Social Security begins to run negative

[Rustic23]

Sam,
Why would that be different than SS? The government would take the money and 'invest' it is the safest invest known...'U.S. Gov. Bonds'. Then it would be spent on pet political projects, and either more debt, more tax dollars, or decreased dollar value, i.e. inflation, to pay the annuity off.

 

[samclem]

Sam,
Why would that be different than SS? The government would take the money and 'invest' it is the safest invest known...'U.S. Gov. Bonds'. Then it would be spent on pet political projects, and either more debt, more tax dollars, or decreased dollar value, i.e. inflation, to pay the annuity off.

I think you are right. The contributions would be voluntary, but except for that, it would function as SS does--it would give the government more money to spend right now (as folks contribute) and build up future government liabilities (to pay those promised monthly annuity checks when folks retire). By pumping money in right now, it would also allow the government to delay (again) the needed fixes to SS, which will make that problem still worse later.

The alternative is requiring that the government not spend the money, but instead invest it in private equity, which I think is even more dangerous.

 

[Independent]

It tells me that we need a better educated population.

I think the govt should have a short seminar each and every year for people. Show them that SS may not provide them the lifestyle they want, and what it would take to make it up on their own.

Use the 4% SWR number as a benchmark. Project that SS will likely provide $X/year at your current wage, and for anything above that you will need to boost with 25x of personal savings to meet a 4% SWR. Then show how much you need to save each year to meet that.

Sure, there would be a lot of assumptions in those numbers, and results could vary wildly, but some info is better than nothing. And it would get more accurate as you reach retirement age.

I might be OK with the govt going (further) into the annuity business. Turn over some of your personal stash, and they pay you X% for life. Pretty simple to admin, they have more buffer than a private company, so it should be safer, and no profits to draw down payments. It should be pay-as-you-go (over the long term); if they project running out, they might need to offer less going forward to new contracts, or maybe even a very slight trim to existing contracts (predefined limits).

-ERD50

I'm thinking that the gov't already does both of these, at least partially.

I get an annual letter that gives me the dollar amount of SS I would get based on certain assumptions. I can look at the number, compare it to may current income, and figure out the gap. I'm sure a seminar would be more in-your-face, but I'd object a lot to any sort of mandatory attendance.

Regarding the annuity business, we already have a choice of deferring SS to age 70. Economically, that's the same idea. The only difference is how much annuity the gov't is willing to do.

 

[ERD50]

I'm thinking that the gov't already does both of these, at least partially.

I get an annual letter that gives me the dollar amount of SS I would get based on certain assumptions. I can look at the number, compare it to may current income, and figure out the gap. I'm sure a seminar would be more in-your-face, but I'd object a lot to any sort of mandatory attendance.

Regarding the annuity business, we already have a choice of deferring SS to age 70. Economically, that's the same idea. The only difference is how much annuity the gov't is willing to do.

True, I would like to see more emphasis on what it would take to fill the gap. The average person would probably benefit from being "hit over the head" with this info. Maybe "seminar" is too extreme, but a page of two of info, and a signature requirement to say you understand, and some standard info on a website that HR people would also be informed on (so they could answer employee questions) would go a long way, IMO.

To samclem's points - yes, there are downsides. I doubt the govt would pull this off effectively (or that they even have any desire too). But if we stay in fantasy-land for a while - perhaps the annuities could be managed by private annuity companies, but with a govt guarantee (and suitable regs so it is unlikely that the guarantee would be needed)? Similar to pension plan guarantee.

It's just that a true risk-pooled annuity (as opposed to many current annuity options) is a very attractive concept for many retirees - it would be nice if one was available with less of the risks/pitfalls of the private cos.

-ERD50

 

[samclem]

It's just that a true risk-pooled annuity (as opposed to many current annuity options) is a very attractive concept for many retirees - it would be nice if one was available with less of the risks/pitfalls of the private cos.

Well, if the government behaves in the future as it has in the last year, it is likely they are going to step in anyway if companies offering annuities start sinking in a big way. So, if the government (i.e. you and I) are going to bail them out anyway, then we might as well make the guarantee explicit (boosting investor confidence in these products) and give the govt a bigger role in overseeing the operations of these companies. Like the banks and FDIC.

It's not what I'd like, but perhaps it is the best we can do given the public acceptance of/demand for an ever-rising safety net for every risk in life.

 

[Finance Dave]

Early retirees (actually a new take on the word FIRE) draining coffers

My Way News - Social Security strained by early retirements

Actually there are no "coffers".

There is no "trust fund" of money...it's a ponzi scheme made legal by our politicians. Remember SS is a "paygo" system. The payments that today's workers make IMMEDIATELY go to current retirees. Note the words "debt obligations" below from Wikipedia. If you open the virtual bank vault door on the trust fund, you'll find slips of paper from one arm of the government that say "IOU" to another arm of the government.

"Though widely used, the term "Social Security Trust Fund" is something of a misnomer, as the Social Security Administration of the United States actually oversees two separate funds that hold federal government debt obligations related to what are traditionally thought of as Social Security benefits. The larger of these funds is the Old-Age and Survivors Insurance (OASI) Trust Fund, which holds in trust those funds that the federal government intends to use to pay future benefits to retirees and their survivors.[2] The second, smaller fund is the Disability Insurance (DI) Trust Fund, which holds in trust those funds that the federal government intends to use to pay benefits to those who are judged by the federal government to be disabled and incapable of productive work, as well as to their spouses and dependents.[3]"

Edit: here's a good article on it -- >http://www.heritage.org/research/socialsecurity/em940.cfm