About investing social security money in the stockmarket.

[cornermouse]

Has anyone considered that if investing in the stockmarket was a way for everyone to "earn" a large amount of money that everyone would already have put money into it and everyone would be rich right now?

This is nothing more than sucker bait.

[BlueEyedSon]

1. The proof that the market cannot possibly deliver the returns

forecast (and needed) by piratization goes something like that.

All the buying will bid up the prices, lowering the percent return.

[Hugin]

2. Not only that... The transaction fees...

... If over a few percent will eat up any profits.

I read the other day. Somebody went back with a
40 year sliding window over the market. The normal
return was around 6%. (same as Social Security...
Imagine THAT!) But, if you add in even a 2-3% overhead
for the transaction fees it cuts the return down to
3-4% ... You can do better with your mattress. ;)

[LARED]

4. SS returns around 6%?

Are you sure?

[Hugin]

7. I'll look it up for you...

But, I'm darn sure...

"For working males, the rate of return was 5.5 percent. Social Security’s rate of return for lower-income males was 6.17 percent and for higher income males, 5.04 percent."

From...

"http://www.hillnews.com/thehill/export/TheHill/News/Frontpage/021505/treasury.html"

Since SS is based on a sliding scale lower wage earners get a
larger return. But, as a whole they contribute more.

There's several other sources you can check.

[LARED]

10. I think I see the problem

from your link

A Treasury Department paper written in 1995 looked at data from Social Security beneficiaries and concluded, “Social Security net returns are strongly progressive.” For working males, the rate of return was 5.5 percent. Social Security’s rate of return for lower-income males was 6.17 percent and for higher income males, 5.04 percent.

In June 2001, Social Security economists and actuaries wrote a paper, referred to as Note 144, on rates of return for hypothetical workers. They concluded that low-income “two earner couples” born in 1955 will earn a 3.2 percent rate of return, a medium income bracket would earn just a 2.15 percent rate of return, and a high income bracket couple would earn just 1.49 percent.

Note 144 also states that making rate-of-return comparisons with private investment plans is inadequate because Social Security offers benefits that most private plans do not, such as guaranteed cost-of-living adjustments based on the consumer price index and benefits for life in the event of disability.


The 6% is based on existing workers returns, where cost of living adjustments have created a nice return on investment for low income worker. (which make me wonder what percentage of workers are considered low income) Looking at the second paragraph if returns are based on the present systems payouts the rate of return is much lower.

The last time I received benefit information form SS, I calculated my rate of return. It was not pretty. If in the future SS increases it due to inflation (something dubious in my view) the return may improve.

This really shows how complicated the whole situation can be.

[Hugin]

12. Unfortunately...

In "June 2001" the Social Security Piratization group
was already at work. They were appointed by BushCo just
prior.

It's interesting to me the article I provided contains
both real and manipulated data.

If you recall this was the same time frame where Cheney's
closed door energy meetings with the Iraq maps were being
held.

[Blue Wally]

33. Data I saw

and it might just be propaganda was a 1.2% return for all and a minus 0.5% return for black males.

[BlueEyedSon]

5. deleted.

[napi21]

3. It's mind boggeling how many people don't understand the SS

reform plan as has been disclosed so far! This morning, cspan's question was "Do you think SS is still the third rail of politics?"

As usual, all the Shrub supporters are for it, and the Dems against it, but much worse than that, none of them seem to understand the plan. Some actually believe they'll get rich, some think they'll loose all their $$.

The only good thing I heard is that the Pubs who have spent the last week holding townhall meetings in their home states have met with a lot of resistence!

[Hugin]

8. The repub talking point...

They *ALWAYS* bring up the urban legends of
the guy/gal who made millions and left it to
their cat or a library somewhere.

*BUT* To have made that much money over their
lifetime (The one or two who did) Look at how
they lived their lives. They lived in a house
they inheirited... Had no spouse or children.
Ate broth... so on so on.

Then there's always the Kerickesque market
laundering schemes where people pay each other
off via the market and fake fronts.

And they talk about *us* and *our* conspiracy
stories.

Sheesh.

[BlueEyedSon]

6. "Bushco: Governing by manufactured crises since 2001."

[Hugin]

9. Heh... I like your phrase, "Social Security Piratization." LOL

Avast! Swabs!

[bunkerbuster1]

36. Piratization... been saying it for months

Not that I'm claiming credit, but I'm glad it's catching on. I've seen it in quite a few different forums.

[wishlist]

11. Many state and company pension plans have lost millions in stocks

Too bad the trials for Enron execs will not occur until next year. There should be more focus on steep state and private pension fund losses due to portfolios including unwise investments in companies like Enron.

With my friends and family, those of us who invested in U.S. Treasuries, bonds and long term CD's over the years have done better with a lot less worry than those who have invested in stocks and mutual funds. I know several people who would have retired by now but have had to work a few more years to make up for their stock market losses.

[Hugin]

13. Crossing fingers...

Yeah, I've been heavy on Treasuries in the past
as well.

Right now I'm looking at them carefully. Because
if the powers-which-are keep diddling with the
value of a dollar those become questionable as
well.

But, whatever comes Treasury will still be
more stable than stocks.

I hope...

[BansheeDem]

15. Treasury Bonds ...

are always a good investment over the long haul. I personally prefer an indexed fund that includes 500 or so vehicles; including Treaury Bonds. My rate of return over a slightly less than 20 year period has been about 9 percent.

I must also take exception to the notion that Social Scurity will return about 5.5 percent. The last time I received a statement from the SS Administration, I calculated my return to be about 2 percent. I'm not sure where they are getting the higher figure.

[Hugin]

18. You are probably higher income...

The "Social Security Return" is based on your "Pre-retirement"
income.

Since Social Security is based on a sliding scale if you make
more it looks like less against your income than someone who
makes less.

Social Security was *never* intended to finance your Hummer
or the Summer Cottage.

It was intended to give lower wage earners a roof over
their heads and food for their stomachs.

The thinking was the higher wage earners probably had more
options and income for their retirement. Like a Railroad
pension.

[BansheeDem]

21. I might be higher income now ...

but I certainly wasn't for most of my working life. But your point is well taken and I presume a good reason why I am seeing a much lower return.

And you are right; I am not depending on Social Security to fund my Hummer. I am viewing it as a supplement to my retirement and even making plans for it to be gone altogether as I near retirement age (about 15 years from now)

[cornermouse]

28. Which is all very nice for you.

It ignores the fact that there are a lot of people who cannot afford to buy stocks due to very low income, are not knowledgable or educated enough to manage stocks effectively, and who would lose everything.

They are why social security was created, not as a profit-making venture or a way of scoring points, but as a lifeline to save the lives of the poor, elderly, sick, and disabled. Its real reason to exist is to keep them from being homeless.

Why has this been forgotten?

[BansheeDem]

29. It hasn't been forgotten ...

That is one of the reasons the THRIFT savings plan was created in the first place - for those that didn't know anything about investments. Their savings are invested in indexed funds that have a had a very healthy; yet modest growth rate because the investments were in low to medium risk vehicles like Treasury Bonds and long term non-speculative stocks. Not a single person has lost their shirt in the THRIFT savings plan. If the partial privatization of Social Security is based on the same concept, and it is, then there is no reason for anyone to be against it.

You say that this is all very nice for me, but I started out just as poor as many others. I didn't come from wealth, and I don't attain it now. I am simply a middle class government worker who took the time and effort (and loss of sleep to go to college at night while working a full time and part time job) to learn what I needed to know so that my family and I might have a better future. If you call very hard work being lucky, then I guess that's what I am. I make no excuses for making the right choices for my family.

When I was starting out, I made a bit more than minimum wage. Even then, I took a small portion of that and invested it in my future. At first it was simply a savings account,; but when I had saved enough, I bought stock, then some mutual funds. It took quite a while and a lot of personal sacrifices to do it, but I can tell you that it was all worth it now.

To say that there are many out there that can't afford it is being disingenuous at best. If a portion of what we already pay in payroll taxes is diverted to a private account, then how is that less money for us to use for living expenses? Our net income would remain the same.

I am a Democrat, but I refuse to drink the kool-aide about Social Security reform. As I have said in other posts, it is high time we took this issue back for ourselves and did something productive; and politically advantageous with it.

[cornermouse]

30. Bush's plan is to destroy the safety net for those who can't.

I am unable to determine why you seem to think its a wonderful idea.

Adults working at low wage places such as fast food restaurants, cashiers in retail stores, or working at certain well known food processors do not earn enough to get by. I know. I was there. Escaping was not easy. Disingenuous is expecting them to have your energy to work and attend school, your ability to invest money, and turn a profit.

I am serious when I say that its nice that things turned so well for you. I am also serious when I say congratulations. But at the same time, I think we have to be aware of the reality that not everyone is able to do what you were able to do.

Question: If they are really serious, why does Bush insist on putting it in the stock market? Why not allow people to put their money into other things which they might be able to understand better?

Finally, what do we do with people after they lose their money in the market or fail to make enough interest to live off of? Do we put up more money to replace that which they lost or are they disposable once they become losers? Do we say "too bad so sad?" What or where is the plan? They refuse to talk about the actual details of the plan. Why? Don't we have the right to know?

[BansheeDem]

32. I don't think you read my reply ...

or you only read part of it - or the parts you wanted to see. Simply stated, the THRIFT savings model would not take any more money out of the pockets of working people than payroll taxes do already. Their net income would be the same. It simply diverts a part of what they are already paying and puts that portion into a private account. To put this in a from that is readily understandable, let's use a person making 260 dollars a week gross income as an example. Right now 15.60 of that goes toward payroll tax. Under the partial privatization plan, 62 cents of that could be diverted to a private account. Do you think that most minimum wage earners could swing that 4 percent?

Secondly, they would not be making their own investment decisions. The money would be placed in an indexed fund of 500 or more companies which would include stocks, bonds, real estate, commodities, and the like. None of the money would be available to them until retirement. The naysayers all focus on the fact that this plan will include stocks; but you never hear them mention the fact that it will also include bonds and other safe vehicles to diversify the risk. The bottom line is that NOT a single person is going to lose their shirt. For that to happen, there would have to be a catastrophic collapse of worldwide markets. Do you think that is very likely anytime soon? And if you do, then you simply do not understand how worldwide financial markets work. My THRIFT savings plan has grown steadily through Enron and the tech market collapse. If it had all been invested in stock, that growth would have been unlikely.

As for your notion that everyone can't do what I've done - I say you are mistaken. Anyone can do what I've done. It's all a matter of how willing they are to work toward that goal and how long it will take them to get there. It took me a long time; others may take less time. But EVERYONE can get there. It sounds to me like you are selling a lot of people short with that remark.

[cornermouse]

35. How much sleep per night did you get while earning that degree?

My brother got about 3 hours sleep per night while working his way to get his masters. Can you do that? Well guess what. I can't.

I looked at his master's thesis and had no idea what it was about. On the other hand, there are things that I can do that he can't. Why do I bring this up? Because you're assuming that everyone has the same abilities, thinks the same, basically are the same. That's simply not true. You're also assuming that we're supposed to be supervising our stocks in somewhere between working, taking care of children, taking care of things at home, checking up on parents, grocery shopping, and everything else that pops up daily. Cannot be done. Don't have the time. Don't have the energy.

Something I'm starting to wonder about lately is whether the influx of all this money to buy stocks from us little people would turn out to be cover for the wealthy to sell their American stocks to us and put it somewhere else before things turn sour. The fact is, our economy is not healthy and that's not a good thing for stock investments.

Basically, if you want to lose your money by putting it in the stock market, go ahead. Just don't try to take anyone else down with you. I'm not buying into the get rich quick scenario. That's what fools do.

[BansheeDem]

37. I averaged about 4 hours a night ...

while working on my undergraduate degree. I was like a walking zombie most of the time. But ask your brother and I'll bet he'll tell you it was worth it. I know it was for me. However; with online learning and at home study, those days are all but gone. A person can earn a degree today from the comfort of their computer. I think you would agree that most people could handle that; even if it took ten years to complete.

Once again you have FAILED to read what I have written. I don't mean to be getting annoyed here, but - sheesh - how many different ways can I say that the money will be managed in an INDEXED account; which means that it will contain 500 or more different funds. Some of them will be stock, some bonds, some real estate, and some commodities (like gold and silver). A PROFESSIONAL manager will look after the account and that will cost about 1 percent to administer. What part of NOT ALL of it will be STOCKS do you not get? What part of YOU will NOT have to pick a single stock, or bond, or piece of property, or decide when to buy more gold do you NOT get? You won't need to find the time, because you will not be managing a thing. What part of the THRIFT saving plan, which has been in place for nearly twenty years and has not lost a dime - and is the model for this plan, do you NOT get?

It seems to me that you would rather swallow the party line here than use the brain God gave you and see that a 6-9 percent return on your money is better than 3 percent. You would rather believe that YOU will be responsible for managing these 500 plus stocks, and real estate, commodities, and bonds because you heard it from someone who heard it from someone that knows someone that's related to someone who said it was going to be that way.

All I can say is feel free to live in your world where facts are ignored, and political rhetoric prevails. Continue to listen to those that tell you that you will have to manage this ALL STOCK plan, and that you will lose your shirt because this is a just a vast conspiracy to take your money. Continue to listen to them right up until the time you retire and realize that you could have had a nice bit more for retirement if you had just listened to someone who has had 20 years of experience with this exact type of plan and was trying desperately to lead you in the right direction for your future.

But don't tell that to the literally thousands of federal workers who have come to realize that the THRIFT savings plan is a great way to supplement their retirement. Because they will just laugh at you.

[BansheeDem]

17. The companies that lost millions ...

were for the most part invested in a plan that depended solely on their own stock for growth (Like Enron). Plans that are diversified have done quite well over the long-haul. I think it's a bit disingenuous to put all corporate plans in one basket, then call them bad. It really all depends on how the plans are structured.

[Hugin]

20. Blind quote...

... "done quite well over the long-haul"

We don't do those here anymore.

I'm in a highly diversified plan. It has lost double
digit in three of the last 4 years.

[oneighty]

24. Me too

TIAA-CREF.

Took a bath. Still has not recovered to what it once was.

180

[BansheeDem]

25. Here is a ink that might help explain what has happened ...

I have to make a presumption that your fund manager(s) have made some poor choices using the portable Alpha investment strategy. I say this because the time-frame seems about right.

I'm not a huge fan of this strategy and wouldn't rely on a manager who proposed it. Long-term funds should be placed in widely diversified Beta class investments (in my opinion) - Treasury Bonds, ,mid-cap stocks, and non-speculative real estate. Looking at such things as distressed securities, hedge funds, and the global bond markets is a risky business and should be avoided.

For anyone familiar with the markets (and terminology) this is an interesting take by Stanley-Morgan. Well worth a look. Note: requires Adobe reader.

http://www.morganstanley.com/im/resources/mkinsights/pdfs/portable_alpha.pdf

[Yupster]

31. You must mean 3 of the last 5 years

It could have lost double digits in 2000, 2001 and 2002, though that would be a pretty bad plan because most lost single digits in 2000 at most.

Anyway, 2003 was a very good year where most funds were up 20 + percent and this last year 2004 was a modestly good year with most diversified funds up in the 6-12 % range. Stock funds, especially Value funds or foreign funds did better, but plain vanilla diversified funds - take the George Putnam Fund of Boston for instance was up 8.3 %.

If you lost double digits 3 of the last 4 years, something's truly out of whack in your portfolio. Bring it to someone for advice.

[Squeech]

14. Also

Here's another reason why past performance is no guarantee of future results, as they say.

A generation or so ago, something like 15% of Americans owned stock. Back then the market was the more or less exclusive playground of the upper class.

Nowadays over half of Americans have equity investments, usually in some sort of retirement-savings vehicle like an IRA or 401k account. This is new money, and it has done its bit to push up stock prices, in classic supply-and-demand fashion.

This infusion of fresh capital in the market has been a one-time thing. Even assuming that new workers will contribute to stock positions in the same numbers (an assumption I wouldn't make, given how badly real earnings have done in keeping pace with real cost of living), the inflow will be cancelled out by us retirees taking our money out to buy our beachfront condos (or, more likely, our Lipitor prescriptions).

[Hugin]

16. Yup...

Don't they teach "The Law of Diminishing Returns" in
Business Schools anymore?

http://www.auburn.edu/~johnspm/gloss/index.html?http://www.auburn.edu/~johnspm/gloss/diminishing_returns_law_of.html

[BansheeDem]

19. Well, I went to college 25 years ago ...

and majored in business; and they were still teaching that theory. I have to presume that modern day business schools would continue to teach all economic theories. Well, if they are worth their salt, anyway. I also remember them stressing the theory of diversification in investment portfolios; still the most viable approach in my opinion.

[Hugin]

23. So you are saying...

"the theory of diversification in investment portfolios"

There is *NOTHING* keeping people from investing some portion
of their income for their retirement.

However, *I LIKE* Social Security and I don't mind paying it
because *I DON'T LIKE* stepping over starving ppl in the
streets. Which if there was no safety net would be more likely
than not the outcome.

So, you are a business grad... Tell me. How is a retirement
plan where 20% of the total is given to the plan administrators
as *PURE PROFIT*, mind you, better than a plan where only 1-2%
of the plan's funds are used for administrative costs?

I've been dying for a Republican to explain that to me.

[BansheeDem]

26. I also like Social Security ...

and hope that it is here for a long time to come; whether I see any of that benefit or not. As a point, I work for the government and have been invested in the THRIFT savings plan for almost 20 years. I also have private investments outside of that plan. The administrative costs of the plan are the same 1-2 percent that you describe. The administrative cost for my private plans are also about 1 percent; so I'm not sure where you are getting the 20 percent administrative cost from. Possibly from a front-loaded one time investment of some type? It's hard to say without you describing it in detail.

I think the problem that we all have is that there is so much contradictory information out there that it is difficult to separate the chaff from the wheat.

[indepat]

22. The eight hi-tech stocks in my rollover IRA have lost 20% to 85%:

good luck.

[BansheeDem]

27. Not surprising at all ...

I have tried to avoid high-tech stock whenever possible. I don't have much of a choice if it is included in my indexed plans, but for those stocks where I have had a choice, I have stayed with the long term bread winners. I have always chosen smaller gain for less risk; it just seems to me to be the wiser move.

[kentuck]

34. But if you had invested back when the market was at 1000...

and now it is at 10,000...you would have made a lot of money in the last 30 or 40 years, they argue. So if we invest at 10,000 today we can anticipate the market to grow to 100,000 over the next 30 or 40 years, at the same rate as the last 30 or 40 years, right?? And if it doesn't ??

[BansheeDem]

38. I think it's unreasonable to expect ...

that the market will grow at that rate for a sustained period of time; although bulls generally outlast bears. However, a moderate growth rate will still supply the 6-9 percent that the plan is designed to deliver. The other factor to consider is that not all of that money will be invested in stocks. Treasury bonds and real estate as well as other non-speculative vehicles will be used to hedge against each other. I generally explain that it would be similar to investing in the S&P 500 with bonds, commodities, and real estate for balance.

One of the great fallacies being spread by our party is that this will be an ALL STOCK plan. Of course, they know that this is not true, and so do many of us that are invested in the similar federal THRIFT savings plan. I'm not exactly sure why our party is doing this - it just doesn't make any sense to me. The only conclusion that I have reached so far is that they do not want to let go of the money coming into the federal coffers that are currently funding their pet projects - I sure hope I'm wrong