Posted on 02/05/2005 5:46:38 AM PST by FlyLow
I sent this retirement calculator to everyone under 55 on my e-mail list.
Not as much as you'd think. The thing is that if your retirement target is say, 65, then you've got 10 years of saving real money into a real account with real earnings. When Reagan made possible the TSP when I was a fed employee, I retired 10 years later with enough in my TSP to buy a house. I'm 60, and my social security check won't buy no house.
What has to happen, is that people who have NOT contributed, do not receive. I knew of a phillipino woman, recently arrived, never paid anything in, receiving SS money just because she was here.
My sister's in-laws from Iran, gave their work history in Iran. They are receiving benefits too. That is what is killing this System. Too many people receiving benefits who have NEVER paid a dime in.
Yet American self employed citizens, will NEVER receive $$$'s from Social Security. A little discriminatory I'd say.
I really don't get how young people can not want us to do anything about Social Security or protest President Bush because he wants to reform it.
Unless we just do away with Social Security all together and let us take care of ourselves(which will never happen) Then we have to do something.
Wednesday night, President Bush talked about Social Security reform. The nation listened. The Democrats booed. The President says without reform the system is headed for ruin by 2042.
President Bush said he was open to suggestions, raising some of the notions Democrats have put forth over the years and said all the ideas are on the table.
He opened the door for a bipartisan discussion, but Democrats seem intent on slamming it shut
The Democrats insist there is no crisis for Social Security — which is 180 degrees from where they stood on the issue when they had a firm grip on the White House.
The previous President, Bill Clinton, alluded to a crisis in Social Security on numerous occasions and in his State of the Union address in 1999 said, “First, and above all, we must save social security.”
The man President Bush defeated in 2000 for the White House, Vice President Al Gore, also said Social Security faces a serious fiscal crisis.
Remember the “lockbox” where all the money to save Social Security would go? So Clinton’s Social Security crisis still existed in 2000.
Vice President Gore lost, the country suffered its worst attack at the hands of terrorists on Sept. 11 and is now involved in an expensive campaign in Iraq.
The Democrats have told us for the last two years how bad the economy is doing and how bad the deficit is. That makes it highly unlikely Clinton’s Social Security crisis was solved by President Bush while we weren’t watching.
Was there never a crisis and President Clinton — the Democratic Party’s Superman — lied? Is this another linguistic gyration where it depends on what your definition of crisis is?
Or is there a real crisis and Democrats are lying now out of fear?
After all, if the program is fixed by a Republican, it’s another weapon — in an increasingly shrinking arsenal — taken out of Democrat’s hands politically.
It appears Social Security is only in crisis when it’s politically advantageous to the Democrats. It’s too important a program to be mired in partisan politics.
Bush said ideas were on the table. Democrats should do the country a favor and sit down at it.
Booing never solved a problem — it also never won an election.
Anecdotes are not data, but I personally know one person whose mom (who works for the SSA) got him the benefits. Whether drug addiction was the stated (de jure) basis for the determination or not, I don't know. But it certainly was the de facto basis.
Wow! Thats quite a revelation. People who never contributed are collecting is an OUTRAGE in itself. Under which administration allowed this? The lib,dims no doubt!
No wonder the system is in trouble.
Self-employed who pay in the system should be able to go with the reform package.
My solution is exactly along the lines of what President Bush is proposing - as a start. Ultimately, we should be going to a completely privatized system.
Dear stopem,
Social Security taxes take 12.4% of income up to (for 2005) $90,000.
In a completely-privatized system, one could purchase private group disability insurance for less than 0.5% of salary (my own company pays about 0.4%). My company's disability insurance provides that should a worker become disabled, he will receive, tax-free, 60% of his base salary until age 65, as long as he is no longer able to perform his specific occupation.
A significant amount of group life insurance (to provide continuing income for survivors) can be purchased for another 1% or so. Our company provides group life insurance for our employees at 2 times annual salary for about 0.3% of salary. Group life insurance is expensive, so we encourage folks to go out and get more, but if we were to ratchet that up to 7 times earnings (often a recommended amount), it would run about 1% of salary.
That would leave about 11% for retirement investing.
To give you a little bit of an idea of what that would mean to someone, here's the results of a spreadsheet that shows:
- Age at start of working career: 22
- Age at full-retirmenet: 67 (the standard for everyone born from 1960 on)
- Starting salary: $25,000
- Average rate of inflation: 2.5%
- Average increase in compensation, including inflation, until age 40: 6%
- Average increase in compensation, including inflation, from 40 - 67: 3.5%
- Investment mix: 22 - 30: 80% stocks / 20% bonds
- Investment mix: 31 - 40: 70% stocks / 30% bonds
- Investment mix: 41 - 60: 60% stocks / 40% bonds
- Investment mix: 61 - 67: 40% stocks / 60% bonds
- Investment returns: 10% on stocks; 4% on bonds
- Amount invested: 11% of gross salary
BEFORE INFLATION
Age 67 Final Year Income: $180,648.78
Amount in Account: $2,167,996.93
Compounded Inflation at 2.5% per year 3.037903279
AFTER INFLATION
Final Year Income: $59,464.95
Amount in Account: $713,649.10
AFTER INFLATION ANNUITY
(Assumes 4% of Acct Principle): $28,545.96
This is about 50% of the final year income. Most folks aim to retire on 75% - 80% of their final year of working income.
Thus, through complete privatization of Social Security, using the Federal Thrift Savings Plan as the model, one's annual annuity would cover about 2/3 of one's retirement income requirements. That's about double what Social Security will provide.
This would still include disability insurance for individuals who became disabled prior to retirement age, and would include a substantial death benefit (life insurance + any accumulated amounts in accout) for heirs in case of early death.
As well, at death, the remaining principle (which would likely have grown through years of retirement) in the account would devolve to heirs.
sitetest
Dear jackbill,
"Ultimately, we should be going to a completely privatized system."
In post #48 is what a completely-privatized system might look like.
sitetest
The key seems to be that Mom worked for SSA, this case would certainly no be typical.
By the way, I know one man in his forties, the kind of person you want for a neighbor, who worked for the Social Security administration briefly before becomin a parole officer. He said that he could not continue in the job because his sole function was to find reasons to deny people benefits, he was made to understand that he could never approve anyone, approvals had to come at a much higher level.
Dear TVisjustwrong,
"Yet American self employed citizens, will NEVER receive $$$'s from Social Security."
Why is that?
I'm self-employed, and every year, the Social Security Administration sends me a statement telling me how much I will get at age 67, how much I would get if I were to become disabled, and how much my heirs would get if I were to die early.
sitetest
As someone said than total privitization would be an answer for everyone wouldnt it?
Do you think that taking the disability benefits and the childrens SSI benefits out of this equation AND privitizing all retirees benefits starting now would be a good idea?
That way the over 55 crowd could benefit as well.
And when they have paid for it and several decades later it is discovered that they have actually saved the government money in the long run, are you going to repay them, or are you just going to distribute the savings to "everyone"?
Take a look at:
http://www.ssa.gov/OACT/TR/TR04/II_project.html#wp108862
Take a look at 2018, and consider that everything above the "income" line is UNFUNDED. Even the part from 2028 to 2042, where they say "payable". That represents the "Trust Fund" and the only way that it is payable is if the govt. raises taxes or borrows the money from the public.
Since personal accounts would reduce the "scheduled benefits", both the income line in the graph and the top line "promised benefits" would be lowered. The latter would be reduced faster than the former.
Dear stopem,
In going from the current program to a completely privatized program, some allowance for transition would be necessary.
But there is no reason to drop survivors' benefits or disability benefits. The amounts being paid into the system currently are sufficient to pay for all the benefits Social Security currently provides, but in far greater amounts.
Social Security, as currently arranged, is theft.
sitetest
As with so many things, the leading edge Boomers get the best, the second half gets the rest...
I've known since I was in high school (I'm 46) that social security as it is currently structured wouldn't support all the boomers. Unfortunately, I've always worked at the higher tax rate. Oh well, that's the luck of the draw in life - demographics have a far greater impact on us than most people realize, and there really isn't anything we can do about when we were born or who we were born with.
Exactly.
Take a look at the Galveston, TX public employees plan. They opted out of SS years ago and have a very successful "private" program.
Dear jackbill,
I'll also note that I calculated the annual income from the account extremely conservatively - taking only 4% income from the principle.
If one retires at 67, and wishes to completely annuitize the account (leaving nothing for heirs), one could easily get up to twice the amount I cited, with some protection against inflation.
Thus, this program could generate as much as 90% - 100% of final pre-retirement income.
But I think that most folks, given a choice, would prefer to leave a substantial legacy to their heirs.
sitetest
Exactly, again. I retired 14 years ago and took a lump sum pension instead of an annuity. That, along with my 401-k and SS has provided me with a very comfortable income and the principal has grown by about 25%.
"Joe Smith," a 39-year-old who makes $63,000 annually, is thinking about startig one of the private retirement investment accounts being proposed by President Bush.
Under Bush's plan, Joe could start contributing to a retirement account in 2010.
If he chips in $1,000 a year, he would have contributed $24,000 by the time he retires in 2033.
If Joe's selected investments gained an average return of 4 percent, his account would be worth $39,456. His monthly payout from the account, combined with the payouts Joe also will receive from Social Security, would slightly exceed what he would have received if he had not opened the account.
If Joes investments return 3 percent, he would have $34,606, and there would be no difference between what he would get if he opened the account and if he had relied solely on Social Security.
If Joe's account returned 2.5 percent, then he would have only $32,646 in the account, and would have been better off relying only on Social Security.
- Dan Mangan
================
END OF ARTICLE
John speaking:
Any "private accounts" would likely be restricted - by law - to investment options that were at once conservative and somewhat limited (by the nature of such conservatism) in their growth potential.
If we assume that, even in the more optimistic scenario above, the "test case guy" above ends up only _marginally ahead_ if he chooses to "go private" with his retirement taxes. And this doesn't take into consideration that he could end up selecting an investment course that doesn't pan out the best for him. If things don't go quite as planned, he may only break even at best, or even come out losing.
In all honesty, it doesn't sound like that great of a deal to me. And what about those making lower incomes? Who here believes that a tiny percentage of their taxes, invested into purposely low-yielding accounts, will amount to more than what they would receive through the existing plan?
And how many "ordinary folks" out there are capable of making the right calls, investment-wise, for the next twenty or thirty years of their careers? Certainly not me (my career is drawing to a close). I sense that many Freepers have a higher "investment I.Q." than most people, but again, you are in the minority here.
It should be recognized at the outset that there are going to be losers as well as winners under the Bush plan. The crux of the matter is how large a percentage of losers would the nation be willing to absorb?
Recall the old "bird in hand" adage. Which is worth more? The possibility of a higher return on one's S.S. taxation? Or, the reality of a guaranteed payout?
I realize the Social Security system, as it is today, will go under sometime in the future. But I also sense that the political will to re-create or re-structure it will not reach critical mass until the system itself is undeniably at the verge of collapse. That _is not_ the case today, nor will it be for at least 20 more years. Then, and only then, will we see the possilibilty of real reform (I probably won't be around). But not yet.
- John
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.