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Thread: Social Security Rate of Return v. Market - Privatization Seems Better for Everyone

  1. #1

    Social Security Rate of Return v. Market - Privatization Seems Better for Everyone

    First, look at the rates of return[URL="http://www.ssa.gov/OACT/NOTES/ran5/an2009-5.pdf"] posted by Social Security, per the Social Security Administration[/URL] (go to page 6 of the PDF)

    Next, look at the [URL="http://observationsandnotes.blogspot.com/2009/05/stock-market-returns-1-100-years.html"]rates of return posted by the market [/URL].

    What can we see.

    First, social security:

    The highest return is earned by 1 earner very low-income couples where the earner was born in 1920 (9.07%). Moving to people who have not yet hit retirement age (that is, people born in 1949), the highest rate of return is, again, for the "Very Low Income", single earner couple: 6.59%

    Note, "Very low" means $10,000 per year, or so, in annual income. For "low income" ($18,182) recipients, it's single earner couples, who earn a 5.45% return.

    Rates of return go down from there. Two-earner couples in the low, medium, high and maximum brackets all earn rates of return in the 3% range or lower. Singles don't do much better.

    Bottom line - nobody gets a particularly good ROI in social security.

    Now compare that to the market. Looking at that post, the [B]average[/B] rate of return over [B]all 35 year periods[/B] over the last 100 years is 9+%

    [B]More, [/B]though it's hard to tell exactly from the chart, the [B]minimum[/B] rate of return over a 35-year period (that is, if you started counting from the start of the worst 35-year period in market history over the past 100 years - which would include the Great Depression) seems to be well above the 3% range that represents the [B]best[/B] returns for most social security recipients.

    Of course, those returns don't account for fees charged by mutual funds or money managers, so the spread will be less in real life. But it seems pretty clear that the upside of privatization is that most taxpayers would receive significantly more in benefits from having a private account invested in the market than they would from traditional social security. Combine that with the "Chilean-style" backstop Gingrich proposed (that is, in the unlikely event that someone gets less of a return than the current benefit schedule, the government will make up the difference) and tight regulation (to ensure nobody games that backstop by amping up the risk) and it looks like a real, viable social security fix.

    No?

  2. #2
    I have no faith in any form, that when I turn 65, that I will get anything from Social Security.

    As such, any system where I keep my own money, is a system I'd support.

  3. #3
    [QUOTE=doggin94it;4252729]First, look at the rates of return[URL="http://www.ssa.gov/OACT/NOTES/ran5/an2009-5.pdf"] posted by Social Security, per the Social Security Administration[/URL] (go to page 6 of the PDF)

    Next, look at the [URL="http://observationsandnotes.blogspot.com/2009/05/stock-market-returns-1-100-years.html"]rates of return posted by the market [/URL].

    What can we see.

    First, social security:

    The highest return is earned by 1 earner very low-income couples where the earner was born in 1920 (9.07%). Moving to people who have not yet hit retirement age (that is, people born in 1949), the highest rate of return is, again, for the "Very Low Income", single earner couple: 6.59%

    Note, "Very low" means $10,000 per year, or so, in annual income. For "low income" ($18,182) recipients, it's single earner couples, who earn a 5.45% return.

    Rates of return go down from there. Two-earner couples in the low, medium, high and maximum brackets all earn rates of return in the 3% range or lower. Singles don't do much better.

    Bottom line - nobody gets a particularly good ROI in social security.

    Now compare that to the market. Looking at that post, the [B]average[/B] rate of return over [B]all 35 year periods[/B] over the last 100 years is 9+%

    [B]More, [/B]though it's hard to tell exactly from the chart, the [B]minimum[/B] rate of return over a 35-year period (that is, if you started counting from the start of the worst 35-year period in market history over the past 100 years - which would include the Great Depression) seems to be well above the 3% range that represents the [B]best[/B] returns for most social security recipients.

    Of course, those returns don't account for fees charged by mutual funds or money managers, so the spread will be less in real life. But it seems pretty clear that the upside of privatization is that most taxpayers would receive significantly more in benefits from having a private account invested in the market than they would from traditional social security. Combine that with the "Chilean-style" backstop Gingrich proposed (that is, in the unlikely event that someone gets less of a return than the current benefit schedule, the government will make up the difference) and tight regulation (to ensure nobody games that backstop by amping up the risk) and it looks like a real, viable social security fix.

    No?[/QUOTE]

    It REALLY, REALLY REALLY fun if you die at 65 1/4 and your family gets 250 bucks and a hardy handshake while those in some kind of investments for the same period get what? CHA-CHING!!! great system you got there!!

  4. #4
    [QUOTE=acepepe;4253502]It REALLY, REALLY REALLY fun if you die at 65 1/4 and your family gets 250 bucks and a hardy handshake while those in some kind of investments for the same period get what? CHA-CHING!!! great system you got there!![/QUOTE]

    Thats how insurance works. Some pay in and don't collect. I don't see a way to privatize SS at this point. When no one is paying in the ponzi scheme collapses. Where would the money for current seniors come from? The only realistic solution at this point is to fix the system. Means test for the wealthiest folks and raise the retirement age over time.

  5. #5
    Go visit a socail security office...it's alarming.

    VERY FEW older people, it is simply a bunch of younger people with IPhones trying to collect disability.

    When you provide assistance, they come in droves for it.

    I believe in social security but it's abuse is alarming and the way we give dbl pensions is a joke.

    people with basically NOTHING wrong with them collecting social security AND child benefits.

  6. #6
    [QUOTE=chiefst2000;4254935]Thats how insurance works. Some pay in and don't collect. I don't see a way to privatize SS at this point. When no one is paying in the ponzi scheme collapses. Where would the money for current seniors come from? The only realistic solution at this point is to fix the system. Means test for the wealthiest folks and raise the retirement age over time.[/QUOTE]

    That's not how investments work. Where would the money come from? From the Social security TRUST fund of course!!It can, and should be phased out, period! Congress and ALL politicians CANNOT be trusted holding others money. Privatized with auditors and auditors, auditors. One bit of chicanery, life with no parole.

  7. #7
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    [QUOTE=southparkcpa;4254940]VERY FEW older people, it is simply a bunch of younger people with IPhones trying to collect disability.[/QUOTE]

    You really need to get the f*ck out more. That is NOT what a SSA office is like...at all.

  8. #8
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    [QUOTE=PlumberKhan;4254962]You really need to get the f*ck out more. That is NOT what a SSA office is like...at all.[/QUOTE]

    Why, are they more of an Android crowd?

  9. #9
    [QUOTE=chiefst2000;4254935]Thats how insurance works. Some pay in and don't collect. I don't see a way to privatize SS at this point.[/quote]

    Well, first thing first, you protect those who have alreasy paid in via grandfathering and/or refunds.

    Second, you change the purpose of Social Security. It, like all social welfare programs, should be to help the neediest (i.e. the actual poor) subsist in their elderly years. Not everyone, just the needy.

    Third, to live out the grandfathered population, and to pay for S.S. going forward (for the poor, as above), you change the tax rates temporarily (i.e. raise general income taxes) to cover the cost, dollar for dollar.

    That, or you do what the liberals would prefer, and throw up your hands and say "ok, we're a social welfare state now", and raise tax rates as high as required to fund Universal Healthcare, Universal Homecare, Universal Foodcare, Universal Retirement Care and Universal Educationcare.

    To do that, taxes would be somewhere int he range of 80-90%. But hey, at least all your earthly requirements would be met, regardless of if you work or not, right?

    Whats unacceptable is doing nothing, cause that choice is one desigend to fail.

  10. #10
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    [QUOTE=Trades;4254982]Why, are they more of an Android crowd?[/QUOTE]

    Jitterbug and wheelchairs.

    But I'm sure we'll hear some line about how awesome North Carolina is and how their SSA offices are full of terminally ill brain surgery patients who work 6,000 hours a week and pay 6 billion a year in taxes and still volunteer for United Way every other day of the week and use their disability money to donate to local churches.

    Just don't leave your Jitterbug in your car.

  11. #11
    [QUOTE=PlumberKhan;4254962]You really need to get the f*ck out more. That is NOT what a SSA office is like...at all.[/QUOTE]

    I was gonna take a picture.... should have.

  12. #12
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    [QUOTE=southparkcpa;4255022]I was gonna take a picture.... should have.[/QUOTE]

    Go ahead. :P

    Until then, you're just full of poop.

  13. #13
    for the record everyone is panicing about social security, it's actually a well run and solvent program for the most part. all this talk about it being broke is way overblown. they extend the retirement age a couple years, the thing can run for another 50+ years, no problem. why fix SS when it isn't broken?

  14. #14
    [QUOTE=bitonti;4255106] it's actually a well run and solvent program for the most part. all this talk about it being broke is way overblown. they extend the retirement age a couple years, the thing can run for another 50+ years, no problem.[/QUOTE]

    Source?

  15. #15
    [QUOTE=Warfish;4255115]Source?[/QUOTE]

    [url]http://www.msnbc.msn.com/id/7080681/ns/business-answer_desk/t/social-security-really-going-broke/#.TtO0w3KwWsA[/url]

  16. #16
    [QUOTE=chiefst2000;4254935]Thats how insurance works. Some pay in and don't collect. [B]I don't see a way to privatize SS at this point.[/B] When no one is paying in the ponzi scheme collapses. Where would the money for current seniors come from? The only realistic solution at this point is to fix the system. Means test for the wealthiest folks and raise the retirement age over time.[/QUOTE]

    1) Means test

    2) Until current obligations (and obligations to anyone within ten years of retirement who opt into social security) are paid off:
    a) Only the personal half of the tax goes into a private account; the employer's half of the tax goes into the SS Trust fund;
    b) Uncap contributions; include all income in the payroll tax;
    c) Change the index for the COLA adjustments; and
    d) Raise the retirement age by 1 year every 3 years (so if you are now 10 years away from retirement, you will effectively be 13 years away, 9 years = 12 years, 8 years =10 years (since the retirement age will have only risen twice), etc.

  17. #17
    [QUOTE=bitonti;4255106]for the record everyone is panicing about social security, it's actually a well run and solvent program for the most part. all this talk about it being broke is way overblown. they extend the retirement age a couple years, the thing can run for another 50+ years, no problem. why fix SS when it isn't broken?[/QUOTE]

    False. You're going by an old report (2009). According to [URL="http://www.ssa.gov/OACT/TRSUM/index.html"]this year's OASDI (SS/Medicare) Trustees' report[/URL], the combined Medicare/Social Security Trust Funds will be bankrupt by 2036; the SS Trust Fund, considered alone, will be bankrupt by 2038

    Note that between 2009 and 2011, if you were accurately describing SS as solvent for another 50 years, the solvency projections were cut in half. If that keeps happening every two years, the fund will be insolvent by 2019.

  18. #18
    [QUOTE=doggin94it;4255183]1) Means test

    2) Until current obligations (and obligations to anyone within ten years of retirement who opt into social security) are paid off:
    a) Only the personal half of the tax goes into a private account; the employer's half of the tax goes into the SS Trust fund;
    b) Uncap contributions; include all income in the payroll tax;
    c) Change the index for the COLA adjustments; and
    d) Raise the retirement age by 1 year every 3 years (so if you are now 10 years away from retirement, you will effectively be 13 years away, 9 years = 12 years, 8 years =10 years (since the retirement age will have only risen twice), etc.[/QUOTE]

    Sorry but I'm not willing to accept the idea that the employer funded portion of my SS contribution goes to anyone but me. The uncapped contributions is a massive tax hike that will hurt the economy and won't solve anything. We are talking about SS when Medicare is in a vastly worse shape. If we raise taxes for SS we will need to double down to fix medicare. That type of sloution is too painful to handle.

    The answer to both programs is raising the ages to reflect longer life expectancy and adding a means test.

    Its an interesting side note that Obama is pushing a payroll tax cut at a time when reasonable people understand how much trouble those programs are in.

  19. #19
    [QUOTE=bitonti;4255139][url]http://www.msnbc.msn.com/id/7080681/ns/business-answer_desk/t/social-security-really-going-broke/#.TtO0w3KwWsA[/url][/QUOTE]

    A MSN liberal Blog? Ok.

    I went through the blog, and looked at it's source:

    [QUOTE]A SUMMARY OF THE 2011 ANNUAL REPORTS
    Social Security and Medicare Boards of Trustees


    --------------------------------------------------------------------------------

    A MESSAGE TO THE PUBLIC:
    Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. This message summarizes our 2011 Annual Reports.

    The financial conditions of the Social Security and Medicare programs remain challenging. Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided.

    The long-run financial challenges facing Social Security and Medicare should be addressed soon. If action is taken sooner rather than later, more options and more time will be available to phase in changes so that those affected have adequate time to prepare. Earlier action will also afford elected officials with a greater opportunity to minimize adverse impacts on vulnerable populations, including lower-income workers and those who are already substantially dependent on program benefits.

    Both Social Security and Medicare, the two largest federal programs, face substantial cost growth in the upcoming decades due to factors that include population aging as well as the growth in expenditures per beneficiary. Through the mid-2030s, due to the large baby-boom generation entering retirement and lower-birth-rate generations entering employment, population aging is the largest single factor contributing to cost growth in the two programs. Thereafter, the continued rapid growth in health care cost per beneficiary becomes the larger factor.

    Social Security

    Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink to about $20 billion for years 2012-2014 as the economy strengthens. After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Through 2022, the annual cash deficits will be made up by redeeming trust fund assets from the General Fund of the Treasury. Because these redemptions will be less than interest earnings, trust fund balances will continue to grow. After 2022, trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.

    Under current projections, the annual cost of Social Security benefits expressed as a share of workers’ taxable wages will grow rapidly from 11-1/2 percent in 2007, the last pre-recession year, to roughly 17 percent in 2035, and will then dip slightly before commencing a slow upward march after 2050. Costs display a slightly different pattern when expressed as a share of GDP. Program costs equaled roughly 4.2 percent of GDP in 2007, and are projected to increase gradually to 6.2 percent of GDP in 2035 and then decline to about 6.0 percent of GDP by 2050 and remain at about that level.

    The projected 75-year actuarial deficit for the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds is 2.22 percent of taxable payroll, up from 1.92 percent projected in last year’s report. This deficit amounts to 17 percent of tax receipts, and 14 percent of program outlays.

    The 0.30 percentage point increase in the OASDI actuarial deficit and the one-year advance in the exhaustion date for the combined trust funds primarily reflects lower estimates for death rates at advanced ages, a slower economic recovery than was assumed last year, and the one-year advance of the valuation period from 2010-2084 to 2011-2085.

    While the combined OASDI program continues to fail the long-range test of close actuarial balance, it does satisfy the conditions for short-range financial adequacy. Combined trust fund assets are projected to exceed one year’s projected benefit payments for more than ten years, through to 2035. However, the Disability Insurance (DI) program satisfies neither the long-range nor short-range tests for financial adequacy. DI costs have exceeded non-interest income since 2005 and trust fund exhaustion is projected for 2018; thus changes to improve the financial status of the DI program are needed soon. [/QUOTE]

  20. #20
    [QUOTE=doggin94it;4255208] According to [URL="http://www.ssa.gov/OACT/TRSUM/index.html"]this year's OASDI (SS/Medicare) Trustees' report[/URL], the combined Medicare/Social Security Trust Funds will be bankrupt by 2036; the SS Trust Fund, considered alone, will be bankrupt by 2038.[/QUOTE]

    ok so 2038 that's what... 27 years? not exactly urgent. medicare is more in trouble than SS. if we combine the trust and look at them both there is trouble yes. but it's medicare that's the problem not SS. want to start a thread about how to fix Medicare, I'll be right there with you, looking for fixes. SS is more or less fine. They can tweak the age or the rate again and have no worries. Medicare is in dire straights in comparison.

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