What exactly would the money do in this Social Security-only trust fund? Would it just be plundered constantly by inflation?
That is a good question. Perhaps one of the best reasons not to have set things up like they did. Had I purchased a basket of anunities from such companies such as Prudential, New YorkLife, with my SS dollars, how much better would I be off now?
Well the monies will still be either invested in some way or put in a hole in the ground. If they are invested there is risk. Insurance companies don’t just put the money in the bank either, they invest it also. So an insurance company would not provide better returns than the government bonds, once you take into account the risk of the insurance company making bad investment decisions and going belly up. Of course if it fails, it will either turn to re-insurers (who also sometimes go belly up) or get bailed out by – the federal government. So yeah.
Plus, if the trillions in SS had been sent to insurance companies it would distort the markets such that investors would make less of a return since there would be so much money chasing more and more marginal capital return opportunities.
ETA: IIRC safe annuities seem to pay around the same as long-term federal bonds. So if the government pays back SS all its dollars, and SS is self-sufficient, then it’s basically a wash.
Does it ever occur to anyone who advocates raising the SS eligibility age that the people who need it most are also the people with the least access to health care? Raising the age just means that elderly working poor have to work longer in their declining years, and more of them will die without ever collecting anything, to the benefit of people who are more affluent and in better health–that is, likely to live longer–to begin with.
You can work and collect social security at the same time (with a reduced benefit). Of course being completely rational, if they can work to support themselves, then why bother giving them government money?
This is just one of the many reasons some of us are in favor of universal single-payer health care - it eliminates that particular problem.
Please give us a cite where bank execs chose to engage in risky investments because they were sure the government would bail them out. Big investment banks, not those covered by FDIC who were better regulated and did better before the housing market collapsed. Remember, the government bailed out the banks after they didn’t bail out Shearson and we cam to the brink of a financial catastrophe.
We do have information saying that the banks risk models did not include the possibility of the market going down, and we do know they didn’t have enough capital reserves, and we do know this stuff didn’t happen when there was less of a free market.
As for me, I’d be happy to have let the banks fail if we could guarantee that the only people hurt were radical free marketers. Alas, that is not the case.
While this is true, it is because there is a direct relationship between risk and expected return. SSA “invests” in US government bonds, traditionally regarded as the safest investment out there and earning correspondingly low returns. People like me who would like to have more control over our SS investments (or to opt-out of part of it and be able to invest it differently) are perfectly happy to invest in higher-risk vehicles in expectation of greater return. For example, my own savings are invested in about 30% various US government bonds, 10% other bonds and 60% equities.
There would need to be some control over where people could invest their SS. For example, we wouldn’t want people to invest 100% in stock of one company (think Enron) and then become a burden on the state (or starve). This could be handled much like the 529 plans for college savings - there are a number of plans available with different levels of risk, but they are chosen so that nothing is outrageous.
Because in many cases (like that of my mom, for example), she is finding some work, but not enough to support herself. It’s not fun job-hunting in a recession when you are 68 years old.
I am quite skeptical about the government ever being able to pay off what it owes SS.
There are a couple of problems with this. First, this much money in a limited number of funds will distort the market wonderfully. Think of the impact of one of these funds deciding to invest in a company, even to a minor extent. Even if you limit them to index funds, there will be an impact, even moving the investment mix from stocks to bonds or vice versa.
Second, just as today you would get political demands for more and higher returning choices. If you allow people to double their risk, why not triple it?
Third, Sweden, I believe, has a system where investment funds are directed among well over a dozen choices. Thaler and Sunstein show in Nudge that people go for the worst of these - they almost always go for the fund with the highest to date return, and wind up buying at the top.
Plus, consider the massive opportunity for insider trading in your scheme. Knowing the change in investment strategy for one of these funds would be worth a lot of money to an unscrupulous person.
Didn’t Illinois have their 529 plans go down the crapper, with the result that thousands of people who thought they had a safe investment wound up with nothing, or at least a lot less than they had?
Raise the earnings cap (this will hurt me, btw).
Do NOT means test, just count SS as income along with any other income streams coming in.
I would indeed use index funds. Also, the program would be optional and only cover a portion of your SS - to ensure there is still some safety net. Other countries have done this successfully. I opted out of part of the UK scheme.
That would cover pretty much all your objections - there is no inside dealing issue with index funds. The fund sizes would not distort the market. And I am rarely persuaded by “slippery slope” arguments. I don’t see why we should be forced to accept the poorest returns available just because some people may choose options that are riskier than maybe they should.