Social Security Accounts

[Skylark]

Bush is planning on creating individual social security accounts which can be invested, apparently in bonds and equities.

If this goes through there will be a flood of new money and new investors into the markets.

So will the markets respond in anticipation?

If this goes through, it could cause another bubble like the dot com bubble, which was partly caused by 401k money and the average person getting into equities.

Perhaps the days of reasonably priced equities are over?

 

[brewer12345]

It remains to be seen what any proposal will look like. Personally, I think it is a huge mistake because the millions who invest foolishly or unluckily will end up looking to the gummint for support in retirement anyway.

If this does end up happening, I will probably end up investing my account as conservatively as possible simply to preserve the safety net aspect of SS. TIPS would probably be about right.

 

[Telly]

When I was working, I would have liked to have been able to divert some of the SS money to investments of my own choosing.

It remains to be seen what any proposal will look like.  Personally, I think it is a huge mistake because the millions who invest foolishly or unluckily will end up looking to the gummint for support in retirement anyway.

I agree with the problem part. There probably would be a whole new program created, with all its overhead, just to handle those who blew it. Would anyone really come out ahead after that is factored in?

Also, a partial diversion of younger people's wages into investments of their own choosing means less tax $ going into the non-existant "Trust Fund" (I can't say "Trust Fund" with a straight face!), so less $ to pay out for existing and future benefits. So that would have to be made up $omehow. New taxe$?

 

[brewer12345]

Also, a partial diversion of younger people's wages into investments of their own choosing means less tax $ going into the non-existant "Trust Fund" (I can't say "Trust Fund" with a straight face!), so less $ to pay out for existing and future benefits.  So that would have to be made up $omehow.  New taxe$?

Dunno. The scary thing is that it might not immediately result in new taxes, but instead add a new long term liability to the gummint's balance sheet.

I can think of one way to do it. Suppose you let me put a chunk of my SS taxes into an investment account with the trade off of knowing that I would not be entitled to any future SS benefits besides disability. I would take the trade any day of the week, and I bet a lot of other sub-40 folks would do so as well. This would greatly reduce the pressure on the system in future years.

 

[BigMoneyJim]

I heard once that if SS started investing in the U.S. stock market that it would quickly end up owning the whole market. I have no idea if that's true.

I've paid 15 years in SS taxes and have probably 15-25 years until retirement. As I understand it my SS taxes have gone towards paying current retirees benefits, yet there is a concept that I have "bought in" with 40 quarters of work IIRC. If they switch strategies I wonder if I'll get any credit for the past 15 years of SS taxes. I don't see how because that money is arlready spent. Where does my credit/equity/buy-in go?

 

[Skylark]

Social security is about 6% of wages up to a cap. So if you figure 6% of the wages up to $80K of all working Americans (or whatever the cap is), thats going to add up quickly.

I think the markets are going to go crazy about this.

 

[Hyperborea]

Bush is planning on creating individual social security accounts which can be invested, apparently in bonds and equities.

If this goes through there will be a flood of new money and new investors into the markets.

It might make sense to invest with those who are going to make a killing off of this piece of corporate welfare - the investment industry itself. You could use your individual account to buy something like the XLF ETF that tracks the financial industry.
http://finance.yahoo.com/q?s=XLF&d=t

 

[windedhare]

The perpetual worry-wart in me is wondering how not to get left holding the bag for bailing out all those souls who will have made poor investment decisions and lost what menial SS they were counting on.

If enough folks squander their SS, they will be able to organize enough voting power to enact new laws for a government bail out.

This ultimately means more taxes for the working, which hopefully we are not -- and more taxes for those who "have", which was the original goal.

It's a perilous world out there.

 

[Cut-Throat]

The perpetual worry-wart in me is wondering how not to get left holding the bag for bailing out all those souls who will have made poor investment decisions and lost what menial SS they were counting on.  

If enough folks squander their SS, they will be able to organize enough voting power to enact new laws for a government bail out.  

This ultimately means more taxes for the working, which hopefully we are not  --  and more taxes for those who "have", which was the original goal.  

It's a perilous world out there.  

Yup, whether we like or not we live in a society that is responsible for everyone. Even if we lock them up in prison, we have to pay for the prisons.

 

[cc]

When this came up under Clinton he favored an aggregate account administered by the govt. - it would work like a giant mutual fund, no "winners" or "losers". That seems OK to me as long as the holdings are all index vehicles and maybe treasuries and TIPS - I don't want them picking individual stocks.

The other question is how the withdrawals would work. The money is supposed to be "yours" even if you die. But maybe that is just until you start collecting, at which point it would be annuitized?

 

[Michael]

If this goes through, it could cause another bubble like the dot com bubble, which was partly caused by 401k money and the average person getting into equities.

I don't think it will be big enough to do this. The President is not talking about putting the entire payroll tax into private accounts, just 2% or so.

 

[retire@40]

It's difficult to speculate on something that doesn't exist yet, but I would generally be in favor of people contributing to their own accounts instead of giving it to the government so they can give it to someone else.

We are all forced to pay 12.4% in social security taxes, inclusive of employer matching, on every dollar earned. I have no problem allowing people to decide for themselves to allocate part of that forced tax into a total market index fund.

The biggest problem that remains unresolved is where are those diverted dollars going to come from to pay for the current benefits being paid out? Maybe more deficit spending is in order?

 

[Helios]

Telly had it right...if funds arent taken from working stiffs, then there would be a shortfall. CNN announced that figure would be around 2 Trillion dollars at the planned 2% level. Said the prez had to find that first.

Also, I read a story somewhere, that spoke of how the future might look...spoke in terms of dorm living...100's of seniors living in what sounded like a shelter..cot and footlocker. Said that staff would be checking to see if your visiting relative slipped you a twenty $ bill.
quite a bit of imagination, however there are lots of people that I know seem to think $ grows on trees for retirement.

 

[johnblake]

The biggest problem that remains unresolved is where are those diverted dollars going to come from to pay for the current benefits being paid out? Maybe more deficit spending is in order?

Thats what I thought when these changes were first proposed. After all it's a 'pay as you go' system.

However, the system runs at a surplus and is projected to continue running at a surplus until around 2025.

http://www.ssa.gov/pubs/10055.html

So there sould be enough time to account for market fluctuations.

My guess is that there will be an effort to overhaul social security so that it's more like private tax deferred savings accounts. Is there a difference between people directing their SS to private investment accounts and shrinking SS and expanding tax deferred accounts? If the money is directed towards private accounts there is no longer a need for the government bureaucracy.

 

[Bob_Smith]

It appears that the system can go on just like it is for 35-40 more years, and then continue indefinitely with payments reduced to ~73%. They've been saying that for years. And these figures probably presume that people WON'T necessarily work until they're dead (when we all know that many will have no choice but to die at their desks). So why do so many here believe there will be nothing when they get there? We see those types of comments here all the time. If these folks really think there will be nothing, it must be based on a belief that the politicians' meddling will make it even worse than doing nothing. Yet if nothing is done, SS should provide a significant source of income, even for those who are in their 20s now, right? So my question is this: 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?

 

[Cut-Throat]

Bob is right as usual!

Social Security, if it is changed at all, will be changed for the young or the unborn. For those over 50 or even over 45 it is very unlikey that we will see any changes at all. It would be political Suicide.

If you are over 45, SS will be there and is probably more secure than EMT and FireCalc! With that said expect some major tweaking on Medicare. This can be done politcally, because it is the other guy that gets sick

 

[haha]

So my question is this: 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?

Hmm... since I'm 63, I think I'll go with option #1

Mikey

 

[retire@40]

The changes that have been made and will probably be made again are increases in the retirement age for full benefits. It's age 67 for me now, but most likely it will be at least 70 for me by the time I get there.

 

[Skylark]

Since I am one tankard over the line, here's my pipe dream:

The federal government works on a strategic plan with public input, and develops goals and objectives (measurable results) and ties the objectives to the budget. After public comment, the budget is reviewed and amended to provide the most benefit to the citizens as can be optimized using the strategic plan.

Then the tax structure is changed to a relatively simple tax system, and what before were tax write offs are now identified as subsidies and public discussion is considered when deciding which subsidies to fund.

Oh my god, the room is spinning around me now...

 

[Tadpole]

Bob_Smith said:
It appears that the system can go on just like it is for 35-40 more years, and then continue indefinitely with payments reduced to ~73%.


While true, look at this re-computation assuming the diversion of 2% away from the fund. Also, remember that the surplus is not money but IOUs. Repayment of the IOUs is problematic because it is either new tax money or debt shifted from SS to the general budget.

 

[John Galt]

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.

 

[John Galt]

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.

 

[John Galt]

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 (1998) 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