You can. Most 401(k) plans will allow you to loan yourself money (out of built-up surpluses, one might add) to buy a house.
If one did this, would their net worth increase, decrease, or be the same? Your answer here is the same as the SS buying T-Bills scenario.
I know. That’s exactly what I said. You have two choices - spend the $100 from poker to pay off your other debt, or put the $100 in a bank and then borrow $100 to pay your other debt. Either way, I think you would agree, your net worth is the same.
Hell, look at what you typed! Every single investment is spent and replaced with an IOU. That’s what an investment is! Do you think that the bank just puts your cash in the vault? Would Canada if we invested SS surpluses in Canadian bonds? No, they spend it, and you have an IOU saying the bank (or Canada) will pay you back.
Anyways, L.B. has it pretty well summed up. If you read that and continue to hold your opinion, then there’s nothing anybody can do.
Of course it was. The payout is extremely progressive. IIRC, the average return on social security taxes paid for someone maxing out their contribution every year is somewhere in the neighborhood of <1%, for people who make $15,000/year the return is somewhere in teh neighborhood of >8%.
No it wasn’t. Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits. She lived to 100.
It was a way of getting money into the hands of retirees so they wouldn’t have to eat cat food in retirement.
There are all sorts of solutions. We can means test social security which means that about 10% of retirees would not get benefits. We could lift the cap, which means that whose who make more than 106K/year would pay an extra 6%. We could raise the retirement age or reduce benefits. We could use a combination of all of these approaches. Personally i think some combination of lifting the cap (perhaps a 3% social security tax beyond the normal cap) and means testing (perhaps a slow phasing out of benefits starting at the median national income).
And on a not-unrelated note, any certified financial advisor would tell you that borrowing from your own 401k is a really, really dumb thing to do, even if you’re taking the money out to invest in something you think will get a higher yield.
Well, that is true, but I’d say it is un-related (at least if your point is that it’s a bad idea for the SSA to buy US Bonds).
The reasons why borrowing from your 401(k) is a bad idea generally have to do with their special tax status, something that doesn’t apply to the SS Trust Fund.
Company A and the pension division of Company A are part of the same division. The pension division collects a part of every employee’s paycheck and puts it in the pension fund. The company frequently borrows from the pension fund offering a competitive rate of interest for the credit risk taken. Does that make the funds in teh pension fake somehow?
Aside from teh fact that congress can change the law to do whatever the heck it wants with social security and that social secuirty is not fully funded… under current law how is social security so different from teh example i just gave that you that you think the money paid into social security somehow evaporates or is less real than the money put into a pension plan?
I guess what is throwing me off is that you are repeating a meme re: social security trust fund that is usually followed by “and THAT’s why we should privitize social security”
[quote=“L. G. Butts, Ph.D., post:58, topic:572042”]
[li] Social Security having to raise taxes or cut benefits in 2037 is completely independent of what happens with the rest of the government.[/li][/QUOTE]
This is the source of the disconnect.
Yes, in a technical accounting sense, SS is completely independent of what happens with the rest of the government. In reality, this is a little bit like saying that I’m financially prepared for retirement, and that the fact that my children are broke has no effect on me. Unless I’m planning to let them starve in the street, their problems are also my problems. Especially if my retirement plan was centered around money that I borrowed from them, and it’s my collecting it that puts them in the streets.
Yes, SS is in good, or at least adequate, shape on it’s own (assuming you’re okay with waiting until 2037 and then instituting major changes). But the rest of the government is desperately in hock, addicted to borrowing from tomorrow to pay for today. When SS turns the corner in 2015, one of its main lenders will be gone, meaning that it will either get further and further in debt, thus increasing the chance of either default or hyperinflation, or else start dramatic spending cuts, including things like medicare and medicaid.
Shodan’s right. The government is not investing when it loans money to itself.
Right now the government is collecting more in SS taxes than it is paying out in SS payments. It’s taking to excess income and buying treasury bonds with it. It then takes the money it collected from the sale of those bonds and spends it.
Twenty years from now, when the government is supposed to be paying out more SS payments than it collects in SS taxes, what’s going to happen? When the government cashs in all those treasury bonds, where do you think that money will come from?
It also has to do with the fact that financial advisors know that people who borrow from their 401k tend to do so for luxuries or sketchy investments – a better car, a new house, opening a side business, etc. In a narrow, accounting sense, borrowing from your own retirement does not make you poorer. In practice, when someone tells you he’s borrowing from his 401k, you know the dude’s probably in a mess.
They’ll raise taxes. But the government would have to do that whether it was SS buying the bonds or China. You, and Shodan, are mixing up cause and effect. The SS surplus did not cause the government to sell T-bills. The government was selling T-bills anyway (and hence incurring future tax obligations), and the SSTF money bought some of them.
I repeat the point that Shodan dodged earlier: unless you are prepared to argue that the existence of the SSTF caused the Treasury to borrow money, your argument doesn’t hold water.
Suppose that this Social Security Trust Fund with its massive portfolio of T bills disappeared tomorrow? Where would the money come from to pay benefits? Right, the general fund through current tax money or more borrowing.
So thank God that the SS Trust Fund has all of the assets in the form of T bills that it can sell to provide benefits. But, when they sell these T bills to provide benefits, where does the money come from to redeem them? The GENERAL FUND through current tax money or more borrowing.
So, tell me. How is Social Security any better or worse by having this “trust fund”?
Except that the government is collecting SS taxes now that’s theoretically supposed to be available for future SS payments. And that money is being spent not placed in real investments. So that will be a real effect on the deficit.
We either place current SS taxes at the level of current SS payments and stop pretending we’re investing any money. Or we should place the excess SS taxes in real investments - like for example Australian bonds. Then in twenty years when we need the money, we can cash those bonds and the Australians will have to pay the taxes needed to redeem them.
But what makes Australian bonds any more real as investments than American bonds? If anything, American bonds are safer (as determined by the market).
More importantly, placing the excess SS taxes in “real investments” has no bearing on the amount of Treasury bonds the US will need to issue to cover its expenses. So yes, in twenty years we can cash the SSTF bonds and Australia will have to pay for SS benefits, but in twenty years, the US T-bills that were sold to, e.g., China instead of the SSTF will come due, and US taxpayers will still have to foot the bill for that. The cost to the taxpayers is exactly the same.
Again, unless you can argue that without the SSTF buying T-bills the Treasury simply wouldn’t have issued those bonds, you can’t argue that the SSTF incurs new obligations on the American taxpayer.
A big difference is that China or whomever won’t be cashing them in wholesale like SS will. They are content to keep them and take the interest payments. Once SS starts running a deficit, they will be redeeming the bonds, interest and principle, and must be paid.