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JimH wrote:
"Jim," wrote in message
...
John H wrote:
On Mon, 28 Feb 2005 17:42:46 GMT, "Jim," wrote:
John H wrote:
On Mon, 28 Feb 2005 16:58:09 GMT, "Jim," wrote:
Social Security reform chatter is everywhere, and it's likely that at
some point, you're going to be cornered by the water cooler or in the
cafeteria and asked what you think. Your conversation partner may even
be (gasp) a conservative. So be ready. This guide from Think Progress
(a project of the American Progress Action Fund) includes
point-by-point claims in the Bush administration's words, coupled with
the real facts about Social Security. Make sure you're able to explain
to a conservative why that "personal" account won't really be yours to
control, or why passing on account money to your grandchildren won't be
possible. SEE THE GUIDE
http://thinkprogress.org/index.php?p=206
Here's some good thinking:
FACT: Analysis of the plan so far does not prove the [personal] accounts
would
be a better deal for anyone not working on Wall Street. Workers who opt
for the
private accounts would recover forfeited benefits through their accounts
only
“if their investments realized a return equal to or greater than the 3
percent
earned by Treasury bonds currently held by the Social Security system.”
Of course, analysis doesn't prove it would be a worse deal either.
History shows
it would likely be a better deal than the 3% earned by bonds. Is there
risk?
Sure.
Except the blended return of bonds held by the SS administration is
closer to 5%. The 3% figure is only for the most recent bonds, and rates
are rising again.
Here are todays numbers note the 30 year return is 5.375%
From http://www.bloomberg.com/markets/rates/
(note that unlike you *I* always try to give a source for my data, so
people can check what i say)
U.S. TREASURIES
Bills
COUPON MATURITY
DATE CURRENT
PRICE/YIELD PRICE/YIELD
CHANGE TIME
3-Month N.A. 05/26/2005 2.69/2.74 0.00/.015 11:14
6-Month N.A. 08/25/2005 2.89/2.97 -0.01/.031 10:54
Notes/Bonds
COUPON MATURITY
DATE CURRENT
PRICE/YIELD PRICE/YIELD
CHANGE TIME
2-Year 3.375 02/28/2007 99-19/3.58 -0-03/.053 12:22
3-Year 3.375 02/15/2008 98-31/3.74 -0-06/.068 12:23
5-Year 3.500 02/15/2010 97-27/3.98 -0-12/.085 12:24
10-Year 4.000 02/15/2015 97-06/4.35 -0-21/.084 12:24
30-Year 5.375 02/15/2031 109-29/4.71 -1-06/.074 12:23
But, people can always stop putting their money into risky accounts. In
fact,
they can stop participation at any time.
I still can't understand how a bunch of 'pro-choice' folks can be so
'anti-choice'!
Do we assume people have the responsibility to make baby-killing
decisions but
not monthly investment decisions?
The 3% figure came from *your* reference, which apparently I read but you
didn't.
The 3% figure was in the article because that's the number the
administration is tossing around to push their plan. The number is
BOGUS -- see the rate of return on bonds (and remember this is a low
point)
Now go back and check the stock market figures for the last 40 years.
from the December 27, 2004 edition -
http://www.csmonitor.com/2004/1227/p01s03-cogn.html
One man's retirement math: Social Security wins
By David R. Francis | Staff writer of The Christian Science Monitor
At the heart of President Bush's plan to sell Social Security private
accounts is a simple notion: You're always better off investing your
retirement money than letting the government do it.
By doing it yourself, you can stow some money in the stock market, and
over the long run will get a better return on that investment than today's
Social Security system offers.
The idea is broadly accepted. That's why the administration's plan to
partially privatize the system sounds appealing to many. But that better
return won't always happen.
Just ask Stanley Logue of San Diego.
For 45 years, the defense-industry analyst paid into the system until his
retirement in 1994. But with all the recent hoopla over reform, Mr. Logue,
a Massachusetts Institute of Technology graduate, decided to go back and
check his own records. Would he have done better investing his money than
the bureaucrats at the Social Security Administration?
He recorded all the payroll taxes he paid into the system (including the
matching amount from his employer), tracked down the return the Social
Security Trust Fund earned for each of the 45 years, and then compared the
result with what he would have gotten had he been able to invest the same
amount of payroll tax money over the same period in the Dow Jones
Industrial Average (including dividends).
To his surprise, the Social Security investment won out: $261,372 versus
$255,499, a difference of $5,873.
It's an astonishing finding. The DJIA represents blue-chip stocks. Social
Security invests in US Treasury bonds. Over long periods of time, stocks
have consistently outperformed bonds. So, you would think that Logue's
theoretical stock investments from 1950 to 1994 would have surely outpaced
the return on government bonds.
The fact that they didn't illustrates one of the hard truths about stock
investing: Timing matters.
Although Logue started pouring money into Social Security in the 1950s and
early 1960s, some of the best years for stocks, he hadn't accumulated a
lot of money.
So the gains of his theoretical stock portfolio would have been limited.
By the time he had substantial sums, the market swooned for long periods.
From 1965 to 1982, for instance, the DJIA made no progress. Logue retired
before the real run-up in stocks in the latter half of the late 1990s.
So the real lesson from his analysis is that any pension plan based on
stock investments carries extra risks.
Advocates of privatization point out - correctly - that Logue's analysis
compares theoretical stock returns with what the Social Security Trust
Fund earned - not what he himself would get from the system.
From that perspective, the investment approach looks better, they argue.
Over the long run, a typical worker can expect to earn 4.6 percent a year
(after administrative costs) on a diversified portfolio of stocks and
bonds and only about 2 percent or less from Social Security, according to
federal estimates reported by Michael Tanner of the Cato Institute, long a
proponent of privatization. Hypothetically, someone earning $30,000
annually would at the end of a 40-year career receive nearly twice as much
under the investment approach ($344,000) than with Social Security
($185,000).
Who's right: Logue or Mr. Tanner?
The debate hinges considerably on what people want their retirement system
to be. Social Security has always been an insurance program. It was never
intended as an investment scheme. So everyone - retirees, the disabled,
widows, and orphans - receive guaranteed monthly income. The "return" on
their Social Security contributions depends largely on how long they live.
Those in their 90s have enjoyed superb returns. Those who don't live as
long benefit less.
Private accounts, by contrast, involve far more variability, both sides
agree. Individuals who enter and exit the market at the right times would
undoubtedly do better under privatization.
But under Britain's privatized pension system, so many retirees are doing
so poorly at this moment that a commission warned this fall that
widespread poverty among the elderly may be returning, which could require
massive new government spending.
Presumably, President Bush's plan would offer the choice to meld insurance
and private investment: much less guaranteed income in return for the
opportunity - and risk - of earning more in the markets.
"Because financial asset returns are volatile, benefits under a personal
account system would fluctuate," notes Bill Dudley, an economist at
Goldman, Sachs & Co., a New York investment bank. "On a risk-adjusted
basis, the privatized account ... becomes much less compelling."
There are other problems with private accounts. Administration expenses of
the present Social Security system are minuscule compared with the size of
the benefits provided. The Bush administration so far has provided no
details on its private accounts plan. But if these are handled by Wall
Street, the fees could be sizable, dissipating some of the return from
investing in stocks. Logue takes no account of such expenses in his
analysis.
Further, administrative costs and difficulties for private business could
be large as companies, big and small, try to deduct the right amount from
a payroll and put it into a private account in a timely fashion.
A study by the Congressional Research Service (CRS) notes some
complexities: 650,000 employers go out of business or start new businesses
each year. More than 4 million employers have 10 or fewer employees, often
having record-keeping problems and errors. About 12 million to 15 million
individuals are self-employed and presumably would have to send money
directly to a private account.
So the complexities of change are substantial. If the extra return from
privatization is not very advantageous, "why even consider changes that
all agree would be very disruptive?" asks Logue.
Jimcomma, do you ever have an opinion of your own?
Sure -- several, particularly about right wingers, but I'm too much a
gentleman to express them here
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