Get rid of social security?

Every economic expert I am aware of advises individuals to invest at least 10% of their income when working so that they will have the personal assets (wealth) necessary to support themself when they become too old to work (retire). That is the advice of the experts.

The problem identified in the 1930's was that about 1/2 of the population wasn't following this advice and they caused a burden upon society because society felt an obligation to support them. In short personal financial irresponsibility was creating a financial burden on society. If everyone dedicated 10% of their income while working to long term diversified and age adjusted investments there wouldn't have been any problem and no burden would have been imposed upon society to support them. A mandatory program of private investments in diversified and age adjusted accounts resolves the problem of personal irresponsibility. Society doesn't need the Social Security welfare program if everyone invests in their future. Since 1/2 of the People won't do this voluntarily as they should the only pragmatic solution is to make that investment mandatory.

 

History has shown that about 1/2 of the individuals don't voluntarily invest a portion of their income to provide for retirement when they are unable to work. I would overwhelmingly support the voluntary investment by individuals to provide for their future but they won't. I should not be held personally responsible for the financial irresponsibility of others which is what the Social Security welfare program forces me to do through taxation. About 1/2 of the people do invest in their future and a mandatory investment program doesn't adversely affect them. About 1/2 of the people don't invest in their future and a mandatory investment program forces them to be personally responsible for their own financial future instead of placing a financial burden on others to support them.

 

This is interesting to me. Because it's this mentality that highlights the conflict between personal liberty and mandating something that is better for everyone involved.

You must admit that mandating was never meant under the original constitution?

 

People wouldn't need to learn how to invest if they had recourse to unemployment compensation merely and simply for being unemployed; and, if that form of minimum wage clears our poverty guidelines, we could also solve official poverty as well. Then, it would truly be up to the individual as to whether a person wants to be poor or not. How would anything else that does not solve for a natural rate of unemployment above one percent actually accomplish a similar goal, for rock bottom cost of a form of minimum wage?

 

As before, you unfairly compare future value with present value.

This is an error you've repreatedly made I've pointed out before which renders you're comparisons unfair and erroneous.

In your calculations of returns on your "private system" you have *not* taken out deductions necessary to fund current SS, much less fund it at a $15k minimum, much less fund those whose private savings prove to be inadequate.

And what about the cost of survivor life insurance and disability insurance. Did you include those in your calculations?

Yet another flaw in your calculations which lead to erroneous results and an unfair comparison to the current system.

 

I don't think the Constitution was designed to dictate to what extent the Govt could mandate certain things or not. But certainly, the concept of certain Govt mandates were not foreign to the founders. Certain taxes (e.g. Washington putting down the Whisky rebellion) as well as service in the militia were examples of Govt mandates in those days.

 

I absolutely agree and for those that know I'm a card carrying Libertarian they know that I have a serious problem with mandates which infringe upon the inalienable Rights of the People. Logic would dictate that I would oppose the mandate based upon my libertarian political philosophy but I don't and there is a reason.

My only saving grace, which goes against the beliefs of some hard-core libertarians, is that I'm a pragmatic libertarian understanding the infringements upon the Inalienable Rights of the Individual to protect the overall Inalienable Rights of All Individuals is necessary in a civilized society. For example, imprisonment of a person, an infringement upon Individual Liberty, for violations the Right of Person or Property is a pragmatic necessity.

At the same time any infringements must be the minimum infringement necessary to protect the overall Inalienable Rights of All Individuals.

When it comes to Social Security the very foundation for it was the failure of individuals to provide for themself by voluntary investments for their future which caused an infringement upon the Rights of All Individuals that were forced to support that person when they could no longer work. The financial irresponsibility of some individuals caused an infringement upon the Right of Property of other Individuals in Society.

So ultimately I see this as coming down to a choice of "what is the least infringement necessary" to address this situation.

Taxing and spending by government, which is what Social Security does today, simply takes away the property of one individual to pay for the irresponsibility of another individual. This really didn't fix the problem but instead merely institutionalized it.

Mandatory investing based upon privatizing Social Security does not take away property from the individual but instead merely redirects it's use by the individual and makes them responsible for their own future financial needs. This actually addresses fixing the problem because the problem would never have existed if all individuals had been investing in their future.

When given the two options I believe that mandatory investing is the least possible infringement upon the Right of Property of the Individual. It resolves the actual problem that was identified as opposed to merely institutionalizing the problem.

 

But you're not aware that the experts have dismissed your claims as nonsense? Seems to me that you've been deliberately selective in your readings. Not a good idea!

 

Regarding my question 'What would be the sales point for people to choose privatized SS over our current private retirement instruments?'...

The worker only pays 1/2 of the FICA contribution...isn't this correct? This would be 6.2% or with the current government giveaway it is 4.2% of gross pay. If the median wage is $50K, then 6.2% is $3100 per year and 4.2% is $2100. So the worker can only invest $3100 or $2100 without taking more from their compensation per year. It is doubtful the average worker will invest more than they currently pay in FICA?

Today a worker can invest in a broad mutual fund with some bonds and have access to that fund just about anytime they wish. One problem when people have access to retirement savings is they might spend it before they retire. Maybe access to 25% of the fund or some limit would make sense to assure money is available through retirement?

I don't agree to tax exempt retirement plans unless the investment was pre-taxed. We need more operating tax revenue...not less!

 

As a national government, and according to the Constitution, the government shall look after the general welfare of the people.

In a capitalistic society, how should the government deal with 50-100 million Americans who might have zero income and little to no savings at age 60-65 with a life expectancy of 80 years?

Seems to me government can have a proactive system in which some things are mandated versus waiting until later and increasing the income tax rates on everyone in order to deal with the growing burden of 50-100 million Americans with zero incomes.

I believe government must be minimized but I also believe government must be proactive in minimizing these types of known burdens and this does require some mandates...

 

We do know that a 10% of gross salary dedicated investment program provide ample investment growth to overcome "inflation" but the details can be left to the experts "IF" we can agree in principle.

There is a misinterpretation of what I said. I suggestion was that the "safety net" for privatized Social Security accounts would be raised to at least $15K/yr and preferrably to $25K/yr because those accounts have assets that contribute to meeting and exceeding the "safety net" amount established. The existing Social Security "welfare" program cannot raise it's low "safety net" of only about $7K/yr because it is not based upon assets but instead it's based on taxation.

The biggest problem is that there is a huge unfunded mandate related to Social Security but how much privatization would adversely affect that would be a matter that financial experts would have to address. Of note we have a future funding problem already because the current tax revenues don't support expendatures so this is an overall problem and privatization does resolve long term but short term there are some issues. There are some positives that mitigate the negative aspects of privatization that can be addressed.

As noted I would continue to fund the existing program with the payroll taxes plus the FICA taxes of those that continue in the system. The only funding lost would be FICA taxes for those younger workers that convert to privatized investment accounts.

Next is the fact that privatization is only advantagous for a young person that has a long investment period ahead of them so the number of individuals that would withdraw would be limited to only younger workers.

Because anyone converting to privatization would logically be young (i.e. under 30) the higher "safety net" wouldn't impose an possible concern for at least 35 or more years into the future. The history of investments indicates that the safety net probably wouldn't be required at all, and even if required it would cost far less than the current Social Security safety net (because it is a combined personal income with a subsidy) the Payroll taxes would continue to create a reserve fund.

It is a consideration of course but there are a couple of facts that play in favor of privatization.

First of all is that the survivor and disability benefits for the current Social Security program are really crappy. SSI disability is very low:

Some States supplement this federal benefit and there are some other considerations. While this establishes the maximum the average is somewhere less than $500/mo from what I recall.

Survivor benefits vary based upon age criteria and are a percentage of the participant's calculated benefit amount.

The advantages of privatization are that first it depends upon the asset accumulation of the individual before death or disability. Death and disability increase with age and with older individuals where they would already have a substantial investment portfolio and no insurance is required at all. The insurance would start out providing for 100% of both deant and disability but would continually go down as the assets of the individual increase until the insurance is no longer required. This is excellent from an insurance standpoint as the cost of life and disability insurance is far less for younger individuals and increases with age. At the same time with age the amount of protection decreases as a person's assets increase.

In any case, similiar to the safety net, because it ties into personal assets I would advocate increasing the benefits provided as these will primarily be funded through the private investment account as opposed to insurance. The program can be more generous because it's based upon private assets as opposed to taxes.

Ignore specific calculations but instead address the basic principle. We know for a fact that a 10% investment of gross wages leads to financial security in the future for those that invest wisely. There is no record of failure. Social Security does not provide for the same standard of living as a 10% investment account provides. We know that.

We can improve the benefits and life style of Americans through private investment accounts. A better safety net and a higher income than Social Security. This is not hard to do because Social Security's benefits are extremely low. Social Security not a high bar that needs to be overcome but a bar that is so low that it's more of a tripping hazard.

 

The issue is whether it is reasonable substitute to SS as that what you promote it to be.

And as such, comparing the future value of private investements 30 years from now with current value of SS today is a wildly unfair distortion.

You are using a different terminology than me.

A "safety net" to me means the benefit it assured.

Your are using the term to mean your projections (complete with the errors an unfounde assumptions I've pointed out). That is not a "safety net" if someone runs out of savings.

As you are conceding that "financial experts" are necessary to address these basic issues, I would not put a lot of credibility in your analysis upon which you make your argument.

So you are proposing tanking another 10% out of an employees salary on top of the 6.2% already taken out by SS?

Taking 10% off the income of those in the lower rungs is a great hardship you are imposing on the poorest.

Doesn't resolve the problem.

1) How do you fund current and near future SS beneficiaries?
2) Have you taken into account in your calculations the funds needed to provide a safety net for those who do run out of assets?

It is a consideration of course but there are a couple of facts that play in favor of privatization.

I believe it is *much* higher than that.

OK. Did you take that cost into account?

Which doesn't help younger people who need the benefit.

But since approximately 50% of the assets accumulate in the last 7-8 years, the individual will need these coverages until the last few years before retirement.

That is not an aswer if someone dies or becomes disables withint the first 20-30 years of working because they have nowhere near the assets to provide the benefit SS does.

No, we don't know that. If someone becomes disabled or dies they won't have enough assets to cover their needs. We know that.

I agree that SS would not provide the same standard as a 10% investment account. But you are comparing apples and oranges. SS is only 6.2%. Increase it another 4 percentage points and we can make the benes richer as well.

You state this conclusion but admit you need "financial experts" to show it.

I'll believe it when the financial expert proves it.

 

Simply being moral enough to fit through the eye of some needle somewhere could make that a moot point if a person could apply for unemployment compensation for merely being unemployed and it is at the rock bottom cost of a form of a minimum wage that provides full recourse to our own and already existing at-will employment laws.

 

You are not factoring for a poverty inducing natural rate of unemployment.

 

I pretty much agree with every thing you just said. The only worry I'd have is the types of investing that would be available for a privatized SS system. If the Govt is gonna extremely limit the options (or even worse be the middle man), then without some sort of financial reform I could envision that influx of money go into the markets and brokerages get really adventurous with it. Still, it can't be anything but better than what we have now.

 

The economic evidence suggests otherwise. Strange how you lot skirt around the economic evidence

 

A simple question. Experts recommend that individuals dedicate at least 10% of their income to retirement investing. They also advise that the individual diversify their investment portfolio to mitigate risks and that they adjust their investments based upon age with higher risk investment generating higher returns recommended for when a person is young and then more secure but lower returns as they get older. Investments based upon this financial planning have always been successful with no identified cases of failure.

Is this or is this not good advice for all individuals?

 

Depends.

Is the individual possibly going to be disabled?

Is the individual possibly going to die leaving survivors?

Is the individual possibly going to live 10-15 years beyond retirement age?

In those situations, a person might be better off with SS than someone investing the the private with safety net plan.

 

Again you try to deflect. You've made 2 statements (at least) which have been dismissed by economic evidence. You haven't been able to counter with alternative evidence, preferring to use raw data or simple remark to hide from that evidence. Why do you insist on ignoring the evidence? (No need to answer, we both know the answer)

 

Not really my topic so I don't know which economic evidence you're talking about. A link might help.

Of course there's problems but a program that might not be sustainable in it's current form is no 'safety net'. I realize the program is a cash cow for the govt and it would hurt in the short term. But it's better than the alternative. If the U.S. got into the shape that Greece is in, that would be really really bad for just about everyone.

 

The government should not be involved at all except for minimal regulation to ensure that the investment options offered are highly diversified, age-adjusted, periodically audited by independent auditors, and that the results of each fund are published providing the necessary information to the investors. The actual investments would be handled by private investment firms that would be seeking to provide the best investments for their investors because they would be competing with each other.

 

Would be addressed by a combination of personal asset growth (wealth) and insurance. As personal wealth increases the need for insurance decreases.

Would be addressed by a combination of personal asset growth (wealth) and insurance. As personal wealth increases the need for insurance decreases.

Addressed by the "minimum requirements for retirement" that would logically require a "life-time" annuity or similiar financial instrument. The individual would continue to receive a minimum amount if income guarenteed for life in any case. As noted though there would also be a safety net if an individual never reached the minimum requirement for retirement with their private investment accounts by a specific age. While there wouldn't be a minimum retirement age there would logically be a maximum retirement age where income from personal assets could receive a government subsidy (funded by Payroll taxes) to meet the minimum retirement income level.

Once again let me highlight a simple point. The problem identified in the 1930's which continues to exist today is that about one-half of all individuals did not invest when working to provide a retirement income when they needed to retire. Their personal financial irresponsibility imposed a burden on society that felt a moral obligation to provide minimum financial assistance so that the person could have food and shelter. Social Security, as we know it, merely institutionalized the problem as opposed to resolving it. SS provides income by imposing taxation upon the rest of society which was not a solution. The solution is to ensure that everyone invests and builds personal wealth so that they don't need to burden society in their old age.

Had 100% of the people invested 10% of their income for retirement there would have been no need for Social Security. Instead of institutionalizing the problem of retirees being a burden on society it makes far more sense to ensure they have the personal wealth when they get old so that they are not a burden on society.

That was where Congress and FDR missed the boat. They addressed the symptom (a lack of income in retirement) as opposed to addressing the problem (a lack of personal wealth that provides an income in retirement). "Privatization" is a concept is about addressing the problem as opposed to the symptom. How do we address the problem best is the question before us. How do we do everything possible to ensure that individuals don't need government assistance and then provide a small safety net for any possible short-comings?

 

If individuals always invested to provide for their financial welfare then there would be no requirement for Social Security so it is exactly the point. A combination of private investments and insurance provides everthing the individual needs to ensure that they and/or their family do not become a burden on society.

So the question remains, if private investments are the answer to solving the problem of poverty in old age and every economic expert I'm aware of recommends that individuals invest for their retirement then how can any economist state that private investments are harmful? They can't propose two positions that are completely juxtaposed to each other. Either private investments are good or they're bad.

Social Security merely institutionalized individuals becoming a burden on society. It did not address the problem of a lack of personal wealth that created the burden on society. Creating personal wealth addressed the problem.

Of note even those earning minimum wage in the United States can generate personal wealth. We have many examples of this in America. The "cleaning lady" that dies and leaves millions of dollars in her estate are documented cases. It can be done and has been done by individuals voluntarily but about 1/2 of the people won't do this voluntarily so, as much as I oppose government mandates, we really do need to mandate personal investments to resolve the problem.

 

You can of course try and be utopian to avoid the point. That would be consistent with your previous comments that ignored the Pareto improvement generated by the consideration of wage shocks. We have a simple result here: you've been guilty of spreading falsehoods that aren't supported by economic evidence.

 

Obviously utopia is an unattainable goal but there is nothing wrong with striving for unattianable goals.

The issue remains. If private investment for personal financial well-being is a good thing, which all economic experts endorse, then they would be hypocritical to oppose it. Privatization of Social Security is solely about removing the need, or greatly diminishing the need, for a welfare program that institutionalizes a welfare dependancy. It addresses the problem (a lack of personal wealth) as opposed to institutionalizing the problem (a lack of income because of a lack of personal wealth).

As I've noted I don't have the access to the studies cited but obviously they must be flawed if they oppose personal wealth accumulation through proven investment strategies which is advocated universally by every economist I'm aware of.

Social Security today ensures that "poor people" remain poor. It is the nature of the system. Private investment, using the same dollars, ensures that "poor people" accumulate wealth. Anyone that advocates keeping low income workers from accumulating personal wealth must have invidious reasons for doing so. Perhaps those so-called "expert economists" have a horse in the race and don't want low and middle income individuals to accumulate wealth which is what privatization accomplishes. I really don't know but I do know that private investments using proven investment strategies do build personal wealth. Since it costs the individual nothing (i.e. they already have these funds removed from their paycheck) then there is no logical reason to oppose the creation of personal wealth for them. They will be better off and their families will be better off. Privatization is really about the poor and lower middle class accumulating personal wealth which removes them from poverty. It really does nothing for the upper middle-class or wealthy.