What I find most strange is that I can’t imagine anyone making a retirement investment for a 10 year period. If you start work around 25 your investments would be 99% stock. By age 64 that percentage should be down near 1% in stock.
Anyone that bought in 1989 and held for 10 years saw a return of 148% during the lowest point of the 2008 crash. During the summer before the crash they could have had a return of 322%. If instead of selling everything in panic, they waited two years, that investment would have been back up to 271% return.
There is simply no justification for “losing their entire retirement savings.” My 401k went sideways during 2008/9 which is okay because in 20 years I’ll look back at this as a great time to buy. Money you need shouldn’t be in the stock market.
Yeah, but as a society, we don’t like the idea of dealing with old-homeless-jobless-unemployable wrecks who’ve lost all their savings. Even if they waived their claims, we don’t want them living near us or taking up the space. And we certainly don’t want to see news stories about the poor bastards dying in the streets.
From my POV, it’s not about making sure you are taken care of. The point is to make sure I don’t have to think about or deal with you stinking up the joint. No matter what you waive, you can’t guarantee you won’t be that derelict living under the overpass that nobody wants to deal with but somebody unfortunately has to.
Not that I think you’ll end up in the gutter when you get older.
I would too and I’ve been working since I was 13. But … in 40 years we will find that some of us invested poorly and no longer have the means to buy food and shelter in our old age. Should the state look the other way?
Social Security as a basic safety net was not a bad idea IMO. Unfortunately everybody thinks it is a retirement account now. One that should pay for jet skis and European vactions for everyone, even those who failed to save properly for their later years.
If you are an American, then yes you made that promise. You don’t get to disregard the laws you don’t like - and the current law says that you have promised, if you work, to fund the retirement of current retirees that worked. Just like I’ve promised to use my tax dollars to overthrow Saddam Hussein, or fund faith-based programs, or any number of things I, personally, don’t think are good uses of my money.
Don’t like it? Vote for politicians that will change it.
Until then, yes, you are part of the national “we”.
In 1966 the DJIA topped out at 920, 10 years later it was at 577. In 1972 the Dow topped 1,000, in 1982 it was at 776.
Anyway, Social Security isn’t an investment. It’s a pension. Don’t fuck with it by putting the money in the stock market - that’s not what it’s there for.
There are two possibilities. One, we do away with SS, and let people invest their money (and perhaps money from their employer now going into the system) any way they want. Does anyone doubt that we’d have a large number of destitute retirees? The same people who are offended that the government doesn’t trust everyone to invest well blame the people taking out crap mortgages for their problems. No doubt their reaction to those who retire with nothing will be that it is all their own fault.
Second, we force people to invest in a limited number of “safe” market products. How can anyone opposed to government interference in the market be for this massive government influence? The massive influx of money will drive up stock prices. Anything but an index containing all stocks is going to be a candidate for corruption, even the Dow. Getting onto the Dow now is a big plus, think if what it would mean if billions of SS money also goes into it.
There will be bond funds also, even a bigger problem except for the treasury bond case. And there might be an increase in volatility if people can move money between stock funds and bond funds.
Everyone in favor of this seems to be thinking in terms of putting their SS money into a 401K, which is too little to affect anything. Putting everyone’s money in is a different matter. One Bricker moving his money is fine, 100,000,000 Brickers moving their money all at once will be a disaster.
The number one principle of investing is to have a safe base, and then to add risk for money you can afford to lose. The current SS + 401K system is a great example of that. Anyone who puts all his investment money in higher risk options is asking for trouble, but anyone putting all their money in SS type investments is asking for lower than market returns. I can invest somewhat more aggressively knowing that SS is there.
