Social Security

[mystic]

Here is something that concerns me about the Bush plan for letting wage earners put some of their social security contribution into private accounts for investing in stocks and bonds. The additional money going into stock market from private accounts should push up stock prices in the short-run(prices will rise faster than would have been the case in the absence of such accounts). Years from now, however, when these people retire and sell their stock for living expenses, will this tend to slow further increases in stock prices, or worse, cause prices to decline?

I'm no expert on the stock market, and I don't what will happen. However, I guess if what I am concerned about happens, it would be best to get into stocks early and get out early. What do others think?

[Justlisten2]

.....for working folks. That's no surprise though, considering the source.

[JSE]

.....for working folks. That's no surprise though, considering the source.

Why is it not a good plan? Why is the ability to make a higher return on what your paying in a bad plan? Why is it just bad for working folks. Are these the same working folks that won't have social security when they retire because it's dried up under the current system? SS will be a thing of the past if we do not make changes soon.

Also, Mystic,

I don't think there would be much of an effect when people retire and cash in. I don't think most people all of a sudden "withdraw" all investments when they retire. Most move them around into other more sucure types of investments to earn a income off those investments. Plus, you will also have new workers putting their share of SS into the market. I doubt it would have much of an effect, if any to the market as a whole.

One possible pitfall is people not thinking long term with their SS investment. A lot of people today want instant success and wealth when they invest. 99.9% of the time, this will not happen.

JSE

[mystic]

Why is it not a good plan? Why is the ability to make a higher return on what your paying in a bad plan? Why is it just bad for working folks. Are these the same working folks that won't have social security when they retire because it's dried up under the current system? SS will be a thing of the past if we do not make changes soon.

Also, Mystic,

I don't think there would be much of an effect when people retire and cash in. I don't think most people all of a sudden "withdraw" all investments when they retire. Most move them around into other more sucure types of investments to earn a income off those investments. Plus, you will also have new workers putting their share of SS into the market. I doubt it would have much of an effect, if any to the market as a whole.

One possible pitfall is people not thinking long term with their SS investment. A lot of people today want instant success and wealth when they invest. 99.9% of the time, this will not happen.

JSE

I was looking at it just in terms of personal investment. A lot of money going into the stockmarket doesn't in itself make firms more profitable, and investment in stocks is for profit or anticipation of profit. The economy has to grow. Nevertheless, I think private social security accounts(if it happens) will tend to push stock prices up for many years, and I will increase my taxable investment in an index fund in hopes of benefitting.

I think Bush's plan for diverting SSI contributions into private accounts is unnecessary. If stocks are part of the answer to the demographic tidal wave, have the government start putting SSI money directly into the market in aggregate. Social Security is supposed to be a pooled insurance program, not a private investment program, so why not keep it that way? The working poor are better protected by that kind of system.

Regarless, it probably will be necessary to raise the retirement age and/or reduce benefits for Social Security. I doubt if investing SSI contributions in the stock market will keep this from happening. It seems clear that young workers would do well to save more for retirement. Should we switch from an income tax to a consumption tax to foster savings?

[JSE]

Social Security is supposed to be a pooled insurance program, not a private investment program, so why not keep it that way? The working poor are better protected by that kind of system.

It was supposed to be a "pooled" benefit program but why should we keep pouring water into a pool that has a huge hole in the bottom? The bottom line is that it does not work in it's current form. Changes need to be made if "you and I" are going to benefit from it.

Regarless, it probably will be necessary to raise the retirement age and/or reduce benefits for Social Security. I doubt if investing SSI contributions in the stock market will keep this from happening. It seems clear that young workers would do well to save more for retirement. Should we switch from an income tax to a consumption tax to foster savings?

How will cutting back on the benefits help the working poor you mentioned? SS benfits are not much now. Can a retired person really survive on less? At least Bush's proposed program will give them the opportunity to get a better return on their money and have more for retirement. What is the current rate of return now?

Like you mentioned, the best way to make sure you have money for retirement is to save money now. Compound interest is a beautiful thing. I am shocked how many of my friends invest zero money in a 401K or other type of retirement fund. They have big nice houses and nice cars but nothing in the bank in the form of savings. If one of them lost their job, they would be broke within a month. They always say they will save later. They have been saying that for 10 years now. My wife and I put away about 20% of our income each year. We drive decent cars and have a nice house but they are well below our means. When we are ready to retire, we will have more than enough money. It's about choices.

JSE

[piece-it pete]

JSE,

No kidding! ANYONE with a 401k knows it's better than SS. This whole argument should be "how much" and "how", not "do it at all". I think the Dems are going to look mighty bad over this.

(BTW 20%?! Holy cow man! (fran tarkington says) That's incredible!)

If I could I would dump that lie of SS withholding into my 401k RIGHT NOW.

Those saying there is no crisis are missing something - there is no crisis IF THE CURRENT WITHHOLDING WAS SPENT ON SS. Yeah, like that'll happen.

Mystic I think you've got a valid point. It is a large amount of funds. But I have a hard time believing the Republicans would tank the stock market.

I don't think having the Feds directly invest in the markets' a good idea - talk about letting the fox into the henhouse! And we'd be back in the same boat real quick, the Feds spending the money earned instead of saving it or (gasp) giving it back.

I had an interesting talk with my 401k guy a couple of month ago - he said that blue collar guys are overall TOO conservative with their investments, and are all too likely to end up breaking even. This is a shame IMO.

So you like the national sales tax idea? I must admit it perks my interest but I have no info.

Pete

[Justlisten2]

Why is it not a good plan? Why is the ability to make a higher return on what your paying in a bad plan? Why is it just bad for working folks. Are these the same working folks that won't have social security when they retire because it's dried up under the current system? SS will be a thing of the past if we do not make changes soon.
JSE

While I agree that changes have to be made soon to save the SS system, my fix would be much simplier. Just eliminate the cutoff (for the wealthy), and make all Americans (including government officials) pay SS on all income. Problem solved. We'd even have extra money and be able to cut the SS tax rate from around 7% to around 4%.

[karl k]

The biggest reason that youth today DON'T start an investment account is the initial funding. So many are just trying to make it in the world and don't have the resources to get investing off the ground. Putting part of your pay(the 4% of current SS money being tossed around would be fine) in an account up front would remove this problem and since the cash not available to them anyway, no harm short term to making it in the world. I believe that once the youth begin to see tangeble gains or losses, they will begin to get involved in their acct's and that will cause the market activity that Mystic speaks of. It won't happen because of those accounts directly, but indirectly through the activity that will occurr once the youth gain the understanding of how investments work and start their own accounts OUTSIDE the retirement accounts they will already have. Greed is a VERY predictible thing and once you have done all you can with the accts the government allows, you will begin to do something with your own money. That's where the market activity will really take off... check the activity in mutual funds and subsequent stocks in the 90's after the big boom in 401K accts. Hell, at the very least, it will begin to throw a wrench in the governments ability to "play" with SS funds and that can't be a bad thing! I do agree that you as an individual "could" mess things up so there should be some limits to where you can invest... mutual funds, bonds, T bills, MM should be "safe" enough and still trigger the learning and understanding to further your ability to invest elsewhere. Some of the questions I'm waiting to hear an answer... Who profits from the trading activity in ones acct? Will the handler of such accts be the government, or private investment firms? Will you be able to draw from your SS AND your investment or just SS if disabled? How many choices will be available within the acct? Will your money be the only additions to the acct or will your employer be matching?(4% of your money and 4% of what the employer kicks in) There are alot of details that need to be worked out before I'm 100% on board but I am intrigued by the idea. It's these details that we need before Bush ask's for action by Congress and US...IMO.

On the sales tax thing, I'm not sure I agree with the concept as much as a flat tax for the reason that most "rich" don't spend(or have to spend) the same precentage of their income as the poor. Sure they may buy more expensive houses and cars(big ticket items) but the poor spend more on necessities than luxuries compaired to the rich. I may be swayed to agree IF the necessities are not taxed. This list would include...

All Food(excluding restaurants, alchohol and cigarettes)
All medications
Services like electricity, nat.gas/propane, local phone, trash, water, healthcare, ect.
Purchase of your FIRST place of residence
Purchase of your FIRST car

I would also like to see some kind of basic deduction for children as we have now since kids are a big drain financially on those less off.(not necessarily the EIC but the CTC instead)

For the tax thing to be fair in the big picture, there are other things that need to be priced based on ability to pay for instance healthcare and legal services. If these things are not addressed, most changes to the current tax code would have little or no positive effect(and may be detrimental) on the poor... or the government to receive needed revenue to support current programs and therefore a waste of time and resources. Just my thoughts.

[mystic]

The biggest reason that youth today DON'T start an investment account is the initial funding. So many are just trying to make it in the world and don't have the resources to get investing off the ground. Putting part of your pay(the 4% of current SS money being tossed around would be fine) in an account up front would remove this problem and since the cash not available to them anyway, no harm short term to making it in the world. I believe that once the youth begin to see tangeble gains or losses, they will begin to get involved in their acct's and that will cause the market activity that Mystic speaks of. It won't happen because of those accounts directly, but indirectly through the activity that will occurr once the youth gain the understanding of how investments work and start their own accounts OUTSIDE the retirement accounts they will already have. Greed is a VERY predictible thing and once you have done all you can with the accts the government allows, you will begin to do something with your own money. That's where the market activity will really take off... check the activity in mutual funds and subsequent stocks in the 90's after the big boom in 401K accts. Hell, at the very least, it will begin to throw a wrench in the governments ability to "play" with SS funds and that can't be a bad thing! I do agree that you as an individual "could" mess things up so there should be some limits to where you can invest... mutual funds, bonds, T bills, MM should be "safe" enough and still trigger the learning and understanding to further your ability to invest elsewhere. Some of the questions I'm waiting to hear an answer... Who profits from the trading activity in ones acct? Will the handler of such accts be the government, or private investment firms? Will you be able to draw from your SS AND your investment or just SS if disabled? How many choices will be available within the acct? Will your money be the only additions to the acct or will your employer be matching?(4% of your money and 4% of what the employer kicks in) There are alot of details that need to be worked out before I'm 100% on board but I am intrigued by the idea. It's these details that we need before Bush ask's for action by Congress and US...IMO.

On the sales tax thing, I'm not sure I agree with the concept as much as a flat tax for the reason that most "rich" don't spend(or have to spend) the same precentage of their income as the poor. Sure they may buy more expensive houses and cars(big ticket items) but the poor spend more on necessities than luxuries compaired to the rich. I may be swayed to agree IF the necessities are not taxed. This list would include...

All Food(excluding restaurants, alchohol and cigarettes)
All medications
Services like electricity, nat.gas/propane, local phone, trash, water, healthcare, ect.
Purchase of your FIRST place of residence
Purchase of your FIRST car

I would also like to see some kind of basic deduction for children as we have now since kids are a big drain financially on those less off.(not necessarily the EIC but the CTC instead)

For the tax thing to be fair in the big picture, there are other things that need to be priced based on ability to pay for instance healthcare and legal services. If these things are not addressed, most changes to the current tax code would have little or no positive effect(and may be detrimental) on the poor... or the government to receive needed revenue to support current programs and therefore a waste of time and resources. Just my thoughts.

I agree that young workers need to save more for their retirement, and invest their savings wisely. I'm not so sure, however, having Social Security private accounts will make them save and invest even more. Saving requires finanacial disciplne -- something many young workers(and some older ones too) have not developed. The size of credit card debts carried by some young people I know and others I have heard about doesn't make me optimistic. I'm not saying I was any different. Early in my working life I wasn't good at postponing immediate gratification in favor of long-range goals.

How do you get people to save more? One sure way is to make them do it. How about rasing the worker's contribution to Social Security by a small amount(say 2% of wages), all of which would go into his/her private account? Aside from the funding, it would work the same as private accounts under the Bush plan. I can't immagine that a few pennies on the dollar is going to wreck a person's finances. And after all, this contribution and all it ever earns would be theirs.

I don't like Bush's proposal to carve private accounts out of what already is being contributed to Social Security. Why? Because this plan calls for the Government to borrow money to make up for the amount going into these accounts during a transition period. Otherwise, benefits to retired workers can not be sustained. I don't remember seeing estimates on the duration of this transition period and the cost to taxpayers. But for many years, this would amount to borrowing money to invest in the stock market, since in the absence of the proposed private accounts the money would not have to be borrowed. If history is a guide, stock market returns should be higher than interest paid on the borrowed funds, but this is not guaranteed. The borrowing could also cause interest rates to rise for a time, and result in a slowing of economic growth, thus hurting some of the very people who are supposed to be helped.

[karl k]

I agree that young workers need to save more for their retirement, and invest their savings wisely. I'm not so sure, however, having Social Security private accounts will make them save and invest even more. Saving requires finanacial disciplne -- something many young workers(and some older ones too) have not developed. The size of credit card debts carried by some young people I know and others I have heard about doesn't make me optimistic. I'm not saying I was any different. Early in my working life I wasn't good at postponing immediate gratification in favor of long-range goals.

How do you get people to save more? One sure way is to make them do it. How about rasing the worker's contribution to Social Security by a small amount(say 2% of wages), all of which would go into his/her private account? Aside from the funding, it would work the same as private accounts under the Bush plan. I can't immagine that a few pennies on the dollar is going to wreck a person's finances. And after all, this contribution and all it ever earns would be theirs.

I don't like Bush's proposal to carve private accounts out of what already is being contributed to Social Security. Why? Because this plan calls for the Government to borrow money to make up for the amount going into these accounts during a transition period. Otherwise, benefits to retired workers can not be sustained. I don't remember seeing estimates on the duration of this transition period and the cost to taxpayers. But for many years, this would amount to borrowing money to invest in the stock market, since in the absence of the proposed private accounts the money would not have to be borrowed. If history is a guide, stock market returns should be higher than interest paid on the borrowed funds, but this is not guaranteed. The borrowing could also cause interest rates to rise for a time, and result in a slowing of economic growth, thus hurting some of the very people who are supposed to be helped.

I would even be for an increase of 10-20% more than what you currently pay in SS(amounts to an extra $250-$500 a yr for $40K income) and having THAT go to your account. Once everyone has established a set amount and the "boomers" have retired, you can begin to re-adjust the numbers on the witholding to what it is currently with 4% in your account. You're still borrowing I suppose but atleast your way it would be payed for as we go(same as a tax increase) and with my numbers, you would have established a better suppliment for the reduced SS benefits that will inherently occurr 10-20yrs down the road. In either case, everyone will have to take more responsibility for their own retirement instead of relying on the government and big company pensions. I personally started a 401K when it was available and "played" with it to the greatest extent possible and now I'm about to dive in with the "big boys" and see what kind of damage I can do. It was because of this experience that I gained the knowledge and confidence to do what I'm about to do. My goal is to not need SS when I retire as the guarentee is questionable at best and even if it works out, the benefit isn't enough to survive on anyway.

[JSE]

Mystic and Karl K,

I am open to ideas as long as we do something. I like the idea of being in control or part or my SS and I am not opposed to giving a little more to SS from my check as long as I can control that amount. I am even open to limited sources to invest that money in. I just want them to do something that makes sense. Letting it sit there in it's current form will result is nothing for you and me. NO SOUP FOR YOU ! NO SS FOR YOU!

JSE

[piece-it pete]

Hello, Karl!

Great post.

I think I've figured it out!

If the big problem with SS is that the gov't can't save the funds (and it is), then what Bush is doing is taking it away from them (Dems AND Reps). He's trying to make it untouchable. THIS is what I like about our current leader.

Mystic, either way this is gonna cost a fortune. How do we want the money spent? The gov't has already spent billions upon billions (3 billion a week in 1996) of money that was SUPPOSED to be saved for the boomers. Give them more, they'll spend it.

Pete

[mystic]

Mystic and Karl K,

I am open to ideas as long as we do something. I like the idea of being in control or part or my SS and I am not opposed to giving a little more to SS from my check as long as I can control that amount. I am even open to limited sources to invest that money in. I just want them to do something that makes sense. Letting it sit there in it's current form will result is nothing for you and me. NO SOUP FOR YOU ! NO SS FOR YOU!

JSE

According to an article in today's New York Times (quoted from below), the Bush Administration is open to the idea of personnal accounts as a supplement to Social Security rather than carving the accounts out of the current contribution. It would mean a small increase in the SS contribution, but since all the increase would go into their personal accounts, workers might be willing. I like the idea.

"WASHINGTON, March 2 - Treasury Secretary John W. Snow said Wednesday that the Bush administration would not rule out consideration of a very different approach to private investment accounts for Social Security from the one advocated so far by the White House.

Mr. Snow said the administration wanted to encourage the development of as many ideas as possible and that it was open to looking at personal accounts that would supplement Social Security rather than, as in the plan President Bush has proposed, replace a portion of the traditional government-paid benefit."