I’ve looked at the other threads, and other sources, for ideas on what happens to those among us who are, well, unsophisticated in financial affairs. What little I’ve seen gets lost in the yelling of the (mostly younger) people who have images of the great wealth they’ll surely accumulate if allowed to manage the tons of money now being stolen from them.
Some say they (we) could hire a broker. Right! That’ll work. Put all the money I now invest in SS into the hands of a professional. Wonderful. :rolleyes:
So what will the “working poor for life” do?
Though I’m not poor, and I am pretty well set, I’m seriously concerned about those who aren’t so lucky.
Peace,
mangeorge
Here’s the thing all of the proposals that are on the table (by which I mean all of the proposals being given serious consideration such as the ones recently publicized by the CATO institute, given that none have actually been submitted for debate) would not give you direct access to your money. In other words it would still be deducted from your payroll (or for the self employed be filed like SS tax currently is done). You would have some control over how it is invested within certain limits . That is to say you wouldn’t be able to invest in futures, junk bonds, and other risky investments in all likelihood. The thing is that even very poorly chosen investments would likely fare better than the rate of return inherent in the current system. Also, keep in mind that the current system will without question collapse in the next twenty to forty years without serious changes. These changes will have to either take the form of a Bush style reform, and or consist of increasing taxes, cutting benefits, or raising the retirement age. Put another way, if you are under thirty five or so the current paradigm will not prevail for you.
One possible solution that is never mentioned consists of vastly increasing legal immigration. That is because the root of the problem lies with the fact that there will be less working people relative to those who are retired. Therefore, if we can increase this ratio (or at least reduce it’s decrease) we can delay, or avert the problem all together. Of course this also means growing the economy sufficently to provide jobs for those new immigrents. Also, I would argue that many economists believe that a Bush style partial privatization would add anywhere from one to three percentage points to our GNP due to the increased investment that would occur directly from Social Security. Another benefit is that most of the proposed reforms would allow you to pass the your benefit on to your spouse or relatives if you die. Under the current law if you you die say at forty five your money goes right back into the system, and your family gets squat. Note, that blacks and other minorities who tend to have shorter life spans are the most victimized by this system.
The most glaring criticism of a Bush style proposal involves how we would pay for the transition costs to a reformed system. Currently, the system receives both the employer and the employee contribution. If we give the employee even half (about 6.5%) to invest on his own (within strict parameters beyond his direct reach of course) the system will lose that 6.5% which currently supports those receiving payments (or if it doesn’t now will do so within the next decade or so). Any modification that lowers the amount which the system gets will shorten the time frame until the system goes in the red. Keep in mind that those on and within about twenty years of retirement will almost certainly continue to receive benefits under the current not the reformed system (note that had the reformed model been put in place back when social security was started we wouldn’t have this issue right now). Most would also argue that we will have to have a “safety net” for those who some how fall through cracks in the system (such as by not working at jobs which deduct Social security taxes).
It’s not stupidity – it’s prudence. If you’re going to depend on something for your income in the future, any financial expert will tell you to put it into something safe – government bonds, savings accounts, etc. – and not into stocks. For retirement, a good portion of your money should be in safe investments, and a small portion in stocks.
Why?
- The stock market fluctuates. And if there’s a bust about the time you need the money for retirement, your SOL. Lots of people had their retirement investments in stocks back in 1929; look how that worked out for them. That’s one reason for Social Security in the first place.
- Investing requires a good deal of skill and knowlege. You can be smart, but if you aren’t interested in reading financial reports and investigating thorougly what you are planning to buy, you can easily get burned. Even that can be a disaster if a company or fund suddenly has unforseen problems.
- Fraud. It is next to impossible to tell a crook from an honest investment advisor. Both will sound reasonable, look honest, and dress well. But if you discover your advisor is skimming off your retirement funds, you’re SOL. Even if he’s arrested for it, you’re not going to get your money back. (In today’s paper, there was a story about an investment advisor who swindled a client out of thousands of dollars. The advisor was so well regarded, he had his own investment advice show on a local radio station.)
At the very least, any money invested needs to have an FDIC-like insurance against fraud (there is the NASD fund, but that’s only if the investment company goes bankrupt, not if they steal you blind). Otherwise you’ll have hundreds of Enrons, where everyone shrugs their shoulders and says “what a shame” as people end up not being able to pay for their retirement.
The bottom line is that a universal investment account for retirement is not even designed to save Social Security (there are plenty of ways to fix the current system if people worked at it). It is designed to set up investment accounts. If it saves Social Security, that’s a bonus. If it doesn’t save it, and if millions of people find they have no retirement money, that’s not a concern.