Quote Originally Posted by jeff
Social Security- should it be left alone, (partially) privatised, amended, or ended?

Changing SS is a big subject in President Bush's domestic agenda, with Bush discussing partial privatization, making this an important and timely subject.

Some thoughts and opinions to start off with:

- Social Security is not just an investment vehicle: it's also, in fact mainly, an insurance policy. It provides a minimum level of payments that keep low income people from severe poverty in their old age (plus benefits for widows and dependent children). In this regard it is one of the most successful programs ever created by the US Federal government. It has had landmark results in reducing and eliminating abject policy.

- Some people get more money in benefits than they put in (say: if they live a long time after retirement and draw benefits for many years), some less (die before taking out as much as they put in, though see the next bullet) - just like can happen with other insurance or annuity policies (eg: with a term life insurance policy you get nothing if you live past the end of the policy). My point being: it's not an investment plan. Nor does it prevent you from having a private investment plan.

- Widows and orphans are beneficiaries. If a wage earner dies young, his/her spouse and dependant children receive SS benefits. This also has been very successful and has kept many families (besides the aged) out of destitution.

Now to the current situation and Bush's plans:

- I am not convinced that the aging population today demands a drastic change in Social Security. I will provide numbers in a later post. Off the top of my head, the actuarial estimates say that the trust fund empties in 2042 (using current policies and projects of lifespans). At that point, SS still pays out 75% of current benefit levels based on then-current cashflows, so it's not like the whole thing goes bust. I think the severity of the situation has been exaggerated in order to get a desired, predetermined outcome.

- Adjustments have been made before, and could be made again without going to privatization: We could raise the % taken out, the "cap" figure at which SS contributions per year stop, reduce the payouts, or increase the eligible age for receiving benefits. According to the initial plans, such as they are, some of these would happen in Bush's proposed changes anyway. I personally think such tweaking is all that's needed

- Social Security has very low overhead compared to brokerages, and small accounts have higher overheads (per unit) than large accounts. So, I would expect costs to go up for the privatized portions of Social Security.

- Equities (stocks) and mutual funds based on them, have higher historical yields than the government bonds that Social Security funds are currently invested in. If that was the whole reason for change, than SS administration could put the incoming money in stocks right now (like CALPERS employee pension in California), without having to switch to privatization. But: stocks also have higher risks, and you can lose your money.

- I should mention for the last 2 items that I've spent most of my career working on Wall Street in a brokerage, and still work most of my time with them. Which leads me to the next point: not all the advice you get from investment firms is for your benefit. Sometimes, in fact lots of the time, they are dumping stuff on you for comissions or because of the investment banking relationship they have with companies with overpriced stock. There's a lot of risk here.

- Finally, with respect to brokerage: financing the transition to privatization is said to be as much as $10 trillion dollars. One thing I will tell you is that you should never borrow money to pay for investments (eg; buy on margin) unless you are willing to lose it all and then have to cover the loss from your pocket. But, that is exactly what the privatization scheme proposes.

- Right now, SS funds are in government bonds. That doesn't bother me much per se: they're attractive to lots of investors for stability and safety (including lots of foreign investors). What bothers me here is not that they're in debt instruments also in the government - unless the US defaults on its bonds, in which case we're in a lot more trouble than Social Security could cause. What bothers me is that they've been used (bilaterally) to prop up general tax funds to make deficits smaller than they otherwise would be.

Politically:

- Conservatives have been against Social Security ever since FDR brought it out, despite it having saved millions of Americans from terrible poverty. They openly refer to SS today as the "soft underbelly" of social programs in the US. So, their wanting to get rid of it is nothing new. What is new is that there is a president who goes with the program.

- Part of the motivation has been suggested to be a deliberate play by Republicans to get more people to think of them selves as investors/owners ("the ownership society"), as that will cause them to vote more Republican in future. Eliminating SS, according to this theory, is a political move to ensure future generations of Republicans.

Not be be USA-only: I invite the non-USA board members to chime in with their opinions and discussion of the plans in their countries, both for the concepts and the actual implementations, and for notions of how you deal with an aging population.

Your thoughts?
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Why not do what Hitler did, just pick up those horrible old people, put them in gas vans and dump them in a giant crater. Then, we'll do what Hitler did again, go to the retard homes, old age homes, blind homes, and other homes, pick up those people, some of whom served the country and lost a leg or arm or eye, gas them up and dump them in a big ditch!!! It's de rigor!!! [where's Haggis when I needed him?] Especially those old ones [brrrrrrrr] makes you blood run cold, can you take it? Let's lay everyone off - but seriously folks, that's what we really want to stay home and play around a bit, however, if you don't like Truman, like I like Truman, then move to a place where the lifespan of a human being is age 50.

Yea.