NEWS: Social Security vs. Private Investing

The Heritage Foundation, a conservative, Washington DC based think tank has produced a study that compares the rate of return of money deposited into the Social Security Trust Fund versus the performance of fiscally conservative private investment funds. In many cases, negative rates or return are realized.



I'm guessing that most ATS readers are quite a way away from being able to collect Social Security and are probably paying a a decent amount (as a percentage) into the trust fund. Whether or not Congress decides to "reform" Social Security, we all should be aware of the facts - the purpose of the system, its pros and cons.

Even a cursory examination of the Heritage Foundation report clearly shows that Social Security is a bad investment. The obvious conter-argument is that Social Security wasn't meant to be an investment. But, when one does a cost-benefit analysis of the system, shouldn't rate of return at least be considered?

With all the carping about Bush and the Republicans supposedly screwing the poor to favor the rich, you would think that people would consider one of the tools that allows the rich to stay that way - careful (or even not-so-careful) investment. Wealthy people don't get that way by investing in negative rate of return commodities.

The Heritage report contains the following in the conclusion:

When the Social Security system began, its aim was to help ordinary Americans and those in disadvantaged positions to have adequate financial security in their retirement years. However, as this analysis has shown, the current Social Security system may actually decrease the lifetime wellbeing of many socioeconomic groups, even under the most favorable assumptions. Among the groups who will lose out under the current system are single mothers, low-income single males, average-income married couples with children, and even affluent professionals.

To be honest, I have some serious reservations about large scale government investment into the stock market. I don't recall where I read/heard it, but at one time I heard that if only a small fraction of Social Security taxes were invested in the stock market, the government would become the major stockholder in numerous companies. Given the way the govt. runs its own finances, that's a recipe for disaster.

Anyway, food for thought. In an attempt to present both sides of the issue, I've included a link below that presents an interesting counter-argument.

Related News Links:
www.atr.org
cowles.econ.yale.edu

[edit on 5/7/2005 by ChemicalLaser]

[edit on 5/7/2005 by ChemicalLaser]

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Heritage was founded in 1973 by the anti-labor, racist, homophobic brewery magnate Joseph Coors together with prominent right-wing activist Paul Weyrich and wealthy right- wingers Richard Scaife and Edward Noble. . . . In the early 1980s, Heritage reported that "87 top corporations" were supporters. By 1995, it had an annual budget of $25 million.

www.mediatransparency.org...

Big corporations want you to buy their schtick. (did i spell that wrong? perhaps)

Big Wall Street firms want to rake in even higher profits from bogus investment banking practices. They bought and paid for GWB, now they want their trained monkey to dance for them.

Bush is going to squander all your government guarantees in the Casino of Wall Street. I think working Americans have figured out private accounts instead of a Social Security investment doesn't cut it.

An actual promise beats out a lick and a prayer.

Remember this is the same president who is spending 1/5th of a TRILLION dollars for WMDs that never existed yet cant spend a billion dollars to guard the southern border. GWB is bought and paid for by corporate America.
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If they are going to do it, do it right.
Connecticut should/could be the example.
Social Security / Connecticut State Retirement Comparison from 2002




seekerof

Seekerof: How does CT fund their teachers' pension plan?

the heritage foundation is a blahblahblah front for the hard right and the repugnican party and everything they say is suspect at the very best if not out and out propaganda hiding behind the misnomer "think tank". I wouldn't believe a word they said, if they claimed the sky was blue I would look out my window to check it for myself....same with Bush...there's a bumpersticker i like that says..."Bushes lips are moving therefore he must be lying. "

so....
Treasury Bonds aren't a good investment??

umm....
well, considering how the fools have spent our taxdollars, maybe it isn't...but well, can I ask a question....

how far into debt would the fools have dug us in if the workers of this country didn't pay that social security tax and that money wasn't invested into our country via the Treasury Bonds.

That's what you're saying ya know...
Investing in our nation doesn't give a good payback, better to invest in the Corporations, where the money is.
But would the money be there, if the federal taxmoney was suddenly taken out of the system...the business grants, tax shelters, public aide programs, drug and medical research...ect. ect...

Maybe instead of investing the social security funds into treasury bonds, we should be investing them into Iraqi Dinars?

[edit on 9-5-2005 by dawnstar]

Originally posted by grover
the heritage foundation is a blahblahblah front for the hard right and the repugnican party and everything they say is suspect at the very best if not out and out propaganda hiding behind the misnomer "think tank". I wouldn't believe a word they said, if they claimed the sky was blue I would look out my window to check it for myself....same with Bush...there's a bumpersticker i like that says..."Bushes lips are moving therefore he must be lying. "

Great. I get it. You hate the Republicans.

So, how about addressing the facts in the report?
Do you think that:
a) Your contributions into SS should gain positive interest or at least keep up with inflation?
b) Your contributions into SS are just another tax to keep poor retired folks from eating cat food and you could care less how the govt. handles it?
c) or ???

Im glad i live in a Country that does not have your problems about looking after its people, here in Britain we have a Social Security that works , nobody is poor.

Originally posted by dawnstar
so....
Treasury Bonds aren't a good investment??

If only Social Security Deposits were invested in Treasury Bonds! (That is, in fact, one of Bush's proposals BTW). According to the Social Security Administration's website:

Program revenues not needed in the current year to pay benefits and administrative costs are invested in special non-negotiable securities of the U.S. Government on which a market rate of interest is credited.

The current rate of return for Treasury Bills on the secondary market (according to federalreserve.gov) ranges between 2.54% and 3.10% .

That's what you're saying ya know...
Investing in our nation doesn't give a good payback, better to invest in the Corporations, where the money is.
But would the money be there, if the federal taxmoney was suddenly taken out of the system...the business grants, tax shelters, public aide programs, drug and medical research...ect. ect...

I think you are confused about how SS taxes are used. You should look into that. The only way SS taxes get used for grants, research, etc., is via the borrowing the govt. makes from the trust fund, but that is indirect and another argument altogether.

Maybe instead of investing the social security funds into treasury bonds, we should be investing them into Iraqi Dinars?

The original story linked above shows that YOUR MONEY that is collected from each paycheck, and which is non-refundable, is expected to net a negative rate of return when you actually retire. Now, if you are of the opinion that SS taxes shouldn't be expected to make money because it is not really an investment, then the current process would be OK. Then all you would have to contend with is widely held belief that SS will go bankrupt in 27 years.

There's a simple way to fix the balance of the system without using public money to prop up the NYSE.

The answer is this: Lower the retirement age back down to 50. It would allow most people to recoup their losses and break about even.

As has been said, Social Security is more like a government issued retirement savings plan. I think it's a bad idea, but hey, most people like it. I personally would make social security a voluntary program, but I'm fairly sure I don't represent the majority on this issue.

I think the Federal Government has about 10X the responsibility they deserve, and about 12X the responsibility they can handle. They should be reduced to their original stature.

If Social Security was voluntary, and the Stock Market was exposed for the fraud it is, people would be much more secure in their retirement, or much less secure, entirely depending on their survival instinct and their ability to plan ahead. That's a meritocracy in action.

The problem with "individual investment accounts" is that the stock market ain't for most people. I know whereof I speak... hubby's been in it for 20 years and in the last 6 years (when the market got REALLY bad), his stock (in the defense contractor where he works) just tanked to 1/3 of its original value.

And that was the time when, to meet medical expenses, we had to sell some stock. It wasn't pretty.

I have my own portfolio (under $5k in value) and it has to be watched like the dickens. I lost only 20% in the big slide and made it all back up within the last year... but I know what I'm doing. I could have easily have lost 90% of value.

...and don't mention funds to me. I had my money in a fund and found that for 3 years straight I put in $1,000 in contributions and at the end of the year, the amount in my 401K fund was LESS than when I started the year (the funds consistantly lost $1,100 or more for 3 years in a row.)

It's a BAD solution. If you don't believe me, go to finance.yahoo.com and set up a pretend portfolio and "invest"$100/month in it. You'll find out pretty quickly what a bad idea it can be.

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Stock Brokers will always tell you, you will make more money in the stock market than in the Bank.

Ya think maybe they have a vested interest?

Does it happen to include all the companies that go belly up?

CEOs and their lapdog-analysts will tell you how you should invest in the Stock market, which will drive up the price of their stock options. You notice they own a fraction [often zero] as much real stock as they do stock options.

Ya think maybe they know something more about the long term prospects of the corporation they run? Stock options are essentially a short on the company. A short predicts it will go down in the future.

Wall Street has become a quick buck casino. Investment banking analysts lie to pump garbage stock prices to the sky. The insiders, Like GWB, Cheney and their cronies get rich, people who had their pension plans in Enron, World Comm, Global Crossing, etc. got the big shaft.

What they neglect to tell you is you may lose you money in the stock market, . . . up to and including ALL your money, which is very unlikely in an FDIC insured Bank.

If have you worked for your money, it might be wise to treat it much more carefully than the stock market does.
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The system probably shoudn't be called social security but social insecurity. It's just a big tax and a pay as you go system. I've read it's the biggest pyramid scheme in the world. The US government has already spent most of the so called trust fund for social security or there wouldn't be a big impending problem. Of course I believe when social security was set up, it was intended to just be another tax except for a very small minority of people who actually lived to collect some of it. If I could opt out of paying the social security tax and suddenly get a 12 percent increase in income to save for retirement, I would jump on it.

Originally posted by Byrd
The problem with "individual investment accounts" is that the stock market ain't for most people. I know whereof I speak... hubby's been in it for 20 years and in the last 6 years (when the market got REALLY bad), his stock (in the defense contractor where he works) just tanked to 1/3 of its original value.

Yup. I understand. My father in law had $100k's in a 401k and had to retire early. Unfortunately, that was 5 years ago when things were grim. (Though the last 2 years have been OK for some of his funds). Although, his overall rate of return was still better than zero. Sorry to say, but I think your case exemplifies the danger of not being diversified.

Remember, Enron investors got screwed, but investors in Microsoft in the 80's and 90's made a killing. Many UPS employees that had ownership in the company when it went public retired the next day.

...and don't mention funds to me. I had my money in a fund and found that for 3 years straight I put in $1,000 in contributions and at the end of the year, the amount in my 401K fund was LESS than when I started the year (the funds consistantly lost $1,100 or more for 3 years in a row.)

It's a BAD solution. If you don't believe me, go to finance.yahoo.com and set up a pretend portfolio and "invest"$100/month in it. You'll find out pretty quickly what a bad idea it can be.

Try running Excel and running a future value calculation and instead of using the 1-year return for your fund, extend it out 30 years assuming 5 - 7% growth over that period. That's the average return of just about any fund out there for any given 30 - 35 year period. In my case, a 5% contribution of my salary matched by my employer turns into a very nice nest egg when I retire @ 35. The key thing to remember here is that whatever the solution is, it is for retirement - not short term investing. This is a point I think several other people here are missing.