herlihyboy wrote:
- quote -

As someone else pointed out Social Security is an insurance plan,
not an investment plan. And your spouse and your children would
get the money if you die and probably far more than what you paid
in. If someone very young dies and hasn't had the opportunity to
save, Social Security survivor benefits can be a lifesaver for
the spouse and children. Likewise for someone who is disabled and
statistically speaking that could very likely be you.

Frank

Elle wrote:

- quote -

While I don't necessarily disagree with your basic premise, the
supposedly forgone guaranteed 3% real return does not exist. The whole
reason that social security reform is being discussed is that the
payroll tax system may not be able to support this return in the future.

-Will

I finally read all of the Feb. 28, page C1 Wall Street Journal article
Beliavsky cited a few days ago, about what experts predicted stock market
growth would be in the next 44 years.

The article's motivation is indeed Social Security Reform. The author, Mark
Whitehouse, in fact, makes a compelling argument against privatization.
Remember, this is the Wall Street Journal talking. Final paragraphs:
---

.... [T]he economists' average forecasts--4.81% for stocks, 3.33% for
corporate bonds, and 2.80% for government bonds--produce a return of 3.84%
after management fees. ...

[All are after inflation forecasts. Bush is proposing a 60%, 24%, 16%
allocation among stocks, corp bonds, and gov bonds. The 3.84% is 1.84% in
excess of the Bush plan's expected, after inflation yield of 3% on
government bonds.]

That might look like a good deal. But it ignores the difference in risk
between the traditional Social Security plan and investing in a portfolio
of stocks and bonds. ... [P]eople will be foregoing a guaranteed 3% real
return. That is also the offset rate the government will use to reduce
traditional benefit payments coming to those who opt for private accounts.

By contrast, there is no way of knowing exactly what the real return on a
personal account will be. "If you go into stocks you may outperform, but
when you fall short that may hurt a lot," says [economist Jeremy Siegel of
the Wharton School], who supports the idea of private accounts.

The only way to avoid market fluctuations is to invest in a so-called
risk-free asset such as inflation-protected Treasury bonds, or TIPS. But at
their current yield--about 1.8%--TIPS would guarantee a loss.

So unless the government lowers the offset rate or real interest rates
increase significantly, personal accounts strike many economists as a poor
deal on a risk-adjusted basis. "Would a rational investor borrow funds at a
3% real rate to invest in order to earn a 1.5-2% real rate?" asked
[economist William Dudley of Goldman Sachs] in a recent research note. "We
doubt it."

"Pete" <nobody[at]nowhere.com> wrote
- quote -

On Mon, 07 Mar 2005 12:49:00 -0600, herlihyboy wrote:

- quote -

You haven't been "investing" anything. This is a common misconception.
The OASI portion of Social Security is NOT a retirement plan, but rather a
generational transfer plan. The money you pay into the system goes to
members of your parents and your grandparents generation, with the promise
that your children and your grandchildren will make payments into the
system that provide you with cash flow when you reach a certain age. Now
whether or not your children and grandchildren will be willing and able to
provide sufficient payments into the system is a different story.

__
Have you done your Asphalt Dance today?

In article <1224d3q7k1arl.6bgxkz58qi2k.dlg[at]40tude.net> ,
Pete <nobody[at]nowhere.com> wrote:
- quote -

A simple thing like having SS tied to inflation rather than wages
would easily "solve" the "crisis". However, it is probably
politically infeasable to do.

And getting people to agree on what is "fair" is probably not
possible.

Pete wrote:
- quote -

It would also introduce a host of problems. Imagine the lobbying
effort by companies to this "central management" to get the government
to redirect money to prop up their stocks. Once they convince (or
bribe) the government to prop up their stocks, suddenly their pressure
to perform isn't as high as it was before when the company stock was
more subject to market forces. Before long, the company's performance
will drop and the government may feel obligated to prop up the stock
further...and the cycle repeats itself more and more.

Personally, I'll take the problems you pointed out over the problem I
pointed out above. No matter what reforms take place, they'll all have
their pros and cons. The goal isn't perfection (i.e. no cons), but
rather the best alternative.

Regards,
Chris

"Dave" <dave_and_darla[at]Juno.com> wrote in message > Of course this is correct. Right now, using an accounting system that
- quote -

Correct. In his recent testimony, Alan Greenspan stated the trued deficit is
about $10 trillion. That is, if one takes into account the social security
payment obligations already promised.

Elizabeth Richardson

"Elle" <elle_navorski[at]nospamearthlink.net> wrote in message > I agree, for the most part. Yet just minutes ago I received a call from my
- quote -


There are many political issues which affect ones financial future. Social
Security is one of them. This is not a political forum. My thought is that
the moderators should not have approved this message in the first place.

Elizabeth Richardson

Elizabeth Richardson wrote:

- quote -

Of course this is correct. Right now, using an accounting system that
would land any corporate executive in jail, Congress gets to spend all
of the social security revenues in excess of expenditures and not count
it toward the deficit. If they were to form private accounts, or even
invest in other than the now required treasury obligations, they would
not be able to hide the true size of the deficit so easily.

Dave

On Mon, 7 Mar 2005 12:49:00 CST, herlihyboy wrote:

- quote -

With regard to social security in particular, have they really had a
"horrible" track record, or merely been too conservative in their
investment practices (in hindsight)?

- quote -

This assumes that you're smart enough to know you're a bad investor; that
you know what you don't know. If social security is fundamentally an
insurance program, it should protect the average Joe from investment
mistakes.

- quote -

Sure it is, but my point is that private accounts don't do much to *remove*
the restrictions.

- quote -

Certainly an issue, but social security is essential an immediate
fixed-income inflation-adjusted annuity. That's the deal, and I think it
fits the goals of the program pretty well.

One thing that could be done with only minimal expense (if commercial
annuity schedules are any indication) is to make social security payments
for life with 10-years certain. If you died soon after retirement, your
heirs would collect for the remainder of the 10 years.

Pete

On Mon, 7 Mar 2005 13:25:44 CST, Greg Hennessy wrote:

- quote -

Initially I had thought that tying to inflation was fair, and a way to
solve about 7% of the funding gap. However, Chris Matthews showed some
stats a couple of days ago that indicated that this would cause benefits to
drop as much as 46% (IIRC) after a few decades. Makes sense, if wages
outpace inflation by 1% or so.

There's also the problem of the government's measures of inflation not
reflecting reality, especially when you consider that retirees have
different spending patterns from the average. For exampe, high-inflation
expenses such as health care.

In article <1110221171.055183.258650[at]o13g2000cwo.googlegroups.com> ,
"herlihyboy" <ryan.parmenter[at]gmail.com> wrote:

- quote -

The only problem with this plan is that those 40 years of
compounding comes with 40 years of compounded tax increases
to pay for what Social Security now pays for. Social Security
is far more than a de-facto retirement plan--it takes care of
widows, children, and disabled people. There is no free lunch
here or hidden pile of money in Washington.

If you are really worried about our national financial future,
you should take a look at medicare and medicaid. Those
programs are in real serious financial problems, and in the
middle of it, our current leadership rams though a huge unfunded
expansion to these programs in the ill-thought-out drug plan.
If you want to be concerned about something, this is the thing
to be worried about. Social security has a while to go.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote
- quote -

I agree, for the most part. Yet just minutes ago I received a call from my
state's Democratic Party representatives, asking for a party donation
*specifically* to battle Mr. Bush's social security privatization plans.
What happens with social security could affect my financial future, and I
want to be "well-informed" when deciding to support such political efforts.

Just a thought.

In article <1110221101.665302.142170[at]g14g2000cwa.googlegroups.com> ,
herlihyboy <ryan.parmenter[at]gmail.com> wrote:
- quote -

Well, it is debatable of the existing system is "failing" or not, but
the proposals I've seen for those under 55 who remain in the system
who don't choose "private accounts" calls for benefit cuts, future
benefits being tied to inflation rather than wages.

Pete wrote:
- quote -


There's nothing wrong with it, but they obviously have a horrible track
record of managing money in general.

- quote -

The way I understand it, you aren't required to contribute to a private
account. If you want to continue relying on the failing system because
you aren't clear on how to invest, that's an option.

- quote -

And the current system isn't restrictive?

- quote -

I think the main point is that if I put money into SS from age 20 to
age 62, and then die, what happens to the money I have been "investing"
for over 40 years?

John A. Weeks III wrote:
- quote -

True. One could save up their SS checks. But, if I have 40 years of
compounding to pass to my heirs, that's a heck of a lot better than a
few years of SS checks.

"Pete" <nobody[at]nowhere.com> wrote in message
news:wk3qr7xhq9sh$.1vnwvq94u9oco$.dlg[at]40tude.net...
- quote -

This seems more of a political question rather than a financial planning
one.

Elizabeth Richardson

In article <wk3qr7xhq9sh$.1vnwvq94u9oco$.dlg[at]40tude.net> ,
Pete <nobody[at]nowhere.com> wrote:

- quote -

The current theme in Washington is that government is the problem,
not the solution.

I tend to agree...our current government really is the problem the
way it is spending out of control and wrecking the economy.

- quote -

What makes it a double illusion is that places that have gone
with private accounts have seen it be a major disaster. I heard
that Sweden has 95% of their private accounts having lost money,
with over 75% being down more than 40%.

- quote -

One can also save up their social security checks, and pass that
money to their heirs. Money is money no matter where it comes
from.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

If letting individuals invest in the stock market (through private
accounts) is such a great idea, what's wrong with the government doing it
on behalf of the people through central management of social security
assets? This would seem to avoid a number of problems:

1. Individuals making dumb investment decisions, such as the emotional
propensity to switch out of stocks at market bottoms and buy back in at
tops. Or to adopt asset allocation strategies that are inappropriate for
their personal time horizons.

2. Exposing individuals to interest-rate risk when they annuitize their
accounts on retirement (which they will probably be required to do). The
income from immediate fixed annuities has historically varied over a range
of about 2:1, and who can forecast interest rates 30-40 years in advance?
For many, this could mean the difference between financial security and
poverty.

3. The huge social security funding gap that arises from the currently
envisaged transition to private accounts.

A purported advantage of private accounts is that individuals will feel
that they are in control of their money. But so many restictions will be
placed on investment decisions, this is really an illusion.

Another touted advantage of private accounts is that individuals could pass
the residual in their accounts to their heirs. But this is a separate
issue. The government could do the same thing to social security accounts
under central management.

I'm concerned generally about stock market investments for social security
-- however they are implemented. When the baby boomers retire, there would
be a massive outflow of funds from the stock market which probably cannot
be offset by the inflow of funds from the much smaller next generation.
This is likely to result in long-term declines in stock prices, or at least
much lower returns than we are used to.

Whether you fund the boomers' retirements by the sale of Treasury bonds or
by the sale of stocks, you depend on one generation to provide the cash for
the older generation. That's the fundamental problem. We boomers didn't
have enough babies.

Comments?

Pete