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OK gimme my PRA social security sucks
Posted on 02/05/2005 5:46:38 AM PST by FlyLow
Considering all the debate going on about Social Security reform, particularly personal retirement accounts (PRAs), I figured that you all might be interested in a new tool created by the good folks at The Heritage Foundation. They have a newly revamped Social Security Calculator where you can figure out how much you could benefit from the creation of PRAs, how much the current system (if left unchanged) will cost you, and much more. Check it out here: http://www.heritage.org/research/features/socialsecurity/
(Excerpt) Read more at heritage.org ...
Dear TVisjustwrong,
Which segment of the population suffers discrimination?
sitetest
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OK gimme my PRA social security sucks
Ping
Thanks for the ping!
Everyone who has to pay into the system to get something out when these people come here and receive having paid nothing in.
That is one major reason why the system is failing.
Dear TVisjustwrong,
I asked:
"Which segment of the population suffers discrimination?"
You responded:
"Everyone who has to pay into the system to get something out when these people come here and receive having paid nothing in."
Then, the self-employed are not any different from those employed by others.
Thus, as far as I can see, your comments regarding the self-employed just don't have any relevance here. The self-employed pay into the system, like other employed people, and get out of the system, just like other employed people.
However, the system isn't failing because some number of individuals receive benefits who never paid into the system.
First, many who receive benefits without having ever paid into the system do so because of a relationship with one who made contributions.
If I were to die before my children were out of college, Social Security would pay them a benefit monthly. This is from the portion of my FICA contributions that pays survivor benefits. I paid into the system (a great deal of money), if I die before my children are grown, they are entitled to these benefits.
But, of course, my children have never worked, and never made any contributions to Social Security.
As to folks from other countries, I believe they receive Supplemental Security Income (SSI), which, though administered by the Social Security Administration, is not paid for out of FICA contributions.
I've read that folks who come to the United States and have not contributed to Social Security have received SSI. But these benefits come from general revenue, not from FICA contributions.
SSI is available to folks who are not from other countries.
Thus, you may still complain about SSI payments to folks not from the United States, as it is your tax dollars at work, but you can't cite them as a problem for the Social Security old age, survivors, and disability system.
sitetest
"If I were to die before my children were out of college, Social Security would pay them a benefit monthly. This is from the portion of my FICA contributions that pays survivor benefits. I paid into the system (a great deal of money), if I die before my children are grown, they are entitled to these benefits."
The laws have changed. They are very limiting and I have had friends whose breadwinner has died, the kids are cut off at 16. Not college.
Dear TVisjustwrong,
Well, according to the Social Security Administration, survivors' benefits are paid to:
"Unmarried children under 18, or up to age 19 if they are attending high school full time. Under certain circumstances, benefits can be paid to stepchildren, grandchildren, or adopted children."
http://www.ssa.gov/ww&os2.htm
It used to go for college-attending children as well. That's changed.
In any event, that doesn't address the main points:
- The self-employed are not singled out for special poor treatment, thus refuting what you said:
"Self employed Americans are just out of luck."
- People who receive Social Security benefits although they never themselves paid FICA contributions are generally survivors of workers who DID make FICA contributions. Thus, these individual, survivors of FICA contributors, ARE entitled to Social Security benefits.
- Foreigners who never contributed to Social Security are most likely receiving SSI, which doesn't come from FICA contributions. Native-born Americans who have never paid into Social Security who are in similar circumstances as foreigners who receive SSI will also receive SSI.
Thus, no benefit is given to foreigners that is not available to similarly-situated Americans.
sitetest
You are wrong foreigners can go to their embassy and file for social security benefits with the work record in their country.
Dear TVIJW,
Well, not quite.
In these cases, you're probably referring to individuals who have worked and earned sufficient work credits in their own countries with whom we've concluded treaties for reciprocal treatment of Social Security.
Here's are a couple of links from the Social Security Administration that refers a little bit to that:
http://www.ssa.gov/retire2/international.htm
http://www.ssa.gov/international/agreements_overview.html
Our citizens, too, may qualify for payments from the Social Security systems of these other countries.
However, I believe that to participate in the systems of more than one country, one must have earned work credits in each country.
All that notwithstanding, individuals from other countries who have never worked in this country may be eligible for SSI, which is also administered by Social Security, but does not come out of FICA contributions.
Finally, all of this is beside the point from your original points regarding self-employed persons.
sitetest
Here is a summary of the S.S.situation: right now, S.S. collects more (revenue) than it pays out (benefits), and there is a $1.6 trillion surplus. The surplus and excess revenue are invested in special U.S. Treasury bonds that pay about 6% in compounded interest.
By 2018, benefit payments will exceed revenue, so interest on the bonds, in addition to revenue, will be spent on benefit payments.
By 2028, principal, interest and revenue will be needed to keep up with benefit payments.
By 2042, principal and interest (the surplus) is gone, and benefit payments from revenue only can pay about 75% of the current level.
Seems to me that investing the surplus now into private sector stocks and bonds (think of it as privatization done by the gov't rather than individuals) that pay a higher return than the treasury bonds could be part of the solution.. And there would be no "transition cost" as with individual privatization. Also it seems to me that the interest on the treasury bonds is paid by the U.S. taxpayer to the S.S. Administration that bought the bonds. Investing in the private sector, the interest is paid by the corporations (bonds) or equity (stocks) appreciation paid by investors that buy the appreciated stock shares.
The Gov't can handle the inherent risks inherent in investing in the private equities markets better than individuals, and with long term investment horizons and widely diversified investments, theses returns will reflect the growth of the entire U.S. economy.
What the Bush Social Security plan could mean for you
Age: 35
Making: $47,000
Retiring In: 2037
Traditional Social Security benefits: $1,588 a month
Advocates of the Bush plan say that, assuming a 5% average annual rate of return, no administrative costs and 2.5% average annual salary increase, this worker would get $2,128 a month.
Opponents of the Bush plan say that, assuming 4% average annual rate of return, administrative costs and 1.1% average annual salary increase, this worker would get $1,309 a month.
Age: 45
Making: $68,000
Retiring In: 2027
Traditional Social Security benefits: $1,798 a month
Advocates of the Bush plan say that, assuming a 5% average annual rate of return, no administrative costs and 3.9% average annual salary increase, this worker would get $1,700 a month.
Opponents of the Bush plan say that, assuming 4% average annual rate of return, administrative costs and 1.1% average annual salary increase, this worker would get $1,571 a month.
Age: 55
Making: $36,000
Traditional Social Security benefits: $1,149 a month
NO private retirement account option.
END OF DAILY NEWS EXCERPT
John speaking:
First, a disclaimer: I am 55, and haven't paid a penny into Social Security since 1979, so I have no stake in whatever reform occurs or does not occur regarding the Social Security system. I'm in Railroad Retirement, a completely independent retirement system; assuming I make it 'till I'm 60, I can retire at 60 with 30 years' service and receive a monthly annuity from Railroad Retirement that will be _significantly_ higher than I would get from Social Security (probably even after reform).
Every fifteen or twenty years, it seems they come up with some new scheme that's going to make ordinary folks rich by the time they retire. Back in the 1970's, it was IRA's. In the late 80s/early 90s, we got 401k's. Now it's "private retirement accounts".
But, having bought into the IRAs, and having bought into the 40lk, after a number of years, all I can think of is something of a paraphrase of a punch line I once saw in a TV commercial (I don't watch television anymore): "where's my big savings?"
Now, I know you younger folks won't recall, but older ones like myself probably remember the bank ads touting IRAs back when they were new: put in 2,000, and with the current rates of interest, by the time you retire, it will be worth $1 million! (to the best of my recollection, they _really were_ putting out ads like that)
In truth, after putting in $2,000 per year (the maximum) for a number of years, when I review my IRA statements today, I'm not a millionaire (laughs). Barely a "thousandaire"!
The kicker was that, back in the 70s, with inflation running near 20% yearly, and interest rates that high, $2,000 _might_ yield a hefty sum of cash, if the interest rates had prevailed year after year after year. Of course, they didn't. So, I rolled over my IRAs as best I could, and today they average about $7k each. Hardly getting rich on any of them. And the interest rates offered when they are renewed now, barely keep up with inflation. I _tried_ moving some of the funds I had in IRAs into higher-yielding accounts, but after they lost about 50% of their value, I chucked that idea and put them back into "safe" accounts that offered guaranteed (albeit lower) yields over "risk". Learned my lessons there about "investing" (laughs).
Ok, lets go to the 401k. My company first offered a 401k back in 1994, so I jumped right in. With 10% per year diverted into the 40lk (no company contribution where I work), I saw the funds grow quite well - UNTIL the market fall in 2000, which lasted through 2001 as well. Even moderate-growth, non-high-risk funds dropped big time in that two year period, wiping out all the previous gains (I should mention that we are limited by our plan as to which funds we may choose to invest in). After having enough of that, I switched over to a bond fund which - though lower in yield - provided a modestly steady rate of increase. Because I'm nearing retirement, it would be unwise for me to risk what I have again by switching back to higher yield (but more risky) funds. So what I have is pretty much what I'll get.
Let's look at some numbers. In ten years, I've contributed about $62,000 to the 401k, which currently is valued at $75,700. So, in ten years, I've experienced a net gain of approximately $13,700. Now, my math could be wrong here, but using a calculator for "effective rate" of growth (old application called "Money Matters on the Mac), I enter $62k as "amount of initial investment", $75.7k for "total value at maturity", and 10 as "years to maturity", and get an annual rate of about 2.02% Wouldn't I have done better by setting aside a portion of my savings into ordinary bank CD's? Perhaps others can step in and illustrate where I've miscalculated.
I realise that - here on FR - there are many with an unusually adept "investment I.Q.". Cheers to you. But you must realise that the vast majority of ordinary Americans, and that includes me, have nowhere near your savvy nor the ability to acquire it. Looking at my own "numbers", I think I've done about as well as someone at my level could be expected to do. But, dumb as this old guy is, I've grown wise enough through the years to look askance at anyone who promises big returns without "showing me the numbers". Show me some numbers, and I _still_ am not ready to be "sold" yet.
I think there are some very "rosy" numbers currently being "floated" by some of those who would advocate privatization of the current system. And I also believe these figures are tilted 'way too far towards the optimistic side (like those IRA ads of years ago). Real-world experiences may not support such claims.
Any "reform" is almost certainly going to require - by LAW - that "limits" be placed on _where_ private investment Social Security funds may be placed. This in itself is going to limit the amount of return to very modest returns to begin with, and that doesn't take into account the potential for inflation or administrative expenses. Who here believes that reform legislation would permit those who wished to invest in potentially risky investments? The results could be calamitous, especially for the "investment-unsophisticated". When they lose their retirements, or see their payouts dwindle as a result of bad investment, who is going to end up taking up the slack?
The Daily News on Sunday also carried an op-ed piece by Mort Zuckerman. I realise the guy is of the mushy middle, but again, as publisher of the News, he did endorse Bush for re-election. He closed with this thought:
"Of course, the idea of Bush's 'ownership society' is to change the relationship of Americans to government so they look less to Washington than to themselves (and, just maybe, vote more Republican). No doubt some American could build savings and more wealth and have a nest egg for retirement. No doubt there is value in savings and self-reliance, planning ahead and increasing distance from the government. But there are other values in the very title of the program - Social Security. 'Social' surely implies a contract to help manage poverty among the old and to know that our society provides a minimum income for all in the retirement years. And 'security' means buffering the harshness and cruelty of the markets so the well-being of the elderly is not dependent on shrewd stock picks and hot mutual funds.
"Privatization thus gets things upside down. Social Security was not meant to re-create the free market; it was intended to _insure against_ (emphasis added by poster) the vagaries and cruelties of the market and to permit Americans to count on the promise that the next generation will take care of them in their old age."
Again, I'm nearing the end of my career, and don't have a "stake" in Social Security, but I'd beware those who make promises that are bigger than they can deliver.
Cheers!
- John
Point in fact
I don't "want" to "steal" any of your money! LMAO
It was merely a suggestion...
again, if you have a "solution" feel free to make it...
gezzzzzzz
you either have to cut benefits and/or the age eligibility or you have to come up with the funds...which is it?
My suggestion
Move to privatization.
Increase the retirement age.
Tie future increase in benefit to inflation, not increase in average wages.
Your suggestion turns SS into pure welfare for the elderly.
If thats the answer kill the system, put the elderly on welfare from the general tax levy, with the usual means testing, loss of assets etc.
sounds reasonable to me...
ya might have a problem raising the age
but I'm not planning my retirement around SS
I hadn't even expected it to be around by the time I retire...LOL
another thought I had, was I bet you could come up with A WHOLE LOT OF REVENUE if you looked into all the waste, fraud and abuse in the system!!!
Dear Fishrrman,
The significant difference between your IRA and 401(k) experiences and the reform presented by President Bush is, as you point out, "that 'limits [will] be placed on _where_ private investment Social Security funds may be placed."
In fact, if the Federal Thrift Savings Plan is going to be used as the model, basically, folks will be able to choose from one of five or six funds that are essentially index funds.
As you point out, that will prevent individuals from getting really large returns over time. No one will get, over a period of years, 15% or 20% returns.
However, looking at the record of the Federal TSP, one can see that no one who had invested over the long-term did as poorly as the 3% that we are told we are getting from Social Security. The entire purpose of the limits is that although it will decrease the best performance, it will make it nearly impossible to have a negative performance over the course of a working lifetime.
As for your 2%, wow, you probably had to work at that. ;-)
Bottom line, a return of 4.5% - 5% AFTER INFLATION is pretty realistic if one is limited to the choices we see in the Federal TSP.
Those kinds of rates won't make anyone very wealthy, but they will, over a period of a few decades, provide a substantial source of retirment income.
"I realise that - here on FR - there are many with an unusually adept 'investment I.Q.'. Cheers to you. But you must realise that the vast majority of ordinary Americans, and that includes me, have nowhere near your savvy nor the ability to acquire it."
You use your own anecdotal data to trash the idea of private accounts, but then discount what anecdotal data others might offer. ;-)
However, you're missing the point. With an IRA, you really CAN buy just about any investment you want. And unless you have some idea of what you're doing, you will buy high and sell low. That's apparently what you did. You bought when everyone was buying, and sold when everyone sold. You bought when demand was high, and prices were high, and sold when demand dropped off, along with prices.
Nevertheless, you still got a 2% return.
Same thing with most 401(k) plans.
With something like the Federal TSP, because individuals will not be investing in individual equities or debt issues, but rather entire market segments, individuals will not experience the same kind of volatility, nor will they be subject to the same sort of risk as comes with investing in individual equity and debt issues.
I know a lot of folks in the federal government who are none too savvy about investments. But they allocate their money between the government bond fund, the big company stock fund, and whatever else they want to choose from, given the limited number of choices.
I've known a few folks who've been maxing out their accounts since the beginning of the program, and who were making big bucks (relatively-speaking) who have retired with low seven-figure accounts.
But most folks, as they reach retirement age, are looking at low- to mid-six-figure nest eggs that will provide a substantial portion of a generous retirement benefit.
I don't know of anyone who has managed to achieve a 2% return on their investments.
Even so, here's the kicker - the idea that we're getting 3% from Social Security is just a damned lie.
I received my Social Security statement from the Social Security Administration late last week. I took the data they had for me, how much I'd earned each year, and what I paid taxes on, and calculated, year-by-year, how much I'd paid in.
I then used Social Security's assumptions about how much I will pay in between now and the time I'm 67, when I'm eligible for full benefits.
If all I did was save the money in the mattress that Social Security has taken and will take from me, and then portioned out the benefit they plan to give me on a monthly basis, I'd have to live to 85 to use up the money.
In other words, my total return, IF I LIVE TO 85 is 0%. Zero. Nada. Nothing. Not "0% after inflation," just 0%.
If I die before I'm 85, it would have been better to stuff the money in the mattress. At least there would be a little something for my heirs.
So, compared to what Social Security is really giving ME, your 2% looks mighty, mighty good.
sitetest
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