patrick.net

THOSE WHO WANTED TO invest PART of their SS funds in private mutualy fund

you want to gamble in the stock market, gamble in the stock market.

Social Security is designed to be a pay-as-you-go system between retirees and workers. Since this is a one-directional progression (workers -> retirees) it's a beautiful system, no gambling required.

The compounding interest retirement funds get isn't a free-lunch either. For every saver/specuvestor enjoying compounding returns there is a debtor somewhere chained to the wheel.

Bellingham Bob says

Wouldn't surprise me that plan providers bribe HR people under the table to choose them.

They do. It is not a very well-kept secret that companies get kickbacks for these things. It's against the law under ERISA, and I've definitely see companies that could be sued for breach of fiduciary duty.

Bellingham Bob says

the skim on 401K plans is horrendous.

I think you mean grift.

leoj707 says

JG1 says

A ways back, the GOP had a reasonable suggestion to let THOSE WHO WANTED TO invest PART of their SS funds in private mutualy fund/IRA/401k like arrangements, to achieve a superior return versus what the money 'earns' now.

Yes, I remember this proposal, and as I recall it was right before the market took a huge dive as the bubble burst.

Social Security is insurance, it is not an account where you are depositing "your funds". As others have mentioned it could be easily "fixed" to last forever. One of the worst things that we could do would be to expose it to the volatility, fraud, and risk of Wall Street.

Yes, it is a form of insurance and welfare. I would like to opt out and not purchase the insurance. That market dip was a great time to buy, too bad my funds were tied up in SS.

As near as I can follow the linked to article (AngryBear), it doesn't give full credit for the self employed having control of all of their funds, and doesn't base its examples on high enough earners to be of much relevance to me personally.

It too describes SS as insurance (which again isn't quite right - it's not something you apply for and receive when your retirement funds take a nasty turn, like a sudden market dip right before retirement - it's come to be a social welfare program that is most folks' primary plan of how to make it in retirement - that's not "insurance" any more than car insurance is a way to make your monthly car payment).

HousingWatcher says

The Republican and Democratic parties are now essentially polar opposites than what they were prior to 1964 (when the Civil Rights Act was passed). Saying the Democrats of today are racist because they were racist in the 40s is simply not true.

I think the treatment of David Duke by GOP vs. Robert Byrd by Dems pretty much disproves this by itself.

http://www.nytimes.com/1989/02/20/us/winner-in-louisiana-vote-takes-on-gop-chairman.html

http://www.nytimes.com/2010/06/29/us/politics/29byrd.html?pagewanted=all

Byrd, former Klan leader, became Dem Senate leader. Odd how having that in your past doesn't disqualify you, but Supreme Court and attorney general nominees in the 1990s and more recently weren't able to shrug off past pot smoking and nanny problems by denouncing this behavior in the present.

Smoke pot, can't be attorney general.

Lead Klan, OK to lead Dems in Senate (on senility and pork alone, he should have been out of the Senate long before he was).

JG1 says

I would like to opt out and not purchase the insurance.

And there is plenty of government spending that I would like to "opt out of", but understanding the nature of government programs that is a pretty silly proposal to make. Ideally they are for the "greater good" and we either all do it together or not at all.

JG1 says

That market dip was a great time to buy, too bad my funds were tied up in SS.

You have no funds tied up in SS. Just like you have no funds tied up in your car insurance.

JG1 says

It too describes SS as insurance (which again isn't quite right - it's not something you apply for and receive when your retirement funds take a nasty turn, like a sudden market dip right before retirement - it's come to be a social welfare program that is most folks' primary plan of how to make it in retirement - that's not "insurance" any more than car insurance is a way to make your monthly car payment).

Yes, it is an insurance and it covers a lot more than retirement. It is meant to insure that children, the elderly, and the disabled do not languish in poverty. You pay into this insurance so that if you ever find yourself elderly, disabled or dead leaving children behind you (or your kids) don't have to eat cat food. If you think that it is OK for American children the elderly and the disabled to --in mass numbers-- live in poverty. It is your prerogative to vote for candidates that want to destroy SS.

Part of the problem is that everyone feels entitled to receiving SS. People whose retirement funds keep them above the poverty line should not be getting checks from SS. Sure, if Bernie Madoff takes off with all their retirement savings they should be able to get SS.

"That market dip was a great time to buy, too bad my funds were tied up in SS."

LOL.

Social Security isn't down 1.25% today, clown.

Nor down 6% over the past 13 years.

>>>A ways back, the GOP had a reasonable suggestion to let THOSE WHO WANTED TO invest PART of their SS funds in private mutualy fund/IRA/401k like arrangements, to achieve a superior return versus what the money 'earns' now.

Let's imagine that Smith gets $50,000 from Social Security, invests the money, and then loses it. Spring forward 30 years and imagine that Smith lives on half of what he would have gotten for Social Security and doesn't have enough money for food and rent. Do we let him starve? That's sure the Ayn Rand approach.

OurBroker says

Let's imagine that Smith gets $50,000 from Social Security, invests the money, and then loses it.

It's even worse than that. The influx of money 2006-now would have juiced the economy to even more unsustainable heights.

The problem with our economy isn't that social security is taking 12% of wages off the top.

The problem is the $500B/yr cost of gas ($4000/household), the $1T+ rents being taken in health care ($8000 per household), and the $300B/yr trade deficit with China & Mexico.

If you aren't focusing on these 3 main problems, you are not a serious person.

Not that there are many serious people around now.

Bellingham Bob says

The problem is the $500B/yr cost of gas ($4000/household), the $1T+ rents being taken in health care ($8000 per household), and the $300B/yr trade deficit with China & Mexico.

If you aren't focusing on these 3 main problems, you are not a serious person.

Not that there are many serious people around now.

Yes, as the old saying goes, "Penny wise, pound foolish".

Bellingham Bob says

The problem is the $500B/yr cost of gas ($4000/household)

I think that number includes commercial usage also, diesel for trucks and gas used for businesses. I don't see how anyone could separate out the gas used by business's from the gas used by homes.

>>>It's even worse than that. The influx of money 2006-now would have juiced the economy to even more unsustainable heights.

This is pretty much how the private pension system works. Money goes into pensions which are controlled by banks and brokerages. The money can only be spent on stocks and bonds with most accounts. The result is a huge amount of cash chasing a limited number of investment choices. That's in part why the stock market has gone up.

bob2356 says

I think that number includes commercial usage also, diesel for trucks and gas used for businesses.

"According to the U.S. Department of Transportation and EIA, the average U.S. household purchases a little over 1,100 gallons of gasoline per year. "

http://cincinnati.com/blogs/economics/2011/04/17/rising-gas-prices-costs-average-household-1100-per-year/

That's 140 billion gallons per year to 130M households.

but http://www.project.org/info.php?recordID=383

says there's ~60 billion gallons of production ?

::it is a mystery::

OurBroker says

The result is a huge amount of cash chasing a limited number of investment choices. That's in part why the stock market has gone up.

My thesis is that the BB is going to drag the market down. Peak birth year was 1957, so the withdrawals will really get rolling in 2022.

Generation Y has to be the buyers, but they seem to be fucked. Maybe the Chinese will step up as buyers of global equity.

JG1 says

As near as I can follow the linked to article (AngryBear), it doesn't give full credit for the self employed having control of all of their funds, and doesn't base its examples on high enough earners to be of much relevance to me personally.

Ummm. The self-employed have to pay payroll tax too. Are you self-employed? If so, are you dodging taxes?

And high enough earners, like you and me, can do things outside of Social Security too. That doesn't negate the fact that Social Security has a huge return on equity for most people. The average investor probably gets much better return off Social Security vs. their other investments.

JG1 says

It too describes SS as insurance

Yes, why wouldn't it? Compare Social Security to an annuity or a VUL. The latter are clearly insurance right? So why isn't Social Security?

OurBroker says

This is pretty much how the private pension system works. Money goes into pensions which are controlled by banks and brokerages. The money can only be spent on stocks and bonds with most accounts. The result is a huge amount of cash chasing a limited number of investment choices. That's in part why the stock market has gone up.

Well, it's also why the stock market has gone down. Institutional investors felt very comfortable chasing illiquid and risky investments in order to gain more yield. Didn't always work.

>>>it's also why the stock market has gone down. Institutional investors felt very comfortable chasing illiquid and risky investments in order to gain more yield.

The stock market would have gone down much more -- and would never have been as high -- had it not been for the constant drip of pension money into the system.

OurBroker says

The stock market would have gone down much more -- and would never have been as high -- had it not been for the constant drip of pension money into the system.

It's hard to say. A lot of institutional investment also goes into very safe things like Treasurys.

Also, imagine if pensions weren't reserved like this -- either:
a) the pension amounts would be distributed to people over their lifetime as additional income, and people would engage in more consumption, which would raise stocks, given that a large percentage of our economy is based on consumption; or
b) companies would have to figure out what to do with all this freed capital, and would likely invest it in various things themselves (whether their own business or other ones), which would also raise stocks most likely

Bellingham Bob says

"That market dip was a great time to buy, too bad my funds were tied up in SS."

LOL.

Social Security isn't down 1.25% today, clown.

Nor down 6% over the past 13 years.

“Nessuna soluzione . . . nessun problema!„

I love how you cherry pick your dates, clown. You pick the absolute peak without noting that you have - just saying last 13 years. Since the market drop I referred to around the time the GOP prevoiusly floated this idea of PARTIAL privitization, the market is up, and more than my expected return on my SS "investment" is. http://www.google.com/finance?client=ob&q=INDEXSP:INX#

corntrollio says

JG1 says

As near as I can follow the linked to article (AngryBear), it doesn't give full credit for the self employed having control of all of their funds, and doesn't base its examples on high enough earners to be of much relevance to me personally.
Ummm. The self-employed have to pay payroll tax too. Are you self-employed? If so, are you dodging taxes?
And high enough earners, like you and me, can do things outside of Social Security too. That doesn't negate the fact that Social Security has a huge return on equity for most people. The average investor probably gets much better return off Social Security vs. their other investments.

As I understand the AngryBear article - did you read it? - he is discounting, i.e., assuming away, the fact that self employed people pay both sides of the tax, and they would have both sides back were they able to opt out, or to the extend they were able to manage part of those funds in a 401k like environment. His writing isn't very clear to me, but that seems to be what he admits. As a admitted left leaner, he is much more concerned with the working and middle class than any impact on high earning self employed business people.

corntrollio says

JG1 says

It too describes SS as insurance
Yes, why wouldn't it? Compare Social Security to an annuity or a VUL. The latter are clearly insurance right? So why isn't Social Security

Because everyone who reaches a certain age is entitled to it. And those who pay into it more are not disproportionately rewarded (as those who pay more VUL premiums or buy an annuity are), instead it's a social welfare program where not only am I basically maxed out benefitwise at some point despite disproprtionate contributions, but I won't get any "coverage" under this insurance plan because by the time I get to the point where I'd be eligible under the current rules, they will have changed the rules so I am no longer eligible, so my return will be negative whatever I paid in.

OurBroker says

Let's imagine that Smith gets $50,000 from Social Security, invests the money, and then loses it.

You can imagine that, OurBroker, but that was not the proposal, as I stated above. It was to permit a MAXIMUM of a certain relatively low percentage to be self-directed rather than in the "black box".

leoj707 says

You pay into this insurance so that if you ever find yourself elderly, disabled or dead leaving children behind you (or your kids) don't have to eat cat food. If you think that it is OK for American children the elderly and the disabled to --in mass numbers-- live in poverty. It is your prerogative to vote for candidates that want to destroy SS.

I do have funds tied up in SS, because I paid them in - I don't have them - and the current sytems promises me a return upon merely hitting a certain age (unlike real insurance, which promises me a return of my choosing - different policy limits/premiums - upon the occurence of agreed upon events that I am insuring against). If you are telling me this is a sham, and I shouldn't get anything, like you did later in your post, because SS should be means tested you say, then I am really in the hole with this program, especially if you continue to call it insurance instead of welfare. If it's insurance, why can't I get paid out? If it's insurance against disability, hospital bills, poverty, etc. there are private and more effective and custom tailored ways to cover all of those risks.

There is also a way for the people you speak about to avoid living in poverty - save, invest, work harder, spend less, buy disability insurance, etc. For those unforunate cases where disability strikes young and the like, this isn't insurance, it's still welfare, transfers from the rich to support the poor, and that's a real stretch when the entire population is eligible to receive SS upon reaching the designated age.

I do have funds tied up in SS, because I paid them in - I don't have them

that's not how it works. Most of the FICA money you paid in -- 90% or more -- was paid out to retirees immediately.

10% or so was set aside and put it treasuries, but that was largely in response to the demographic challenge of the boomers outnumbering Generation X by a bit.

If it's insurance, why can't I get paid out? If it's insurance against disability, hospital bills, poverty, etc. there are private and more effective and custom tailored ways to cover all of those risks.

Not at just ~10% of your wage income, at least for most people.

SS isn't such a good deal for the upper middle class, no.

But the upper middle class has much more income to invest (after FICA), plus you guys live longer so you'll collect more than the deadbeat no-good loser poor from SS anyway.

transfers from the rich to support the poor, and that's a real stretch when the entire population is eligible to receive SS upon reaching the designated age.

No, it's not a stretch. The top 10% owns 70% of the wealth in this country.

JG1 says

Because everyone who reaches a certain age is entitled to it.

Not true. Absolutely wrong in fact. You have to have paid into the system in order for your or your heirs to receive benefits from it, and your payouts are dependent on what you paid in. You should learn more about the OASDI formulas before you speak about this further, because this is a huge misconception.

JG1 says

he is discounting, i.e., assuming away, the fact that self employed people pay both sides of the tax, and they would have both sides back were they able to opt out, or to the extend they were able to manage part of those funds in a 401k like environment.

No, you misunderstood that. In fact he's doing the exact opposite of what you said. There's no discounting there at all (in fact, you can see that SE people need a lot lower return to match Social Security). All he's saying is that in an employer relationship, the formal way it's done is that employer pays 6.2% and employee pays 6.2%. For self-employed, the employer still pays 6.2% (because the employer portion of payroll tax is deductible) and the employee (same person) pays 6.2% (non-deductible).

The question is whether the employee would always get 6.2% more wages if it weren't for Social Security. For SE, it's clear that the employee would get 6.2% more wages because the employer is the employee. For employees with strong bargaining power, it's likely that the employee would get a portion of the 6.2% back as wages. For employees with low bargaining power, they'd likely never get the extra wages.

I miswrote. Yes, you have to pay into it, and yes, your benefits can vary - a little bit - based on what you paid in. But you max out after only $4,480 in wages per year, so anything paid in on wages after that does not increase your benefits. The optimum earnings for SS purposes, therefore, is $5,000 a year, every year. A good deal for low income workers, a bad deal and a transfer of wealth (social welfare) program for higher income earners.

http://www.ssa.gov/retire2/credits1.htm

Which also means if some of the risks supposedly covered by this insurance before one has earned many credits occurs, the benefit amount may not be enough to support the unfortunate soul.

Like I said, I found that AngryBear article quite confusing, perhaps poorly written, perhaps I'm doing a poor job of following it, perhaps both.

His contention that I should just relax and enjoy because I will at least get my money back is absurb for a couple of reasons. First, we have the possibility I could die without spouse or issue before retiring. Second, and more pressingly, if I'm young enough, chances are the retirement age will keep going up such that I either won't make it to that age, or if I do, I have less years of return, and the larger risk I think is that means testing is implemented, and then I'm deemed to high income or too rich (not the same thing, despite the way all the politicians conflate the two) to get all or perhaps even more likely, ANY return. That's like no insurance policy I've ever heard of. And that's the fatal weakness (or deceit) of the AngryBear article.

On the contrary, when I buy insurance, the more premiums I pay in, the more I am covered for. So if this is disability or retirement income assurance, I'd rather get my own from private sources.

The changing nature of the payout makes SS an insurance program that would be a "can't be trusted, pass" were it not mandatory.

You mean I contributed under X premises, but now you are going to change the premises so I may get no return on these contributions at all? Hmm, funny insurance policy. (Which of course is not really an insurance policy at all, like I said.)

JG1 says

But you max out after only $4,480 in wages per year, so anything paid in on wages after that does not increase your benefits. The optimum earnings for SS purposes, therefore, is $5,000 a year, every year.

Wrong wrong wrong. You didn't keep reading because you read one thing that supported your poor argument. If you kept reading, you'd see:

Your average earnings over your working years determine how much your monthly payment will be.

All the $4480K is talking about is getting credits -- i.e. in order to get Social Security, you need a certain number of credits. Your actual income up to a cap of $106,800 for 2011 (indexed for inflation each year) determines what payout you will get. This year, you pay 6.2% (4.2% this year under the Obama cut in payroll tax) on up to $106,800, and your benefits are based on what you pay in. If you pay in the max every year, you will receive the max on retirement.

JG1 says

perhaps I'm doing a poor job of following it

Ding ding. You don't understand how Social Security works, hence the problem.

JG1 says

The changing nature of the payout makes SS an insurance program that would be a "can't be trusted, pass" were it not mandatory.

You mean I contributed under X premises, but now you are going to change the premises...

Do you have a contract with SS under X premises?

Even with insurance companies where you have a "solid" contract they often will fight payouts that they are contractually obligated to pay.

JG1 says

...I may get no return on these contributions at all? Hmm, funny insurance policy.

Well it is funny to expect a return from an insurance policy. Do you rush out and get into a major car crash before the policy expires to get a "return" on your "investment"?

@ leoj707

Yes, I do expect a return from an insurance policy, under the stated payout parameters (car accident in your example), or why would I pay the premiums? If the payout parameters are uncertain, then it's a lottery, and I don't want to play.

I don't want to have auto insurance, be in a car accident, and then be told, 'we have means tested you, and you make too much to get a payout, because you can afford to buy a new car without this insurance settlement check.'

The fact that there are sometimes issues figuring out what is covered and what is not, and that some insurance companies sometimes act in bad faith (probably to a much smaller degree that their policyholders try to file bogus claims and defraud them, BTW, and this behavior is at least partly what causes insurance companies to scrutinize claims), does not change the analysis. The policyholder has recourse in that case, the courts.

JG1 says

If the payout parameters are uncertain, then it's a lottery, and I don't want to play.

Clearly you have not dealt much with insurance companies, the payout is always uncertain. I hope you never have to learn this first hand.

leoj707 says

JG1 says

If the payout parameters are uncertain, then it's a lottery, and I don't want to play.

Clearly you have not dealt much with insurance companies, the payout is always uncertain. I hope you never have to learn this first hand.

I have dealt with insurance companies my fair share, different ones, too, and have never had a problem getting paid. YMMV.

I had one time where I had an argument about to what degree they should cover my rental car when my car was in the shop for two different claims - I argued the rental coverage applied twice, and should at least cover all of my out of pocket costs, they argued it could only apply once, but we are talking about a difference of less than $100 between the two positions and if I really have wanted to I could taken it to court and duked it out on this one.

To compare that to the possibility the SS "insurance" ends up paying me out zero and I have no recourse, is apples to oranges.

JG1 says

I had one time where I had an argument about to what degree they should cover my rental car when my car was in the shop for two different claims - I argued the rental coverage applied twice, and should at least cover all of my out of pocket costs, they argued it could only apply once, but we are talking about a difference of less than $100 between the two positions and if I really have wanted to I could taken it to court and duked it out on this one.

Ah, so you have had a little taste. It just gets worse the more money that is on the line for them.

JG1 says

'we have means tested you, and you make too much to get a payout

Strawman with respect to Social Security. Social Security pays out based on what you put in.

Hardly a strawman FOR THE FUTURE (you know, when I might actually get a payout), it's already under discussion and more likely than not, I think, to be the case by the time I am retirement age in 30+ years.

I didn't say it was going to apply to anyone now, or retiring soon - in fact I said the contrary in other posts, that that kiind of argument was used to demagogue anyone who proposed any changes to the SS system, 'You're threatening the seniors'. Most of these proposed changes to the extent they threaten anyone, threaten the young.

JG1 says

Hardly a strawman FOR THE FUTURE (you know, when I might actually get a payout), it's already under discussion and more likely than not, I think, to be the case by the time I am retirement age in 30+ years.

Except that most of the claims that Social Security would run out of money are based on uber-long-term projections that could change quite easily. In addition, the fixes are easy -- you could raise payroll taxes, even without cutting benefits. It's only politics that makes everyone think Social Security is so threatened (even if very few people seem to understand how it works, as this thread shows).

leoj707 says

Do you have a contract with SS under X premises?

"We put those payroll contributions in so as to give the contributors a legal, moral, and political right to collect their pension and unemployment benefits with those taxes in there. No damned politician can ever scrap my Social Security Program.”

-FDR

http://www.archives.gov/exhibits/treasures_of_congress/text/page19_text.html

corntrollio says

Except that most of the claims that Social Security would run out of money are based on uber-long-term projections that could change quite easily. In addition, the fixes are easy -- you could raise payroll taxes, even without cutting benefits.

Sure, just raise taxes, great idea, of course - why didn't I think of that!?

JG1 says

leoj707 says

Do you have a contract with SS under X premises?

"We put those payroll contributions in so as to give the contributors a legal, moral, and political right to collect their pension and unemployment benefits with those taxes in there. No damned politician can ever scrap my Social Security Program.”

-FDR

http://www.archives.gov/exhibits/treasures_of_congress/text/page19_text.html

Sounds pretty vague, not unlike most insurance contracts.

JG1 says

Sure, just raise taxes, great idea, of course - why didn't I think of that!?

Actually, it's not a bad idea and Reagan did it, so clearly it's a bipartisan thing. It wouldn't be hard to raise the cap only slightly from $106,800.

Anyway, as I mentioned, it's possible that there will be no issue.