Financial News

[StrangeSox]

You just answered your own question.

 

You and I wouldn't be the only two people taking our money out. MOST people would, especially when convinced they could be and should be making more money elsewhere. The con artists would come out of the woodwork with bad investment advice for the plethora of people who trust them, and most would wind up losing money, and a lot of it. They'd collectively collapse the entire system, and the last safety net they have to rely on for retirement would be gone. As bad as it is now because its underfunded, imagine if they wound up with nothing, which would happen to a lot more than you think...it'd create an entire era of welfare recipients that have no other choice since their SS is gone the way of the dodo.

 

first bold: it's not that underfunded. I think I've read that the cost of extending the tax cuts about $250k permanently would be roughly equal to the current systematic SS shortfall (and SS still has a 2.-something trillion dollar trust). Alternatively, you could raise the regressive cap.

 

second bold: a lot of the people who want to privatize SS would also like to do away with welfare.

[bmags]

I think you could privatize social security in ways that would benefit those who want to have a choice and reduce some risk.

[StrangeSox]

Well, there are idiots everywhere, in every facet of our society, but that doesn't mean we should preclude people from having the choice. By your logic the government should be in charge of EVERYTHING because there's ALWAYS the potential for risk and loss.

 

You keep assuming that everyone who doesn't have a bunch of money (or loses it) is stupid or dumb. That is simply untrue, especially when their are so many dishonest financial "investments" and advisors and garbage products out there.

 

SS isn't an investment, it's security. It's meant to provide some amount of fall back so that people aren't left destitute if their investments don't pan out or they have the bad luck of retiring during a prolonged economic downturn (like, uh, right now).

 

And my answer would be to put some requirements on this. You have to make X amount before being able to opt out.

 

Uh, yeah, there's a $106k limit on FICA. There's your automatic opt-out.

 

You have show proof that you're putting that money in long term instruments. If you take an X% hit in that investment, you have to opt back in, etc etc.

 

That still ruins the SS calculus and destroys the system. And it's still, ultimately, a giant windfall for the investment industry.

[Jenksismyhero]

I didn't assume a majority. I don't know where the tipping point it, but like any other insurance product, I'm sure it's much less than 50%+1.

 

This is an older article from 2005, when Republicans were pushing to privatize SS, but it lays out the basic problems with the Republican rhetoric and conceptions of Social Security.

 

There was absolutely zero analysis in that article, other than "don't trust what the evil Republicans tell you."

[StrangeSox]

I think you could privatize social security in ways that would benefit those who want to have a choice and reduce some risk.

 

Since it's more insurance than investment, you need everyone at the safe and secure level. Allowing opt-outs for risky investment throws off the balance.

[StrangeSox]

There was absolutely zero analysis in that article, other than "don't trust what the evil Republicans tell you."

 

It wasn't a financial analysis, it was a look at the concepts of what Social Security is and why comparing it to investments doesn't make sense, along with why the "8% annual returns!" and such are bad-faith rhetoric..

[Y2HH]

Keep this in mind, SS is the one of the last instruments the private sector can't get their hands on -- and it's the one they want most.

 

They'll fix SS just like they fixed the endless 401k's that have gone bankrupt due to bad investment advice/choices and the endless pensions that are massively underfunded or completely bankrupt. They got their hands on those, and did more harm than good.

 

And keep in mind I'm the LAST person to defend social instruments.

 

Oh, and to the idiots that want to do away with welfare and public SS, they need to grow themselves a brain. Now, I'm not saying welfare doesn't need serious reform, as it's a program meant to help get people back on their feet, not keep them down (which is what it's become in many ways), but that said -- doing away with the system would lead to million of starving, destitute people on the streets. If you think those people are going to just die off quietly...you'd better do more than lock your doors and buy some guns...because they'll come take what you have, without fear.

[Jenksismyhero]

You keep assuming that everyone who doesn't have a bunch of money (or loses it) is stupid or dumb. That is simply untrue, especially when their are so many dishonest financial "investments" and advisers and garbage products out there.

 

SS isn't an investment, it's security. It's meant to provide some amount of fall back so that people aren't left destitute if their investments don't pan out or they have the bad luck of retiring during a prolonged economic downturn (like, uh, right now).

 

I thought the assumption was that if you gave everyone a choice they'd (rightly) choose to save/invest on their own and then lose it all, costing society a great deal down the road? If that's not the assumption, and the assumption is that the majority of people would be fine and wouldn't lose it all, then that makes my argument stronger.

 

Uh, yeah, there's a $106k limit on FICA. There's your automatic opt-out.

 

What's the median salary in America? 25k? 30k? There's a lot of people that would benefit from a reduced limit.

[bmags]

Since it's more insurance than investment, you need everyone at the safe and secure level. Allowing opt-outs for risky investment throws off the balance.

 

See: Sweden

 

It's not free money to invest as much as choosing what bundle of stocks your money will be invested in to, add in a phase out into secure bonds gradually as you near retirement and it's not risk free but it's more choice and not terrible.

[StrangeSox]

I thought the assumption was that if you gave everyone a choice they'd (rightly) choose to save/invest on their own and then lose it all, costing society a great deal down the road? If that's not the assumption, and the assumption is that the majority of people would be fine and wouldn't lose it all, then that makes my argument stronger.

 

No. It's an insurance system. If too many people opt out, regardless of how well they do, the system will collapse for those left in it.

 

The assumption is that it would cause SS to collapse, that most people would do mediocre at best and it'd probably be a net loss to society, elderly poverty would increase, and a small handful in the investment industry would make billions.

 

What's the median salary in America? 25k? 30k? There's a lot of people that would benefit from a reduced limit.

 

More like in the 40's, I think. Anyway, how much do you think you really can invest and save at that level? You're living hand-to-mouth as it is. How are you going to fund investment for retirement? You mentioned an opt-out minimum, if it's set that low, why bother with a limit at all? What are the odds it's going to be better than what SS provides (which is far different from the "only 2% returns!", since it ignores many other factors)?

 

[bmags]

interesting enough we lived in a world w/o social security, and prior to it, the elderly were the most prone to living in poverty.

[StrangeSox]

See: Sweden

 

It's not free money to invest as much as choosing what bundle of stocks your money will be invested in to, add in a phase out into secure bonds gradually as you near retirement and it's not risk free but it's more choice and not terrible.

 

Well, not very familiar with it, so went looking for some reports. Most were Cato and Heritage exulting the change, but here's one from the Center for Strategic and International Studies. Page 39 starts Sweden. Here's their view of the partial IRA plan:

 

There has also been considerable debate about the performance of the Premium Pension

system. Sweden’s new personal accounts were introduced with an emphasis on unlimited choice

just as stock values reached a peak early in 2000. By the end of 2003, the average Swedish

worker had lost roughly 30 percent of the value of his or her Premium Pension investments.

After initial enthusiasm for active investment, newly enrolled Swedes have generally not selected

an investment fund, instead allowing their contributions to go into the government’s default

fund.

 

Since then, they've pared back the number of choices. Still, you're left with the inherent risk of investment, while social security is meant as insurance. We already have IRA and 401(k) and other tax-exempt retirement accounts people can use for investment in addition to SS.

[bmags]

Well, not very familiar with it, so went looking for some reports. Most were Cato and Heritage exulting the change, but here's one from the Center for Strategic and International Studies. Page 39 starts Sweden. Here's their view of the partial IRA plan:

 

 

 

Since then, they've pared back the number of choices. Still, you're left with the inherent risk of investment, while social security is meant as insurance. We already have IRA and 401(k) and other tax-exempt retirement accounts people can use for investment in addition to SS.

 

yeah they learned a lot from the pared back # of choices. The default plan has performed very well...and obviously a 3 year evaluation is pretty stupid.

[StrangeSox]

yeah they learned a lot from the pared back # of choices. The default plan has performed very well...and obviously a 3 year evaluation is pretty stupid.

 

Here's a 2009 paper looking at the impact of the financial crisis on the Swedish system.

 

[bmags]

i can't read that at work. I'll get to it later.

[StrangeSox]

It just talks about their auto-adjustment systems and how they had to modify it a bit. Payments were/are reduced right now, but they will go back up once things "recover."

[bmags]

Their struggles early on are our gain. It's still a system I think would be beneficial especially with late phase-out. It's not crazytalk to say that a well-diversified fund (like the default plan they offered) will have made considerable gains over a 30-year time.

[StrangeSox]

What happens if you're stupid enough to turn 65 (or w/ever payout age is) during a huge economic recession and don't have time to wait for it to average out?

 

I dunno, any talk of converting SS to an investment makes me really leery. That's not why it's there.

[bmags]

What happens if you're stupid enough to turn 65 (or w/ever payout age is) during a huge economic recession and don't have time to wait for it to average out?

 

I dunno, any talk of converting SS to an investment makes me really leery. That's not why it's there.

 

Hence the phasing out to secure bonds as you get nearer to retirement.

[Y2HH]

What happens if you're stupid enough to turn 65 (or w/ever payout age is) during a huge economic recession and don't have time to wait for it to average out?

 

I dunno, any talk of converting SS to an investment makes me really leery. That's not why it's there.

 

This very thing happened to a LOT of people's retirements (IRA/401k/Stocks) in 2008 when the market lost a ton of value due to a self-created financial house of cards built by the very same people who will undoubtedly be giving investment advice for people when Social Security is open. Those with the luxury of time could have and should have waited it out, however, those who had no choice but to start collecting or default on bills/loans or whatever other living expenses were out of luck.

 

I can't imagine people thinking this is still a good idea after what we just went through with the mortgage fiasco.

 

Most of us are intelligent people, and I'd say most of us didn't lose our homes -- but a LOT of people did...and look at what it did for the economy.

[Y2HH]

Hence the phasing out to secure bonds as you get nearer to retirement.

 

You again take into account the value of time. I call this the Dr. Evil concept of investing. Translation: A highly elaborate situation in which everything just goes according to plan.

 

Hypothetical: What if you die tomorrow and your daughter needs to start collecting this money for basic child support needs during this same recession? Ahhh...and therein lies the rub.

[StrangeSox]

Which leads to the other parts of SS like disability insurance and spouse and child benefits, which is one reason why comparing "only 2% returns in SS and 8% in equities (averaged over a century!)" is faulty.

[bmags]

because these things can't be accounted for? You are being stubborn.

[Y2HH]

because these things can't be accounted for? You are being stubborn.

 

They can be and should be accounted for, however, a lot of people do NOT account for them. Social Security does, in many ways, account for these types of unforeseen losses for people, but again, requires the involvement of all, not some. You would be surprised to find that most people don't have life insurance policies to protect their families...all they're children have is that Social Security safety net in case the unforeseen occurs.

[StrangeSox]

because these things can't be accounted for? You are being stubborn.

 

They're not accounted for in US anti-SS rhetoric that I'm referring to, where SS is treated as an investment vehicle comparable to IRA's instead of what it is.

 

I'm not opposed to re-examining or restructuring the system, I just don't want it changed into something it isn't.