Anybody See This ??? - Apply Frist Test To Social Security

[WillyT]

<snip>

Sen. Bill Frist, R-Tenn., the majority leader, accidentally ran a test of President Bush's plans for Social Security. The test was about as encouraging as the tests of the missile defense system.

Sen. Frist had more than $750,000 in his reelection campaign fund after the 2000 election, money he didn't need right away. So he prudently socked it away in a stock index fund. His reports to the Federal Election Commission show he lost $460,000 of the money in 2001 and 2002. Losses such as Sen. Frist's could happen to the individual retirement accounts Mr. Bush wants to carve out of Social Security contributions.

Now, Sen. Frist's stocks may very well recover before he runs again in 2008. And, if they don't, a long line of lobbyists is waiting to help out a majority leader in return for "access." But if that happened to someone's nest egg on the eve of retirement, he or she would have to spend the early golden years waiting for stocks to rally.

<snip>

Link: http://www.palmbeachpost.com/opinion/content/opinion/epaper/2005/01/03/m12a_blackburn_0103.html

We need to point this out to the non-lobbyist backed people of this country!

[Dr Ron]

1. Not the best test

To be fair, any such test must look at long term investments, where we would expect to see a benefit from the time value of money.

However, such benefits might not be as large as many think. For a real test see:

http://www.lightupthedarkness.org/blog/default.asp?view=day&blogDate=12/30/2004

[WillyT]

2. More Of A Metaphor Than A Test, But...

it still makes the point, that if you happen to be nearing retirement during a bear market, you may not be nearing retirement at all! You may have to work several more years to see the sort of retirement you had planned on.

Social Security was NEVER intended to be prone to the whims of the stock market. NEVER!!!

:shrug:

[Dr Ron]

3. To be fair

While there are many arguments against Bush's proposals, this isn't one of the stronger ones. Hopefully there would be some mechanism to move people approaching retirement age into more conservative,fixed income investments. Plus, money invested over a longer time frame would most likely have increased in value such that the risk of losses is small even with a major down turn at some point along the way.

Of course there is the question as to whether Social Security should be subject to any risk at all, or whether it should be a more predictable benefit as a foundation for retirement plans which could include riskier (and potentially more rewarding) investment plans after Social Security.

[No Exit]

4. Doesn't the proletariat already have an opportunity

to place their retirement savings in an IRA, which can be a stock investment such as a mutual fund? This money is not taxed until they withdraw it--which they can only do without penalty after they reach a certain age. Not much different from a Social Security pension, which is also taxed.

You say, "hopefully there would be some mechanism to move people approaching retirement age into more conservative, fixed income investments." Pardon my cynicism, but I feel that you are investing your hope in a high-risk investment--in the prudence of our elected officials. Like the stock market, the "prudence of our elected officials" is rather unpredictable to most people.

I think of it this way: 1)either the government should get out of the retirement-pension-business 100%--that is, they should stop taking any FICA or SE tax from us, or 2)they should continue to make sure we have a guaranteed pension of a certain amount. One or the other. The rest is all sleight-of-hand.

[Dr Ron]

6. Need the specifics

Without the specifics of the plan it is hard to discuss details such as whether there are mechanisms to get people into safer investments as they approach retirement age.

Of course we must keep in mind that Bush's real aim is most likely to destroy Social Security, not to devise a better system. In theory, it is questionable whether it is wise to combine Social Security with private investments, but it is conveivable that an acceptable system could be developed. However, considering his real motivations, I don't expect to see such a plan from Bush.

[No Exit]

8. I certainly agree with you about Bush's probable intentions.

As for Social Security, I must admit that in years past I resented the fact that it really does take a bite out of what you earn. As someone (can't remember who) above said, there is the SE tax, and like that person, I pay that. It does indeed sometimes match or almost exceed what I pay in "regular" fed tax. There is no question that a person takes out less than what he puts in.

I think the idea, originally, was that the government, if it took these bits and pieces from every worker, would then of course have millions (billions, now) and of course an investor with millions can get much better return than can each individual investing his small bit alone. But... do they actually take the money and put it in a fund? No. Everyone knows they work it like a pyramid scheme. So naturally when we have a bigger generation retiring, and a smaller group of workers continuing to work, people get worried. But I believe that a solution will be found--without destroying the whole system.

Certainly anything Bush would put in place would be worse, as you said.

[kerrygoddess]

5. Wow!

Don't rust the stock market, don't trust the Repubs.

Have no money to invest anyway! Bush is breaking us.

[LizW]

7. "Frist Test"...I like it

But, heck, anyone who had a 401(k) in the late 90's did their own "test". Lost a bundle, and anyone who was about to retire then was SOL.