Is privatizing Social Security ( or any government's public retirement program ) a good idea? Are government mandated private accounts invested in the financial markets an improvement over pay as you go taxpayer funded retirement plans?
Social Security is nothing more than a pyramid scheme. It was since the begining. Initially, about 40 workers supported the monthly payment to one retiree. By the early 50's, it was down to about 17. Now it's down to about 2-3 workers supporting one retiree. The original plan was that is was only to be a "safety net" along with a pension. But over the years, people came to think of it as a "retirement" program. Never was, never could be! Here's my situation. I'm 66 and a retired Federal employee under the old CRS pension plan, but before that, I worked enough years in private industry under Social Security to qualify. I have no mortgage because my home is paid for. My two SUVs and the SW my wife drives are paid for. I have health insurance and no debt to speak of - the VISA balance is about $750. I even put $150 a month into savings! My 2005 monthly SS (not my pension or my wife's SS) is only $478 (the average I'm told is close to $1000). So that means that over $190 of your monthly paycheck comes to me! If things were the way they were in 1937, it would only be $12, and still only $28 in 1950. Yes! Something is wrong here and it goes back to the original design of SS - the pyramid scheme. You are paying for FDR's vote-getting for Democrats for Congress in 1938. Every dollar you put out for a POD, new music CD, more stylish clothes, pot, crack, or whatever, could have been put into savings or a mutual fund so that you wouldn't have to worry about SS. The solution depends on the approach to the fix. Change the investment base of SS to allow higher return rates? Gradually slide a percentage of the current contributions into a participant selected fund with a higher return rate? Mandate a new program of savings completely outside the SS?
Does anybody from England or Chile have comments on their public pension privatization? I think the timing is bad for private accounts in America because the American economy has serious troubles coming. I sent the following email to a talk show host who ridiculed his callers lack of faith in the next thirty years of the American stock market: America as a stock. Dear Gene, ask Bob Brinker this, "when picking a stock how heavily should I weight the past hundred years of performance of the stock?." Tell him the stock's (or a stock sector like utilities) return has beat the treasuries over every twenty five year period for the last 150 years but currently has been increasingly taking on debt over the past thirty years. I expect that Bob Brinker will tell you that past performance barely matters and that you must look at what the company is doing now. Debt can be OK if you are doing something productive with the money. Is buying sneakers productive? What is the multiplier effect of the foreign investment into America? http://home.att.net/~rdavis2/tradeall.html Annual net investment into America is now more than 4% of GDP. On a percapita basis each man woman and baby is being loaned $1,700 a year by foreigners. If I spend part of my $1,700 loan at the doctors office, part at Wal-Mart and part at the auto mechanics and the people I spent the money with also spend the money I spend on them on other people in America, how much is that $1,700 per capita loan worth to the American GDP as it circulates around America before it leaves the country as trade deficit? How much of our GDP depends on the multiplier effect of net foreign investment? I don't know the answer and neither does Bob Brinker. The folks at the Commerce Department only have guesses at the answer. All I know is that you and Bob Brinker should join me in Being frightened for America. Every company in the Dow depends on a healthy American GDP for earnings. Every company in the Dow depends on expectations of healthy future earnings for it's share price. You can not rationally think about this question of the multiplier effect of net foreign investment through with out losing your certainty that the twenty five years will see the Dow even keep pace with inflation. The people assuring us that it is inconceivable that any twenty-five year period of the stock market will not beat a 4.75% treasury yield have not objectively thought about the multiplier effect of net foreign investment. What happens when if the foreigners stop investing in America, or worse, start selling their investments? We all know that in that circumstance the dollar must fall until the trade deficit ends. But how much must the dollar fall before the trade deficit ends? This is another point were conventional wisdom and probably Bob Brinker have not thought properly. Our economic text books often used 18th century trade between England and Spain to answer this question in the context of David Ricardo's "Law of Comparative Advantage". Ricardo's "Law of Comparative Advantage" is the law upon which the theories about the benefits of free trade are correctly based. But the trade between America and China or between America and the OPEC states does not closely resemble the trade between England and Spain circa 1800. Both the Yuan and the Riyal are pegged to the dollar. The trade imbalance is not between the USA and the EU. The price of oil and everything (other than food) sold in Wal-Mart (almost all of it from China) and call centers in India must rise until Americans can not afford to buy more of it than they can afford by selling goods and services to OPEC, China and India. The problem is that as the buying power of the dollar drops the American trade deficit will not behave as the text books and all those who have excess faith in the stock market expect it to behave. Conventional wisdom says that as the dollar drops Americans immediately stop buying foreign stuff and foreigners immediately start buying American stuff. The main way we can sell more stuff to the Chinese as the dollar drops is by taking business away from the Japanese but the Yen will also drop and stop that. The Dollar would have to drop a long long long long way against the unpegged Yuan before America could reach a trade equilibrium with China. In the mean time the surprise for conventional wisdom is that every small fall of the dollar raises the total cost of American imports and lowers the value of American exports more than can be offset by improved market share and therefore only increases the Trade deficit. Economies hate sudden change. A falling dollar and expanding American trade deficit spiraling out of control would be more than global trading patterns could tolerate and the global economy would collapse for a while. You would call that a great depression. As far as I am concerned this is not a question of if this will happen but rather when it will happen. For the sake of America and the world the sooner it happens the better because the gap between the current trade pattern and a sustainable trade pattern determines the severity of the depression. With every new section of the American economy that is outsourced the gap between current trade patterns and sustainable trade patterns increases. In the end foreigners can only sell to America if America can sell something back to them other faith in America. Faith is an important part of the economy. Although the whole world has relied on the American dollar and the American economy as a source of faith and stability selling the faith in America is not a sustainable commodity. All Ponzi schemes collapse eventually. The global economy is producing more than it can consume which is exactly what happened in the 1920. America can not keep consuming on credit. (Herbert) Stein's Law: "Things that can't go on forever, don't." I do not believe that America (the Dow) is a stock that a wise investor should be investing in at this time unless they can wait forty plus years before withdrawing the funds. If you are a good stock picker that's a different story. I bet you that UPS will be a good stock for the next twenty years. But we are not going to let private accounts pick stocks because we know the pros would take their money. Kindly please stop telling people who have no faith in the next thirty years of the stock market that they are stupid.
I agree it always was a pyramid, and the changed demographics make it a unstable pyramid. I think it was a good program. Some old folks were in deep trouble. The problem with means testing is that any program that is just for the poor gets very stingy and disfunctional. The difference between Medicare and Medicaid illustrates the point. You may not know that Medicaid does not work. Medicare outperforms private sector insurance plans at delivering lower overhead quality insurance. Safe bonds won't match the past performance of the stock market but their safe. Why does Social security have to try to be more than a safety net? I was born in 1960. My hope for Social Security is to get back 50 to 70% of what they are claiming I will get. One problem with pulling Social Security out of treasury debt is that we may have to raise interest rates to attract replacement bond-holders. Interest on the debt is already a major user of our tax dollars. My fix for Social Security is to pay off the national debt and even build up some surplus by 2018, but to do that requires cutting spending, lowering benefits now, raising taxes, and no wars. I know my plan does not have a chance in the political real world.
I think, or at least hope, that it will come down to a compromise of a mandatory individual retirement plan outside of SS in some suite of stock/bond funds selectable by the individual. Mandatory? Well, SS was mandated, so what's wrong with another? Outside of SS? The Democrats argue that SS is a government guarentee with no right to ownership (except to the extent of "widow's benefits"). Let them win this one. A suite of investment funds? Shortly before I retired, the Federal government replaced the old CRS retirement plan (7% annual contribution) with FERS (Federal Employee's Retirement System with the same contribution rate). Those of us already under CRS had a choice to convert (I chose not to convert) while all new employees were automatically under FERS. FERS outperformed CRS because investments were made in the market. CRS on the other hand was scaled by Congress (like SS) though the pension comes out of general revenues instead of SS contributions. Basically, a change like this would involve nationalizing all private retirement plans (there's already a Federal insurance program to protect those plans that go belly-up), and mandate it for all workers paying SS now.
I like the idea of freedom and as a general principle am uncomfortable with the use of mandated behavior. In California we mandate the wearing of seatbelts while driving. The rationale for what gives the state the right to impose itself in this way is that when the non-seatbelt wearing person crashes he forces everybody to pay higher insurance premiums. I accept that as a valid argument. Likewise I accept mandating that everybody must be forced to pay for their own retirement safety net because otherwise all of us bleeding heart liberals will force the taxpayers to provide a safety net for those people who so badly failed at providing for their own retirement that they would starve or freeze to death out in the side of the street. I am not sure that I can justify forcing all middleclass Americans to provide a middle class retirement for themselves when a somewhat impoverished but safe lifestyle is something that we Americans are comfortable seeing children grow up in. We don't ask the tax payers to lift everyone into the middle class so why mandate the middle class people must provide a middle class retirement for themselves? What needs to be preserved is not today's generous Social Security program but rather a basic survival Social security program. My situation: at forty four my mortgage is paid off and I have a half million in the financial markets; but I did that by being a tight wad. My earnings from working are not great and are unlikely to improve. I have never owned a new car. I would like to drive a brand new car but I consider saving for retirement more important than driving a new car. One of my concerns with private accounts is that if the worst case scenario (that I think is quite likely) happens and stock market returns are flat after thirty years, then in 2035 bleeding hearts like myself will force everyone including retirees like me who have saved for their own retirement to bale out the people who's private accounts are not large enough to pay for even an acceptably impoverished retirement. Another of my concerns with Social Security are that the working people in 2035 will not be able to pay for all of the promised Social Security benefits on top of paying for paying for China's and Japan's retirement bubbles as they sell their US Bonds and paying the Interest on the Debt of sixty years of deficit spending and unfunded wars and still be able to pay for the current 2035 government spending. It would be unfair to my generation and the generations younger than me if we pay retirees the generous benefits until 2025 and then switch to paying subsistence benefits. Many corporate pension funds are also in trouble and some say that the PBGC that insures pension funds is also going to fail and will have to be bailed out by the US taxpayers. I think the Subsistence level portion of everybody's retirement funding should be invested in assets that would be liquidatable and pay off as needed even during the middle of another great depression.
nirakar, I'm guessing that you are a Libertarian. I'm a conservative Republican so we agree on much although there are some differences. Be that as it may, a man thrown overboard and who cannot swim and neglected his life preserver is going to demand attention. The only thing that can be said is that the man's predicament is wholly his own fault. That's also true for the man who neglects to save for the future in favor of satisfying more immediate wants. The difference between the two is that the man in the water has no vote and belongs to no constituency while the man who reaches an age too old to work and has nothing but SS does. In short, reaching retirement is not a problem. Getting people to prepare for it is. The minimum wage was intended as an entry level wage. Now, the man in the water demands it be a living wage even if it's just flipping hamburgers. SS was intended as a safety net. But the man in the water now insists on a modicum of comfort in retirement. There are times when unthinking people must be protected from themselves, especially if it also means protecting the rest of us who did plan ahead. Instead of SS continuing to spiral out of control, not to mention welfare costs, I think compulsory savings would be the wisest path. And, for political reasons, it should be outside of SS. The more wealth an individual has at retirement, the less the demand on SS. It took over half a century to get to this point, and it'll take another half century to dig ouselves out. I think you come close to making my point and expressing my concerns: I'm not quite so pessimistic about the market, though. BTW, I'm 66 and already retired. I chose to stay with the Federal government's lower salary when I could have earned two or three times as much with IBM or Amdahl or any other IBM clone manufaturer. I did it only because of the retirement plan. Knowing the difference between "want" and "need" is important.
If people are given the right to invest part or all of their retirement accounts into a private firm it would take away fubds that support the already existing retirement plans that are currently being funded and would allow those funds to become depleted quicker making the downfall of SS quicker. The way to solve this is to increase taxes on the payroll deductions and increase the age at which the payouts can occur. The age at which you can recieve benifits is 67 now, make it 70. Another way, and to me is the primary problem, to solve the situation is to stop using the SS funds for any other programs except for retirement. Right now there's over 3 other programs that are "dipping" into the SS funds to be used for other things rathar than retirement.
I didn't vote because I didn't see my choice availalbe. 1 - I many decades ago believed that SS should be privatized to increase the retirement by higher interst bearing accounts. 2 - However, now approaching retirement I have changed my mind for two reasons: a - What happens if the stock market crashes and that generation loses there investments? Who provides SS then. Is the government going to guarantee some minimal SS as they do now. Then OK. If not it is no longer a safety net but a big time gamble. b - SS would not be in trouble if we the people demanded the US government pay back all that it stole from the fund (including standard insterest for borrowed money that you or I had to pay during those years.).
Why not just make it 85 and then only a very small number would ever collect and then for far fewer years. Please Register or Log in to view the hidden image! You can take it I don't like your solution.
How the richest nation in the world can have trouble offering social covering to all its citizens and medical attention to its entire people is briefly explained by this…. I’ll get back to you on this. I haven’t quite figured it out. Not only should social security be privatized but afterwards I think the privatization of the police, of public works, and, eventually, of the military should proceed. I envision an America where an American is free to choose which judge and what law he will be judged by, which cop will walk the beat in his neighbourhood, which fire department will extinguish his fire and which division will better and more economically kill his enemies. I envision an America where every American is fortified within his own castle, drives across town in his armoured personnel carrier, and grown his own food with his own water system using his own slave labour. What’s all this bullshit about minimum wages and income tax? It’s about time America returned to what it was meant to be. It’s about time every individual became responsible for his own destiny. That’s the American way. Let him who invests correctly have a safety net and him who fails or doesn’t know what he’s doing, spend his old age in squalor and depravity. Let him who can golf with the right CEOs and can hire the right advisors prosper and the rest let them hope they luck out with a pick or two. Isn’t this what organized society is about? Imagine depending on the government to provide care for you in your old age as in your youth. What did you do to earn such splendour? Why should rich, god fearing, moral folk be burdened with supporting the decrepit and the unfortunate? Should they not spend their money buying a Bentley or traveling to Rome to see the new Lagerfeld collection? What are we communists? What are we pussy Canadians? Wake up America. Those liberal pussies are trying to steal your right to be rich and independent. They’re stealing away your hopes and dreams. You know your self interests are better served by cozying up to the man. You know that all Americans share the same interests, whether poor or rich, black or white, stupid or smart.
Social Security will include private plans. The only question is if there will be enough Democrats left in Congress when it happens to have any influence on the legislation.
Below is parts (selected by me) of a Paul Krugman article found at: http://www.truthout.org/docs_05/010305F.shtml ............The date at which the trust fund will run out, according to Social Security Administration projections, has receded steadily into the future: 10 years ago it was 2029, now it's 2042. As Kevin Drum, Brad DeLong, and others have pointed out, the SSA estimates are very conservative, and quite moderate projections of economic growth push the exhaustion date into the indefinite future. But the privatizers won't take yes for an answer when it comes to the sustainability of Social Security. Their answer to the pretty good numbers is to say that the trust fund is meaningless, because it's invested in U.S. government bonds. They aren't really saying that government bonds are worthless; their point is that the whole notion of a separate budget for Social Security is a fiction. And if that's true, the idea that one part of the government can have a positive trust fund while the government as a whole is in debt does become strange........... .......The bigger problem for those who want to see a crisis in Social Security's future is this: if Social Security is just part of the federal budget, with no budget or trust fund of its own, then, well, it's just part of the federal budget: there can't be a Social Security crisis. All you can have is a general budget crisis. Rising Social Security benefit payments might be one reason for that crisis, but it's hard to make the case that it will be central. But those who insist that we face a Social Security crisis want to have it both ways. Having invoked the concept of a unified budget to reject the existence of a trust fund, they refuse to accept the implications of that unified budget going forward. Instead, having changed the rules to make the trust fund meaningless, they want to change the rules back around 15 years from now: today, when the payroll tax takes in more revenue than SS benefits, they say that's meaningless, but when - in 2018 or later - benefits start to exceed the payroll tax, why, that's a crisis. Huh? ......... ......What happens in 2018 or whenever, when benefits payments exceed payroll tax revenues? The answer, very clearly, is nothing. The Social Security system won't be in trouble: it will, in fact, still have a growing trust fund, because of the interest that the trust earns on its accumulated surplus. The only way Social Security gets in trouble is if Congress votes not to honor U.S. government bonds held by Social Security...... (nirakar's comment, congress voting to not honor the bonds is my fear. I don't think Social security owns actual bonds and therefore congress could default on Social Security's holdings without calling it a default. Defaulting on Social securities holdings could enhance the credit rating of the actual governmet bonds by removing a competing claim on the resources of the American taxpayers.) ........Now it's true that rising benefit costs will be a drag on the federal budget. So will rising Medicare costs. So will the ongoing drain from tax cuts. So will whatever wars we get into. I can't find a story under which Social Security payments, as opposed to other things, become a crucial budgetary problem in 2018. What we really have is a looming crisis in the General Fund. Social Security, with its own dedicated tax, has been run responsibly; the rest of the government has not. So why are we talking about a Social Security crisis? ........... .....A weird thing has happened in the debate: proposals by erstwhile serious economists such as Martin Feldstein appear to be based on the assertion that it's a sort of economic law that stocks will always yield a much higher rate of return than bonds. They seem to treat that 7 percent rate of return as if it were a natural constant, like the speed of light........... .......Historically, the price-earnings ratio averaged about 14. Now, it's about 20. Siegel tells us that the real rate of return tends to be equal to the inverse of the price-earnings ratio, which makes a lot of sense.[1] More generally, if people are paying more for an asset, the rate of return is lower. So now that a typical price- earnings ratio is 20, a good estimate of the real rate of return on stocks in the future is 5 percent, not 7 percent....... .......Then there are management fees. In Britain, they're about 1.1 percent. So now we're down to 2.7 percent on personal accounts - barely above the implicit return on Social Security right now, but with lots of added risk.......
Social Security is an insurance plan. If you work, and become disabled through health or injury you get a monthly payment that will exceed what you paid in, if you have minor children or stepchildren your surviving spouse and children will receive monthly payments. If you work and die “young”, your widow and minor children will receive monthly payments in excess of what you paid in. If you work, retire, receive monthly payments and die shortly afterwards, your legal partner may continue to receive your benefits. Do private accounts that the reformers are advocating have these benefits? If they don't, has anyone counted the cost in social services (welfare)?
I am still waiting for the details on the Bush plan. He refuses to give out details. One detail that the Bush plan has put out is that adult children of private account owners could inherit the unused portion of the private accounts of their parents. Since the private accounts remove money from the general Social Security fund it would seem that disability funds might be threatened but I think Bush says they will maintain disability payments as they are. I am not following the various think tanks ideas because the media is ignoring them and therefore they don't exist. If a few Democratic congresspeople would put out a plan I would take notice. I have been paying attention to the Concord Coalitions talk on social security for fifteen years now. Paying down the national debt is the best thing to do if the goal is to preserve Social Security as a program similar to what it is now.
This is only to be expected, wouldn’t we agree? I forgot to mention, one third of the recipients of benefits are NOT retirees. That’s a lot to maintain with everyone jumping ship. Another issue, I believe (but not confirmed) some or all Medicare payments come out of Social Security as well.
i dont understand, can anyone tell me what social security is exactly, and how you get it, how you pay money into it, and what the problem people are having with it? also maybe telling me the repercussions of what the prez has planned for it aswell? thanks, mephistobane
Social Security began in 1935. Social Security was designed to be an insurance like program designed to lift old people out of desperate poverty and perhaps starvation. 1935 the special payroll tax that funds Social Security took 2% of the first $3,500 of earnings from each worker. Slowly over the years the benefits paid out by Social Security and the taxes paid into Social Security kept on steadily increasing. Social Security taxes now take 12.4% of the first $90,000 of each workers earnings. The employer pays half of the tax and the employee pays half but it really makes no difference whether the employee or the employer pays the tax because neither the employer nor the employee would get to keep extra money if the other one paid the whole tax. Self employed people pay both halves of the tax.. Their are many programs that are part of Social Security but the big program that consumes most of the money is the monthly payments to people who have reached retirement age. For many years now many younger people have felt that the money that they were paying in Social Security taxes would not be returned to them with interest when they become old as it has been for their parents. The Social Security taxes that are paid now pay our retired parents now and the amount that is left over after our parents take their share is loaned to the federal government's general fund and is used to pay the war in Iraq and everything else that the government spends money on. There is no promise that today's workers will every be paid back. Congress can end Social security tomorrow if they choose to do so. The increase in the ratio of old people to young people is creating a problem. In 2018 it is projected that the payments to retired people will exceed the revenue from Social Security Taxes. From 2018 until about 2045 the general fund is expected to repay the Social Security Fund the money that The general fund borrowed from social Security. But who will the general fund raise taxes on to pay back Social Security? The general fund is accustomed to borrowing from Social Security. Regular income taxes or government borrowing will have to increase when the general fund can no longer borrow from Social Security and taxes and borrowing would have to increase more if the General Fund were to attempt to pay back the money that it borrowed from the Social Security fund. Assuming that Social security pays future retires the amounts that it has told us that it intends to, and assuming their are no unplanned increases in Social Security taxes then in about 2045 when the general fund has finished repaying Social Security something must change. From 2045 onwards the revenues from Social Security taxes will only produce enough money to pay 70% of what the government has indicated those retires will receive. All projections depend on guessing what the American economy will be doing twenty years from now. Bush wants the government to borrow more money now and then put money into the stock market in each of our names for our retirement based on the theory that the government can borrow money at a lower interest rate than the stock markets rate of return. Then after 2045 the government will not have to pay us as much to keep it's promises because the difference between the rate at which the government borrows and the rate of return from the stock market will save the government money. The Stock Market has always been good but America was never a nation that had a hollow economy in the past. Foreign investment into America is keeping the American economy afloat. The trade deficit keeps getting larger and will not stop getting larger until this balloon pops. The brokerage firms and the current owners of stocks would love to get an infusion of the Social Security Trust funds money, but putting retirement insurance money into the stock market before the American Economic balloon pops is to much like gambling and is not proper investment for an insurance money. We would be buying stocks on Margin and that is high risk potentially high yield investing. But what if Bush knew that the plan for the national debt was to print our way out of it? Printing dollars would create inflation, but so what. Bush could have his wars and the Chinese and Japanese Bond holders could get stuck paying for our wars and our retirements. Social Security gives us back our money and we buy stocks. Social Security then borrows the money needed for our parents retirement from China and Japan. Then we hand the Chinese and Japanese a bunch of worthless paper and tell them our debt to them is paid off. Could work if.......! If the Chinese don't like it they can talk to our nukes. A summary of Social Security can be found here: http://en.wikipedia.org/wiki/Social_Security_(United_States)
