[Steve]

most individuals are not great investors. when/if their funds tank, who do you think will have to support them? -paul

I really hate this lowest common denominator mentality. Since some people are not responsible, all of us have to be forced into a terrible system that no private company could possibly offer.

I'm a big kid. I don't need the government to take care of my retirement. I'm smart enough to know to start moving my investments into low risk funds when I get near retirement.

If you like the system that's fine, but don't force me to belong.

 

[paul young]

and then there's reality,Steve.

you live in the United States of America. in the past month we have sent over 1/2 a BILLION dollars overseas to help people who can't feed,clothe or house themselves. if you think we should turn our backs on our own people when they're in need.......

it's America the beautiful, not America the ugly,selfish, my way or the highway.

at least that's what i believe.-paul

 

[Steve]

you live in the United States of America. in the past month we have sent over 1/2 a BILLION dollars overseas to help people who can't feed,clothe or house themselves. if you think we should turn our backs on our own people when they're in need.......

it's America the beautiful, not America the ugly,selfish, my way or the highway.

at least that's what i believe.-paul

I find it offensive that you would infer that I am ugly and selfish because I take responsibility for myself. It is usually a lack of confidence in one's position that causes one to resort to personal attacks.

If you would like to know what the author of the Constitution thought about government "charity" read below,

In 1794, when Congress appropriated $15,000 for relief of French refugees who fled from insurrection in San Domingo to Baltimore and Philadelphia, James Madison stood on the floor of the House to object saying, "I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents."
-- James Madison, 4 Annals of congress 179 (1794)

As the law stands, it is illegal for you to take money from me to give to a 3rd party. However, it is legal for a group to get together and do so in the form of taxes. Assuming you are an advocate of government "charity", when does it become OK to take money from someone and give it to someone else. How many people are required, what are the limits for the amounts given and taken, and what is you basis for such an opinion.

 

[Bente]

Everyone must understand there is NO trust fund with $$$$ in it...only governmental IOUs are there.

UB

Since you say the trust fund has no $$$, just governmental IOU's, (which you compare to an addicted mom's handwritten notes into the piggybank, i.e. "worthless"), I'll offer to take those all worthless IOU's off of Social Security's hands any time.

Or is it just that T-bills have value and get repaid if they're held by China or Japan, but not if they're held by the retirement fund for Americans?

 

[ranger]

social security

It should be noted that under the new proposal, no one will be forced to put their money into a private account, it is just another option. Does anyone here think that the government can earn a better rate of return on THEIR money than they can on their own? My IRA has consistently outperformed my social security "account" even during the lean years, and I am by no means a savy investor.

If you die, your account would have tangible value that can be willed to family members, unlike the current system. Any money that you can not pass on to your children is not YOUR money.

When you choose a fund, you can select one which invests your money where you would like it to be invested. When Dems and Republicans alike raid the social security system for money for various pork projects, no one asks us if we agree with how that money is used.

You will not be allowed to invest any of these contributions into Enron or a dot com or to spend as you wish. You would have various conservative options from which to choose allowing you to invest in more conservative options as you near retirement.

I have to object to one man's quote about the gov't dumping "this" into our laps. The "this" that is being referred to is OUR contribution to OUR retirement. My lap is exactly where I want "this" money because I know that I can get a better return and larger retirement than the government can.

 

[ranger]

social security

To roughly quote Zell Miller:

"The Sunnis and Shiites will be able to agree on a constitution before the Democrats and Republicates will be able to agree on social security!"

 

[Bob Gutermuth]

Part of the problem with SS is the lack of knowledge on the part of the public. FDR did NOT create SS to be a fund to live off of. It was intended to be a safety net, but over the years people have come to depend on it as their only source of $$$ after retirement. In the time since it was created lots of folks have received benefits withgout paying into the fund, and lots of government pork projects have been funded out of it. If CONGRESS had to depend on SS instead of the very fat pensions they keep voting themselves, you can bet your bunns it would be in better shape.

 

[mbrookins]

Bob, you are right on with your analysis. This is a very tough and difficult subject. I am glad that it is on the table. This people we elect to office need to cut the political bull and come up with some reasonable solutions. I will applaud those members of Congress who choose to do the right thing over their need to get re-elected. When you are in a leadership role you need to make the tough decisions.

 

[ranger]

social security

Just crunched some numbers.

If I took the entire amount I pay into SS each month and invested it at a conservative avg rate of return of 8% for 45 years (say from age 21 to 66), that fund would be worth over $1.6 million when I reach 66. At a 12% return it would be worth $6.6 million. This is assuming I never receive another payraise and my contribution remains constant.

If I adjust the 8% return for a 2.5% rate of inflation, that $1.6 million dollars would be equivalent to $727,000 in today's dollars, significantly higher than the $100,000 cited in a previous post.

This would be over and above any private retirement savings from IRAs, 401k's, or corporate/military/government retirement programs.

 

[paul young]

yep, you'll all be rich in no time.

ask a banker if 8% a year is conservative growth.

Steve, that wasn't a personal attack. i was inferring that our society, our culture, if you will would be selfish to turn it's back on our own citizens. nothing more than that.

i would like to watch someone actually try to live on social security. you wouldn't last a year.

i think that's enough out of me on this subject.-paul

 

[Bente]

Please advise which investment you buy that gives you a guaranteed 8% return for 45 years. I'd like to invest in it (especially in light of the current high bond and stock valuations).

Bente

(who has been in the market for 20 years running the family as well as business investments and budget)

oh, and I haven't heard any proposal which would to put the entire SS amount into private accounts.. but it's fun playing w/ numbers, isn't it? a lot easier than actually achieving the results..

 

[ranger]

social security

In his book Stocks for the Long Run, Jeremy Siegel reports that the total return for U.S. stocks between 1926 and 2001 was 10.2% per year.

Note the dates include the both infamous stock market crashes. I'd say 8% is conservative. I know my mutual funds have done much better than this for the last 10 years.

 

[ranger]

social security

Regardless of the percentage you consider reasonable, the S&P 500 (and any fund indexed to it) far exceeds the performance of social security and the money in these accounts would be yours.

I agree, no plan will allow me to use all my contributions as I please, but if there were such I plan it would take me the time to fill out the paperwork to make it happen.

I'll cite an example of gov't inefficiency: right now your taxpayer dollars are paying my paycheck to argue the merits of social security on a retriever website from work. Now do you still trust the same gov't to manage your retirement savings as well as yourself?

 

[Terry Britton]

Do you trust that same govt to manage mutual funds that will invest in large corporations that may tank like Worldcom and Enron? They would still be paying or supporting some of us to debate this on here.

I would still prefer to put a % of my SS in a seperate fund than the govt.

 

[Bente]

Yea, and if we could all invest based on past performance, we'd all be Bill Gates.

There are several problems w/ your analysis.

First, you assume all your SS contributions will be diverted into personal accounts. Pres Bush is only proposing that upto 1/3 be diverted.

Second, you use long term averages and assume past performance equals future performance. To paraphrase a great economist, In the long run we are all dead. When exactly we enter and when exactly we exit in the long run economic cycle leads to very variable returns for the individual vs the long term averages.

Third, you under-estimate the risk of higher inflation in the U.S. over time considering our current deficit spending.

Fourth, you do not include administrative costs in your analysis. No such thing as a free lunch.

Finally, you do not factor in risk. Unless you assume 8% is a risk free return. Last I checked the 10 yr T-bill was yielding around 4.25%. This is a pretty good benchmark to use for evaluating risk (T-bill being virtually risk-free). If there is an 8% risk free return, then no one would be buying T-bills, they'd all be flocking to the 8% vehicle. At least under the efficient market assumption they would. I don't see that happening.


But, reading today's paper, it appears that Rep DeLay is putting the brakes on moving SS reform forward, so this whole debate is probably academic anyway..

bp

 

[ranger]

social security

The only thing I "assume" is that I can better manage my retirement savings than the government and that it is more appropriate that I do so. I believe this is a valid assumption.

1. As I already posted, I am well aware only a portion of my funds could be diverted, but I would divert every penny allowed by law.

2. As all funds state, past performance is not indicative of future returns, but a 75 year average that incorporates black tuesday before SEC safeguards were instituted is a good benchmark. This is why I didn't use the 25% returns I had gotten in the late 90's, I used more reasonable numbers. This is why it is wise to diversify and to use dollar cost averaging and to invest in riskier vehicles early in life and more conservative vehicles as we near retirement age.

3. I concede the point about future inflation being an unknown...point well taken.

4. The administrative costs of my funds for the last 10 years have been negligible in comparison to the rates of return.

5. Regarding risk, see point 2 regarding diversification and changing your risk categories with age.

Regarding the Dem's stalling SS reform, see my previous post about the Sunnis and Shiites agreeing on an Iraqi constitution before Dems and Republicans agree on SS reform. I am afraid you are probably correct. It is easier to keep the people living in fear and dependent upon uncle sam to do their thinking for them.

But as GW said, all options are on the table. To date I have heard no counter-proposals. It is easier to stick our collective heads in the sand and do nothing than to come up with a reasonable solution.

 

[ranger]

social security

Found this on Dave Ramsey's financial management website. The 10.99% return is based on the return of the thrift savings plan available to all gov't/military employees. Note, it doesn't account for inflation, but still illustrates the point.

Social Security Example:
Joe is your average American. He makes $7 per hour and works a 40-hour week for 52 weeks a year.

$7/hr x 40 hrs x 52 weeks = $14,560/yr.

Currently, all workers are paying approximately 15% of their income into Social Security and Medicare. Social Security gets 12.4%. 6.2% is paid by you. 6.2% is paid by your employer. President Bush is proposing that people be allowed to take 4% of that and invest it to help build their retirement. In our example, 4% is to $48.53 per month.

$14,560/yr. x .04 = $582.40/yr. ($48.53 a month)

Take that $48.53 a month and invest it into a decent growth stock mutual fund at an average of 10.99% interest per year, and you would have $1,253,075 at retirement.

From age 20-70 = 50 yrs. = $1,253,075

At retirement, you could take 8% of the interest per year and live on it. You could leave the other 4% to account for inflation and still be better off than when you were working.

Retirement Income at 8% = $8353 a month

Now if you make more than $7 per hour, you are able to invest more.

In this example, it is easy to see that you could enjoy a higher standard of living after retirement if you were allowed to control a small portion of your money that goes to Social Security from each paycheck.

 

[Terry Britton]

One thing I question, how much will the stock market dynamics change when the govt. starts investing into private businesses via SS? Will it cause the average rate of return to increase or decrease from its 11%?

 

[Howard N]

Supply and demand I'd expect. More demand, prices go up.

 

[Bente]

Ranger: You've got to be a bit younger than I am... you might change your mind when you get closer to retirement
(I am reminded about the story of a young adult coming home telling the old man about the new job they just got and how much it pays.. the old man says, 'fine, but does it have a pension?')

A couple of things wrong w/ your analysis..

First, 10.99% is WAY too high a return. Don't know if you subscribe to the WSJ, but in ytdy's Feb 9 edition, personal section, first page, there was a story SS and about long term returns (this in a publication dedicated to the securities industry). The numbers they (Siegel included) used for long term returns was 6% for stocks, 3% for bonds (after inflation).
Whether this is achievable in the next decades (remember the 70's??) with the huge budget deficit, low dividend rates and continued high stock valuations, high bond prices (low yields), and increased competition from overseas for economic and investment opportunities (remember WWII left the U.S. with little international competition for a couple of decades), is the question. I'm not placing any bets that we'll be seeing dependable 6% returns for quite some time (at least not in the U.S. .. best investment I have going now is a foreign fund.. would we be allowed to invest our private a/c's overseas?? I would guess not.).
But if you're 20 you have time to wait it out. If you're 52 (like my husband), or 45 (like me), you don't have as much time so the long run averages don't mean as much.

Second, 50 years ago you could get one heck of a house around these parts for $25,000. These days $250,000 doesn't even get you a starter house. Your nest egg may sound big, but if you don't factor in inflation (the worst tax of them all), you're going to face a rude awakening.

Third, an 8% w/drawal rate is WAY too high if you don't want to outlive your nest egg.. 5-6% is better, and you'll probably have to adjust down if the market has a bad year.. Personally, I would use 3 - 4.5% (but I plan on living into my 90's if my relatives are any clue..)..

Which brings us to the real benefits of SS: You won't outlive it and it increases w/ COLA each year. It's a great SUPPLEMENT to the money you have set aside on your own for retirement.


But really, IMHO, the whole debate has been brought to the forefront because of the huge twin budget and trade deficits. Something's gotta give and you don't want that to be a dollar/currency crisis (although our ass is a bit saved because the dollar is effectively a world currency.. although that could change too.. like it did for Britian). So, to get our country's fiscal house in order and, since..

1. tax increases are off the table, and

2. there's only so much that can be cut from discretionary spending (note that the "R"'s control both houses of Congress so we'll see how fiscally prudent they can be.. and before you paint me any color, you should know I was a PCO for the Republican party 15 yrs ago), plus,

3. we've got a war to pay for, and

4. we can't default on our gov't bonds (THAT would be UGLY) so we still have to pay the interest on the federal debt (the interest rates are now low, but watch out if they start really climbing.. up goes the budget deficit and we'll be in even deeper doodoo),

5. the only thing of significance left is entitlements, i.e. Social Security and Medicare/Medicaid. And since the President just increased the government obligations under Medicare/Medicaid w/ the new drug cards (that's in the news lately 'cause the cost of that program is looking to be HUGE), that leaves Social Security.


But really, I don't think they're going to institute the private accounts because there's not enough support for it among Republicans because SS is a very popular program.

What we really need to do is to get the budget deficit and trade deficits under control.. how we go about doing that will be most interesting to watch.. either we, as a nation, do it proactively, or it will be forced upon us (not a good option)

bp