The Problem With Privatizing Social Security...

[JoeTheEconomist]

Joe, this is all philosophy here. What you believe and what I believe are pretty much irrelevant. Even more, what either of us believes the government purports to believe is equally questionable.

SS is what it is. It has plenty of money and the entity that owes it to them is the same entity that can create trillions when a banker needs a raise and thus, presumably, can create money to pay their debts or better.

I'm really puzzled about your position here. Are you fer it or agin it? What's your solution (since you didn't like mine very much despite my quantum analytics program).

Or are you just here to bitch about it?

Clearly I like the concept of insurance as a component of retirement. That is written in the original piece. I am not confident that the government can run it.

Why do you ask for a solution when you don't believe that there is a problem.

I do not believe being informed is irrelevant. It is only irrelevant if you don't vote. If you do vote, and you don't bother to find out what the government purports. That is very relevant.

My goal here is to make sure that people understand what privatizing Social Security means. Few people understand that it changes the system, and actually increases its size.

I didn't say that I liked or don't like your idea. I have said that it will cost taxpayers roughly 25-30% of wages, and I don't think that the price is reasonable. I don't think that investing in govt securities is a sound retirement plan particularly for younger workers.

 

[YoungConserv]

Clearly I like the concept of insurance as a component of retirement. That is written in the original piece. I am not confident that the government can run it.

Why do you ask for a solution when you don't believe that there is a problem.

I do not believe being informed is irrelevant. It is only irrelevant if you don't vote. If you do vote, and you don't bother to find out what the government purports. That is very relevant.

My goal here is to make sure that people understand what privatizing Social Security means. Few people understand that it changes the system, and actually increases its size.

I didn't say that I liked or don't like your idea. I have said that it will cost taxpayers roughly 25-30% of wages, and I don't think that the price is reasonable. I don't think that investing in govt securities is a sound retirement plan particularly for younger workers.

Then let us opt out I'm 23 and I'm begging for all of the young folks sake break the cycle and set us free!

 

[ttwtt78640]

But that's YOUR fault. You don't have to provide someone with benefits if they cant afford them. You CHOOSE to. Im arguing AGAINST bailouts because they encourage people to be lazy.

I don't choose to but there are 18 federal programs to do so currently in existance. Before you decide to eliminate social security try to get rid of the entitelments, based on economic failure, that are not supported by taxation of ones wages for life.

 

[JoeTheEconomist]

Then let us opt out I'm 23 and I'm begging for all of the young folks sake break the cycle and set us free!

Through-out this thread you have said that you want out. I don't blame you. The system is terrible for people in your age group, and that is if you convince your kids to get a worse deal. Otherwise, you will get zero.

If we let you out, everyone will leave. The basic difference is that you think someone will stay for some reason. You can't tell me why though. You think that we can protect those who are near retirement even though the Trustees say that we can't. You can't tell me how though. Just my opinion, I think you underestimate the size of the problem.

The only way we can let you or anyone else out is by cutting of half of the people in this thread.

 

[jonny5]

I am not arguing for or against it. I am explaining what it is. And I am explaining replacing insurance with savings will be very expensive. Here is why we disagree.

(1) You think that the government will do a better job of running a privatized Social Security than it did with Social Security old-age insurance. I think that the govt is a vector to dumb decisions.

(2) You think that the government will have less involvement, where as I have read the plans which would 'privatize' the system. They increase the government footprint in the markets with as Paul Ryan says "to insure the safety and soundness of the system".

In my mind, this approach will produce more poor people rather than less. As bad as Social Security is on its own, the government will make it bigger and worse with a privatized solution.

No, that's not what I think. I think the govt should stay out of it all together. That's what total privatization is.

 

[YoungConserv]

Through-out this thread you have said that you want out. I don't blame you. The system is terrible for people in your age group, and that is if you convince your kids to get a worse deal. Otherwise, you will get zero.

If we let you out, everyone will leave. The basic difference is that you think someone will stay for some reason. You can't tell me why though. You think that we can protect those who are near retirement even though the Trustees say that we can't. You can't tell me how though. Just my opinion, I think you underestimate the size of the problem.

The only way we can let you or anyone else out is by cutting of half of the people in this thread.

They people on it or about to be will stay because they already have invested in it and is to late to make other plans l. As your they money we run debt for all sorts of stupid reasons can we not run it one of the times it might actually solve a problem?

 

[YoungConserv]

No, that's not what I think. I think the govt should stay out of it all together. That's what total privatization is.

No under privatization Ss stil exists that's not private.

 

[jaeger19]

Please see my response to Joe to answer the first question. It won't affect your account if congress wastes money.

What I meant was indeed financial vehicles that are to some degree managed by Wall Street. By well rounded I mean global funds with a stock, bond, PM percentage. What else is there? Nobody loves WS but you can only live with so much paranoia.

Thanks everyone for this entertaining and intellectual conversation.

\

Again to point out... if Congress wastes money and therefore the US defaults on its debt. The T bills you have in your account are worthless.

Second if people are restricted to certain financial vehicles.. then Congress is the one that does the restricting... and that has potentially very bad consequences. What else is there? Lets see... how about real estate? Paying down your home mortgage at 6% and having a home to retire in... is much better than putting money into a bond at 2% interest.
Or putting it into education so that you can get a job that makes more money or one with a pension
Or using the money to start rental business etc etc.

The point being is that the value of social security is not in being a retirement account... its value is in a safety net if all the above things go belly up or if you become disabled etc, or the economy tanks or goes into hyper inflation. or a myriad of other things that can waylay the best laid plans

Social security works as an insurance program, not an investment vehicle. Substituting social security insurance for an investment vehicle would have dire consequences for the economy. History already has shown what happens without a safety net and over reliance on wall street id est.. the Great Depression.

 

[jaeger19]

Then let us opt out I'm 23 and I'm begging for all of the young folks sake break the cycle and set us free!

I remember 23 well. Boundless enthusiasm and energy and the thought that I had the world by the tail (well almost)...

What comes years after that (if you are paying attention) is wisdom. The wisdom to know that we have tried your way before. And we saw what happened to the economy and to society when suddenly, everyone that had "invested well"... suddenly fell victim to a depression.

A few tidbits you might want to think about.

1. Everyone thinks they are an expert in the market. but the fact is... for everyone selling a stock because they think its maxed out... there is another person at the other end BUYING that stock that thinks the stock is going to go UP.

For everyone buying a stock because they think its going to do great, there is another person on the other end SELLING that stock because they think its maxed out or going down.

2. Economists and advisors and trading abound in the investment business... but the fact is.. if they REALLY knew what they were doing... then they wouldn't need our money would they? they would get rich making the stock purchases themselves rather than convincing us to buy or sell..

3. Never ever think of social security as a retirement vehicle... its insurance... and it is excellent, top notch insurance. but its not an investment vehicle

 

[YoungConserv]

I remember 23 well. Boundless enthusiasm and energy and the thought that I had the world by the tail (well almost)...

What comes years after that (if you are paying attention) is wisdom. The wisdom to know that we have tried your way before. And we saw what happened to the economy and to society when suddenly, everyone that had "invested well"... suddenly fell victim to a depression.

A few tidbits you might want to think about.

1. Everyone thinks they are an expert in the market. but the fact is... for everyone selling a stock because they think its maxed out... there is another person at the other end BUYING that stock that thinks the stock is going to go UP.

For everyone buying a stock because they think its going to do great, there is another person on the other end SELLING that stock because they think its maxed out or going down.

2. Economists and advisors and trading abound in the investment business... but the fact is.. if they REALLY knew what they were doing... then they wouldn't need our money would they? they would get rich making the stock purchases themselves rather than convincing us to buy or sell..

3. Never ever think of social security as a retirement vehicle... its insurance... and it is excellent, top notch insurance. but its not an investment vehicle

1 sticking my money in a acount and getting less than 1% intrest would be a better ROI than SS. In fact you can suff your money in a shoe box in your closet and still get a better ROI than SS.

2 wasn't talking about brokers was talking about using the inernet and the tools it has spinner to make your own investment decisions that's what my fater stater doing 10 years ago and that's what I'm starting to do.

3 it wasn't sold to the American people as insurance so why should I think of it that way. Also since congress can change the terms of your pay out after you've joined it's really not insurance either.

 

[specklebang]

\

Again to point out... if Congress wastes money and therefore the US defaults on its debt. The T bills you have in your account are worthless.

Second if people are restricted to certain financial vehicles.. then Congress is the one that does the restricting... and that has potentially very bad consequences. What else is there? Lets see... how about real estate? Paying down your home mortgage at 6% and having a home to retire in... is much better than putting money into a bond at 2% interest.
Or putting it into education so that you can get a job that makes more money or one with a pension
Or using the money to start rental business etc etc.

The point being is that the value of social security is not in being a retirement account... its value is in a safety net if all the above things go belly up or if you become disabled etc, or the economy tanks or goes into hyper inflation. or a myriad of other things that can waylay the best laid plans

Social security works as an insurance program, not an investment vehicle. Substituting social security insurance for an investment vehicle would have dire consequences for the economy. History already has shown what happens without a safety net and over reliance on wall street id est.. the Great Depression.

Let me make sure we aren't caught up in semantics. Regardless of what you call the accounts under discussion, the reality is that these are retirement accounts, not "safety nets". After all, every one of us will get the exact same results depending on the amount paid in, regardless of our conomic status. So, surely you don't believe that Mitt Romney has a "safety net". In fact, his SS check and my SS check are probably identical. As for " its value is in a safety net if all the above things go belly up or if you become disabled etc, or the economy tanks or goes into hyper inflation. or a myriad of other things that can waylay the best laid plans? well, yes, then nothing will be alright and nothing will matter. You can't base every thought, every concept, every idea on the ending of the world.

Now, lets dispose of a few useless presumptions so we can discuss this in a meaningful way. "the US defaults on its debt. The T bills you have in your account are worthless" . Sur, and if we are destroyed by Aliens from Alpha Centauri all forms of currency will be worthless. If you actually believe the US will default on its debt - that being the US that owns the US dollar - then nothing really matters, does it? As for Congress limiting the financial vehicles, what is the concern? That they will create a fund that transfers your money to the Cayman Islands? Or, more likely, might the investing be limited to a few well rounded global stock/bond/money market funds? If we want to assume the Cayman Islands, yes, sure, that's just awful and why even go on living?

All I've tried to do was postulate an alternative to the current Ponzi-type structure of the current SS system. Something which provides that "safety net" yet allows people some element of control and assures them they can have funds to access when they reach a retirement age. As for me personally, the current system works just fine and I'll cheerfully spend my $2177 that arrives on the 2nd Wednesday of the month that probably you provided some of the funds for.

 

[JoeTheEconomist]

I remember 23 well. Boundless enthusiasm and energy and the thought that I had the world by the tail (well almost)...

What comes years after that (if you are paying attention) is wisdom. The wisdom to know that we have tried your way before. And we saw what happened to the economy and to society when suddenly, everyone that had "invested well"... suddenly fell victim to a depression.

A few tidbits you might want to think about.

1. Everyone thinks they are an expert in the market. but the fact is... for everyone selling a stock because they think its maxed out... there is another person at the other end BUYING that stock that thinks the stock is going to go UP.

For everyone buying a stock because they think its going to do great, there is another person on the other end SELLING that stock because they think its maxed out or going down.

2. Economists and advisors and trading abound in the investment business... but the fact is.. if they REALLY knew what they were doing... then they wouldn't need our money would they? they would get rich making the stock purchases themselves rather than convincing us to buy or sell..

3. Never ever think of social security as a retirement vehicle... its insurance... and it is excellent, top notch insurance. but its not an investment vehicle

This is the cliche thinking that I addressed in the article. The Trustees reports say that Social Security isn't excellent or top-notch. They say it is in need of immediate reform. Do you think that they are liars? Do you have any data to support your claim? If you are going to criticize privatizing Social Security you need to elevate your reasoning.

You are repeating the worst and most tired of the cliches. #1 suggests that there is market risk. Well with all of the downs in the stock market the market has outperformed the investment policy of Social Security 50 to 1. The idea of talking about market risk, when the system has a 100% asset concentration in a single security is laughable.

I give you a hard time because the subject deserves more thought than this.

 

[JoeTheEconomist]

No, that's not what I think. I think the govt should stay out of it all together. That's what total privatization is.

That is option #2. The problem is that the government proposals say Bush or the Ryan plan or Newt's plan or Cato, or you name it increase the government footprint. The only option where the govt stays out is ending it. That isn't privatization as defined in the public debate.

 

[JoeTheEconomist]

They people on it or about to be will stay because they already have invested in it and is to late to make other plans l. As your they money we run debt for all sorts of stupid reasons can we not run it one of the times it might actually solve a problem?

The problem is much larger than you realize.

Just to keep the people on it who are on it would require 12.4% of your wages for roughly 20 years. My question to you is after 20 years of paying 12.4% of your wages how is it that you aren't invested? This is the problem that by the time that you are 40, and have lost that much of your wages - you will need assistance in old age.

Just to keep the system solvent for 75 years, we would need $10 trillion of cash today. That is basely income taxes for 5 years. That doesn't fix Social Security or even postpone the problem for 75 years. $10 trillion is the cost to make the problem of the Boomers a problem for Millennials. In 35 years you will be 58, and the system will be back to where we are today.

 

[JoeTheEconomist]

1 sticking my money in a acount and getting less than 1% intrest would be a better ROI than SS. In fact you can suff your money in a shoe box in your closet and still get a better ROI than SS.

2 wasn't talking about brokers was talking about using the inernet and the tools it has spinner to make your own investment decisions that's what my fater stater doing 10 years ago and that's what I'm starting to do.

3 it wasn't sold to the American people as insurance so why should I think of it that way. Also since congress can change the terms of your pay out after you've joined it's really not insurance either.

1. You could put your money into an investment that loses 3% a year, and make money versus SS. I can tell you that things are worse than you realize, but it might be helpful for you to see it. Everything that I type comes from the Trustees what is it that you doubt?

3. It was sold to the American public as insurance. What Congress changed was the way that the system is paid for. FDR wanted a self-funded system, ie retirees put in sufficient funds to generate income that pays for the individuals benefits. Congress changed it to a self-financed system. That means that we paid the first sets of retirees with borrowed money - every dollar that was put into the system generated a promise of future benefits.

 

[jonny5]

No under privatization Ss stil exists that's not private.

Not in my idea of privatization.

 

[jonny5]

That is option #2. The problem is that the government proposals say Bush or the Ryan plan or Newt's plan or Cato, or you name it increase the government footprint. The only option where the govt stays out is ending it. That isn't privatization as defined in the public debate.

I agree. My point was youre arguing for or against some form of govt in your OP. Im arguing for NO govt. Pay back whoever has already paid taxes from general revenue as they retire and shut down the program. Freedom to keep what you earn is more important than which way is best to run SS>

 

[yobarnacle]

I agree. My point was youre arguing for or against some form of govt in your OP. Im arguing for NO govt. Pay back whoever has already paid taxes from general revenue as they retire and shut down the program. Freedom to keep what you earn is more important than which way is best to run SS>

So instead of paying SS taxes and "maybe " having SS when they retire, the young should pay higher INCOME taxes to fund SS for those retired, and not even have a broken promise to show for it?

 

[yobarnacle]

SS taxes should not have a cutoff point for the rich.
As of current regulations, prior to age 66, you lose $1 for every $3 earned above a certain level, depending on age.
This should be applicable to other retirement income as well.

If you get a 100 grand annual pension from former employer, that should diminish your SS benefit.
Military won't be greatly affected.
And people who claim FULL disability due to things like "high blood pressure" should get kicked out of SS along with whoever approved they should get it.
Penalty for fraud!

http://www.ssa.gov/pubs/EN-05-10003.pdf

 

[JoeTheEconomist]

SS taxes should not have a cutoff point for the rich.
As of current regulations, prior to age 66, you lose $1 for every $3 earned above a certain level, depending on age.
This should be applicable to other retirement income as well.

If you get a 100 grand annual pension from former employer, that should diminish your SS benefit.
Military won't be greatly affected.
And people who claim FULL disability due to things like "high blood pressure" should get kicked out of SS along with whoever approved they should get it.
Penalty for fraud!

http://www.ssa.gov/pubs/EN-05-10003.pdf

The concept of SS was supposed to be based on contributions, not taxes. You contributed based on getting something in the future. Your idea is to make it based on taxes on the rich where they get nothing in return. This is the structure that FDR did not want because it makes the system subject to political priorities. The principles of Social Security were that it not be means-tested. Given that you are going to change it to what it was never suppose to be, why would you keep the name?

 

[JoeTheEconomist]

I agree. My point was youre arguing for or against some form of govt in your OP. Im arguing for NO govt. Pay back whoever has already paid taxes from general revenue as they retire and shut down the program. Freedom to keep what you earn is more important than which way is best to run SS>

I am explaining what privatization is. It is a savings account, just like the ones we already have. I am saying that insurance manages risk. Old-age is a risk - a very expensive one. Insurance makes sense in that case.

There is no way to pay people back. If there were, we wouldn't be talking about SS. Even if there were, you would not change anything, other than the pocket which is picked. You would have a massive debt, and who is suppose to pay for it.

 

[yobarnacle]

The concept of SS was supposed to be based on contributions, not taxes. You contributed based on getting something in the future. Your idea is to make it based on taxes on the rich where they get nothing in return. This is the structure that FDR did not want because it makes the system subject to political priorities. The principles of Social Security were that it not be means-tested. Given that you are going to change it to what it was never suppose to be, why would you keep the name?

It IS means tested.
Now.
If you take SS at 62, you can't make more than a little under 14,000 before you start losing benefits. At 66, you don't lose any.

I have to pay FICA on ALL my salary.

The rich only on the first 140,000 or about. After that, no more FICA for them.

But the rich are exempt from means testing, only the middle class gets cut. The poor don't make enough to get hit.

 

[jonny5]

So instead of paying SS taxes and "maybe " having SS when they retire, the young should pay higher INCOME taxes to fund SS for those retired, and not even have a broken promise to show for it?

Until everyone is paid back and SS is shutdown, yes. Then you keep your income and do whatever you want with it. That's the price we have to pay for this mistake.

 

[jonny5]

I am explaining what privatization is. It is a savings account, just like the ones we already have. I am saying that insurance manages risk. Old-age is a risk - a very expensive one. Insurance makes sense in that case.

There is no way to pay people back. If there were, we wouldn't be talking about SS. Even if there were, you would not change anything, other than the pocket which is picked. You would have a massive debt, and who is suppose to pay for it.

We HAVE a massive debt, called social security. Im simply suggesting moving the funding source to general revenue, instead of SS trust fund, and phasing it out, until the debt is paid off. You eliminate the payroll tax, then take 15% of general revenue to pay to current retirees, which will go down as the amount per retiree drops.

 

[ttwtt78640]

We HAVE a massive debt, called social security. Im simply suggesting moving the funding source to general revenue, instead of SS trust fund, and phasing it out, until the debt is paid off. You eliminate the payroll tax, then take 15% of general revenue to pay to current retirees, which will go down as the amount per retiree drops.

Eliminating the SS payroll tax why? That is one of the few "fair" taxes, except for one thing - the income cap. Why not remove the SS "contribution" income cap and see how much that improves the SS financial situation. Why would the amount per retiree drop? How is not paying SS to those that were forced to contribute for more than 30 years but are now "only" 50 years old "fair"?