Let's Talk About Fixing Social Security

[crcballer55]

I was reading an article about a former congressman who supported Obama, but switched sides due to the fiscal policy. http://www.cnbc.com/id/48717178

By most accounts, Social Security will be insolvent within the next two decades and we will be left holding the bag. I've been wondering if there was any clout to either side of the argument so I ran some quick and dirty numbers and was amazed by the what I found if the federal government were to allow us the option to invest in private accounts instead.

The average household in America earns about $40,000/yr. and contributes 4.2% into Social Security (not counting their employer's additional 6.2% contribution). If we were allowed to contribute that into private accounts at only a 8% return (2-3% below historical rates) for your working career (45 years) you would end up with $743,000 in your account, or a monthly take home of about $4900 without touching the principle. If we increase that to the market rate of 10%, you'll have $1,480,000 & a monthly return of about $8633 @ 7% (because you'll get more conservative). Given that the current social security benefits for that same household are only $1500 with the full 10.6% invested (according to the Social Security website), I think having the option to privatize Social Security would be a much better option than most of the tax increases that have been proposed.

If you were king, what would be your solution to fixing Social Security?

 

[oidreez]

I wrote a paper about this some years ago and I agree with privatizing it. I work for Social Security by the way

 

[odog24]

dont know anything about it just posting to hopefully get some knowledge

 

[cj863]

Something has to be done and fast is all I know. Americans might just have to bite the bullet and go without entitlements in the future. The thing that gets me
though is the conservatives that desperately want entitlements cut but are faithfully waiting on a social security check each month. I'm just not sure that the country prepared for privatization right now.

 

[crcballer55]

Something has to be done and fast is all I know. Americans might just have to bite the bullet and go without entitlements in the future. The thing that gets me
though is the conservatives that desperately want entitlements cut but are faithfully waiting on a social security check each month. I'm just not sure that the country prepared for privatization right now.

I'm hesitant to classify SS with entitlements considering that we pay into the system for 40-45 years before receiving the benefits. It's almost like classifying a paycheck as an entitlement. You worked for it for two weeks, so you've earned what you get. Considering that it once took 6 people to pay for one beneficiary's benefits and now it takes 13 along with the fact that Congress has been raiding the system for the past 30 years, the system is clearly broken.

I'm liking Paul Ryan's proposal of gradually transitioning to a private system while still maintaining most of the benefits and dignity of our elders.

 

[essential1]

By privatizing it, are we talking about investing it in the stock market like so many "fiscal conservatives" have said is the answer in the past?

If so that is a terrible idea.

If we are talking about a traditional pension with government backing, I'm more inclined to hear it. Also the potential problems of young idiots in their 20s opting out of social security to keep more of their paycheck can set up a disastrous situation in the future. Creating a terrible situation for future seniors..

Social Security itself is the most widely successful program in American History.. Still has a lot of solvency, with diminishing returns starting in the 2040s. Bankrupt in the 2080s. But our politicians are the ones who have damaged social security and creating diminishing returns, and distant future of bankruptcy with the constant cutting of payroll tax, and using the surplus social security has for tax cuts, wars, etc.

All I know is having to work until the day you die by force, is not a way to live the last few years of life.

Paul Ryan's plan is ****.. And that's why he would never suggest putting it on current seniors.. It would decimate social security, and they always complain about us young people not having the same future to look forward to as our parents.. This is exactly how it would be done. By decimating something previous generations enjoyed, for a **** plan that requires us to work until we die

 

[futuremd]

You know SS isn't ONLY just for old people, right? It covers other things... 

 

[crcballer55]

By privatizing it, are we talking about investing it in the stock market like so many "fiscal conservatives" have said is the answer in the past?

If so that is a terrible idea.

If we are talking about a traditional pension with government backing, I'm more inclined to hear it. Also the potential problems of young idiots in their 20s opting out of social security to keep more of their paycheck can set up a disastrous situation in the future. Creating a terrible situation for future seniors..

Social Security itself is the most widely successful program in American History.. Still has a lot of solvency, with diminishing returns starting in the 2040s. Bankrupt in the 2080s. But our politicians are the ones who have damaged social security and creating diminishing returns, and distant future of bankruptcy with the constant cutting of payroll tax, and using the surplus social security has for tax cuts, wars, etc.

All I know is having to work until the day you die by force, is not a way to live the last few years of life.

Paul Ryan's plan is ****.. And that's why he would never suggest putting it on current seniors.. It would decimate social security, and they always complain about us young people not having the same future to look forward to as our parents.. This is exactly how it would be done. By decimating something previous generations enjoyed, for a **** plan that requires us to work until we die

I'm not talking about giving the option of investing for retirement. We would still be required to invest, the only difference is that those who are risk adverse could choose to stay in the current type of system while others have the option to invest that money themselves over the long run. We're talking about letting people live with dignity, and a system that only pays out ~$1500/mo. when you could be getting much.

The SSA announced in April that they are already paying out more than the bring in and will be insolvent by 2033. If we're considering that successful, that's a pretty sad state of affairs.

You know SS isn't ONLY just for old people, right? It covers other things... 

Yes. I'm trying to keep this argument fairly simple at this point without invoking disability insurance, survivors benefits, etc.

If we want to venture into that, we can talk about how inexpensive life & disability insurance are too.

 

[crcballer55]

.

 

[essential1]

I'm not talking about giving the option of investing for retirement. We would still be required to invest, the only difference is that those who are risk adverse could choose to stay in the current type of system while others have the option to invest that money themselves over the long run. We're talking about letting people live with dignity, and a system that only pays out ~$1500/mo. when you could be getting much.

The SSA announced in April that they are already paying out more than the bring in and will be insolvent by 2033. If we're considering that successful, that's a pretty sad state of affairs.

100 years is pretty successful. SS is not a new thing.

And their insolvency is "3 years ahead of projections" like you posted which was stated previously that in 2037 would be the first year they could not pay 100% of their obligations. And could operate until 2081 with 75% of obligations paid.


And what happens if that investing the money themselves gets wiped out when they are in their late 50s. Like so many 401Ks and pensions were in 2008? What happens after that?

 

[crcballer55]

I'm not talking about giving the option of investing for retirement. We would still be required to invest, the only difference is that those who are risk adverse could choose to stay in the current type of system while others have the option to invest that money themselves over the long run. We're talking about letting people live with dignity, and a system that only pays out ~$1500/mo. when you could be getting much.

The SSA announced in April that they are already paying out more than the bring in and will be insolvent by 2033. If we're considering that successful, that's a pretty sad state of affairs.

100 years is pretty successful. SS is not a new thing.

And their insolvency is "3 years ahead of projections" like you posted which was stated previously that in 2037 would be the first year they could not pay 100% of their obligations. And could operate until 2081 with 75% of obligations paid.


And what happens if that investing the money themselves gets wiped out when they are in their late 50s. Like so many 401Ks and pensions were in 2008? What happens after that?

If we're projecting the insolvency of something, that indicates that it's broken. And where are you getting this 2081 number? The SSA started going in the red last year when the Boomers started retiring.

Even with the market losing significant portions in the late 1920's-30's, 70's 1987, 2000, & 2008, it has still returned much better returns than the 2-3% of Social Security has. For those who kept their money invested, they didn't lose anything. Besides, you're investing over a 40 year period. This was the first time in the 100+ year history of the stock market when it went negative over a 10 year period. Even with that, we are within 10% of where we were in 2007 when the market peaked.

If we're going to mandate a Social Security program, what's wrong with giving people the option of investing their own money? The Federal Government could still tax it at a 15% rate and collect the total you originally invested and both sides would come out ahead.

 

[hankmoody]

The SSA announced in April that they are already paying out more than the bring in and will be insolvent by 2033. If we're considering that successful, that's a pretty sad state of affairs.

http://www.niemanwatchdog.org/index.cfm?fuseaction=background.view&backgroundid=628

 

[villansfinest]

If we're going to mandate a Social Security program, what's wrong with giving people the option of investing their own money? The Federal Government could still tax it at a 15% rate and collect the total you originally invested and both sides would come out ahead.

Well, what do you picture the outcome being when that person who had invested their SS contribution into the market and ended up with less than your 10% gains year over year?

What happens if somebody only ends up with half that amount in their nest egg? and then what happens when that full amount runs out?

Phrased another way, let's say that nothing is done about this at all, and we come upon 2037, or 2040 and THERE IS NO MONEY LEFT in the fund? I am not of the mind that the American people (as a whole) will just decide, "gosh, our system failed, that's a bummer. no more SS for you, you, or you. good luck with things, try not to cost society money when you die/expire."

*granted, I am a government employee involved in a defined benefit plan (separate from SS), and i am of the mind that the world economy will continue to expand and grow (long term) thus improving the financial security of that defined benefit plan over time(being actively managed by professional investors)...*

and regarding all of the people that "opt out" of SS normally... well, don't worry, there's already a lot of them. A LOT OF THEM. tax cheats, underground economies, etc already have an effect on the entire system.

I do not blame people that attempt to avoid SS. I am already making my plans to not have ANY SS AT ALL available to me when the time comes... I feel that there is no legitimate way for me to get out of contributing to it currently, but i kind of view that as my societal responsibility. if SS contribution rates for workers are increased, i think that more people would find ways around participating in the SS system.

at this point, i guess my solution is to gradually over the course of say 50 years (a generation or two) phase out the benefits and phase out the contributions. but make people aware of what is to come. allow for planning. I like the idea that each individual should only be able to get out of it what they put into it, but that seems hard to implement when it is being held over such a long period of time.

 

[essential1]

If we're projecting the insolvency of something, that indicates that it's broken. And where are you getting this 2081 number? The SSA started going in the red last year when the Boomers started retiring.

Even with the market losing significant portions in the late 1920's-30's, 70's 1987, 2000, & 2008, it has still returned much better returns than the 2-3% of Social Security has. For those who kept their money invested, they didn't lose anything. Besides, you're investing over a 40 year period. This was the first time in the 100+ year history of the stock market when it went negative over a 10 year period. Even with that, we are within 10% of where we were in 2007 when the market peaked.

If we're going to mandate a Social Security program, what's wrong with giving people the option of investing their own money? The Federal Government could still tax it at a 15% rate and collect the total you originally invested and both sides would come out ahead.

http://money.cnn.com/galleries/2007/moneymag/0710/gallery.retirement_myths.moneymag/7.html

"Social Security isn't going the way of the LP record soon. Sure, the headlines are alarming. In just 10 years the cost of Social Security benefits will outstrip the amount that workers pay into the system, according to government studies. And by 2041 the Social Security trust fund reserves will run out, unless Washington gets around to addressing the problem.

But that doesn't mean Social Security will shut down. Enough new money will continue to flow into the program from payroll taxes to fund 70% to 75% of scheduled benefits until 2081. And with a few reforms, Social Security could continue to pay full benefits. "

One suggestion given:
"You could raise the payroll tax by just one percentage point for both employers and employees, and you would be able to fund full benefits for the next 75 years."


And that buys even more decades of 100% payout... And figure out 2081 and beyond from there.

 

[Master Zik]

Eliminate it.

 

[crcballer55]

If we're going to mandate a Social Security program, what's wrong with giving people the option of investing their own money? The Federal Government could still tax it at a 15% rate and collect the total you originally invested and both sides would come out ahead.

Well, what do you picture the outcome being when that person who had invested their SS contribution into the market and ended up with less than your 10% gains year over year?

What happens if somebody only ends up with half that amount in their nest egg? and then what happens when that full amount runs out?

Phrased another way, let's say that nothing is done about this at all, and we come upon 2037, or 2040 and THERE IS NO MONEY LEFT in the fund? I am not of the mind that the American people (as a whole) will just decide, "gosh, our system failed, that's a bummer. no more SS for you, you, or you. good luck with things, try not to cost society money when you die/expire."

*granted, I am a government employee involved in a defined benefit plan (separate from SS), and i am of the mind that the world economy will continue to expand and grow (long term) thus improving the financial security of that defined benefit plan over time(being actively managed by professional investors)...*

and regarding all of the people that "opt out" of SS normally... well, don't worry, there's already a lot of them. A LOT OF THEM. tax cheats, underground economies, etc already have an effect on the entire system.

I do not blame people that attempt to avoid SS. I am already making my plans to not have ANY SS AT ALL available to me when the time comes... I feel that there is no legitimate way for me to get out of contributing to it currently, but i kind of view that as my societal responsibility. if SS contribution rates for workers are increased, i think that more people would find ways around participating in the SS system.

at this point, i guess my solution is to gradually over the course of say 50 years (a generation or two) phase out the benefits and phase out the contributions. but make people aware of what is to come. allow for planning. I like the idea that each individual should only be able to get out of it what they put into it, but that seems hard to implement when it is being held over such a long period of time.

My projection was fairly conservative at only 8% instead of 10% to account for those who are conservative and invest in bonds early on. With a 10% return (market rate), that same money would be double (about $1.5MM). If a retiree went conservative and only got a 6% return on that $743,000, it would still be $3750/mo. which is still more than they get now. And once again, that's only given the employee's contribution portion and not the employer's.