Maybe Your Social Security Payments Weren't Such a Bad Investment
Yeah, the stock meltdown of 401Ks is making the Bush-McCain proposals for social security privatization look idiotic, but the Wall Street Journal of all places has a nice quantification of how valuable social security is for most families:
The U.S. government pledges that you will receive those payments, adjusted for inflation, for as long as you live...This kind of bond has a name: an inflation-adjusted immediate annuity...The implicit bond of Social Security makes up about 40% of the total assets of the average household on the verge of retirement...So most families have the equivalent of hundreds of thousands of dollars in assets that are untouched by the financial crisis.
Since the Wall Street Journal numbers seem to be talking about "average" households (where richer households push the number up) rather than median households (where half of household have more and half have less), the saving grace of social security is even more apparent. Media households depending on the survey measure their assets in tens of thousands of dollars, not the hundreds of thousands of dollars that their stake in social security represents.
This is reflected in the fact (see p. 10) that social security is 39.6% of the income of Americans over age 65, with regular earnings accounting for 23% of their income. In fact, returns from financial assets are only 15.4% of older Americans income. So while the stock market collapse is definitely hurting some groups of the elderly, the reality is that a fifty percent drop in the value and earnings from financial assets cuts overall income of the elderly by less than 10%. Rising costs of medicine or other costs not fully captured by inflation-adjustments to social security may be far more critical to the financial well-being of most older Americans.
The wonders of social security for most older Americans in the face of the meltdown is one of key stories of the present meltdown. And the legacy of the original New Deal is one reason the challenges of this one will be far less.
I just posted this on another thread;
Bush was going to finance the transition costs of privatizing Social Security by selling Government Bonds, the same kind of Bonds being held in the Social Security Trust Fund...... which the Republicans have said are worthless.
November 29, 2008 11:21 AM | Reply | Permalink
This is a smart blog. I mean it. You have so much knowledge about this issue, and so much passion. You also know how to make people rally behind it, obviously from the responses. Youve got a design here thats not too flashy, but makes a statement as big as what youre saying. Great job,children health indeed.
January 21, 2011 8:04 AM | Reply | Permalink
Thanks for this reference, Nathan. I hope people pay attention. While 401(k) and other personal accounts provide potential for higher earnings than SS, SS as currently designed provides a very reasonable benefit to most Americans. Plus, because its funding is totally different from the funding of an individual account (and not directly linked to the stock or bond markets), it means Americans have far more diverse retirement portfolios than they otherwise would. As always, diversity minimizes risk. In the past, Americans could rely on three types of retirement vehicles:
1. Employer-funded pensions with defined benefits not tied to returns
2. Social Security
3. Private accounts--401k or personal investments
Actuaries used to refer to this as a sturdy "three-legged stool" of retirement security. Most employers have abandoned the old DB pension plan, replacing it with 401ks and similar individual, market-invested accounts. That leaves most people with a two-legged stool (individual accounts and SS). If SS goes to private accounts too, we've all got just a one-legged stool to rest our butts on once we're old. Which means most of us won't be sitting on that stool--but standing at the door of Walmart greeting the next generation of life-long workers.
November 29, 2008 11:47 AM | Reply | Permalink
Purple,
Social Security is a better investment than your 401K. SS gives you an immediate 100% match, plus a 'for life' Pension with COLAs, survivors benefits, disability insurance, and a tiny death benefit.
Maybe we should simply send the money we use to fund defined benefit and defined contribution plans to the SS administration? :-)
November 29, 2008 2:01 PM | Reply | Permalink
I think most economists would say that your "100% match" and crisdecuba's "employer's matching contributions," below, are wages which are being delivered in another form -- that is, without the "matching" programs they'd still be be paid* to workers but directly as part of their paychecks.
* To the extent that we have a free labor market employers compete with each other to obtain workers' services by offering remuneration in the form of cash wages and employer paid benefits. Remove a benefit and it'll be replaced by cash wages -- assuming, that is, workers aren't seriously math challenged.
November 29, 2008 8:27 PM | Reply | Permalink
Yes-- economists say many things, including that subprime loans were ideally priced because markets are purely competitive and all players have full information on the likely consequences of their actions discounted for the decades of their loans. And that worked out well.
The reality is that people don't fully value savings for the future, so the wages they demand even in a labor market functioning close to the ideal will not subtract the employer taxes paid for social security. Folks want income NOW so the social security tax will come at least partially out of employer profits-- which is why employers don't like such taxes.
It is a remarkable bit of conservative economic propaganda that (a) all taxes on business are actually paid by employees (or sometimes consumers), yet (b) those same business owners vociferously oppose said taxes despite the fact that they apparently don't cost them anything. A far simpler understanding is to assume that it's not markets that are purely rational but rather it's the political system reflecting the rational actions of businesses, who recognize that business taxes come heavily out of their profits. So if social security taxes come even partly out of employer profits, then they are a great benefit to employees since it is a partial transfer from employer profits to employee compensation that would not have occurred in the abscense of social security laws.
November 29, 2008 10:08 PM | Reply | Permalink
There are many reasons why "business owners" (corporate managers?) oppose new taxes on business. And the most important reason is that a change in tax burdens is never neutral.
They may favor one industry over another, favor one's competitors, change the consumption/savings ratio leading to lower gross sales, etc. Additionally, tax changes alter expected capital returns and force modifications to preexisting business investment plans. Large enough they may even force significant changes to a firm's business model (including the labor/capital ratio) which requires the business to spend time and money on non-productive administrative activities.
November 30, 2008 12:43 PM | Reply | Permalink
I may be slow, but it only just now hit me what Greenspan meant when he said he was shocked that the mortgage banks and bond investors were not negotiating to reach the optimum economic solution when the were issuing mortgages and packaging and and selling the resulting bonds.
What he was saying is that the credit collapse proves that the market was not factoring in all the data in a Perfect Market as economic theory hypothesizes.
I'd guess off hand that while something close to a perfect market might exist for some products and services, no market will ever satisfactorily factor in flaws in the overall marketing system, and trust between the buyer and seller does not replace that weakness of markets. That can only be done by some overall market regulator that is independent of any given series of market transactions.
November 30, 2008 5:20 PM | Reply | Permalink
Ellen,
yessiree, rely on the magnanamous boys in the corporate boardrooms to give labor the company share of FICA.
heh heh heh
What the economists "say" and what the CEO "does" are horses of another fire department.
November 30, 2008 8:23 AM | Reply | Permalink
I guess that's why none of us -- except for friends and relatives of the "boys in the corporate boardrooms" -- makes more than minimum wage, today.
November 30, 2008 12:24 PM | Reply | Permalink
Well, a lot of us feel like that, as wages have been rather flat for a rather loooong time.
November 30, 2008 12:48 PM | Reply | Permalink
Ellen,
since the retrograde of unionism lo these past 30 years, what has been happening to wages for the vast majority of Americans?
"Over the last 30 years the typical (median) wage in the United States has hardly grown -- only about 9 percent. Productivity -- output per employee -- has grown by 82 percent over the same period. Normally we would expect wages and salaries to grow with productivity. These trade agreements have helped keep wages from growing here, by increasing competition with workers making 60 cents per hour and by making it easier for employers to threaten to move when workers demand their share of rising productivity. " "CAFTA Fall Short on Economic Arguments," By Mark Weisbrot, 4/05.
An of course we remember how the coal, steel and railroad barons paid high wages and benefits early last century.
November 30, 2008 1:42 PM | Reply | Permalink
Without effective unions, does anyone really think that employers would pass on the employer share of the FICA tax? I don't.
That doesn't match with the government supported union-busting efforts and the fact that families have not seen an increase in real wages since 1970 in spite of regular increases in labor productivity.
Labor will only get subsistence wages plus whatever organized labor can force the employers to pay in addition. If the companies didn't have to match the workers FICA contributions that money would go directly to the shareholder and executives.
That's a proven fact. The Reagan Revolution has provided the experiment to show how false that economic propaganda is.
Anyone who thinks otherwise has sat in too many of the Wall Street Indoctrination Classes called economics courses and absorbed the doctrine uncritically. [I'm guilty of that myself, to an extent that now disgusts me.]
November 30, 2008 5:00 PM | Reply | Permalink
Social Security is not an investment. The FISA withholdings from our paychecks is a tax, not an investment. It is a tax that is supposed to be devoted exclusively to paying the obligations of the SS system. I think it is very beneficial to those of us who like Social Security to always view it this way. Otherwise, we are always facing people who are such brilliant investment managers that they know they can invest the FISA tax withholdings so well that they can live in the land of milk and honey come Hell or high water. (Many of those brilliant investment managers used to work in the mortgage backed security business up until about a month ago.)
November 29, 2008 9:43 PM | Reply | Permalink
Agreed - excellent point! Looking at my 401k recently just hasn't been fun. Luckily my employer's matching contributions make it still a sound investment - overall I still have gained money beyond what I put into it.
-- Cris
My site: Obama Wallpaper Archive
November 29, 2008 12:45 PM | Reply | Permalink
Oh brother. Perhaps you should consider the very likely possibilities of moving retirement ages higher, decoupling from inflation, increased taxation of benefits, and even the elimination if not reduction of benefits.
Think it's not possible? What's the demographic situation? One, two, or three, taxpayers per recipient? Moreover the wealthy will be picking up an ever increasing share of the burden turning social security into welfare. That coupled with income tax increases will be a strong incentive to move money out of the country.
Good luck parasites, enjoy it while you can. We haven't even broached the idea of debt repudiation like Argentina when the debt load becomes unsustainable.
November 29, 2008 1:35 PM | Reply | Permalink
shooter 242,
ZZZZZZZZZZZZZZZZZZZZZZZZZZ
November 29, 2008 1:53 PM | Reply | Permalink
LOL. I'm sorry is that supposed to a rebuttal of some sort? Or tacit admission that your conscious thought is on par with dream sleep?
November 29, 2008 2:00 PM | Reply | Permalink
The implication that the hard working producers will move their money out of the country if they aren't treated right, is based upon a false premise. Money is no longer gold, it is paper, or more precisely, only blips on a screen. Everytime a dollar blip "leaves the country" another dollar blip has to enter. In other words, if Shooter takes his dollars and buys German Marks, then someone who owns Marks has to buy his dollars. The dollars don't disappear. If our currency was gold, then our money could leave the country, and Shooter's threat would have some teeth. The rich boy's chant that he will take his economic football and go home is just silly.
you are right about one thing, Shooty, there will one day be debt repudiation. One way or another, that is a mathematical fact.
November 29, 2008 4:31 PM | Reply | Permalink
Actually, I kind of thought he just meant your tired BS, (which has been around since 1946 or so) is so thoroughly debunked, that hearing it again--although quaint--is sleep inducing.
Perhaps you need to come up with a more thrilling scare tactic.
Just trying to be helpful.
November 29, 2008 5:03 PM | Reply | Permalink
shooter,
you and your outlook have been relegated to the dust bin of History, but you will always have Sean Hannity to stimulate your synapses.
BURP!
November 29, 2008 7:50 PM | Reply | Permalink
Hey, Hannity's looking for a new sidekick! But you'd have to pretend to be a liberal, sorta.
November 30, 2008 1:12 AM | Reply | Permalink
Remember when W was speaking (or mumbling, or bumbling or providing fodder for Letterman) at pretend town hall meetings where everyone signed loyalty oaths--everyone invited by the RNC, that is.
He was on his way to spending his newly acquired political capital and by April or May all the capital was spent and the campaign contributors who wanted to get their filthy hands on trillions of dollars in SS as fees were left without a quid pro quo. If he had had success in this endeavor, he might have had an approval rating in the low 20's. Wait a minute. He has an approval rating in the low 20's. He lost and we all have our Social Security. Even W could not ruin everything.
November 30, 2008 8:21 AM | Reply | Permalink
Why is everyone such a fan of social security if we have no idea if we'll ever see those benefits when we hit 65?
The trust will run out of money and how are we going to pay for the benefits?
http://www.ssa.gov/OACT/TRSUM/trsummary.html
I'd much rather have that money which is going out of my paychecks go into a private account that I can control. Privatizing SS doesn't mean putting it in the stock market. But it means that I know it's my money. I would have the ability to invest it in cash, bonds, equities, commodities, real estate, etc.
November 30, 2008 10:56 AM | Reply | Permalink
Screw everyone else, you got yours?
Nice.
Why bother having a society? Why not go off and rely soley on yourself? Grow your own food, build your own shelter, police your own borders? Heck, build your own computer!
The problem with your attitude, aside from the fact that it's selfish and juvinille, is that it's been tried. It was an epic failure. Either we take care of our elderly, or we don't.
BTW, SS has been "running out of funds" since 1946, according to some. Funny, that.
November 30, 2008 12:47 PM | Reply | Permalink
And as I pointed out in a comment above, Social Security is NOT running out of funds. The worst case scenario is that at some point more that three decades in the future it is mildly possible the total revenue of the Social Security System will be reduced to where only 89% of promised benefits can be paid out.
That is an extremely unlikely case. And even if it were to happen, it's a damned sight better than a lot of people depending on 401(k)s and IRAs are facing right now.
The more likely case is that over the next three decades and more Social Security will continue to chug along paying out every month what was promised to those who paid in to it. There is an express (not implied) government guarantee of that.
What if you were depending on AIG to pay your retirement. It just went bankrupt! Now where are you?
Oh, yeah. In that case you are as of this moments depending on an implied government guarantee backed up by one Hell of a lot of taxpayer money.
They haven't even been forced to reorganize yet, and the executives are getting "retention" bonuses that amount to $millions. But these aren't real bonuses, you see. Some real bonuses have been cut or delayed. Are they really worth retaining with taxpayer money? I think the French General who decided to shoot a few of his troops to encourage the others had a much better idea. Just line up the banking executives and shoot every tenth one to encourage the others.
But seriously, anyone who thinks Social Security won't last need only look back at the last two to three months and see what happens when threats to large financial organizations occur. Is someone idiot enough to think the government WON'T bail out Social Security after it already has bailed out AIG and the other Wall Street parasites?
I think it is safe to assume that the government which failed to pay Social Security benefits as promised would not last past the next election.
November 30, 2008 5:50 PM | Reply | Permalink
Great satire, Bill! That cheered me up considerably!
November 30, 2008 12:49 PM | Reply | Permalink
And the key phrase of the WSJ article you cite is "at least for now" you will get paid SS by the government. That's an important point. No one who is in their 20s or 30s should expect that they'll receive any SS benefits when they hit 65.
November 30, 2008 10:59 AM | Reply | Permalink
The ability of the Social Security system to pay the promised benefits in 20XX is totally dependent upon we voters. If we want to go it alone, starve or stuff ourselves when we are 65, we can assure that by voting for Republicans at every opportunity. Republican administrations will continue to do everything in their power to kill the SS program and/or make it fail. Your ability to get future SS benefits are in your hands.
Of course, if you want to keep the SS program in operation, get the promised SS pensions with COLA, that is in your hands too. Just vote for Democrats whenever you have the opportunity. Democratic administrations will continue to keep the SS system solvent and able to pay the guaranteed benefits.
This, at least, is one thing we have complete control over, just by our votes.
November 30, 2008 12:55 PM | Reply | Permalink
Plus - the original New Deal that you're so proud of never intended for social security funds to be put in the general operating bucket. FDR's idea was for an independent trust fund specifically for social security. FDR's plan also was designed such that payments to retirees would never be taxed as income.
In the 1960s LBJ decided it was OK to put the social security funds into the general fund so Congress could spend it.
The income tax deduction was eliminated in the 1990's.
What's next? They need to think of the next "fix" before the trust runs out of funds
November 30, 2008 11:16 AM | Reply | Permalink
The Social Security Trust Funds have never been comingled with the general revenue funds. They have always been invested in the safest, most secure investment in the nation - U.S. government treasury bonds.
That's the same bonds that economists and finance experts use to measure the risk free return on investment.
Some Wall Street Salesman has sold you a real bill of goods, Bill.
November 30, 2008 5:59 PM | Reply | Permalink
You want a permanent fix for SS? How about tax all income. If a CEO or hedgefund operator makes 50 million a year then tax him on $50 million and tax his employer on the entire $50 million. And, if when he retires, he has enough to get by on, say $10 million (is that enough for those guys?), then he isn't eligible to receive any benifits.
November 30, 2008 2:06 PM | Reply | Permalink
I am grateful for my Social Security income and so are my children, I'm sure. They would be supporting me otherwise, or I would be a greeter at Wal-Mart.
November 30, 2008 2:22 PM | Reply | Permalink
Who decided to mix SS with the general operating fund? LBJ
Who decided to tax SS benefits? Clinton/Gore
Not sure it's just the Republicans who are out to mess up FDR's original plan
November 30, 2008 3:16 PM | Reply | Permalink
Bill, you're just filled with inaccurate propaganda, aren't you? Some Wall Street salescritter really got hold of you and wouldn't let go.
The tax on Social Security benefits was added in 1984 under the Sainted Ronnie Reagan, not Clinton.
And the additional tax does not apply to anyone who receives only Social Security. It applies to income received from other sources only. It's just that Social Security is not ignored when determining how much the income from other sources is taxed.
November 30, 2008 6:12 PM | Reply | Permalink
Bwakfat - that doesn't make any sense. SS isn't welfare. I pay into it and I'm supposed to get those funds back when I retire. Simple
November 30, 2008 3:18 PM | Reply | Permalink
Bill, you weren't taxed on the employer share when it was paid in. If you get Social Security and some other income, then the money based on the employer's share should be taxed when it is paid to you.
If you ONLY get Social Security benefits, then that untaxed payment to you is not taxed when you finally receive it either.
November 30, 2008 6:17 PM | Reply | Permalink
MiddleCB,
you will get your Social Security check when its time adn the check will be adjusted for inflation. In the meantime, enjoy the other benefits you get from SS taxes; survivor's benefits for your wife and kids, short term and long term disability insurance, and a small stipend at death.
November 30, 2008 6:41 PM | Reply | Permalink
JohnW - I hope I get it. But I'm not counting on it. I'm saving in private accounts as much as I can thinking it will be the ONLY money that I'll see when I retire. If I'm wrong I'll be better off. I hope I'm wrong. But it reminds me of the current GM/Ford/Chrysler problems - the retirees think they have this big benefit coming to them but oh shit the companies can't pay for them. Ooops...
November 30, 2008 9:01 PM | Reply | Permalink
Richardxx - I am not listening to a Wall Street salesman. But if you read Wikepedia, it's pretty clear that it was put into the General Fund in the 1960s.
http://en.wikipedia.org/wiki/Social_Security_(United_States)
You can also read it on the SSA website
http://www.ssa.gov/OACT/ProgData/fundFAQ.html
Social security taxes are co-mingled with other taxes. The trust fund surpluses can be spent on other items in the budget.
November 30, 2008 9:16 PM | Reply | Permalink
Bill, any money you put in your bank can be given to any other person the bank wants to give it to. That money ceases to be identified as yours the moment the bank gets it. It becomes part of the mix of money the bank has. All you have is a piece of worthless paper sent to you once a month with some numbers on it.
I'm setting up a nice business for people like you. I'm going to sell guaranteed water proof tin cans you can keep your money in, and bury them in your back yard, where no one can ever co-mingle your money with anyone else's. As soon as I get my production up to speed I will send you an email telling you how you can get some of my product, and you will finally have a safe place for what is yours.
November 30, 2008 10:55 PM | Reply | Permalink
hoppycalif - a bank lending my money to someone else is completely different from the government mixing a SS "surplus" with their general operating budget and all of a sudden thinking they have an overall surplus and it's ok to spend more. You are as dumb as you look
A bank that's not mixed up in sub-prime mortgages or CDOs will keep enough reserves such that if I need my money back they can send it to me without having to raise a bunch of new debt. The same can't be said for the Government.
My savings account at that bank is only worthless if the bank becomes insolvent and I have more than the FDIC limit at that bank.
My current social security claim, on the other hand, really is worth less than par because in 25 years when I hit 65 my claim will be worth maybe 75 cents on the dollar. (At least that's what the Trustees that run SS are saying).
December 1, 2008 9:33 PM | Reply | Permalink
Social security has provided all Americans with some measure of economic security. The phrase, "living on Social Security" raises the spectre of poverty, but not starvation. Let us hope that our new President will have the wisdom and that we will mobilize the people power to achieve also health security for our nation by enacting some form of Medicare For All.
http://www.talkingpointsmemo.com/talk/blogs/doctoraaron/
http://www.pnhp.org
December 2, 2008 9:52 AM | Reply | Permalink
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