This is dated, but here's a little of Mr. Bogle's musings:
If we finally muster the courage to work out the Social Security mathematics that will permit the Bush plan or the Gore plan, or some combination of the two, what role might the mutual fund industry play? My conclusion: None. The basic retirement savings of America's families are too important to be entrusted to the mutual fund industry.
Why? Because the costs of offering mutual funds to millions of small accounts making weekly or monthly contributions would be even larger than today's already excessive level of fund costs. Present all-in costs (sales commissions, management fees, operating expenses, portfolio transaction costs, and opportunity costs) total at least 2 ½% per year; extra fees for the new retirement accounts could easily add another 1%. We can reasonably assume that thousands of mutual funds, perhaps investing hundreds of billions of dollars, will earn the stock market's aggregate return before expenses. Thus, if the market generated a 9% return, the fund owners would earn, after the deduction of expenses, just 5 1/2% .. only 60% of the market's return and even less than the current yield on the U.S. Treasury bond!
A far better solution would be the creation of an independent "Social Security Retirement Board," which would run an all-stock market index fund, deciding policy issues such as the extent to which foreign stocks should be included or tobacco stocks excluded and offering almost none of the counterproductive "bells and whistles" funds offer today. No phone calls to check the daily asset value, no switching, one statement per year, and no liquidity until retirement. Result: a simple program, administered at minuscule cost, that could earn virtually 100% of the market's return and provide truly productive long-term results to participants.
Consider the difference: A 25-year old, earning $25,000 per year, with salary growing at 4% and making a contribution of 2% of income until retirement at age 65, would, under my assumptions, accumulate $140,000 in the mutual fund plan, but $320,000 in the Social Security Reserve Board plan. If we decide that we shall focus on the interests, not of the financial services industry, but of the plan participants, the investment of choice for private stock market accounts is obvious.
http://www.vanguard.com/bogle_site/july052000.html
I like the idea that GWB has tackled this issue. I'm just not sure that his solution is the answer. If you privatize and the result is high mutual fund fees, erosion of safety net, with the concurrent horrorible possibility of workers retiring in a bear market (I have a friend who did just that), then the idea sucks. Also, opponents always point out if you wanna invest in the market, go for it. Use a 401k or an IRA. SS is for the ones who don't,won't, or can't.
OTOH, there must be a solution. Boomer retirement train wreck is looming.
For the Europeans on this forum, how are government retirement plans working out there. Don't the French have law-mandated retirement at 60. How big is the tax bite to support that plan and/or other plans. I thought the French wanted to move mandated retirement to a later date and the unions raised hell. Wonder why the government wanted to move it back?
If we finally muster the courage to work out the Social Security mathematics that will permit the Bush plan or the Gore plan, or some combination of the two, what role might the mutual fund industry play? My conclusion: None. The basic retirement savings of America's families are too important to be entrusted to the mutual fund industry.
Why? Because the costs of offering mutual funds to millions of small accounts making weekly or monthly contributions would be even larger than today's already excessive level of fund costs. Present all-in costs (sales commissions, management fees, operating expenses, portfolio transaction costs, and opportunity costs) total at least 2 ½% per year; extra fees for the new retirement accounts could easily add another 1%. We can reasonably assume that thousands of mutual funds, perhaps investing hundreds of billions of dollars, will earn the stock market's aggregate return before expenses. Thus, if the market generated a 9% return, the fund owners would earn, after the deduction of expenses, just 5 1/2% .. only 60% of the market's return and even less than the current yield on the U.S. Treasury bond!
A far better solution would be the creation of an independent "Social Security Retirement Board," which would run an all-stock market index fund, deciding policy issues such as the extent to which foreign stocks should be included or tobacco stocks excluded and offering almost none of the counterproductive "bells and whistles" funds offer today. No phone calls to check the daily asset value, no switching, one statement per year, and no liquidity until retirement. Result: a simple program, administered at minuscule cost, that could earn virtually 100% of the market's return and provide truly productive long-term results to participants.
Consider the difference: A 25-year old, earning $25,000 per year, with salary growing at 4% and making a contribution of 2% of income until retirement at age 65, would, under my assumptions, accumulate $140,000 in the mutual fund plan, but $320,000 in the Social Security Reserve Board plan. If we decide that we shall focus on the interests, not of the financial services industry, but of the plan participants, the investment of choice for private stock market accounts is obvious.
http://www.vanguard.com/bogle_site/july052000.html
I like the idea that GWB has tackled this issue. I'm just not sure that his solution is the answer. If you privatize and the result is high mutual fund fees, erosion of safety net, with the concurrent horrorible possibility of workers retiring in a bear market (I have a friend who did just that), then the idea sucks. Also, opponents always point out if you wanna invest in the market, go for it. Use a 401k or an IRA. SS is for the ones who don't,won't, or can't.
OTOH, there must be a solution. Boomer retirement train wreck is looming.
For the Europeans on this forum, how are government retirement plans working out there. Don't the French have law-mandated retirement at 60. How big is the tax bite to support that plan and/or other plans. I thought the French wanted to move mandated retirement to a later date and the unions raised hell. Wonder why the government wanted to move it back?
The crisis that was being decribed was not real.
