An interesting fact about Social Security

[crazytimes]

It's often called the most successfull social program in the United States.

Well...

Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits.

Any program that gives someone over a 9000% return on their "investment" is just ludicrous in my opinion. Now I'm sure that Ida loved the fact that the government gave her such a huge return, but economically it's totally ridiculous.

[CagedTroll]

More interesting facts that some may find "ludicrous":

• Ida May Fuller was the FIRST person, EVER, to collect a monthly Social Security benefit.
• At the time Social Security was legislated (1936), the retirement age (in order to collect) was 65, but life expectancy was 59---
• Ida May Fuller lived to be 100 years old.

Three FREAK events in conjunction. Even today, when people spend their entire careers paying into Social Security, they're not likely to live as long as she did. Nor retire as early. You might as well start complaining about the person that wins $50 million the first time they buy a lottery ticket.

I'm not saying you're being "ludicrous". It sounds more like jealousy to me. I doubt you'd be complaining if you got the same rate of return on any of your investments.

[trust no one]

On Social Security reform, did you see this piece in the Christian Science Monitor newspaper?


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.

[crazytimes]

My point was just that, you would think that would have raised a red flag or SOMETHING. Yes it was a freak occurrence, but it should have clued them in to some of the problems with pay-as-you-go financing and maybe they could have started finding solutions to future problems early on.

What it comes down to is that I want SOME guarantee that when I retire I will get 100% of what I paid into Social Security and at least SOME return, however small it may be. That's all. They can fiddle with whatever they want, since they're [the government] supposedly the experts, but I want to be sure that when I retire (hopefully if I'm still living) in the 2040's, that they will be able to provide me benefits that are equal [not $ for $ but adjusted for all that sutff] to what people have been receiving for the past 40 years or whatnot.

[luvmetender]

Originally Posted by crazytimes

.
What it comes down to is that I want SOME guarantee that when I retire I will get 100% of what I paid into Social Security and at least SOME return, however small it may be.

And what if you invest your own money and actually LOSE some of it? (Which is a very real possibility.)

This plan of Bush's scares the crap out of me. What he is proposing to do is going to direct money away from the SS system. What about the people are are collecting NOW and who will be collecting in the near future? Where will the money come from for them? It is illogical reasoning.

[crazytimes]

I'm not saying I like or dislike Bush's personal account plan. I don't know any of the details so I haven't formed an opinion. At the same time, most of the information says that in 2042 unless something is done, benefits will HAVE to be cut. That's right around the time when I will retire and I don't like that news.

Additionally, the SSA admits that around 2018, Social Security will begin to run a deficit.

Now when the government "cashes in" the treasury bonds that are in the trust fund...where does the money to fund these bonds come from? How can the government owe itself money? NO ONE is willing to explain that.

[luvmetender]

Originally Posted by crazytimes

Now when the government "cashes in" the treasury bonds that are in the trust fund...where does the money to fund these bonds come from? How can the government owe itself money? NO ONE is willing to explain that.

LOL! Where does the money to fund ANYTHING come from right now? What is the deficit right now? Crazytimes, have you taken an economics class?

[crazytimes]

No not yet...I will next semester! All I know is money from each paycheck gets deducted.

Didn't the government bring in $2.7 trillion last year or something like that? I don't get how you can spend $2.7 trillion in one year but I sure don't get to decide where the money is spent!

It's not fair. I'd like to see the government get a credit rating. Ha I wonder what THEIR score would be!

[telos2000]

Young families are actually better off under the present system. Why? Survivor benefits. If one of the working spouses dies, the kids get benefits through the age of 21, if they go to college.

Problem is not in the benefits. It is in the funding. Kill the pork barrell projects and you could fund it easily. Trouble is, the politicians (dems, reps, or whatever) are more concerned about re-election than fixing the system.

More yada-yada and less action rules the day.

[CagedTroll]

Howzabout---, raising the income taxed by SS to $100,000 (which wouldn't effect 90% of us), and raising the retirement age to 67 (since people are living longer anyway)??? Give that idea a year, let the economists crunch the numbers and make a few projections, then see what else needs to be done? It ain't that complicated, but like Telos said, nobody wants to really try.

Crazytimes, welcome to the workforce. We all took a look at our first paychecks and wondered, "Who's FICA? And why did he get all of my money?!?" We got over it.

[crazytimes]

Well are they talking about cutting benefits when YOU retire? Are you going to retire after 2042? Because the SSA says that if nothing is done benefits will have to be cut at that time. Of course I expect something to be done, but I have every right to be a little leery until something is done. I don't mind them taking the 7%, but when there is no guarantee I'll ever get anything...well yeah that bothers me a little.

I just think it's astonishing how huge the program is! This year's it projected to cost $550 billion. Imagine what it's going to be like when the baby boomers start to retire...jeez this thing could be costing near a trillion dollars I bet!

[telos2000]

CT,

If they would do away with the limit on the SS portion like they do the Medicare portion, there would be plenty of money. This is where the rich get off the hook.

[luvmetender]

Originally Posted by telos2000

If one of the working spouses dies, the kids get benefits through the age of 21, if they go to college.

Not true. The kids get benefits until they turn 18, whether they go to college or not.

[telos2000]

Originally Posted by luvmetender

Not true. The kids get benefits until they turn 18, whether they go to college or not.

Oops, they changed that rule and it ends with secondary schooling. Man that sux! If they are still in high school at 19, then benefits are extended.

[luvmetender]

Yes, not true. My daughter was receiving survivor benefits and lost them at age 18 when she was already attending college.