Futurecasting. How will the Social Security problem be solved?

[Aisengard]

Originally posted by: Legend

Originally posted by: Abraxas

Starting at age 20, investing $4000/yr with 3% inflation, you'll have over 2 million dollars in today's money.

Ah yes, because most 20 year olds who are attempting to work their way through college or just out of high school and only just beginning to work full time routinely have 4000$ per year just lying arounf that they can invest.

I'm a college student. I did it by co-oping. I'm doing it again this summer by working extra hours. If they don't make the effort, then that's their problem.

Now I don't think that's true. A lot of colleges don't offer co-ops, and even if someone works extra hours, at McDonalds it's not going to make much of a difference.

Now me, I've got a pretty sweet deal, with a great summer job I got through my Aunt. And my college was rated #1 in some ranking of co-ops. But that doesn't mean everyone has it that good, or indeed are able to have it that good.

And most college students are in debt. Debt = no disposable income, that is, at least, if you don't want even more debt. Playing the market I don't think is a good strategy for college students in dire financial straits.

 

[techs]

Originally posted by: Legend

Originally posted by: Abraxas

Starting at age 20, investing $4000/yr with 3% inflation, you'll have over 2 million dollars in today's money.

Ah yes, because most 20 year olds who are attempting to work their way through college or just out of high school and only just beginning to work full time routinely have 4000$ per year just lying arounf that they can invest.

I'm a college student. I did it by co-oping. I'm doing it again this summer by working extra hours. If they don't make the effort, then that's their problem.

You are the reason we have SS. You are picking a single instance where everything goes right for you (you got a job, you didn't have medical bills, etc) and claim everyone should just save 4,000 a year at age 20 and so we wouldn't need SS.
Of course you don't account for the tens of millions who can't put away the 4,000. Plus you have been shown that even putting away the huge amount that MAY be possible under the VERY BEST circumstances you still CANNOT save enough for your retirement.
Give it a rest. Tens of millions of elderly Americans with no income would cripple this country forever. We must have SS.

 

[Legend]

Originally posted by: techs
The real flaw in this thinking has been repeated by others in this thread. If you invest 4000 at 3 percent inflation (he really means interest) you will have 2 million in todays money.
NO you twit. You will have 4000 in todays money. If your money grows at the rate of inflation you don't have any more money in todays money. You stay EVEN. Yes, you have more dollars but they are able to buy the same amount as they did when you invested them years ago.

That's incorrect. The inflation ajusted interest is not 0%. This only happens if you put all your money in bonds, but even then in the long run (40 years), you'll make about 3% adjusted interest.

And there are a bunch of other twits who don't understand that your actual return on investment every year is not the percent interest you earn. IT'S THE INTEREST YOU EARN MINUS THE COST OF LIVING INCREASE, OTHERWISE KNOWN AS INFLATION.

Inflation is inflation. Cost of living increase is cost of living increase, which may include inflation as part of its cause. Jobs eventually adjust pay for inflation, so it's not a significant factor when you consider long term investments.

Did your investment grow 5 percent last year? Well you only made about 1 percent since inflation was about 4 percent.
I am sick and tired of hearing people throw out numbers like 6-7-8-or even 10 percent earnings on investment. Because in years people get 10 percent earnings, inflation most likely was high and they may have only earned 3 percent.

Again, incorrect. Most people in 2003-4 made about 30% returns, has been below 3% the past few years. Look at the funds performance yourself.

http://flagship2.vanguard.com/VGApp/hnw...Stock_Domestic_Stock_-_More_Aggressive

Most investing books will show you that even moderately aggressive diversified portfolios are likely to make ~13% average annualized interest. After average inflation, 10% adjusted, which beats the hell out of social security as a means to retire.

And people who are stupid enought to start quoting 'historical growth' in things like the stock market are just too dumb for words. Trying to compare growth in the the 1960's and 1970's versus 1990's and early 2000 is like comparing apples and oranges.

Which is why you diversify your portfolio so that you get the growth in different markets, and then rebalance. You then buy the stocks that slumped, which will grow. The people that developed the MPT used complex mathetmatical calculations to prove that it increases returns and reduces risk over the course of 1930-recent years. There are simulators that mimick the randomness of the market, and diversified portfolios prevail. The people that developed MPT are renowned amoung the financial field, and won the Nobel Prize in economics in 1990.

AND lets not forget that we have seen 10 percent inflation per year in America. And those years the market goes up maybe 13 percent. But when people talk about historical return they see 13 percent growth compared to todays 4 percent inflation, not the 10 percent inflation the year the stocks went up 13 percent.

Which again is why you diversify and look over 40-50 years. They still get about 12% annualized with periods of high inflation. That's already been accounted for. If you diversify your portfolio, you'll have money in fixed income, which are continually adjusted for inflation.

 

[techs]

Originally posted by: Legend

Originally posted by: techs
The real flaw in this thinking has been repeated by others in this thread. If you invest 4000 at 3 percent inflation (he really means interest) you will have 2 million in todays money.
NO you twit. You will have 4000 in todays money. If your money grows at the rate of inflation you don't have any more money in todays money. You stay EVEN. Yes, you have more dollars but they are able to buy the same amount as they did when you invested them years ago.

That's incorrect. The inflation ajusted interest is not 0%. This only happens if you put all your money in bonds, but even then in the long run (40 years), you'll make about 3% adjusted interest.

And there are a bunch of other twits who don't understand that your actual return on investment every year is not the percent interest you earn. IT'S THE INTEREST YOU EARN MINUS THE COST OF LIVING INCREASE, OTHERWISE KNOWN AS INFLATION.

Inflation is inflation. Cost of living increase is cost of living increase, which may include inflation as part of its cause. Jobs eventually adjust pay for inflation, so it's not a significant factor when you consider long term investments.

Did your investment grow 5 percent last year? Well you only made about 1 percent since inflation was about 4 percent.
I am sick and tired of hearing people throw out numbers like 6-7-8-or even 10 percent earnings on investment. Because in years people get 10 percent earnings, inflation most likely was high and they may have only earned 3 percent.

Again, incorrect. Most people in 2003-4 made about 30% returns, has been below 3% the past few years.

Most investing books will show you that even moderately aggressive diversified portfolios are likely to make ~13% average annualized interest. After average inflation, 10% adjusted, which beats the hell out of social security as a means to retire.

And people who are stupid enought to start quoting 'historical growth' in things like the stock market are just too dumb for words. Trying to compare growth in the the 1960's and 1970's versus 1990's and early 2000 is like comparing apples and oranges.

Which is why you diversify your portfolio so that you get the growth in different markets, and then rebalance. You then buy the stocks that slumped, which will grow. The people that developed the MPT used complex mathetmatical calculations to prove that it increases returns and reduces risk over the course of 1930-recent years. There are simulators that mimick the randomness of the market, and diversified portfolios prevail. The people that developed MPT are renowned amoung the financial field, and won the Nobel Prize in economics in 1990.

AND lets not forget that we have seen 10 percent inflation per year in America. And those years the market goes up maybe 13 percent. But when people talk about historical return they see 13 percent growth compared to todays 4 percent inflation, not the 10 percent inflation the year the stocks went up 13 percent.

Which again is why you diversify and look over 40-50 years. They still get about 12% annualized with periods of high inflation. That's already been accounted for. If you diversify your portfolio, you'll have money in fixed income, which are continually adjusted for inflation.

Don't you understand simple economics? If inflation is at 12 percent and you get 13 percent you only end up with ONE PERCENT.
You say people were earning 30 percent a year up til a few years ago?
You sir are an idiot.
Go take an economics class. You are startingly misinformed.

 

[Legend]

Originally posted by: techs

Originally posted by: Legend

Originally posted by: Abraxas

Starting at age 20, investing $4000/yr with 3% inflation, you'll have over 2 million dollars in today's money.

Ah yes, because most 20 year olds who are attempting to work their way through college or just out of high school and only just beginning to work full time routinely have 4000$ per year just lying arounf that they can invest.

I'm a college student. I did it by co-oping. I'm doing it again this summer by working extra hours. If they don't make the effort, then that's their problem.

You are the reason we have SS. You are picking a single instance where everything goes right for you (you got a job, you didn't have medical bills, etc) and claim everyone should just save 4,000 a year at age 20 and so we wouldn't need SS.
Of course you don't account for the tens of millions who can't put away the 4,000. Plus you have been shown that even putting away the huge amount that MAY be possible under the VERY BEST circumstances you still CANNOT save enough for your retirement.
Give it a rest. Tens of millions of elderly Americans with no income would cripple this country forever. We must have SS.

We've already gone over this.

I'm advocating a SS system in which retirement accounts are individually owned by US citizens. High income people would pay a certain percentage to price match low income people's contributions.

 

[dullard]

Originally posted by: Legend
That's incorrect. The inflation ajusted interest is not 0%. This only happens if you put all your money in bonds, but even then in the long run (40 years), you'll make about 3% adjusted interest.

What Techs said is correct, but Techs misread your post. Thus Techs posted 100% correct information that is not relavant to this thread.

Techs showed that if your investments get you a 3% return, you basically have nothing after inflation. Techs misread your post to mean you were expecting a 3% return. There is no sense arguing with Techs since he is 100% correct in what he posted considering his misreading. Only if you can ingore him for now, post it again in a way that he won't misread, will you have a chance to win this argument.

And I still say your assumed 12% or 13% return is way too optimistic. I hope you are investing more than you need, since I don't want you destitude if you only get a 9% return. Remember 12% average return will net you far, far less than 12% if several of your first few years are flat.

 

[Legend]

Originally posted by: techs

Originally posted by: Legend

Originally posted by: techs
The real flaw in this thinking has been repeated by others in this thread. If you invest 4000 at 3 percent inflation (he really means interest) you will have 2 million in todays money.
NO you twit. You will have 4000 in todays money. If your money grows at the rate of inflation you don't have any more money in todays money. You stay EVEN. Yes, you have more dollars but they are able to buy the same amount as they did when you invested them years ago.

That's incorrect. The inflation ajusted interest is not 0%. This only happens if you put all your money in bonds, but even then in the long run (40 years), you'll make about 3% adjusted interest.

And there are a bunch of other twits who don't understand that your actual return on investment every year is not the percent interest you earn. IT'S THE INTEREST YOU EARN MINUS THE COST OF LIVING INCREASE, OTHERWISE KNOWN AS INFLATION.

Inflation is inflation. Cost of living increase is cost of living increase, which may include inflation as part of its cause. Jobs eventually adjust pay for inflation, so it's not a significant factor when you consider long term investments.

Did your investment grow 5 percent last year? Well you only made about 1 percent since inflation was about 4 percent.
I am sick and tired of hearing people throw out numbers like 6-7-8-or even 10 percent earnings on investment. Because in years people get 10 percent earnings, inflation most likely was high and they may have only earned 3 percent.

Again, incorrect. Most people in 2003-4 made about 30% returns, has been below 3% the past few years.

Most investing books will show you that even moderately aggressive diversified portfolios are likely to make ~13% average annualized interest. After average inflation, 10% adjusted, which beats the hell out of social security as a means to retire.

And people who are stupid enought to start quoting 'historical growth' in things like the stock market are just too dumb for words. Trying to compare growth in the the 1960's and 1970's versus 1990's and early 2000 is like comparing apples and oranges.

Which is why you diversify your portfolio so that you get the growth in different markets, and then rebalance. You then buy the stocks that slumped, which will grow. The people that developed the MPT used complex mathetmatical calculations to prove that it increases returns and reduces risk over the course of 1930-recent years. There are simulators that mimick the randomness of the market, and diversified portfolios prevail. The people that developed MPT are renowned amoung the financial field, and won the Nobel Prize in economics in 1990.

AND lets not forget that we have seen 10 percent inflation per year in America. And those years the market goes up maybe 13 percent. But when people talk about historical return they see 13 percent growth compared to todays 4 percent inflation, not the 10 percent inflation the year the stocks went up 13 percent.

Which again is why you diversify and look over 40-50 years. They still get about 12% annualized with periods of high inflation. That's already been accounted for. If you diversify your portfolio, you'll have money in fixed income, which are continually adjusted for inflation.

Don't you understand simple economics? If inflation is at 12 percent and you get 13 percent you only end up with ONE PERCENT.
You say people were earning 30 percent a year up til a few years ago?
You sir are an idiot.
Go take an economics class. You are startingly misinformed.

Again, the average annualized interest in a MPT portfolio is estimated to be 12-14%.

Average inflation is 3%. When you invest for retirement, it is long term and thus the expectations of a long term investment should be somewhat similar to long term market behavior.

I said what I said, which is that in 2003-4 many people made 30% returns, specifically in US small-cap and international stocks. Why did I target this time period? Because you made a point about last year's returns. Anyone using MPT would have made somewhere around the ballpark of 30% in 2003-4. Maybe I should have said 2005, which MPT would have given you somewhere just above 10%.

There's no need for name calling, lol.


I need to go to an economics class? I had to explain to you what MPT is and give you an example, to which you never replied. I showed you a very simple example of someone making more than 9% by simply using Vanguard VWELX and VIGRX during the tech stock plunge we had.

Look in "The Only Guide to a Winning Investment Strategy You'll Ever Need" by Larry E. Swedroe (2005 ed.) on page 167 he gives example portfolios between 1973-2003. Even the most conservative portfolio makes 11.1%, while the most aggressive makes 14.5% average annualized.

He notes that With a moderately aggresive portfolio (13.5% interest avg annualized, that $1 becomes $50.70.

Using an inflation calculator:

http://www.westegg.com/inflation/

that is 12.06 in 1973 money. So even starting in AND ending in (just missed out the awesome 2003-5) bad economic times will give you large returns.

 

[Legend]

Originally posted by: Aisengard

Originally posted by: Legend

Originally posted by: Abraxas

Starting at age 20, investing $4000/yr with 3% inflation, you'll have over 2 million dollars in today's money.

Ah yes, because most 20 year olds who are attempting to work their way through college or just out of high school and only just beginning to work full time routinely have 4000$ per year just lying arounf that they can invest.

I'm a college student. I did it by co-oping. I'm doing it again this summer by working extra hours. If they don't make the effort, then that's their problem.

Now I don't think that's true. A lot of colleges don't offer co-ops, and even if someone works extra hours, at McDonalds it's not going to make much of a difference.

Now me, I've got a pretty sweet deal, with a great summer job I got through my Aunt. And my college was rated #1 in some ranking of co-ops. But that doesn't mean everyone has it that good, or indeed are able to have it that good.

And most college students are in debt. Debt = no disposable income, that is, at least, if you don't want even more debt. Playing the market I don't think is a good strategy for college students in dire financial straits.

A few thousand dollars from working extra hours during the summer makes a huge difference if it's invested into an IRA in MPT. Of course they can't diversify very quickly, so they may want to start with a balanced mutual fund and gradually move over to all index funds later.

Yeah, I'm in debt too. It's something that I could have paid off an not invested at all, but the 2-3% interest on the loans is dwarfed by the returns of investing. I'll pay it off in my first year of employment. I can do that because I'm a computer engineer. I realize that other people's incomes will not be that high, which is why I'd support price matching in a new SS system. That way the government has no ownership of the money.

 

[Legend]

Originally posted by: Aisengard
So is this Modern Portfolio theory widely used? Has it been experimentally proven? I just want to know to see if I should start investing.

It's widely used, but a lot of people still believe that managed funds can consistenly outperform the market.

It's been proven using historical data and mathematics. When it was first developed in the 1950s, people really didn't listen to Harry Markowitz, until several years later when historical data showed that his calculations were correct. You don't hear about it a lot in financial articles and news, because the theory would require very little active management or need for financial advice. It cuts out a lot of middle men.

http://www.riskglossary.com/link/portfolio_theory.htm


I'd recommend one of these books:

The Intelligent Asset Allocator
All About Asset Allocation
The Only Guide to a Winning Investment Strategy You'll Ever Need

One or more of them give you details about where you can go get the data (Morningstar?) that they used to calculate the results of portfolios.

It doesn't say that you'll always make postive returns every year, but that in the long run over 40 years you'll have higher returns and lower risk.

 

[Legend]

Originally posted by: techs

Originally posted by: Legend

Originally posted by: techs
The real flaw in this thinking has been repeated by others in this thread. If you invest 4000 at 3 percent inflation (he really means interest) you will have 2 million in todays money.
NO you twit. You will have 4000 in todays money. If your money grows at the rate of inflation you don't have any more money in todays money. You stay EVEN. Yes, you have more dollars but they are able to buy the same amount as they did when you invested them years ago.

That's incorrect. The inflation ajusted interest is not 0%. This only happens if you put all your money in bonds, but even then in the long run (40 years), you'll make about 3% adjusted interest.

And there are a bunch of other twits who don't understand that your actual return on investment every year is not the percent interest you earn. IT'S THE INTEREST YOU EARN MINUS THE COST OF LIVING INCREASE, OTHERWISE KNOWN AS INFLATION.

Inflation is inflation. Cost of living increase is cost of living increase, which may include inflation as part of its cause. Jobs eventually adjust pay for inflation, so it's not a significant factor when you consider long term investments.

Did your investment grow 5 percent last year? Well you only made about 1 percent since inflation was about 4 percent.
I am sick and tired of hearing people throw out numbers like 6-7-8-or even 10 percent earnings on investment. Because in years people get 10 percent earnings, inflation most likely was high and they may have only earned 3 percent.

Again, incorrect. Most people in 2003-4 made about 30% returns, has been below 3% the past few years.

Most investing books will show you that even moderately aggressive diversified portfolios are likely to make ~13% average annualized interest. After average inflation, 10% adjusted, which beats the hell out of social security as a means to retire.

And people who are stupid enought to start quoting 'historical growth' in things like the stock market are just too dumb for words. Trying to compare growth in the the 1960's and 1970's versus 1990's and early 2000 is like comparing apples and oranges.

Which is why you diversify your portfolio so that you get the growth in different markets, and then rebalance. You then buy the stocks that slumped, which will grow. The people that developed the MPT used complex mathetmatical calculations to prove that it increases returns and reduces risk over the course of 1930-recent years. There are simulators that mimick the randomness of the market, and diversified portfolios prevail. The people that developed MPT are renowned amoung the financial field, and won the Nobel Prize in economics in 1990.

AND lets not forget that we have seen 10 percent inflation per year in America. And those years the market goes up maybe 13 percent. But when people talk about historical return they see 13 percent growth compared to todays 4 percent inflation, not the 10 percent inflation the year the stocks went up 13 percent.

Which again is why you diversify and look over 40-50 years. They still get about 12% annualized with periods of high inflation. That's already been accounted for. If you diversify your portfolio, you'll have money in fixed income, which are continually adjusted for inflation.

Don't you understand simple economics? If inflation is at 12 percent and you get 13 percent you only end up with ONE PERCENT.
You say people were earning 30 percent a year up til a few years ago?
You sir are an idiot.
Go take an economics class. You are startingly misinformed.

And you seemed to have missed my point that bonds adjust to inflation. Take a look at Treasury bill returns in the 1980s. As high as 16%.

http://www.efficientfrontier.com/BOOK/chapter2.htm

Maybe you were too busy trying to mock his coin flipping analogy to take notice?

He talks about how you want to avoid long term bonds because they don't makeup for the added inflation risk in long term returns.

 

[techs]

Originally posted by: Legend

Originally posted by: techs

Originally posted by: Legend

Originally posted by: techs
The real flaw in this thinking has been repeated by others in this thread. If you invest 4000 at 3 percent inflation (he really means interest) you will have 2 million in todays money.
NO you twit. You will have 4000 in todays money. If your money grows at the rate of inflation you don't have any more money in todays money. You stay EVEN. Yes, you have more dollars but they are able to buy the same amount as they did when you invested them years ago.

That's incorrect. The inflation ajusted interest is not 0%. This only happens if you put all your money in bonds, but even then in the long run (40 years), you'll make about 3% adjusted interest.

And there are a bunch of other twits who don't understand that your actual return on investment every year is not the percent interest you earn. IT'S THE INTEREST YOU EARN MINUS THE COST OF LIVING INCREASE, OTHERWISE KNOWN AS INFLATION.

Inflation is inflation. Cost of living increase is cost of living increase, which may include inflation as part of its cause. Jobs eventually adjust pay for inflation, so it's not a significant factor when you consider long term investments.

Did your investment grow 5 percent last year? Well you only made about 1 percent since inflation was about 4 percent.
I am sick and tired of hearing people throw out numbers like 6-7-8-or even 10 percent earnings on investment. Because in years people get 10 percent earnings, inflation most likely was high and they may have only earned 3 percent.

Again, incorrect. Most people in 2003-4 made about 30% returns, has been below 3% the past few years.

Most investing books will show you that even moderately aggressive diversified portfolios are likely to make ~13% average annualized interest. After average inflation, 10% adjusted, which beats the hell out of social security as a means to retire.

And people who are stupid enought to start quoting 'historical growth' in things like the stock market are just too dumb for words. Trying to compare growth in the the 1960's and 1970's versus 1990's and early 2000 is like comparing apples and oranges.

Which is why you diversify your portfolio so that you get the growth in different markets, and then rebalance. You then buy the stocks that slumped, which will grow. The people that developed the MPT used complex mathetmatical calculations to prove that it increases returns and reduces risk over the course of 1930-recent years. There are simulators that mimick the randomness of the market, and diversified portfolios prevail. The people that developed MPT are renowned amoung the financial field, and won the Nobel Prize in economics in 1990.

AND lets not forget that we have seen 10 percent inflation per year in America. And those years the market goes up maybe 13 percent. But when people talk about historical return they see 13 percent growth compared to todays 4 percent inflation, not the 10 percent inflation the year the stocks went up 13 percent.

Which again is why you diversify and look over 40-50 years. They still get about 12% annualized with periods of high inflation. That's already been accounted for. If you diversify your portfolio, you'll have money in fixed income, which are continually adjusted for inflation.

Don't you understand simple economics? If inflation is at 12 percent and you get 13 percent you only end up with ONE PERCENT.
You say people were earning 30 percent a year up til a few years ago?
You sir are an idiot.
Go take an economics class. You are startingly misinformed.

And you seemed to have missed my point that bonds adjust to inflation. Take a look at Treasury bill returns in the 1980s. As high as 16%.

http://www.efficientfrontier.com/BOOK/chapter2.htm

Maybe you were too busy trying to mock his coin flipping analogy to take notice?

He talks about how you want to avoid long term bonds because they don't makeup for the added inflation risk in long term returns.

Actually by buying relatively short term bonds you can insure a 1 to 1.5 percent over inflation return.
Which for people nearing retirement is very common.

 

[erwos]

I can see there are some serious finance-types on here - I did some portfolio theory when I was getting my economics degree, but it was mostly in the area of risk management (which I suppose could be the same thing as optimizing returns, seeing as risk/return are two sides of the same coin). The econ department was full of true believers that minimal-management index funds were the way to go - the data backing it was interesting and generally good, yet I still have trouble accepting it in my gut, due to some of the stuff I researched in behavioral finance. (If I ever go back for my Ph.D, it'll be in behavioral finance. Mind-blowing stuff.)

At least no one's talking about beta yet! (inside joke - beta has been somewhat discredited, from what I understand)

The problem I see is that there seem to be a group of people who have apparently decided that since we're running a surplus now, let's ignore the coming problem with SS. That's idiotic, considering these sorts of problems are far easier to fix earlier on than later. Just remember that when the Democrats and Republicans are busily blaming each other in 50 years for "not having fixed the problem sooner".

The solution to the problem is going to be multi-fold, as several others have noted. Probably a bit of tax increase is in order, along with some reshaping of benefits (and encouraging private savings). We need to get our spending habits under control - I don't think the debt is crippling in historical terms (50%-100% GDP is suprisingly usual), but stopping it from growing with a balanced budget amendment and then waiting for natural GDP growth to make the debt inconsequential is probably the best option. Raising the retirement age to 75 sounds good to me, too.

Of course, this assumes responsible people in Congress and the White House. My personal plan is to move to a country with low taxes and withdraw from my 401k there.

-Erwos