Say no to private Social Security!

jadam

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Original poster
Jan 23, 2002
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A comic I edited, I got the original online somewhere, it is a rather old comic from the days of Gerald Ford. Anyways here
 

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Dont Hurt Me

macrumors 603
Dec 21, 2002
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Yahooville S.C.
I would think more would be talking about this. Looks like those over 55 are going to be taking care of, looks like those in their 20s will have saving plans but will this mean those in their 30s and 40s get screwed somehow after paying years into this? I bet so anyone have any comments???
 

mactastic

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Apr 24, 2003
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Dont Hurt Me said:
I would think more would be talking about this. Looks like those over 55 are going to be taking care of, looks like those in their 20s will have saving plans but will this mean those in their 30s and 40s get screwed somehow after paying years into this? I bet so anyone have any comments???
As a 32 yo, that's what I'm expecting.
 

Dont Hurt Me

macrumors 603
Dec 21, 2002
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Yahooville S.C.
Im in the same ball park not old enough nor young enough. If they gave me the option of taking back everything i paid i would take it but we know that wont happen and simply put I dont trust the Republican Party on any issue these days.
I bet they even come up with a fancy slogan that will be opposite to what it does.
30 and 40 year olds better take a close look because i feel the shaft is coming.
 

clayj

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Jan 14, 2005
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Dont Hurt Me said:
Im in the same ball park not old enough nor young enough. If they gave me the option of taking back everything i paid i would take it but we know that wont happen and simply put I dont trust the Republican Party on any issue these days.
I bet they even come up with a fancy slogan that will be opposite to what it does.
30 and 40 year olds better take a close look because i feel the shaft is coming.
You mean, as opposed to the shaft that was (and is) ALREADY coming because the system will be insolvent by the time we (I'm 36) hit retirement age? Personally, I don't see how ANYTHING can possibly make Social Security any worse than it already is for those younger than 40.

I've NEVER counted on receiving any Social Security; so any plan that extends the life of the system and makes it possible for me to derive some personal benefit from it is welcome by me.
 

mactastic

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Apr 24, 2003
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clayjohanson said:
You mean, as opposed to the shaft that was (and is) ALREADY coming because the system will be insolvent by the time we (I'm 36) hit retirement age?
Not true, but nice use of the GOP 'panic now' rhetoric.

in·sol·vent ( P ) Pronunciation Key (n-slvnt)
adj.

Unable to meet debts or discharge liabilities; bankrupt.
Insufficient to meet all debts, as an estate or fund.
Of or relating to bankrupt persons or entities.

n.
A bankrupt.

In 2020 (with no further revisions, which is BS since it just got revised from 2018 to 2020 just recently) the fund would have to start cashing in the bonds that sustain it to make it's payments. It in no way will be insolvent. That fate is, at current projections, at least 40 years away. And if we assume a more realistic number we're probably talking about 60-75 years before that actually happens. And all we'd have to do to push that date back into the next century would be to raise the payroll exemption to $250K or so.
 

Dont Hurt Me

macrumors 603
Dec 21, 2002
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Yahooville S.C.
clayjohanson said:
You mean, as opposed to the shaft that was (and is) ALREADY coming because the system will be insolvent by the time we (I'm 36) hit retirement age? Personally, I don't see how ANYTHING can possibly make Social Security any worse than it already is for those younger than 40.

I've NEVER counted on receiving any Social Security; so any plan that extends the life of the system and makes it possible for me to derive some personal benefit from it is welcome by me.
Last i checked everything was fine 4 years ago when Bill left office he even had a big surplus, 4 years later we have billions squandered in a screwed up war, a gigantic massive deficit and a president who cant seem to spend enough.Spend spend spend. Has he ever said no to congress on anything? Still has no clue what the veto pen is used for and then has tax payers paying for viagra for old farts. What is going on?
 

blackfox

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Feb 18, 2003
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clayjohanson said:
You mean, as opposed to the shaft that was (and is) ALREADY coming because the system will be insolvent by the time we (I'm 36) hit retirement age? Personally, I don't see how ANYTHING can possibly make Social Security any worse than it already is for those younger than 40.

I've NEVER counted on receiving any Social Security; so any plan that extends the life of the system and makes it possible for me to derive some personal benefit from it is welcome by me.
This has been discussed rather spiritedly in a couple threads here, but the crux of the issue here is two separate points:

1. A realization of the purpose of SS and of it's general health projected into the future and it's subsequent ability to fufill it's purpose. It is not designed to make us independently wealthy in our old age, that is the province of responsible personal savings. it is meant to be a bulwark against that fine line between poverty and destitution, recognizing the latters' corrosive effect on a stable society and it's general opposition to the concepts of a enlightened, civil society.

2. The potential of an alternate plan of SS, in specific, that of the Bush Administration. It is unclear (since no specifics have been mentioned) whether a new plan would be in any way superior to our current system, or indeed the best option to pursue, if consensus leads us to believe there is a major problem. Comparative analysis of comparable privatization schemes by the UK and Chile (the latter which Bush has shown interest in) do not bode well for optimistic assessments of the privatization agenda, but again, w/o a specific plan, it is difficult to make specific criticisms. The math used to formulate the benefits of SS privatization (or semi-) by Bush are seemingly suspect (more on that later).

With current projections (as many have said) SS will have to dip into it's fund to pay benefits around 2020, and will face a financial shortfall around 2040-50, where it will again, according to estimates, still be able to pay out 3/4 of benefits to recipents.

The problem with Bush's plan is the manipulation of projection data. In simple terms, Bush projects that an economic slowdown will happen when the last of the baby-boomer retire, slowing revenue to SS, leading to it's insovency. OK, that's possible(perhaps). OTOH, however, the success of Bush's plan hinges on a return of 6-7% on stock investments (over the roughly 3% SS now enjoys). This would have to be accomplished for the next 75 years or so, which seems unlikely. If it did happen, however, the economy would also be growing at a decent clip, making the initial projection about the economic slowdown false, with a healthy economy providing more than enough revenue to keep SS (as is) solvent into perhaps the 22nd Century.

It is, of course, more complicated than that, and I am no economist. Still, the basic truth is that for Bush's plan to work, it relies on assumptions that negate it's very necessity in the first place, and that conversely, the assumptions given as reason for the reform would also doom Bush's plan to failure.
 

coconn06

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Jun 14, 2003
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King of Prussia, PA
blackfox said:
OTOH, however, the success of Bush's plan hinges on a return of 6-7% on stock investments (over the roughly 3% SS now enjoys). This would have to be accomplished for the next 75 years or so, which seems unlikely.
I'm also no economist, but I'm pretty sure the historical average for stock market returns is >10%. The longer the time period the more accurate that prediction becomes. I think it's very reasonable to suggest 6-7% returns over the next 75 years, with a moderate investment strategy.

And also, if the stock markets are returning less than the historical average over the next 75 years, then this country and our economy has other things to worry about that SS...
 

pseudobrit

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Jul 23, 2002
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coconn06 said:
And also, if the stock markets are returning less than the historical average over the next 75 years, then this country and our economy has other things to worry about that SS...
You don't get it, do you?

Social Security was created to keep those "other things" from putting elderly people in the gutter.

If the economy tanks, sure, we're screwed, but old folks don't starve.

If the economy tanks AND you've tied Social Security to said economy, we're screwed AND we've got retirees living in cardboard boxes.
 

Laslo Panaflex

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May 1, 2003
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pseudobrit said:
You don't get it, do you?

Social Security was created to keep those "other things" from putting elderly people in the gutter.

If the economy tanks, sure, we're screwed, but old folks don't starve.

If the economy tanks AND you've tied Social Security to said economy, we're screwed AND we've got retirees living in cardboard boxes.
Hear, Hear. Has anyone ever heard of "The Great Depression"?

Also, I am not an economist nor a SS expert, but maybe someone can answer my question. Can someone that reaches retirement still get SS even if they put little or no money into it? If they only put a little in, will they only get a little back? I am assuming that you must pay to get money back (duh) but I have been wrong on such assumptions before.
 

Xtremehkr

macrumors 68000
Jul 4, 2004
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If that trillion dollar cost was instead invested in SS now, how bad would it be with a few years of interest collected. On a trillion dollars. Sure, baby boomers are going to be a burden for a while, but they are not going to live forever.
 

IJ Reilly

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Jul 16, 2002
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You should probably verify this on the Social Security Administration web site, but IIRC, the minimum number of pay-in quarters to qualify for benefits is 60. The level of pay-out is based on (again, IIRC) the highest three years of contribution, and when you decide to start collecting benefits.
 

zimv20

macrumors 601
Jul 18, 2002
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toronto
coconn06 said:
I'm also no economist, but I'm pretty sure the historical average for stock market returns is >10%.
i think it's closer to 8%.

And also, if the stock markets are returning less than the historical average over the next 75 years, then this country and our economy has other things to worry about that SS...
there's a trend now, in economist circles, to predict that, in fact, the market will have lower averages moving forward. they point to the market being generally undervalued in the 20th century, but becoming overvalued towards the end.

paul krugman wrote a column about it recently and its effect on the privatization of SS.

he also mentioned the inconsistency in the argument of the pro-privatization people. it goes kinda like this:
1. the market won't do well enough to keep SS solvent
2. the market will do well enough for private SS accounts to both let people retire and pay for the transition costs
 

kuyu

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Sep 16, 2003
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zimv20 said:
i think it's closer to 8%.
Actually, the average returns on the market vary by market capitalization. Large-cap stocks have averaged about 10%, mid-cap's about 16%, and small cap's about 25%.

The great depression was caused, from the market side, by a couple of factors. One, investors bought heavily on margin in an attempt to inflate gains with this leverage. However, margin leveraging also magnifies losses. To alleviate this problem, the government has instituted laws which govern the purchase (or sale if short position is taken) on margin. The maximum margin today is 50%. As well, investors are subject to a margin call if their position in any particular investment falls below 30% (40% at some brokers).

Two, investors in the 20's and 30's were not nearly as sophisticated as today's investor. They had little to no real time data, news, or understanding of financial markets. With the relatively modern proliferation of derivative-based hedging strategies, investors are able to substancially limit their exposure to market risk by taking on derivative contracts on the opposite side of their original investment. This allows more aggresive investing, day-trading, and keeps risk manageable. The GDP of the US is ~$10 trillion dollars. The value of outstanding derivative contracts is ~$110 trillion dollars.

Also, the NYSE and Nasdaq both have systems in place that suspend trading for a period of time if dramatic % declines happen. In other words, a depression of the markets can't happen because of the market itself. It's a persistent, organic, stable tool. "Why should we fear to use it?"

On SS: I think the best comprimise would be to raise the cap by 100% to $180,000/year, but payout 50% more to these beneficiaries. This would allieviate the strain of the transistion to a voluntary private system. That takes care of the 50-60 crowd, the 30-40 crowd, and the rest of us.

For those who say the market is too risky, find me ONE diversified investor (30+ stocks in different sectors + bonds) who lost money over 25 years. I bet you'll have a hard time doing so because no one has. The plan requires this sort of conservative long-run approach, so... No one will lose money in the long run.
 

IJ Reilly

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kuyu said:
Actually, the average returns on the market vary by market capitalization. Large-cap stocks have averaged about 10%, mid-cap's about 16%, and small cap's about 25%.
Actually, it's closer to 6.3% (source provided -- where's yours?).

And again, for probably the tenth time now, the Great Depression was not caused by margin trading or even by the stock market crash. What caused the Depression was the Federal Reserve tightening money supply in the face of the '29 crash and the subsequent run on the banks. It was the destruction of the nation's banking system that caused the Depression to become severe and to linger. We've learned the lessons of this era, which is why the stock markets can now deflate drastically and not even cause a lengthy recession, let alone a ten-year depression.
 

mactastic

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Apr 24, 2003
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pseudobrit said:
Bush will have caused over half the country to endure an 8-year depression by time he leaves office.
Ha! John Stewart mentioned that at the same time Bush was swearing his solemn oath of office that about 48% of America were also solemly swearing an oath as well.
 

jadam

macrumors 6502a
Original poster
Jan 23, 2002
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http://www.factcheck.org/article305.html

Analysis



Bush made Social Security the centerpiece of his Feb. 3 State of the Union address. He gave more details of how he proposes to change the system -- but left out facts that don't help his case.

Social Security "Headed Toward Bankruptcy?"

The President painted a dire picture of Social Security's finances:

Bush: The system, however, on its current path, is headed toward bankruptcy . And so we must join together to strengthen and save Social Security.

"Bankruptcy" is a scary term that Democrats have used too, when it suited them, but it could easily give the wrong idea. Nobody is predicting that Social Security will go out of business the way a bankrupt business does. It would continue to pay benefits -- just not as many.

The President was a little more specific about that later in his address, while repeating the word "bankrupt":

Bush: By the year 2042, the entire system would be exhausted and bankrupt . If steps are not taken to avert that outcome, the only solutions would be dramatically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs.

But how severe would those benefit cuts be? In fact there are two official projections -- one by the Social Security Administration (SSA) and a somewhat less pessimistic projection by the Congressional Budget Office (CBO). The President referred to the SSA projection, which calculates that the system's trust fund will be depleted in 2042. After that, the system would have legal authority to pay only 73 percent of currently promised benefits -- and that figure would decline each year after, reaching 68 percent in the year 2075.

The CBO doesn't project trust-fund depletion until a decade later, in 2052, and figures that the benefits cuts wouldn't be so severe, a reduction to 78% of promised benefits. But either way, even a "bankrupt" system would continue to provide most of what's promised currently.

Furthermore, the President did not specify what he would do to fix the problem. He again urged creation of private Social Security accounts. But those would be of no help whatsoever in shoring up the system's finances, as acknowledged earlier in the day by a senior Bush administration official who briefed reporters on condition of anonymity:

"Senior Administration Official:" So in a long-term sense, the personal accounts would have a net neutral effect on the fiscal situation of the Social Security and on the federal government.

And that "net neutral effect" is just over the long term, 75 years or more. In the shorter term, creation of private accounts would require heavy federal borrowing to finance the payment of benefits to current retirees while some portion of payroll taxes is being diverted to workers' private accounts. The administration projects it will borrow $754 billion (including interest) through 2015 to finance the initial phase-in of the accounts, and much more thereafter. The liberal Center on Budget and Policy Priorities -- which opposes Bush's proposal -- projected that $4.5 trillion (with a "t") would be required to finance the first 20 years of the accounts after they start to be phased in in 2009.

Private Accounts: A Sure Thing?

The President made those private accounts -- which he now prefers to call "personal" accounts -- sound like a sure bet:

Bush: Here's why the personal accounts are a better deal. Your money will grow, over time, at a greater rate than anything the current system can deliver -- and your account will provide money for retirement over and above the check you will receive from Social Security.

History suggests that the President is correct -- the stock market has averaged a 6.8 percent "real" rate of return (adjusted for inflation) over the past two centuries, according to Jeremy Siegel, professor of finance at the University of Pennsylvania's Wharton School. The administration says a conservative mix of stocks, corporate bonds and government bonds would return 4.6 percent, even after inflation and administrative costs. And the administration also figures that private accounts would need to generate only a 3 percent rate of return to beat what Social Security provides.

But there's no guarantee that history will repeat itself. Markets are inherently unpredictable and volatile. At present, for example, all major stock-market indexes are still well below where they were five years ago.

Benefit Offsets

The President made no mention of one crucial aspect of the proposed accounts -- anyone choosing one would also have to give up an offsetting portion of their future guaranteed retirement benefits. If their investments in private accounts returned more than 3 percent annually over the years, they would end up better off than under the current formula. But if those investments did worse, they wouldn't make up for the portion of benefits that were given up, and the owner of an account would end up worse off. The President didn't explain that trade-off.

"The Money is Yours?"

The President also glossed over some severely restrictive aspects of the accounts he is proposing, saying flatly "the money is yours."

Bush: In addition, you'll be able to pass along the money that accumulates in your personal account, if you wish, to your children and -- or grandchildren. And best of all, the money in the account is yours, and the government can never take it away .

That's not exactly true.

As described by the "senior administration official," the owners of personal accounts wouldn't be able to touch the money while they are working, not even to borrow. The money would remain in the hands of the federal government, which would administer the personal accounts for a fee which the official said would be about 30 cents per year for every $100 invested.

And even at retirement, the government would control what becomes of the money. First, the government would automatically take back a portion of the money at retirment and convert it to a guaranteed stream of payments for life -- an annuity. The amount taken back -- called the "clawback," descriptively enough -- would depend on the amount of money the retiree requires to remain above the official poverty guideline. That's currently $12,490 for a couple or $9,310 for a single person. Only after the combination of traditional Social Security benefits and the mandatory annuity payments from the private account equal the poverty level would any remaining portion in the account be "yours."

"Senior Administration Official:" They would be permitted to leave those (leftover) funds in the account to continue to appreciate; they could withdraw those amounts as lump sums to deal with a pressing financial need -- and, obviously, any additional accumulations in the accounts could be left as an inheritance. But the main restriction, again, to repeat, is that people would not be permitted to withdraw money from the accounts to such a degree that by doing so they would spend themselves below the poverty line.

The President didn't mention the "clawback" or the mandatory nature of these restrictions, calling them only "guidelines" and describing them only in positive terms:

Bush: (W)e will set careful guidelines for personal accounts. We'll make sure the money can only go into a conservative mix of bonds and stock funds. We'll make sure that your earnings are not eaten up by hidden Wall Street fees. We'll make sure there are good options to protect your investments from sudden market swings on the eve of your retirement. We'll make sure a personal account cannot be emptied out all at once, but rather paid out over time, as an addition to traditional Social Security benefits. And we'll make sure this plan is fiscally responsible, by starting personal retirement accounts gradually, and raising the yearly limits on contributions over time, eventually permitting all workers to set aside four percentage points of their payroll taxes in their accounts.
 

IJ Reilly

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Jul 16, 2002
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And another thing I haven't head mentioned yet. The President said that no one 55 or older would be effected by his proposed changes to Social Security. So here's a pop quiz: What is the age at which a person becomes eligible for membership in AARP?

Don't cheat now. No fair looking it up.