There are several problems with this article.
For example:
“In 1999, the Social Security Administration and the General Accounting Office (now the Government Accountability Office) separately examined the program adopted by Galveston and surrounding counties and found that its benefits depended on income and longevity: The lower one’s income and the longer one lived after retirement, the less advantage there was to participating in the program compared with Social Security. Also, Social Security payments increased with inflation, while payments under the Galveston plan did not.”
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First, if I invest and you look at it in 5 years, it will look very different in 45 years. Second, and the most glaring difference, is the personal account will likely be there in the future - SS is on track to bankruptcy - my generation may get half what we put in if we’re lucky, our kids will not. It’s obvious to me that something is better than nothing. Third, why would we ever choose a gov’t program when there is a private alternative.
RE: First, if I invest and you look at it in 5 years, it will look very different in 45 years.
Which simply means that a model like Galveston will only be applicable and useful for those who are currently age 35 and below. If you look at the stock market’s performance for the past 10 years for instance ( say the S&P 500 ), you would actually be IN THE RED compared with what you were 10 years ago.
See here chart here for the SPY Exchange Traded Funds that tracks the S&P 500 Index :
http://finance.yahoo.com/echarts?s=SPY+Interactive#symbol=SPY;range=my
The value was 150.88 in March 2000. It is just 122.22 in August 2011.
However, looking at it from a near 20 year time frame, the value was just 45.22 in 1993. Your money would have nearly tripled in 20 years.
It looks like any option for social security to go the private mutual fund route will only be attractive to young workers, not those within 10 years of retirement.
RE: Second, and the most glaring difference, is the personal account will likely be there in the future - SS is on track to bankruptcy - my generation may get half what we put in if we’re lucky, our kids will not. It’s obvious to me that something is better than nothing
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I am not saying that this is my argument, but if you spoke to most Democrats, you would get an argument similar to the following :
Today, despite hysteria to the contrary, Social Security’s short-term finances remain solid – with $2.6 trillion in assets.
The 2011 trustees’ report projects that Social Security will be able to pay 100 percent of scheduled benefits for all workers through 2036. The issue is what happens after that.
Under a “do nothing” scenario, the trustees project that Social Security will be able to cover 77 percent of scheduled benefits after 2036. But to avoid big benefit cuts 26 years from now, Congress and the president have to do what they traditionally have done – gradually change the retirement age, cost-of-living adjustments and payroll taxes.
Now, I personally believe that a private account is better for the younger generation. However, for most voters today, I’d say that the above Dem argument still remains the more favorable one. That is the big hurdle Rick Perry has to overcome now that he used the word “ponzi”.
EDIT TO ADD — now that I’ve presented how the Democrats would argue for the current SS system. I’d like to make my own personal rebuttal....
Firstly, citing the Social Security trustees as if they’re using real numbers is naive.
The Social Security trust fund is as fictional as a JK Rowling novel. The $2.6 trillion fund is, in fact, nothing more than a stack of interest-bearing IOUs, which needs to be paid back by a government that has already reached its debt ceiling and whose credit has recently been downgraded by S&P.
By the time the trust “fund” runs out in 2036 ( the date Dems like to cite), taxpayers will be on the hook for $7.3 trillion.
One problem neither Social Security nor Mr. Ponzi’s scheme can overcome is demographics. Today, the worker-to-retiree ratio is roughly 3-to-1. That’s down from 16-to-1 in 1950. By 2030, the ratio will be closer to 2-to-1.
The fix proposed by Dems are simply tinkering around the edges:
* Congress could bump up the retirement age,
* Tweak cost-of-living-adjustments,
* Impose means testing
These are old ideas that would eke a little more life out the present system, but it will still die.
Americans in their 20s, 30s and 40s would get a better deal if they could invest the money taken from their paychecks for Social Security in a defined contribution plan. For example, the Galveston, Texas, plan for public workers has returned 7.5 percent a year on average since 1982, at little risk to employees. This isn’t a radical notion.
We can add to that a law that MANDATES that Congress SHALL NOT ( repeat NOT ) be able to RAID the SS trust fund by a certain date ( e.g. June 2013 ) to fund current expenses.
Now that the Rickster ( as the author of the above article calls Perry ) has started the debate... he better be darn sure he can follow through with a cogent argument that assures seniors that SS will be there for them, while at the same time assuring the younger generation that it will be changed for the better.
This will NOT be an easy task and will require a Reaganesque ability to communicate.
Is Rick Perry up to the task?
If he can’t do it, he won’t be president.