SS vs. Private Savings

[CADsortaGUY]

Originally posted by: SuperTool
and you can lose even more to inflation.

That happens already with the money people input into the system. Under the current plan EVERYONE loses the time-value of their money.

CsG

 

[illustri]

I think it'd be prudent to mention the reason SS was instituted in the first place: the crash and the great depression due to overinvestment in the market.

 

[irwincur]

you cannot diversify over the entire spectrum of the market, which again brings us at the aggregate average problem. Plus how are you planning on making everyone diversify to begin with? There will be a ton of people that get greedy when they see quick capital gains. A ton of people got burned in 2000 when the bubble burst (my stepdad lost some ~200K)

You are assuming that it is the job of the government to control the way people invest and think. Drop the socialist mindset. There is a risk/reward stake in everything we do. If you are foolish enough to risk your retirement, there are odds that it will boom or bust. Since when is it the govenments job to dictate that.

I am also guesing that any private account plan will be more similar to a 401k where there are penalties for early withdrawls and in some cases account changes. It is not like Uncle Sam will be giving you an extra check every week telling you that you need to invest it. You will setup an account, and your money that have been previously been paid as a tax will be directly deposited into your retirement account.


This is not a scheme to make Wall St. rich - they are already rich. It is a plan to get rid of a failing Ponzi Scam. It is also a plan to provide investment, ownership, and economic growth.

Do you think businesses will be more or less willing to move overseas when 90% of their ownership consists of working class Americans? Fact is, they can't without stockholder approval. What you are doing is giving normal people a larger stake in America's future.

 

[Train]

Originally posted by: illustri
I think it'd be prudent to mention the reason SS was instituted in the first place: the crash and the great depression due to overinvestment in the market.

and the hits just keep on comin.

No the crash came because everybody and thier brother were investing with borrowed money. AKA "Investing on Margin" and when one person had to cash in, the guy who owed him had to cash in, because he didnt have the money, who in turn caused more people to cash in, etc, so basically a butload of debt went unpaid. Not to mention banks were not backed by the federal govt back then. If it hadnt been for the regulations on investing put in place after the depression, the same thing probably would have happened at the end of the 90's

But using the great depression as a detractor, still doesnt work. I'll type this one more time, "Even any 40 year period that includes the great depression, still returns at least a 10% yearly average"

 

[irwincur]

on avg people would be better off, however there would be a significant number of people that get screwed by the system, which goes agains the intended purpose of ss (social safety net). There's nothing stopping you from investing/savings as is. That's why you have 401K and why employer match etc. I believe the avg amount in peoples 401 at 55 years old is around ~50G. People seem to prefer consumption and worry about the rest later.

Where is the requirement that it has to be in a high risk account?

If you want to play it safe, invest in low yield bonds, CDs, or hell a savings account. Let me look here.

WalMart Greeter - same scenerio as above. Remember rates are very low now.

Bonds = 6% (low risk) = $1.126 million

CD (1yr) = 3% = $521,387 - no risk

MM = 2.5% = $465,000 - no risk

Sav = 1.5% = $374,000 - stupd but still good for 7 years at SS rate.

As you can see, investing in a 99.9999% no risk CD gives about the same return as SS would. If you cannot do better than 3% over 40 years, you need to shop for a new broker. As I mentioned, these rates are at lows, CD rates do get into the 4% range and money markets can hit 3% or so. Savings account rarely breat 1.5% - but only childern and depression era people should be using them.

 

[irwincur]

All of the numbers include inflation. If you want to see their value today, just work backwards. I used a pretty consistant 3.1% as the inflation number.

If you can't figure out the numbers, you probably shouldn't be posting in this thread anyways.

 

[Train]

lol, even keeping your money in PayPal earns more than SS

 

[desy]

Maybe your unlucky enough to have to ride out the yrs where the stock market is providing negative returns. Those compounding figures work when the money is in at the start, but if it takes 10yrs to get back to zero you've lost the most important yrs. I wouldn't want to live on just SS, its hardly a gold mine if thats all I had. I have a pension plan 'hopefully' and invest 15% after tax as well, most people don't have the disposable income to do this, or the discipline.
SS retirement age was set when life expectancy was only supposed to be about 65, they never planned on people really living long enough to collect for decades after retirement. IMO if they are going to keep the plan they need to raise the benefit age.
I'll be able to retire at 60 with my pension and personal investments, thats my reward for socking it away young, and my wife should be able to retire same time as me but she is 7 yrs younger so 53 for her. Those who don't have a plan should have to work longer. . .
I don't mind paying it but its the old grasshopper/ant issue and as a society we are rewarding the grasshopper at too young an age.

 

[Genx87]

Anybody with a brain can see investing in the market over the long run will yield a higher rate of return than in the current SS program.

If you think otherwise then you are being obtuse.

Looking at my Roth IRA account for the past two years, some of the worst two years in 15 years.

Total input = 6,000 dollars.
Current networth = 10,475

Anybody care to tell me how much my SS payments are worth if I was even able to take them out?
Most likely not as much as I put in.

Now somebody answer me this. I heard state and federal employees are already allowed to skip out on SS and put money in a private account that is run like a mutual fund by the Govt?

Somebody was telling me about a fireman in New york city who has been on the force for 30 years and has done this since day one and is retiring at aged 55 with nearly 6 million in his accounts.

Current SS payments = ~450 bucks a month. How many years would somebody have to live in order to get 6 million dollars? And what quality of life differences do you think there will be between the two?

 

[Engineer]

Originally posted by: Genx87


Looking at my Roth IRA account for the past two years, some of the worst two years in 15 years.

Total input = 6,000 dollars.
Current networth = 10,475

What the hell have you invested in? 75% gain in two years? Even if you threw the money in all at once (which isn't possible that I know of), the gains would be phenomonal.

And the last 2 years have been far from the worst two in the last 15. Maybe 1999-2001, but not that last two years.


5 year Dow.

5 year Nasdaq

 

[Rainsford]

Originally posted by: Train

Originally posted by: Darkhawk28

Originally posted by: Train

Originally posted by: Rainsford
Since no one else has pointed this out, please explain to me how a Walmart greeter (with a family maybe?) can save 10% of their income.

That walmart greeter would much rather invest his 10% in private accounts and retire nicely, than pay 12% in SS Taxes and get screwed.

nice straw man though.

Not a strawman... that was a bit of reality.

But I just showed you how completely backward it was, he could actually get a BETTER investment plan for LESS of his income, so hed have more for his family now. Does this make sense now? Or is it still an "incomplete idea" to you?

I can see the numbers, but I'm talking about the real world here. And in the real world, Walmart greeters aren't going to save tons of money...even by getting rid of SS. Look at it this way, hardly anybody has any savings right now. Even people who make a hell of a lot more money than Walmart greeters are more likely to be in debt than have a large amount of savings.

Now in an ideal world, we could fix that by not making you pay into SS and letting you invest it yourself. In the real world, people won't save it, they'll spend it. People have shown very little desire to plan ahead. Which is fine, if we're willing to let people screw themselves over...except they are votes too, and the first thing they will do when they retire is vote into office someone who promises to support them in their old age.

The problem isn't the idea, the problem is that I don't have a lot of confidence in our culture where many people have tens of thousands of dollars worth of debt. I don't think we can expect them to sink or swim on their own, and then not bitch about it when they screw up.

You (as usual) are giving me motives and views I don't have. I love the idea of privitization of SS, I would personally love to do it myself, because I'm confident I could put the money to better use. But I think we would have BIG problems. Should I trust people to make their own decisions? Maybe, but I think as a country we'll be dealing with the results of those decisions one way or another.

As a fun exercise, find someone who makes 3 times what the "Mr. Normal" in the OP makes (so, about $150k) who is close to retirement age and see how much they have saved up. If it's anywhere close to $7million for the vast majority of them, I'd be surprised.

Edit: I would love to just junk SS and let people invest on their own...as long as we didn't have to deal with the consequences when they retire without enough savings. I'm not confident we can make that part happen, and it WILL come up, believe me.

 

[Spencer278]

Originally posted by: Train

Originally posted by: illustri
I think it'd be prudent to mention the reason SS was instituted in the first place: the crash and the great depression due to overinvestment in the market.

and the hits just keep on comin.

No the crash came because everybody and thier brother were investing with borrowed money. AKA "Investing on Margin" and when one person had to cash in, the guy who owed him had to cash in, because he didnt have the money, who in turn caused more people to cash in, etc, so basically a butload of debt went unpaid. Not to mention banks were not backed by the federal govt back then. If it hadnt been for the regulations on investing put in place after the depression, the same thing probably would have happened at the end of the 90's

But using the great depression as a detractor, still doesnt work. I'll type this one more time, "Even any 40 year period that includes the great depression, still returns at least a 10% yearly average"

Isn't that at the heart of Bushs plan to reform SS?

 

[Genx87]

What the hell have you invested in? 75% gain in two years? Even if you threw the money in all at once (which isn't possible that I know of), the gains would be phenomonal.

And the last 2 years have been far from the worst two in the last 15. Maybe 1999-2001, but not that last two years.

Mutual funds and yes even I was surprised. I typically do not look at the things except for when I need to do taxes. So when I saw the figure I laughed because it is supposed to be a balanced fund while my aggressive growth fund did about 12% over the same time period.

 

[SuperTool]

Originally posted by: Train

Originally posted by: SuperTool

Originally posted by: Train

Originally posted by: SuperTool

Originally posted by: Train

Originally posted by: SuperTool

Originally posted by: Train

Originally posted by: Darkhawk28

Originally posted by: Train

Originally posted by: Darkhawk28
...
So how are you going to make up the huge overhead that this program requires?

lol, like SS doesnt have massive overhead? We could just use that infrastucture for starters, and probably shrink it down a bit while at it.

The current SS system has an overhead of less than 1%...

SS Overhead

Here's another link...

And you can make a $10,000 trade on Ameritrade for $7, ya the stock market is just chock full of expensive overhead.

Most mutual funds have management fees of around 1%. Many have above 1%.

so we shop around a little, big deal. Stop using futile arguments to poke holes in the obvious winner.

You are the one who claimed SS has "massive overhead." Now it has been shown to you that it has a smaller overhead than most mutual funds. So it's your arguement that is futile. And private accounts are not an obvious winner by a longshot. You could lose 10% just as easily as you can make 10%, and you can lose even more to inflation.
Are you so naive to believe that every walmart employee can retire a multi-millionaire without major inflation?

sigh, here we go again.

read the big bold fact I put above. We are not talking about year to year, no one retires on a single years investemt returns. The 40 year AVERAGE, thats A-V-E-R-A-G-E, over FORTY years, (thats 4 decades, aka "four score") HAS NEVER (meaning its hasnt happened, at any time, ever, nope, not once) been below 10%

Has this sunk through your thick skull yet?

you can lose even more to inflation

ok now your going off the deepend, when has infaltion been above 10% for 40 years? like holy crap that would be insane, we'd be buying loaves of bread with dumptrucks full of money by now.

Average over last 40 years does not mean anything over the next 40 years. The US GDP is growing at 3-4%. Are you saying the stock market is going to outpace the GDP growth by 7% per year over the next 40 years? The reason the market has grown so much before is that foreigners have been pumping money into the US and buying US securities. But foreigners, like the US face their own retirement expenditures and demographic challenges that will require them to sell securities to finance those. So who do you expect to support that 10% annual stock market growth over the next 40 years? Let me guess, it's just going to happen because it happened for the last 40 years?

Holy crap, do I have to clear this up AGAIN?

I didnt say the LAST 40 years, I said ANY 40 YEAR PERIOD, EVEN ANY 40 YEAR PERIOD THAT INCLUDES THE GREAT DEPRESSION, the US STOCK MARKET HAS NEVER PERFORMED UNDER 10%

Ok, if you need help understanding that again, print this out and take it up to your teacher, she will try to explain it for you.

Besides, if you want to look at the LAST 40 years, its more like 13%, not 10

So what? Even if every 40 years, it still doesn't mean that the next 40 years will be like every other 40 years. Otherwise banks would be paying 10% interest,since they could just invest that money in the stock market and get more than 10% average return and thus profit. Now if the banks don't believe they can get 10% annual return on their money, why do you think average American will?

 

[Jadow]

I don't feel bad for the Enron employees who lost everything at all. Enron required them to invest 0% of their 401k money into enron stock. If they decided to get greedy and throw all their money into Enron, they were just plain stupid.

 

[SuperTool]

Originally posted by: Jadow
I don't feel bad for the Enron employees who lost everything at all. Enron required them to invest 0% of their 401k money into enron stock. If they decided to get greedy and throw all their money into Enron, they were just plain stupid.

So what would you do with them if they didn't have SS? let them be homeless?

 

[chess9]

If private SS accounts had a professional fund manager I'd be more comfortable. But, when I think about all the money I lost in '79, '80, then '87, '88, and '89, then again in '00, '01, and '02, I wonder how many people would be left with spare change for coffee after 40 years if they managed their funds themselves. Most of the money will go to professional money managers with no guarantees. The downside would be huge if we had an extended recession 35 years into the program. We could end up having to bail out millions of people, which is actually what I think WILL happen if this proposal is implemented.

Conceptually I have no problem with private accounts, but they are not right for many people as currently structured. I wouldn't trust a lot of people with their own money.

-Robert

 

[Genx87]

Now if the banks don't believe they can get 10% annual return on their money, why do you think average American will?

Even if it was only 5%, that is more than what you will get out of SS.

But historically the stock market has gone up 10% over the past 80 years. While it certainly doesnt gurantee it will go up on avg 10% over the next 80. I am a betting man that it will and putting my money where my mouth is.

So what would you do with them if they didn't have SS? let them be homeless?

Probably have them signup for welfare like everybody else.

 

[glenn1]

Otherwise banks would be paying 10% interest,since they could just invest that money in the stock market and get more than 10% average return and thus profit. Now if the banks don't believe they can get 10% annual return on their money, why do you think average American will?

They DO invest the money in the stock market if they have extra above capital reserve requirements and they can't find a more profitable use for the money such as loan returns achievable above their cost of capital and adjusted for default run rates (such as credit card loans at 21% APR), or riskless carryforward transactions. That's how banks operate, you lend them money at 1-2% in a savings account and they turn around and loan it to someone else at a higher rate or invest it in a market with historical returns several hundred basis points higher than their deposit rates. How do you think the banks built all those huge skyscrapers which dominate the skyline of every urban area? For that matter, what do you think that insurance companies do with collected premiums, put them in passbook savings account? No, they invest them in the markets.

 

[SuperTool]

Originally posted by: Genx87

Now if the banks don't believe they can get 10% annual return on their money, why do you think average American will?

Even if it was only 5%, that is more than what you will get out of SS.

But historically the stock market has gone up 10% over the past 80 years. While it certainly doesnt gurantee it will go up on avg 10% over the next. I am a betting man that it will and putting my money where my mouth is.

What does your betting have to do with SS? If everyone bets wrong, the government will be bailing out a lot of people who will demand government help them through their elected representatives. The point is SS is social SECURITY and there is no security in the stock market.

 

[SuperTool]

Originally posted by: glenn1

Otherwise banks would be paying 10% interest,since they could just invest that money in the stock market and get more than 10% average return and thus profit. Now if the banks don't believe they can get 10% annual return on their money, why do you think average American will?

They DO invest the money in the stock market if they have extra above capital reserve requirements and they can't find a more profitable use for the money such as loan returns achievable above their cost of capital and adjusted for default run rates (such as credit card loans at 21% APR), or riskless carryforward transactions. That's how banks operate, you lend them money at 1-2% in a savings account and they turn around and loan it to someone else at a higher rate or invest it in a market with historical returns several hundred basis points higher than their deposit rates. How do you think the banks built all those huge skyscrapers which dominate the skyline of every urban area? For that matter, what do you think that insurance companies do with collected premiums, put them in passbook savings account? No, they invest them in the markets.

But if markets were a guaranteed 10% return over long term, people would keep all their cash in the stock market, and banks would have to pay clost to 10% interest rate to get people to keep their cash in the bank. Again, someone please explain to me why they are expecting 10% or even 5% returns when the US GDP is growing at 3.5%, aside from it happening the last 80 years?

 

[SuperTool]

Originally posted by: Genx87

Now if the banks don't believe they can get 10% annual return on their money, why do you think average American will?

Even if it was only 5%, that is more than what you will get out of SS.

But historically the stock market has gone up 10% over the past 80 years. While it certainly doesnt gurantee it will go up on avg 10% over the next 80. I am a betting man that it will and putting my money where my mouth is.

So what would you do with them if they didn't have SS? let them be homeless?

Probably have them signup for welfare like everybody else.

Exactly, so you would just be shifting from SS to welfare. It's not a bad idea, get rid of payroll taxes, and just pay welfare out of income taxes, shifting the tax burden to the rich.

 

[Genx87]

What does your betting have to do with SS? If everyone bets wrong, the government will be bailing out a lot of people who will demand government help them through their elected representatives. The point is SS is social SECURITY and there is no security in the stock market.

If I bet on SS I will lose everytime.

 

[Genx87]

Exactly, so you would just be shifting from SS to welfare. It's not a bad idea, get rid of payroll taxes, and just pay welfare out of income taxes, shifting the tax burden to the rich

The difference being you have to qualify for welfare vs just getting the SS handout. This is of course based on you actually losing money in the market.

 

[Genx87]

But if markets were a guaranteed 10% return over long term, people would keep all their cash in the stock market, and banks would have to pay clost to 10% interest rate to get people to keep their cash in the bank. Again, someone please explain to me why they are expecting 10% or even 5% returns when the US GDP is growing at 3.5%, aside from it happening the last 80 years?

People keep their checking and savings accounts in the bank. Also it is in the interest of people to have a diversified retirement account. This includes cash. low risk bonds, real estate, and stocks.

You have to be one pessimistic fool to think the stock market will not outgrow SS over the same time period.