Posted on 08/27/2002 3:21:15 PM PDT by BlackJack
SS puts 100% in treasuries. How do you figure putting 30% in stocks triples your return. In fact, if you are looking forward, you can't say for sure which of these two strategies produces the best return over 5, 10, 15, etc. years.
It's easy to say that putting 30% in stocks and 70% in t-bills will triple my SS rate of return because for someone my age, 36 year old male, will only receive about a 2% real return. Balanced stock portfolios average a real return of at least 6%.
Those born in 1960, for example, are currently calculated to receive a real rate of return, on average, of less than 2 percent on their cumulative contributions. - Testimony of Chairman Alan Greenspan before the Committee on the Budget, U.S. Senate, January 28, 1999
By comparison, the real yield on a 30-year inflation-indexed Treasury Bond in todays Wall Street Journal was 2.729%.
In other words, the government is paying me less than the treasury rate.
In addition to being low, rates of return from Social Security must be viewed as risky because they are subject to change from future political actions that will be needed to ensure long-term solvency of the program.
Also, my wife's contributions will add zero to our benefit when we retire. Considering the money she's already contributed, we'll be lucky to break even. Oh yeah, the 2% return Greenspan mentioned doesn't help if I die before age 67. At least if I can invest my own funds I'll have a nice lump sum to leave to my kids.
If there is a pension plan meltdown now, it will make the Savings & Loan Crisis in the 1980s look like a day at the beach. That disaster cost $175 billion to fix, then. In current dollars, that would be $352 billion, or 48 WorldComs at one time. And a pension plan collapse would be much larger than the S&L crisis.
We discussed the risk to pension plans, the S&L bad example, and the risk to Social Security, in this book. Have a look and see if you like what you find.
Congressman Billybob
If a bank trust department operated that way, the bank would be closed and all the officers would be hauled off to jail. But Congress does it every year, and them the (Honorable) Members of Congress lie their heads off about it.
The madness has to stop. And we will know it's over when even the New York Times is forced to tell the truth about the non-existent "Trust Fund." Now, there's a tough goal to set.
Please check the second link below. I think you'll like what you find.
Congressman Billybob
The old line steel industry is saddled with huge underfunded pension plan problems, and that's the reason that the industry can't consolidate and prosper - no-one wants to take on the acquired company's unfunded pension liability.
I don't know why Bush didn't require the new found money coming from foreign steel tariffs be earmarked to funding the steel industries liabilities, so the industry could heal itself, and eventually get rid of the tarriff.
The political system and market economy cannot be separated. They are part of the same one whole. For example - if Social Security will be insolvent for demographic reasons so will be private pensions and stocks.
Secondly, history is no indication (let alone guarantee) of the future vis a vis stock market, but even using 8% real return expectation from stocks and 2.79% for bonds/SS produces only a 4.35% return (less than double, let alone triple).
Third, counteracting your scenario where you die before 67, is the scenario where you fritter away your investment and have nothing under the private scenario and live a long life. Which leads to the fourth and most important point that all of this privatizing Social Security seems to blatantly ignore:
The very purpose of the system (whether you agree with it or not) is to transfer funds, inter-generationally, from workers to retirees. It is not now, nor has it ever been intended to be a plan for current workers to provide for their own retirement.
A little knowledge is a dangerous thing. If you buy a regular treasury yielding 5 %, you are locked in. If inflation jumps to 5%, your real return on your original investment is zero. An efficient market will give you a higher yield on your next bond purchased. If you were correct in your logic there would be no market/demand for inflation adjusted bonds.
I agree there is no guarantee, but I'd rather bet on the market than on the government. If my wife's and my own SS contributions had been invested in the S & P 500 over the last 15 years, I'd have enough money now even with the recent market drop to more than pay for an annuity to give me double or triple my expected SS check in 2032.
Third, counteracting your scenario where you die before 67, is the scenario where you fritter away your investment and have nothing under the private scenario and live a long life.
Well, if you want protection against your own poor choices, you could move to Cuba and get free healthcare too. TANSTAAFL.
I have to disagree with you on this one.
To quote FDR.
"The civilization of the past 100 years with it's startling industrial changes has tended more and more to make life insecure. Young people have come to wonder what would be their lot when they came to old age. ... We have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty stricken old age."
I think if we can protect seniors without screwing workers we'll be achieving what Roosevelt intended.
You cannot separate government/political system from the market. The stable/productive market is a product of stable and rational system of government. And we do not know what will be in 2032 - extrapolations rarely work in the historical process over long periods.
There is a physical reality behind the magical screen of financial calculations. A large number of seniors will be a burden on a smaller number of workers no matter how you juggle the existing resources.
Yes, but to assume that government will accomplish this better than private markets is to truly live in Oz. Private investments will increase the GDP which will need to be divided up to provide benefits. Which increased GDP more, the money invested to create Microsoft or the identical amount spent on welfare, the military or a study of cow flatulence?
Quite true. Given two investments of different risk, the riskier will be priced to yield more. Nothing you say negates this very fundamental fact of investments.
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.