One man's retirement math: Social Security wins

December 27, 2004 11:09 AM

One man's retirement math: Social Security winsAt the heart of President Bush's plan to sell Social Security private accounts is a simple notion: You're always better off investing your retirement money than letting the government do it. By doing it yourself, you can stow some money in the stock market, and over the long run will get a better return on that investment than today's Social Security system offers. The idea is broadly accepted. That's why the administration's plan to partially privatize the system sounds appealing to many. But that better return won't always happen. Just ask Stanley Logue of San Diego. For 45 years, the defense-industry analyst paid into the system until his retirement in 1994. But with all the recent hoopla over reform, Mr. Logue, a Massachusetts Institute of Technology graduate, decided to go back and check his own records. Would he have done better investing his money than the bureaucrats at the Social Security Administration?
posted by Postroad (80 comments total)

So if you enter into the workforce and leave it at exactly the wrong times for the stock market, there's a whole 2% advantage to social security. Now, that probably is true for, what, 5% of the population at most? How about the average person?
posted by u.n. owen at 11:17 AM on December 27, 2004

Bad math -- you don't own the money in the SSA fund. You only get to draw out, and based on your expected lifespan, you get little to maybe a little more. It's biased against black men in favor of white women (they live longer), and when you die the government keeps the balance.

To get his money back out would require him living to 95 and getting $700 a month, while accumulating NO interest in that period. Good luck.
posted by dwivian at 11:21 AM on December 27, 2004

I'm an opponent of Bush's Social Security plan, but I don't think that this guy's math is entirely accurate. For one thing, he assumed an investment in Dow Jones average stocks. There are other more appropriate (and less risky) investments that could probably be made. Secondly, (and the article touches on this point) it all depends on life expectancy. A middle class white male (which I suspect is Mr. Logue's category) on average does decently in Social Security. By contrast, a black inner city male actually on average loses money on the deal, and many other segments of society get less of a profit than standard bank savings accounts would give. These figures will get worse, as the system becomes overloaded. The money social security pays out 20 years from now will be much less than what people are getting now.

The real danger in changing to a privatized social security isn't so much the danger that social security might actually give good money (it won't), but that privatized investment might prove too risky. You're probably going to see a lot of people near retirement age losing their money through mismanagement and scams praying on an aging population. If a large portion of society does lose money, it will be politically impossible to simply let that segment take the loss. Instead, the government will have to bail out these investors, putting the system in worse shape than it was before privatization.
posted by unreason at 11:22 AM on December 27, 2004

I think that saying one can do better privately is missing the point. Social Security pools the workforce's money to spread the risk. It's not about you, personally, doing well, it's about no one starving to death or being unable to afford the simplest neccessities at a time when one is least able to earn money.
posted by Optimus Chyme at 11:26 AM on December 27, 2004

It's not about you, personally, doing well, it's about no one starving to death or being unable to afford the simplest necessities at a time when one is least able to earn money.

True. But the system is breaking down to the point Social Security really isn't going to provide anyone's needs. Privatization isn't the answer, but some solution will have to be found, as the system can't remain the way it is and survive.
posted by unreason at 11:31 AM on December 27, 2004

I'd rather put it all on Papa's Moustache in the Third.
posted by destro at 11:40 AM on December 27, 2004

True. But the system is breaking down to the point Social Security really isn't going to provide anyone's needs.

It's breaking down because people aren't paying the taxes they owe. The codes need to be overhauled to eliminate loopholes and ensure that the government gets the money it needs to to provide necessities to all its citizens. If that means placing an "undue" burden on the rich, I figure that's just the price you pay for all the benefits of living in the Good Ol' U S of A.
posted by Faint of Butt at 11:42 AM on December 27, 2004

It's breaking down because people aren't paying the taxes they owe.

That isn't really the reason why social security is breaking down. The main reason for its failure is that the demographics have changed. The idea behind Social Security is that the young pay for the costs of the old, so that each generation funds the retirement of the last generation. The problem is that with the baby boom there are too many retirees and not enough workers. Making the rich pay more will help a little (and it will certainly feel satisfying) but it won't fix the underlying problem.
posted by unreason at 11:46 AM on December 27, 2004

Optimus, thank you so much for reminding us that SS is not about you, personally, doing well....This is, I think, the key point about SS.

However, even from a personal standpoint, SS is more than retirement benefits. SS pays you if you become disabled and it pays your family if you become disabled or die. SS pays your parents, other relatives, and friends, which payments likely contribute directly to your own financial status by making it less necessary for you to help out.

SS also guarantees against inflation-induced losses. We've had such low inflation lately that younger people may have forgotten the devastating effects of higher inflation on savings and investments.
posted by Sixtieslibber at 11:46 AM on December 27, 2004

SS is more than retirement benefits. SS pays you if you become disabled and it pays your family if you become disabled or die. SS pays your parents, other relatives, and friends, which payments likely contribute directly to your own financial status by making it less necessary for you to help out.

Yes, but in the future SS won't be able to do these things. Social Security reform isn't import because people could be doing better in a private market, but because the system as it exists now won't last past the next 20 years.
posted by unreason at 11:52 AM on December 27, 2004

Hey unreason, it's flat-out false the system won't last past the next 20 years. Such claims require reputable links and there aren't any.
posted by Sixtieslibber at 11:54 AM on December 27, 2004

Nice. This is an important issue, in need an informed and reasoned debate. Too bad this article doesn't provide that.

"The DJIA represents blue-chip stocks"

Well, yes. But it would be more accurate to say that the DJIA is composed of thirty mega-cap domestic stocks. If the MIT grad and the reporter really wanted to make a contribution to the debate they would have used a broader basket of investments. By using only equities and forgoing debt, they excluded about half of all investments. By using a domestic-only market, they excluded about 70% of all equities. By using an index that excludes REITs, transports, and utilities, they excluded about 30% of domestic equities. By using only Dow components, they excluded all small- and mid-cap stocks, which today number about 7,000.

But for this arbitrary time period, with contributions coming on these particular dates, this narrow basket of domestic large-cap stocks slightly underperformed the pay-as-you-go Social Security system. Bravo!!!

And this line: So the real lesson from his analysis is that any pension plan based on stock investments carries extra risks. is a doozy. Mostly because it's pabulum.

Of course, an explanation of what might happen to the equity risk premium, or a brief summary of Modigliani-Miller would actually educate the populace, so it's best to stick to naive analysis, scaremongering, and assigning articles to people who are either too ignorant or driven by agenda to write an intelligent article.
posted by Kwantsar at 11:56 AM on December 27, 2004

unreason, can you point to a study that says SS won't last more than 20 years in its current state? The reason I ask is because I've heard that we've got about 50-75 years before SS gets into trouble.
posted by fletchmuy at 11:58 AM on December 27, 2004

if people stopped paying into social security now and put it into private accounts, what is going to fund social security for the other people wno need it? I can't see how this plan will do anything but bankrupt SS completely
posted by akmonday at 11:59 AM on December 27, 2004

Bush was sold on the fact that privatization both makes Social Security --Not social anymore-- AND-- Non-Secure.
Thus when you loose all your "security" in a failed/corrupt mutual fund, you won't come crying to him...
posted by Balisong at 11:59 AM on December 27, 2004

The problem is that with the baby boom there are too many retirees and not enough workers. Making the rich pay more will help a little (and it will certainly feel satisfying) but it won't fix the underlying problem.

Well, I don't know how satisfying it will feel, but my understanding is that Social Security taxes (12.4%) are the same amount after $90,000 in wages, no matter how much more you earn. If this is right, then it seems a rather non-progressive way to tax since someone who earns $90,000 in wages is taxed at the same rate as someone who earns $300,000 in wages. So, rather than feeling satisfied, I would feel a sense of fairness. Even better would be a social security tax on investments, etc.

So, if there is a shortage or whatever due to increasing numbers of retirees and shrinking numbers of workers, then it seems more reasonable to fairly tax the wealthy rather than gutting the system all together. Then again, I'm biased, because most of my income is from wages and exactly ZERO is from investments.

Of course, my understanding of the Social Security system isn't the best, so I could be completely wrong.
posted by Boydrop at 12:01 PM on December 27, 2004

"But if [investments] are handled by Wall Street, the fees could be sizable, dissipating some of the return from investing in stocks. Logue takes no account of such expenses in his analysis."

This is one other not-so-hidden problem with current plans for privatized SS: transaction costs. Not only is private investment inherently more risky, it also involves paying a portion of your earnings to someone else for the privilege of investing. Brokerage fees for buying and selling stocks, and "maintainance" fees for mutual funds, disproportionately affect smaller (i.e. poorer) investors, because they siphon off a bigger relative proportion of their savings. Depending on your point of view, this is either a hidden flaw in an otherwise well-meaning reform; or a huge potential payout to the banking industry.
posted by googly at 12:03 PM on December 27, 2004

Also, didn't they (Greenspan and Congress?) raise the SS tax in the early 80s with the expressed intent on curbing the "crisis" of retiring boomers? I'm not sure exactly what's changed so much since 1980 that necessitates the complete overhaul of Social Security.
posted by Boydrop at 12:05 PM on December 27, 2004

Hey unreason, it's flat-out false the system won't last past the next 20 years. Such claims require reputable links and there aren't any.

They do not admit to the 20 year deadline, but as to the system being strong Social Security itself says otherwise. It's a matter of simple demographics. Believe it or don't.

unreason, can you point to a study that says SS won't last more than 20 years in its current state? The reason I ask is because I've heard that we've got about 50-75 years before SS gets into trouble.

Unfortunately I can't. I saw information on this when I was writing a report on social security about 3 years ago, but I don't still have my bibliography. As I recall, through, 50-75 is the official estimate. However, many analysts think that this is overly optimistic, particularly since it assumes that Congress will stop raiding the fund. (Both parties have been raiding Social Security for decades) The 20 year figure is still somewhat controversial, I'll admit. However, what isn't controversial is that the system will eventually break. It's not a matter of if, but when.
posted by unreason at 12:05 PM on December 27, 2004

By the way, I just read this comment on Scott Rosenberg's blog post about SS and felt it should be repeated here:

"Privatizers want to end Social Security, but can't say so. They. Want. To. End. Social. Security. You eat the last orange, but replace it with a lemon. Hey, they're citrus fruit, what's your problem? My problem, asshole, is that I want my orange. It was mine, and you took it."

(and on preview, thanks for getting back to me, unreason.)
posted by fletchmuy at 12:07 PM on December 27, 2004

Damn, I've never posted so frequently in a thread before, but . . .

if people stopped paying into social security now and put it into private accounts, what is going to fund social security for the other people wno need it? I can't see how this plan will do anything but bankrupt SS completely

I think akmonday has unknowingly (?) uncoverd the true Republican agenda. On preview, what fletchmuy said.
posted by Boydrop at 12:11 PM on December 27, 2004

"Privatizers want to end Social Security, but can't say so. They. Want. To. End. Social. Security. You eat the last orange, but replace it with a lemon. Hey, they're citrus fruit, what's your problem? My problem, asshole, is that I want my orange. It was mine, and you took it."

True. Privatization is basically killing social security under a nice name. The problem is that because it's one of the few real "reform" plans out there, it gets a lot of favorable press, despite the fact that it's a terrible idea. The only other famous idea for reform I've heard is Al Gore's Lock Box idea, which although helpful is by no means a complete solution.
posted by unreason at 12:12 PM on December 27, 2004

The other real problem here is that SOCIAL SECUIRITY IS NOT AN INVESTMENT PROGRAM! It is an insurance program with a guaranteed payout.

The whole idea of Social Security is to be a defined benefit we can rely on as we assume risk in our other two legs of preparing for retirement: pensions and investments.

You can't rely on pensions anymore, because no matter how long you work you can't guarantee that the company will still be there one, two or three years after you retire.

We already have the ability to invest our retirement money in the stock market -- it's called an IRA or a 401(k). But as we saw with Enron, Global Crossing, Lucent and the rest investments are not always the best way to prepare for retirement.

But Social Security guarantees that you can at least get a bad apartment and get basic food. Medicare means you can get basic health care.

We already have risk in our retirement, and if we take away the guarantee we will be in deep trouble.

And the truth is that Social Security is not in that big of trouble. It's actually improved its situation over the past 10 years.
posted by nathanrudy at 12:12 PM on December 27, 2004

Yup. They want to kill it entirely. And others are salivating (see Wall St.) over the user fees and money they'll make from this.

I want every single Democrat to stand up and fight to the death to keep Social Security the way it is. It's NOT going bankrupt, and it's NOT in trouble--I'd call this a gift to Wall St. at our expense. See TalkingPointsMemo for much much more on this.
posted by amberglow at 12:13 PM on December 27, 2004

Aside from the policy discussion regarding the goals and efficacy of the Social Security program, this guy's analysis is simply not that accurate. For a more robust analysis, read Characteristics, Covariances, and Average Returns: 1929-1997, by James L. Davis (Dimensional Fund Advisors Inc.), Eugene F. Fama (University of Chicago - Graduate School of Business), and Kenneth R. French (Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)).

The value premium in average stock returns is robust. Measured by HML (which is neutral with respect to size effects), the value premium for 7/29-6/63 is 0.50 percent per month (t = 2.80). This is close to the premium for 7/63-6/97, 0.43 percent per month (t = 3.38), observed in earlier work. The size effect in average returns is smaller. Measured by SMB (which is neutral with respect to value effects), the size premium for the overall 7/29-6/97 period is 0.20 percent per month (t = 1.78).

In other words, between 1929 and 1997, the value-weight return on all NYSE, AMEX, and NASDAQ stocks with book equity for the previous calendar year was between .2 and .5 percent above the one month T-bill rate, depending on how you measure it.
posted by monju_bosatsu at 12:17 PM on December 27, 2004

amberglow, if you can wrap your brain around this study, understand it, and still proclaim that SS is not in trouble, then you will cross the road from partisan to nutjob. Even the (sometimes Marxian) Brad Delong admits that there are good reasons for privatization.
posted by Kwantsar at 12:21 PM on December 27, 2004

nathanrudy, while I completely agree with everything you say, how do you counter the tricky argument that low-end wage earners don't earn enough to invest in IRAs or 401Ks with the burden of having to pay SS taxes?

I only mention it because its the only argument I've heard that sounds even half-way honest.
posted by Boydrop at 12:22 PM on December 27, 2004

thanks for the reference, destro :) I got that cd for christmas
posted by puke & cry at 12:33 PM on December 27, 2004

Kevin Drum has done a good bit on this one. Put 'social security' in the search box and keep reading.

Generally (re: 20 years thing) the Social Security payments are going to hit problems around 2042-2052. For those of us around 30 right now, that's when we retire.

Definitely an issue that is worthwhile for my fellow Americans to become aware of and learned about.
posted by wah at 12:49 PM on December 27, 2004

monju_bosatsu: I've read that paper before, and I think you draw the correct conclusions, but I'm not sure why you chose it to illustrate your point. Fama et al wrote this, I presume, to illustrate and try to explain an analogous effect to the well known "low P/E" effect by studying firms with high price/book ratios. Of course, this study uses (as most do) the 30-day T-Bill as a proxy for the risk-free rate.

It's problematic that you're looking at an incomplete market (even with SS privatization, I imagine that investing in growth stocks will still be permitted), and that you're using T-bills for comparison, rather than long- or intermediate-term government debt (something a more traditional analysis would do).
posted by Kwantsar at 12:54 PM on December 27, 2004

To clarify my last comment-- the Social Security Trust Fund (a fiction, of sorts) holds long-term US Treasury bonds, and therefore an apt comparison to private accounts would use the returns from bonds, not bills.
posted by Kwantsar at 1:04 PM on December 27, 2004

And by "high price/book ratios" I meant "low price/book ratios." I'll go sit in the corner now.
posted by Kwantsar at 1:05 PM on December 27, 2004

Could someone please answer the following question: let's assume that Social Security was privatized. Wouldn't the addition of trillion of dollars to the private equity markets create a clut of available investment capital, thereby depressing rates on return on investments? I'm not saying this negates the argument for privatization (assuming there actually is one), but is this even being considered?
posted by ParisParamus at 1:08 PM on December 27, 2004

trillions of dollars...great a glut.....
posted by ParisParamus at 1:10 PM on December 27, 2004

Kwantsar, the issue of whether SS money is part of our debt or our surplus is irrelevant. And that whole "trust fund" thing is not relevant either.

The relevant question is whether people putting money in now will see their parents and grandparents benefit now. This is not about a trust fund, but about our money now paying for those older now, and our money and other worker's money in the future paying for those retiring in the future. At some point in the next century there'll be too few workers putting money in to keep the system solvent. Right now, and for the next 30 years that's not true. And if our immigration rates and birthrates hold steady, it may not be true even then. In fact, Greenspan actually raised the bar on retirement back in the 80s to ensure SS's solvency longer.
Now Bush is falsely proclaiming that there is a financial "crisis" in Social Security. If he repeats that often enough, he may convince people that the program is on the rocks -- just as he successfully led the nation into war under the fallacy that Iraq had weapons of mass destruction and ties to the al-Qaida terrorist network.
Social Security will be solvent until 2042, though analysts say that more will be paid out in benefits than collected in payroll taxes, starting in 2018.
In 1983, when the program had a short-term financial problem, former President Reagan tapped Alan Greenspan, now chairman of the Federal Reserve System, to head a commission to propose a fix.
The Greenspan panel made recommendations to bolster the program, including a gradual increase on the payroll tax on employees and employers that went up to 7.65 percent in 1990.

Bush, idiot that he is, refuses to increase the payroll tax--which would be the best way to ensure SS's health and survival. This won't pass anyway, so it's all moot. They don't call it the 3rd rail for nothing.
posted by amberglow at 1:34 PM on December 27, 2004

People in their 30s often act as if Social Security isn't doing them any favors because it may run out before they hit retirement. Actually, it's doing them an enormous favor--it's preventing them from having to completely support their aging parents if they happen to have been as irresponsible, say, as my father (now in his 70s) was. They're getting Social Security benefits now, in other words. And though many say they wouldn't support their parents, when the crunch comes, you often do what you have to.
posted by Peach at 1:35 PM on December 27, 2004

Wouldn't the addition of trillion of dollars to the private equity markets create a clut of available investment capital, thereby depressing rates on return on investments?

IANAE, but my impression is that those in favor of privatization believe the opposite would occur - e.g., the influx of capital would stimulate the economy, which in turn would lead to higher rates of return. Also, in the short term, the influx of capital would lead to more speculation and thus to higher (probably overvalued) stock prices.

Whether this is good in the long term is debatable.
posted by googly at 1:38 PM on December 27, 2004

yup, Peach...some people hate that it's actually a socialist program--one that has immeasurably helped those older people among us.
posted by amberglow at 1:39 PM on December 27, 2004

Paris is right about this -- if there are a suddenly hundreds of millions of dollars flooding equity markets, how can it not inflate stock prices far beyond their (inherent) worth?

I know that some economists don't believe that stocks have inherent worth, but, saying I did, can someone convince me that this won't create an unbelievable stock bubble?
posted by zpousman at 1:40 PM on December 27, 2004

Generally (re: 20 years thing) the Social Security payments are going to hit problems around 2042-2052.

No worries, then! The comet is going to smoke earth in 2029.
posted by five fresh fish at 1:47 PM on December 27, 2004

if there are a suddenly hundreds of millions of dollars flooding equity markets, how can it not inflate stock prices far beyond their (inherent) worth?

This all depends on whether or not you believe that these new investors will act "rationally" or not. There are at least 2 possible scenarios:

1) The spate of new investments will be made by inexperienced investors who are more prone to invest in highly speculative, already over-valued stocks, pushing their prices even higher and thus creating a bubble. Eventually, the companies that these folks have invested in go bust, or the speculative fervor dies out, and the bubble bursts, leaving investors with stocks that are worth much less than what they paid for.

2) New investors educate themselves on good investment strategies, and channel most of their money to sound investments in reliable companies. This leads not to a speculative bubble, but to steadily growing companies and a healthier economy that in the long term provides solid returns on investment.

These are, of course, extreme examples. There will always be some speculation, which is not necessarily a bad thing. But I'm inclined to believe that (1) is, unfortunately, closer to the truth - not because its inevitable, but because very few Americans have educated themselves on the basics of investing.
posted by googly at 1:55 PM on December 27, 2004

zpousman-- many speculate that the equity premium would disappear. If the plan permits it, I'd expect a lot of money to go overseas in search of better valuations. Effects could be far-reaching as people sell out of their mutual funds to buy laundromats and car washes.

amberglow: The relevant question is whether people putting money in now will see their parents and grandparents benefit now.

That's just inane. There are literally thousands of things I could do to benefit my parents and grandparents today. I could move home, cut their grass, prepare their meals, and do their laundry. Or I could live under a bridge, work 100 hours a week and send them my checks.

one that has immeasurably helped those older people among us

Well, sure. If I gave you $20,000 it would help you out quite a bit. Depending on your current situation, it may be "immeasurable" help. But the money's mine, for fuck's sake.

Bush, idiot that he is, refuses to increase the payroll tax--which would be the best way to ensure SS's health and survival.

Econ 101: When you increase the price of something, less of it will be consumed. An increase in the payroll tax is a tax on hiring people, plain and simple. GWB has many, many faults, but if you don't think a payroll tax hike will have an adverse effect on unemployment, then you're practically denying a fundamental principle of economics.

Looking to Helen Thomas for economic insight? Stick your fingers in your ears and scream a little louder.
posted by Kwantsar at 1:58 PM on December 27, 2004

The argument shouldn't be whether Social Security is "not in trouble." All are agreed that in 2018, the tide turns and the fund's days are numbered, yes? There is some disagreement about how strictly those days are numbered, but that is relatively immaterial if we agree on the fact of its impending demise and the date that demise begins.

The debate we should be having is, "Do we want Social Security, or not?"

One figure unrelated to this debate that I would very much like to know is which party has been more irresponsible with the trust fund? Is there any way of figuring out how much each party has essentially appropriated for tax cuts or government spending, in excess of non-SS revenue, since the trust fund first began drawing surpluses?

I mean, I understand expenditures can't be strictly broken down by party, but can't it be roughly approximated somehow?
posted by grrarrgh00 at 2:00 PM on December 27, 2004

"Bush, idiot that he is, refuses to increase the payroll tax--which would be the best way to ensure SS's health and survival. This won't pass anyway, so it's all moot. They don't call it the 3rd rail for nothing."

Huh? Do you mean raise taxes, or raise the ceiling, above the income which Social Security taxes aren't levied? The former is insane; the latter, a good idea.

PS: if Bush is that horrible a leader, I'd strongly suggest leaving the US. Because, it's unlikely the Democratic Party, at least as you know it, will ever again control Congress or the White House.
posted by ParisParamus at 2:08 PM on December 27, 2004

Nah, amberglow--Social Security means I don't have to take in my user of a father just because he screwed up and I didn't. It doesn't benefit him a whole lot (Social Security income is pretty puny, anyone who has actually gotten it wouldn't ever describe it as "immeasurable" help), it just means he's not a drag on someone else.
posted by Peach at 2:09 PM on December 27, 2004

For more bad math from CSM, see this article.

I won't even point out the flaw in the logic, maybe it will be fun for you to figure it out. I mean, DUH.
posted by sdrawkcab at 2:25 PM on December 27, 2004

it's unlikely the Democratic Party, at least as you know it, will ever again control Congress or the White House.

If the Republican Party does not change, you're completely wrong.

Sure, legislating morality for other people is great, until you don't have any money (which may be a possibility for many, if the fringe elements in control of the GOP stay in control for much longer, and drive the economy into the ground). And then Democrats will suddenly have attractive proposals, like making sure everyone has enough food and adequate health care.

(And yes, I know ParisParamus does little besides trolling.)
posted by oaf at 2:56 PM on December 27, 2004

The argument shouldn't be whether Social Security is "not in trouble." All are agreed that in 2018, the tide turns and the fund's days are numbered, yes?

Actually, no. In 2018, payments begin to exceed revenues. At that point SS starts to tap the trust fund. This continues to pay full benefits until somewhere around 2042 to 2052. At that point the trust fund is empty, but there are still payroll tax revenues sufficient to pay about 75% of expected benefits. So even then SS continues on, but at a reduced benefit rate.

All of these projections are based on complex economic estimates including birthrate, immigration, economic growth and productivity growth. Ten years ago they estimated that the trust fund would be exhausted in 2032, and ten years before that they thought 2022. In fact, as we have gone forward, the estimated date keeps receding into the future since the models are very conservative and reality, at least so far, has be more benign. In fact, with just slightly more robust economic growth estimates, SS could extend into the next century and beyond. But to be safe, you could take just 25% of the Bush tax cuts and add them to Social Security and it would be solvent forever. The idea of a crisis is a fiction, just like WMD, being wielded by Bush to scare the public into privatizing Social Security. He used the same tactic to justify his war in Iraq, and don't underestimate his chances of succeeding again in his disastrous agenda.

The real crisis is in the General Fund deficit and Medicare, which he declines to talk about because neither fit Bush's political agenda of destroying Social Security, the most successful and efficient government program in history.
posted by JackFlash at 2:57 PM on December 27, 2004

Oaf: the Democrats have had two Presidential terms out of the last seven. They've lost the Congress. They spent all of their ammunition on this last contest, and still lost (even though they were convinced they would win--easily). Please tell me why my contention is so outlandish.

A for Social Security specifically, statements that the President is scheming to wreck the current system (as opposed to reform it by necessity) are moronic--even more so than the moronic Left's view on the need for war in Iraq.

Consider that good politcal advice to get the Deomcrats out of the denial and tailspin they're in right now....
posted by ParisParamus at 3:23 PM on December 27, 2004

Paris, You hit the nail on the head. In order for social security privatization to work we have to assume that stocks are undervalued, and from what I've read, stocks are still overvalued.
posted by jbou at 3:26 PM on December 27, 2004

Bingo, JackFlash.
posted by mek at 3:37 PM on December 27, 2004

Actually, it doesn't assume that stocks are undervalued - only that people will make rational decisions about their investments. If, for example, every stock is overvalued, then rational investors will put their money elsewhere - real estate, bonds, T-bills, foreign currency, etc. etc. etc.

This kind of ignorance about how investments work is precisely the problem with SS privatization. Its a great idea in theory, as it will give us all more control over our earnings and allow us to take as much (or as little) risk as we are comfortable with. (I for one know that I will benefit from it, because I'm confident that I know what to do with my money, and I won't cry about whatever losses I incur because I will have assumed them with full knowledge of the risk I'm taking). But in practice, it will mean that a lot of people lose a lot of money because they make poor decisions about what to do with their money.
posted by googly at 3:47 PM on December 27, 2004

The idea is to keep the stock market propped up and to end SS "as we know it".

Too bad America is going bankrupt over the desert-party in Iraq.

Add to that the lack of oil in America (The black blood powering American existance and what was what won WWII.) and this existance is based on growing american population and consumption.

When the oil runs out (because it will) so will the party.

SS is the least of the nations worries.

Just keep re-arranging the deck chairs on the deck, and listening to the fiddling about of the Nero-cons.
posted by rough ashlar at 3:59 PM on December 27, 2004

1. Well, first of all, this guy ignores that his employers put in an equal amount of taxes all those years. But that doesn't really matter -- this is a social insurance program, which benefits more than individuals. And unless you'd like to put your mom and dad up in the spare room in their old age, you might reconsider whether you support defunding the system.

2. All of the worst case scenarios assume anemic economic growth in the United States for the next several decades.
One has to question whether, under those circumstances, it would be wise to invest money in the stock market. It would surely be anemic as well.
posted by Slagman at 4:00 PM on December 27, 2004

PS: if Bush is that horrible a leader, I'd strongly suggest leaving the US. Because, it's unlikely the Democratic Party, at least as you know it, will ever again control Congress or the White House.

You could've easily said the same of the republicans in 1978, but thanks for playing.

I recall tuning in to C-SPAN just in time to catch Alan Greenspan testifying to a congressional committee. He was using phrases like "demographic timebomb" to describe the situation with Social Security. It's very simple: the ratio of people working to people collecting payments will be changing drastically, starting around 2020. When it happens, the system will be forced to adapt either by raising the retirement age, lowering benefits, raising taxes, or some combination of the three. I wouldn't shed a tear if the system were dismantled tomorrow, since I probably won't see a dime from it. However, I'm naturally hesitant to embrace an alternative proposed by the bourgeois element. It's my perverse hope that the republicans will get their way with social security, only to be consequently drummed out of office in droves.
posted by mullingitover at 4:25 PM on December 27, 2004

ParisParamus, you're killing me. Great sendup of Republican arrogance. Honestly, you're a satirist of Swiftian proportions. You and Kwantsar should team up, do a tour.

Hey! I've got a name for it! Why don't you call your act "Jackass and Knownothing" and then one of you can put your hand up the other's butt! "Social Security must be dealt with NOW!" Kwantsar will say, all the while having his innards massaged by Gay Paree Paramus!

Viva la Republicolucion!
posted by Hat Maui at 4:42 PM on December 27, 2004

Why don't you call your act "Jackass and Knownothing" and then one of you can put your hand up the other's butt!

Which one am I?
posted by Kwantsar at 4:59 PM on December 27, 2004

Since I'm not a Republican, and I would have likely voted for a Democrat if it wasn't the Flippy-Floppy Man With Plans, be careful what you assume.

By the way, I wasn't really thinking about SS$s propping up equities (stocks); rather, depressing interest rates.

One thing I can say for sure: stop calling Bush stupid or scheming--at least if you ever want to see him or his successor not win.
posted by ParisParamus at 5:26 PM on December 27, 2004

It's very simple: the ratio of people working to people collecting payments will be changing drastically, starting around 2020.

It's not as simple as you think. The projections take into consideration the ratio you cite and SS is still a sure bet far into the future. For example when SS was started, the ratio was 47 to 1. Today it is 3 to 1 -- and SS is running a surplus! It is not too hard to imagine that SS could handle a further change to 2 to 1 without too much pain.

It is not a good idea to buy into the fallacy of a crisis. It is always discouraging to hear young people repeat the false Bush blather that younger people will never see a dime because that means he has already won the battle (ala WMD). From a progressive viewpoint it would be better if young people embraced the idea of a secure SS forever and do every thing possible to prevent its dismantling. You only have to look back at the wretched conditions of the elderly in the 30's to see what America would be like without a secure safety net.
posted by JackFlash at 5:27 PM on December 27, 2004

I still haven't seen any evidence that Social Security is in trouble. Were'nt y'all going to dredge up some evidence for us?
posted by bshort at 6:13 PM on December 27, 2004

And as for low income people investing in their retirement, we already do a good job at doing that. The little known Retirement Savings Tax Credit provides a fairly hefty incentive for low income people to contribute. It should be refundable, just like the Earned Income Tax Credit, to encourage more people to save. It's not like suddenly diverting 2% or even 4% out of a $20,000 or $30,000 salary is going to turn into a viable nest egg for retirement.
posted by calwatch at 6:15 PM on December 27, 2004

Anyone who does not believe that the Republican Party wishes to completely eliminate Social Security should read the official platform (pdf link) of the Texas Republican Party, which contains this sentence on page 13:

"The Party supports an orderly transition to a system of private pensions based on the concept of individual retirement accounts, and gradually phasing out the Social Security tax."

I think that's pretty clear. And George Bush is a Texas Republican.

Read the whole thing. You might be surprised what's in there.
posted by wadefranklin at 6:29 PM on December 27, 2004

you're all assuming that any "privatization" will mean everyone will keep their money to invest as they please. we already know that Americans are not savers. I would imagine that privatization would mean the government setting up private accounts with mandatory contributions and only moderate risk investments, and hands off from any government access.

my gripe with SS is that there are too many benefits available that were not part of the initial program, ie: a woman who was married to a man for 10 years can collect 50% of his SS at retirement, It's not inconcievable these days for several women to be collecting against the same man's retirement thereby costing much more that he ever contributed.

Also, children under 18 collecting SS for no other reason than a parent, usually the father, is over 65. My wife used to keep the books for a family where the father was retired, his much younger wife earned $250k+ but their son began getting a check on his fathers 65th birthday. No means testing, just cut a check.
posted by acclivus at 8:52 PM on December 27, 2004

I still haven't seen any evidence that Social Security is in trouble.

I don't think anyone is denying that we can find ways to postpone the problems (more immigration, tax increases, means testing, increasing the retirement age, tying benefits to CPI, etc). However, the system itself is unsound. It is an enormous unfunded liability with a present value in the trillions (no matter who you ask). The US is a debtor nation and the trust fund is nothing more than an oft-raided pile of IOUs written to ourselves. Add the Medicare debacle (an even greater future liability) and the regular ol' national debt and we have a mess far too big for paper towels.

If the left was smart, instead of bellyaching, it would come out and say that Social Security is indeed a timebomb, and that the solution isn't in giving an enormous handout to Wall Street, but rather in paying older workers their full slate of benefits and transitioning the program back to an insurance scheme in which only the needy earn benefits. Require younger workers to pay only to the insurance part of the program, and allow them private accounts. Make contributions mandatory if you must. Also, be sure to get mileage out of the inarguable truth that SS is de facto a racist program. Explain that the current system provides nearly twice the payments to a typical white woman as it does to a typical black man. Seize the powerful message that the taxpayer's loved ones will own his retirement when he dies, and that the money can be spent for the grandchildren's college educations. The "ownership society" could have been a Democratic ideal but even as leading leftist economists are grudgingly admitting a case for reform, the Democratic leadership has chosen to stick religiously to the disparage-Enron-and-Dubya playbook rather than to offer a competing idea.
posted by trharlan at 8:57 PM on December 27, 2004

The money shouldn't be spent for college, or a house, or vacations, or to get out of debt--the money is not for those things--it's for retirement/death benefits to survivors. It's not a 401k, nor should it be. It's not a timebomb either, unless you assume no one will be working in the future, nor paying into it--a ridiculous assumption.

What is also ridiculous is assuming people won't withdraw from it if it's private, and that they won't lose lots of money in fees and bad investment choices, and that the market is also always good. It's a wholly unproven statement that money invested in the market always pays off, while Social Security DOES always pay off, and with minor tweaking, if anything, will last centuries.
posted by amberglow at 9:12 PM on December 27, 2004

And if death rates being unequal makes Soc Sec racist, then all the more reason why we need national health for all, so that these disparities are eliminated.
posted by amberglow at 9:14 PM on December 27, 2004

For every senior who gets it and doesn't need it, there are two seniors that really need it, and would be eating dog food without it. The average "income" of retired people is not high (and SS provides 2/3 of it), and with private pensions gone, and if not gone, liable to disappear at any time according to a business's whim/cost-cutting measure/bankruptcy, it's more needed than ever.

Retirees rely heavily on Social Security for their income. Social Security provides 64.1 percent of retirement income to middle-income older Americans--that's two-thirds of their retirement income.
By contrast, middle-income older Americans receive only 16.3 percent of their retirement income from private pensions, and only 9.4 percent from savings.
"Security" is the key word in Social Security. Social Security provides retirement income guaranteed to last throughout life, to rise with increases in the cost of living and to stay stable even when the stock market drops.
Social Security averts poverty among older Americans. Without Social Security, nearly half of people 65 and older would live in poverty, compared with 8.5 percent today.
For elderly women, the percentage is even greater. Without Social Security, nearly 3 in 5 unmarried women 65 and older would be poor.
posted by amberglow at 9:20 PM on December 27, 2004

acclivus I don't get your point about women. Any married (or formerly married) person male or female is guaranteed to get at least half as much as their spouse (or former spouse if divorced). In other words, they get the full SS based on their own earnings and, ONLY if that amount is less than half that of their spouse, they also get enough spousal benefit to make up the difference. (This ain't no fortune--half the average primary benefit is less than $500 a month and half the maximum possible is about $900 a month.)

The spousal benefit generally only kicks in for someone who hasn't been a fulltime worker which is probably because they were busy being a parent and/or running a household. Are you saying they should be screwed because of this?
posted by Sixtieslibber at 9:44 PM on December 27, 2004

People, people, get a grip of yourselves. All this sniping back and forth between the lefties and righties about private versus public retirement benefits is but more evidence of the severe myopia that afflicts the current debate about the issue. We are ultimately losing sight of the fact that all retirement schemes, regardless of how they are implemented, function to redistribute wealth between the productive and unproductive members of society, rather than to create wealth.

The bottom line is this: you can't eat money. The coming demographic crisis means that irrespective of however high the nominal value of a retirement vehicle (mutual funds, 401K, Social Security, whatever) might be, our economy's diminished capacity to produce hard goods and services will inevitably result in massive inflation and thus poverty. Don't rely on imports either -- we already have a huge, unsustainable trade deficit that will have to be corrected sooner or later.

There are only two solutions to this: increasing worker productivity through technology, and correcting the demographic imbalance. It's hard to see what could be done to dramatically increase productivity beyond what the government and industry are already trying. And correcting the demographic imbalance would entail either increasing birth-rates (difficult) or increasing immigration (politically sensitive). Never mind that doing so just exacerbates all the environmental issues that are a consequence of overpopulation.

Social Security, no Social Security...we are fucked either way unless we address the fundamental, macro-economic issues at stake. Too bad Bush lacks the vision (and spine) to do so. *sigh*
posted by randomstriker at 12:04 AM on December 28, 2004

Actually, President Bush has more vision on the subject than most of the people contributing to this thread. I hope his plans move forward ASAP.
posted by ParisParamus at 6:00 AM on December 28, 2004

The coming demographic crisis ... our economy's diminished capacity to produce hard goods and services will inevitably result in massive inflation and thus poverty. Don't rely on imports either -- we already have a huge, unsustainable trade deficit that will have to be corrected sooner or later.

All our demographic crises have been temporary and i believe eliminated when the largest group has their kids--see the Baby boom, and their kids (the Echo? Millennials? they're a much larger group than Gen X or my parent's Silent generation) only just starting to have kids now, and entering the workforce in massive numbers. In addition, immigration happens whether people want it to or not, and those people contribute to the system too, sometimes without any hopes of getting anything out of it.

And our diminished capacity has absolutely nothing to do with SS, and shouldn't be tied to it. It's not because of too few people here that we have deficits and debt.
posted by amberglow at 6:12 AM on December 28, 2004

The one unknown in SS is when future generations will "retire," or if the notion will disappear. Personally, the idea of retiring, in the conventional sense, has no appear to me. Work less, yes, but not stop; and possibly in a way so clever that I'll still have a significant income. Nonetheless, I think the President's outlook is sound.
posted by ParisParamus at 7:45 AM on December 28, 2004

appeal.
posted by ParisParamus at 7:56 AM on December 28, 2004

If the left was smart, instead of bellyaching, it would come out and say that Social Security is indeed a timebomb...

And yet you fail to support it with any actual proof.

But it's not a timebomb. All the projections I've seen show that it's fine out to 2041. 2041.

Want to make sure it'll be fine forever? Make it so that everyone pays the SS tax, no matter how much they make. Currently it cuts off at 80,000.

PP: trust me, no one cares what you think.
posted by bshort at 8:43 AM on December 28, 2004

I'd guess the "crisis" and the push to privatization are a red herring meant to ensure the survival of last term's tax cuts.
posted by atchafalaya at 8:46 AM on December 28, 2004

bshort: What would constitute "proof" in your eyes?
posted by trharlan at 9:22 AM on December 28, 2004

I dunno, a link to some sort of study that talks about this horrible crisis maybe? Oh, and if it showed that this Republican plan to kill Social Security will be any better then that'd be swell.

Every bit of support I've seen shows the crisis, if there is one, showing up 30 years out, maybe. As someone else pointed out, we're at 3 to 1 (worker to recipient) right now and we're doing fine, even running a surplus. I don't see how 2 to 1 is going to be that much worse, especially if we remove the Social Security tax breaks for rich folks.

Better yet, how about if we remove all the tax giveaways that Bush pushed through? We'd have SS for everyone, schools wouldn't have to mortgage their textbooks, and libraries wouldn't have to shut down.

That'd be cool.
posted by bshort at 10:29 AM on December 28, 2004

I have done my best to opt out of Social Security. It is very hard to do. The simple truth is that SS is doomed to fail because the right people want it to fail. I am not one of the right people, I just feel oppressed by the involuntary nature of the scheme. Moan all you want people, but plan for the program not to be there for you, cause there is a good chance it will not be.

The whole thing is a pain. My partner and I decided not to saddle our daughter with the number when she was born. Lack of that number makes many things more difficult, and I am going to be very bitter when the day comes that we have to give in to the pressure, to partake in some non-related activity.
posted by thirteen at 11:20 AM on December 28, 2004

As libraries and schools are funded locally, often by Local Option Sales Tax, I'd suspect that leaving income in the hands of people that earned it would encourage spending that would support those schools and libraries.

Oh, sure, SS takes it in the head, but shooting a corpse is not a problem for most people.

2018 will be the year it all falls down -- that's when SS will try to pull money out of the "lock box" that has been emptied by Democrat and Republican pork projects for the past 30 years. There is nothing there, and to pay it back something will have to give. Alas, that'll probably be my paycheck and my benefits, as I age.
posted by dwivian at 11:31 AM on December 28, 2004

but even then, dwivian, there'll still be tons of money coming in each week--i've heard enough for 80% of recipients--even then.
posted by amberglow at 5:25 PM on December 28, 2004