Privatizing Social Security Idea Looks Even Worse Now

[Independent]

Quote:

Originally Posted by dex 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]

Quote:

Originally Posted by Independent "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/foru...now-39672.html

[dex]

Quote:

Originally Posted by Independent "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/foru...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]

Quote:

Originally Posted by dex http://www.early-retirement.org/foru...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]

Quote:

Originally Posted by toofrugalformycat 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]

Quote:

Originally Posted by Alan 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.................

Quote:

Originally Posted by Alan 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]

Quote:

Originally Posted by FIRE'd@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.

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]

Quote:

Originally Posted by Independent 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.
=====
Try google for the details

[Gardnr]

Quote:

Originally Posted by Alan 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%

It looks like you're still missing that a non-working spouse with no SS contributions/credits gets 50% of their spouse's SS amount while the spouse is alive and then continues with a 100% survivor's benefit. That makes it tough to compare to an annuity unless you can select a 67% survivor's benefit.

[ERD50]

Please correct me if I am wrong. I admit I just skimmed over some of the posts, but my impression is this:

This appears to be a classic case of trying to find solutions without first defining the problem. I have never understood just what problem SS is supposed to solve. How can it be 'fixed' until we know what we want it to do?

If SS is supposed to help people who were unable (for whatever reason) to save for retirement for themselves, then please explain why:

The more you make during your life, the more SS you get?

That seems entirely backwards to me. Yes, I realize it is heavily weighted toward low income workers. But it still seems backwards. You just cannot provide solutions to poorly defined problems. It causes the debate to go in circles. Like the debate on SS.

So, maybe I'm just ignorant on this matter (may very well be the case), but just what is SS supposed to do?

-ERD50

[Frugality_of_Apathy]

It's SSI not SS. It's a crummy insurance policy your aren't allowed to drop. If I bought unemployment insurance with 13.5% of my gross pay from a private insurance company I'd surely get more than 3 months of payout if I lost my job after paying in for 5 years. Just saving that 13.5% in a checking account with no interest I'd have enough money after one year to take a year of vacation. If I worked for 40 years at $50,000 never getting a raise and never collecting any interest on the money I saved I could just draw off that amount at the same rate SSI payes out for 35 years. Earning just a 1% interest I could draw off the same amount SSI would give me with the 2.3 COLA for 53 years. Earning 2% I could receive the payouts forever and end up with more money in the bank every year.

And remember this is without ever getting a raise for my $50,000/year job.

SSI is a Ponzi scheme that only lasts as long as you get more suckers entering the system than drawing off of it.

[Gardnr]

Quote:

Originally Posted by ERD50 Please correct me if I am wrong. I admit I just skimmed over some of the posts, but my impression is this: This appears to be a classic case of trying to find solutions without first defining the problem. I have never understood just what problem SS is supposed to solve. How can it be 'fixed' until we know what we want it to do? If SS is supposed to help people who were unable (for whatever reason) to save for retirement for themselves, then please explain why: The more you make during your life, the more SS you get? That seems entirely backwards to me. Yes, I realize it is heavily weighted toward low income workers. But it still seems backwards. You just cannot provide solutions to poorly defined problems. It causes the debate to go in circles. Like the debate on SS. So, maybe I'm just ignorant on this matter (may very well be the case), but just what is SS supposed to do? -ERD50

Well said. I think the program needs to go back to being a safety net for people to ensure they don't have to live in abject poverty in old age. We need to completely remove the notion that it's a retirement program and overhaul it accordingly, making it solvent in the process.

Then we can have a discussion about the best way for people to save for retirement, whether that's a new kind of portable group DB program that's not reliant upon a particular company's health or viability, or a individual deferred comp vehicle like a 401K, or some combo of those two (my preference). I really think we can craft a good program that would alleviate the concerns that are posed by the OP (market volatility). Some way of spreading the risk over larger groups and across time to keep the individual risks down. Just as large pension plans have done for decades.

The hard part of course it bridging the gap between the present pay as we go SS program and that future state. I really don't know the answer to that without really screwing a generation or two to pay for the profligate spending of the last 30 yrs or so. Somehow we need to ease into it and get back to a solvent state of affairs.

The politics of it is so thick that I'm afraid only a real crisis will force a fix. But maybe there's some inspirational leadership lurking out there that can make us take our medicine.

[Independent]

Quote:

Originally Posted by dex 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. ===== Try google for the details

Once again, I followed your links and didn't find any proposals for changing Social Security.

People with serious proposals, and enough political clout, can get them "scored" by the SS actuaries. Here's a link Proposals addressing Social Security solvency
You'll see there are about 30 over an 8 year period. None of them were proposed by Bush. I think he doesn't want to get specific enough to get pinned down.

The "President's Commission" made 3 proposals. I don't have any source that says Bush publicly supported any one of them.

Here is some typical language on personal accounts, this happens to be from "Model 2".

Quote:

For workers who participate in the individual account option, retirement and aged survivor benefits payable based on their earnings will be reduced according to a hypothetical account accumulation and annuity computation using a specified "offset yield rate". The offset yield rate for this plan is intended to be (or to average) 2 percent over price inflation. In practice, the offset yield rate could be computed as either (a) 2 percent above the realized or expected CPI inflation rate or (b) 1 percent below the realized or expected market yield on long-term Treasury bonds for each year. The hypothetical account accumulation at retirement would be equal to the worker's personal account contributions accumulated using the specified offset yield rate for each year. The retirement (and aged survivor) benefit offset would be equal to the computed amount of a CPI-indexed life annuity purchased with this hypothetical accumulation, and based on the expected future mortality, inflation, and real interest rates used for the intermediate assumptions of the most recent OASDI Trustees Report. Offset annuities would be based on expected unisex mortality for workers who are not married at retirement. Joint and 2/3 survivor life annuities would be computed for workers who are married at retirement, reflecting the actual ages of each spouse.

The basic idea here is that the gov't borrows money so it can lend it to workers. They invest the money while they are working, then at retirement they repay the gov't with interest. If the gov't charges the same rate it pays, and the workers invest in gov't bonds, they gain exactly nothing. The suggestion that workers would be far ahead of traditional SS by adopting this proposal and investing in bonds is false.

If one worker took the loan and invested in stocks, that worker would (probably) come out ahead. However, if all the workers did that, they would force an increase in interest rates on all gov't debt. The workers gains would be offset by losses that all taxpayers would incur due to the extra interest. (It's a zero-sum game because there is no net saving.)

Maybe you have a different proposal in mind. I can't claim that I've looked at more than a couple of the others. If you want to show me which one doesn't involve additional taxes or borrowing, or lower benefits, I'd be willing to look at it with you.

[dex]

Quote:

Originally Posted by Independent Once again, I followed your links and didn't find any proposals for changing Social Security. People with serious proposals, and enough political clout, can get them "scored" by the SS actuaries. Here's a link Proposals addressing Social Security solvency You'll see there are about 30 over an 8 year period. None of them were proposed by Bush. I think he doesn't want to get specific enough to get pinned down. The "President's Commission" made 3 proposals. I don't have any source that says Bush publicly supported any one of them. Here is some typical language on personal accounts, this happens to be from "Model 2". The basic idea here is that the gov't borrows money so it can lend it to workers. They invest the money while they are working, then at retirement they repay the gov't with interest. If the gov't charges the same rate it pays, and the workers invest in gov't bonds, they gain exactly nothing. The suggestion that workers would be far ahead of traditional SS by adopting this proposal and investing in bonds is false. If one worker took the loan and invested in stocks, that worker would (probably) come out ahead. However, if all the workers did that, they would force an increase in interest rates on all gov't debt. The workers gains would be offset by losses that all taxpayers would incur due to the extra interest. (It's a zero-sum game because there is no net saving.) Maybe you have a different proposal in mind. I can't claim that I've looked at more than a couple of the others. If you want to show me which one doesn't involve additional taxes or borrowing, or lower benefits, I'd be willing to look at it with you.

This all came up during the Bush/Gore election and after - google info around that time. Basically, the phase in began with workers under 30 - over 30 stayed with the current system.
Strengthening Social Security

[Independent]

Notice that the link you provided isn't a "proposal", it's a series of goals. There isn't enough for anyone to figure out who loses. I believe that's intentional.

Bush is like an inventor trying to sell us a perpetual motion machine, but refusing to disclose enough details about the machine to show how it defies conventional physics.

I think the "President's Commisson" proposal I referenced is somewhat close to what Bush would propose if he were honest. It balances the traditional SS system by reducing benefits. (IMO, nothing wrong with that.) Then it graphs on a weird "personal accounts" provision that provides no real benefits to young people. It's just smoke and mirrors to make people think they are getting something they aren't. In particular, it does not meet your standard of providing more retirement income to people who simply invest their "personal account" money in treasuries. Nor does it add any income to Americans as a whole.

[FinanceDude]

Quote:

Originally Posted by Independent Notice that the link you provided isn't a "proposal", it's a series of goals. There isn't enough for anyone to figure out who loses. I believe that's intentional. Bush is like an inventor trying to sell us a perpetual motion machine, but refusing to disclose enough details about the machine to show how it defies conventional physics. I think the "President's Commisson" proposal I referenced is somewhat close to what Bush would propose if he were honest. It balances the traditional SS system by reducing benefits. (IMO, nothing wrong with that.) Then it graphs on a weird "personal accounts" provision that provides no real benefits to young people. It's just smoke and mirrors to make people think they are getting something they aren't. In particular, it does not meet your standard of providing more retirement income to people who simply invest their "personal account" money in treasuries. Nor does it add any income to Americans as a whole.

Seems to me that the SS actuaries aren't very good.........

[dex]

Quote:

Originally Posted by Independent Notice that the link you provided isn't a "proposal", it's a series of goals. There isn't enough for anyone to figure out who loses. I believe that's intentional.

I made a mistake - I thought you were interested in learning about it. That is why I suggested you google it.

[toofrugalformycat]

Quote:

Originally Posted by Gardnr It looks like you're still missing that a non-working spouse with no SS contributions/credits gets 50% of their spouse's SS amount while the spouse is alive and then continues with a 100% survivor's benefit. That makes it tough to compare to an annuity unless you can select a 67% survivor's benefit.

And remember there can be any number of surviving spouses. You just have to have been married 15 years to each one.