First of all, why are you looking only at the DJIA? That is a list of only 30 stocks, IIRC. I’m not suggesting we use that. We should use broad indexes of hundreds or thousands of stocks. The Russell 2000, the Total Stock Market Index, the S&P 500, etc.
Because the Dow is only a small number of stocks, it’s more volitile. However, even considering that, in the past 100 years the best you can do is one period of slightly over 20 years where it returned flat. That’s due to the depression, which is very unlikely to happen again anyway.
If you invest in a wide index fund that holds many stocks like the ones I’ve mentioned, it’s never been possible to have a negative return if you have a long timeline of twenty years or more.
In any case, YES: Something is better than nothing. Even if the funds only are invested in the safest of TBills, that would at least return something around inflation, which is better than we’re getting now.
Debaser - just wanted to let you know that I do not anticipate participating in this thread anymore. Just in case you were expecting me to continue any discussion.
Sneering, certainly. Damned if I know what other reaction is appropriate.
But if you regard as ‘content free’ a post that says we might have a bit of a gap in benefits if we take taxes paid into SS today and, instead of paying them out to today’s beneficiaries, we save them for the retirement of current payees…well, you’ve got a strange idea of ‘content free.’
But don’t let me stop you - the credibility you undermine will surely be your own.
Most of the unpopularity is the war, true, but Social Security was the first big
initiative that crashed and burned.
Hell, the vitriol hadn’t done much good before. He started with generalities, and never had a real plan, but as parts of what he wanted to do came out, things got worse for him. Remember he did a road tour for it, and that just resulted in the popularity of the idea going down even more. Clearly the support diminished, and he couldn’t get fuzzier than he was at the beginning of the debate.
I used the DJIA because it’s been around the longest. The S&P 500 has only been around since the late 1950s and the other indexes have been around for much less time than that.
Now who’s cherry picking? That one period of 25 years (which is a damn sight more than “slightly over 20”) would take you from age 65 to age 90 before you even saw the money you had invested get back to 0. And that 25 year period included World War 2 and the postwar expansion – arguably one of the strongest periods of economic growth the U.S. ever had.
And why do you think the Depression is “very unlikely” to happen again?
But since you mentioned the S&P 500, they’ve logged 29 “corrections” (a stock drop of 10% and 11 drops of 20% or more in the last 50 years. As I said, the timing of your retirement and the timing of the market may not agree.
Where do you think the Social Security Trust Fund is invested?
Yep. But, my money says that any major overhaul of a program like SS would have crashed and burned due to his unpopularity relating to the war.
Who knows? Bush certainly didn’t do a good job trying to sell SS reform. Maybe it would have failed even without Iraq hobbling his ability to do anything domestic with his presidency. It’s certainly possible. I’m just saying that the fact he did fail means nothing, since he never really had a chance due to his unpopularity.
(I’m saying this in hindsight. I thought he had a chance at the time.)
I don’t know why you’re saying this. Every time I’ve ever listened to a presentation on stocks and investing they talk at length about the return of the total market, the return of small caps and other indexes going back to the beginning of the century.
This information is certainly available.
Ah, you are. You’re only example is one group of 30 stocks. I have every other index of widely held mutual funds everywhere. I don’t need to cherry pick, thus I haven’t.
There are many regulations that exist now which did not then. The stock market, for example, simply isn’t allowed to fall as much now as it could then in a single day.
So what? They’ve had lots of good days as well. If you are investing for the long term in the S&P 500, like any fund with lots of stocks, you would always have made money if you are in it for the long term. Who cares if there were a couple of bad days. You ignore that and hold the stock.
Even if the stock dropped 20% on the day you retire, you’d still be much better off than not investing at all. In any case, you would obviously start moving to safer investments like bonds as you neared retirement to avoid this and protect your nestegg. At least you’d have a nestegg to invest, unlike now.
Yes, the “Trust Fund” is invested in government securities. But, that’s only the scraps that are left over after paying out most of the money to existing retirees! That’s the problem.
Feel free to cherry-pick within posts to respond to a single nonsubstantive remark and ignore the content, dismissing it because you don’t like the tone of the nonsubstantive remark. I certainly can’t stop you.
Again, the credibility you undermine will be your own.
That’s not an investment problem. That’s a policy “problem”. Where would we get the money to pay off existing retirees if we put the money into private accounts instead?
That’s not a rhetorical question. The answer is we’d sell more government bonds. They’d pay…ohhh, around the current government bond rate.
The “scraps” left over now amount to $1.6 trillion. Cite
oops, that cite is a bit out of date. It is actually over 2 trillion now, with a surplus of about $190 billion for 2006. Cite
Now clearly there could be an issue off in the future if the pessimistic economic view comes true - and I’m okay with planning for the worst case. I’ve never seen a projection on how private accounts would do using the same projections that put social security in trouble.
You clearly ideologically object to the current system, which is fine. But please don’t spread misinformation, like the surplus amounts to scraps.
So? I admit my issues are with the Social Security “policy”. I never called it an “investment problem”.
Why must this be the answer? I wouldn’t think that would be a good way to do it at all. There are many ways we could. First of all, only some people would opt to go into a private accounts option. That leaves others, like you guys in this thread, who would no doubt choose to continue with the current program. That means funding will still be coming in the old fashioned way.
Paying for the transition costs to a personal account system would cost money, though. There are many ways to do this. You could pay for it out of the general budget, basically from the taxes we all pay. Or you could tighten up the costs, brining up the retirement age and flattenning out the ever increasing benefit checks. Means test it.
IMO though, the best way to pay for it would be to tax the rich. If you remove the limit on the payroll tax without paying any bennies to those people, since they are already upper income, you would flood the system with money. This would enable you to afford the lack of money coming in from those who opt for private accounts.
There are many ways to do it. The point is that we do it. The longer we wait the harder it will be.
It’s a small percent. In the past it’s been 0%. It probably will be again. Like I said, it’s scraps that are leftover.
The entire problem that put social security in trouble wouldn’t exist with private accounts. You don’t need to worry about the ratio of number of workers to retirees, if everybody gets their money put away in thier own private accounts.
You wouldn’t need to project that people around my age are either going to see tax increases or benefit cuts or both if the money was being held in a private account.
The whole “intergenerational trust” (aka ponzi scheme) doesn’t exist with private accounts. That’s what’s causing these many problems.
Yes, in a number of years the surplus accumulation goes to 0, (assuming pessimistic economic predictions) unless there is an increase in funding or a decrease in payouts. That much everyone knows. It’s in far better shape than it was 25 years ago.
And of course 1.9 trillion is a small percentage of benefit obligations, which includes those for people paying into the system still. Are you expecting them to put the money into a mattress or something? Do you have money laying around to pay off your mortgage today, just in case? They do have plenty of money to pay off current obligations. I don’t quite understand why you think anything is wrong with them not having the money saved to pay off future obligations, as if no money were coming in.
Bush’s plan only put a small fraction of the SSN payments into private accounts. The deal was supposed to be that the higher returns were supposed to make up for the shortfall in funding, for constant payments. (And I think there was a benefit cut thrown in.) The problem is you’d have to borrow a ton of money now to fund current obligations in anticipation of a potential problem in the future.
The benefit cut from the private account happens automatically if the market goes down, or if someone runs out of money. No politician would vote for it, but it can happen just as easily.
The tax increase that seems most reasonable is an increase of the cutoff after which Social Security is no longer taken out. Most people would see no tax increase at all. (There is one every year for indexing, of course.)
Fair enough. I gave you my links to the DJIA. Why don’t you share yours with me.
It’s true trading will be halted if a single day’s losses go too far. That doesn’t mean the market can’t continue to drop over a longer period of time.
Which is exactly the point I made in my very first post - with one caveat: The timing of your retirement and the timing of the market may not agree. You seem to be unwilling to accept that point.
No one is stopping you from investing in your own nest egg so that you can augment a meager but guaranteed-for-life payment from Social Security with your own self-directed plan.
No. I’m suggesting that instead of simply spending it as it comes in, while only saving some scraps that are leftover, the money should instead be saved in private accounts which are invested in broad index funds. Clear?
I acknowledge that there is money coming in. I get it. However, I don’t agree that this is the best way to do it.
To hijack your mortgage analogy, it’s as if instead of getting a regular mortgage I get an interest only mortgage. And instead of paying off any principle I just get my kid a job when he turns 16 and rely on him to keep paying my mortgage payments for me when I retire. Since there’s money coming in, there’s no problem with this plan, right?
No. Just because there is money coming in from some source doesn’t mean that things are being done the right way. Just because they have enough money to pay for current obligations doesn’t mean that the system isn’t operating in a very flawed way. If the money were invested and allowed to compound with interest then the benefits would be much higher than they are now.
By doing that you would be removing the lifeline that we could use to get out of the current system. Once that cap is removed, it gets much harder to come up with a way to finance a transition to a system of private accounts.
What are you looking for exactly? Proof that index funds don’t lose money in the long term? I thought you had conceded this. What fund do you want a link to?
Sure it can. I’m not saying there’s no short term risk in the market. I’m just saying that controls are in place now that make a stock market crash like the one that led to the great depression very unlikely.
So what if they don’t agree? My point is that even if you retire on the day after the worst crashes in history, you’d still be very much up money if you had been investing for the long term.
Since the market has always been up in the long term, why do you care about the short term? Why does it matter if things fluctuate day to day when in the long run they are always up?
Yes, and I’m doing that with the 15% or so that I can afford to after the government takes 15% from me for Social Security. However, as I’ve pointed out many people aren’t as fortunate as me and can’t afford that much. After paying payroll taxes they don’t have enough disposable income left to pay for retirement savings. This is unfortunate.
Let’s agree to agree on the things we agree on so we can get to the heart of our disagreements.
I agree that the market has always gone up in the long-term.
Now, let’s get to the heart of what we disagree on. You believe that the government is taking a chunk of your income in taxes, and you’ll never see it back, that you don’t think it’s fair, and that if you had that money you’d get a better return.
And my response is: Social Security provides a meager but GUARANTEED benefit for as long as you live.
<Warning: gross oversimplification follows>
The maximum SS retirement tax is 6.2% on the first $97,500 you earn (the 7.65% figure includes Medicare, which is not what we’re debating right now). Your employer pays a matching amount. (I do not for one minute believe that if the SS retirement tax ended tomorrow that I’d ever see that matching amount. If you believe you would, that’s a topic for a different debate.)
Therefore, the maximum SS retirement tax you can pay is $6,094 per year.
Just for the sake of argument, let’s say you pay the maximum amount every year for 45 years. You’ve paid $274,230. If you’ve been self-employed for all 45 years, paying both halves of the tax, you’ve paid $548,460.
Now you’re ready to retire. The maximum SS retirement benefit is $2,116 per month – $25,392 per year. Already you’re getting back four times what you paid in each year, or twice what you paid in if you were self employed.
Which means, you’ll have received your “principal” back in benefits in 10.8 years.
If you retire at 67, and die before you’re 78, you’re out of luck. However, if you live to be, oh, let’s say 90, you’ll receive $584,016 in benefits. That’s more than a 100% return on what you paid in. It’s even more than you paid in if you were self-employed for all 45 years. Not to mention that you’ll continue to receive the maximum monthly benefit as long as you live.
You can argue that if you had that $6,094 to invest each and every year for 45 years you could have a much bigger nest egg when you retire. Maybe you won’t, but I’ll agree that probably you will.
However, look at the numbers and remember that they’re guaranteed in a way that no mutual fund or insurance company can possibly guarantee. Is it really such a bad deal?
I disagree that it’s guaranteed as lock solid as you think it is. The benefit can be changed by congress at any time. Indeed the FAQ page from the Social Security site says that someone my age can expect a 26% cut in benefits by the time I retire.
You’re incorrect about that. Half the tax is hidden, but in the end this is costing you. Employers factor in this cost when deciding how many to hire and for how much. It’s my understanding that economists are in agreement that if this tax went away then incomes would indeed rise.
However, just to compare apples to apples, I’ll stick with the numbers from your example:
Let’s take our hyothetical person and have them keep their $6,094 per year in a private account instead of being paid into the existing system.
They watch that money grow for 45 years at 12% interest. With that interest compounding yearly, he would have $8,277,054 on year 45 for his retirement.
You’ve still paid $274,230 in payments, just like before. But, instead of just a government promise to pay you $25,392 per year, you have a nestegg that you can control that’s worth over eight million dollars.
Even safely invested at 5% this nestegg will produce $413,852 annually for you to live on in retirement.
Instead of getting back four times what you paid in yearly as you would with social security you would be getting back sixty-seven times what you paid in yearly with a private account.
Instead of taking over ten years to get back you’re principal investment, you’d get it back in the first six months.
It doesn’t matter how long you live. As long as you never spend the principal your nestegg of 8.3 million will continue to pump out money for you to live off of.
I don’t think many people understand just how powerful compounding interest is. It’s not like we’re talking about a small difference. The difference is massive. Think about the increased quality of life this could bring to millions of American retirees.
Best of all, when you do die, this money is now your estate and can be passed on to your heirs.
How can you say “maybe you won’t” when you’ve agreed that stocks are always up in the long term? Do you think that they will perform differently in the future than they always have in the past? On what do you base this?
It doesn’t matter anyway. Even if we take the volitility of the stock market completely out of the picture, we can still blow away the returns of social security by investing in things with guaranteed returns like bonds or even government tbills.