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<font size="2" face="Verdana, Helvetica, sans-serif">Greg, most people aren't savy enough to invest their Social security in a private account. The above statement is probably one of the biggest hurdles to overcome. That and the fact that our market is a house of cards and poised for another "october surprise."Quote:
Privatization dissipates a large fraction of workers' contributions on fees to investment companies.
In 1987 when the trade deficit was 5% of GDP, we had a major stock market crash. It is now almost 6%. How long can we sustain this? Depends on how many fingers are crossed.
Think about that Greg!!
<font size="2" face="Verdana, Helvetica, sans-serif">I can. I'm savvy enough. I'd at least like the option of putting my social security taxes into a private account - even with safe, restricted options. I'd stick them in AAA municipals and agencies, receive 4 or 5 percent, and still come out ahead of what the government gives me.Quote:
Greg, most people aren't savy enough to invest their Social security in a private account.
<font size="3">Buying Into Failure</font>
<font size="1">By PAUL KRUGMAN
OP-ED COLUMNIST
December 17, 2004</font>
As the Bush administration tries to persuade America to convert Social Security into a giant 401(k), we can learn a lot from other countries that have already gone down that road.
Information about other countries' experience with privatization isn't hard to find. For example, the Century Foundation, at www.tcf.org, provides a wide range of links.
Yet, aside from giving the Cato Institute and other organizations promoting Social Security privatization the space to present upbeat tales from Chile, the U.S. news media have provided their readers and viewers with little information about international experience. In particular, the public hasn't been let in on two open secrets:
Privatization dissipates a large fraction of workers' contributions on fees to investment companies.
It leaves many retirees in poverty.
Decades of conservative marketing have convinced Americans that government programs always create bloated bureaucracies, while the private sector is always lean and efficient. But when it comes to retirement security, the opposite is true. More than 99 percent of Social Security's revenues go toward benefits, and less than 1 percent for overhead. In Chile's system, management fees are around 20 times as high. And that's a typical number for privatized systems.
These fees cut sharply into the returns individuals can expect on their accounts. In Britain, which has had a privatized system since the days of Margaret Thatcher, alarm over the large fees charged by some investment companies eventually led government regulators to impose a "charge cap." Even so, fees continue to take a large bite out of British retirement savings.
A reasonable prediction for the real rate of return on personal accounts in the U.S. is 4 percent or less. If we introduce a system with British-level management fees, net returns to workers will be reduced by more than a quarter. Add in deep cuts in guaranteed benefits and a big increase in risk, and we're looking at a "reform" that hurts everyone except the investment industry.
Advocates insist that a privatized U.S. system can keep expenses much lower. It's true that costs will be low if investments are restricted to low-overhead index funds - that is, if government officials, not individuals, make the investment decisions. But if that's how the system works, the suggestions that workers will have control over their own money - two years ago, Cato renamed its Project on Social Security Privatization by replacing "privatization" with "choice" - are false advertising.
And if there are rules restricting workers to low-expense investments, investment industry lobbyists will try to get those rules overturned.
For the record, I don't think giving financial corporations a huge windfall is the main motive for privatization; it's mostly an ideological thing. But that windfall is a major reason Wall Street wants privatization, and everyone else should be very suspicious.
Then there's the issue of poverty among the elderly.
Privatizers who laud the Chilean system never mention that it has yet to deliver on its promise to reduce government spending. More than 20 years after the system was created, the government is still pouring in money. Why? Because, as a Federal Reserve study puts it, the Chilean government must "provide subsidies for workers failing to accumulate enough capital to provide a minimum pension." In other words, privatization would have condemned many retirees to dire poverty, and the government stepped back in to save them.
The same thing is happening in Britain. Its Pensions Commission warns that those who think Mrs. Thatcher's privatization solved the pension problem are living in a "fool's paradise." A lot of additional government spending will be required to avoid the return of widespread poverty among the elderly - a problem that Britain, like the U.S., thought it had solved.
Britain's experience is directly relevant to the Bush administration's plans. If current hints are an indication, the final plan will probably claim to save money in the future by reducing guaranteed Social Security benefits. These savings will be an illusion: 20 years from now, an American version of Britain's commission will warn that big additional government spending is needed to avert a looming surge in poverty among retirees.
So the Bush administration wants to scrap a retirement system that works, and can be made financially sound for generations to come with modest reforms. Instead, it wants to buy into failure, emulating systems that, when tried elsewhere, have neither saved money nor protected the elderly from poverty.
E-mail: [email protected]
<font color="#a52a2a" size="1">[ December 17, 2004 12:29 PM: Message edited by: Pi?a ]</font>
I have never been a fan of nor an advocate for privitazation of social security. It is a boondoggle.
Bush's economic policies are a farce. Don't get me started on the dollar vs the euro or our trade imbalance.
Hee Hee, Jumper said Boondoggle!
Anywho, I actually like the idea of creating personal retirement accounts. Still work to be done on it, but I think it gives people a better sense of security about the whole thing.
<font size="2" face="Verdana, Helvetica, sans-serif">I can. I'm savvy enough. I'd at least like the option of putting my social security taxes into a private account - even with safe, restricted options. I'd stick them in AAA municipals and agencies, receive 4 or 5 percent, and still come out ahead of what the government gives me.</font><hr /></blockquote><font size="2" face="Verdana, Helvetica, sans-serif">reason, with all due respect, you aren't "most people". Especially in terms of financial/investment savvy.Quote:
Originally posted by reason:
</font><blockquote><font size="1" face="Verdana, Helvetica, sans-serif">quote:</font><hr /><font size="2" face="Verdana, Helvetica, sans-serif">Greg, most people aren't savy enough to invest their Social security in a private account.
Should those who pass a test of financial acumen be allowed to privatize?
[img]graemlins/hmmm.gif[/img]
<font size="2" face="Verdana, Helvetica, sans-serif">You can say that again!Quote:
reason, with all due respect, you aren't "most people".
But let's say you dumbed down the options to municipal bond funds or govenrment agencies or money funds - you'd still probably come out ahead.
<font color="#a52a2a" size="1">[ December 18, 2004 09:52 AM: Message edited by: reason ]</font>
So, I guess we shouldn't let people invest their retirement in chances at a casino?
<font size="2" face="Verdana, Helvetica, sans-serif">The way I look at it is we are already getting a remarkably low return and the government is at a point where the likelihood is high the government will not be able to meet its obligations for people my age.Quote:
Originally posted by Aurora Leigh:
So, I guess we shouldn't let people invest their retirement in chances at a casino?
In other words, I see a gamble if we keep things the same.
General obligation municipal bonds almost never default. I just read a Moodys report that said between 1997 and 2004 no GO bonds defaulted. And even when any muni defaults, the recovery rate tends to be high.
Right now I can go out and buy 10 year munis and make something like 3.5%.
What if the government gave us 10 or 15 low risk, low cost privately run bond funds - like munis, agencies, government money funds - yet gave it's guarantee on this funds and provided regulatory oversight?
And what if there were some lower risk stock funds - not guaranteed by the government - but the amount contributors to the plan would be limited to 25% of total contributions? I think a 75%-25% split is reasonable, don't you?
Of course, supply and demand of munis would dictate that the yield on these bonds would go down even more, so that would be the downside.
The upside is that it takes the money out of the hands of the government and limits their ability to spend it for other purposes like they've been doing.
<font color="#a52a2a" size="1">[ December 18, 2004 12:07 PM: Message edited by: reason ]</font>
<font size="2" face="Verdana, Helvetica, sans-serif">But isn't part of the problem with people saving for retirement the notion that they don't have to, because of Social Security? If it's privatized, people get to decide where to invest and can watch the potential growth.Quote:
Originally posted by Jumper69:
I have never been a fan of nor an advocate for privitazation of social security. It is a boondoggle.
Reason's 75/25 split sounds reasonable. Surprising enough. [img]smile.gif[/img]
<font size="2" face="Verdana, Helvetica, sans-serif">But isn't part of the problem with people saving for retirement the notion that they don't have to, because of Social Security? If it's privatized, people get to decide where to invest and can watch the potential growth.Quote:
Originally posted by gae:
</font><blockquote><font size="1" face="Verdana, Helvetica, sans-serif">quote:</font><hr /><font size="2" face="Verdana, Helvetica, sans-serif">Originally posted by Jumper69:
I have never been a fan of nor an advocate for privitazation of social security. It is a boondoggle.
Reason's 75/25 split sounds reasonable. Surprising enough. [img]smile.gif[/img] </font><hr /></blockquote><font size="2" face="Verdana, Helvetica, sans-serif">I happen to know a major corporation that invests its monies somewhat according to that 75/25 fixed income/equity split. But interestingly, the market value of its investments is almost exactly inverse in proportion - 75% equity, 25% fixed income. Why? Because over time, equities tend to perform better. I can go on about my doubts about future performance of the stock market, but I still like my idea. But then, when don't I like my ideas?
"Right now I can go out and buy 10 year munis and make something like 3.5%."
OK, but interest rates are going up, which means the value of those bonds will go down, AY?
"But isn't part of the problem with people saving for retirement the notion that they don't have to, because of Social Security?"
Gawd, I hope you're wrong about that. I hope the public understands SS is meant to provide bare bones protection and must be supplemented with personal savings. I hope my hope is not a false hope. [img]redface.gif[/img]
I don't have a source at my fingertips Lan, but IIRC, more than 50% of folks 65 and over will live at the poverty level.
Boondoggle is the perfect word for it. I'm against privatization of SSI for the reasons mentioned above, but I would have been against the creation of it in the first place exactly for those same reasons. I don't know what the answer is, I think we're in trouble either way, it's just a matter of which route would cause less bleeding. On the whole, I respect FDR's policies but on some things he was dead wrong, and this one of them.
GAE you reminded me of a stat I posted a week or so ago.
Average retirement savings for 50 year olds: $2395.78
Egads, if that's accurate we are DOOMED! [img]graemlins/gulp.gif[/img]
<font size="2" face="Verdana, Helvetica, sans-serif">Right now I don't have to worry about selling the munis as I am far from retirement. With a buy and hold strategy, the value of the bond while I hold it is meaningless. Besides, as you well know, the price of a muni heads to par the closer it gets to maturity, so there is some built in protection on the downside. Generally speaking, the price volatility should be greatest on a financially sound muni in the early years and subside as the bond comes closer to maturity.Quote:
"Right now I can go out and buy 10 year munis and make something like 3.5%."
OK, but interest rates are going up, which means the value of those bonds will go down, AY?
I assume that as interest rates go up, I would continue to buy securities at those higher levels and as the interest rates go down, the price of my munis goes up.
Regardless, if you'll notice I suggested muni funds, which means they are managed by professionals and the individual will not have to worry about the fluctuation of the price on individual bonds.
While I'm not personally a big fan of mutual funds, I think if the government mandates the formation of privately managed funds for personal SS accounts and regulates them with regards to cost and investment objectives, I think this can work better than what we have.
I'd rather have this than let the government keep our money to spend on other things while writing us an IOU.
edited because I said something about calls that was incorrect
<font color="#a52a2a" size="1">[ December 20, 2004 10:25 AM: Message edited by: reason ]</font>
I normally don't give out free advice, but out of respect for this board and its posters....a little tip:
Buy low.
Sell high.
Trust me, you make a lot of dough that way.
<font size="2" face="Verdana, Helvetica, sans-serif">You forgot one: Marry bread.Quote:
Originally posted by Lew:
I normally don't give out free advice, but out of respect for this board and its posters....a little tip:
Buy low.
Sell high.
Trust me, you make a lot of dough that way.