Privatizing Social Security Idea Looks Even Worse Now

[clifp]

One of the last and IMO best proposal was to allow people to divert 2% of the their SS payments into the equivalent of the government employee Thrift Savings PLan TSP.

Looking at the 5 year share prices for the TSP we have the following.

G FUND F FUND C FUND S FUND I FUND

12.6445 11.8774 10.3219 12.5657 13.6660 Oct 10,2008
10.1600 9.8600 10.9700 11.8200 11.7200 Oct 3, 2003

So with the sole exception of the C fund which basically the equivalent of the S&P 500 all of the investment are up. (I'm not sure how dividends/cap gains are reflected) Not being fortunate enough to access to the TSP choices, I don't have data how actual participant fared, but I don't see how anybody who had been steadily saving for 5 years would have been devastated.

Any current/past government employees want to share there 5 year performance figures for TSP investing?

 

[Zoocat]

One of the few benefits of a private SS plan would be that it could be set up so the government couldn't "borrow" it, as has been done, leaving nothing in the SS Trust Fund.

If the private plans were just invested in Treasuries with guaranteed returns, a "lock box" as Al Gore termed it, then I might be in favor of it.

I am and would always be against a private SS plan that would turn over the investment of it to private banksters. We can now see where that leads.

 

[kaneohe]

I think it was REW who brought up a good point about giving back the SS money.
You would have already paid tax on it, so maybe not as good a deal as you may think.

I think you get credited (refunded) the tax you paid. A bit of extra work to figure it out tho.

 

[donheff]

I think it was REW who brought up a good point about giving back the SS money.
You would have already paid tax on it, so maybe not as good a deal as you may think.

You can refile you taxes for a certain number of years - three? I don't think you could do it back eight years.

 

[retire@40]

So instead of privatizing social security by allowing us to put our own money in the stock market, the government is taking our tax dollars and buying company stock.

I'd rather put my own money in the stock market instead of giving it to the government to bail out companies for which I have no sympathy.

 

[Independent]

Studies have shown that even putting all your and the companies contributions into 30 yr treasury bonds would have given you a much better income than the current system AND you might have had something to leave after your death.

The problem with this calculation is that it ignores the issue of who pays your parents living expenses while you are putting all of your taxes into treasury bonds.

We had private, informal, pay-as-you-go retirement programs before we had public pay-as-you-go plans like SS. (Anyone who said "I need to have enough children so I will have someone to care for me in my old age" was part of one of those private plans.) Social Security simply replaced the old paygo systems with a new paygo system.

If we want to move to an "advance funded" plan, some generation has to pay for both their parents retirement and their own retirement. So far, we haven't found the volunteers.

 

[OAG]

You can refile you taxes for a certain number of years - three? I don't think you could do it back eight years.

Look back a couple of responses #24. Read the Instructions that come with your IRS 1040 - No amended returns, no 3 year look back, one time and fairly simple. 3rd Grade math like adding and subtracting 5 or 6 digit #'s.

 

[W2R]

"Another extraordinary fact pertaining to this issue, and one that is relatively unknown by most Americans, is the fact that many federal and state employees already have fully-privatized retirement benefits. In other words, many federal and state employees have the equivalent of their entire Social Security tax go into an individual account plan that can earn a real market rate of return like in a Section 401(k) and the other private retirement plans discussed below."

When did that happen?

Never heard of it. I have no idea what they are talking about. Maybe our 5% TSP match? But, we still pay social security tax.

When I was on the faculty at LSU prior to my federal employment, I had a number of retirement options. One was making regular SS contributions, but it wasn't required; I chose instead to put that money in a 401K type of investment. But I haven't seen that option since working for the federal government.

As a consequence of my LSU choices, my future SS checks will be significantly lower than they might otherwise have been. In retrospect, I should have chosen SS.

 

[RDamien]

I think many of you are much more trusting of a government run system than I am. I'd rather be able to invest my money in some traditional conservative vehicles than pay into the current scheme. Or at least have the option to do it.

 

[Culture]

I fundamentally disagree, but I am a pinko. I hope you are consistent in your views and would stop public funding of education. We could switch to users fees for those who utilize it. Why should we tax singles and gay couples to fund straight couples' kids' education? The answer, of course, is the good of society as a whole. Just the way I see a SS safety net for the poor.

As far as I can tell, pretty close to 100% of children do not have the ability to fund their own education, and the education of the masses benefits us all. OTOH, pretty much everyone has the ability to get a job and fund their own retirement, and I do not benefit from it at all (in fact it is a net loss to my pocketbook). Why should I be forced to help?

If we are going to publicly fund everyone's retirement, why not their healthcare, house,energy and car? Let's be honest, all of these are essential to living and participating in the modern world.

And please note, I have no problem with the government forcing people to save for retirement, because if they don't we are going to have loads of starving old people in the street, and the fact of the matter is that if this happens, we are going to help them. Thus, it is my interest to make sure they have a retirement. I just want them to fund their own.

 

[mews]

77, you can evidently re-do your taxes, or take a credit.

shhhhh!

(we don't want the tax folks to hear that...)

ta,
mews

 

[FinanceDude]

With the markets melting down I'm sure glad that the politicians didn't succeed in the scheme to privatize social security. Shifting the risks to individuals didn't look nearly as stupid then as now.

What if one of the choices was investing in 10-year Treasuries? All the proposals I saw had that as a choice. Considering the internal IRR of SS is 2% or less, I would gladly take the Treasury option..........

 

[dex]

The problem with this calculation is that it ignores the issue of who pays your parents living expenses while you are putting all of your taxes into treasury bonds.

We had private, informal, pay-as-you-go retirement programs before we had public pay-as-you-go plans like SS. (Anyone who said "I need to have enough children so I will have someone to care for me in my old age" was part of one of those private plans.) Social Security simply replaced the old paygo systems with a new paygo system.

If we want to move to an "advance funded" plan, some generation has to pay for both their parents retirement and their own retirement. So far, we haven't found the volunteers.

not true - it was to phased in starting with young workers- parents ok

 

[Alan]

What if one of the choices was investing in 10-year Treasuries? All the proposals I saw had that as a choice. Considering the internal IRR of SS is 2% or less, I would gladly take the Treasury option..........

I'm sure you are probably right about the IRR, but I just tried calculating it for my own case. I am age 53 and having been paying in since 1987.

I have entered the total contributions year by year (including employer contributions and checked against my SS statements). Other than 1987 which was a part year for me, I have always hit the max contributions. I entered the contributions year by year and continued that on for this year and next (after which it is zero as I will be RE'ed).

I went on-line and got an SS estimate under that same scenario which says $1,427/mo at 62

SS is COLA'ed so to get an equivalent lifetime COLA'ed annuity I went on the VG website and for lifetime annuity of $1,427/mo with 50% survivor for spouse they quoted $322,000 (which is $106K less than if I had assumed 25 x annual income for self funding).

That gives an IRR of 2.44% to get to $322K or 3.95% to get to $428K.

Still not a wonderful IRR but better than I expected from reading here.

So what am I doing wrong in my calculation?

 

[Alan]

So what am I doing wrong in my calculation?

I answered my own question. I filled in the VG form wrongly, and the quote was $271,039 for me and DW at age 62.

... and that gives an IRR of 1.51%

 

[Independent]

not true - it was to phased in starting with young workers- parents ok

"it was phased in" sounds like you are referring to some, specific plan. I've looked at a number, and it always seems that the money in the personal accounts comes from raising taxes, lowering benefits, or borrowing.

Maybe you've got a link that you'd like to share, or an explanation of the plan you've seen.

 

[dex]

"it was phased in" sounds like you are referring to some, specific plan. I've looked at a number, and it always seems that the money in the personal accounts comes from raising taxes, lowering benefits, or borrowing.

Maybe you've got a link that you'd like to share, or an explanation of the plan you've seen.

http://www.early-retirement.org/for...security-idea-looks-even-worse-now-39672.html

 

[dex]

"it was phased in" sounds like you are referring to some, specific plan. I've looked at a number, and it always seems that the money in the personal accounts comes from raising taxes, lowering benefits, or borrowing.

Maybe you've got a link that you'd like to share, or an explanation of the plan you've seen.

http://www.early-retirement.org/for...security-idea-looks-even-worse-now-39672.html

Social Security

 

[toofrugalformycat]

Ok, shoot me down if I'm wrong, but right now my mother and stepmother are both living mostly off the social security earned by my deceased father. Neither of them worked the necessary full time 10 years to get benefits on their own. So in your calculations of return that are coming out so low, are you taking into account survivor benefits for nonworking spouses? Also SSI for disabled people and orphans?
I paid into SS for less than 10 years so far myself, having worked mostly for a state govt that did not pay into SS. So I paid in (not much, admittedly) and will probably get nothing back personally. Still I think it's a good deal because of my mother and stepmother who were both stay-at-home mothers.

 

[Independent]

http://www.early-retirement.org/for...security-idea-looks-even-worse-now-39672.html

Social Security

I read the "Social Security" link. I didn't see anything there describing a way to transition from where we are to a "privatized" or "advance funded" system without the tax/benefit/borrowing issues.

Maybe you can cut and paste the language that you thought showed how it could be done.

(the other link just pointed to this thread)

 

[Alan]

So in your calculations of return that are coming out so low, are you taking into account survivor benefits for nonworking spouses?

The calculation I did today on my personal situation assumed DW had zero credits so have 50% of my SS when I die. The annuity I got quoted from VG was for a joint life COLA annuity with 50% survivor benefits starting at age 62. The figure in my case came out at an IRR of 1.51% during the years of my and employer contributions to SS.

 

[FIRE'd@51]

SS is COLA'ed so to get an equivalent lifetime COLA'ed annuity I went on the VG website and for lifetime annuity of $1,427/mo with 50% survivor for spouse.................

I answered my own question. I filled in the VG form wrongly, and the quote was $271,039 for me and DW at age 62.

... and that gives an IRR of 1.51%

Two points:

(1) Even if your spouse didn't work, she can collect nearly half of your SS benefit when she turns 62

(2) If you die first, your spouse will continue to draw your full benefit for the rest of her life

So your VG annuity comparison should be for a 100% survivor benefit for your spouse, plus a 50% benefit for the time you are both alive.

 

[Alan]

Two points:

(1) Even if your spouse didn't work, she can collect nearly half of your SS benefit when she turns 62

(2) If you die first, your spouse will continue to draw your full benefit for the rest of her life

So your VG annuity comparison should be for a 100% survivor benefit for your spouse, plus a 50% benefit for the time you are both alive.

Thanks for the info. I assumed my spouse had made no contributions in my calculations but I got a quote for a 50% survivor.

I just got a quote for 100% survivor for $1,427/mo ($299,741) and now the IRR for my SS contributions is up to 2.06%

 

[Bimmerbill]

I'm in favor of privatizing SS. I'd rather manage my money than have someone else do it. Don't they have a "traditional" fund, or something, for those who want the old system to manage their retirement?

 

[dex]

I read the "Social Security" link. I didn't see anything there describing a way to transition from where we are to a "privatized" or "advance funded" system without the tax/benefit/borrowing issues.

Maybe you can cut and paste the language that you thought showed how it could be done.

(the other link just pointed to this thread)

http://www.early-retirement.org/foru...now-39672.html


President George W. Bush called for a transition to a combination of a government funded program and personal accounts ("individual accounts" or "private accounts") through partial privatization of the system.
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Try google for the details