Social Security-Market

sailfishJanuary 15, 2005

Does anybody believe Social Security will be privatized ?.. And what affect do you think it will have on the market? Would such an impulse of new money push the dow well over 11000?

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There is a reason Social Security is often referred to as "the third rail"... I honestly don't know if it will be privatized. I know a lot of young people are quick to embrace the notion, but since consumer debt is so terribly high and personal saving/investing is so low I'm not sure the average American has the ability to make shrewd, long-term investment decisions. My fear would be that they would opt for riskier investments with "their share" of SS to "make up" for a failure to invest personally OVER TIME; and what would happen if they did well in the market, but it "crashed" at about the time they were going to need the funds? I don't really know what the cumulative effect would be on the stock market; it's been a lot of years since I took an economics class and it wasn't an easy course for me!

Interestingly, at 46, my concern isn't so much about SS (though it is a worry), but MEDICARE; as a retiree, incomes tend to become more fixed, and if medical costs continue to spiral up and up how are today's, let alone TOMORROW'S retirees going to meet the increases without suffering a substantial decline in their financial ability to "maintain" a lifestyle? And not much has been heard about that program... and financially, it is is in far worse shape than is SS.

    Bookmark   January 17, 2005 at 9:18AM
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With members of both parties speaking against the idea, I don't suspect it will happen soon. There are too many alternatives that should work much better than this carp-shoot which leaves many questions unanswered (questions that likely will take longer than four years of the next administration to surface) -- like Cheldone's question about what happens if equities "tank" just when money needs to be withdrawn, or if people just do a carppy job of investing and still don't have enough to live on, or how younger workers will be able to invest a portion of what they earn in equities and still contribute the "regular" share to SS (after all, the last thing SS needs is a further decrease in contributions, but this country has a problem now with people saving for their own retirement).

I, too, am 46. I'm less optimistic than Cheldone about SS's value in my retirement. But privatizing even a portion of SS lines the wrong pockets. I hope people realize that before it happens.

    Bookmark   January 17, 2005 at 9:50AM
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I don't know a whole lot about this.. but just to offer input.. From what I understand Social Securitys downfall was the VietNam war. I guess it was the first time some genius decided we should be able to use that money for other than what it was intended for. We probably have been paying dearly for it since.Today I see red flags like raising the retirement age becuase poeple are living longer.. Give me a break! They know that a great precentage more poeple will never live long enough to see their first check. And thats the plan. I'm not happy with somebody getting ready to pass the buck and "get out of dodge" when what they should be concentrating on is sureing up the system and reasuring the poeple that the money will be there when they need it. But if it should happen and if it's out of our hands. I want to be there when the market rallys with my own 50 bucks.

    Bookmark   January 17, 2005 at 1:16PM
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I, like Sailfish, am not completely "up" on what the root cause of the SS's malaise is. But, like you, I suspect the trust fund was "raided" repeatedly over several years. Monies were removed and replaced with IOUs, none of which have been repaid.

It is simply one more symptom of elected officials who DON'T think LONG TERM, preferring instead to give the answers their constituency wants to hear, rather than explaining the cumulative effect of a spending binge HAS to be cuts in other programs or increases in taxes. It really is that simple. But a lot of people don't want to hear that; they elect people to tell them waht they want to hear. Sad, but true, IMO.

Also, nobody I know wants to hear this, either... but I DO believe the age of retirement should be raised. As it is, I can't collect full SS benefits until I am 70 1/2. And 65-70 today is vastly different than 65-70 was 50 or even 20 years ago. It's the practical thing to do. If memory serves me correctly, 65 was set as the age at a time when most of the population didn't live that long! I think it might be time for some means testing, too... . And I heard an interesting essay on NPR some weeks ago and the woman mentioned that not everyone has to pay into the SS system?? I was running my machine at the time and didn't catch it all, but federal employees pay into another pension fund? Anyone know about this?

And lastly, of most importance, we MUST begin teaching all children about SS. WHY, and when it was started. And what it was intended to do and what it shouldn't be expected to do. It was an insurance program; something started to guarantee that the elderly wouldn't starve to death. It was supposed to be ONE LEG in the proverbial 3 legged stool that comprsed retirement savings. The other two legs were PERSONAL SAVINGS and home, and workplace pensions. Never was it intended to provide the entirety of a retirement income! and that fact has been conveniently "lost" over time. I work with a guy who actually believes SS was started as a JOBS program... he doesn't understand that it was simply one portion of FDR's New Deal (he also thinks privatization is great; but has no savings, no home, 2 kids, etc., etc.). So this is what we're up against...

    Bookmark   January 17, 2005 at 2:03PM
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I was running my machine at the time and didn't catch it all, but federal employees pay into another pension fund? Anyone know about this?

That used to be the case, but no longer. Under the present Federal Employee Retirement System, feds pay part into a federal pension system and have full OASDI (Social Security) deductions taken out. There are still many employees around under the old Civil Service Retirement System that was fed pension only, but new hires are all under FERS.

Not sure about elected officials, political appointees, Senior Executive Service, or military, but your average federal employee pays SS on the same scale as everyone else. And their federal pension is reduced by SS payments when they start drawing it out.

    Bookmark   January 17, 2005 at 10:57PM
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It was supposed to be ONE LEG in the proverbial 3 legged stool that comprsed retirement savings. The other two legs were PERSONAL SAVINGS and home, and workplace pensions.

Agreed that too many people somewhere along the way came to think SS was supposed to carry them economically; people also got into the idea of thinking of it as an entitlement. Maybe it would be if you only got back what you paid in, but people drawing SS today get back far more than they paid in. I'm also of the mind that, if you've been lucky enough in life to have done well, maybe you don't need SS income. But I'm sure people will find creative ways to hide that kind of success. :-(

But you mention one other issue that I don't hear from many people at all: the many Wall Street shenanigans which have done a great job of weakening one of the other legs of the stool -- workplace pensions. Thanks to "people" (I use the term loosely) like Dennis Kozlowski and Ken Lay, many working folks have seen their pensions vanish into thin air. Thanks to the preference for temp labor and massive layoffs and huge mergers, many people have not been with a company long enough or at high enough a level to be given any useful pension. I have another couple of decades before I get a full pension at the place I'm working now, and I'll put even money that one of us (me or the company) does not last that long in the world of work.

It's mighty hard to sit on a stool without injury when I have to prop up two shaky legs.

    Bookmark   January 18, 2005 at 9:44AM
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Investing in a home is a great idea for many - and carries tax advantages on both sides of the border.

Our mandated universal pension plan in Canada used to invest mostly in bonds, but recently has been investing in stocks, as well.

No financial advisor worth his/her salt will advise putting most of one's asset into any one vehicle. One's core assets should be in quality systems: home, high quality stocks, etc. If one could select an ideal investment, it would be well to invest a major portion of one's asset there - but no one can do that.

Many of the so-called smart investment managers that operate the mutual funds fail to do better than the market as a whole over substantial time periods. Even when their investments do well, they get a substantial portion of the growth - and if there is no growth, they still get their percentage of the total asset annually.

Diversification is important, so that one does not get burned badly if one type of investment does poorly (or even disappears).

There are a number of advantages of investing in stocks.

Learning how money works is an excellent hobby - that pays well.

Don't you just bet that those in charge of the markets would like to get their hooks onto those billions that would be redirected from the Social Security system and managed by financially largely unlettered people?

And would there be a mandatory contribution situation?

For a personal view, it seems to me that the people running things in Washington don't want to hear from those who disagree with them.

It seems to me that where everyone thinks alike - no one thinks very much.

There isn't an opportunity to hear, debate and deal effectively with potential problems.

Also, in this second term, one has a suspicion that what Bush wants - Bush gets.

Good wishes from a 75 year old (for another week or so) as you plan for your retirement.

joyful guy

    Bookmark   January 18, 2005 at 1:05PM
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Boy, do I ever hear you on the pension thing! I didn't have one at work for a long time, and it's only been in the past 3 years that I've had a workplace IRA. I came very close to maxing out my allowable contribution in 2004, and it was pretty painless. There is a small match from my boss, nothing terrific, but it's more than I had before. I know a lot of people who don't have any saving program and I also know a lot of people who do and don't avail themselves of it. And we max out our ROTHs every year, too.

I blanche when I see some of our friends pass over that opportunity year after year; I wonder what the future will hold for their comfort and security.

I was listening to the discussion of the new trial for Mr. Kozlowski and his buddy, it will be an uphill battle to nail him... probably better suited for civil court than the criminal division. It was a good story.

Thanks for the clarification on the Fed. pension fund, spewey

    Bookmark   January 18, 2005 at 8:07PM
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In addition to whatever other causes may have affected Social Security, the main one is the baby boom and subsequent boomlets. When SS was started, a large group of younger people were paying to finance SS benefits for a smaller group of older people.

But the baby boom turned that around. We're are entering the years when we will have far more older citizens than ever before. Add longer life expectancy, lower birth rates, and you have the makings of a disaster.

I understand that people should save. I'm self-employed, so no pension or matching funds. (Pensions are a dying breed anyway, it seems.) I max out my Roth IRA and make other investments, but I am not at all sure how I'll do two or three decades from now. And that doesn't even count unforeseen events like illness, job loss, etc.

And i'm a lawyer. I make a decent living. What about people who don't? Or people who are ill, or severely retarded, or otherwise unable to work? What's going to happen to them if we privatize and they can barely afford to eat, let alone invest?

I very much hope that SS is never privatized. Safety nets are important.

    Bookmark   January 19, 2005 at 3:49AM
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Part of the issue of the shrinking pool of payers and increasing pool of payees is tied to the continued raiding of the SS trust fund to finance OTHER programs. Had it not been raided repeatedly or had the IOUs been repaid, there would be no cause for alarm.

But this comes back to the spectre of mean's testing, and the necessity that ALL earnings be taxed for SS, without the cut off at a certain level of earnings, and the necessity of raising retirement ages, and ramming it through people's heads that they have to plan and save.

I also think there need to be more retirement savings vehicles made available to those of us who earn "average" incomes.

I've very much enjoyed this thread; lots of good thoughts here.

    Bookmark   January 19, 2005 at 5:40AM
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It should be made clear that solving the current underfunding (or more correctly, raiding of the SS fund to pay for other government programs) has absolutely nothing to do with private accounts. They are two separate issues. Private accounts do not have anything to do with the lack of funding. PA's will not solve the funding but will in fact increase the cost by at least 7 to l.2 billion dollars. Please do not confuse the two, although every effort are to make you do exactly that. The so called crisis in SS is not as bad as one might think. Private accounts will jeopardize the economy even further as they are exceptionally costly. They also aren't that great of a deal. Lots of limitations being discussed that aren't being made clear to the public.

    Bookmark   February 23, 2005 at 10:01PM
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There was an interesting discussion today on Day to Day on NPR. They looked at what the age 65 represented back in the 1930s and how lifespan and functionality have increased for elders over the decades since. Back then, age 65 represented only about 8 more years of active life. SS was supposed to help elders who were too old to work. If we were to use the same criteria today, the age where this occurs is 71. If we slowly raised the age of retirement to represent this, the SS problem would be solved. Yes, the age of retirement was raised in the last attempt to save SS, but not by much. I am 46 and I think that I will be allowed to retire at full SS benefits (not early, like those at 62 now) at 67 1/2 or so.

Now, before folks get upset at the idea of retiring so late, remember that anyone who is physically unable to work longer can still apply for SSD - social security disability. For those who are injured or who become "old" before their time, that is now and will be available.

I had understood that there never was a "pot" of SS money sitting around anywhere. It was always a "pay as you go" system, with the "extra" SS paid by workers put into US Government securities. Same as now. There is a pot of savings bonds certificates in the SS Trust Fund. Backed by the US Government, these are considered as secure (almost) as gold. So when you hear that the govt has "borrowed" the SS money, what you are hearing is that the govt has bought savings bonds or other govt securities with the SS money. You sure wouldn't want greenbacks sitting in a vault somewhere, would you?

Here is a link that might be useful: Day to Day radio program on SS

    Bookmark   February 24, 2005 at 12:37AM
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Like Nancy, I'm 46 (the NPR series has been terrific). And I know that collecting "full" benefits will have to wait until I'm 70 1/2 yrs. old. I'm OK with that. Mum, worked until she was nearly 76, and she was a career smoker and drank too much for a lot of those years. Her sister, died in early December... at nearly 84; fully vital until about one week before her actual death. So raising the "retirement" age is a NO BRAINER. So is raising the amount of income that is currently subject to SS taxes!!! how about 100% of it? (lol) And so is requiring everyone to pay into the system. Presently, a certain segment of the working population pays into a different system and is exempt from SS taxes. BUT, if they worked outside Federal/state funded jobs at any point in their working lives they're still able to collect SS, too. We must look carefully at that and establish terms that accurately reflect their contribution and their draw. It's only FAIR.

I'm opposed to PAs. For one reason only. WHY, in heaven's name, would you want to introduce the element of RISK into what's been risk-free since its inception? let alone do it at a price tag running between one and two trillion dollars? Consider the longterm effect on our staggering national debt... and what that does to the vibrancy of our economy as a whole.

We've worked hard. We have a nice home and it's paid for. We have saved diligently, invested and suffered some losses. But we live within our means, and we've held up our end of the SS bargain. I work with not one, but two men who have nothing to show for their years of work. One wants nothing to change in SS. The other (37 yrs. old; married, 2 kids) thinks PAs are the answer.

MY concern with respect to the latter individual: he is 37, rents his home. He has NO savings and no history of any ability to save, at all. I (as a taxpayer) am supposed to believe he will be capable of making an informed, prudent decision with respect a portion of his SS contribution? GET REAL!

My geatest fear is that people like the good, honest, hard-working person I've just outlined will "bet the farm" hoping to make up for nearly 20 years of failure. And an inopportune downturn of the market will utterly destroy them.

I believe we must plan for the "worst case scenario"... and I don't believe that's been adequately factored in. Too many questions, too short on actual COSTS, and TOO MUCH RISK. I think we need to address several issues that have nothing to do with "privatization". And it WILL be a tax increase... a pig in a dress is still a pig. Time for the USA to grow up and begin paying on the tab we've racked up over the past 40 (?) years.


    Bookmark   February 25, 2005 at 7:09PM
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I believe we must plan for the "worst case scenario"... and I don't believe that's been adequately factored in. Too many questions, too short on actual COSTS, and TOO MUCH RISK. I think we need to address several issues that have nothing to do with "privatization". And it WILL be a tax increase... a pig in a dress is still a pig. Time for the USA to grow up and begin paying on the tab we've racked up over the past 40 (?) years.

You'll never get elected with an attitude like that! :-) :-)

You're absolutely right, though. Those favoring PAs use all kinds of rosy, never-before-seen projections to illustrate how good they will be for us without ever considering that things might not go quite the way they planned. I don't think anyone will be throwing rose petals at the feet of the PA brokers, especially if the U.S. continues on its path of becoming a debtor nation.

    Bookmark   February 26, 2005 at 9:39AM
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What happens to your PA if you get sued?

    Bookmark   February 26, 2005 at 2:57PM
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Has it been explained just exactly HOW the individual will invest?

I spect you will be given a "package" with choices within. Well how do ordinary guys with zero market smarts make an intelligent choice? When I first started messing with the market years ago I thot you had to have relatives or know somebody to get a mutual fund. It took time and dedicated study to learn the ropes. What percentage of workers have the time and drive and the background to absorb it?

I've looked at a couple 401k's and the company offers you a package they have purchased above or below the table put together by some broker/dealer type entity. Well one in particular I looked at stunk. It had several of the worst rated funds and not only that while they were no load on the open market they were back end loaded within the 401k. Guess who makes money on that. Is this indicative of what might be offered for PA's?

Finally I fear poor peformance over a relatively prolonged period could generate complaints from the public thus opening the currently supposed free market to government pressure or interference in some manner. Said interference generated by politically savvy economically challenged politicians who themselves have zero marker smarts but super re-election smarts.

    Bookmark   February 26, 2005 at 11:45PM
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Inthe New York Times online articles I was catching up on today, I learned that when you retire, the private savings account has to be used to buy an annuity. Once you do that, it no longer is available to pass on to your heirs. so the bull about African Americans doing better with Bush's system is only true if they do not live to reach retirement. Now that is a goal that we all want to shoot for huh? NYT also had an editorial about the deficit and how the debt is financed and how precaarious the whole thing is. Also had an interesting editorial on how getting folks all worked up over "moral" issues, then getting them to vote for folks who work against their own best economic interests is working so very well. You get the government you deserve, I guess.

Mxyplx, no, when the market falters and the accounts are worthless, the market won't get an intervention. That is when SS gets disolved and all the New Deal programs are history. Let the free market reign! Suvival of the fittest, or of those who know and are liked by those in power. Funny most of the folks who think like this don't believe in evolution as a biological force, only an economic one.

    Bookmark   February 27, 2005 at 1:10AM
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First time to this forum...I am very interested in all your comments. It sounds like very few are interested in these personal accounts. Correct me if I'm wrong the start- up costs for this program were in the TRILLIONS over 20 years? Wouldn't it be better to take those same funds and give the current system a shot in the arm to keep it solvent ? Not to mention we only pay the tax up to $90,000 of earning? I'm thinking a guy making a couple of million a year is probably laughing about us worrying about SS, and he has paid a pawltry amount of tax and doesn't give a carp!Finally, IF this system goes into effect weren't they going to more less FORCE us into it? I don't think we have the option to say " Heck no...leave me in the old system I feel safer taking my chances there".Thanks for listening ....46 down 19 to go ...or is that 20,21,25 ? :>)

    Bookmark   February 28, 2005 at 5:14PM
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Since my mid-30's, I've accepted that SS may not be around when I finally retire. So I've saved in other ways to prepare for retirement, and have kept SS in the background something not really there for me to count on.

So if it's there, that's a plus. But if not, I wont be surprised ...but will still be financially prepared.

And to the original question, no, I don't think privatization will work for the majority (but I would welcome it). Most people just don't have the knowledge, experience, and responsibility to make the right decisions for long-term investments. And the majority don't care to learn.

    Bookmark   February 28, 2005 at 8:14PM
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There is no trust fund. There are a lot of IOUs sitting around that will be very difficult to redeem without new taxes. Not making the last round of tax cuts permanent would go a long way toward solving the problem. It is the same old "Let's look like the good guys and let the next guy take the fall" routine. As I understand the plan currently being considered, people would not have a choice about paying into a stock account and would only have the ability to choose among 3 - 4 different stock plans which they would NOT manage. They would be managed by firms appointed by the government. How much corruption do you think that plan is good for? Quite frankly what do you think the combined effect will be of lowering the capital gains tax, lowering the tax on dividends, and artifically inflating the stock market because everyone is forced into it. Call me a pessimist, but I think this will be the biggest money grab by the rich that this country has ever seen, which is saying something. With the stock market artificially inflated, rich stockholders can get out and leve the rest of us holding the bag when reality sets in. One political pundit asked a very interesting question: If investing social security money in the stock market is such a good idea, why doesn't the government do it? The obvious reason is that they don't want to give us a defined benefit. We are to shoulder all of the risk even though we will have minimal control. I really hate that the package is being sold to younger workers as a way to get out from under supporting their elders. It sounds great! Why should they have to spend their income supporting fogies? Maybe because we supported our grandparents and then our parents. Maybe that's why. Setting up generational conflict is a nasty campaign trick. That sort of thing is done all the time. We are made to argue amongst ourselves who is worthy of welfare, forgetting that what we should be doing is figuring why in this wealthy nation of ours there isn't enough money to go around.

    Bookmark   March 14, 2005 at 12:01PM
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what we should be doing is figuring why in this wealthy nation of ours there isn't enough money to go around.

Oh, there's plenty of money. It's just not distributed evenly. We have NBA players complain that they can't feed their family on $14 million a year (!). We pay CEOs of public corporations -- even failing public corporations -- millions of dollars at the same time that we outsource the skilled labor that created the middle class in this country. We flock to big-box stores which let us buy lots of stuff (much of which is not made all that well) without thinking about the workers that are unemployed by our overriding interest in "buying it cheap" and without considering the effect on the mom-and-pop shops that spent their money locally.

I realize we don't live in a vacuum. But we (collectively) have done a great job of widening the gap between "haves" and "have nots" and are making it harder for "have nots" to ever think they can work hard enough to "have."

    Bookmark   March 14, 2005 at 12:16PM
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It was meant to be a rhetorical statement though not quite phrased that way. The under classes take some share of the blame of course for the reasons that you mention, but I am still of the opinion that it is by finding fault with each other that we ignoe the fact that the wealthiest people in America are now much wealthier relative to the average citizen than they have been historically. The social security boondoggle isn't going to help.

    Bookmark   March 14, 2005 at 7:48PM
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I agree. We've been talking "at" the problem for a couple of decades now and I don't think the tone of the conversation has improved at all. :-(

    Bookmark   March 15, 2005 at 8:56AM
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Oh my, a whole bunch of folks who think the same way I do! Can we start a movement and DO something?

    Bookmark   March 17, 2005 at 6:47AM
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Can we start a movement and DO something?

I'd love to ... but what I do in the meantime is be very careful where my money goes. It isn't more convenient and it sometimes costs more money. But you certainly can cast your vote with your money -- and you should.

    Bookmark   March 17, 2005 at 9:10AM
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