Social Security Reform

Remove all ads!

Just a remainder:

They have said that the Social Security is doomed ever since the 50's.

 

*sigh*

Darkwolf and I figured this all out months ago. I can't find the specific post (Darkwolf may look longer than the couple of minutes I took), but the main problem with SS is that people are living a lot longer now that they were 70 years ago when SS started.

Basically I did a calculation, and I figured out how much money the average person working for 40 years would contribute to SS. Then I adjusted the amount he contributed in the past to current-day dollars. This is necessary, because a dollar 40 years ago is worth about 8 dollars today. When I did this calculation, I discovered that the average person contributes the equivalent of 6 years worth of payments he will receive.

In other words, if you work for 40 years, the amount of money you pay into SS will be recouped if you receive SS benefits for 6 years. The problem comes in that most people start receiving SS at 65 years of age, and most people live beyond 71, meaning they are taking out of the system far more than they paid into the system. The average life expectancy in the U.S. is currently 78. The easiest solution is for everyone to have a chance to recoup what they paid in, meaning that they could change the age at which people start receiving benefits to 72.

That might seem harsh to a lot of people, but it's an easy fix when you think about it. They wouldn't have to do it all at once either. They can do something like raising the retirement age one year for every three years that go by. You would reduce the amount of new people collecting benefits by 1/3 every year (on average) for 21 years. After that, new adjustments would need to be made in the future if life expectancy increases further.

The problem, of course, with this plan is it screws the poor once again. I have a desk job. The only thing I have to do to satisfy my job requirements is basically the ability to read and type. And I can likely continue doing that when I'm 72. Good luck if you do hard manual labor if you're still trying to do that when you're 72. Most people have a hard enough time making it to 65 in some circumstances.

Still, it is the only option I see. Cutting benefits or raising taxes is political suicide. Privatization has *some* benefits, but does not solve the immediate problem - i.e., if people who are 55 or older continue to receive benefits at their current rate (or for those who are between 55-65 that their benefits will be calculated in the same manner as people receiving benefits today are calculated) that there isn't enough money in the kitty to pay for all of them.

 

I think this is a link what Aldeth is referring to:

http://www.sorcerers.net/ubb/ultimatebb.php?/topic/34/57.html#000025

 

Our parliaments just discussing some proposals about that. I think the most likely is the one, that highers the pension age but makes exceptions for people in physical demanding jobs, letting them retire earlier.

Darkwolf, the thought of the goverment taking money out of a pension fond is for most Europeans (at least I think so) simply inconceivable. They are formally declared as foundations and they are handled as foundations. And I had a long, long time and do a whole of a lot reading to grasp that some goverment in some country would have ever had the idea to pull out money of a pension foundation. That's just a big no-no-no-no-no.

But to something completly different (and incidentally on topic). I don't see the private/goverment difference. We've got the "3 foundations" principle. That means you have to put money in a social foundation (but independently run). Then have to put money into a private foundation, there are lots of them (and those are those that ****ed up the most in the past) and then you you have to put money aside by yourself, like into a banking fond or at an insurance company (and those ****ed up many times too).

But in the end, the money of all "three foundations" are literally run by the same fonds-manager, as all three foundations hire the best guy to do it. No matter if the money comes from the "state foundation" or "private foundation".

 

Sorry to drag this on back up, but the issue is all finally settled, as Rock the Vote has spoken, and now the truth is finally known.

I am not going to even go into the math of what they are claiming, but lets just leave it at they are using statistics that are based on very dubious numbers, and 80% short is first of a staggering number, and within 2 generations after the 80% short retirees we will be 100% short, but who cares, screw them, as long as we get ours.

But instead of looking at numbers that we are all either worn out on, or can't agree on, lets look at some of Rock the Votes statements:

WHAT DOES ROCK THE VOTE THINK?

1. Social Security is not guaranteed. At any time the Government can in a straight majority vote choose to take it away. They cannot in a straight majority vote take away your personal assets, as these are protected by the Constitution.

2. We need a guarantee for a safety net. SS is no longer a "safety net". A safety net is something you hope to never need, and is there only in case you fall. For the majority, SS is an expected entitlement. Nice red herring though, "you want to take away people's safety net ". Whatever. Must be one of those sophisticated liberal arguments that simple people like me just don't understand.

3. This is the most laughable claim of the three. You will be able to put your money in your account, and get interest and or a return on it. In the existing system the majority of people receive back far less than they pay in (the only way the ponzi scheme works), so if I get to keep my money in my account, and make interest or a return on it in a privatized system, and in the public system the odds are that I will never get all the money I paid in back, never mind a dime of interest, how do I lose money?

What is really sad is that the youth of America actually buy this load of .

If I were an insurance agent, car salesman, investment broker, or vinyl siding and/or replacement window salesman, I would drool every time I saw someone with one of these "I love SS" t-shirts walk into my business.

 

Well what's stopping social security from being added to the constitution? The Finnish constitution clearly states out that all Finnish citizen have the right for social security. Besides a government would never pull away the social security and offer nothing in compensation. That would just be suicide. Of course when social security is not mentioned in the constitution an adminstration can go and change the social security just like the Bush regime is now doing.

[ April 04, 2005, 18:18: Message edited by: Morgoroth ]

 

Never say never. Right now the baby boomers are in a position where they are a huge voting block and if united can pretty much turn any election. However, in the future this will change, and the pyramid will right itself, and may go to the opposite extreme, where the younger demographics rule the day. At that point, imagine a situation where massive debt has bottlenecked the economy, and one of the major problems is the cost of all the retirement money that went out for a couple of generations. Sure, the small number of people on it are not that costly, but if a determined and vengeful constituency decided that all this retirement stuff is unfair, they could pressure the Fed Gov't to completely eliminate SS, and leave a relatively small, but still significant number of people without the money they have come to depend on. Injustice is injustice no matter if it is the majority imposing it on the minority or vice-versa

This is a problem with any democracy. The founding fathers of our government feared the mob mentality of a democracy, and that is why they created our representative republic in the form they did.

Remember, when SS was founded, no one thought there would ever come a time when there would only be 2 workers paying in to support each person drawing benefits!!! Never say never!

In answer to your question, I do not think that currently we could get anything amended to the Constitution, the political environment is too hostile.

 

Regarding DW's # 1 - I think that's kinda' chicken-littlish. The OASI fund invests in a type of Treasury bond. The day the United States starts saying, 'screw it, we aren't going to make good on our Treasury bonds' we're going to have so many problems that social security is going to be a drop in the bucket, an after thought.

Regarding DW's #2 - He is just making a stronger argument that we shouldn't have individual accounts. If social security is more than a net, and is necessary to support the retirement of many, this argues in favor of the least risky investment scheme feasible. It's simple investment strategy - there are even special mutual fund programs that operate on the same principle that the closer you are to retirement (i.e. the more you are depending on your retirement income) the less risky your investments. The interesting thing is that many of these fund strategies will end up investing in bonds eventually. This is interesting since Social Security currently invests in... a type of bond. Social Security does this because it is historically the safest investment vehicle we have. Darkwolf is arguing against privatizing social security with this point.

Regarding Darkwolf's #3 - Darkwolf is overly dismissive. Economists Henry Aaron, Alan Blinder, Alicia Munnell, and Peter Orszag analyzed the initial proposal by Bush for the Brookings Institute. For those that don't know, the Brookings Institute is a conservative think tank. According to their study, the plan would reduce benefits by 20% for those who are now 34 years old when using the average rate of return on private investments for the past 50 years. Additionally, according to the Congressional Budget Office analysis of the proposal, even assuming that there was a "crisis" which necessitated a cut in payments under the current system by 25%, the proposed plan with private accounts would cut the average benefits by 1% to 17.5% depending on their age, retirement age, etc.

When a claim has the backing of the Congressional Budget Office and can throw in the Brookings Institute I'm not sure it can be easily dismissed with laughter. Your mileage may vary.

Additionaly reasons why private accounts are a bad idea -

According to teh Securities and Exchange Commission only 14% of investors knew the difference between a growth stock and income stock, only 40% of investors realized that the operating costs of a mutual fund would impact returns, only 38% of investors realized that when interest rates go up bond prices fall.

Those numbers are for people who are investors now. The proposal for individual accounts would flood the markets with people who have zero idea on HOW to invest. The education costs would be astronomical.

Additionally, currently Social Security is SUPER EFFICIENT. Compare social security's administrative costs with that of most investment management groups - it's impressive. You'll need a HUGE new bueracracy in place to manage individual accounts. Think of how difficult the cost of administering millions of accounts. Think of the size of the bueracracy necessary. Chalk another one up for the big government Republicans who want to create a new giant government agency.

Those are just two additional problems that pop into my head.

 

Laches,

I have no idea what you are talking about in #1, but all funds paid into SS are placed in the general fund of the US treasury, and do not earn any interest.
"The Social Security trust fund is merely an accounting device filled with IOUs that future taxpayers must repay."

How could they earn interest as you say? The government would be paying interest to itself? That is like you taking money and putting part of it in a mattress and part of it in a coffee can and then taking some out of the mattress and putting it in the coffee can and saying that you are earning interest.

#2. I have never said, and the President has never said that current retirees or those about to retire would have their benefits cut. This is for the future, for those who are 20 years from retirement, and who want the option to privately invest their money. Again, from the attached article, there is no money in any investment that is related to Social Security, the money is GONE! All that is left is the accounting equivalent of IOUs (see article linked above), so how can it be invested? Finally, it is no more an investment that any other pyramid scheme. It was created on the basis that the working base would always be large enough to cover the benefits. Surpluses were supposed to be set aside to cover leaner times, but the architects of this scam never planned for a 2 to 1 ratio of worker to benefit recipients.

Regarding #3, how could they? I must have missed it when the President released an official proposal. As far as I know he has never even outlined anything that could be definitively analyzed. Even the numbers you provide are meaningless, as they are purposely misleading. They are looking at benefits from a monthly payout, not a total payout. Part of the scam is that most people die before they ever collect all they paid in. The life expectancy of a black male in the US is lower than the retirement age! If you privatize it, you, or your heir get all the money you paid in, plus the return on the investment. If you find out that you are going to die in 5 years, does the Fed government increase your benefits? If the money is in a privatized account, you can plan appropriately for your death, and at least try to enjoy the time you have left.

As far as educating people on their investment options, the reason that they don't know the difference is they have no reason to, because they have nothing to invest! The majority of people would learn what they need to effectively (perhaps not optimally, but that is part of freedom) invest their money if they had some to invest.

Your last paragraph is pure poppycock, and I challenge you to find any impartial studies to back it up. The SS Administration is one of the most bloated bureaucracies in this nation. They have regional offices in almost every medium sized town.

As far as more bureaucracy to manage privatized account, . They could do that with far less staff than the SS Administration has in DC alone, getting rid of all the regional offices. Private investment firms will be happy to provide the majority of administration for the funds. The funds would be transferred directly from your employer to the investment firm, and we would need a small regulatory agency to enforce compliance with the appropriate regulations.

 

Regarding your first point, I'll use your Heritage Foundation site (search a little more on the site you linked, you'll find it - it's even the same author):

I want to skip down to the end because of this whopper:

The most recent numbers I've seen from 2000 show that only 0.9% of expenditures went to administration. Everything else went to benefits. 0.9%! (search the Economic Opportunity Institute if you want on this one). That's frickin' efficient. Of course there are a lot of offices. What does that show? It only shows there are a whole frickin' lot of people on Social Security many of whom can't even fill out the paper work on their own (and you want these people investing?)

You are advocating something which will necessarily require a new education program, and lots and lots and lots and lots and lots of new red tape and bueracracy. It's unavoidable that the costs will rise from 0.9%. You are aware that Francis Cavenaugh has testified that as many as 10,000 new employees would have to be hired and trained as investment experts just to answer questions from individuals and to help them manage things aren't you? How can you say that Social Security is inefficient and your idea is more efficient? From whom springs the poppycock?

And regarding the third, you didn't do anything to contradict the Congressional Budget Offices or the Brookings Institute studies. Monthly payments will go down those studies find and your response is essentially, 'well, some folks may decide to binge spend a lot so their payments may go up.' If you want a safety net, the entire idea of creating something to encourage binge spending doesn't strike me as a very sound idea.

 

The trust funds are an accounting function only, as the article plainly points out, there is no money set aside for SS.

Why don't you go calculate what .9% of the funds that are paid into SS is and come back to us with it. The fact is that the funds in the "Trust Funds" earn a return of 0%, so they are de facto losing 1% per annum. The most modest of mutual funds, the money market mutual fund, earns at least 2%, and that is after overhead is taken out.

People will educate themselves, and the Investment Firms will be happy to pay to assist them with that.

10,000??? That number is right there with the 50,000 to 100,000 that were estimated that we would lose invading Iraq. Even if 10,000 new gov't jobs are created, we can lay off far more than that from the SS. Hell we could lay off that many now if it wasn't a bureaucracy. By the way, since you really love looking these numbers up, why don't you look up how many federal workers there are and tell us what % a 10k increase is. I am betting on less that .01%

And finally, yes I did contradict the CBO and Brookings, you just missed it. They have nothing to base their studies on, so they are .

 

To this I can say that no they won't. People are lazy, and moste people are even more lazy than that. Most people don't want to spend time pondering how they should invest their money and won't bother to hear what the guy at the investment firm would want to tell them. Your average person don't know anything about investing and does not even want to know and as far as I know these persons are a vast majority.

 

Morgoroth,

Then I would say to let them stay in the program. So far as I know, the president has made no plans to make the privatization of accounts mandatory.

However, in a couple of generations, those on the gov't plan will be quite jealous of those on the privatized plan, and I assure that grandparents will start encouraging their grandchildren to learn.

I just thought of something that I haven't see referenced here lately. There are several counties that, before the loophole was closed, opted out of Social Security. Maybe some would be more interested in empirical evidence rather than the dubious analysis of our government and some obscure think tanks: Some Americans Already Have Privatized Social Security

 

Heresey! How could a private social security possible work? Especially with those eeeviillll insurance companies and Wall street involved. Congress should abolish those exemptions and force them back into Social Security.

/end sarcasm.

 

Americans are being educated already by learning how to self-direct funds contributed to 401k plans...and the "help" resource already exists in the large investment firms like Putnam or Fidelity. If you work for an employer who offers you some form of 401k, or even a payroll deduction savings plan that directs those funds to an investment firm...you already have everything you need to begin privatization. Some of the new options are so simple...you simply enter the year you wish to retire and the fund manager will compile a portfolio for you.

Not only that...the funds invested in our economy instead of held in trust will be a boon for everyone...imagine the billions of dollars available for investment.

The best thing in the world that could happen to a young American worker would be to be able to direct 1% of the current 7+% deducted for SSI and Medicare into an account that will earn them upwards of 10% per year.

I'd accept the chance to do that anyday.

 

and

Linky:

http://www.sanluisobispo.com/mld/sanluisobispo/news/world/10933779.htm

The article points out some like the plan and seem to be better off, but some may not be so well off - particularly low income workers. And whose numbers are right? The financial group who profits from the plan or the two separate agencies that analyzed the plan but, I imgaine, may be susceptible of their own charges of bias.

If folks are interested in the debate I'd encourage you start by looking at the debate page on it by wikipedia. But there is one certainty, if anyone tells you that one side's arguments are laughable, be wary, you probably aren't getting a fair presentation of all the sides.

 

It's a very complicated area and almost impossible to devise a system that meets your overall objectives fairly to all parties (also depends on what you 'overall objectives' are). That is why I recommend that you make sure you look after yourself first and make sure you and your family are secure because that is about the only thing you have any control over.

 

You know Laches, you are making it difficult to play nice.

Who conducted the studies? The same people who either get the money or control the money. That isn't very independent analysis.

As far as Mrs. Longcoy, something is fishy about that story. When someone tells you that 2+2=3, you are obviously missing a part of the equation. I am betting that Mrs. Longcoy took advantage of some emergency provision to withdraw some of her money early, and thus has lowered her income. Lets see what a google of Joyce Longcoy pulls up...BINGO! Pensions and Penury: the Galveston Experiment Prepares to Go National

Hmm, references to it being a scheme, doesn't sound like a positively biased piece either.

I would link another article, and I have read several articles that state just the opposite, but I am kind of partial to the one I have already posted that states:

I make a hell of a lot more than $20k a year, and I don't remember my last SS statement saying that I would bring home much more than the $20k worker referenced above, and I think that $20k qualifies as "low wage".

HB
That is great advise, and probably the smartest thing that has been said on this thread. Unfortunately there is a large contingency of people who would rather have the Gov't take care of them, rather than taking personal responsibility for themselves.

 

Ummm, Darkwolf...might want to read the Guardian article a little more closely. From your link:

You're mixing up your Galveston folks. I figured you'd say that the two separate Gov't groups are biased but, as I pointed out, the same charge could be applied to the financial group that gets the money from investing the Galveston money (in bonds I note.)

I still think it's complex. Krugman argues we're fine. Lots and lots of smart people say things that privatization would be a mistake. Just like the opposite. Folks can search and read for themselves. The one thing to believe for sure is that it isn't easy and if someone says it is, well, be wary.

 

Oh, you got me! It happens sometimes when you have a life, family, responsibility, full time job, and can only devote a limited amount of time to debating on a forum.

Anyway, to close out the portions of my day off work that I probably should have done something constructive, rather than wasted in meaningless sparing:

The operative word there is claims. Apparently your source was a little too, I would say biased, but we will leave it with lazy, to actually investigate the "claim" and be confident enough to make it a statement of fact, but then they can't be sued or embarrassed for printing what others "claim" unless they know it to be false, now can they? Ain't plausible deniability grand when all you want to do is publish falsehoods?

As far as what your "knew I would claim" that, there is a slight difference. If the government analysis is wrong, they just say, ooops, and publish another (wrong) one. If a financial company makes false statements regarding returns, they can be fined by the Government, and sued in civil court. This is similar to the fact that the government can run a retirement scam, at gunpoint no less, that they would prosecute anyone in the private sector for, even if the money was freely given.

And finally something I think we can finally agree on (its a miracle ), there are in fact people who would scam you out of your retirement, or a portion of your retirement. I worked around them all the time when I was with the brokerage house. I know brokers who will churn every new account then acquire. I watched an ex Navy fighter jock scare old people to tears telling them that if they didn't change all their investments they would be penniless within 15 years. I also saw the majority who were honest people who provided expert assistance, working diligently to make sure their clients got the best portfolio possible.

However, this all comes back down to personal responsibility again. Some people would have you give up your freedom in the name of security, and Franklin had a message for you in regards to this:

If anyone is ever trying to get you to invest or to buy something, you add it all up, and in the end the two sides of the equation to equate, you shouldn't trust them, or in layman’s terms, if a deal seems too good to be true, it probably isn't.

On that note, I say goodnight (at least to most of you), as I will not be returning to this post until the morning, and even then will only be checking to see if anything interesting and new has been presented.