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Bogle on Social Security Reform
Old 02-20-2005, 06:01 AM   #1
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Bogle on Social Security Reform

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?
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Re: Bogle on Social Security Reform
Old 02-20-2005, 06:52 AM   #2
 
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Re: Bogle on Social Security Reform

Quote:
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. *
Don't kid yourself.

The only reason Bush has tackled SS, is to eliminate it; not save it. Private accounts is a foot in the door.

I already have private accounts and so does everyone here.

Quote:
OTOH, there must be a solution. Boomer retirement train wreck is looming.
All the boomers are not retiring at once. Why? - They cannot afford to and give up their lifestyle. All of the statistics say the average boomers net worth outside of their home is under $100K (well under). Do you think that they will hit the magic 65 age and say whoopee - I'm retired! - It's not gonna happen.

It's not a crisis. - remember Y2K?
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Re: Bogle on Social Security Reform
Old 02-20-2005, 07:20 AM   #3
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Re: Bogle on Social Security Reform

Quote:
It's not a crisis. - remember Y2K?
C-T, Y2K wasn't a crisis because millions of programming hours (and billions of $) were spent in advance of Jan. 1, 2000 to prevent a crisis.

We need to do something about the SS situation sooner rather than later, and I lean in the same direction as Eagle43. The idea of personal accounts sounds great from the standpoint of "ownership", but the idea of the govt. administering this is just an opportunity for a huge and costly increase to the federal bureaucracy.

I suggest it would be better to tinker and ajdust what we have, not try some new experiment in government spending.

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Re: Bogle on Social Security Reform
Old 02-20-2005, 07:47 AM   #4
 
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Re: Bogle on Social Security Reform

Quote:
C-T, Y2K wasn't a crisis because millions of programming hours (and billions of $) were spent in advance of Jan. 1, 2000 to prevent a crisis.
I know. I worked on it. But, when I saw folks stock piling food in their basements a couple months from 1/1/2000, I knew that was ridiculous. The crisis that was being decribed was not real.

And Social Security has been worked on in past years also. Tax rates were increased, Caps raised, Retirements delayed etc. SS is also not a crisis.
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Re: Bogle on Social Security Reform
Old 02-20-2005, 08:53 AM   #5
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Re: Bogle on Social Security Reform

The "non crisis" status of SS is about like the guy
who jumped off of the top of a high building and
thought half way down "so far so good, this isn't
so bad".

Cheers,

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Re: Bogle on Social Security Reform
Old 02-20-2005, 09:50 AM   #6
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Re: Bogle on Social Security Reform

I haven't studied this issue long enough to be able to give an answer as to whether SS is a crisis or not, but I know that the way the system is set up that it's a poorly designed system.

Problem #1 is that I can contribute to social security for 40 years and if I die as a single person at age 61 and 11 months, all the money I paid in dissapears. Nothing to leave my kids or grandkids.

Problem #2 is that it is a drag to the economy. Productive people, especially the self-employed get hit with a 15.3% self-emplyment tax on net income that is not subject to the same deductions as all other income. There is no standard deduction or itemized deduction or even any credits that will offset self-employment income. This 15.3% tax is after the federal and state taxes they already pay.

Problem #3 is that "free" money is given to people who are not producing (retired folks). Assuming someone starts collecting at age 62, there may be a point where they will collect more than they had paid into the SS system during their working lives. Taking from the productive and giving to the non-productive may be a great social policy, but a poor economic policy.

Problem #4 is that it is not fair to certain workers. For example, a consultant can more easily work until age 67 to get full retirement benefits. But, a coal miner may not be able to have the physical ability to work until 67. Why should the SS system impose a strict retirement age for everyone across the board? Why can't I say I'm retiring today at age 35 and be able to collect a reduced benefit?
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Re: Bogle on Social Security Reform
Old 02-20-2005, 11:08 AM   #7
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Re: Bogle on Social Security Reform

Quote:
The "non crisis" status of SS is about like the guy
who jumped off of the top of a high building and
thought half way down "so far so good, this isn't
so bad".
"Its like a ride!"

In fact, the majority of people have nothing or nearly nothing (less than 20k...in fact mostly less than 10k) set aside for retirement. Yet in the same survey, most of them expect to live the same lifestyle in retirement they enjoy today.

I believe this is called...oh...whats that scientific term...on the tip of my tongue...oh yeah! Nuts!
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Re: Bogle on Social Security Reform
Old 02-20-2005, 03:12 PM   #8
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Re: Bogle on Social Security Reform

I just gotta jump in on the Y2K issue. Being a computer security guy, yes we did spend our share of money before to get ready for it, but we found out it was totally unneeded. Remember the emails going around? Planes will fall out of the air, Nuclear plants will melt down, blah blah blah.

As far as SS, Bush has already agreed to raise the tax (put raising the roof of the tax on the table-same thing) they may or may not make private accounts, they'll raise the retirement age to 70, the crisis will be deferred, but not eliminated. What's really going to screw our pooch is the debt resulting from medicare, tax, and SS "reform". At some point foriegn countries will want a return on the money they've lent us. Me, I'm looking at how to hedge for the dollar turning into the peso... :-/
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Re: Bogle on Social Security Reform
Old 02-20-2005, 03:56 PM   #9
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Re: Bogle on Social Security Reform

Quote:
I just gotta jump in on the Y2K issue. Being a computer security guy, yes we did spend our share of money before to get ready for it, but we found out it was totally unneeded.
Are you saying we should have totally ignored any potential Y2K problems, not reviewed and revised all those computer programs prior to 1/1/2000? And nothing would have happened?

If so, I would sure enjoy watching you gamble in Vegas. "Let it ride....!"

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Re: Bogle on Social Security Reform
Old 02-20-2005, 04:44 PM   #10
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Re: Bogle on Social Security Reform

I'm just saying we overspent and way overestimated the issue. The interesting thing is we at our company could test the problem in house really easily, we just rolled the clocks forward to see what would happen. Everything was just fine. But it was always, "oh, I know this friend who works on this critical thing and his will blow up" or some such nonesense. As far as Vegas, if I could roll the clocks forward myself and see that the wheel hit black ten more times, yes, I would, "let it ride". Y2K was the beginning to the end of the tech bubble, as people way overbought on IT and then.....
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Re: Bogle on Social Security Reform
Old 02-20-2005, 05:28 PM   #11
 
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Re: Bogle on Social Security Reform

Quote:

Don't kid yourself.

The only reason Bush has tackled SS, is to eliminate it; not save it. Private accounts is a foot in the door.

I already have private accounts and so does everyone here.


All the boomers are not retiring at once. Why? - They cannot afford to and give up their lifestyle. All of the statistics say the average boomers net worth outside of their home is under $100K (well under). Do you think that they will hit the magic 65 age and say whoopee - I'm retired! - It's not gonna happen.

It's not a crisis. - remember Y2K?
Don't kid yourself? Why do you have to be so condescending? You can disagree with Bush's opinion or performance, but sorry to say that we live in a democracy and Bush was elected to be our president. I support him for having the right vision for our future and having the courage to tackle the issue despite the condescending people like you.
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Re: Bogle on Social Security Reform
Old 02-20-2005, 06:36 PM   #12
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Re: Bogle on Social Security Reform

Cutthroat:

I assume your post to Alex was a 3rd. glass of wine post, or you are just bored and feel like stirring things up a little bit.

He was right. It was condescending, and your statement that Bush's goal is to eleminate Soc. Sec. borders on the whacko.

Try us again Alex, Cutthroat is not feeling 100% today
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Re: Bogle on Social Security Reform
Old 02-20-2005, 06:52 PM   #13
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Re: Bogle on Social Security Reform

I spent y2k in puerto vallarta....it was another scare tactic.

ss system surplused 151 billion last yr. doesnt even have the sniffles. Its congress who is overspending and using it for other things.. example? us govt budget was deficit of 427 billion in 04.

bush wants to change defined benefit to defined contribution.....this is about shiftin the risk.

what else could it be?
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Re: Bogle on Social Security Reform
Old 02-20-2005, 10:07 PM   #14
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Re: Bogle on Social Security Reform

Quote:

Jarhead,

Perhaps, you may be on your 3rd glass of wine, as I never posted to Alex.

My statement that Bush wants to eliminate Soical Security is not wacko, as it shared by many scholars on the left and has been written about extensively. The private accounts proposal is a perfect example of this.

After all, if the goal was just a higher return, don't you think the President and Congress could appoint a panel of the nations brightest and most talented to invest the Social Security money better than the common folk that work in factories?
Cutthroat: It was Alex that highlighted your quote, and thought it was condescending, however, you're right, it was Eagle 43 that you were referring to.

Summary: Alex thought you were condescending in your remarks to Eagle 43. I agree with Alex. (I don't know what the hell Eagle 43 thinks, but Jarhead has lost interest
I now need a glass of wine.

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Re: Bogle on Social Security Reform
Old 02-21-2005, 03:14 AM   #15
 
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Re: Bogle on Social Security Reform

I hold these truths to be self-evident:

1. I continually find myself in support of Cut-Throat's
positions ..........and,

2. I should avoid any CHPs as my 100% sober posts
are frequently pretty far "out there".

I don't believe JWB wants to "destroy" SS. I think he has the cojones and the commitment, but otherwise
is pretty much clueless. I know there are many who think he is just "clueless" in general. I am not sure
about that, but it seems harder all the time for me to
support his positions.

JG
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Re: *Bogle on Social Security Reform
Old 02-21-2005, 05:59 AM   #16
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Re: *Bogle on Social Security Reform

Quote:

Cutthroat: *It was Alex that highlighted your quote, and thought it was condescending, however, you're right, it was Eagle 43 that you were referring to.

Summary: *Alex thought you were condescending in your remarks to Eagle 43. I agree with Alex. (I don't know what the hell Eagle 43 thinks, but Jarhead has lost interest
I now need a glass of wine.
Eagle43 ain't no fish and he's not taking the bait. The Eagle knows that Cut Throat is a lib and a bona fide Bush hater. He's not gonna agree with anything GWB does. So, any comment he makes concerning GWB is ignored. His comments concerning ER life, OTOH, are highly regarded.

I would like to point out that Bill Clinton said in 1998 that private accounts could be an option. Pat Moynihan said similar things. Remember Al Gore and his lockbox. You see, all these dems know there's a problem, but their support comes from AARP and they're running scared. The Dems disagree with the solution and who's presenting a solution. If the Dems have any solution, it's their usual: raise taxes. Or ignore it, demonize GWB and hope it sticks enough to hurt him.

Keep your eye on Karl Rove. Keep your eye on any congressman up for re-election next year. Mr. Rove's gonna help some of these congressmen (dems and reps) to make up their minds. In any case, whichever way these congressmen go who are standing for re-election will determine the results of GWB's ss reform.

GWB don't care about no condescending. He just keeps winning and it absolutely infuriates the libs. It tickles me to know that John Kerry was preparing his victory speech, he and the libs were so sure that they'd won. Life is good.
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Re: *Bogle on Social Security Reform
Old 02-21-2005, 10:09 AM   #17
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Re: *Bogle on Social Security Reform

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. . .*The Eagle knows that Cut Throat is a lib and a bona fide Bush hater. *He's not gonna agree with anything GWB does. *So, any comment he makes concerning GWB is ignored. *
How convenient. All you have to do is see the by line on the post and know it's wrong. No messy reasoning or thought required. :This debate could not possibly be about finding the right solution to a potential short-term short fall in social security funding. If you aren't in favor of the GWB proposal, you must simply be a Bush hater and one of those dreaded "liberals". The fact that the Bush proposal is not a solution to the short-term short fall problem but actually exacerbates it is surely irrelevant to this debate.

The current administration wants desparately to frame this debate as, "You either favor the GWB proposal or you are simply a liberal, Democrat, Bush-basher." Resistance to this proposal is considered proof that your opinion does not count. All you have to do to win this debate is convince enough ditto heads of this argument and you've won.
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Re: Bogle on Social Security Reform
Old 02-21-2005, 10:16 AM   #18
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Re: Bogle on Social Security Reform

This rift...the "us" and "them" created by the last two elections is one of the biggest problems we face, not the difference of opinions.

Of course, in any contest the easiest way to win is to paint the other guys as dopes and put any credible attack down as simply another "attack of the dopes". Unfortunately its a piss-poor way to demonstrate leadership and unite a group of people.
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Re: Bogle on Social Security Reform
Old 02-21-2005, 10:25 AM   #19
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Re: Bogle on Social Security Reform

Please go back and read my original post. I don't believe that it was exactly raving about GWB's proposed solutions.

BTW I don't care what political persuasion anyone is. I thought we would discuss solutions. Then, here comes the bomb "The only reason Bush tackled SS is to eliminate it, not save it." Well, that's kind of rigid thinking in my mind.

Did anybody read Bogle's analysis? There was a little messy reasoning and thought there, or did you miss that, Mr. Salaryguru
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Re: Bogle on Social Security Reform
Old 02-21-2005, 10:26 AM   #20
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Re: Bogle on Social Security Reform

Quote:
This rift...the "us" and "them" created by the last two elections is one of the biggest problems we face, not the difference of opinions.

Of course, in any contest the easiest way to win is to paint the other guys as dopes and put any credible attack down as simply another "attack of the dopes". *Unfortunately its a piss-poor way to demonstrate leadership and unite a group of people.
My thoughts exactly. If you can't argue the merits (which I started out on this thread to do), then it becomes name-calling, and sigh, nothing gets done.
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