Wash Post has updated the SS story for a (BIG) correction

[coda]

An earlier version of this article incorrectly described how new private accounts would work under President Bushs Social Security plan. This article has been corrected.



Participants Would Lose Some Profits From Accounts

By Jonathan Weisman
Washington Post Staff Writer
Thursday, February 3, 2005; 1:51 PM


The mechanism initially detailed by the Washington Post in today's editions and posted earlier on the Post's Web site was incorrect.


The original story (available here) should have made clear that, under the proposal, workers who opt to invest in the new private accounts would lose a proportionate share of their guaranteed payment from Social Security plus interest. They should be able to recoup those lost benefits through their private accounts, as long as their investments realize a return greater than the 3 percent that the money would have made if it had stayed in the traditional plan.

That 3 percent level is the interest rate earned by Treasury bonds currently held by the Social Security system.

The Post mistakenly reported that the balance of a worker's personal account would be reduced by the worker's total annual contributions, plus 3 percent interest. In fact, the balance in the account would belong to the worker upon retirement, according to White House officials.



http://www.washingtonpost.com/wp-dyn/articles/A59136-2005Feb2.html

[hiley]

1. Oh, I already emailed it

This part is still the same though.

If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today's dollars. All of that money would be the worker's upon retirement. But guaranteed benefits over the worker's lifetime would be reduced by approximately $78,700 -- the amount the worker would have contributed to Social Security but instead contributed to his private account, plus 3 percent interest above inflation. The remainder, $21,100, would be the increase in benefit the worker would receive over his lifetime above the level he would have received if he stayed in the traditional system.


Damn I already sent it out. Quess, I will do a never mind remake.
Thank you for posting that correction.

[shadowknows69]

3. Considering our national debt

won't our national treasury bonds be pretty much worthless eventually?

[jswordy]

4. No...they will be worth more!

Bonds will have to pay higher interest to keep funding our debts. Interest rates will rise, which will be good for the SS bonds, and stocks will inversely decline, which will be bad for privatized accounts. See my other post here.

[Old and In the Way]

10. Those higher interest rates will also effect things like mortgages

and loans, too, right? So the net effect of divesting out of Treasuries will mean that higher interest rates (a lot higher) will be needed to get our deficits funded.

Is that increase to the consumer being calculated into the equation? If not, it should be.

[jswordy]

22. Look at the example...NOWHERE do they factor in inflation

smells a lot like the tax cuts to me...they are counting on greed to sell the illusion.

[reallygone]

106. Pay now...Pay later

The Fed already has a debt to pay off to the SS system. The note comes due in 2018. The Feds have to come up with that money, increasing volumes, every year after that while still paying benefits. If we begin to pay some of those earlier, by addressing the problem now, we reduce the impact in future years.

Anyone ever have one of those "Balloon Mortgages"? That is what we are facing with SS if we don't do something to refinance it now. It will get harder every year we delay.

The "Progressive" thing to do is engage in meaningful reform NOW! Not put our heads in the sand and say "What's the hurry?" I hope the Dems offer some kind of meaningful alternative that actually addresses the problem. At least then we have a choice.

[Old and In the Way]

125. Well, if Bush hadn't emptied the Treasury with those irresponsible taxcuts

we wouldn't have that problem would we? Remember how they were sold....these taxcuts would create millions of new jobs....that didn't happen. What did happen was that the money was given to the 2% of the wealthiest, and now we need to worry about the solvency of SS.

[rfranklin]

16. But they will never pay off on those bonds...

which is the point--Republicans keep saying "there's no money there." Pretty soon, the Republicans will cause a default on bonds, which will be worthless because no individuals or governments will trust the U.S.

[jswordy]

25. Uh, you need to study some more.

They WILL PAY OFF ON THE BONDS, because the bonds are U.S. TREASURIES. They are invested in OUR OWN GOVERNMENT and will be paid off as they come due by our own government.

Let me put it to you this way: If our government defaults on ANY of its bond payment obligations, I don't give a shit where your retirement money is, it won't be there!

To default on bonds means total economic collapse. So that is not going to happen.

What IS going to happen is that interest on bonds is going to rise substantially, as is inflation. But if 2/3 of your SS cash is in stocks instead of SS bonds, YOU WILL MISS THAT INTEREST TREND!

In fact, your stocks will decline as bond rates rise.

This is all Econ 101.

[shadowknows69]

35. thanks for the info

finance and it's denizens are not my strong point.

[jswordy]

40. That's what Bush is counting on, these factors:

1.) Uninformed populace;

2.) Greed sparked by examples where more cash would flow to individuals.

You know, the easiest thing to understand is the current system. Let's keep it.

[SemperEadem]

87. where and how is the best way to understand the Social Security issue?

I didn't take Econ, but I know that if stocks do bad, bonds are doing good. This whole Social Security issue impacts me and I really want to get a clear understanding of what the cruxt of the issues are.

You seem knowledgable--what book or writer do you recommend for a concise, plain-language explaination of the pros and cons of *'s War on Social Security?

[KajaC]

122. The current system is easy to understand?

Look, I am tired of hearing people oppose just to oppose. The current system is NOT secure for the long term. President Clinton said as much in, not one, but TWO State of the Union addresses. Here's what's easy to understand about the current system.

Fewer people ARE paying into it per person receiving benefits than 20, 40, 60 years ago. That is true. We must acknowledge that.

Eventually, there WILL be more money being paid out than being collected, and that time is coming soon. That is a fact and we need to acknowledge that.

Once that begins to happen, benefits will be severely cut. There is a 10-year difference between the SSA numbers and the CBO numbers, but either way, in order to correct, benefits would be cut to 78% of what they are now and it would get progressively worse. That is a fact and we need to acknowledge that.

It's also true that FDR, when calling for "old-age benefits" wanted compulsary and voluntary annuities to be part of the deal:

"Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans."

-FDR January 17, 1935

(http://www.pbs.org/wgbh/amex/presidents/32_f_roosevelt/psources/ps_socsecspeech.html)

It sucks that our party leadership has allowed the GO(o)P to wrest this issue from our hands. But we have to come up with more. Dammit, if we ever want power back, we have to get creative. Reagan raised the damn retirement age. That was his "big idea." President Clinton raised the wage-base limit. Nothing has changed. We've put it off and put it off and put it off yet the long-range problem still exists.

I suppose we could encourage people to start screwing like hell to produce more workers for the workforce of the future, but I don't know if that qualifies as a plan.

Anyway, the system isn't simple. It isn't fine for the long-term, and there is no simple fix. Let's put this energy into the form of a new idea.

[TexasLawyer]

66. Risk of default

Treasuries will be paying a lot because the world will need a big incentive to keep investing in US treasuries. This is a country that is spending SO irresponsibly that it might default on its repayment obligations. The bonds are only as good as the underlying credit of the issuer.

[abandon_ship]

77. yes

[jswordy]

7. And tell me please, what happens....

...when you factor in annual inflation of 3 percent (modest) over those 40 years? And what happens when interest rates rise, boosting the bond market, and stocks then fall?

What happens to the retiree who is one year out from retirement, and a market collapse occurs as just happened not too many years ago? I'll bet you can figure that one out. Then multiply it by 10 million.

I can tell you the answers to all those questions. You see, there is much more risk to this than initially meets the eye.

Which, BTW, is why SS funds have never been invested in stocks by the government. Too much risk with the public's money.

[Skinner]

9. No that part changed.

Here is the old text:

If a worker sets aside $1,000 a year for 40 years, and earns 4 pe rcent annually on investments, the account would grow to $99,800 in today's dollars, but the government would keep $78,700 -- or about 80 percent of the account. The remainder, $21,100, would be the worker's.

With a 4.6 percent average gain over inflation, the government keeps more than 70 percent. With the CBO's 3.3 percent rate, the worker is left with nothing but the guaranteed benefit.

http://www.washingtonpost.com/wp-dyn/articles/A60749-2005Feb3.html

Here is the new text:

If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today's dollars. All of that money would be the worker's upon retirement. But guaranteed benefits over the worker's lifetime would be reduced by approximately $78,700 -- the amount the worker would have contributed to Social Security but instead contributed to his private account, plus 3 percent interest above inflation. The remainder, $21,100, would be the increase in benefit the worker would receive over his lifetime above the level he would have received if he stayed in the traditional system.

Under the system, total benefit gains may be minimal. The Social Security Administration, in projecting benefits under a partially privatized system, assumes a 4.6 percent rate of return over inflation. Thus gains in an account would be offset by a reduction in guaranteed benefits equal to 70 percent of the account's balance.

http://www.washingtonpost.com/wp-dyn/articles/A59136-2005Feb2.html

I can't say I understand what it all means for the bottom line. But it's been changed.

[Jacobin]

20. Mystifying

Somehow, I don't think the WaPo has it right, or is guestimating based on what they have been told, but I don't think we have all the information we need to explain how a hypothetical situation would work.

If one can't do a hypothetical using their formulas and assumptions, then there are pieces missing.

I have no doubt there are lots of mirrors and smoke to try to hide the real result and to make it so frustrating 90% of the population will just "believe" bush* when he tells them its better rather than trying to figure it out for themselves.

If this WaPo article is a first attempt to "explain" the formulas, the Bushies are off to a good start in their obfuscation campaign.

[SemperEadem]

88. Sounds like a WH phone call across town was made

[JohnnyRingo]

97. Yep.....Here it is:

http://www.whitehouse.gov/news/releases/2005/02/20050203-3.html

[bloom]

37. I'm afraid they were being clear the first time

but just want to confuse people - so we wouldn't know what we would end up with.

[jswordy]

42. Fact is, we WON'T know what we may end up with...

...til we get very close to retirement.

Unacceptable risk.

[daleo]

57. I think someone wanted "government would keep" taken out

This just seems like a re-wording meant to keep certain key phrases out of the report. The other phrase missing from version 2 is "the government keeps". Just political semantics. The White House probably told the WP to re-word it to take these heretical wordings out of the article.

[King Coal]

62. Me neither. I'll have to wait for Krugman to explain it.

[nodictators]

75. A rate of return of 4.6% above inflation, eh?

Amazing, when one considers that the Dow Jones Industrials are about the same as they were 5 years ago. And the NASDAQ index is less the one-half of its 5000+ level 5 years ago.

In the stock market, the past is not predictive of the future.

But, we probably have 4 more years of Bush to survive.

[Festivito]

93. I think WP made several errors.

FIRST----------------------------------
The correct 4% Excell formula should be:
=FV(0.04,40,-1000,,1)
$98,826.54

They used:
=FV(0.04,40,-1000,-1000,0)
$99,826.54

No big deal, the PV's cancelled out when calculating difference. The percentages would be a little off. (The 4% being just an optimistic guess.)
========================================
SECOND----------------------------------
The percent held back by SS, SS using 3% bonds:
=FV(0.03,40,-1000,,1)
$77,663.30

79% (Original article said about 80%. New article dropped its mention.)
========================================
THIRD-----------------------------------
With optimism at 4.6% instead of a measely 4%:
=FV(0.046,40,-1000,,1)
$114,678.11

$77,663.30 / $114,678.11
68% (Article said more than 70. I think they goofed again.)(It would happen if 3.3% were used instead of 3%. 3% is the correct SS bond return -- according to the article!?!)
========================================
FORTH-----------------------------------
With optimism only as high as 3.3%:
=FV(0.033,40,-1000,,1)
$83,406.43

$77,663.30 / $83,406.43
93% is held back (Article said "nothing is left." Again, WP might have put 3.3% as SS bond interest.)
========================================
EXAMPLE (as I think I see it):----------
A twenty-year-old in college never made an income. Graduates at 23. Then works forty years making 33,333 per year with no promotion until age 63. 3% of his yearly salary would be $1,000.00. $2,550.00 would be deducted from his salary as FICA by his boss. The boss then sends $5,100.00 to FICA/SS/MC, $1,000.00 of which he can direct the investment.

At the end of 40 years, IF HE GETS 4% effective compounded interest (i.e. no major problem years -- like Bush years!) He'd have some access to $20,975.14 (19% of the total his 3%-total-invested) PROBABLY to be doled over years of his remaining life adding to his minimum SS payment. But, we can only guess.
========================================
CONCLUSION:-----------------------------
I think WP goofed, could not figure out how, so they dropped the percentage, convoluted the verbiage, and they might remain as much in the dark as we are. After all, won't the actual text of the Republican bill suddenly appear only hours before they vote? ...as usual...

R's want to destroy SS. I want it kept. Clinton proved it could work. Time to fight.

[geniph]

115. As Krugman points out, the arithmetic doesn't work

In order to substantiate their thesis that private accounts are the solution, they are assuming a 4% to 6.5% rate of return not for the next couple of years, but for the next 75 years.

Quoting directly from Krugman:

In the long run, profits grow at the same rate as the economy. So to get that 6.5 percent rate of return, stock prices would have to keep rising faster than profits, decade after decade.

If the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come. Alternatively, privatizers can unhappily admit that future stock returns will be much lower than they have been claiming. But without those high returns, the arithmetic of their schemes collapses.

It really is that stark: Any growth projection that would permit the stock returns the privatizers need to make their schemes work would put Social Security solidly in the black.

[LiberalFighter]

127. An Overview of Issues Raised by the Administration's Social Security Plan

Private Accounts Would Provide No Gain to Workers Unless The Accounts Earned a Rate of Return Equal to More than 3 Percent Above the Inflation Rate.

The senior Administration official revealed that most of the balances in a worker’s account would be recaptured by the government when the worker retired, in order to repay Social Security for the loss of revenue it incurred when a worker elected to direct some of his or her payroll taxes from the Social Security Trust Fund to a private account.

The senior Administration official explained that this repayment would be made by subjecting people who elected the private accounts to an additional reduction in their Social Security benefits (over and above any cuts that may be imposed to restore solvency). The additional benefit reduction would be made by lowering these individuals’ Social Security benefits each month by an amount equal to the monthly income that would come from their account if the account had earned a three percent real rate of return (the assumed rate of interest on Treasury bonds). As a result of this additional benefit reduction, people opting for the accounts would get no net gain from the accounts unless their accounts produced a return higher than three percent above the inflation rate. If the return on their accounts was lower than three percent above the inflation rate, people would lose money as a result of the private accounts, and that loss would be on top of the other Social Security benefit cuts (such as price indexing) to which they were subjected. (The senior official stated in the briefing: “So, basically, the net effect on an individual’s benefits would be zero if his personal account earned a 3 percent real rate of return.” A reporter then asked: “So he would only get a benefit to the extent that his portfolio performed in excess of 3 percent ?” The senior official replied: “Right.” See transcript, page 8.)

SOURCE: Center on Budget and Policy Priorities

[blueinOmaha]

128. Trying to grasp the complexities

This is exactly right! The administration is trying hard to hide the fact that you wont be keeping all of the money generated in a personal savings account. You will owe a debt to Social Security for being given the privilege to privately invest. If you are lucky and make a bigger return on your investment OVER THE COURSE OF 40 YEARS (hahaha) you might see a bit more than the benefit guaranteed under the tradional system. It seems to turn the whole notion of Social Security on it's head. Instead of "thank you for participating the the system all those years, here is your guaranteed benefit," it becomes "hey sucker, you owe us money."

Alternatives to private accounts as a way of shoring up Social Security are out there. I don't have the website, but Peter Diamond and Peter Orszag, (the two economists who critiqued the three plans set forth by the Presidential Commission to reform Social Security) have their own plan that offers solvency, but does not include privatization.

[abandon_ship]

78. never mind

[radfringe]

95. e-mail this too

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=104&topic_id=3049781#3055043

[hiley]

120. hey thanks for

that link.:)

[Toots]

102. And if inflation grows over that forty year period?

Inflation right now is 2.5% (supposedly), what if it grows to 6%?

[jswordy]

2. How to compound an error

"They should be able to recoup those lost benefits through their private accounts, as long as their investments realize a return greater than the 3 percent that the money would have made if it had stayed in the traditional plan.

That 3 percent level is the interest rate earned by Treasury bonds currently held by the Social Security system."

"They should be able to?" Says WHO?

3 percent, based on TODAY'S interest rate? Interest rates will be climbing, any economist will tell you that. Those bonds will mature at be reinvested at higher interest.

And because of the inverse relationship of stocks to interest, stocks will decline as interest rises.

So you'll have your cash in stocks, when it would have done better in Social Security's bonds.

Sigh...

[Jazzgirl]

44. I am a total financial dummy but I darn sure followed you!

When I read the revision, I thought, hmmmm, not too much different than the original article but definitely a lot more convoluted. I picked up on the "should be" as well. Thats guessing. Right now the money is guaranteed a 3% return in SS. Who's to say the market won't crash like it did back in the 20's the way these assholes are going. Why anyone would fall for this..... 'sigh.......

[jswordy]

54. And that 3% return will rise...

...for any SS bonds that are reinvested and not immediately used, since an inflationary spiral is predicted for the next 5 years minimum.

Let's see, 2004 plus 5....why, that would be 2009! The exact year Bush picked to have halved the deficit (which is our annual shortfall of cash; not to be confused with the debt, which is our TOTAL owed).

Coincidence, huh?

[jayfish]

5. "The mechanism, detailed by a senior administration ...

before President Bush's State of the Union address, would hold down the cost of Bush's plan to introduce private accounts to the Social Security system." That quote is from the uncorrected story. So which mouthpiece of the mis-administration is telling the truth?

Jay

[Tyrone Slothrop]

6. I'm confused.

Can someone explain what this means to someone who knows little about economics?

I also blast-mailed the earlier article to several people and want to know the effect.

[jswordy]

11. Here is what you need to know: YOU LOSE!

That investment outlined at 4 percent gain gives a real 40-year gain of just 1 percent when adjusted for modest 3 percent annual inflation.

Should inflation periodically rise above that, as it historically has done, that 1 percent gain could be wiped out easily.

As inflation rises, interest rates rise to supress spending and control it. So interest on bonds will rise.

When interest on bonds rises, stocks fall, as investors pull money to invest in bonds at a higher return.

Even without that, the continuing need for our country to finance its debt means we will have to offer higher interest on those bonds. It is also inflationary, as it depresses the value of the dollar. So it takes more dollars to buy a widget than it did before.

You could have your money in stocks, when it would have done better in SS bonds under the current plan. You could see the imminent future inflation spiral wipe out any gain your investment has made.

In fact, I guarantee you that you will lose under this plan. But once it is passed, there will be no turning back, because it will have fundamentally undermined the SS system so we can't go back home again.

Dismantling SS has been a 40-year goal of the Republican party. Looks like they just might succeed.

There is a place for risk in retirement planning. But there is also a place for certainty. Social Security should be the place of certainty.

And after all, it is simply a matter of national priorities whether the program lives or dies. For example, defense spending rose $100 billion since 9/11, not counting Iraq supplements.

Take that and put it in SS, and yer good to go with no changes.

[Flint-oid]

53. No. It's 4% real growth, beyond inflation.

This is a real rate, not a nominal rate.
If inflation during the year is 2%, this means the returns on the stocks would be 6%.

[jswordy]

56. Beautiful! I don't see that, but let's use it...

...as an apt illustration.

Nominal inflation is 3%, so you'd then need 7% rise in stocks.

When inflation rises, interest rates concurrently rise. When interest rates rise, the bond market is more attractive to investors, and stocks fall in all but the most exceptional circumstances.

SS funds invested in bonds in a rising bond market would LOCK IN those high rates of return.

There is almost unanimous agreement that interest rates will rise for the forseeable future. That has the effect of cooling the stock market and also the economy as a whole.

How does one gain 7% or more on stocks when the market is falling and inflation is rising? One can be very nimble, sell short, market time and heighten risk to do so, for sure. It has been done. It is risky, as more folks lose than gain during such times.

Now then, how many common Americans have the economic smarts to do that?

The common folks will lose.

Under edit:

Let's contrast that with one simple move: Raise the contribution ceiling to earnings of $1 million. SS is solvent. Done deal. No additional risk to government or individual.

[ClintonTyree]

70. That's why they're in a hurry.........................

to ram this travesty through. Interest rates are going to rise for quite some time I imagine with this crushing debt bush has foisted upon us.
In 1 or 1 1/2 years, maybe even sooner, the entire formula that makes this even remotely attractive to young investors will be completely down the shitter. Stocks will be falling, I really can't tell you what's keeping them afloat now other than pure optimism, and this wonder of chicanery they've concocted will be history.
Hurry, hurry, hurry little neo-cons. Your window of opportunity will be closing quickly!

[Nederland]

107. Sorry

But so long as my retirement money is in the hands of politicians instead of MY hands there will ALWAYS be risks. I don't like the way Bush is making this transition, but I do agree with the principle: get the money out of the hands of the politicians. I am sick and tired of having the security my retirement money depend on which party is in power.

[Skinner]

8. Hmm. I'm trying to figure this out.

Anyone here an accountant or policy wonk?

Let me see if I get this straight: The worker would be able to keep the entire $100,000. But their guaranteed Social Security benefit (which is separate from their money in the private account) would be decreased by $78,000.

So am I correct in concluding that this correction actually does not change the bottom line for the recipient? The government is not taking back the $78,000 out of their private account, but they are still taking $78,000 out of their guaranteed benefit.

Anyone?

:shrug:

[shrike]

12. Sounds like you figured it out

I don't understand what the benefits would be of putting money in a private account. The benefits would be minimal, from the sounds of things. Why bother doing this?

[jswordy]

21. EXACTLY!

And you bother doing it if you are Republican because:

1.) it is the beginning of the end of Social Security, and that means workers will be even more subservient to the whims of business.

2.) the money going into the markets provides an immediate boost to the markets, company values and the fat cats. But it is a temporary boost, since it declines with time and numbers of contributors to the private plans.

This is nothing more than another attempt to shift cash from the government and middle class to the rich! Just like the so-called "tax cuts." Remember how they showed us how we'd all be at least $600 richer? But they downplayed how the wealthy would be millions better off!

I am disgusted our Democratic leaders have not lambasted this SS "reform" totally, vocally and in unison. These are all talking points I have been posting here in various places all day.

[King Coal]

69. Well, Bush wouldn't tell them the specifics of his scheme.

[RaleighNCDUer]

80. Don't forget the concommittant rise in state and local taxes

that accompanied the tax cut. We, those at the lower end of the scale, lost a lot of money to the tax cuts, particularly if we didn't have kids that would make us eligible for the increase in the child tax credit.

The increase in debt that the privatization plan necessitates will jack up interest rates, and interest will have to be paid on the 2 trillion. That reduces the money that will be available for other government responsibilities. Education, welfare, military, border security, they will all suffer from this.

What happens when China calls in its debts at the same time that we are fighting inflation and unemployment. Argentina, anyone?

[V Lee]

61. I think the only reason to do it would be if ...

... you believed you could invest your money (in the limited govt-approved investments) and get an average annual return of more than 3% (the return on regular Soc Sec investments).

[shrike]

113. As I understand it, there is a penalty for 'doing well'

in private investment. The guaranteed benefit is reduced accordingly, unless I'm reading this totally the wrong way.

[cthrumatrix]

13. There are 2 components -- your account actual & account surplus above 3%

Your account actual upon retirement ($78,000) would be invested in an Annuity...you receive liftime payments...you die early you lose (inusurance wins)...live long long time you could see all your money

The account value greater than 3%(adj for inflation)is yours. In this case it could be $21,000.

I'm not sure if that $21,000 is annuitized over your life OR you get that in a cash distribution.

My gut says its an annuity in which you may specify a beneficiary if you did not receive 100% of your money back.


Not soo much upside...the govt transfers all risk to the market and Insurance companies (who don't lose money)

[Spazito]

14. That's how I'm reading it too...

it seems the error in the first Post article was not the end result calculation but from which pot the government would take their $78,000. If correct, it is a technical correction that changes nothing in terms of the substance of the article with regard to the effect on the worker.

[Zynx]

15. The relevent paragraphs:

>>If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today's dollars. All of that money would be the worker's upon retirement. But guaranteed benefits over the worker's lifetime would be reduced by approximately $78,700 -- the amount the worker would have contributed to Social Security but instead contributed to his private account, plus 3 percent interest above inflation. The remainder, $21,100, would be the increase in benefit the worker would receive over his lifetime above the level he would have received if he stayed in the traditional system.

Under the system, total benefit gains may be minimal. The Social Security Administration, in projecting benefits under a partially privatized system, assumes a 4.6 percent rate of return over inflation. Thus gains in an account would be offset by a reduction in guaranteed benefits equal to 70 percent of the account's balance.

The Congressional Budget Office, Capitol Hill's official scorekeeper, assumes a 3.3 percent rate of return. Under that scenario, the full amount in a worker's account would be reduced dollar for dollar from his Social Security checks, for a net gain of virtually zero.

If investments earned less than 3 percent a year above inflation, a worker would do worse in total benefits than he would have done in the traditional system. <<

If Bush's estimate is right - HA! - you would do about 21K better in private accounts than you would in SS. If the CBO is right, it's a virtual wash. If the plan you are in tanks, you do worse.

[cthrumatrix]

18. the Govt is trying to move the "entitlements" off "thier books" and on

to the insurance companies and the markets.

Nobody can tell you this is better, becuase they have no idea of inflation adjusted returns and the stock market returns.

[Beetwasher]

19. Not To Mention They Are Not Even Touching THE FEES TO THE MIDDLEMEN!!!

There will be brokerage and management fees associated w/ this that SOMEONE is going to have pick up the tab for...

[jswordy]

33. You forgot the biggest risk!

If the stock market crashes or "corrects" just before you are to retire, you lose! BIGTIME!!!!

I dunno, maybe everyone here is a 20-something, but I am not. I have friends who were retirement age in 2003 when they lost half their 401(k) in a 3 month span. More than one friend had to postpone retirement indefinitely because of that. They all are still working now.

See, once you lose that kind of dough that late in your plan cuz the market farts on you, you never ever do make it back up. It is too late to rebuild through contributions, which are by that time a small part of the total pot.

SO YOUR RISK INCREASES THE CLOSER YOU GET TO RETIREMENT.

This is utter folly. To risk that happening in a 401(k), when you also have SS and savings and maybe another company retirement plan to fall back on, is one thing.

But to risk it with a plan that is retirement bedrock for so many Americans is foolhardly.

Plus, look at Bush's formula vs. what financial planners tell investors to do. Planners say you should invest a third of your total cash into risk investments like stocks. But Bush's plan has you investing TWO-THIRDS into risky stuff, and one-third in safe bonds.

Hard to believe it is not DOA right now.

[jswordy]

17. Just remember that...

the $100,000 is based on you making an average 4 percent over 40 years.

If, for one example, you are retiring right after a 2003 stock market collapse, you won't have $100,00, believe me. I saw it happen to people with 401(k) plans last time! Some saw their accounts halved in 3 months!

NEVER FORGET that, the closer you get to the 40 years, the more compounding has to do with the rise of your investment, and the less your contribution boosts it. So you actually become more vulnerable to market swings later on, and less able to recover.

Another interesting matter to mull is, the example uses $1,000 over 40 years as the base.

What if you are 13 years from retirement? Hmmm.

These kinds of projections give me the willies, because they are attempting to show you the money so you will get greedy thinkign you will have more if you back the plan.

Count on this: You will NOT! Inflation and the vagaries of the economy will prevent that, at the given 4 percent annual return.

Folks, it is already in the cards!

To even be discussing this seriously as a legitimate "fix" for SS is to me pure lunacy!

[cthrumatrix]

23. it's a "fix" for the govt. by reducing soc sec obligations

[jswordy]

28. HAHAHAHA! If you call adding $2 TRILLION to the debt a FIX!

That'd raise our current $7.6 trillion debt by around 245 percent.

That effect will raise bond interest rates.

That will devalue the dollar.

That will cause inflation.

That will eat up your gains.

YOU LOSE!

[KayLaw]

26. And it doesn't start until 2009

The first year one can put aside up to $1,000. I'll turn 55 in 2009 and planned to start collecting at 62. That gives me 7 years to make up all the money that Reagan and Greenspan SWORE they HAD to take from my paychecks so they could PROMISE the money would be there for me.

Why did Reagan and Greenspan lie to me?

Why would anyone be stupid enough to believe these shysters?

Why make this whole plan so complicated? If the stock market is such a great idea, why not just borrow the $2 trillion and invest it without all this silliness?

[cthrumatrix]

29. clearly... you must hate "freedom and america".... those promises

were all "fibs".

[TahitiNut]

31. You have that part, but the BOMB is in the "required annuity" imho.

So far, we've been looking at the front end ... the payments and resulting 'benefit' at the point the worker retires.

The Social Security retirement (OASI) benefit is wage-indexed annually. The 'decrease' of $78K wouldn't be an actual dollar decrease but some percentage reduction in their proportional entitlement to traditional Social Security benefits. Such a worker would (purportedly) begin receiving two amounts 'A' and 'B' where 'A' was whatever annuity amount they'd be required to buy and 'B' was some reduced traditional benefit.

This leaves open some important questions. From whom do they buy the annuity contract? What's the commission on the sale? What's the future rate of return on the annuity? Is it fixed or indexed?

See, it's not just a matter of how the 'investment' account grew and at what rate, it's a matter of what kind of future net rate of return that accumulated amount yields and for how long. Since there's the claim that the annuitant's heirs will receive the value of the annuity in the event of the annuitant's death, the value of the annuity must be based on life expectancy ... which means the yield of the annuity cannot be guaranteed to exceed the payments that the account-holder would otherwise receive from traditional Social Security which are wage-indexed!

[cthrumatrix]

34. it appears it's a "life payout annuity" which means when you pass

away...your money goes back to the insurance company (they win).

The market return abpve 3% (if that happens with inflation) might be another specified annuity payout (10-20 yrs) with a benificary specified.

there have not been details.

I wouldn't be surprise if a Company like TIA-Creff (which does govt and shcools districts) would get the business on the annuities... I do think it would be an instituional approach and all talk of commissions might not bear much fruit.

[On the Road]

50. I Think the Confusion Has to Do with the $78,000

The reporter may have assumed that the money would taken as a lump sum out of the retirement account.

The proposal actually seems to be the monthly Social Security check would be reduced by some amount (eg, instead of $1000/mo, they get $750/mo plus the value of their private account). The one-time value of that reduction over the average recipient's life is estimated to be $78,000. But they don't give enough details to spell that out more precisely.

I was simply aghast at the earlier explanation. Even if the administration were that cruel, somehow I don't think they would be stupid enough to propose something as inflammatory as taking back the principle.

[underpants]

51. Skinner they both say the same thing-2nd one is SPIN

A "sense" of ownership is the key.

[AngryWhiteLiberal]

24. Here's the strategy...confuse everyone on the details so slogans remain

If the explanation of the plan is presented in a confusing manner, this only allows the media to soundbite Shrubs EMPTY promises and slogans. After a while, people begin to forget about the dirty details and just buy into what that fascist puke tries to sell them.

JB

[catzies]

85. AWD, very succintly put. That is all of their strategies in a nutshell.

You win my personal, totally unoffical, best post of the week award.

:yourock:

[gasperc]

27. if these ideas are so great why not invest in them now???

If the fear is that Social Security earns a measely return in T-bonds, then why doesn't the program invest in "funds" with better returns??

The answer is simple, the risk is being applied to the individual. Management will BE paid with your tax money to wall street brokers and if your the poor sap that picks poorly performing or corrupt fundS, YOU LOSE.

The government can't and shouldn't risk the retirement insurance benefit that was established as a supplement to each citizens retirement when we become to old, sick or disabled to work any longer.

I make over $80k a year and this proposal is so offensive I can barely stomach it. I have a pretty decent net egg with my own savings and 401k. I was able to go to college to be able to have a job that pays this good. I'm thankful. I also KNOW that 50% of my neighbors DO NOT HAVE A 401K AND MANY HAVE NO SAVINGS OTHER THAN SOCIAL SECURITY. Social Security is a retirement insurance that will be available to us UNTIL WE DIE. A private account that offers average or poor returns will run out before many people die AND WHAT WILL PEOPLE IN THEIR 80'S DO WHEN THE MONEY RUNS OUT??? HOW WILL CONGRESS FIX THAT DIASTER??

[jswordy]

36. Uh, euthanasia? n/t

[Nordmadr]

30. I fail to see how any of this

affects the "solvency" of Social Security. It puts no more dollars into the system than it does right now. Using the example, they still collect the same $78,700 that they would collect as the system is right now. This is confusing the hell out of me, and I am a college educated man and consider myself at least moderately intelligent.

To do what they want, they will have to cut benefits paid, I don't see how it adds up otherwise.

I too noticed how * mentioned a $200 billion shortfall by whatever year he said it was, when dem's were heckling him, well we appear to spend that in Iraq every year. Where is THAT money coming from?

Oh yeah, and what about that whole getting to pass it to your kids if you die before your benefits are used up?

Olaf

[cthrumatrix]

32. it essentially removes (over time) Govt Soc Sec obligations over time

more and more will be moved to insurnace companies and the market.

It also may favor business in the form of tax benefits.

And....the account value (invested in the market) always goes back to the govt./soc sec when you die.... you don't get the benfit as you do today.

[jswordy]

38. You bring up a point ill-explained so far...

...in your collections portion. Though 2/3 of your SS money will be invested by you into private accounts, that money will still flow into the federal government coffers from your paycheck as SS tax before you get to invest it.

This raises a question: Could it then be converted to other uses?

In other words, could the government sell bonds based on those collections, then use that bond money as your "cash" to invest, and then divert your actual SS tax cash collected to other budgets?

Hmmm.

[REACTIVATED IN CT]

39. Thanks for posting...

the original article didn't make sense.

BTW - what is the difference between Washington Post and Washington Times? Which is slanted which way? Thanks

[Beetwasher]

41. Post is Right Slanted

Times isn't even slanted, it's exclusive White House propoganda ONLY.

[jswordy]

43. I would disagree about the Post.

The Post is not right slanted. But what IS happening is what I have pointed out elsewhere today and been dissed for. Our Democratic leaders are being pushed aside by the White House's superior efforts at promulgating these "example" myths.

You know, the reporter is trying to understand all this, just as the citizenry is. So the WH pushes a select example on him or her, and that makes things fall into place, and so they run with it. By the time the real facts come out, or there is a dissenting response, the initial example has become solidified in the public's amind.

ONCE AGAIN, WHERE THE FUCK ARE OUR DEMOCRATIC LEADERS?

Watch the public polls on this issue. I virtually guarantee they will swing Bush's way. We are losing at present in public opinion by caveat. WE'RE GIVING IT TO THEM. It's a virtual replay of the tax cuts.

I pray this does not get passed. But I'm not so sure it won't in some form or another.

[REACTIVATED IN CT]

45. last night's TV polls showed support for this ridiculous plan

[jswordy]

47. ...and still our Democratic "leaders" twiddle their thumbs. n/t

[TahitiNut]

67. If a tree falls in the forest, and the media don't report it, then ...

... did it make any noise? :eyes:

[Beetwasher]

49. Sorry, But That's The PAPERS Fault and DOES Mean They Give

Priority to the WH's explanation. It's a newspapers responsibility to go out and get the story and ALL the facts BEFORE publication.

All explanations are NOT created equal. Some are truth and some are lies. To present a false explanation as equal to a correct one, merely because it's the opposing viewpoint is IRRESPONSIBLE, but that's what the Post does. A lie is NOT equal to the truth and should not be presented as such just because it's the WH's explanation for something. It's not just a matter of opposing viewpoints that should be given equal weight. It's a truth vs. a lie. Unfortunately the Post time and time again, on story after story, treats the WH lies as just another viewpoint on an issue and it's ONLY THIS WH. That means they have a pro BUSH WH slant.

That being said, I agree that the Dems can do more, but they ARE playing on a slanted field to begin with.

[jswordy]

52. It's our fault for not getting out there with our message early!

And pounding away at the phones and reporters to get it some space.

The Democrats are still so far behnd on this whole game it is pathetic. We're clueless about advancing our own agenda.

Maybe that's because we are too busy bitching that no one ever calls us up to ask our opinion, cuz they all are so right wing.

We're sitting by the phone and bitching while Bush marches ahead.

Gee, that sounds typical, I am so sad to say!

Your post is naive. "Lie" and "truth" are not absolutes, never have been, and if you think they are, you are WAAAAAAY far behind the eight ball. Rather, it is a matter of whose idea COMPETES IN THE MARKETPLACE better.

Just like our foundering party, sad to say. Maybe someday we will wake up. It is supremely frustrating to me to watch us again and again flop around like the fish who jumped out of the aquarium.

[Beetwasher]

55. What A Load Of Crap

Yeah, like it will make one bit of a difference if more Dems call and write to Fox News? Or the Washington Times?

Who's naive????

What an utter load of crap. Bias is bias, regardless of how much Dems excel at getting their message out, Fox news, the WP and many, many other outlets are going to treat their message w/ disdain and report it biased and incorrectly.

Lie and truth are not absolutes??? This isn't fucking philosophy 101. Just as an example, in the real fucking world there were NO weapons of mass destruction and this was the reason we went to war in Iraq. It won't matter how often, how loudly or how many letters we write to the media about this or how many Dem politicians scream about it, the media will STILL pretend that we went into Iraq so we can bring the Iraqi's freedom and have elections because that is the WH's position NOW.

Naive my ass. What's naive is to think that some sort of change in strategy by the Dems is going to make some difference to a media that is bought and paid for by the other side. Might as well bang your head against a wall.

[jswordy]

58. Yes, naive.

Uh, first off, I am talking about our party's pols, our elected leaders, the cowed ones who ought to be getting dirty in the fight but at present stand instead and watch. I am not talking about the party's rank and file.

It won't matter how often, how loudly or how many letters we write to the media about this or how many Dem politicians scream about it, the media will STILL pretend that we went into Iraq so we can bring the Iraqi's freedom and have elections because that is the WH's position NOW.

That is the idea that is winning in the marketplace, yes. It is not "pretend." When we learn how to get our ideas into the marketplace and when we are willing to actually fight effectively for them, then they and we will win again. Not until.

The marketplace of ideas is a very old concept our founding fathers relied upon. Study it, please.

Yes, lies and truth are not absolutes. What is "true" for one individual is not "true" for another. That's not philosophy. That's fact. History is proof. The victors write the history, and it becomes truth. That is why the U.S. was a "wilderness" that was "settled" by "pioneers" even though there were 60 million natives there when the whites came, 58 million of whom were eradiacted and 2 million of whom survive to today. But the whites won, they get to tell the "truth" in the books.

The media is "bought and paid for by the other side?" My, my ... you are INDEED naive. I have spent 25 years in the news media. That is your own self-serving "truth," arising from an utter ignorance of how the news gathering process works. And of how the revenue stream process works in the news media context.

"Bias is bias..." Yes I agree with you. Your bias certainly shows, and to your detriment. Set aside your rabidity and you might actually see how the PROCESS works. Then you will have a key to how to use it for your own gain. But that appears to be asking a bit too much of you...and at present of our party.

[Beetwasher]

59. LOL!!

The marketplace of ideas! What a laugh! Tell it to Fox News.

25 years in the News Media and it seems you haven't learned a damn thing. You're a serious part of the problem, you're in utter denial about your industry. No wonder you hold the viewpoints you do, you're part of the problem. Right, it's not a corrupt news media, it's ALL THE DEMS FAULT!!! :eyes: Pathetic.

"Yes, lies and truth are not absolutes. What is "true" for one individual is not "true" for another. That's not philosophy. That's fact."

LOL! Do you realize the utter idiocy of this comment? Think about it for a second. Did you ever study philosophy? Apparently not. LOL! Do yourself a favor, take at least and introductory course in philosopy before you even go one word further on this subject w/ me. Or at least Google the term "Moral Relativism".

[spacedog]

46. dammit.

I was interviewed by a NYT reporter (in Boston) this morning after reading the original WP article. I went on and on about what a disaster that sounded like and... i was totally wrong (on the details at least -- it is still a disaster)! Well, I hope she reads the original article and doesn't cast me as a total wacko!

[spooked911]

73. welcome to DU!!!!!!!!!!!!!!

How did you happen to be interviewed?

[spacedog]

103. interview

Thanks, nice to be here.
I work in an office building in Boston that is attached to a shopping mall. She spotted a group of us in the shopping mall grabbing lunch. She approached us and said she was with the NYT and wanted to ask us some questions for an article. I said only if it would give me a chance to publically berate the president, which I tried my best to do. }(
There was so much I wanted to say but, unfortunately, I spent so much time on that incorrect WP article because it was so fresh in my mind. I hope she reads that thing...
Anyone know a catherine zerneke (no idea on the spelling)? I should check out the times today...

[jswordy]

48. SEVEN SOCIAL SECURITY MYTHS

Motley Fool, a respected investor's guide column:

http://www.fool.com/news/commentary/2005/commentary05020304.htm

[mulethree]

60. totally stupid article

The SS Trust earns about 5.5% interest, about 3% above inflation and it can be expected that treasuries will continue to pay about 3% above inflation.

If your personal account investment returns less than 3% over inflation then you lose out - plus whatever management charges you paid to have it 'personal'. The CBO predicts you need to earn 3.3% to break even.

Then when you retire, the 'personal' account that you 'own' is not entirely under your control. You can't withdraw it all at once or quickly. The government will withdraw it and pay it to you according to some formula thats based on life expectancy.

So if you die earlier than expected, then the balance goes to your heirs, if you live longer than expected, then .... tuff? Your benefit would either drop suddenly when the account is exhausted, or they would reduce it slowly with ongoing changes in your life expectancy (your life expectancy at age 67 might be 78, but once you've made it to 75 your expectancy could be 81).

Simplified -

Unadjusted, the SS Trust will be exhausted around 2050 and the pay-as-you-go aspect of the system will pay around 72% of promised benefits which are currently about 31% of the pay you earned before retirement.

72% * 31% = 22% of pre-retirement income.

Bush would have you separate out 1/3 into a personal account. So you pay 2/3 into the regular SS, and your guaranteed benefit would be :

2/3 * 72% * 31% = 15% of pre-retirement income.
Plus
withdrawals from your personal account

If your personal account earned 5% over inflation, then it could pay out say 10% of your pre-retirement wages for the rest of your expected lifespan and you total 25% instead of 22%.
BUT
This portion is 'personal' not 'social'. So premature deaths result in an inheritance instead of offsetting those who live past expectancy. To guard against having too many very old people with empty personal accounts, we adjust your life expectancy as say (expected remaining years + 20%) and pay out your account more slowly - so you're back to 22%, but a less likely to out-live your account. Now you need to earn 5% over inflation to break even, and still have the possibility that you will out-live your account and spend your last years on the 15% guaranteed benefit.

Problem is, that low-risk investments - say AAA corporate bonds, or Government backed mortgages - pay around 0.5% better than the SS trust's treasury investments. You can go for B-rated bonds, or Junk bonds - they pay higher but some won't pay at all due to bankruptcies and defaults. Stocks can pay better in dividends or gains, but they are even bigger gambles than B-rated bonds. So once you adjust for the risk of bond default, stock market losses, general decline of the economy, etc - you will not get the necessary 5% over inflation without taking, and getting lucky on, some fairly big risks.

[rzemanfl]

63. Why did I immediately think of the Dan Rather TANG letters when

I read this article? The Post was duped into setting up a straw man so that the Bushies could knock it down. It still seems to me that a person is just gambling their money. If they die young their kids make out, if they live to be 100 they should have never gotten into this in the first place.

[Megahurtz]

64. Does anyone really know the truth?

Obviously the idea is to confuse the public so nobody REALLY knows what's going on, and then sometime later it will all change anyway.
Nothing that comes from Bushitler's mouth is the truth. The Bush clan is part of the Reagan era, and I guess Reagan lied about his guarantee on Social Security too.

The way I see it, the only thing we can trust is that we have been given the SHAFT:hurts:no matter what bullshit they are trying to feed us. ANY guarantee is just another lie.

Too bad JFK Jr. had to crash his damn airplane. Maybe he would have had the guts to speak up and do something about this? :shrug: Who knows. All I know is any way you look at it, we are screwed!!!

Isn't there ANY Democratic leader that will take the elephant by the tusks on this issue???

[Laura PourMeADrink]

65. STOP AND THINK - B** doesn't give a flying f... about the lowly

citizens 20,30,40 years from now. He doesn't care TODAY. Democrats must look for the hidden motive and POUNCE AWAY. (Just like Iraq - if he cared about democracy or freedom and helping people he'd be in Ruwanda or the Congo). Here's my take on the ulterior motive...



http://www.socsec.org/publications.asp?pubid=503


REASON #7: Wall Street would reap windfalls from your taxes.

Brokerage houses, banks, and mutual funds have been very active in the campaign to privatize Social Security. Small wonder, since they stand to gain enormous fees if billions of dollars are shifted each year from Social Security payments into accounts under Wall Street management. Of course, those fees must come from somewhere, namely from the balances in individual accounts.

Among the one hundred best stock mutual funds, management fees range from 0.2 percent per year to 1.4 percent of the asset value of an account. The average is near the high end of that range, however, and many mutual funds charge substantially more. Smaller accounts require proportionately larger management fees because many costs such as gathering and mailing out information do not depend on account size. Indeed, most mutual funds actively discourage small accounts by setting a minimum opening deposit of $1,000 to $3,000.

Experience in the United Kingdom offers a warning about what the future could bring regarding management costs. Workers there have been allowed to open private accounts starting in 1988, since which time management fees and marketing costs among financial intermediaries have eaten up an average of 43 percent of the return on investment.

[Megahurtz]

68. Kick,

good article, everyone should read it.

[TexasBushwhacker]

81. Yup, tried to tell this to my co-worker today

He's a CPA, retiring, and I'm the lowly bookkeeper that's been hired to take his place. He's a total Bush supporter, but I really thought he (being a CPA) would understand that 1) the privitization idea makes SS less "secure" not more, for EVERYONE and 2) that it's just a big fat hand out to Wall Street who can basically charge what they want for their professional management of your account, and just like with our 401K's and Simple IRA's etc., they are held totally unaccountable. I SO wish that I could tell him to just do the fucking math.

75% of ALL mutual funds do worse than the S&P 500. Why can't we REALLY invest our retirement money the way we want? Why can't I just buy the stock mix that I pick? Shouldn't that be my choice? Most people will still go with the relative safety of mutual funds, even though that's all smoke and mirrors, but shouldn't someone with some financial savvy be able to pick their own stocks (or annuities, or life insurance policies or real estate, etc. etc.) and just pay the standard commissions? Bush says it will be under our control, but it really won't be, just like our 401K's. I don't know about yours, but I have a 401K from an old job that's just now getting back to what it was worth when I invested the money in 1998, and that's not even taking the fees I'll have to pay when I sell.

[ast_liberal2008]

71. reid says no democrat will support SS privatization

On CNN.com, there is an article about Reid fighting the change: "Reid, the senior senator from Nevada, said he does not know of a single Democrat among the 45 in the Senate who will support Bush's proposal."
http://www.cnn.com/2005/ALLPOLITICS/02/01/Dems.socialsecurity/index.html

[spooked911]

74. They better f%$#ing not. In fact, why should the repubs?

This Bush "plan" basically shows how out of touch and bigheaded they have become to think they can get away with this crap. Talk about hubris.

[abandon_ship]

76. ?

[CAcyclist]

72. There was a great article in Dollars and Sense magazine

that explained why Bush wants to do this. One of the reasons is that interest rates on Bills will greatly inflate when the Boomers retire and that is one big reason why they want to preempt that from happening.
http://www.dollarsandsense.org/

http://www.dollarsandsense.org/1104orr.html

Social Security Isn’t Broken

So Why Does Greenspan Want to Fix It?

BY DOUG ORR

Federal Reserve Chairman Alan Greenspan told Congress earlier this year that everyone knows there’s a Social Security crisis. That’s like saying "everyone knows the earth is flat."

Starting with a faulty premise guarantees reaching the wrong conclusion. The truth is there is no Social Security crisis, but there is a potential crisis in retirement income security and there may be a crisis in the future in U.S. financial markets. It’s this latter crisis that Greenspan actually is worried about.

>snip<

Greenspan is worried because he sees history repeating itself in the form of President Bush’s tax cuts. In his testimony, Greenspan expressed concern over a potentially large rise in interest rates. This is his way of warning about an excess supply of bonds. Starting in 2020, Social Security will have to sell about $150 billion (in 2002 dollars) in trust fund bonds each year for 22 years. At the same time, private-sector pension funds will be selling $100 billion per year of financial assets to make their pension payments. State and local governments will be selling $75 billion per year to cover their former employees’ pension expenses, and holdings in private mutual funds will fall by about $50 billion per year as individual retirees cash in their 401(k) assets. Private firms will still need to issue about $100 billion of new bonds a year to finance business expansion. Combined, these asset sales could total $475 billion per year.

[cosmicdot]

79. kick

watched "I Remember Mama" (1948) yesterday ... about life of an immigrant family c. 1910 ... the words "ownership society" graced my thoughts ... "its good we do not have to go to the bank" ...


will any of these proposed changes benefit **Bu$h's US Treasury Notes? he has a number of them listed in what little visibility we have into his finances
http://www.opensecrets.org/pfds/pfd2003/N00008072_2003.pdf


so, as more and more Americans find themselves being downsized to minimum wage Sunday-to-Saturday no more traditional '2-day weekend' work-week jobs ... and those who are already in the Wal-Mart McJob economy ... what kind of scenario can be projected for them? some scenario other than being able to stash $1000 a year for 40 years ...


It's not broke ... leave it alone ... the fanatical radical ... Republicans are destroying our country ...


ownership society = hardship society


"For 70 Years Social Security Has Met 100% of its Obligations"
http://rothman.house.gov/news_releases/rel_012505.htm

[llmart]

82. For those here who are too young to remember.....

Reagan and the Repugs touted IRA's as the way to get rich in retirement if only you put the max away every year until you retired. My husband and I did for the past 25 years (put the max away) and though I don't consider myself a financial whiz I do have more knowledge about investing than the average person. Well, we are in our mid-fifies and there is no way in hell that the 25 years' contributions would support us in five years when my husband turns 62, or even if he waited until 65.

IRA's and 401K's replaced the old pension that the companies used to give their employees. Who do you think is better off in retirement? People with a company guaranteed pension (WWII generation) or those of us with just our 401K's?

I think you know the answer.

Don't believe the propaganda the Repugs dish out.

[Name removed]

83. Deleted message

Message removed by moderator. Click here to review the message board rules.

[El Biggo Doggo]

84. first off, I'd like to welcome Villanova

and hope that we all show him the kind of courtesy so lacking in other camps. and at other sites. like the Freeps. But I digress.
Now....
You make some good points, except for the following:
1. The White House looks very sneaky when they announce a 'course correction' without attribution and then the LEADER OF THE FREE WORLD skips over that very important 'course correction' in his State Of The Union address.
2. Could you make more money with the stock market? Yeah. That's why smart folks have diversified 401ks and the like. But it's called 'Social Security', not 'Let's Go To Vegas With Our Golden Years' It's meant to be the foundation of our retirement, not the rumpus room.
3. Until Enron, Worldcom, Centennial, Bre-X, and ZZZZ Best, I thought you could trust the government to police the stock market and protect individual investors. THAT'S NOT A SAFE ASSUMPTION ANYMORE.

Now, I hope you'll respond. i'd feel bad if you just came here to post and didn't hang around all hospitable-like!

oh, and in the blue states, using 'my friends' as a personalizing modifier sounds a little disingenuous. New town, new truths.

[El Biggo Doggo]

89. well, it's been an hour

and no 'howdy, neighbor' back. I do feel slighted.
But listen, my friends, at the end of the storm, there's a golden sky, and the sweet silver song of the lark.
Walk on through the wind,
walk on through the rain
and
you'll
never
walk alone,
you'll never walk alone...

[Name removed]

101. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Colorado Blue]

111. We object, at least in part, because the private accounts

will blow enormous holes in the budget. It will take money OUT of the system when money needs to go INTO the system.

AND, it will result in a reduction of benefits.

Now, if you are really feeling like a mensch, you could, if you are earning a certain income after retirement, forego collecting Social Security altogether and donate your share to a less fortunate citizen.

What say you?

Incidentally, I would support tax-free savings plans IN ADDITION to the present system. Add-ons are OK, carve-outs are NOT.

Your opinion?

Thank you.

[Beetwasher]

114. What A Load Of Crap

You want a private account? Open a 401K. End of story. SS is INSURANCE. Furthermore, even what you say is true (and I doubt it) and the private accounts will be optional, they will STILL cut EVERYONE'S benefits, even if you choose not to open an account.

Fuck negotiation and compromise. Only selfish assholes who already have a retirment fund want to do this. Or stupid morons who don't understand the consequences. "I gots mine! I don't want to pay into the system anymore!"

[despairing optimist]

86. That's what IRAs, 401(k)s, Keoghs, and SEPs are for, not FICA

Social Security, or FICA (Federal Insurance Contributions Act), is what its name implies--an insurance program for retirees that was later expanded to provide benefits to disabled workers as well as children and spouses of those who paid into the program. It was never intended to be someone's sole source of income, but for many in this consumer society of ours who live from paycheck to paycheck, it has become that or nearly so.

What you describe is straight out of the business press and right-wing "libertarian" think tanks--influenced and funded by the financial-services industry--and neglects to take operating expenses and management fees into account. Doubtless, the marvelous returns you cite over the long term will be significantly reduced once those expenses and fees are subtracted from the gross returns.

And DUers, remember the financial-services industry mantra: Past performance is no guarantee of future results. That's how they'll cover their asses when you learn in your old age that you can't retire. You might as well take your retirement funds to the racetrack and have a great time. Don't fall for this. Small investors get creamed by the big guys in this wonderful ownership society of ours. Just look at who owns the most in it, and who will keep owning the most once they get a hold of your nest egg. As in the casinos, the house never loses, and here the house has government backing. Can the outcome be any plainer? Start playing the theme from "Silence of the Lambs." You're about to get slaughtered.

In the elegant scenario above, it is pointed out that even in the worst case, you'd still end up with something. That something is likely to be even less than the 80 percent of benefits that Social Security could still pay out if left untouched until 2052. Again, this is an elaborate shell game designed to line the pockets of the financial whiz-kids who are creaming their pants in anticipation of a windfall. Get them on the abstinence/delayed gratification bandwagon and keep them there!

One final thing: If you are confused, that's the natural state of affairs in the finance industry. They're always creating negotiable instruments that rocket scientists have a hard time understanding. They have to, in order to stay a step ahead of the government regulators like the SEC. Certain derivative fall into this category, and no one, not even their creators, really know what will happen if certain assumptions made with them turn out to be wrong. In other words, as far as privatizing Social Security goes, if you reach a fork in the road, don't take it.

We're fielding a pitch from the same people who put through a giveaway to health insurers and the pharmaceuticals industry called Medicare prescription drug coverage, which actually aggravates a very real financial crisis in that program. And what do they do? Ignore it and cry wolf about Social Security. What do they take us for?

Nice try, though. Smooth talkers, they are.

[Colorado Blue]

91. There's another point to the argument -

and it has to do with the stability of the Social Security system AS A WHOLE.

Let's say you get lucky, everything goes as planned, you have no gaps in your employment history (hah) and the market performs optimally. Could you do better than on straight Social Security? Maybe! Although given what I know of the stock market I think it is doubtful. Nevertheless, let's assume you at least break even vis a vis today's Social Security.

BUT -

Taking the funds out of the system would blast a hole trillions of dollars wide and increasing in size as we go forward, at a time when we are already running huge deficits and the gap between the cost of living and the salaries available is increasing. In other words, maybe YOU will do OK - but what about everybody else? And that "everybody else" is US - all of us - we contribute not just to make ourselves well-off but to assure that EVERYBODY has SOMETHING.

That was the essential, rock-bottom foundation - the whole PURPOSE - of Social Security and it was strengthened by The War On Poverty. I realize that many Republicans don't have to worry but do they really want to return to a system which left MILLIONS struggling just to survive, at a time when their bodies are aging and they are least able to cope? What about disabled people and the bereaved? Social Security enables us (I'm disabled) to exist with SOME dignity and also, to contribute to the economy. People who live on the streets don't contribute much to the economy, in case any Republicans are reading this and need to be reminded of this salient and frequently overlooked fact.

In any case, the Bush Administration plan will blow huge financial holes in a system that has served us well for generations. THAT is the overriding issue that must be considered, not whether this person or that might possibly do better than the status quo.

Does it need to be mentioned that nobody is stopping people from investing on their own? Investing is a CHOICE and should remain one. Are businesses so starved for investors that they have to hijack Social Security to ensure cash flow from terrified taxpayers? Under the Bush plan it really ISN'T a choice because Social Security benefits will drop, beginning with people born in 1950, and therefore people will enter the Great Gamble, aka The Stock Market, in an attempt to make up the shortfall. Great. Free taxpayer money - SCADS of it - for the business owners. AND - I was born in 1950 and this leaves me precious little time to get rich.

Thanks, George. And thanks, Republicans, for making the future of America look ugly, dark and bleak.

[llmart]

98. Hey, America in the past four years.......

has already looked ugly, dark and bleak for many people.

And, though I agree wholeheartedly with the compassionate purpose that Social Security stands for, you don't really believe that Republicas care about others' misfortune now do you?

Remember: their mantra is "I've got mine, the hell with the rest of you."

[glitch]

109. I think you may've nailed it: "Are businesses so starved for investors

that they have to hijack Social Security to ensure cash flow from terrified taxpayers?"

Gotta keep that bubble from bursting somehow.

[despairing optimist]

121. Thanks for adding to my comment

Five years ago I had a windfall from the late-90s stock market, much in tech mutual funds thought to be highfliers. I lost 60 percent of my IRA and duly put the remainder in a simple annuity far from the stock market. It hasn't recouped nearly what I lost, but then you can't beat the law of compound interest. It would have grown faster if the Federal Reserve allowed interest rates to rise to a level that would make dollar-denominated investments worthwhile and might actually let people on fixed incomes get somewhere. It's clear that current fiscal policy is made for a fortunate few who can move in and out of markets worldwide as they please. This most assuredly does not include potential Social Security investors with personal accounts, who will remain at the mercy of government and corporate forces beyond their comprehension and control.

Just as foxes should not be trusted to pursue henhouse reform, so Republicans should not be expected to reform Social Security. They hated it from the start, called it socialism, fought it at every turn, fought LBJ's Medicare program; and when that didn't work, they now resort to disinformation and outright lies to gut a system they never wanted any part of because they were so well off that they never needed it. If the Democrats and working people cave in on this fight, maybe the Republicans' bleak Darwinian view of the world is accurate. Maybe it's every one for himself and to hell with those who lose out. But I hope that doesn't happen.

[Whoa_Nelly]

90. The truth is out there and found at factcheck.org

http://www.factcheck.org/article305.html

<snip>
The President also glossed over some severely restrictive aspects of the accounts he is proposing, saying flatly "the money is yours."

Bush: In addition, you'll be able to pass along the money that accumulates in your personal account, if you wish, to your children and -- or grandchildren. And best of all, the money in the account is yours, and the government can never take it away .

That's not exactly true.

As described by the "senior administration official," the owners of personal accounts wouldn't be able to touch the money while they are working, not even to borrow. The money would remain in the hands of the federal government, which would administer the personal accounts for a fee which the official said would be about 30 cents per year for every $100 invested.

And even at retirement, the government would control what becomes of the money. First, the government would automatically take back a portion of the money at retirement and convert it to a guaranteed stream of payments for life -- an annuity. The amount taken back -- called the "clawback," descriptively enough -- would depend on the amount of money the retiree requires to remain above the official poverty guideline. That's currently $12,490 for a couple or $9,310 for a single person. Only after the combination of traditional Social Security benefits and the mandatory annuity payments from the private account equal the poverty level would any remaining portion in the account be "yours."

<snip>
The President didn't mention the "clawback" or the mandatory nature of these restrictions, calling them only "guidelines" and describing them only in positive terms:

Bush is a liar. The more I read Kitty Kelly's book, the greater my hatred for the narrow-visioned, blinkered elitist punks these people are who view "everyday Americans" as nothing more than scum and cannon fodder; The more scum and cannon fodder on the bottom of their ass-kissing boots, the higher they see themselves climb. They care nothing about the citizens of the US. They are narcissistic, ego-centric idiots, and the chimp is worst apple to fall from that family tree.

[Colorado Blue]

92. Right on. Now what do we do about it?

[Whoa_Nelly]

94. What can be done?

Following and hiding behind the Rebublican, or any other party line, ideology still takes center stage for so many people. It seems there are more people who are willing to fight for the sake of ideology rather than to read, learn, listen and think logically. So, what can be done? I haven't the answer on how to reach these people. My best guess is that until this hits home by becoming an emotionally personal issue, nothing will alter anyone's sheeple ideological point of view. Unfortunately, in the case of this false SS crisis, should Bush's BS become the mandate, it will be years too late when they realize that they have been completely screwed blue and tatooted.

The Bushes have always hated FDR and any of his plans. Social Security is a personal fight for the Chimp to make his daddy proud, and to try to outdo all the other crap that this snotty family has unleashed on the American public. They are the "haves"; We are the "don't-give'em-a-goddam-thing-have nots"

[Colorado Blue]

112. I read a "Letter to the Editor" in the NY Times this am -

the writer, clearly a Republican, expressed the idea that people shouldn't be leaning on programs like Social Security in the first place.

Apparently, it is a sign of weakness to work for a low salary, get old or disabled, and lose family members.

Obviously, this only happens to Unworthy Humans in the first place.

GGGGAAAAGGGGGGGGG.

[bklyncowgirl]

100. Excellent analysis from Fact Check now I think I understand.

Add this to the fact that privatization won't do a damn thing to solve Social Security's actuarial problems and as long as the Democrats can get the word out in a way that people can understand, this can be beaten.

[JohnnyRingo]

96. Apparently, the White House is responsible for the revision:

From 2/3/05 Press Gaggle:

And, finally, there is a story in The Washington Post this morning, which we will put some paper out correcting the record about that story.

Q What story --

MR. McCLELLAN: It was the story that said that individuals investing in personal accounts will have to return money to the government, the money that they invest in those personal accounts. The story is wrong. Individuals get to keep everything they set aside in personal accounts, plus the increased rate of return they'll realize on their investment. So to suggest otherwise is wrong. It is the individual's account and the government cannot touch it -- and the article suggested otherwise.

Q -- that reporter's report?

MR. McCLELLAN: I just wanted to mention that, because it was wrong and there is some comments from people in the article suggesting that our plan was something that it is not.
<snip>

It just gets better as reporters make Scotty squirm and stutter in defense of the indefensible:

Q Does the President feel as if he's able to persuade Democrats last night with his speech?

MR. McCLELLAN: Some Democrats I don't think necessarily needed persuading about the need to strengthen Social Security. You have people like Congressman Boyd, who I've talked about recently, who has already signed on to legislation to address Social Security's -- the insolvency facing Social Security.

Q He's the only one in all of Congress, right? The only Democrat?

MR. McCLELLAN: I don't know that I would describe it that way.


http://www.whitehouse.gov/news/releases/2005/02/20050203-3.html

[markus]

99. And since the money for these will be borrowed at 3%

You will make nothing, as you will have to pay that in higher taxes or reduced services. So, to make a 3% return, you'll have to make 6%. Then there's the management fees, etc. Make that closer to 7 1/2%.

Every thing I've ever heard in the last several years indicates a long period of stock market returns of closer to 7 than 10 percent. that, plus the conversion to bonds or other securities as you age, and there is little if any chance that you will do better than this.

And that's without getting into my favorite scenario: what will our 401k plans be worth when there are two of us for every stock buyer trying to sell down our stocks? The same will hold true of these accounts.

[DS1]

104. If there's a way to cash out tax-free, I'm doing that when I'm

59 and leaving the country, assuming of course

A ) There's still an SS plan
B ) There's still a country
C ) There's still a functional government with any cash in it

[spacedog]

105. Hey! Here's the article I'm interviewed in!

Bit of a downer that it's in the "Youth" section -- seems to give it all an air of illegitimacy -- but hey. It's my 15 words of fame.

www.nytimes.com/2005/02/04/politics/04young.html?oref=login

[realFedUp]

108. very cool...some smart group of "youth"....congrats!

and welcome to DU. :hi:

[spacedog]

116. why thank you! (n/t)

[Stephanie]

110. What's the difference? Either they deduct it from yr benefits, or yr acct

You lose either way. Why the big correction?

[adam29]

117. What happened...

...to the Democratic party?

Ok, I've been in abroad attending grad school (in economics) in the UK for the last couple of years, so I have been a bit out of the loop on US domestic politics. But I just started paying attention to the SS debate (my grandmother is on Social Security), and when I first read Bush's partial privitization plan (protect benefits for current retirees, allow younger workers to invest up to 4% of payroll taxes), I thought this was a good idea with bipartisan appeal. I was shocked to hear the Democratic leadership is digging in to fight this.

This is a PROGRESSIVE plan, people!

People in the lower wage brackets have suffered for years in stagnant salary growth, and have no savings to allow them to invest (thus to participate in economic growth), which is a big part of the reason for the growing wealth & income disparities.

Allowing workers to set aside some payroll taxes in a personal savings account creates an opportunity for the lower class to participate in economic growth, and narrow the gap (or at least keep it from widening further!)

I've read some of the comments on this board, and there is clearly a lot of misunderstanding about the economics of the situation and the proposal.

-The kind of plans being proposed (modeled on the Thrift Savings Plan) will not generate a "windfall" for Wall Street. The TSP funds have fees of less than 0.25% -- a very low margin. Will Wall Street firms make some money on this? Yes, of course, but that is because they provide a relevant service--access to the financial markets. If Bush came out tomorrow with a plan to spend money to build a bunch of high-quality housing for the poor, would the Democrats oppose the plan because it would create a "windfall" for the home construction industry??? Does that make any sense?

-Optional "Add-on" accounts are a useless counterproposal, because the people who need them the most are the ones least able to afford them. If you are making $15k a year or $35k with kids to support, you don't have enough leftover income to save and invest. An "add-on" account would just be a retirement investment tax shelter for those already wealthy enough to save.

-Plus, this gives lower income workers a chance to pass on a small nest egg to their children or grandchildren, which could be used to pay for better education or better, safer housing...education or better home environment which would in turn give them more upward mobility...again, helping to close the quality of life gap between rich and poor.

-Allowing workers to invest 4% of payroll taxes up to a maximum of, say, $2000, is a completely progressive idea:
-An individual making $15,000 a year would be able to save $600/yr
-An individual making $35,000 a year would be able to save $1400/yr
-An individual making $50,000 a year would be able to save $2000/yr
-Anyone making $100,000 or $20 million would be able to set aside and shelter only $2000--the same amount as someone making $50,000, thus on relative terms, these accounts would benefit the wealthy less than the middle and lower classes.

And these accounts are nowhere near as risky as is being described.
(1) Investments will be supposedly limited to diversified funds
(2) Investments will be made at many intervals over time (i.e., at monthly paycheck intervals for 35 years), which allows one to average out the risk of investing at a peak in the market
(3) There are "lifecycle" investment funds increasingly available which reallocate funds to less risky investments the closer one gets to retirement, which would specifically prevent anyone suffering a significant loss to their fund on the eve of retirement. (at which point the fund could be put into a risk-free annuity to payout monthly benefits in addition to Soc Sec).

Jeez, Bush has a lot of crummy proposals that any true Democrat should fight (like oil drilling in the Arctic Refuge or banning gay marriage). But I'm sorry, in my opinion, this Soc Sec proposal should be EMBRACED by any Progressive who truly wants to help lower income groups improve their lot in life.

[spacedog]

118. I don't totally disagree...

My big problems with the "plan" are:

1) The picture they are painting of a SS "crisis" is not quite true. Yes, we need to do something about Social Security but the problem is about 40 years away, not 10 like they are saying. Regardless, yes, something needs to be done. However they are talking so much about private accounts which is just going to take money OUT of the system. They are not talking publically about real solutions to the funding problem.

2) I so totally and absolutely do not trust the government to invest my money for me. There has been some talk that the government would manage funds or select stocks or what have you that us citizens will be allowed to select from. I do not trust the government to NOT pick a whole lot of Enrons. I also do not think they will invest as efficiently as private investment houses. I TRUST Fidelity to manage some good funds. I do not trust a government employee.

3) I have heard nothing from the administration regarding making safe investment vehicles available and mandatory for those closer to retirement age. I just don't think a 64 year old person should be allowed to put their retirement fund in steel futures (presuming steel futures were an option for them -- hopefully not!) and end up losing it all. The closer one is to retirement the more secure this money must be and we just shouldn't permit people to risk their SS retirement funds because this is the one safety net we provide to many retirees.

4) I have to be nervous about such a massive inflow of money into the market. Someone is going to make out like a frickin' bandit. I don't trust the administration to NOT be primarily motivated by that windfall.

5) There are going to have to be benefit cuts to finance this option since it would take a lot of money out of the system which can no longer go to paying current retirees. Given the benefit cuts, I think we need to be very worried about the potential losses in a private account. I know a lot of people who lost 50-75% of their savings in the recent stock market crash. If the private portion of the account fails, people need to be able to live off of the other 2/3 which has now been cut.

I do think that allowing people to invest some of their SS savings is a good idea but I think we need to be damn careful about making sure people don't screw it up (not that people are stupid but... you know... sh*t happens.) Having a lot of poor, homeless, old people roaming the streets is just not good for society. Also, there are a lot of other things that so desperately need addressing like Medicare, etc.

I also am not sure this is the right time to introduce a change like this to Social Security. We have such a huge debt right now and that is GOING to come back and bite us. Perhaps we should be attempting this when we have some money set aside to fund the gap that will be left.

Anyone else have any ideas for how a system like this could be set up and work out well for everyone?? Because I do agree that we need to help less well-off people save more for retirement. Saving is good! I just don't really trust bush* and co. to do it right!

[adam29]

119. reply and thoughts for modifications of Bush plan

Spacedog-I'm with you in not trusting the gov't to manage my money, but as I understand it, that isn't part of the plan. I think the gov't would restrict investment options to a limited number of funds which would be managed by private firms like Fidelity. Individuals could choose to put portions of their account into different funds. And I certainly have not heard anything about people being able to invest their accounts in anything like steel futures--that would clearly be a disaster.

Re: your other points...

(1) Yes, clearly "crisis" is an exaggeration by the Bush team, however, the beginning of the problem is indeed very close. Over the past several years, the SS system has been running a surplus, which has been loaned to and spent by the Federal government on other programs (education, homeland security, etc). In essence, the general fund has been spending more than it takes in with Federal taxes, but has supplemented it's spending with the surplus SS receipts. The SS annual surplus has been growing each year, but in 2009 or 2010, it will start shrinking, and by 2018-2020, it will be an annual deficit.

Think of it this way. Imagine you make $30,000 a year. In addition, you have a wealthy aunt who gives you $5,000 per year. You spend all $35,000 each year on food, rent, gas, and entertainment. You find out from your aunt that starting in 2009, she'll only be able to give you $4,000 that year, then $3,000 the year after that, and so on until in 2018, she starts asking YOU to pay her $1,000+ per year, growing each year. In 2009, you'll still have $35,000 in expenses, but only $34,000 in income. You'll have to either: (1) cut spending on food or rent or something else, or (2) work more hours to get more income. Each subsequent year you'll have to work ever longer or cut spending even more.

In the above analogy, YOU are the general fund of Federal goverment, your salary represents tax receipts, and your wealthy aunt is the social security trust. Basically what I'm saying is that (as I understand the data) in 2009-2010, the general fund of the federal gov't will have fewer SS receipts to borrow from the year before, meaning, it will have to (1) raise general federal taxes, or (2) cut spending in other programs, such as education, homeland security, etc. This will be mild in 2009 (maybe under $10 billion), but it will get worse every year, forcing more spending cuts or higher tax increases.

I think allowing some individual accounts won't take as much money out of the system as some people claim. So some of today's SS tax payments would be diverted to individual accounts, meaning that current SS tax payments would not be able to completely cover benefits for today's seniors. So the federal gov't would have to borrow the difference. Let's assume this amount is $1 trillion over 10 years. This would lead to a big new excess SUPPLY of gov't bonds of $1 trillion, which would have the effect of driving down bond prices, increasing yields and interest rates. However, because of the new personal accounts, there is also an increase in DEMAND for investments, to the tune of $1 trillion. If people, on average, invest 40% of their new accounts in gov't bonds (many financial advisors suggest a 60/40 stock/bond allocation), that's $400 billion in additional DEMAND for gov't bonds, meaning the excess supply of new gov't borrowing would only be $1 trillion less $400 billion, or $600 billion. So bond yields and interest rates would still go up, but much less so. And the increase in debt is largely just changing the current IMPLICIT gov't promise to pay benefits to future retirees into an EXPLICIT gov't promise...in the form of gov't bonds.

I know many on this board would disagree, but I just think that this has the potential to be a positive, progressive program. I'd like to see the Democratic side engage the Republican side and make sure that any partial privitisation:
(1) caps the max amount contributed in a single year. $2000 seems about right to me, allowing this cap to rise with inflation. This has the effect of keeping the program progressive and limiting the transitional shortfall.
(2) Limits investment options to diversified funds, much like the Thrift Savings Plan enjoyed by current politicians and civil servants, and strongly encourages investment in "lifestyle" funds which move assets towards safer investments as a person nears retirement.
(3) Provides the opportunity for matching funds for really low-income workers (i.e, anyone whose contribritution is less than $1000 should get gov't assistance to bring their contribution up to $1000. So someone making $15,000 per year would have 4% x $15,000 = $600 of their SS payroll tax diverted into a private account and would also get a $400 contribution from the government, bringing his/her total annual contribution to $1000.
(4) Optional: require that, at retirement, 80-90% of the personal account must be used to purchase a lifetime annuity, which would provide risk-free monthly payments until death. This would prevent the possibility of people from exhausting their funds if they live longer than expected lifespan. Plus, the other 10-20% could be kept in a diversified fund and passed on to heirs to be used for better housing or education. How great would it be if someone who worked his whole life as a janitor could pass on even just $10,000 to his grandkids to help them pay for college and have an opportunity HE never had???

I think the Republicans want these private accounts badly enough to make these concessions, and I think getting some sort of bipartisan agreement on this would be beneficial for the country. Then Democrats can spend more time and political capital fighting much more obviously stupid ideas, like ANWR drilling and any gay marriage bans.

Just my $0.02

[spacedog]

123. agree

Yes, what you said all makes sense. My major problem is just that we cannot allow people to RISK their retirement. I would want to make sure there was no chance for someone to end up worse off -- though I'm not sure how likely that is when there will have to be benefit cuts/tax increases regardless of whether we pursue private accounts or not.
One problem that I can see happening is people getting skittish if their funds start losing money for a little while -- people will pull out into cash, lets say, because they're scared. Then when the funds recover and are on their way back up, they will buy back in, perhaps too late. I don't think some regular Joes can resist from getting freaked out by market swings. I know investing gurus and folks say you just need to ride out those fluctuations and not let it get to you. I'm not sure people will be able to stomach it and may buy in/sell out at all the wrong times. Maybe limits on how often you could trade in and out would help...

I do kind of worry that the Dems are going to end up shooting themselves in the foot by opposing this effort without offering some constructive advice/criticism to make a plan like this WORK. I don't want it to be seen as "Democrats are trying to keep you from saving more for retirement".

[seventythree]

130. In the Post's example,

the 21,000 left to pass on to your heirs is in today's dollars, I believe, what's that worth 40 years from now? Would I take the risk of losing my full social security benefit if the market tanks, to pass on a grand, or two? I wouldn't. I thought the 4% was 4% of the tax you pay, not 4% of your pay -- the other 8.5% or so will keep going into the ss system. At least, that's how I understood it. I think there is something real creepy about the government picking the groups of funds you can invest in -- what you want to bet that the admins favorite companies would be in the mix? Sound like market manipulation to me, yet, no one talks about this angle. After all the scandals, we want to trust corporate moguls and wall street insiders? Yuk!

[lonestarnot]

124. AAR yesterday crunched numbers at $187,000 loss to participants. n/t

[nashville_brook]

126. oopsie, you mean we can't just publish what Bush tells us??!!

how will we do our jobs if we have to CHECK everything!

[m_welby]

129. I never seem to hear the obvious problem with this...

Social Security doesn't run out. These theoretical numbers don't really take into account that once you've used 99k in social security benefits they keep sending you a check until you die.

What happens when your money runs out without a safety net?

[spacedog]

131. annuity?

There was some talk of forcing you to buy an annuity with the savings when you reach retirement age. i THINK a lot of lifetime annuities work so they also pay you until you die and the companies just set the rate so it works out for them -- i.e. they set the rate so for some people they lose some money but for some people (more people) they make some money.
Though in those cases I can't imagine you pass on anything to your heirs. What happens in regular SS as it is now? Do your survivors get money until they reach a set age or something? Does your spouse get benefits for the rest of his/her life? Or does it also "run out" after you've received x$?

[adam29]

133. survivor benefits

Spacedog-

I'm not 100% clear on the current social security system, but I think there is a survivor benefit if a retiree dies. I think the only ones who would qualify are dependents of the retiree (i.e., kids under the age of 18, which is pretty uncommon, or widows). Though I think in the case of widows, the survivor benefit is just a small lump sum, not a monthly allowance...although if the widow never worked and had no soc sec of his/her own, then I think he/she CAN get some or all of the monthly benefits that his/her deceased spouse was eligible for...I could be wrong though...anyone else know for sure?

As for annuities, there are versions where you can structure in survivor benefits. For instance, I saw some that include "10-year survivor benefits", meaning, if a 67-year-old buys a lifetime annuity with 10-year survivor benefits, but dies at age 75, leaving a surviving widow (or possibly other dependent), the annuity would continue to make a monthly payment to that widow for 10 years following the death of the annuity purchaser.

[adam29]

132. Annuities

Actually, to be completely upfront and fair, there is a way to guarantee that an individual's private account wouldn't run out. He or she could purchase what's called a lifetime annuity. They work like this:

Say the person has managed to accumulate the $100k in his/her account by the age of 67. He/she could take $80k of this money and purchase a lifetime annuity, which is a financial instrument that promises to pay a fixed sum every month, for as long as that person lives. Right now, for a 67 year old male living in Florida, $80k would buy a lifetime annuity which would pay out exactly $554 per month, for the rest of that individual's life, no matter how long he lived. Presumably the retiree would also receive a monthly benefit from social security--albeit reduced from today's benefit rate. The retiree could also use the remaining $20k in his account to help pay for a grandkid's college, or a down payment on a house for one of their children, or just to keep in reserve for any unexpected medical expenses.

Actually, the I believe the great FDR himself suggested that the Social Security system should be eventually transitioned (after its initial start-up phase of 30 years or so) into a plan that was half-federal government, half-private sector annuities.

Am really starting to feel like a very "old school" Dem...