Hurry, PPers! Get This Deal While It's Hot

[MachineGhost]

Yes, yes, a thousand times yes!

Playing Devil's Advocate here, would you trust a private insurance company for your new social security annuity over the SSA?  How about if it was from AIG?

[rocketdog]

Yes, yes, a thousand times yes!

Playing Devil's Advocate here, would you trust a private insurance company for your new social security annuity over the SSA?  How about if it was from AIG?

Who says that should be the only choice?  I would trust myself to invest that money in a well-diversified portfolio, just like the rest of my money.  I'm going to handle my money more carefully than anyone else, and if I lose it all through poor decision making then it's on me to suffer the consequences. 

[rocketdog]

A vast majority aren't poor anymore because of SS and Medicare.  Early recipients got a fantastic largesse far commensurate past what they contributed.  Don't conflate the current increased social security of the elderly (that allowed them to take greater risks in life to achieve greater wealth) with their previously destitute brethen.

So what do you want to do about those that don't fit into your definition of "most"?  Like my Gma who recives a whopping $800 a month from SS.

Last month the Cato Institute did a Policy Analysis on the benefits of privatizing Social Security.  Here's their full 12-page report:

http://www.cato.org/sites/cato.org/file ... /PA692.pdf

SS and Medicare aren't making anyone rich.  In fact, it can be argued that it's actually kept retirees poor by preventing them from investing the money both they and their employer have paid into the system over their working lives.  SS is simply a bad return on your money any way you look at it.  You can't even leave it to your heirs because you don't own that money, you merely have a claim on it as long as you're alive (and as long as Congress permits you to have a claim on it, which they can revoke at any time for any reason). 

By conning the American people into the idea that the gov't will take care of them in their old age, it created the mindset that they didn't need to save for themselves.  So they got the double-whammy of not only losing out on the investment potential of that money, but also were psychologically conditioned to become wards of the nanny state. 

I would not deprive a current retiree or anyone nearing retirement of SS.  That's a promise that was made and should be kept (as bad as it is).  But the rest of us should be given the ability to opt out if we wish. 

[Pointedstick]

Yes, yes, a thousand times yes!

Playing Devil's Advocate here, would you trust a private insurance company for your new social security annuity over the SSA?  How about if it was from AIG?

I was expecting that rocketdog's proposal was to opt out and then invest the money yourself. I would absolutely not purchase "retirement insurance." I would purchase more PP assets. 

IMHO, this would be a great boost in liberty because the vast majority of people would never dream of opting out of SS and especially Medicare. The ones who do are probably savvy enough to not have needed it anyway.

[Pointedstick]

SS and Medicare aren't making anyone rich.  In fact, it can be argued that it's actually kept retirees poor by preventing them from investing the money both they and their employer have paid into the system over their working lives.  SS is simply a bad return on your money any way you look at it.

Devil's advocacy from me now: do we expect that most people would be able to beat the (awful, terrible) "return" on their social security contributions? I can't recall the source now, but I remember seeing somewhere that for a lower-to-lower-middle-class person, the internal rate of return on SS contributions was about 2-4% nominal. That's terrible, of course, but how many people can really do better? Before I discovered and adopted the HBPP, the yearly CAGR of my investments was a hefty 3.2% or therebouts.

The performance and contribution patterns of the average American's 401ks and IRAs don't paint a particularly bright picture of our collective saving and investment abilities.

[rocketdog]

I was expecting that rocketdog's proposal was to opt out and then invest the money yourself.

You are correct sir! 

[rocketdog]

Devil's advocacy from me now: do we expect that most people would be able to beat the (awful, terrible) "return" on their social security contributions? I can't recall the source now, but I remember seeing somewhere that for a lower-to-lower-middle-class person, the internal rate of return on SS contributions was about 2-4% nominal. That's terrible, of course, but how many people can really do better? Before I discovered and adopted the HBPP, the yearly CAGR of my investments was a hefty 3.2% or therebouts.

The performance and contribution patterns of the average American's 401ks and IRAs don't paint a particularly bright picture of our collective saving and investment abilities.

No question that this would pose a problem for many.  We can hash out solutions all day long, but I would expect that an advisory board of sorts would have to be formed, and then a group of target date funds created as default investments for everyone.  Those people (like us) who feel confident they can handle it better themselves might be required to fill out an application (just as we do for a passport) or take a test (just as we do for a driver's license) before they are given the freedom to invest as they see fit.  Hell, if the target date funds looked fairly attractive I might even be swayed to leave my SS funds (or at least a portion of it) invested in one of them. 

This is just one of the many possible ways to approach it, and a very simplified one at that.  The trick is to not overcomplicate it with excess bureaucracy so that we wind up no better off than we are with the current system! 

[Pointedstick]

What if a person took responsibility for their investments, and then went broke. You know they are going to then turn to the gov't for a handout/bailout.

I would structure the opt-out such that there could be no doubt at all during the process that you were going to be on your own. That should scare off most of the people who would be inclined to do that. For any left, tough. You knowingly gamble and lose, it's nobody's fault but your own.

[Pointedstick]

What if a person took responsibility for their investments, and then went broke. You know they are going to then turn to the gov't for a handout/bailout.

I would structure the opt-out such that there could be no doubt at all during the process that you were going to be on your own. That should scare off most of the people who would be inclined to do that. For any left, tough. You knowingly gamble and lose, it's nobody's fault but your own.

So says all the people who flipped houses and took out mortgages they couldn't afford a few years back, but now want gov't mortgage relief. How's that working out?

Well clearly it's not working out well at all for them, since the government has done very little to improve their situations.

Are you saying that people who made bad decisions should be given assistance, or just making a general point about people wanting to be insulated from the consequences of those bad decisions? If the latter, I agree with you that many want this, but I do not believe it to be a sound long-term social policy, as it ends up encouraging more of the very behavior whose consequences it's trying to protect people from.

[MachineGhost]

By conning the American people into the idea that the gov't will take care of them in their old age, it created the mindset that they didn't need to save for themselves.  So they got the double-whammy of not only losing out on the investment potential of that money, but also were psychologically conditioned to become wards of the nanny state. 

Rubbish.  Today's retirees have more than 2.5x the wealth of retirees 30 years ago.  You're not looking at social security as literally social security but rather as a subpar investment.  Investments (nor Wall Street) don't have the aim of providing social security.  So when you fail on your investment plan, you will be a burden on society unless you're such a dyed-in-the wool stubborn indvidualist cranky old man that you don't ask for help and rather live in a cardboard shack on a mountaintop with no bathroom.  So let's get real here.  I'm all for privatizing social security by converting it into private annuities with strict regulations, but not to dismantle the concept.  Investment prowness is on a bell curve and all of us in here are at the extreme right tail that isn't fat.

[MachineGhost]

I would structure the opt-out such that there could be no doubt at all during the process that you were going to be on your own. That should scare off most of the people who would be inclined to do that. For any left, tough. You knowingly gamble and lose, it's nobody's fault but your own.

I would support that only so we can have reality shows about the fools that opted out and !@#%ed up.

[AgAuMoney]

The gov't and SEC already have the concept of "accredited investor."  I would have no problem adopting that or something along those lines before being allowed to "opt out" or take control of your "social security" account.

Or even make it more straight forward, require everyone to pass the Series 65 (RIA test) before taking control.  Let the account pay for one test attempt per year until they pass.  It won't ensure success, but it will put a bit of onus on people to know something before they can demolish their social security.  Just give us a chance...  Some way to take control!


I think a critical first step in any reformation of the system would be to create individual social security accounts.

Not the bogus hand wave and voila, here is your monthly check at retirement system that we have now.

But actual, individual accounts with a statement reported at least as often as is required for 401(k) accounts.

And while we are at it, why in God's green (er, blue) earth do we have SO FREAKIN' MANY TYPES OF RETIREMENT ACCOUNTS?!?

There should be only two types, maximum.  Pre-tax IRA where you pay taxes when the money comes out and post-tax IRA where it all comes out tax free.  Bump the limits up to encompass and include everything that all the other types accommodate, allow employers to put their "match" into your IRA along with your payroll deduction, and eliminate all the rest of them.

Then if you have control over your soc security account it could be rolled into the post-tax IRA where it was supposed to be.

[AgAuMoney]

I would support that only so we can have reality shows about the fools that opted out and !@#%ed up.

Works for me.  I don't want anybody to starve or die of exposure, but beyond that, humiliation or spectacle of some sort should be required.  With some sort of competition before getting "public assistance" they would appear on TV and the viewing audience would decide how much "assistance" they get.

[whatchamacallit]

I only see social security as a part of overall taxes.

There would still be a need for a safety net whether its called social security or just income tax.

'The benefits going to everyone is just there to appease the feeling of unfairness.

It might make people feel better if every citizen received the same set salary at retirement age. This would need to be enough to cover the safety net. You could then just call it income tax instead of social security tax and not think of it as an investment.

The taxes may still be the same but you would have the "feeling" of being able to invest your own money.

[MachineGhost]

Figure  4  compares  the  projected  accumulation in the personal account for a middle-income  worker  with  the  accumulation that would have occurred if the same level of  contribution  had  earned  the  hypothetical return that this individual could expect from  Social  Security. 

Correct me if I'm wrong, but isn't this comparing the 6.2% private allocation to a 6.2% SSA allocation and not half private/half SSA to full SSA?  It seems the implication here is to disregard the half of payroll taxes that goes to SSA and not include it when determining if the private account option is higher or lower than a full SSA benefit.  I don't know about you, but I would not want to give up 50% of my salary contributions just to have government-sanctioned permission of investing out of government bonds in a government-approved  manner.  Because, thats all the private option is really.  Also left unsaid is how much faster SSA would deplete its resources for those that don't 50% opt-out by collecting only half of payroll taxes than before.

In any case, the 2.24% real return from SSA is higher than the 2.44% real return less .25% management fee less ??% taxes from holding government bonds.  I don't see the practical issue here.  Just account for it in your overall portfolio and invest elsewhere accordingly.  Of course, SSA doesn't exactly tell you what your balance is, but it shouldnt be too hard to figure out from the earnings record.  12.4% of each year is the amount you "bought" in Treasuries.

[AgAuMoney]

I only see social security as a part of overall taxes.
...
There would still be a need for a safety net whether its called social security or just income tax.

That could work.

But only if they get total federal taxes WELL under 20%, including the employer portion and the pass thru portion paid as part of the purchase price of everything we buy.  If you want more, your state should tax for and provide it.  Let the people vote with their feet.

The current situation is simply extortion, and at such a rate the founding fathers would have been aghast.

[Pointedstick]

People want to take risks, reap the rewards for themselves only, but expect handouts when things fail. There is zero personal responsibility in the US [I could go off on a tangent about our lawsuit-happy society, but I'll save that for another thread]. And therein lies the rub. If there was no SS, the gov't would feel obligated to provide some minimal level of assistance to those who failed at their private investments, and that would basically defeat the whole purpose of getting rid of SS, no?

It sounds like you're saying we can't have nice things because we'd just break them.

I've long said that the problem with democracy is that it's a reflection of the represented people. A greedy and irresponsible people will elect representatives who will extract wealth from others and provide it to them in various forms (corporate bailouts, propping up asset prices, outright transfers like farm subsidies, etc).

An immoral or irresponsible people will just elect an immoral or irresponsible government. But a more moral or responsible people who would elect better lawmakers have less need of government to begin with since they're inclined to take care of their own affairs better.

[rocketdog]

What if a person took responsibility for their investments, and then went broke. You know they are going to then turn to the gov't for a handout/bailout.

Then they had better have a good social support system in place, like family, friends, neighbors, or private charity.  We don't turn to gov't when we lose our car in an accident or our house in a fire; we rely on private insurance, and if we're not insured then we're SOL and the gov't doesn't get involved.  Why should investing be any different? 

I'd imagine that some sort of private insurance for investable SS funds would arise in an environment where we were all given control over those funds. 

[rocketdog]

I don't want anybody to starve or die of exposure, but beyond that, humiliation or spectacle of some sort should be required.  With some sort of competition before getting "public assistance" they would appear on TV and the viewing audience would decide how much "assistance" they get.

Ooo... TV audience voting on how much assistance they receive.  Call in and vote for your favorite loser!  Let's call it "Senior Citizen Idol"! 

But seriously, we would probably make those people wards of the state, and take away all their possessions and put them up in an institutional home where we take care of their basic human necessities.  They have something like that in England, where if you lose the ability to make ends meet then the gov't takes away everything you own except for 8,000 pounds (by value, not weight) worth of personal possessions and then houses you in bare-bones pensioner apartments.  So you're not left out on the street to die, but you're also not being rewarded for failing to plan properly. 

Not a perfect solution, but as time wore on and people saw what could potentially happen to them if they don't make arrangements for their own future, I think we'd see a drastic decline in people who fail to prepare for retirement. 

[rocketdog]

An immoral or irresponsible people will just elect an immoral or irresponsible government. But a more moral or responsible people who would elect better lawmakers have less need of government to begin with since they're inclined to take care of their own affairs better.

You remind me of this quote:

A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.
– Alexander Tytler

[MachineGhost]

But seriously, we would probably make those people wards of the state, and take away all their possessions and put them up in an institutional home where we take care of their basic human necessities.  They have something like that in England, where if you lose the ability to make ends meet then the gov't takes away everything you own except for 8,000 pounds (by value, not weight) worth of personal possessions and then houses you in bare-bones pensioner apartments.  So you're not left out on the street to die, but you're also not being rewarded for failing to plan properly. 

You have to de facto do that already just to qualify for Medicaid.  We're a little more enlightened in that we let them have their home and car and some household posessions, but thats it beyond no more than $2K in assets.

I think we'd see a drastic decline in people who fail to prepare for retirement.

Did it do so in England?  I'm skeptical.

[AgAuMoney]

But seriously, we would probably make those people wards of the state, ...
Not a perfect solution, but as time wore on and people saw what could potentially happen to them if they don't make arrangements for their own future, I think we'd see a drastic decline in people who fail to prepare for retirement.

Exactly.  I'd vote for that in a heartbeat.

Private charities could step in and provide above and beyond what the the state would have provided, but the state would be there with the minimal for those with nothing and no one else.

[rocketdog]

I think we'd see a drastic decline in people who fail to prepare for retirement.

Did it do so in England?  I'm skeptical.

I don't know.  It would be interesting to see a "before and after" analysis.  But I'm not sure that was the goal of their program.  I do know that the people I encountered didn't look on the pensioner housing as a desired outcome.  I got the impression that the general attitude was "Well, it's not an ideal end to a life, but it's better than the alternative." 

I briefly rented a room from an elderly woman who actually moved into pensioner housing while I was still there.  In fact I was there the day the social worker came by to observe her living situation to make a determination as to whether she would be admitted or not.  She was widowed and her house had two floors; she had trouble walking and her house had a dangerously steep staircase (I even slipped on it once myself).  She was assessed as "having a need" and so off she went. 

She had some friends who were already living there, so it wasn't so bad for her.  I helped her move, did some painting, hung a heavy mirror for her, stuff like that.  It was a small one-bedroom apartment, no closets, not even a bathtub (shower only).  Quite a step down from owning a 2-story rowhouse.  I think overall she was content, but also a bit solemn at how her life had lead her to this point.  I'm pretty sure those feelings got passed along to her children and sent a message that they should take measures to prevent the same outcome.