The myth that social security only return 2-3%

Pleeeease. White boy.

 

you prove my point again by acting like a jackass...

i'll see if i can do more research for you, glynch...let me put aside my business and family so i can really study the issues with you. Glynch, I will readily admit when I don't know enough about a topic...I have no problem doing that. I will readily admit when someone is clearly more knowledgeable on a subject...I will admit when my feelings are uneasy on a topic. I only resort to calling foul when someone is foul...you, sir, are foul. and you prove it time and time again with little help from me. thanks for yet another personal jab.

 

sorry...liberal freak!!!

 

I had some time on my hands yesterday at work waiting for someone to complete a project, and ran some numbers:

Social Security uses a table of national wages averages for some estimates. I assumed a person aged 37 (my age) has been earning this wage since age 23. For future salaries, I assumed 3.5% CPI until Social Security Normal Retirement Age (for me, age 67). I then assumed that the benefit at SSNRA would increase by 2.5% per year.

To compute the payment period, I used a GAM 83 mortality table. This is the most common mortality table, and is mandated by ERISA for many actuarial calculations. I also assumed GAM 83 for pre-retirement mortality.

I blended a "white-collar" and "blue-collar" disability table to value the disability benefit. (As an aside, the pre-retirement death benefit and disability benefit did not affect the calculation much since these two probabilities were quite small.)

Since I was taking these assumptions as an "average person", I assumed an 80:20 married to single ratio and that husbands, on average, were three years older than wives.

The rate of return was 1.15% (Since I assumed a CPI greater than this, a negative real rate of return).

I did not have access to minimum wage tables, so I cut the salaries by 40% to see the rate for lower paid workers. The rate of return was 1.73%.

I ran a third time for a worker earning the taxable wage base since age 23 (around 80K this year). The rate of return was 1.01%

 

Excellent analysis, Jameson.

This debate will surface again very quickly when the Republican controlled Senate reconvenes. The Republicans need to do a better job of describing these individual accounts and explain to the voters how they are an option, not a requirement. At the end of the day, the argument remains:

1) Will I control my retirement money?
2) Will the government control my retirement money?

The choice is simple.

 

Huh?

I ain't no fancy big city number cruncher like you guys, but the way I figure it is this...

1. The total amount of cash taken out in SS tax is not that much. I can get by without it.

2. Old people need cash so I don't mind contributing now for some old people to get cash.

3. If I get money from the government when I retire that will be great.

4. If its enough to live on, that will be even better.

5. I need to amass enough assets to take care of myself just in case.

6. I can still do this and pay SS taxes.

7. If I can't live on what I have + what I get from the government when I retire, I screwed up somewhere.

8. If I can't live on what I have + what I get from the government when I retire, I'll be part of the largest voting bloc (go Grey Power) and we'll vote ourselves a raise like Congress does.

9. Private plans are not safe either (check your Enron 401k). DO BOTH and you shouldn't have to worry about it.

10. Stop yer b****ing about personal choice. Think about the greater good for all Americans. Most of the people on the planet won't live till our retirement age, nor will they live as well. Even if you crap out you won't be left to starve.

 

I have yet to see a liberal (hayes I'm not calling you a liberal, but here you sure sound like one) argue the merits of Social Security Choice (my new name for individual accounts) without dragging Enron into this. Truly pathetic. This is yet another example of Republicans bringing ideas to the table, and Democrats trying to scare voters away from them. Guess what Dems, this does not work. The American voters told you this last week. The facts are what they are. Diversification helps protect against "Enron-risk". There are a multitude of investment opportunities that yield more than 2-3% and are extremely safe instruments. The government does not need to protect me from my own retirement money. This is essentially what you are arguing, HayesStreet. Over the past 70 years, an investment in equites has yielded double-digit returns, far outpacing fixed income instruments. I want that choice. I want my financial independence from the government. So do the voters.

 

Are you callin' me a communist!?! You #&$@((!^@.....j/k.

I just think that while you assume (maybe correctly and maybe not) that you will get a better return and not get wiped out, there are certainly people, like those that chose to put all their money into Enron, that WOULD get wiped out. Yes, it would be their choice, but they would still end up with dick. And the government, which is you and me, would still end up paying for their care. In addition, there is still plenty of latitude for badass geniuses such as yourself to become both filthy rich and entirely secure for retirement with the investment capital you have left aside from SS.

Because it is a different idea does not make it a GOOD idea.

No, I am arguing that there is enough room for me to both privately secure my own retirement and to continue SS for backup. Or maybe I'm just more confident in my ability to make money than you are, and so am less pissed about such a small diversion of my cash.

Yeah but if you retire at the wrong time you could take an ass whuppin with no time to recover from a downturn.

Well, I wouldn't take that sort of mandate from the vote. The last election wasn't a referendum on privitizing SS any more than it was a referendum on opening up the Arctic National Wildlife Refuge.

 

I really agree with this take. If you look at 'on average' 'long term' rates of return, Government pensions will not outperform individual accounts. However, its unfair to compare a guaranteed future income stream to one that holds some risk.

If you accept that SS is insurance or a tax and not you sole means of retirement income, it puts it better perspective.

 

I understand your points, but why should Americans be forced to make an unwise investment decision, even if you are fine with it? The fact is, economically speaking, social security as a pay-as-you-go system is a losing system that does not generate positive real returns. It does not have positive economic benefits because all of the money that is put into the system is not returned. Some of its value is lost due to inflation b/c the system does not really invest any of its surplus b/c there is no such thing as a social security trust fund. A good start at reform would be to create such a trust fund, so that investmenst could be made. Also, if you just look at the numbers, one could simply put their money in a savings account getting the real interest rate and they would be better off than putting their money in the current SS system. Simply, the pay-as-you-go system no longer is a feasible plan and must be changed.

On a random aside, did everyone know that the system when originally set up did have a trust fund and was not pay-as-you-go. It wasn't until later that the politicians decided to change it . . . way to go!!

 

Well, my enumerated list are merely my personal feelings on the subject. I have little sympathy for those who want huge tax cuts, don't want to pay into this pool or whatever the hell it is so old people can get money to live on, don't want to pay property tax for public schools, etc etc. They are like 2 year olds sitting with a pile of blocks yelling "MINE MINE MINE." The fact is that we all benefit to an EXTREME degree from living here, we all can go out and make lots of cash if we choose, and there is nothing wrong with coughing up some of it to make sure there is a safety net for everyone. And the fact is that there was a need for it when the system was created, and there is still a need for it. Do you REALLY need it ALL? Can't you spare a buck for someone who just isn't as smart as you? I can, and do, and will continue to do so. And if I make a mistake and screw myself I will be glad there is a safety net. And if I don't and my neighbor screws himself I will be glad there is one there for him.

If it is true that the money that comes in gets paid out immediately to those who are now retired, then, economically speaking, it keeps those people from starving/losing housing etc etc. Which is a 'real' return, at least in my book.

Maybe, but again people do not do that. They put their money in other 'secure' investments like their 401k and somehow or another end up with squat. Maybe you think they should just get nothing and become homeless until the die of exposure, but I do not. There is always the law of unintended consequences, where unforeseen events changes the circumstances upon which we base our present decisions. With the SS we have now I know the retirees are going to get SOMETHING. With total privatization there is NO safety net.

Not against reform if there is a better way to do it. I am against people drawing their money out of the governmental system.

The lesson I learned in NYC was this: if you're smart and ambitious and you want to be rich, you can be. GO MAKE MORE MONEY. Taxes too high? MAKE MORE MONEY. But just being self centered and not thinking about society as a whole is BAD. Even if you feel you will make the right decisions, you cannot seriously say you think everyone will, and then you must conceed that we will end up paying for them anyway...

 

Originally posted by Trader_Jorge
... I prefer to employ the psychological warfare tactics of belitting people, summarily dismissing opinions, and emphasizing finality of arguments, whereas you like to host more civil debates. I find that when my 'opposition' are thrown out of their comfortable element (peacefulness), and into the mindset of anger and rage, they often make many mistakes which I am able to successfully exploit.
...

That's why Refman has so many friends here...

 

Truly pathetic. This is yet another example of Republicans bringing ideas to the table, and Democrats trying to scare voters away from them. Guess what Dems, this does not work. The American voters told you this last week. The facts are what they are. Diversification helps protect against "Enron-risk". There are a multitude of investment opportunities that yield more than 2-3% and are extremely safe instruments.

If you want to have an actual discussion on Social Security, go learn what it is first. Quit talking about how its your retirement moeny, because its not. Quit talking about rates of return, because this isn't an investment system. Quit acting like its some kind of savings system, which its also not. Learn why it exists, who its meant to protect, and how its funded and then come back and we can have a real discussion on it.

have yet to see a liberal (hayes I'm not calling you a liberal, but here you sure sound like one) argue the merits of Social Security Choice (my new name for individual accounts) without dragging Enron into this.

I have yet to see a Republican argue the merits of Privatization without referring to maximizing individual wealth which is NOT at all the purpose or goal of SS.

The government does not need to protect me from my own retirement money.

The government is not protecting you from your own investment money. That money is in an IRA or SEP account under your name. The government, through SS, is providing a guaranteed safety net to ensure a minimum amount of funds for elderly people to survive on in worst-case scenarios.

 

HayesStreet, I may be wrong, but I think you missed my point. When I said make a trust fund for investments to be made, I am not talking about individual accounts. I am talking about an account created by the government where surplus SS funds would be deposited and would be, at the least, accruing interest at the real interest rate. There is no danger in creating this. As I stated before, this is how it was during its inception. Now, what is so crazy about that??

Also, you seem to be making this into a rich vs. poor thing, when I never stated it as such. EVERYONE benefits from the gov't properly restructuring the system. Notice, that I have never mentioned the word "private account" or anything like that in this or my previous post. I was just simply pointing out that the current system is flawed economically speaking and needs to be revamped.

 

HayesStreet, I may be wrong, but I think you missed my point. When I said make a trust fund for investments to be made, I am not talking about individual accounts. I am talking about an account created by the government where surplus SS funds would be deposited and would be, at the least, accruing interest at the real interest rate. There is no danger in creating this. As I stated before, this is how it was during its inception. Now, what is so crazy about that??

There are no trust funds. This is what would happen in your system:

(1) Funds come in
(2) Excess funds are put in SS Fund in a bank
(3) Government runs deficit
(4) Government sells Treasury securities
(5) Bank buys t-securities and generates interest
(6) Interest accumulates in SS Fund
(7) Interest is paid by government on the t-securities

All of this is just accounting gimmicks with the government paying interest to itself, and the bank making a profit in between. Might as well take out the bank middleman and spend the money that comes in instead of paying interest to yourself, and that's what we do, except we keep accounting of it as though we did it the long way.

 

As I said in my post, if the system can be changed to be more beneficial I don't have a problem with that. I don't know enough about how it works to say. Major seems to indicate it would be at best senseless but I will let you two battle that out. I merely look at the big picture and say I do not think it is a good idea to move the safety net out of the governments hands and over to individuals.

The whole rich/poor thing probably is just a carryover from TJ's philosophy, which you seemed to follow as your post came in response to my response to him. OK?

 

A consequence is that those monies will no longer be used to understate the annual federal deficit and the federal debt will start growing again. I would not be surprised if the 20 year old who opts out of the SS will retire with a large montly SS payment which in turn gets a healthy chuck taken out of it to pay for the interest on the federal debt, leaving the retiree not that much better off.

 

There are no trust funds. This is what would happen in your system:

Well let me start by saying that this is not my system and that it was actually in use in this way during the Depression until later changed. So, I am not just coming up with some random roundabout plan that is completely unfounded. Also, US treasury notes do not have to be the mode of investment for the funds, so the gov't doesn't necessarily have to be passing around the debt like you were stating.

No Worries does have a point here in that the debt would increase dramatically without SS monies, but this is where my young, idealistic Republican side rears its ugly head. (I guess I would be heartless too according to some ) A raging deficit could help force the government to cut down on wasteful spending such as agricultural subsidies. ( I know I am gonna start a huge fight with that comment, but everyone can forget about trying to convince me about the virtues of agricultural subsidies because you won't even make me blink on that one.)

Obviously, I am just making up ideal situations here that are largely irrelevant and unfeasible given politics in America, but what should be mentioned is that basically every reform package of SS brought up thus far involves taking the SS surplus away from general revenues so there would be deficit problems any way you look at it. What should be done about that in reality, who knows.

My point in getting into this debate was to point out that the status quo is not acceptable. Not only because the system will eventually not be self-sufficient, but because what it actually does is decrease comsumption and investment in the future by taking money out of the economy now and "investing" it poorly. If you want a more thorough explanation of this, I will provide one upon request.

On another note, I just love how this discussion just picked right back up where it left off more than 2 weeks ago.

 

My point in getting into this debate was to point out that the status quo is not acceptable. Not only because the system will eventually not be self-sufficient, but because what it actually does is decrease comsumption and investment in the future by taking money out of the economy now and "investing" it poorly. If you want a more thorough explanation of this, I will provide one upon request.


I agree with this -- I think SS is horribly inefficient and needs to be totally revamped. If we keep the current "basic system", all the accounting changes in the world won't fix anything. Benefits absolutely have to be reduced in some way - lowering the inflation index, raising the retirement age, lowering the benefits paid, etc.

The other non-politically-feasible solution is to scrap the entire system and make it what it was intended to be - a safety net for the elderly poor. Instead of paying all the elderly SS benefits, only pay the poor. No more paying a separate SS tax, but incorporate it into the general fund. Unfair? Absolutely. However, it would be no different than the welfare system where all of us pay to support the poor. Whoever has plenty of savings on their own will not need the SS benefits or get reduced benefits.

The primary problem here is the "it will discourage saving" theory. However, I don't think most people would WANT to live off of the SS benefits, so I'm not sure that's a major problem. The goal of saving is to generate lots of funds for a comfortable retirement; SS would just provide a bare minimum.

What this solution does is massively reduce the demand for SS money since you're taking a huge chunk of people off the SS payment rolls. That lets us lower the taxes required to support the system. It shrinks government while keeping the core purpose intact.