Social Security Facts - #4:
There is no RETURN (interest, yield, etc.) on the money they take for Social Security for two reasons:
1. There is no MONEY (see Social Security Facts - #2), so there can be NO RETURN!
and
2. If you die before age 62 you get NOTHING - neither your capital or return - and if you live to be 100 you get a HUNDREDS OF PERCENT RETURN! Thus, talking about a RETURN on the Social Security Trust Fund is specious, discussed only to make you feel good!
PERSONAL ACCOUNTS are a beginning to fixing the misconceptions of Social Security!
1. There is no MONEY (see Social Security Facts - #2), so there can be NO RETURN!
and
2. If you die before age 62 you get NOTHING - neither your capital or return - and if you live to be 100 you get a HUNDREDS OF PERCENT RETURN! Thus, talking about a RETURN on the Social Security Trust Fund is specious, discussed only to make you feel good!
PERSONAL ACCOUNTS are a beginning to fixing the misconceptions of Social Security!
posted by Jim | 9:32 AM
7 Comments:
I'm not sure that liberal use of bold and capital text is going to help prove these facts!
It is true that what an individual gets out of social security is highly variable. I see it as protection against being old and poor, so if you die young there is no payout, but if you live to 100 you get years of payments.
And the analysis of the economics going out for 75 years or more is quite complex. Many seem to feel that personal accounts will not actually do much to address the solvency issues... and they add moral hazard issues with regard to handling risk.
Here's one article from a earlier proponent of personal accounts who's no longer so sure: link to Business Week piece by Harvard professor Barro.
I'm wondering if you would feel there was a 'trust fund' with a return if the excess payroll tax being collected today were used to buy Treasury Bonds on the open market?
Happy Easter! And may God bless and protect Terri Schiavo!
BOLD and CAPITAL text is not meant to prove, only to vent and emphasize points I feel are important to understand.
This variability means there is no "RETURN" by standard definition. If we all died before 62 there would be 0% RETURN. And if we all lived to 100 the Country and Government would collapse. Again, talking about return is only to SALVE the public!
Beg to differ with your thought that personal accounts won't do much for solvency. The proof: let's take the above example of all living to 100 - with 1/2 of our deductions going into personal accounts and getting a real return (yes, it could be negative but it is not likely looking at history and there will be protections) then the Country and Government would only have 1/2 the problem! It might even survive!
Or, better yet, let's take the example of all of us dying before 62: 1/2 of those deductions plus returns would go to our families or progeny - this beats the hell out of it disappearing into the Government coffers! Agreed!
Handling risk can be minimized - let's have a little faith in the American people who have brought this country to the point it is at today (yes, it was the American people, not the "elites", who have made a success of this two century+ experiment)!
I will read your referenced article tomorrow, but I wish the source was someone besides a Harvard professor!
A "trust fund" being invested in Treasurer Bonds - open market or as being done today - I repeat - is just like my taking each weeks paycheck and issuing a bond to myself which I will redeem at the next paycheck, ad infinitum, until I don't get a paycheck and I'm in trouble, which is where the Government will be in not too many years!
It is really true - follow the money in the 1)Government taxing, 2)issuing the bonds, 3)spending the money, and 4)redeeming the bonds with 5)more taxing. An accounting game to keep you and I happy! And obviously it works quite well!
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Curt, read Robert J. Barro this morning. From his last paragraph I think he is a Harvard Professor to whom I could talk!
But, he is hung up on all the misconceptions as we all are: returns, government borrowing, unfunded liabilities, etc. etc.
Makes countering all his comments too lengthy for this response.
He believes we must continue to guarantee the "minimum" - which I disagree with; if we go to personal accounts, SS would only guarantee the portion of the minimum that the personal accounts do not cover (i.e. if we put 1/2 of our deductions in a personal account, then when we retire the government would only guarantee only 1/2 the government payment.)
The other 1/2 should be larger than that half due to better returns (real!). Let's give the American people a little credit. So I think his premise is wrong, but we don't know the details yet.
His second to the last paragraph, discussing more realistic indexing (hard to implement when our politicians are looking for votes) and increasing the age of eligibility are necessary actions, but his assumption they would save SS I do not believe is correct.
Remember, the program simply takes taxes from the young and transfers it to the old. This is easy to discuss; as noted above, Mr. Barros discussion is not!
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I think that some of the issues that economists and actuarial types are struggling with include the following:
1. How much control will individuals have over their personal accounts? If it's a lot, then given investment risk, there are some who will get poor if not negative returns. If it's not very much, then returns are limited and in fact the sense of it being 'personal' are limited.
2. How much borrowing would have to occur over the transition period to keep funding the currently committed retirees?
3. Issues with regard to the change so that the money saved in personal accounts might be given to heirs of those passing away young instead of rolling into the pool to cover those long-lived ones.
I think Barro raises a valid question about whether the creation of gov't sponsored personal accounts would just continues to make the system obligations grow... if we were all to agree that the guaranteed payout were to decline, and the payroll tax were to decline, then nothing's stopping anyone from investing as they like today.
1. How about a medium amount of control and a little faith in our people!
2. There would be no additional borrowing. I quote Clark S. Judge in the 3/8/05 New York Post (He is a D.C. based communications consultant):
"Obviously, personal account dollars invested in the economy as a whole will not be available for lending to the government. Obviously, the U.S. Treasury will then have to sell more of its bonds on the open market. But, obviously, the government will be borrowing exactly as much with personal accounts as it would have been without personal accounts.
The government isn't running up new debt. It's just admitting the truth.
So moving to personal accounts will cost the government no more than not moving to them.
In fact, it can save trillions instead."
You need to read this and think it through several times. The last sentence assumes some adjustments down in the government liability if the returns on personal accounts are equal to historical returns.
3. These issues are easily solved. Today, if you die young, your family often gets SS. With personal accounts they would get that money.
I would agree with your closing paragraph, except that no one will ever allow the SS payout to be decreased. So making part of them personal accounts is the way to go, allowing a thought out and understood decrease in future payouts.
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