Wednesday, May 02, 2012

Social Security vs. Private Retirement


In the video above from LearnLiberty.org Professor Antony Davies points out that even a retirement plan that forced workers to invest their Social Security payroll taxes only in Treasury bills would generate 17% more in retirement benefits than the current system, which is also subject to change by Congress at any time.   

33 Comments:

At 5/02/2012 1:13 PM, Blogger Benjamin said...

I am not a defender of the SS system (or our military, for that matter).

But often "analyses" fail to include SS disability coverage, and early death benefits etc.

While we pay into SS, we have additional benefits through the system, that most of us never use. It is insurance. Many people in the Dakotas are getting SSDI (disability) for example.

That said, I would be fine with scrapping Social Security (and the Department of Defense) and devising new, slimmed down approach.

 
At 5/02/2012 1:41 PM, Blogger AIG said...

You didn't even bother to watch the video, did you? So what's new, Benji?

 
At 5/02/2012 1:57 PM, Blogger juandos said...

How about the scrapping of the pseudo benny instead?

"Professor Antony Davies points out that even a retirement plan that forced workers to invest their Social Security payroll taxes only in Treasury bills would generate 17% more in retirement benefits than the current system"...

Doesn't the good professor know a Ponzi scheme when he sees one, one that is painflully blatant as SS is?

 
At 5/02/2012 2:05 PM, Blogger Methinks said...

In other words, the only thing passing for a guarantee in the SS Ponzi is that government will try its best to soak the next couple of generations to pay out on its promise. That's what "investing" in Treasurys means.

 
At 5/02/2012 3:46 PM, Blogger Larry G said...

SS was never designed as a retirement plan.

It's a pay-as-you-go insurance annuity.

If you went out onto the private market to buy an annuity, you'd have the option to also buy disability insurance and survivor insurance but
these would cost additional money also.

It's actually been discussed if the US should sell annuities:

http://blogs.reuters.com/reuters-money/2011/05/25/should-the-u-s-treasury-sell-annuities/

 
At 5/02/2012 3:53 PM, Blogger Larry G said...

Social Security basically is an insurance mandate.

It's fundamentally part of every country in the G20...just about every industrialized country.

It boils down as to what you do about people who will not save for their retirement and whether or not you tax others to pay for them when they get old.

so far.. every single industrialized country in the world has answered that fundamental question by making everyone put aside money for their retirement. Every other of those countries but the US extends that mandate to health care.

The only countries that do not have social security are 3rd world/developing.

The basic problem is that a majority of people in industrialized countries will not let geezers who did not save for their retirement die in the streets and 3rd world countries will.

 
At 5/02/2012 3:55 PM, Blogger Rick said...

I have no plans to depend on social security, but this video starts with a bogus argument. It implying that if corporations didn't have to contribute to Social Security would instead give their workers a 6.2% raise. This is not very likely. Based on what we are seeing today, corporations´╗┐ will take that money and pass it on to their shareholders. Thus providing for the 1%, not the workers.

 
At 5/02/2012 3:58 PM, Blogger Methinks said...

Do you seriously not understand the difference between an annuity and Social Security, Larry?

The government spends every dollar of SS taxes it takes in and always has. The first people to receive payments never paid in - never "bought" an annuity. If a private company selling annuities did that, it would be sued for fraud.

If you want an annuity, you can go buy one. There are plenty of sellers. Why the hell do we need idiots in government selling them?

 
At 5/02/2012 3:59 PM, Blogger Larry G said...

keep in mind that SS is funded from FICA and FICA generates dang near a trillion dollars and year and will continue to do so for as long as FICA tax is collected.

People who say that SS benefits will end are not playing with a full deck

SS payments will continue ...yes..even after the trust fund is "exhausted" because the trust fund is not what funds SS to start with.

What will happen is that, by law, SS cannot pay out more than FICA generates and will automatically reduce benefits.

NO other program in the Federal Govt works this way - i.e. by law cannot run a deficit.

 
At 5/02/2012 4:04 PM, Blogger Methinks said...

Rick,

You're missing the point. The total cost of an employee is the amount spent on him - including the amount the company is forced to pay to the SSA. If the cost per worker were reduced, the company could either hire more workers or pay more per worker. It's unlikely any company will be able to simply increase its profit margin unless it's willing to lose market share - which will not benefit the shareholders.

And since when are shareholders all in the 1%? Has it ever occurred to you that if you're not counting on social security that you're likely a shareholder as are millions of people who earn far too little to be in the 1% and that saving and investing to obtain "passive income" is a great way for ordinary people to move into the top 1% of earners?

 
At 5/02/2012 4:05 PM, Blogger Larry G said...

Most any insurance is pay-as-you-go.

when you buy insurance, and make a claim ..where does the money come from to pay you?

it comes from others premiums.

and at the end of the year, if you had not made a claim, do you get a refund of your premiums?

nope.

so IF ss did not provide an annuity component.. what you'd get was insurance to provide you with income if you became disabled or survivor income for your spouse if you died.

these do cost money. It has to come from somewhere. It comes from your FICA taxes.

if you want to compare investments, you need to subtract out the insurance premiums first.

 
At 5/02/2012 4:08 PM, Blogger Methinks said...

Oh, okay, Larry. I see since you didn't understand what I wrote, it's time to shift the goal post and parrot Jet Beagle and whatever you could copy off wikipedia without a hint of understanding what any of it means.

mmmmmkay.

 
At 5/02/2012 4:13 PM, Blogger Methinks said...

when you buy insurance, and make a claim ..where does the money come from to pay you?

it comes from others premiums.


So, what you're saying, Larry, is you have no idea how insurance works or what the difference between insurance and SS is. Noted.

 
At 5/02/2012 4:18 PM, Blogger Larry G said...

I am? I didn't think that's what I said at all Methinks. Are you deaf and dumb?

do you think you know more than anyone else about anything?

I was pointing out how almost all insurance is essentially pay-as-you-go.

why don't you ADD to the conversation instead of acting like such a craphead all the time?

if you want to get into it again ... go for it.

 
At 5/02/2012 4:23 PM, Blogger Methinks said...

No, Larry, I don't know more than everyone else. Apparently, just you.

Your impenetrable ignorance has been assailed by smarter and more patient people than I and with little effect. I give up on you.

 
At 5/02/2012 4:25 PM, Blogger Larry G said...

I think you can find some pretty good info by simply reading the Social Security info:

http://www.ssa.gov/oact/TRSUM/index.html

http://www.ssa.gov/oact/ProgData/fundFAQ.html

http://www.ssa.gov/history/ponzi.htm

and this one:

http://www.bankrate.com/financing/retirement/annuities-vs-social-security/

and this:

http://www.justfacts.com/socialsecurity.basics.asp

there are lots more......

 
At 5/02/2012 4:34 PM, Blogger Larry G said...

" Your impenetrable ignorance has been assailed by smarter and more patient people than I and with little effect. I give up on you. "

you've defined who you are Methinks and you're your basic smart ass who thinks they know more than they do.

You've got some company here with a few others but nothing to be particularly proud of.

you basically name call when you disagree much like a snot nosed 3rd grader. you must be a joy to work with.

 
At 5/02/2012 4:40 PM, Blogger AIG said...

It implying that if corporations didn't have to contribute to Social Security would instead give their workers a 6.2% raise. This is not very likely. Based on what we are seeing today, corporations´╗┐ will take that money and pass it on to their shareholders. Thus providing for the 1%, not the workers.

Of course not. Since companies compete for workers with other companies, it only takes one of them to transfer that 6.2% into a higher job offer, to start the other ones to also increase their employment offers.

Or, they would use the money to hire more workers, or invest in their business.

But, even if all they did with the money was to give it back to shareholders, who are these shareholders and what are they going to do with the money? Do you own stocks Rick? If you do, you must be in the 1% ;)

But lets assume that only the 1% are shareholders (since most Leftists simply can't comprehend that the majority of Americans, are in fact, evil capitalist shareholders, including usually themselves)...what are these evil 1%-ers going to do with this money? Put in their mattress?

----------

The point of the video, which is a point that EVERY Republican needs to be making, at every opportunity (and maybe in a couple of election cycles we may start to shift public opinion)...is that SS offers a 1.2% return on your money. Virtually every other form of saving for retirement, will offer a higher rate of return. So the most inefficient method of trying to guarantee retirement savings, is Social Security.

 
At 5/02/2012 4:42 PM, Blogger AIG said...

Thus providing for the 1%, not the workers.

I don't know where you got the idea that the purpose of a business, was to provide for its workers. Where did you get that idea?

 
At 5/02/2012 4:53 PM, Blogger Larry G said...

there are two separate but important parts to SS in my view.

1. - the mandate part - everyone must do it - essentially because we don't want taxpayers paying for elderly destitute geezers later on.

2. - the payroll tax itself and how it is converted into a financial product to generate retirement income.

I do not think there is anything particularly sacrosanct about how it's done in the US verses how other industrialized countries do it except that virtually all industrialized countries do it with a mandate and a payroll tax.

Social Security would be cheaper if it did also provide disability and death benefits in addition to what is basically an annuity.

you can actually buy from the private sector all the equivalent parts of what SS as a program is.

There are other side-by-side comparisons that say Social Security is a better deal.

http://analyzenow.com/Articles/Investments/Investment%20Articles/investments_that_can_equal_socia.htm

http://www.bankrate.com/financing/retirement/annuities-vs-social-security/

I wonder if SS opponents would be mollified if it was still mandated but people could decide what kind of a plan they wanted?

Also.. there is no payroll tax for people who are self-employed but they still have to pay the FICA taxes.

It shows up on the 1040.

 
At 5/02/2012 4:58 PM, Blogger Methinks said...

....that SS offers a 1.2% return on your money.

AIG, you forgot to say that IN THE BEST CASE SCENARIO SS offers 1.2% return. And that's also if you've paid in a minimum number of years (more than 11, I think. Someone correct me if I'm wrong, please.).

 
At 5/02/2012 5:10 PM, Blogger AIG said...

I wonder if SS opponents would be mollified if it was still mandated but people could decide what kind of a plan they wanted?

I would accept that. It's 90% the way there.

I've stated before that I have no problem with a "mandate" of this sort, economically, but only if I were truly free to chose the options. Politically, it's another story, and the ObamaCare version is different in that I don't really have other options, once they are all blocked by decades of government prevention of a free market in health care.

But politically, the mandate for a minimum contribution to retirement, with a choice for the individual on what to put it in, is actually pretty workable and likely. Americans understand and see the benefits more clearly, and even most "liberals" understand that SS is unworkable in the long run. (and most liberals like their money too...despite their claims to the contrary)

PS: Saying, other industrialized countries etc etc...isn't much of an argument. It impresses the heck out of 20-something college students, granted. But it doesn't work in any other environment.

 
At 5/02/2012 5:14 PM, Blogger Methinks said...

I'm not sure I agree, AIG. Remember what happened when Bush tried to privatize SS? Chile and Australia both have mandated, but private versions of SS. You'd think that would go over well in America, but...for some reason, no.

 
At 5/02/2012 5:25 PM, Blogger AIG said...

Remember what happened when Bush tried to privatize SS?

He tried too early. You can't get people to change their behavior during good times.

 
At 5/02/2012 5:25 PM, Blogger Larry G said...

" PS: Saying, other industrialized countries etc etc...isn't much of an argument...for young people"

agree... but then when they say that SS won't be around for them what does that mean ? FICA generates about a trillion a year..year after year to pay SS benefits.

the problem between pay-as-you-go and pre-fund is how to transition.

you'd end up with a grandfathered system that has to be paid (after all they DID pay into it) and then a second separate fund that people paid into.

I'd also like to point out that many pension funds function a lot like social security in that what they pay out depends on what the investments earned and what people are paying into it and when those pensions under-perform, the employer/employees have to make up the unfunded liability OR take lower benefits when they retire.

The Feds went from a defined benefit pension plan to a define contribution plan precisely because of this problem. Many businesses and some states did (but not all).

that's a big difference between social security and an individual pension account....

SS does not depend on the stock market... it basically is a gigantic actuarial.

 
At 5/02/2012 7:39 PM, Blogger Methinks said...

He tried too early. You can't get people to change their behavior during good times.

Perhaps. But, it's not as if people didn't know then that SS is headed for disaster. And after 2008, Dumbocrats like Dodd started babbling about how lucky we all were that we had the SS Ponzi beekuzzz looky, the market is down 30% in 2008. Dodd is either too dumb to figure out that anyone retiring in 2008 would have been way up even with the 2008 dip if they'd invested on their own or he gets it and is trying to work his con.

Ah, our politicians. To say the sh*t they say they have to either be stupid or con artists.

 
At 5/02/2012 8:12 PM, Blogger Larry G said...

the problem has always been what do you do with people who do not save for their retirement.

there are two basic approaches.

don't have the govt do anything at all and literally let them die in the streets. (a favorite of some).

or have a mandate to save and then develop some kind of a program that will include securing/firewalling an account that can't be used until retirement.

People will cash their IRAs/401Ks even when there is a penalty and end up broke when they get old.

if you are going to go as far to have a mandate to save.. then it follows logically that you block the account until retirement.

even then..if the investments do badly (like they have).. people will have to put off retirement (like they are)

The program would also have to address what happens if the person becomes permanently disabled...otherwise.. you're right back at point of having the govt (taxpayers) step in to keep them from destitution.

I realize that this kind of talk drives the libertarians here up the wall but that's the reality of the politics.

and the politics are in this country that the vast majority of people will not let old people live in cardboard boxes in the hills behind a city like you'll see in most 3rd world and even developing countries.

Even Ron Paul would preserve Social Security in his 5-year balanced budget.

Even Paul Ryan preserves social security.

I don't think the way we do social security is sacrosanct, it can change, perhaps should change.

But a ton of existing pension plans... use social security as one leg including the Fed, State and local govts and including the military and many companies.

Changing social security would require massive changes and have to have strong support from all voters not just the younger ones.

Part of the problem is using bomb-throwing words like "bankrupt" or "ponzi" to describe the program.

During the GOP debate, Perry did exactly that but very few of the others would follow him even though they were playing to a right wing constituency.

Any substantive change to Social Security is going to take someone who is perceived as a legitimate broker of change...not a flame-throwing rip snorter.

 
At 5/02/2012 8:17 PM, Blogger Rick said...

Methinks,

No, you are missing my point. The video starts with the argument that corporations not contributing to Social Security would give their workers that 6.2% savings. Expecting that to happen is extremely naive.

As to the rest, I didn't say ALL the shareholders were in the 1%. Far from it. The ones I was meant were officers and board members of the companies that would face the decision of what to do with the payroll savings. It's probably safe to say a majority of these people from the Fortune 500 are in the 1%. These are the ones who would benefit most from savings gained by the removal of Social Security.

Social Security is a sick system, but today's Corporate America has to prove they can to better before they should be trusted with too much either.

 
At 5/02/2012 8:53 PM, Blogger Itchy said...

I'm not trying to pump up my shitty blog (time wasting rants), but I actually did my own analysis, with graphs of how poorly the great ponzi scheme treats us.

http://overheardhere.blogspot.com/2011/09/social-security-and-median-joe.html

I'm 32. I'll be lucky to see 70% of my 1.2% annual return. Sorry, you can keep my employer contribution, but can I please have my 6.2% and go home.

 
At 5/02/2012 10:16 PM, Blogger Methinks said...

Rick,

Unless those officers and board members are planning to stop competing for labour, that 6.2% they will no longer pay to government will go toward either increasing wages or hiring more people (which will put upward pressure on wages).

They won't do it out of the kindness of their hearts, mind. It will happen because of competitive pressure.

The government feels no such pressure. It's not even under any obligation to make good on its promise to people whose money it's confiscating.

I own my business. I don't pay people out of the kindness of my heart. I do it for my own selfish interest. I'm forced to pay the amount it takes to entice the employees I want away from my competitors. It's not an option unless I choose not to grow my business.

 
At 5/02/2012 10:59 PM, Blogger Oak said...

Andrew Napolitano just had an article with a few things I didn't know about how Social Security passed Supreme Court challenges. This explains why Social Security checks were actually in jeopardy last year when the budget was held up. I thought that was a political threat since the funds were in the "trust fund", but then government officials said it was a real possibility.

http://reason.com/archives/2012/04/26/rick-perry-was-right-about-social-securi

From it:
"In the first of several challenges to the constitutionality of Social Security, the Supreme Court found that the Social Security fund did not consist of your money. It was merely tax revenue."

"It also held that since Congress' law-making authority is limited to the 16 discrete delegated powers granted to it in the Constitution ... but its spending authority is open-ended..., Congress could collect funds, ... and then spend those funds as it saw fit -- for those in need after age 65 or for any other purpose."

"...the feds have conceded and the courts have agreed that the money you have involuntarily contributed to the so-called trust fund is not yours and can be spent by the government as it pleases, just like any other revenue that the feds collect."

 
At 5/03/2012 8:33 AM, Blogger bart said...

"We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power."
-- Alan Greenspan (prior Chairman of the Federal Reserve US Central Bank), appearing before the Senate Banking Committee on February 15, 2005, in response to Democratic Senator Jack Reed of Rhode Island on the topic of funding Social Security.

 
At 5/03/2012 8:41 AM, Blogger Larry G said...

social security is much like a life annuity with provisions for disability and survival benefits.

you can buy these products on the open market.

the difference is that social security is mandated.

could the law be changed such that people are free to find a less expensive way to fulfill the mandate?

probably.

does that mean the mandate should go away?

nope.

the mandate is to protect other taxpayers.

 

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