Something all Americans should be concerned about: Social Security
I don't even know where to begin on this topic. First of all, Social Security is not as bad off as the current administration would like us as Americans to believe. Using the word "crisis" is really unfounded. It's like what happened with the Saddam Hussein/Iraq issue, saying that we knew that he had WMDs and that if we didn't get in there and neutralise him, he'd be coming after us.
If the administration succeeds in selling the "crisis" of Social Security, the people who will pay won't be the politicians, but us average Joes as we approach retirement. There are so many people who depend on Social Security for all or part of their income after retirement. Privatisation is not the answer. It ties the retirement funds of an individual to the stock market, which is basically what Social Security was set up to avoid. It was created in response to the stock market crash of 1929, which triggered the Great Depression to provide for members of society who were unable to work because of age or disability. What if the market is on a downswing when your retirement comes and you end up with less money than what you started out with? The stock market can be a great source of income for those who choose to invest in that manner. Social Security needs to remain a government-supported system.
I've had personal experience with Social Security. It does what it intends: my step-father has been getting a Social Security check for years because of a disability, my mother recently started getting her Social Security check and still working part-time, and finally, I received a monthly check from the time my father died until I graduated from high school. I know that was welcome money in our household at a difficult time and it made things a little easier on my mother so she wasn't worried about making ends meet.
And my final thought: what if there's another stock market crash? Do we really want to subject our retirement money to that possibility?
My father was alive during the Great Depression, and my mother was born shortly afterward. I know that this had a profound impact on their lives, to this very day. My mother doesn't want to throw anything away. She washes butter tubs and Ziploc bags to reuse them. I think we need to keep the memory of those times alive so we don't end up there again.
Here's a link for anyone interested: There is No Crisis
If the administration succeeds in selling the "crisis" of Social Security, the people who will pay won't be the politicians, but us average Joes as we approach retirement. There are so many people who depend on Social Security for all or part of their income after retirement. Privatisation is not the answer. It ties the retirement funds of an individual to the stock market, which is basically what Social Security was set up to avoid. It was created in response to the stock market crash of 1929, which triggered the Great Depression to provide for members of society who were unable to work because of age or disability. What if the market is on a downswing when your retirement comes and you end up with less money than what you started out with? The stock market can be a great source of income for those who choose to invest in that manner. Social Security needs to remain a government-supported system.
I've had personal experience with Social Security. It does what it intends: my step-father has been getting a Social Security check for years because of a disability, my mother recently started getting her Social Security check and still working part-time, and finally, I received a monthly check from the time my father died until I graduated from high school. I know that was welcome money in our household at a difficult time and it made things a little easier on my mother so she wasn't worried about making ends meet.
And my final thought: what if there's another stock market crash? Do we really want to subject our retirement money to that possibility?
My father was alive during the Great Depression, and my mother was born shortly afterward. I know that this had a profound impact on their lives, to this very day. My mother doesn't want to throw anything away. She washes butter tubs and Ziploc bags to reuse them. I think we need to keep the memory of those times alive so we don't end up there again.
Here's a link for anyone interested: There is No Crisis
posted by carrie at 1/19/2005 04:16:00 p.m.
3 Comments:
From a purely financial point of view and being an investor I have a different take. We are at the beginning of a crisis. SS does have a large surplus, over $1.2 Trillion at this time. Now the middle of the road estimate suggests the surplus will be gone by 2042. That is a lot of money to burn in a short time and here are some problems with not fixing it now.
SS will not run a deficit for a number of years, so the surplus will actually grow for some time. Then the bleeding starts, and not consistent bleeding but exponetial bleeding. A small deficit the first year then it grows quickly as we move to the zero balance year. So we can't just say that we will bleed $400M a year. Maybe $100M the first year, but then around $20B the final years. When the bleeding gets that fast we are in real trouble.
The other problem is where the money resides. Do you know where the $1.2T surplus is? Invested in the U.S. Government, special bonds for the most part making about 4.85% interest. What does the Government do with money it receives from bonds? It spends it! While the Government can pay back bonds as needed at this point it will not be able to payback at the rate required as we get closer to the zero balance year.
Privatization, while not the complete cure does fix some things. Money is moved from the U.S. Bond status to private institution funds. This will remove some of the payback burden the Government will feel in the future. It also gives someone the opportunity to beat the 4.85% return SS gets from Bonds now. Not all funds will be privatized nor will the private SS investor be able to buy just anything, there will be rules.
Think about the number of people getting benefits, the money involved, where the money is, and then 35 years seems like a good starting point. If we don't take action who will?
One of the pieces of this I oppose is summed up perfectly by Jam Daddy: "Money is moved from the U.S. Bond status to private institution funds."
I really don't have the time I'd like to elaborate on this right now, but one thing I can say about US Bonds...guaranteed rate of return, you know you're going to get x amount of money in x years. Private institution funds...not a guaranteed rate of return. Depends partially on the economy, among other things.
I have money other than Social Security for when I retire, but I'm thinking of someone who works for a small company that might not offer a 401(k), has no extra money to invest in an IRA or the stock market or whatever investment opportunity, and is counting on Social Security to pay the bills when (s)he reaches retirement age. What would we as a society do if, because of privatisation, this person only got half of the money allotted? Say the market tanked...and now they're unable to make ends meet? Do we then set up another government program to support the people who can't support themselves because of the changes to SS? Or do we just say, too bad, you should have been a smarter investor? You're on your own.
That's what I'm afraid is going to happen down the road the way things are shaping up now. The wealthy will keep getting wealthier, and the poor, well forget about it.
But you won't have the option to put all your money in private investments. Maybe 15% (guessing), but never enough to demolish your SS. However, near the time of the zero balance the US Government will be paying out Bonds (special ones issued to SS) at a rate so high the Government will be in trouble - literally! The SS change is not all about changing SS, but about reducing the burden on our Government coffers.
The possible bonds people would be allowed to invest in would be safer options and even corporate bonds which are very safe in most cases. The only other option I see is to start keeping cash to reduce the "call" rate on our Government for payback of the bonds. To payback SS nearer 2042 our Government will have to cut other services unless something changes. $20 or $30 Billion a year is a heft draw from the bank.
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