Inventing a Crisis

[DanS]

Spencer: Unfortunately, since we have something of a pay-as-you-go system, it's only partially a matter of paying in and recovering money. It's also doing your duty to the state by having lots of children. If we had more children (and our parents had more children), then we would pay in less payroll taxes to get the same benefit -- i.e., we would be paying in less or no extra.

Moving to private accounts won't change the basic demographic problem. It will just take the assets and liabilities off the government's books and put them onto the people's individual books.

There are at least two reasons why it's a good idea to do private accounts anyway. The first is to cushion the impact of the basic demographic problem somewhat, since the private economy pays 2 or 3 percent better per annum on each dollar in saving than does the government. In this sense, part of the extra that you are paying now is to make up for the amount that the government is taking from you by forcing you in to a lower interest rate investment. Unfortunately, as the private accounts comes into full force, the "spread" between the interest rates the government pays and what the private sector will pay will decline somewhat, but at least you will have been able to choose the higher interest rate.

The second reason is that a private account will be a huge family asset. If a husband dies, then the widow or their kids will inherit what is in the private account. Research indicates that people see what would become forced retirement savings as an incentive to go to work rather than the current system where social security taxes are seen as a huge disincentive to go to work. There will be ways for poor people to leverage this asset to do things that were previously very difficult for them to do.

[DanS]

well i want my own money. i worked for it, so i deserve it. isnt this america? will america keep its promise to me?

I think the better idea is that America shouldn't be promising you a damn thing.

[Lawrence of Arabia]

I think the better idea is that America shouldn't be promising you a damn thing.

why is that? america owe's me. without the people there is no america, but people can exist without america. ask not what you can do for the country but ask what the country can do for you.

[Drake Tungsten]

I can't believe some people still take Krugman seriously...

[Ogie Oglethorpe]

Originally posted by GePap


Krugman is an Economics Professor at princeton.

And Krugman answers your question- the people implementing these systems hate SS (except for the increased age-that is simply common sense)

Krugman has the credentials but also the hate of the current admin to make me question almost everything he writes.

Partisan doesn't begin to describe him.

Edit - Damn need to read to the end of the thread. What Drake said.

[Dinner]

Originally posted by Lawrence of Arabia
privatize. or at least give me the oppertunity not to pay into SS and let me keep my money, and invest it myself.

Do you really think that 3% of 2% of your income (If you make $50k per year then less then $100 per year will be saved) will amount to diddely squat? Congradulations LoA over then next 20 years of your working life you will have saved $2000. I don't know about you but I pay more then that each month on my house once I pay the bank, the home owners association, and put aside money to pay the property taxes.

[Dinner]

Originally posted by Lawrence of Arabia
of course I'll have money. ill invest the money that goes to SS (10% a year) into the stock market on the lowest performing least risk stocks, and by the time I retire, I can retire an millionaire.

That's a good idea but you'll have to rely on your 401k and other investment options and not Bush's partial privitization plan. You'll be lucky if when you retire there's more then $5000 in you Bush sponsored privitized account and I'm assuming you have a 45 year working life left.

The big problem is you can't do a 100% privitization without massively increasing government spending to cover the difference between the loss in income as young people opt out, the natural decline in payers, and the natural increase in recievers as the population ages.

[Dinner]

Originally posted by chegitz guevara
You'll need to put away $10K a year at 6% interest for 30 years to retire a millionaire. And in thirty years, a million will be worth what? If inflation is the same as the last 30 years, then it will only be worth about a third to one half what it's worth today, so you'll need to sock away twice that amount. Do you make so much you can invest $20K a year?

If you really want to make money then you need to leverage other people's capital to work for you. That's why realestate is such a good investment. You leverage other people's capital and keep 100% of the return and can even make some cash renting the place out while you wait. Is there a better deal on the planet?
For instance my father owns several rental houses which be bought over the last 12 years and for the last 50 years realestate in southern California has averaged 10% appreciation where as over the last 10 years the prices have gone up an average of 15%.

Do the math. If I have a $400,000 house, and it's almost impossible to find anything cheaper, and I make 15% per year then I made $60,000 in capital gains in my first year. Since you'd have naturally rent out the house during that year you'd likely make $17k-$20k in morgage though you will still have to come up with the cash to pay various extra expense besides the morgage.

The kicker is that you can buy a house with as little as $5k down so with a $5k investment I make $60k in one year plus $20k in cash flow? Hell, sign me up.

[Ramo]

Until the California real estate market crashes. Seriously, how long can such growth be sustained?

[el freako]

Until the rental returns as a proportion of house value become so low that housing becomes a poor investment of money.

Oerdin, are rents in California rising at 10% to 15% a year?

Also investing in housing for your retirement is a bad strategy because when the baby boomers retire together there will be a large influx of people trading-down, selling investment properties and letting such properties out.
When there is such a large increase in supply into a market where the sellers are the smaller generation that followed the baby boomers prices will fall.

[Dinner]

Originally posted by chegitz guevara
That's 80% of the average wage. It also assumes the market doesn't tumble around the time you want to retire.

Ideally an investor reshapes his investment protfolio as he ages. When you're young & have a long working life left to cover losses you go agressive, when your middle aged you start mixing in more bonds and low risk stocks like utilities, and as you get to with in 10 years of retiring you you phase most of you investment into low risk stocks, bonds, T-bills, and CDs. It wouldn't do to lose 80% shortly before retiring.

That said a public retirement system like Singapore has would be great. Everyone pays a tax which goes into their private account which they can't touch for any reason until retirement. The people must invest with in strict government guidelines to prevent speculating but if you follow the guidelines then the government will insure the actual principle from lose.

The US has a 70 year old legency in Social Security though so it would be impossible to transition all the young people to a privitized system without having the government cough up trillions of dollars to cover the cost of the middle aged & elderly's retirement. Like it or not we're stuck.

[Japher]

Also note that a very good investment vehicle for retired ppl are REITs... which own real estate.

[Dinner]

Originally posted by Lawrence of Arabia
they'll be down for what? 2 or three years max? 4 at the outside? thats no problem

You are assuming people are buying stocks themselves instead of mutual funds. Unfortunately most Americans invest in stocks through mutual funds. With a stock if the price goes down I still own the stock so it the price should recover then I still own it.

Mutual fund are different. The mutual fund company ownes the stocks and you get dibs on the money they make each year but you don't own the stock. The mutual funds buy and sell fairly frequently and that means they're not going to wait five years for a stock to recover instead they normally dump a stock and use new money to invest in a faster growing stock. Once you lose money in a mutual fund you have no asset to hold on to hoping prices rebound.

[Dinner]

Originally posted by pchang
Because in its present incarnation it is a Ponzi scheme.

No more so then any other government program. Essentially there is no "investment" towards retirement. Instead there is simply a deadicated tax which is used to pay current retires benifits. Sure, it would be way better to hold on to that money and invest it but the government couldn't even be trusted to hold on to the minor partof SSI in the trust fund thus SS continues to simply a tax on current workers to pay for government programs. It's the same sort of thing with education, roads, the military, and everything else.

It was never designed to be an investment it has always been a simple tax. You can complain that the government doesn't give you a good return on your taxes but that's hardly a new thing.

[Dinner]

Originally posted by Japher
Also note that a very good investment vehicle for retired ppl are REITs... which own real estate.

REITs generally have a higher cost and a lower return then investing on your own. Most REITs want big properties with at least 10 units so that leaves the 1-9 unit places for small time investors to pick up without having to pay the high investment management costs most REITs charge.