[Cody Dawg]

So, this is a weird question.

We've all been paying our entire working lives into social security. Thousands upon thousands upon thousands of dollars.

Now Greenspan says that in 3 years the money will be gone.

Link. Money gone in 3 years.

If that's the case, can we stop paying into the system completely at that point?

Seriously?

And, also, like back child support or insurance fraud, can we sue the government to recoup our money? I realize no person would probably get it back, but it's the point that maybe someone should sue the government because of mismanagement of funds. We can sue our investment companies over bad investments (people here where I live are suing Worldcom and Enron, for example), so why not the government? A class action lawsuit?

I'm kind of thinking that Bush is a real knucklehead because the war has bankrupted this nation even more than it was. I won't vote Republican again.

[OldManMac]

Would you please point out where it says the money is going to be gone in 3 years?

[Cody Dawg]

The Fed chairman told the Senate Special Committee on Aging that the nation has about three years to work out a fix.

Did you read the article KarlG?

Also, CNN's homepage says:

Federal Reserve Chairman Alan Greenspan warned Congress that the nation has about three years to fix Social Security.

[dreilly1]

Originally posted by Cody Dawg:
So, this is a weird question.

We've all been paying our entire working lives into social security. Thousands upon thousands upon thousands of dollars.

Now Greenspan says that in 3 years the money will be gone.

Link. Money gone in 3 years.

Except, that's not what he said, or what the article said.

"In 2008, the leading edge of what must surely be the largest shift from retirement in our nation's history will become evident as some baby boomers become eligible for Social Security," he said in his prepared remarks.

By that date, the population 65 years and older will be more than one-fourth of the adult U.S. population, Greenspan said, referring to forecasts by the Social Security trustees. That would be up from 17 percent currently.

"This huge change in the structure of our population will expose all our financial retirement systems to severe stress and will require adjustments for which there are no historical precedents,"

The three year mark is a kind of statistical milestone down the path to oblivion. We will be going into uncharted territory, with no real plan to be doing things any differently.

The fundamental problem with Social Security is that, in spite of the statement you get every few years, your contributions are not "saved" for you; they are spent on current retirees, with the balance either being saved for you in the form of treasury bonds or being funneled into the federal budget to fund runaway spending, depending on whether you listen to NPR or Rush Limbaugh. So, since our old people simply aren't dying off the way they used to, they are getting more of our hard-earned money. Since killing them off isn't an option, we either need to cut their benefits, pump more money into it, or scrap the concept entirely.

[Cody Dawg]

The point is, can we sue the government for mismanaging our funds?

[dreilly1]

Originally posted by Cody Dawg:
The point is, can we sue the government for mismanaging our funds?

The fund isn't being mismanaged -- at least, not in the same sense that Enron or Worldcom were. Social Security is being managed exactly like it is supposed to be, by law. The problem is that the fundamental assumption that was made when Social Security was started -- that there would always be enough new workers to fund retirees' pensions -- has been proven wrong since old people are living longer.

[OldManMac]

Originally posted by Cody Dawg:
Did you read the article KarlG?

Also, CNN's homepage says:

According to the Government Accounting Office (GAO) and others, the trust fund will be fully solvent until 2042, at which time benefits will be cut, if something isn't done in the meantime.

The article did not say, nor does anyone else believe, that there will be no money in three years. What the article said was that the big baby boom retirement party starts in three years, and that the number and percentage of those over 65 is getting high enough to be of concern.

Unfortunately, Bush and Co., are trying to scare the public into believing that there is an impending disaster, if we don't start privatizing SS immediately, and that's mainly because he wants to dismantle one of the last vestiges of New Deal programs, and then try to convince people that they can do better investing the money on their own, even though that's very unlikely. He also, conveniently, doesn't mention that a lot of his friends and powers on Wall Street are going to rake in huge fees for handling the money you give them. SS needs to be tweaked, not destroyed in order to make some rich people even richer.

[Cody Dawg]

He also, conveniently, doesn't mention that a lot of his friends and powers on Wall Street are going to rake in huge fees for handling the money you give them.

[Millennium]

The money does not dry up in three years, but this is when the system crosses the line into true unsustainability. The money won't actually run out for some decades after that, but this is the point where it becomes inevitable.

Of course, there are people who just want to let this go, gambling on future tax increases to sort everything out.

[Millennium]

Originally posted by KarlG:
SS needs to be tweaked, not destroyed in order to make some rich people even richer.

'Tweaked' implies minor adjustments. You can't just slap a band-aid on something when the entire concept of how it's supposed to work is fundamentally flawed.

[Randman]

SS was never designed for this in mind, so many people living robust lives for so much longer after the age of "retirement".

Cody, maybe you should try skimping on meals here and there and try saving for your golden years rather than trying for the lottery win with a silly lawsuit.

[SVass]

You have poor memories. Around 1997, Alan Greenspan said that Social Security would run out of money in 2027 (not 2042) as the economic growth rate assumed by the trustees was 2.5% per year. (At 3%, it would never go bust and at 3.5%, it would fund the rest of government.) Note that in 7 years, we have gained 15 years of solvency. Isn't compound interest wonderful? The trustees have reduced their estimate of annual growth to 1.8% per year to maintain an illusion of approaching insolvency. Another side note, around 1993 there was an estimate of death rates from AIDS. It was doubling every year and another government "expert" said that he expected that to continue for at least ten years. So according to him, we are all dead. sam

[mitchell_pgh]

Originally posted by KarlG:
and then try to convince people that they can do better investing the money on their own, even though that's very unlikely.

Click to Enlarge

[Millennium]

Originally posted by SVass:
[B]You have poor memories. Around 1997, Alan Greenspan said that Social Security would run out of money in 2027 (not 2042) as the economic growth rate assumed by the trustees was 2.5% per year. (At 3%, it would never go bust and at 3.5%, it would fund the rest of government.)

Note the word estimate. Although estimates are supposed to reflect reality, only rarely do they actually match it.

The trustees have reduced their estimate of annual growth to 1.8% per year to maintain an illusion of approaching insolvency.

To maintain the illusion, or to reflect the reality of slowing economic growth?

Another side note, around 1993 there was an estimate of death rates from AIDS. It was doubling every year and another government "expert" said that he expected that to continue for at least ten years. So according to him, we are all dead.

In other words, reality was slower than the expectation. If you can so readily accept this in one case, why not the other?

[SVass]

Estimate--Since 1975, our economic growth rate has been 2.8% per year. Recently, it has exceeded 3.5% growth. So reality has exceeded expectations (as it ALWAYS has). Politicians prefer to scare us with phoney projections, tales of terrorists with cigarette lighters on aircraft, (Do you have plastic wrap and duct tape at home to protect against Sarin gas?), and politicians do not want to deal with real problems. For older people-have we run out of oil yet?, has the rapture occurred?, will we reach the moon before 2150?, can a heavier than air craft actually fly? Or a simpler question, do you know that the word computer used to refer to the human who did the math on paper?

Our energy problems will be ultimately solved by switching to some other source (fusion, solar, ??) and our social security shortfall will be resolved by educational advances (teaching compound interest formulae using a spread sheet). Keynes said it best, "In the long run, we are all dead". Or listen to Mark Twain who suggested that when Congress talks about fiscal reform you should lock up your wallet. sam

[SimeyTheLimey]

Originally posted by SVass:
Estimate--Since 1975, our economic growth rate has been 2.8% per year. Recently, it has exceeded 3.5% growth. So reality has exceeded expectations (as it ALWAYS has). Politicians prefer to scare us with phoney projections, tales of terrorists with cigarette lighters on aircraft, (Do you have plastic wrap and duct tape at home to protect against Sarin gas?), and politicians do not want to deal with real problems. For older people-have we run out of oil yet?, has the rapture occurred?, will we reach the moon before 2150?, can a heavier than air craft actually fly? Or a simpler question, do you know that the word computer used to refer to the human who did the math on paper?

Our energy problems will be ultimately solved by switching to some other source (fusion, solar, ??) and our social security shortfall will be resolved by educational advances (teaching compound interest formulae using a spread sheet). Keynes said it best, "In the long run, we are all dead". Or listen to Mark Twain who suggested that when Congress talks about fiscal reform you should lock up your wallet. sam

So let me see if I can understand this stream-of-conciousness "argument." We can't predict the future (true). And sometimes unexpected things happen (true). When politicians say something bad will happen if we don't do something, that bad thing will never happen (false) because some magical change will always intervene to make the problem go away (false). And in any case, we'll all be dead anyway one day (true), so there is no point in making any decisions one way or the other in the mean time (false).

That is the most mind-blowingly nihilistic argument in favor of apathy that I have ever read. The things you cite as heading off problems don't just happen -- they happened because people saw problems and worked to prevent them from getting worse.

Take the AIDS crisis -- the reason it levelled off isn't because it just wasn't as bad as projected. It levelled off because people were worried enough to put into place a comprehensive public health education campaign, coupled with a crash research program that produced new drugs that slowed the rate of the progression of the disease to the point where today it is no longer quite the death sentence it was as little as ten years ago. But for those changes, it could easily have been worse than many of the projections.

Why is the economy doing better today than the post war average? Perhaps because people have looked at our economic decisions in the past and said "we can do better." But for those decisions, the economy could well have been worse than we made it. We might, for example, still be dealing with inflation at Jimmy Carter rates. But the better performance that hasn't helped Social Security, because the returns on Social Security have been BELOW the returns on private sector investments.

As for your statement that "[p]oliticians prefer to scare us with phoney projections" and "politicians do not want to deal with real problems" don't you realize that BOTH sides of this issue are politicians? There are a group up on the hill projecting that Social Security will last for ever with no changes, and arguing that they don't want to deal with this real problem. For example, just a couple of weeks ago, former Labor Secretary Robert Reich argued against Social Security reform based on the fact that his grandfather lost his savings in the Great Depression. Op ed is here. Talk about false scaremongering. There have been a few changes since 1929 in the stock market and banking industries.

Second, this idea that compound interest will save us. Duh! That is precisely the argument for reform. That's the idea at the heart of the plan for private accounts.

And then next you quite Twain on the need not to trust politicians with your money. Um. Last time I checked, the Democrats "plan" was to increase taxes, while the Republicans want to (in effect) reduce taxes and let you put a little of your own money in a private account. So you don't trust politicians with your money, unless they want to take more of your money? Come again?

So all your substantive arguments point toward reform, but your emotional argument is to do nothing on any issue because every issue vanishes by itself -- even though in fact, every issue vanishes because people think things through and are daring enough to make them go away.

[Millennium]

Originally posted by SVass:
Estimate--Since 1975, our economic growth rate has been 2.8% per year. Recently, it has exceeded 3.5% growth.

According to whom? Furthermore, if this is true, then where is this recession over which liberals and conservatives alike have been so up in arms? By definition this would slow economic growth to something well under the 3.5% you mention. Or are you trying to deny that this ever happened?

So reality has exceeded expectations (as it ALWAYS has).

Oh, boy; I can have such a field day with this...

[SVass]

You really sound like a typical Republican. The inflation was caused by Jimmy Carter (because he was President when it happened). The Cold War was won by Reagan (because he was president when it happened). (Actually, Carter changed our nuclear targetting policy to force the Soviet Union to bankrupt itself via defense spending. Bush doesn't know that this is what Al Quaeda has done to us.) The recession was caused by Bill Clinton (because it happened when Bush was president). Aids was and is a problem and a plateau in new cases was reached for many reasons, of which education, medical research, and even genetic resistance of some humans was responsible. Momentary straight line, geometric, and exponential growth curves can not be projected indefinitely into the future.

Compound interest has nothing to do with the "private" accounts plan. First, they eliminate the estate (death) tax. Then they redefine income to allow long term savings, dividends, and capital gains to either escape all taxes or to get a reduced rate. Then they establish accounts that will pass to your heirs if and only if your other income exceeds the "poverty level". This is LOOTING of insurance funds to support the establishment of a moneyed aristocracy.

Our oil economy came into existence because it was needed at the time. The Europeans and the Japanese are investing in major fusion research while our Congress refused to participate. Yes inventions come when they are needed, because investors are willing to risk their capital when there are real prospects for major rewards. I just don't want the former winners to choke off our future.

[SimeyTheLimey]

As I suspected, none of that stuff about how everything gets better if you just do nothing and how politicians always make up emergencies was really meant. You now cite counter examples of things getting better because Democrats did something and other actions by politicians who you trust (i.e. Democrats).

It just boils down to: if Republican proposal, then oppose.

You'd make more sense if you would just come out and say it.

[Cody Dawg]

Okay, this conversation is now entering the stratosphere that I do not understand; apparently everyone else knows much more than I do.

I love hearing what everyone has to say, however.

[Cody Dawg]

Oh, and this comment:

Cody, maybe you should try skimping on meals here and there and try saving for your golden years rather than trying for the lottery win with a silly lawsuit.

1. I already do skimp on meals...but it has to do with my waistline and not saving $$$.

2. I don't buy lottery tickets and instead rely on good old-fashioned hard work to earn money.

3. I have a 401 plan already, along with real estate, and I have stock that I will never sell. (Microsoft & Apple to name two.)

I would say that we will probably be okay. (Well, until we put three or four children through college, that is. )

[SVass]

Originally posted by SimeyTheLimey:
As I suspected, none of that stuff about how everything gets better if you just do nothing and how politicians always make up emergencies was really meant. You now cite counter examples of things getting better because Democrats did something and other actions by politicians who you trust (i.e. Democrats).

It just boils down to: if Republican proposal, then oppose.

You'd make more sense if you would just come out and say it.

I cited one action by one president and you say that I named counter examples (plural). No, I am opposed to all theft by both so-called parties. Sometimes, government funding is required as for a war and poor houses (social insurance is less costly and easier to manage). Democrats did nothing for Aids and neither political party did anything to end inflation. The latter has been on going since 1620 and a temporary slowdown is like a temporary speedup-they are both temporary. I pointed out that many things do get better because people invent a solution. Political leaders get in the way as do wealthy families as both want no change in order to preserve their rank and privelege. Free peoples with constitutional protections somehow stumble ahead to what we call progress. Both "progressives" and "conservatives" want to force everyone into their mold and want their income to be untaxed. Guess what-that leads to temporary power and ultimate revolutionary bloodshed. sam

[cpt kangarooski]

Cody Dawg--

3. I have a 401 plan already, along with real estate, and I have stock that I will never sell. (Microsoft & Apple to name two.)

Stock you never sell isn't worth very much. The idea is that you sell it off sometime, and perhaps reinvest the proceeds in less expensive stock that will eventually be worth more than you paid.

If you just keep it, all you're going to get will be dividends, some degree of control, and depending on what you mean by never sell, maybe it can be used as collateral.

[CRASH HARDDRIVE]

Originally posted by cpt kangarooski:
Stock you never sell isn't worth very much.

Selling or not has no inpact on a stock's value.

The idea is that you sell it off sometime, and perhaps reinvest the proceeds in less expensive stock that will eventually be worth more than you paid.

Sorry, but that's simply another game plan for investing, not 'the' idea -as in the only one. The goal is preserving the value of your money, whatever that takes. If that means holding onto many of the same companies for 50 years, so be it. The trick is finding companies that will keep up their earnings over time. It's any investor's best guess. In the past, the Coca-Colas, GEs, IBM's etc. have survived and earned for a soild century. Many believe Apple. Microsoft and the giants of our day will be doing well for just as long.

People that dump out of a solid company, in favor of "less expensive stock" (basing the value of stock merely on expense????) probably don't know what they are doing. The same types probably would have dumped IBM for Tandy, or GM for Edsel back in the day.

[demograph68]

I blame the hospitals.

[dcmacdaddy]

Originally posted by dreilly1:
The fundamental problem with Social Security is that, in spite of the statement you get every few years, your contributions are not "saved" for you; they are spent on current retirees, with the balance either being saved for you in the form of treasury bonds or being funneled into the federal budget to fund runaway spending, depending on whether you listen to NPR or Rush Limbaugh. So, since our old people simply aren't dying off the way they used to, they are getting more of our hard-earned money. Since killing them off isn't an option, we either need to cut their benefits, pump more money into it, or scrap the concept entirely.

Do ALL of these things.
Cut benefits (via means testing)
Cut benefits (increasing the retirement age)
pump more money into it (increase the salary cap on contributions)
Offer a time-limited withdrawl option (participants would get a fixed figure for a certain period of time, say 20 years)

[SVass]

Today a new analysis solves the problem. The original projection assumed that life expectancy would increase to 100 and that everyone would retire young. Now we hear that the obesity epidemic is reducing life expectancy so that there will be fewer retirees in 75 years than expected, thus eliminating the negative cash flow.

I suggest that we revise Swift's "Modest Proposal" by using aged long pig instead of newborn to feed the poor with the supply coming from any whose projections are off by more than 10%. sam

[itai195]

Originally posted by CRASH HARDDRIVE:
Selling or not has no inpact on a stock's value.

OT, but I agree. This is another way of saying what Buffett says: the best time to sell a winning stock is never.

As far as social security goes -- I may be rather liberal but I've never been a huge fan of the system as it's implemented. It should be an insurance policy, not the cornerstone of your retirement planning.

[vmarks]

Originally posted by CRASH HARDDRIVE:
The same types probably would have dumped IBM for Tandy, or GM for Edsel back in the day.

Edsel was simply a subsidiary of Ford. Ford, despite their troubles with Firestone tires, seem to be doing ok.

The rest of your point stands, there are different investment strategies, but each investor has to decide what the value of a company is worth, not simply what its price happens to be. Whether or not it is over or under priced based on its value is one factor in whether or not one ought to sell, buy, or hold.

[CRASH HARDDRIVE]

Originally posted by vmarks:
[B]Edsel was simply a subsidiary of Ford. Ford, despite their troubles with Firestone tires, seem to be doing ok.

Opps, you're right. I think I was thinking of Tucker.

Ahh well. As usual, car analogies generally suck!

[typoon]

I think for seniors it might matter more when/if the social Social Security fund runs out. there are so many options for younger people to save for retirement. If your company has a 401K Everyone should be contributing to your 401K if there is one. If there isn't a 401k provided by your company everyone should/could setup a Roth IRA for themselves. Either way you could put money into it and when you got older you wouldn't have to worry about whether Social security would be around for you or not.

[itai195]

Originally posted by SimeyTheLimey:
For example, just a couple of weeks ago, former Labor Secretary Robert Reich argued against Social Security reform based on the fact that his grandfather lost his savings in the Great Depression. Op ed is here. Talk about false scaremongering. There have been a few changes since 1929 in the stock market and banking industries.

What a whopper of a mischaracterization. Reich's argument is that the stock market has no guaranteed rate of return, and thus is a poor investment for what should be an individual's guaranteed social insurance funds. Now I can take issue with Reich's argument from the perspective of someone who knows how to manage his money, but I think it's pretty safe to say that many Americans haven't got a clue about how to manage their finances.

[SimeyTheLimey]

Originally posted by itai195:
What a whopper of a mischaracterization. Reich's argument is that the stock market has no guaranteed rate of return, and thus is a poor investment for what should be an individual's guaranteed social insurance funds. Now I can take issue with Reich's argument from the perspective of someone who knows how to manage his money, but I think it's pretty safe to say that many Americans haven't got a clue about how to manage their finances.

Reich's argument that the stock market as no guaranteed rate of return is illustatrated by a false scaremongering analogy: the stock market crash of 1929. The stock market is not vulnerable in the same way that it was back then because there have been considerable reforms since 1929. We found out just how effective those were in 1987 where a "crash" was survived and the stock market went on to greater highs.

Although no individual stock is guaranteed a rate of return, the stock market as a whole in long term investment significantly outperforms the puny "returns" generated by the Social Security tax. Of course if you promise virtually nothing, you can deliver virtually nothing.

The problem is, that even that small return is only as good as the solvency of the entire Social Security system. Once there are no longer enough taxpayers to fund the retirements of former workers, the model breaks down. The government will either have to cut benefits (making the return for some a big fat zero), increase taxes sharply (making it still harder for future generations to prepare for their futures), or simply allow the system to collapse. The time to make the decisions to avoid that is now, before the crisis.

Democrats like Reich are trapped by the ghosts of the past. It's sad that he has to little trust in people, and so little imagination.

[Millennium]

Originally posted by SVass:
[B]Today a new analysis solves the problem. The original projection assumed that life expectancy would increase to 100 and that everyone would retire young. Now we hear that the obesity epidemic is reducing life expectancy so that there will be fewer retirees in 75 years than expected, thus eliminating the negative cash flow.[b]

My, how neo-Malthusian of you.

[itai195]

Originally posted by SimeyTheLimey:
Although no individual stock is guaranteed a rate of return, the stock market as a whole in long term investment significantly outperforms the puny "returns" generated by the Social Security tax. Of course if you promise virtually nothing, you can deliver virtually nothing.

If personal accounts only allow Americans to own a very small number of index funds, then this is true. Still, if the market is down when you retire, and you didn't know how to allocate your funds as you approached retirement, you could find yourself with a rather paltry Social Security benefit. Besides, the government already offers some perfectly fine retirement savings options. It may be more effective to educate Americans on how to use those options and plan for their retirement, to save more than 1-2% of their pay, and to avoid crippling [credit card] debt. This would eliminate the impetus for personal accounts and restore Social Security's proper role as social insurance. Social Security was never intended to be a wealth building program.

When speaking of the solvency of Social Security, personal accounts don't solve that problem. The White House admits this. The only ways to resolve that looming problem (37 years in the future, 47 according to the CBO) will involve some kind of benefit cut or tax increase. I agree that we should do something now, so we don't end up doing something shortsighted at the last minute, like Greenspan's plan in 1983.

[SimeyTheLimey]

There's an interesting editorial in today's Washington Post. I don't agree with every line, but it is interesting to see the normally liberal-leaning Post editorial board criticizing Democratic leaders like Harry Reid as being "dishonest" on Social Security and dodging an important issue for partisan political reasons.

ONE CAN DEBATE the merits of creating personal accounts in Social Security but not the case for fixing the program's solvency problems. Over the next 75 years, as the Social Security trustees reported on Wednesday, the program has a projected deficit of $4 trillion; the longer the nation waits to address this problem, the nastier the tax hikes or benefit reductions that will result. But that's not the impression conveyed by some Democratic leaders. The trustees' report, according to Senate Minority Leader Harry M. Reid (D-Nev.), "confirms that the so-called Social Security crisis exists in only one place: the minds of Republicans." The senator's desire to score political points is understandable. His willingness to do so by implying that Social Security is healthy is not.

Democrats defend this opportunism by saying the president is worse. President Bush, they complain, is talking up an alleged Social Security "crisis" in order to ram through an unrelated proposal to create personal accounts. But, in addressing Social Security, Mr. Bush is taking on an issue that the Clinton administration also regarded as important; he is not inventing a problem. He can be faulted for not specifying the benefit cuts or tax hikes he favors to restore solvency, but at least he acknowledges some will be needed. In that context, personal accounts are not irrelevant; they involve risks, but they are potentially a way of cushioning the necessary benefit cuts in the traditional Social Security system.

It concludes:

The nation faces a severe economic threat from the aging of its population combined with escalating health costs. The sooner it begins to grapple with this problem, the less painful the solution will be. For Mr. Bush, that would mean acknowledging the need for more revenue. For the Democrats, it would require for a smidgeon of honesty about Social Security's state.

[SVass]

The "Leave No Child Behind" law should instead have provided money to educate reporters and commentators as well as Republicans in compound interest computations. Table V.A.3-Period Life Expectancies on page 80 of the new report states that in 2080 a newborn female would live to 82.2, 85.2, and 89.3 years in the low, intermediate, and high cost models as opposed to the current value of 79.6. Similar estimates are used for inflation, economic growth rate (which is assumed to collapse in the future intermediate model), etc. As I pointed out in an earlier post, we will out of oil by 2010, ANWR will be empty by 2015, average annual income will be 675,000 (another table in the report), and the last human died from AIDS in 2001. sam