The Social Security "privatization" question that no one asks...

[itzamirakul]

What happens to your retirement fund if the market fails, slumps or crashes?

[nadinbrzezinski]

1. you are SOL

just ask Chileans just learning this hard lesson...

[radwriter0555]

2. ACTUALLY what will be put in place is a guarantee like they're

federally backed, like our banking system is.

Know how all banks say they're 'federally insured'? This is the glory of the bush system they'll put in place and how it worked for bush's (senior) savings and loan scheme.

When the banks went belly up, all the deposits were federally insured up to 10K each, etc; and the loans were insured for their value. So when Neil Bush robbed the bank for 7 million, YOU paid the bank back. Yes. YOU. YOU the taxpayer were taxed and had to pay back the victims of Neil Bush.

And you will be taxed and have to pay back the money the new bush bank robbers will steal from stock investors. That is the entire POINT of their scheme. They'll first steal your money, then YOU get to pay it all back to yourself when they steal it!

Cool, huh? Wish I was a republican with no ethics.

[izzie]

3. Three things that do mot mix. Ethics, Republicans, and money

In a way it is funny. If you are a Dem sex is a sin but if your a Rep. stealing is fine. Maybe if the Dem start stealing and the Rep have sex we would all be better off?

[brainshrub]

4. Wonderful synopsis.

[SheilaT]

5. Under FDIC

deposits are insured up to 100k ($100,000), not 10k. There is a difference.

I think the more important question that's not being asked is exactly how much money will the typical worker have to invest in these private accounts? And what kind of return can be realistically expected? I'm sure the answer is a lot less than most people fantasize.

And then the other big myth is that social security is an investment program at all. It's not. Current workers pay for current retirees. Big difference.

My own outside of social security investments have only recently recovered from the huge hit they took a couple of years ago. If I'd had to retire on my investments in 2000, say, I'd be completely bankrupt by now.

[BansheeDem]

8. Excellent question

I think the more important question that's not being asked is exactly how much money will the typical worker have to invest in these private accounts? And what kind of return can be realistically expected? I'm sure the answer is a lot less than most people fantasize.

The typical worker would have to invest at least 5 percent of their payroll tax to see any sort of useful benefit because their SS payment will be reduced by a small amount to compensate for the loss of revenue to the system. I personally invest about 15 percent of my gross income; but it took me about 20 years to get to that point.

This partial privatization plan is not designed to make people rich or provide 100 percent of retirement; it is a supplement to their retirement. For most of us that have been vested in a similar plan (THRIFT) it means about $1000.00 per month additional. When you add in SS, and the normal retirement income, it makes for a fairly comfortable retirement. I worked out the figures, and it beats my SS income by about 30 percent.

Just as a note: My THRIFT account took a small hit during the tech bubble burst, but because it was in a professionally managed and indexed account, it has recovered all of that money; and then some.

[nodictators]

15. This partial privatization plan is NOT a supplement to Social Security

The THRIFT plan sounds like the savings plan for federal workers. That plan IS a supplement, or an add-on to Social Security. It's not the same as Bush's partial privatization scam, which is not an add-on to Social Security.

When a worker signed up for the Bush scam, they would immediately take a huge future reduction in their SS benefit. A Washington Post article calculated that the average worker who was 40 years away from retirement would have a $78,000 cut in benefits.

That worker would have to average a 3% real (i.e., after an inflation adjustment) return on their investment account just to make up the $78,000 reduction in their Social Security benefit.

If that worker did better than a 3% gain, they would have a slightly higher benefit than a worker who had remained in the SS system. However, it is highly unlikely that the extra benefit would be anywhere near $1,000/month.

[BansheeDem]

17. The THRIFT SAVING PLAN (TSP) is not an add-on plan ...

for Social Security. Anyone who entered the federal service 20 or less years ago, must participate in payroll deductions for SS and face a reduction in their retirement benefit. THRIFT is the one way to make up the difference. I call it a supplement only because it is voluntary. If a federal worker chooses not to participate, then they know that they will retire on less. THRIFT does not supplement SS, it makes up the difference for a reduced retirement benefit.

I have done the math for my personal account, and my retirement benefit with TSP will be $1000.00 a month more than without it. SS could never make up that difference. Over the life of my account, I have earned just a bit higher than 9 percent. That certainly meets and exceeds your 3 percent real earnings, and beats the living crap out of the traditional Social Security earnings.

The reason I keep mentioning the TSP is because it is an example of a private plan offered by the government that has been managed well. I keep hearing the horror stories about collapsing markets, Enron, and seniors having to eat dog-food. I just wanted people to know that there is a plan out there that has proven itself over the long haul.

You can call it a "scam" if you want, but I strongly disagree. A partial privatization of Social Security is not a bad thing - as long as it is managed like the TSP.

Finally, the percentage needed would depend on the earnings of the individual. My 15 percent dumps a heck of a lot more into my account than a 20 something just starting out. With a bit more than 15 years left until retirement, I can still dump in a bunch more; and not have to worry if SS will be there or not. That 20 something can start with 5 percent and work up the percentage as their income increases over time.

[itzamirakul]

24. How much income tax will you have to pay

on you increased benefits (that is, IF those benefits are still there 15 years from now. I still think the collapse of the market can fcuk you up in a REAL way - not to be negative.)

[BansheeDem]

31. Who knows what the rate will be when I retire, but ...

it will certainly be less than what I am paying now. That's one of the advantages of having tax deferred investment plans. I have my plan share the risk using stocks, bonds, commodities, and other diverse investment vehicles. It would take a complete and utter collapse of the global economy for me to lose that money - it's just not going to happen. We've had some real financial swings in the last 20 or so years, and I still managed to get a bit more than a 9 percent return. I'm very comfortable with that track record.

And I don't think you were being negative, it was a reasonable question.

[Dark]

29. Link to the article? n/t

[SheilaT]

28. Do you really mean 5 percent of the payroll tax?

If so, that would be at best a few hundred dollars a year, which even in the most optimistic scenarios would had up to very little, even after 40 years of investing.

If you mean 5 percent of income, then it's a little more meaningful. That's in the neighborhood of what many people put into their IRA or 401(k) plan.

One of the possibilities that scares me is that all these "private" plans may turn out to be voluntary, given how Republicans are fond of saying "It's your money." If that happens, no one at the lower end of the income scale will find themselves able to save a penny. At least the current system of SS is a sort of forced saving, even though (again this is what too many people just don't get) it's not an investment program as such, but simply a pay as you go scheme.

Another huge problem is that hardly anyone is old enough these days to remember what it was like before social security, when people often worked literally until they died, when the elderly were usually in poverty. If they were lucky enough to have children who would take them in, it wasn't always so bad, but still. . . .

[BansheeDem]

30. I was referencing 5 percent of gross income.

I started many moons ago with 5 percent and have increased that to 15 percent.

[DoYouEverWonder]

9. Just ask the supporters of privatizing SS

how much they put in their IRA every year. That usually shuts them up.

[BansheeDem]

18. Actually, I support a partial privatization and put about ...

15 percent of my gross income into mine. I have been doing that for about ten years. Before that, I put about 10 percent in, and before that 5 percent. I don't quite understand your comment.

[DoYouEverWonder]

19. Then you are in a minority

because most people in this country have no clue how to save money and live from check to check.

What I want to know is that for all these people who live hand to mouth, how does anyone expect them to suddenly become responsible adults that have know not only how to save money but to invest in wisely?

BTW: Has a small business owner, who is going to be responsible for administering these savings programs and making sure that everyone puts this money away into their private accounts? What happens when someone spends the money instead. Who is going to regulate this boondoggle?

[BansheeDem]

34. Good questions; here are my answers

What I want to know is that for all these people who live hand to mouth, how does anyone expect them to suddenly become responsible adults that have know not only how to save money but to invest in wisely? BTW: Has a small business owner, who is going to be responsible for administering these savings programs and making sure that everyone puts this money away into their private accounts? What happens when someone spends the money instead. Who is going to regulate this boondoggle?



I realize that I am in the minority on DU concerning this issue (being a moderate and all) but, there is a lot of support among those out there in both political parties that see this as a way of having some control of a portion of their retirement. Keeping in mind that the program is voluntary would allow those hand to mouth folks out here to opt out of the program if they so desire, and receive a traditional Social Security payment.

The administration of the system would be largely managed in the same manner as payroll deductions are now. When an employee joined or moved to a new company, a form would be completed and the appropriate percent of their payroll tax with-holdings would be deposited in the designated account. Once that account was established, it would move with the employee. The investment decision would not be made by the individual, but rather the money is invested in an indexed account, similar to the S&P 500. In order for an individual to lose money, a catastophic global collapse of the finanacil markets would have to occur.

I've said it before; I'm getting a bit tired of this old argument about how the markets will collapse and everyone will lose their money in these accounts. It just isn't going to happen - period.

Finally,

No withdrawals prior to retirement will be allowed under the proposed system, and the benefits would be released over time at retirement (in the same manner that 401k accounts are disbursed)

[Eloriel]

6. Oh, it's asked all right

but not answered, or not answered well.

I was just listening to FOX and Brent Hume's response to Juan Williams was:

* In the long run, the economy always outperforms (of course, that doesn't help the poor sap who's retiring just after a crash, does it? It took decades for the Market to bounce back after the Depression)

and

* You wanting to bet against the U.S. Economy? If we can't bet on the U.S. Economy, we're going to have far worse problems than that.

[itzamirakul]

11. One would think that SOME savvy Democrat would

bring these points up, wouldn't one...instead of a lot of hot air that no one understands. Why can't we get our guys to SIMPLIFY THE MESSAGE?

Tp put it bluntly, tell people, "We are going to give you a part of your retirement fund and let you make the choice to bet it all for one turn of the roulette wheel or purchase one lottery ticket. If you win...Great! If you lose...tough shit!"

[lonestarnot]

7. Or what if a Ken Enron is put in charge of the fund? I had a hard time

getting my 401 K out of federal retirement plan. They had way to much control over my money... I would personally never invest with a plan like this again given the choice. Arbitrary rules changed daily with respect to withdrawals, amount of contribution and decisions on where money is invested.

[tsuki]

10. Another question. Where does the one to two trillion in "transition

cost" go?

[LizW]

13. To pay off the current retirees and people soon to retire

When you take away part of the money going into the system and privatize it, you have an immediate shortfall. So that Bush can promise those over 55 that they "have nothing to worry about", we'll all go 2-3 trillion more into debt.

[tsuki]

33. So the two trillion in transition cost is the cost of emptuing the trust

fund immediately?

[tsuki]

22. Okay, where does the 1.8 trillion in the trust fund go?

[FlaGranny]

12. Another thing no one asks

How much can a family of four earing $20,000 a year sock into Social Security? What - you say? Almost nothing?

[gratuitous]

14. Another question

What safeguards are in place to keep people from raiding their own retirement accounts for some present need?

Currently, your social security benefits survive every economic blow that can befall a person. You can go bankrupt over and over, you can live on the streets and eat dog food, you can hit the lottery, or invent something so valuable and serviceable that you become wealthy beyond the dreams of mortal men. As long as you keep working through all the rain and the pain, the pleasure and the power, you'll get your social security benefits at the end of your life.

But what safeguards are in place for the person who has to get a bunch of money in a hurry to afford that transplant? Or that new car (let's be realistic)? Or to put on the nose of that sure thing nag in the sixth race at Aqueduct?

And, if we as a society decide to bail out the spendthrifts, the wastrels, and the unlucky anyway, why not just stay with the present system which provides a cushion and a measure of safety for all three categories?

[Yupster]

21. That would just not be allowed

You will not be allowed to take your money out until retirement.

Singapore's privatized system made this mistake and is now suffering for it. They allowed early withdrawels for things like buying a house.

[Stephanjnj]

16. Don't take candy from strangers OR the GOP

Adults caution their kids not to allow strangers to entice them into their cars with offers treats. Some of these same adults don't seem to realize that the Republicans are working hard to take the country on a dangerous joy ride of a much larger scale. Problem is, at the end of the "free" ride of targeted tax cuts for the wealthiest Americans coupled with record deficits, the car will stall out, the unwitting passengers will be stuck with the towing and repair bills, and the driver in this instance (Bush-Cheney cronies having pocketed billions) will have cut and run.

This administration has generated an impressive track record of using scare tactics to deceive voters into giving them a blank check to do whatever they want. By tapping the Social Security trust fund to pay for their programs AND tax cuts, they are creating conditions for future insolvency, which in turn provides the fodder for their privatization argument. And with privatization comes risk for the many and riches for the few. Is anyone actually stupid enough not to see through this horse shit?

Again, Bush's smirky offer of a lollipop for the privilege of jumping into his runaway getaway car might sound like a fix for the economic future that he's hell bent on destroying, but the best course of action is to continue walking, and don't get in!

[Yupster]

20. Here's how I had it explained to me

Your 4 % payment gets you a private account. Your other 8 % gets you a guaranteed benefit.

You do not get both. At retirement, you get whichever is bigger.

Therefore if the market tanked, you would get the government guaranteed pension, and your private account would be defaulted back to the government.

[Dinger]

23. This Should Be Asked On T.V. & Radio Programs Across The Country

I'm going to start now. Excellent, perfect question.

[Nederland]

25. IT'S VOLUNTARY

If you chose to keep with the current system absolutely nothing will happen to you if the market crashes. Its a choice, get it? Since when has the Democratic Party become anti-choice?

[cthrumatrix]

26. it's a choce.....until it's NOT

[Nederland]

27. People will always have the current choice

A personal plan where you choose to invest all your money in US Treasuries is no different than the current system.

[cattleman22]

32. Historically, there is no 30 year period in which a nest egg

of 70% stock and 30% bonds went bust if the person only withdrew an inflation adjusted 4%. If you decrease the withdrawal to an inflation adjusted 3.8%, there is no 50 year period in which the nest egg would go bust.