Private vs. Government Retirement Investment

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   JaxsonRaineposted 12 years ago

   http://www.cato.org/pubs/pas/PA692.pdf
   
   This is exactly why I hate the government forcing me to do things through them.
   
   This study looked at what private investments would have done compared to Social Security. It broke the numbers up into high-income, average-income, and low-income scenarios.
   
   Private investment would do between 23% better(low risk bonds) and 254% better(S&P 500 index).

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      John Holdenposted 12 years agoin reply to this

      Until the private pension holder legged it with all the funds, like Maxwell did.

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         JaxsonRaineposted 12 years agoin reply to this

         You can have your own account.

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         undermyhatposted 12 years agoin reply to this

         Or until your economy requires the Germans bail you out.

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            John Holdenposted 12 years agoin reply to this

            Well, we're not in the Euro so that is never likely to happen.

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               undermyhatposted 12 years agoin reply to this

               I didn't mean Britain specifically but rather as a comment on the disaster that depending on government/taxpayer funded retirement - Perhaps I should have put it "you" and "your"
               
               The UK was smart for eschewing the Euro

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                  Ralph Deedsposted 12 years agoin reply to this

                  There is a crisis in excessively generous and under-funded retirement programs for government employees in cities, counties and states all over the country.
                  
                  However, Social Security is funded by employee and employer contributions, not by general tax revenues. Small changes in the funding and benefits in order to keep it on a sound financial footing. The real problem is Medicare, not Social Security.

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                     undermyhatposted 12 years agoin reply to this

                     Social Security has always been transfer payment.  My money pays for current retirees not my future retirement.  It is a welfare payment.  Starting last year the Soc. Sec. tax no longer covers the annual Soc. Sec. outlay.  Starting in the 1960s Soc. Sec. taxes were added to the general revenue.  General revenue is a misconception, money is perfectly fungible.  If the government has $1 trillion dollars in its right pocket and $1 trillion dollars in its left pocket it has $2 trillion dollars.
                     
                     It is a difficult concept -fungibility.

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      Mighty Momposted 12 years agoin reply to this

      Yeah, but Social Security is a fixed monthly payout. What you're gonna get is tied to your own earnings history. The return rate the SS fund gets is not your problem as a beneficiary.
      
      As to the vast superiority of private investment, I take it you did not live through the stock market crash of 2008.
      There are a whole lot of Americans whose 401K plans were DECIMATED. Cut by 50% or more.
      
      I imagine you will hear from some of them here.
      

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         Cagsilposted 12 years agoin reply to this

         Yes it is.
         Yes, your complete earnings history.
         No your problem is that government controls how much you receive regardless.
         Many people did though.
         Yes, plenty of people lost money. However, it would have been nice if the government didn't leverage all of Social Security, so it could let idiotic nations around the world to borrow money it didn't have to lend out.

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         JaxsonRaineposted 12 years agoin reply to this

         Would you rather have a fixed monthly payout of $1000, or $3500?
         
         The report specifically states that even with a crash like 2008, the returns are still better privatized.

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            TIMETRAVELER2posted 12 years agoin reply to this

            JaxsonRaine:  My husband is an accountant and a very bright financial analyst.  We've had this same discussion several times.  Here's the problem.  Most people do not understand investing and do not have the ability to manage their own finances.  If they don't have a "forced" savings of some sort, they wind up broke and on the street when they get old.  There have been several stock market crashes since 2000 and a lot of people lost their life savings in them.  The stock market is actually a gamble.  If you want to gamble with your money, you can still do it.  But you can't count on the law of averages to help you decide whether private investment or SS is best.  Personally, I am VERY happy I have social security, and so are many, many others.  It's a lifetime income and combined with other investments and pensions, gives us a nice retirement.

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               JaxsonRaineposted 12 years agoin reply to this

               I'm not necessarily saying the best option is just to have people take that money and invest where they want. I'm saying that results, if managed with something like the S&P 500 index, would be much better.
               
               Heck, we could provide people with options on how they want to split up their money across indexes and bonds, so nobody goes broke investing their retirement fund in Company A.

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               Cagsilposted 12 years agoin reply to this

               Social Security doesn't even provide enough for housing, bills and food. Not to mention, any living expenses.
               
               So, if you haven't a pension or other investment set up, then you're screwed.
               
               
               edit: and people wonder why I have a problem with government.

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         undermyhatposted 12 years agoin reply to this

         Buying Savings Bonds with the money taken for Soc. Sec. would yield more benefit thatn does Soc. Sec and yet both are federally guarnteed to under perform private forms of actual investment.  A properly balanced 401k , though not bullet proof,  spreads risk and therefore reduces vulnerability to unexpected changes.
         
         I wonder if there is this kind of sympathy for the teachers, police and firefighters in Indiana whose pension plan took a beating when Obama decided that their equity stake in Chrysler wasn't nearly as important as UAW support - they lost every bit of their investment value to liberal disregard for existing bankruptcy laws.

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      Ralph Deedsposted 12 years agoin reply to this

      You are comparing apples and oranges. Social Security was never intended as a retirement investment program. It is a social insurance program which provides disability benefits, benefits for widows and orphans and a minimal retirement benefit based on contributions and age. No benefits are paid to anyone who dies without a wife or minor children before becoming eligible for Social Security. Wall Street is salivating to get it's clammy hands on social security taxes and everyone knows that they would pocket millions if they ever did which is highly unlikely because Social Security is the most popular and successful New Deal program.
      
      The CATO paper is what one would expect from a libertarian organization founded by David
      Koch--not objective, one-sided and misleading. A few small tweaks will put Social Security on a sound financial footing for the foreseeable future. For years it has been the basic leg of what actuaries and financial advisers called the 3-legged retirement stool--1. Social Security; 2. Defined benefit pensions; and 3. Personal savings and investments.  Financial counselors advised that all three were required in order to have a comfortable retirement. Now, defined benefit pensions have pretty well disappeared and been replaced by 401k plans which bring hidden administrative costs and excessive mutual fund management fees (not all but many of them). Hardly any of them deliver returns that match a good no load, low cost, index fund like those offered by Vanguard can deliver. 401k returns vary all over the map as would returns under the private investment of Social Security taxes advocated by Cato. Turning Social Security taxes over to private investment plans would be a serious mistake. What is really needed is to adopt regulations that would prevent excessive charges for 401k plans and encourage higher participation in them and in IRAs.

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         JaxsonRaineposted 12 years agoin reply to this

         Ralph, it doesn't matter what the money is used for. The program could be setup the same, but if the money was used responsibly, everyone would be much better off. Instead of a rate of return ranging from 0.5% to 4%(only for the very lowest earners), we could have everyone averaging 4-8%.

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            Ralph Deedsposted 12 years agoin reply to this

            Privatizing Social Security is a political non-starter even more so than under George Bush because the big bankers have proved time and again that they are untrustworthy money grubbers. Wall Street CEOs ask their lawyers three questions 1. Is it legal?  2. If it's illegal, what are the chances we'll be caught? and 3. If we get caught will we go to jail?  We know the answer to the last question--hardly any of them ever go to jail. They pay billions to settle fraud charges, without "admitting nor denying guilt." I don't think the country is in the mood to privatize a program that has served the nation well for 70 years. It's true that quite a few young people have swallowed the lies CATO and others have been putting out that Social Security is going broke and they'll never collect a benefit. The truth is that a couple of relatively small changes among several options will fix Social Security. Sound policy will be to fix Social Security and adopt laws that will encourage increases in private savings in addition to Social Security in order to fill the hole left by the demise of defined benefit pensions.

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         wildernessposted 12 years agoin reply to this

         The only reason to NOT turn it over to private is that our govt. loses a huge source of free money.
         
         Programs could be set up with payroll deductions deposited directly into private accounts approved by govt.  No withdrawals until 62 or death.  It's just that Uncle can't use the money then for their pork barrel projects.

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            Ralph Deedsposted 12 years agoin reply to this

            "The only reason to NOT turn it over to private is that our govt. loses a huge source of free money."
            
            Not true. Social security taxes are invested safely in special treasury bonds which accrue interest. This is not "free money."  Unless you don't trust U.S. government bonds this is the safest possible investment for Social Security taxes.

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               wildernessposted 12 years agoin reply to this

               1.  You're right - I do not trust the US Govt. with any of my funds.
               
               2.  You're also right in that it is not "free".  It pays a very marginal interest that can be beat by any mutual fund out there, high fees or not.  Until the depression it didn't even match inflation and is thus totally worthless for funding retirement.
               
               3.  Safe is, of course, relative.  If your money loses buying capacity each year but is still there it is safe.  You can't live on it, but what little there is is there.  The market, on the other hand is just as safe for any period over 15 years of so - a short period when considering a retirement fund.  Plus, it actually grows in purchasing power and can be used to live on.
               
               Do the calcs yourself the next time you get an SS statement of lifetime earnings and contributions.  Use a 10% "interest" rate (quite reasonable for long term mutual funds).  Compare what it is after 40 years and how much you can draw from it without touching principle with what SS pays.  Then look up actuarial tables and find your expected lifespan - re-calculate payments out of the fund to run out of money in that period.  Compare that to SS payments. 
               
               I guarantee it will be an eye opener.

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               undermyhatposted 12 years agoin reply to this

               Moving money from one pocket to the other does not create more money.

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   schoolgirlforrealposted 12 years ago

   These topics drive me crazy sometimes, lol.
   But I guess I like them cause they make me think!

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      JaxsonRaineposted 12 years agoin reply to this

      Thinking is good
      
      I didn't start to make my own opinions until I left the area I grew up in.

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         schoolgirlforrealposted 12 years agoin reply to this

         I tend to think non stop all day so I need to take breaks!
         

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   wildernessposted 12 years ago

   I used my last SS statement to build a spreadsheet of what private investment could have done given historical returns in the stock market.
   
   Needless to say the results were astounding - enough that I wrote a hub on the calculations and results.  Had that money been put into the stock market for the last 40 years instead of Uncle Sam "Borrowing" it at .5% I would be a multi-millionaire.

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      Cagsilposted 12 years agoin reply to this

      Hey Wilderness, I guess you were hit with a bout of depression when calculated out, huh?

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         wildernessposted 12 years agoin reply to this

         You've got that right!  And this thread resurrected it.

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            Cagsilposted 12 years agoin reply to this

            Sorry.

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               wildernessposted 12 years agoin reply to this

               No youre not.  You participate in these kinds of things to promote cogitation and rational thinking. 
               
               It seldom works, but when it does it's pretty neat.

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                  JaxsonRaineposted 12 years agoin reply to this

                  You don't even need 10% returns, and I would argue that such returns would be unlikely for the average person.
                  
                  But, around 6-8% returns are very possible, even with a recession like we just went through.
                  
                  The SS trust put out a document showing that returns for the very lowest incomes can be up to 4%, but middle incomes only get around 1-2%, and high incomes get 0.5-1%.
                  
                  All around, private is better.
                  
                  In all honesty, if the markets did poorly enough to be outpaced by government bonds, we would be in way too much trouble anyway, and very likely there wouldn't be any SS payments from the government.

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      JaxsonRaineposted 12 years agoin reply to this

      Luckily for you, the government doesn't think you are responsible enough to choose how your money is invested for retirement. Aren't you glad the government is looking out for you?

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         Cagsilposted 12 years agoin reply to this

         *noted sarcasm*

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            JaxsonRaineposted 12 years agoin reply to this

            Seriously, if there were an official sarcasm font, I would use it all the time.
            
            I forgot my earlier vow to always use sarcasm tags.
            
            [s]I'm so glad the government is looking out for me.[/s]

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   rickyliceaposted 12 years ago

   Social Security is a ponzi scheme.
   
   I'd rather rely on the market (excluding Goldman Sachs and the like) than the government. 
   The "trust fund" consists of bonds, IOUs.
   
   You get payed from what people are putting in right now, not what you put in and its returns, and with the retirement of the baby boomers its finances....
   Its already in deficit as we speak.

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