Eight Facts About Social Security

[iamwhatiseem]

Personally, I would like to see SS be turned into a real pension fund that invests in stocks, bonds, real estate, etc., as well as the government giving me the option to invest my savings on my own if I so choose. But until that happens ...

1) Over the next 75 years, Social Security’s shortfall is equal to about 0.7 percent of GDP. Source (PDF).

2) For the average 65-year-old retiring in 2010, Social Security replaced about 40 percent of working-age earnings. That “replacement rate” is scheduled to fall to 31 percent in the coming decades. Source.

3) Social Security’s replacement rate puts it 26th among 30 Organization for Economic Cooperation and Development nations for workers with average earnings. Source.

4) Without Social Security, 45 percent of seniors would be under the poverty line. With Social Security, 10 percent of seniors are under the poverty line. Source.

5) People can start receiving Social Security benefits at age 62. But the longer they wait, up until age 70, the larger their checks. Waiting to 66 means checks that are 33 percent larger. Waiting to 70 means checks that are 76 percent larger. But most people start claiming benefits at 62, and 95 percent start by 66. Source.

6) Raising the retirement age by one year amounts to roughly a 6.66 percent cut in benefits. Source.

7) In 1935, a white male at age 60 could expect to live to 75. Today, a white male at age 60 can expect to live to 80. Source.

8) In 1972, a 60-year-old male worker in the bottom half of the income distribution had a life expectancy of 78 years. Today, it’s around 80 years. Male workers in the top half of the income distribution, by contrast, have gone from 79 years to 85 years. Source.

Eight facts and three thoughts about Social Security - Ezra Klein - The Washington Post

What...so SS can become a vehicle for stock managers to dump crappy stocks into like 401ks?
Pheh...no thanks

 

[Foxfyre]

" 1. When conservatively invested, even in a bear market will generally earn anywhere from 10% to 30% per year which more than offsets the mandatory withdrawals. "


10 - 30%!!!! Conservatively invested!!! Like to know where I can get that kind of return for conservative investments. Maybe back in the day when the stock market went up from 800 or so in 1980 to 12,800 today. I wouldn't count on that happening again, for a real long time anyway.

We invest in widely diversified but good mutual funds with qualified managers and good track records; and, except when the U.S. government crashed the market in last 2008 and 2009, we have never had a year that didn't gain at least 10%. Yes there are quarters when you take pretty good hits, and every now and then one or two funds won't perform up to expectations, but over the long haul, it has been pretty reliable.

The closer to retirement one gets, the more conservative it is wise to be including using some interest bearing money market accounts, C.D.s, as well as modest investments.

10 years 1990 through 1999, the average stock fund gained 23.6% per year. $10,000 invested grew to $83,194. So even if you had a major market crash like the dot.com crash in the 90's and as we did in late 2008, and you lost half your account, you would still be way ahead.

 

[boedicca]

4. You pay income tax on the money that is also taxed for FICA. Once you start drawing SS, if you receive $30k from other investments or as earned income, a portion of your social security benefits will be taxed up to a maximum of 80%. Never mind that you already paid income taxes on that money as you earned it and as the government took it. You'll pay it again.

That money is triple taxed at the federal level. One paid both income and FICA taxes on the same dollar of income originally, and then one is taxed again on "benefits".

I'd rather invest my own money and take my chances.

 

[editec]

Even as a pension fund, it would ultimately come up short.

It not just a pension fund.

It is also an insurance policy.

 

[boedicca]

Even as a pension fund, it would ultimately come up short.

It not just a pension fund.

It is also an insurance policy.

It's not an insurance policy. The money is not invested in a sound manner based upon any actuarial analysis.

It's a tax on current workers to transfer their income to current retirees. And the program can be changed whenever Congress wants. According to the SCOTUS, there is no guarantee one will receive benefits after paying taxes throughout one's life.

 

[expat_panama]

...When conservatively invested, even in a bear market will generally earn anywhere from 10% to 30% per year...

...10 - 30%!!!! Conservatively invested!!! Like to know where I can get that kind of return for conservative investments...

Since 1800 to now Dow (or Dow type) stocks with dividends have provided a 8% annual return. That means every nine years the savings doubles. Here's how stocks have compared to T-bills, corporate bonds, and inflation:

 

[Foxfyre]

...When conservatively invested, even in a bear market will generally earn anywhere from 10% to 30% per year...

...10 - 30%!!!! Conservatively invested!!! Like to know where I can get that kind of return for conservative investments...

Since 1800 to now Dow (or Dow type) stocks with dividends have provided a 8% annual return. That means every nine years the savings doubles. Here's how stocks have compared to T-bills, corporate bonds, and inflation:

8% isn't too shabby either. But I would not recommend a retirment account be invested in stocks, or at least no more than 10% be invested in stocks. Go with quality proven funds that widely diversify the risk. We have a bit in metal funds that are quite volatile but have been in an overall upward trend for decades now; some in the DOW, some NASDAQ, large caps, small caps, domestic and foreign. When one tanks another is likely to be up.

 

[Foxfyre]

Even as a pension fund, it would ultimately come up short.

It not just a pension fund.

It is also an insurance policy.

Without written consent of the policyholder, an insurance policy cannot at any whim change a guaranteed payout or the terms of the payout without incurring dire legal consquences should it try.

Congress can not only dictate what the payout of your social security taxes will be to you, but by a simple majority vote can decide not to pay them to you at all. It can decide to let you have your benefits at Age 50 (fat chance of that) or delay them until you are 80. You don't decide when you will be eligible to retire if you need that social security income. Your government will decide that for you. There is no option to cash out the value early if you choose. And there is no such thing as being 'fully vested' no matter what happens.

 

[Toro]

Personally, I would like to see SS be turned into a real pension fund that invests in stocks, bonds, real estate, etc., as well as the government giving me the option to invest my savings on my own if I so choose. But until that happens ...

1) Over the next 75 years, Social Security’s shortfall is equal to about 0.7 percent of GDP. Source (PDF).

2) For the average 65-year-old retiring in 2010, Social Security replaced about 40 percent of working-age earnings. That “replacement rate” is scheduled to fall to 31 percent in the coming decades. Source.

3) Social Security’s replacement rate puts it 26th among 30 Organization for Economic Cooperation and Development nations for workers with average earnings. Source.

4) Without Social Security, 45 percent of seniors would be under the poverty line. With Social Security, 10 percent of seniors are under the poverty line. Source.

5) People can start receiving Social Security benefits at age 62. But the longer they wait, up until age 70, the larger their checks. Waiting to 66 means checks that are 33 percent larger. Waiting to 70 means checks that are 76 percent larger. But most people start claiming benefits at 62, and 95 percent start by 66. Source.

6) Raising the retirement age by one year amounts to roughly a 6.66 percent cut in benefits. Source.

7) In 1935, a white male at age 60 could expect to live to 75. Today, a white male at age 60 can expect to live to 80. Source.

8) In 1972, a 60-year-old male worker in the bottom half of the income distribution had a life expectancy of 78 years. Today, it’s around 80 years. Male workers in the top half of the income distribution, by contrast, have gone from 79 years to 85 years. Source.

Eight facts and three thoughts about Social Security - Ezra Klein - The Washington Post

What...so SS can become a vehicle for stock managers to dump crappy stocks into like 401ks?
Pheh...no thanks

No. Like an index fund which tracks the broad stock market over time.

Stocks are the best return over the long run. There is no reason why SS should not invest in stocks.

 

[iamwhatiseem]

Personally, I would like to see SS be turned into a real pension fund that invests in stocks, bonds, real estate, etc., as well as the government giving me the option to invest my savings on my own if I so choose. But until that happens ...



Eight facts and three thoughts about Social Security - Ezra Klein - The Washington Post

What...so SS can become a vehicle for stock managers to dump crappy stocks into like 401ks?
Pheh...no thanks

No. Like an index fund which tracks the broad stock market over time.

Stocks are the best return over the long run. There is no reason why SS should not invest in stocks.

You assume that it would be done honestly.
I don't carry that assumption.
Only one body of people more corrupt and self serving than a government - a body of people whose only incentive is to make money at any cost.
The average American was ripped off enough with 401k's...the great windfall to the stock market of the 1980's - whoohoo - money literally falling from the sky - and even better no one is paying attention to all this money!
Same would be true of SS

 

[Toro]

...When conservatively invested, even in a bear market will generally earn anywhere from 10% to 30% per year...

...10 - 30%!!!! Conservatively invested!!! Like to know where I can get that kind of return for conservative investments...

Since 1800 to now Dow (or Dow type) stocks with dividends have provided a 8% annual return. That means every nine years the savings doubles. Here's how stocks have compared to T-bills, corporate bonds, and inflation:

8% isn't too shabby either. But I would not recommend a retirment account be invested in stocks, or at least no more than 10% be invested in stocks. Go with quality proven funds that widely diversify the risk. We have a bit in metal funds that are quite volatile but have been in an overall upward trend for decades now; some in the DOW, some NASDAQ, large caps, small caps, domestic and foreign. When one tanks another is likely to be up.

The long term real return to commodities has been 0%. However, the return to gold since the government suspended the last vestiges of the gold standard in 1971 has been 9%. Stocks have returned 10%. Since 1913, gold has returned 4-5%. Since 1928, stocks have returned 10%.

Stocks can go out of favour for 10-20 years but over very long periods of time, they are the best investment. Since SS is a long lived institution that will be around for generations, SS should have a large investment in stocks. Stock returns over very long periods of time grow with the economy. Betting against stocks over very long periods of time, ie 50-100 years, is essentially a bet against the American economy. That doesn't apply to 5-10 or even 20 years, but it does over the very long term.

$100 billion invested today earning 4% per year over 50 years, which is about what government bonds in the SS trusts will earn, will yield $460 billion. The same amount earning 8% over 50 years, which is about the return a portfolio of 60% stocks and 40% bonds, will yield $4.6 trillion, or 10 times the amount compared to solely in government bonds. SS should invest in stocks.

 

[Toro]

What...so SS can become a vehicle for stock managers to dump crappy stocks into like 401ks?
Pheh...no thanks

No. Like an index fund which tracks the broad stock market over time.

Stocks are the best return over the long run. There is no reason why SS should not invest in stocks.

You assume that it would be done honestly.
I don't carry that assumption.
Only one body of people more corrupt and self serving than a government - a body of people whose only incentive is to make money at any cost.
The average American was ripped off enough with 401k's...the great windfall to the stock market of the 1980's - whoohoo - money literally falling from the sky - and even better no one is paying attention to all this money!
Same would be true of SS

Every single state pension fund invests in stocks. Many national pension funds such as Canada and Norway invest in stocks. SS is not run like a real pension fund. It's ridiculous that it is not. There is not a single pension fund in the entire country that I am aware of that invests 100% in government bonds, and there are thousands of such funds. Yet SS does. It's bizarre.

Unlike 401ks, SS can be run as a defined benefit plan just as it is now where you get a fixed amount when you retire. The only difference is the composition of assets.

 

[expat_panama]

...We have a bit in metal funds that are quite volatile but have been in an overall upward trend for decades now; some in the DOW, some NASDAQ, large caps, small caps, domestic and foreign. When one tanks another is likely to be up.

It all depends on risk tolerance, age, retirement needs, etc. Do note that gold's rally has been with us less than a decade is already failing. Before that gold was in a 20-year decline from the previous bubble.

Stocks make a good long term investment because for over two centuries they've never lost value over a 7-year span. An eight percent return means putting $50 per month in an IRA means 30 years later you can take out $450 per month forever. OK, put in $100 per month and live on $900 per month. Just remember that you're already paying 18.6% to social security, that's $250 per month for someone making minimum wage.

Replace social security with stocks and a 20 year-old can expect to retire with full pay at age 57.

 

[Foxfyre]

...We have a bit in metal funds that are quite volatile but have been in an overall upward trend for decades now; some in the DOW, some NASDAQ, large caps, small caps, domestic and foreign. When one tanks another is likely to be up.

It all depends on risk tolerance, age, retirement needs, etc. Do note that gold's rally has been with us less than a decade is already failing. Before that gold was in a 20-year decline from the previous bubble.

Stocks make a good long term investment because for over two centuries they've never lost value over a 7-year span. An eight percent return means putting $50 per month in an IRA means 30 years later you can take out $450 per month forever. OK, put in $100 per month and live on $900 per month. Just remember that you're already paying 18.6% to social security, that's $250 per month for someone making minimum wage.

Replace social security with stocks and a 20 year-old can expect to retire with full pay at age 57.

We have very little in gold--just too volatile for our tastes--but I will be surprised if the trend over the next 10 years is not up overall. But yes, if people would start at the beginning of their working life and sock away 10% in smart investments--meaning we avoid penny stocks and other highly speculative stuff--most would retire very very comfortable. Nobody retires comfortably on social security.

 

[boedicca]

Stocks can go out of favour for 10-20 years but over very long periods of time, they are the best investment. Since SS is a long lived institution that will be around for generations, SS should have a large investment in stocks.

No. The government should not be investing taxes in stocks. Only if SS is privatized and individuals own their accounts should the money be placed in stocks as individual investments.

Keep The Government Out Of Owning Companies.

 

[expat_panama]

...the return to gold since the government suspended the last vestiges of the gold standard in 1971 has been 9%. Stocks have returned 10%....

Actually over the past 40 years stocks with dividends averaged 11%, and that's $55.53 for every dollar invested versus gold's $36.96. If we looked at returns since 1981 (our previous bubble) we see a dollar's worth of stocks producing $31.71 vs gold's $2.54.

... Since 1913, gold has returned 4-5%. Since 1928, stocks have returned 10%...

Right, that means in 30 years a thousand-dollar stock IRA grows to $17,449 vs golds $3,745.

 

[rdean]

Personally, I would like to see SS be turned into a real pension fund that invests in stocks, bonds, real estate, etc., as well as the government giving me the option to invest my savings on my own if I so choose. But until that happens ...

1) Over the next 75 years, Social Security’s shortfall is equal to about 0.7 percent of GDP. Source (PDF).

2) For the average 65-year-old retiring in 2010, Social Security replaced about 40 percent of working-age earnings. That “replacement rate” is scheduled to fall to 31 percent in the coming decades. Source.

3) Social Security’s replacement rate puts it 26th among 30 Organization for Economic Cooperation and Development nations for workers with average earnings. Source.

4) Without Social Security, 45 percent of seniors would be under the poverty line. With Social Security, 10 percent of seniors are under the poverty line. Source.

5) People can start receiving Social Security benefits at age 62. But the longer they wait, up until age 70, the larger their checks. Waiting to 66 means checks that are 33 percent larger. Waiting to 70 means checks that are 76 percent larger. But most people start claiming benefits at 62, and 95 percent start by 66. Source.

6) Raising the retirement age by one year amounts to roughly a 6.66 percent cut in benefits. Source.

7) In 1935, a white male at age 60 could expect to live to 75. Today, a white male at age 60 can expect to live to 80. Source.

8) In 1972, a 60-year-old male worker in the bottom half of the income distribution had a life expectancy of 78 years. Today, it’s around 80 years. Male workers in the top half of the income distribution, by contrast, have gone from 79 years to 85 years. Source.

Eight facts and three thoughts about Social Security - Ezra Klein - The Washington Post

In the last two weeks, my 401 has gone up two thousand and dropped 6 thousand. Would I like to invest "everything" in the stock market? No way.

 

[Norman]

No. Like an index fund which tracks the broad stock market over time.

Stocks are the best return over the long run. There is no reason why SS should not invest in stocks.

You assume that it would be done honestly.
I don't carry that assumption.
Only one body of people more corrupt and self serving than a government - a body of people whose only incentive is to make money at any cost.
The average American was ripped off enough with 401k's...the great windfall to the stock market of the 1980's - whoohoo - money literally falling from the sky - and even better no one is paying attention to all this money!
Same would be true of SS

Every single state pension fund invests in stocks. Many national pension funds such as Canada and Norway invest in stocks. SS is not run like a real pension fund. It's ridiculous that it is not. There is not a single pension fund in the entire country that I am aware of that invests 100% in government bonds, and there are thousands of such funds. Yet SS does. It's bizarre.

Unlike 401ks, SS can be run as a defined benefit plan just as it is now where you get a fixed amount when you retire. The only difference is the composition of assets.

You hit the nail in the head.

The idea of US SS is really bizarre. No nation has plan as short sighted and dumb as this ponzi. It's almost like "What were they thinking?". And it is not a problem if you invest into bonds as CHOICE, even if you do invest 100%. Problems come when you are forced to invest into them. (of course the matter is quite a bit more complicated but my 2c).

Of course stocks are going to outperform gold over long run. But right now? No way.

 

[iamwhatiseem]

No. Like an index fund which tracks the broad stock market over time.

Stocks are the best return over the long run. There is no reason why SS should not invest in stocks.

You assume that it would be done honestly.
I don't carry that assumption.
Only one body of people more corrupt and self serving than a government - a body of people whose only incentive is to make money at any cost.
The average American was ripped off enough with 401k's...the great windfall to the stock market of the 1980's - whoohoo - money literally falling from the sky - and even better no one is paying attention to all this money!
Same would be true of SS

Every single state pension fund invests in stocks. Many national pension funds such as Canada and Norway invest in stocks. SS is not run like a real pension fund. It's ridiculous that it is not. There is not a single pension fund in the entire country that I am aware of that invests 100% in government bonds, and there are thousands of such funds. Yet SS does. It's bizarre.

Unlike 401ks, SS can be run as a defined benefit plan just as it is now where you get a fixed amount when you retire. The only difference is the composition of assets.

If you were to ask me if I think changes should made be to the SS system...because my intelligence is above a duck - of course I would say yes. Beginning with it should not be a slush fund for lawmakers to spend on non-emergency whatever.
Secondly END the usage of social security to pay "disabled" people money for nothing. I guarantee you there is probably not ONE single person you know that does not know someone claiming disability that is not disabled at all.
Disability should have to be proven every year, if not twice a year.
Third, social security funds should not be used to pay adoptive parents a decade of public money unless they NEED it.
I would do all of these things before I would entertain the thought of trusting some giant bureaucracy to invest $billions of dollars in a stockmarket that no longer reflects reality.

 

[KissMy]

The point of the article is that it isn't a ponzi scheme. It's not how I would design a pension plan but it isn't insolvent either.

People generally undersave. I spent some time as a stockbroker. I was shocked at how little many people had. I had many meetings with couples who were in their 50s who had maybe $50k, and many had less.

As for the poverty line, whether or not it is an accurate reflection of poverty, clearly seniors rely heavily on it. That's why it is the third rail of politics.

Of course people undersave when their paycheck is pilfered by the government. And if people knew they didn't have a safety net like SS, they could use that extra money to save.

You'd better believe Seniors rely heavily on SS because they've spent a lifetime putting money into it.

I'm not anti-SS, but it is a Ponzi scheme and should be radically changed. The 'opt-out' option should've have been put in from the get-go.

People have always undersaved. That's why SS came into being in the first place. People consistently underestimate how much money they need in retirement. It doesn't matter how much in taxes are taken. When people get an income tax cut, there is not a disproportionate increase in savings as one would expect if you believe that people save less because of government taxation. In fact the empirical evidence is that people save more when they are forced to.

I do agree however that it should be easier to opt out.

Inflation is what forces people to under save. If you want to get what you worked for you must spend it now. With rampant inflation it is nearly impossible to save enough to retire on. This creates a society of people who live pay check to pay check. That is what the USA has become.