Skip to comments.Improving the Investment Yields of Social Security Contributions
Posted on 07/05/2018 11:12:49 AM PDT by Brian Griffin
A really big problem of the Social Security system is the low rate of return the system gets on contributions, around 2% now.
The Federal Reserve lowers interest rates during recessions, which means the Social Security system gets low rates of returns for long periods of time.
What I propose is a number of ways the Social Security system could tap the investment markets.
Participation would be through state-managed retirement funds that each state may choose to let its residents invest in. These are generally well-managed and have decades of investing experience.
The percentage amount invested would partially be a matter of individual choice. It's not going to be of past contributions or 100% of current contributions for everybody because we don't want a repeat of the Great Depression when millions of older people lost almost everything and had to be bailed out by welfare and the creation of Social Security itself in 1935.
METHOD I - Dividend/Interest Yield-based Contribution
An individual might select to invest one, two, three or four times the dividend/interest rate of return of the state investment fund of the individual's choice into the fund.
If the selected fund has a dividend yield of 3%, then up to 12% of an individual's SS system quarterly contributions would be invested in the fund.
METHOD II - Unemployment Rate-based Contribution
An individual might select one, two or three times the percentage of the national household unemployment rate as of January of the previous calendar year of an individual's SS system quarterly contributions to invest into a state investment fund of the individual's choice.
The national household unemployment rate tends to range from less than 5% during booms to over 12% during bad recessions.
An individual could chose both ways, say with ~12% of the individual SS system quarterly contributions invested on a Dividend/Interest Yield basis and ~21% on Unemployment Rate basis, on average.
METHOD III - Scheduled Benefit Amount Contingent Basis Contribution
This method would only be available to those individuals with over 80 quarters paid in and a full-retirement age federally invested scheduled benefit amount of over $1,000/month.
An individual might select a third, half or all of the individual's SS system quarterly contributions not invested in the two methods above, in so much as the individual's state allows, to invest in a state investment fund of the individual's choice.
The individual would be able to vary the investment fund chosen depending on the investment basis if the state choses to offer more than one fund into which its residents can invest.
The investment percentage rates for the two universally available methods are variable because while excellent investments can always be found, they can't be found in sufficient dollar volume after years of careful picking by thousands of seasoned investment professionals. Sometimes funds are closed to new investment because of a dearth of good investment opportunities.
Note 1: The individual's SS system contributions would be considered the Self-Employment & FICA taxes paid by the individual and the individual's employer(s).
Note 2: The actual investments into markets would lag to buffer the impact of quarterly SE and FICA tax payment upon the investment markets.
Note 3: The individual would have to choose to invest in the markets. It would not be done by default. Investment losses would not be the fault of the federal government.
Note 4: Those who would like to invest even more in the investment markets could do so via an IRA or 401-K.
Note 5: I know quite a few of you don't like Social Security, but FDR decided well that it was better than most future Americans should be supported in their golden years primarily by their own efforts than by taxes paid by others.
Thus it will never fly.
Fortunately, I have SS as a big zero in my retirement planning (which will, God willing, in the next few years).
My struggle is whether to start taking it as fun money before 65, at 65 or wait. I have run several Monte Carlo simulations and none have satisfied me (or more importantly Mrs. FD). But it is just fun money so I can’t make a wrong decision.
If I was 50 or less I would just assume it ain’t gonna happen. But I believe smart people retiring soon should
also assume it will either not be there for long or taxed so much it might as well not be there.
All receipts pay current benefits
Reserves were loaned to, and spent by, congress
Social Security should of course be shifted to an investment based system with individually owned and fully inheritable personal accounts, but this would require a new funding mechanism to pay off already accrued benefits over the next 60-80 years.
“All receipts pay current benefits”
“Reserves were loaned to, and spent by, congress”
Yup, the really big problems.
There might come a time were the potential returns would be so large that some political feathers might get ruffled to create much higher retirement benefits than would otherwise be possible.
The stock market sometimes doubles in about nine years time.
The feathers might be housing benefits for $2,200/month and $3,400/month apartments. There is a lot of waste getting federally paid for.
Do you understand that Social Security is a pure Ponzi Scheme?? There is NO MONEY, There NEVER has been, Congress has spent every last nickel and then some since the abortion that gave it to us.
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