Social Security Accounts

If I may.....all of this speculating, charting, graphing and
"what-iffing" may be fun for some, and that's fine.
However, it obviously means diddly squat in terms of what may actually happen to SS. FIRECALC uises
history to give us possible results in the future.
Just look at the history of your government's handling of problems. Any kind, you pick it. Logic and reality will
play little part in the end. Votes and expediency will
rule the day, just like always. That's the way it works.

John Galt

[Tadpole]

John Galt says:
Votes and expediency will
rule the day, just like always. That's the way it works.

The vote the other day is why everyone is having this discussion. The voters have decided and the government is mandated to create this ownership society.

Hi Tadpole. I wasn't talking about those votes.
How old are you anyway? I was probably pretty
idealistic when I was a tadpole. I am just an old
bullfrog now, sitting on my lilypad and croaking
out my frustrations

John Galt

[Tadpole]

I am 55. Actually, I should stay out of these discussions. I have been following the SS stuff because I am a boomer who might get affected by all those things that are happening right now including pension conversion, SS reduction, new EEOC regs on pension health benefits and the like. My neighbor led me to all this research. He is better off than me and he kept saying crazy things that seemed to be becoming true. Not a true ER attitude here. My husband and my savings amount to almost $500,000 but we potentially face excessive medical bills in the future so I have been trying to put things in perspective. The turmoil everywhere about boomer retirement is making that very difficult. Both my husband and myself are on 3-leg stool retirement systems which translates to very poor defined benefits.

The "Tadpole" name refers to my tricycle design (see www.wizwheelz.com).

Sorry I misunderstood your post. Still do.

Don't worry. I am used to being misunderstood

This morning I will give hope to all of those late starters,
worriers, poor budgeters, people with family issues,
health issues, etc etc.

The only time my net worth was over 500K (that's total)
was at the end of my first marriage. The divorce (199 took a big chunk. Prior to that, no serious budgeting and no serious savings plans. My youngest daughter goes to a very expensive private school (much to my chagrin). I have multiple chronic health problems which render me uninsurable by many companies. My lifestyle
is nothing like what it was 10 years ago. We live on about 25% of the income I generated alone back then.
I never gave ER a thought until around 1992 and then
I still continued my big spender ways. In spite of all that, I completely retired in 1998 (same year as divorce - no coincidence) and have been happily
loafing and having a good time ever since. What, me
worry? My point is, with all I had working against me,
anyone with the good sense to start early and LBYM
should stack the odds heavily in their favor. When you
consider my path to ER, it must appear a bit improbable to some. I had some luck, but I believe we mostly make our own.

John Galt

I used to be in favor of privatizing SS and allowing individuals more control over their investments, but I agree that privatization means LESS control for all of us in the end, because we will ultimately be paying for those whose investments don't do well and don't have enough for retirement.

The simplest and IMHO the fairest solution is to simply raise the age for full retirement benefits. I'm sure there are graphs that depict the solvency of the system under various scenarios- raising the age by 1 year increments, and so on.

This preserves the intent of the system (provide a minimum retirement stipend to all, regardless of luck in life; who knows when one of us may become disabled, lose a spouse or otherwise become destitute).

It also is realistic because it accounts for increasing life spans.

[Bob_Smith]

Also, remember that the surplus is not money but IOUs.

You can say that about ANY bond - that's what they all are - IOUs. The SS trust fund holds Treasuries.

The argument goes like this: Just as an individual or a business cannot write an IOU to itself and count it as an asset (because the IOU is simultaneously a liability), neither can the government.

Nevertheless, the treasuries in the trust fund are just as good as the treasuries I hold as an individual. This isn't just a Social Security problem. The real problem is that our national debt, and our ongoing annual deficits are out of control. Reneging on a promise to a generation of retirees is not the solution. And I'm 95% sure it won't happen.

The SS trust fund holds Treasuries.

Hi Bob,
Are you sure about this? My understanding is that the surplus is theoretical, and that the government spends it on other things. This is what the 'locked box' was all about. --JB

[charlie]

Well, at age 70 I have the luxury of not worring
about my personal SS income. I am concerned
about my children and grandkids, however.

If we elect to allow partial privatization in the 2%
range as is being discussed, I think only very
conservative investments should be allowed.
Perhaps something along the line of a balanced
mutual fund that invests in something like
Vanguard's Target Retirement series with age
restrictions on how agressive you can be.

The trick is how to pay for the transition cost, of
course. My guess is that it might not be as bad
as some of the doom and goom folks predict.
Just the other day I read that 1/3 of the boomers
will die working due to lack of retirement preparation,
1/3 might get lucky and be ready and 1/3 will actually
be able to retire if they wish. If a total of 1/2 of the
boomers continue working after drawing SS won't
that go a long way to solving the transition period?

Come on folks, we have to do something to solve the
long range problem and I don't think raising the
retirement age and reducing benefits is fair to our
kids.

Cheers,

Charlie

[Tadpole]

Charlie
What are the ages of your kids and grandkids?

[charlie]

Hi Tadpole,

My girl is 38 and my son is 35. I have 2 grandkids
ages 5 and 3.

Cheers,

Charlie

[Bob_Smith]

Hi Bob, *
Are you sure about this? *My understanding is that the surplus is theoretical, and that the government spends it on other things. *This is what the 'locked box' was all about. --JB

JohnBlake, it is my understanding that they are government bonds. There are two types of treasury securities in the trust fund - special issues available only to trusts, and marketable treasury bonds available to the public. They are all government issued bonds with specific interest rates and maturities. It is an IOU, but so is any bond. But this is different because it is one party (the govt.) writing an IOU to itself. So the govt. could decide not to pay it, but I don't believe they will renege on the bonds in the trust fund. They'll try to wriggle out of it in other ways.

It's my understanding that the lock-box was a way to force a more transparent accounting of the deficit. It would stop the practice of using trust fund surpluses to hide the size of annual budget deficits.

[Nords]

...I don't think raising the retirement age and reducing benefits is fair to our
kids.

Why not? They're gonna live a lot longer lifespan than you and probably even longer than me.

I think both the retirement age and the benefits should be indexed to some sort of life expectancy. As life expectancies rise, SS in 1938 was nowhere near the expense of SS in 2004.

Well, I think they (congress) should just go home and leave SS alone. If it does run out of money, just
borrow/print more. They have no aversion to deficit
spending for everything else. IMHO they spend most of their time on "non-problems", and even if something needs fixing, chances are they'll get it wrong anyway.
That is my cynic's rant for this a.m. I will try to be supportive
of our leaders, upbeat and sensitive for the remainder of the day. I must say though that I am continuously
amazed at how people (not just on this forum)
actually believe the government will solve their problems. I believe the government IS the problem

John Galt

Makes sense. Borrow money from the surplus and issue bonds. This means the trust fund should have performed fairly well over the last 10 years as we've had a bull treasury market. Perhaps they should start by investing the trust like an ultra-conservative insurance company.

[nfs]

Makes sense. Borrow money from the surplus and issue bonds. This means the trust fund should have performed fairly well over the last 10 years as we've had a bull treasury market.

Unless you're pulling legs ...

Yeah right!

You should read the Trustee's Report sometime, just for laughs. If you can't stand it, there's always the SSA FAQ. Some tasty tidbits:

I'm 35 years old. If nothing is done to improve Social Security, what can I expect to receive in retirement benefits from the program?

Unless changes are made, at age 73 your scheduled benefits could be reduced by 27 percent and could continue to be reduced every year thereafter from presently scheduled levels.

I'm 25 years old. If nothing is done to change Social Security, what can I expect to receive in retirement benefits from the program?

Unless changes are made, when you reach age 63 in 2042, benefits for all retirees could be cut by 27 percent and could continue to be reduced every year thereafter. If you lived to be 100 years old in 2079 (which will be more common by then), your scheduled benefits could be reduced by 33 percent from today's scheduled levels.

Does Social Security have dedicated assets invested for my retirement?

Social Security is largely a "pay-as-you-go" system with today's taxpayers paying for the benefits of today's retirees. Money not needed to pay today's benefits is invested in special-issue Treasury bonds.

Is there really a Social Security trust fund?

Yes. Presently, Social Security collects more in taxes than it pays in benefits. The excess is borrowed by the U.S. Treasury, which in turn issues special-issue Treasury bonds to Social Security. These bonds totaled $1.5 trillion at the beginning of 2004, and Social Security receives more than $80 billion annually in interest from them. However, Social Security is still basically a "pay-as-you-go" system as the $1.5 trillion is a small percent of benefit obligations.

[charlie]

Nords and others have suggested that raising the
retirement age for full benefits, perhaps indexed to
average life expectancy, may be a fair way to
help solve the SS problem.

I guess I don't have a strong argument against that
approach. It is true that average life expectancy
continues to increase steadily.

Perhaps a compromise would be to continue to offer
retirement at 62 but calculate the benefit as if the
retiree were buying an inflation indexed "immediate annuity" with a fixed lump sum of money. The longer one waits to retire, the higher the monthly income.

IMHO, this might help keep people working longer.

The amount of the "lump sum" and the internal rate
of return of the annuity would be the subject of much
debate but the object would be to restore SS to
solvency over some period of time.

Continuing this goofy idea to an absurd conclusion,
perhaps the Gov could just issue a "voucher" to the
retiree which could then be used to buy an annuity
from an authorized list of insurance companies.

This would help cut the size of the SS Administration
and introduce some competition into the process.

Eh?

Charlie

Gosh nfs, I couldn't even stand to read your post, so I
guess I have no chance wading through the Trustee's Report

John Galt

[Michael]

What would you rather have - a full benefit available for the next 35-40 years, and then a 27% cut, or would you prefer to have the politicians meddle and risk a worse scenario?

We no longer have much choice. The elected politicians will decide, and they want change. President Bush has made changing SS a top priority, and he is the leader of the political party that controls both the House and Senate.

[Michael]

Continuing this goofy idea to an absurd conclusion,
perhaps the Gov could just issue a "voucher" to the
retiree which could then be used to buy an annuity
from an authorized list of insurance companies.

There was actually a bill introduced to do just that, but it never went anywhere at the time. They called them recognition bonds, and you had to keep them in low interest rate special treasury bills until you retired. Several other countries adopted similar systems.