For my grandmother, who lived to be 97 (and was able to live at home for all but the last month or so), Social Security was GREAT. For most, it sucks. Is TomPaine.com synonomous with moronic?

Jim beat me to it. "Everyone agrees that Social Security is a great system" shows that the author doesn't know anything.

Why is it that we have to push the risk of investing onto the individual workers, when periods like the last four years can really ruin retirement savings totals for people who happen to be in the wrong age band? And bad investing decisions can punish others just as severely?

If the government were to create a "pension fund" that invested the equivalent of the $2 trillion estimated as conversion costs plus the 2% of contributions suggested as the starting level for a switch to investing, and were to use the returns from that fund to maintain benefits at the current level, the variations in annual returns based on circumstances beyond investors' control would continue to be spread over the entire population, which is far more appropriate.

Wow. Ya think "cut, cuts and cutting" were in the talking points memo?

HT: The partially privatized system could also require X% to be allocated to TIPS or I-Bonds or similar Govt. paper.

I'm still waiting to see the regression analysis on SS if it were simply invested in something as basic (and risk averse) as the fairly recently introduced I-Bond.

Social Security needs drastic reform. But the reason it exists is to precisely protect people from the vagaries of the market.

What people need is a knowledge of finance and a balanced portfolio. The government should separate the retirement/pension function of Social Security from its function to make sure old people don't starve or eat cat food.

Virtually everyone agrees that Social Security is a great system.
I repeat: Virtually everyone agrees that Social Security is a great system.
If you do not agree, you are not part of 'virtually everyone' and therefore must be eliminated.
Big Brother loves you.
That is all.

Sincerely,
Dean Baker

HT, Chris - basic investing guideline - as you get nearer to retirement age (or if saving for kids college the closer they get to college age) you shift from equities to fixed income investments to reduce the possibility of principal loss. I remember seeing a paper recently that showed over the past 10 yrs buying and holding to maturity Treasury notes easily outperformed the return on Social Security.

I do agree with Chris' point that there will always be, for various reasons, elderly people unable to support themselves. Programs should be in place to help this group but ideally the shift to a system where citizens manage their own retirement portfolios would mean this segment would not be a large one - and savings from reducing the social security bureaucracy could help fund these programs.

The only ones investing in stocks would be those who choose to do so. Bonds would be ok too.

Why couldn't people put it in any appreciating
asset? A home for example?

AWW. Thanks, but I am well aware of the concept of moving investments into less risky investments as you close in on retirement. But would you want to be moving out of stocks into bonds right now, however, given that (1) you haven't made any money in the market for the last four years, (2) rates are going up, which will eventually drive down the value of bonds and wind up trapping you into holding them to maturity and (3) commercial investment-grade bonds were, the last time I checked, yielding 3.5% or so? (Discount for inflation and the rate of return is barely even positive.) Anyone counting on the "last doubling" of a portfolio prior to preparing for retirement at this moment in time is well and truly between a rock and a hard place. That is the type of risk that should not be borne by the individual retiree.

Also, any system that allows individual investors to manage their portfolios is simply not going to work. Individuals will never be market makers, and will always wind up chasing returns to the detriment of their ultimate ROI.

HT: 1. You say That is the type of risk that should not be borne by the individual retiree as if it were self-evident. But why shouldn't the individual bear that risk? Why isn't it enough if the government says, we're not going to let you starve or freeze?

2. I doubt that anyone intends that the government just open up Schwab accounts for all of us. Most likely, there will be a series of different approved funds that people can choose between. But even if you made no money for 4 years, you wouldn't necessarily be doing worse than Social Security.

The argument above should be trivial to resolve, though I'll lamely say that I don't have the time to do the legwork--for a worker who turned 65 in 2002 (or whenever the stock market bottomed out), how much would one have if you had invested the money that got put into SS over your working career into an index fund instead? My impression is you'd have FAR more money than under the current system. Would you be worse off than someone who "retired" in 1999? Sure. So what?

David: well, it's self-evident to me, anyway. Why a government-mandated program should dole out unequal benefits based on factors entirely outside the control of individual participants seems to be the position requiring greater explanation.

Also, it is possible to screw up even just by moving between funds. You don't need to be in individual stocks or bonds (in fact, bond funds are generally worse than individual bonds in this respect) to see flat returns or worse, suffer catastrophic losses.

HT:

Who has ever suffered flat or worse returns over a fifty year period in the market?

HT:

The factors aren't outside of the individual's control.

We will choose which funds to put our retirement money in.
If you want to maximize safety, why should you get a bigger return than those who maximize growth ?

And, if you've maximized growth, but have hit a rough patch, why would you begrudge those who maximized safety ?

Well, no one. But that's not the point. To use an approximate example, someone who started contributing in 1955 and had started shifting money out of equities in 1999 would be approximately 30% better off than someone starting two years later and starting to do the same thing in late 2001. If the meta-objective of harnessing the power of market returns to make Social Security solvent is achieved, why not insulate the workforce from the uncontrollable vicissitudes of market risk?

HT:

Because some of us would rather shoot the Moon, and we don't appreciate a Nanny State telling us that it wouldn't be prudent.

Since ALL of the companies we'll be investing in took risks in formation and growth, it seems odd to say that although we'll be allowed to put money into the market, we cannot take greater risks than those who invest in bonds, or those who don't form companies.

"We the People of the United States, in order to form a more perfect Union, establish justice, insulate the workforce from the uncontrollable vicissitudes of market risk..."

I prefer the original...

HT:

If they didn't start behaving more conservatively before age 65 they deserve to lose money.

OJ: OK, I see that the math didn't work out age-wise. I was using your 50 year example. So assume instead that the start dates of our two hypotheticals were at age 20 in 1969 and 1971, so that the shift to more conservative investments occurs at a more responsible 55 years of age. Following identical strategies, one retiree would still have 30% more in the bank at the end of the process, just by an accident of timing. Again, I ask the question: why shouldn't the goal simply be to make Social Security financially sound (because the biggest argument against it is the coming solvency crisis); why insist on the additional changes that will inevitably create a wide disparity of results?

Social Security is financially sound. It's about making people owners, providing capital to business, and improving the return on the money.

And the solution I propose provides the capital you seek and improves the return on investment as well. Once the system really starts to crank out the returns, in fact, I am sure it would be able to pay back the transition costs to the Treasury, fund benefits fully at current levels, and spin off a certain amount of its surplus into private accounts as well. So what's not to like?

Why should you get the money I made to make up for your bad choices?

oj:

Because life isn't fair.

Dutch:

Ex-freakin-actly.

Everyone agrees that Social Security is a great system.

I'd like to know how millions of poor college students like myself -- currently pumping billions into a system designed to fail us at precisely the time we need money the most -- were somehow not included in the definition of "everyone."

"Everyone agrees that Social Security is a great system."

Especially fans of Ponzi schemes.

If people didn't know the market was peaking (was overrated, overcharged, overinflated - whatever) in April 2000, it certainly wasn't the fault of the media, it wasn't Bill Clinton's fault, it wasn't Greenspan's fault, and it wasn't Ken Lay's fault.