Can We Agree on Private Social Security Accounts Now?

Smart Democrats know we need personal accounts to save Social Security. In fact, they are saying many of the same things I have been excoriated for writing on this blog. I like the idea of a TPS or 401k for all Americans. So does President Clinton’s economic advisor Gene Sperling. He also spoke well of earned income credits. We have lots of common ground.

Income can be turned into wealth and wealth can generate income, but the two are not exactly the same. Wealth allows individuals to weather the inevitable vicissitudes of fortune. It usually makes them act in more responsible ways and it gives them a feeling of freedom. Income is like relying on rain for your water supply. Wealth is like building a reservoir.

Wealth is better than income and income should be used to build wealth.

Government has a legitimate role in enhancing the conditions for wealth creation. That is not the same as giving people money. Rather it means government will help people help themselves. A good example is the TSP. The government matches individual contributions and defers taxes. People still have to contribute. It is not a free gift. This encourages & rewards thrift. The earned income credit is another good idea. It requires work. It requires that recipients do their part, but it encourages and rewards work.

Social Security was originally sold as a something very similar to the TSP. Workers were supposed to contribute part of their income and employers would match that contribution. The problems were that it was coercive , lacked flexibility and was under the control of politics. Government, workers and recipients stopped seeing it as an individual savings plan and it came to be just another entitlement and a tax. What people get from SS is only weakly related to what they contribute and it does not make anybody more thrifty, since it comes off the top no matter how the taxpayer behaves.

We need some sort of mandatory Social Security. Some people will not properly save no matter what the incentive. Some people have bad luck and cannot take care of themselves. Some are just bad actors. As a society, we cannot tolerate widespread poverty among seniors, whether it is their fault or not. But we need to take SS back to its roots and improve it from there. It was insurance against poverty in old age. It was never designed to be a pension plan for old people to rely on as their main income source.

Back when SS was invented conditions were very different. The labor force was deployed in low skilled jobs. Most workers had only elementary school educations. They did not understand finance and financial markets were underdeveloped anyway. A limited choice paternalistic system like Social Security made more sense back then. There were also lots of workers per recipient and the retirement age was purposely set ABOVE the average life expectancy. In other words, the average worker could expect never to receive Social Security and those that did would not expect to collect it very long.

All these things have changed. We have many more options today and we have some constraints (such as retirement to worker ratios) we did not have in 1935. Not all Dems are backward looking. We have all the tools we need to create a good combination of government program and private savings. We just need the will. Keeping todays SS system with minor adjustments is not an option.

Social Security worked well in the past. Working together, we can produce something the works in the future too. Welcome to the Dems. Glad to have you back.

Posted by Jack at November 23, 2006 11:57 AM
Comment #196327
and it does not make anybody more thrifty, since it comes off the top no matter how the taxpayer behaves.

So, your complaint is that SS is not a good social engineering program? Perhaps you can explain the Republican fascination with changing people’s behavior on a massive scale.

BTW, I’m listening to the article now to keep you honest. ;)

Posted by: American Pundit at November 23, 2006 2:11 PM
Comment #196328


I’m glad you think we need Social Security. This has been the BEST program run by the government!

Private accounts for accumulation of wealth is great. But they should be separate from Social Security. No problem, as long as you do not take the money from Social Security.

President Bush ran around the country talking about private accounts. The more he talked the less the people liked it. Don’t you think you should give up on it?

Posted by: Paul Siegel at November 23, 2006 2:13 PM
Comment #196330


I would favor private accounts outside SS. Most of us non-poor already have them. The problem is the poor. They do not have the accounts for two reasons. One reason liberals mention; the other is conservative’s favorite, but they both are true.

The poor do not save because they do not have the proper resources and they do not have the proper habits and skills. A 401k type program satifies both. It gives the poor the resources and helps them see the error of their habits.

Re SS - it worked in the past. I liked a lot of the New Deal. But childhood ends and what you need at one stage is not the same as what you need in another.


The government is already in the business of social engineering with SS. It is acting like a parent now in regard to SS. I just want to make it a good parent. Right now, they just spoil the kids.

Posted by: Jack at November 23, 2006 2:23 PM
Comment #196335

I haven’t gotten to Sperling’s comments on Social Security yet, but if he’s saying we should have private accounts in addition to Social Security accounts, then that’s not news. We wanted that at the time the debate was going on. It was the Republican insistance on either-or that kept the debate from moving forward.

If Democrats address the issue — and I hope they do — they’ll consider some combination of downsizing the costs and bureaucracy, means testing, raising the payout age and maybe raising the maximum taxable income above $90k so the wealthy elites pay their fair share — as well as an additional private account option.

These are all Democratic ideas that Republicans shot down in pursuit of privatizing the system.

I really hope Democrats tinker with Social Security in this Congress, because Republicans will never do it. The public just doesn’t trust Repulicans with Social Security, and they know that.

Just like only Nixon could go to China and only Clinton could reform welfare, only Democrats can reform Social Security.

But it’s going to be tough with Republicans publicly saying they’re going to block every single piece of legislation Democrats oppose.

Posted by: American Pundit at November 23, 2006 3:00 PM
Comment #196336
The poor do not save because they do not have the proper resources and they do not have the proper habits and skills.

Jack, the poor don’t save because they’re poor. The poor don’t have the proper skills because they can’t afford the time and money for the education — they’re too busy working double shifts for peanuts.

Posted by: American Pundit at November 23, 2006 3:07 PM
Comment #196342

AP, you took the words right out of my mouth, saving me the effort of responding. Thanks, P

Posted by: Paul in Euroland at November 23, 2006 5:04 PM
Comment #196343

Good Post Jack;
Part of the problem with SS is both parties have robbed the system to pay Paul (general fund). I also agree that other forms of retirement should be setup for people to save, but then again how do you force someone who needs the money now, to put money away for their future?
Now with SS I think if we could force Congress to start putting into it, then they would have second thoughts about making radical changes to it.
Maybe Congress (both parties and halves) can come up with something, but the problem is to change the views of the average american and to educate them to see that SS is not a cover all retirement(and was never setup to), and that to live comfortably they need more then just SS.
For myself, I will be able to collect SS in a few years, but along with it I will have 2 retirements, 2 401K’s, a CD, plus I will be working part-time, and still looking to setup a few more funds for retirement. I want to be comfortable when I retire

Posted by: KT at November 23, 2006 5:05 PM
Comment #196354

The poor don’t save because they tend to spend every dollar they get. Private accounts got shot down because the overhaul had a hefty price-tag, did nothing to make Social Security solvent, and the stock market introduced uncertainties, especially post Enron, about whether this defeated the purpose of social security.

Additionally, given all the conservative’s rhetoric on the need to eliminate the entitlements of the New Deal and great society.

Posted by: Stephen Daugherty at November 23, 2006 11:47 PM
Comment #196355

Sorry, too tired. What I was going to say before I so rudely interupted myself, is given all the times the conservatives have promised to destroy SS, it’s quite legitimate to suspect the reforms he’s attempting.

Posted by: Stephen Daugherty at November 23, 2006 11:51 PM
Comment #196357

American Pundit,

Generally good posts, but I’ve got a few issues. While I’m not opposed to raising the taxable income level above $90k, what does it have to do with fairness for the rich? SS tax maxed out probably pays more in a year than someone making the minimum taxable will pay in 5 years. The rich already pay the bulk of tax revenues, both as a proportion and in absolute dollar amount. Bill Gates probably paid more in taxes to the government personally than the lowest couple of percent of taxpayers.

The other point is that SS actually gave people the false belief that they didn’t have to save. When it was founded, many people who had saved found thier savings wiped out as banks collapsed during the Depression and were rendered destitute by no fault of thier own. The problem is that many people thought of SS as thier retirement, not the supplement that was intended. Some form of private accounts could very well encourage more savings by everyday Americans.

Also, only Clinton could reform welfare? He promised to do so when he was elected, then sat and dithered with a Democrat congress for 2 years. It was the Republicans that reformed welfare, Clinton just signed it and only after a lot of arm twisting.

Posted by: 1LT B at November 24, 2006 3:14 AM
Comment #196361

“It was never designed to be a pension plan for old people…” Can you source that? I doubt it. That is only your opinion.
According to the SS trustees the program remains solvent till 2042. Most boomers will no longer be collecting by then. The crises is a manufactured one. Manufactured by wall street types drooling over the possibility of haveing that much of other peoples money to scim and idealogical extremeist that just can not stand the idea of a successful,socialist program.What you have said is that Sperling has been bought off,nothing more.You bought a bill of goods.
The Wall street pimps pushing privatization schemes used to point to Argentina as an example.No more. Not since privatization there helped cause the collapse of the Argentine economy. Now their benefits are drastically reduced. That is the idealogs goal anyway,now,isn’t it. Destroy the program.
There are real solutions to strenghten SS. One is to raise or remove the cap on wages subject to tax. Another is start planning for the federal government to pay back the monies borrowed from the trust fund. Yes,that means raising taxes and/or reducing expenditures. Painful yes but that is the problem with borrowing money. You have to pay it back. Another obvious way to increase the funds for the program is for the government to adopt policies that would allow workers to earn more. This does not have to be by fiat like minimum wage increases. It could be accomplished by takeing the handcuffs off organized labor by repealing or modifying the taft/hartly amendments to the wagner act for example.Let the market take care of itself with a minimum of government intrusion.Individuals are already free to open private accounts,are they not? Mandating them will not adress any supposed future SS insolvency problem but just agravate it.
The fund would be helped by moving federal and state employees into it. Yes that should include congressmen.
As it is SS works very well with much less overhead than private annuities. It does not just help the eldely. It also helps remove the burden on many,many middle class families by helping to provide for their ageing parents. It is also the national widows and orphans fund. Mess with it at your peril.

PS thanks for bringing this up.Inportant stuff. You are wrong one this one but this discussion is much better that the frequent insult stuff that waste space on the blue or red side and I am curious of your response. Argentina is a good study just make sure the info you read was posted after their economic collapse. Much of the stuff before it was glowing praise not born out by events.

Posted by: BillS at November 24, 2006 5:39 AM
Comment #196363

Does the following make sense?

Make EVERYONE pay the same percentage of their income to taxes.

Don’t spend more than you make.

Don’t steal money from a steel piggy bank (SS).

If we followed these few simple rules, wouldn’t our problems be solved?

Isn’t it true that doing otherwise would set a bad example to the constituents?

Parenting/Life/Economics/Common-sense 101, right?


Posted by: Dutch_expat at November 24, 2006 7:42 AM
Comment #196364

1LT B-
You have credit cards and creative financing options out there all over the place. What’s killing saving is the view that it’s unnecessary.

Social security is the last thing most people want to end up on. It’s not high dollar enough to have that glamour. Most people try to go for some kind of 401k or pension plan. A lot of people work until they’re no longer able.

Private accounts are not a break from socialism, they are socialism, just in another form that bears a label friendly to conservatives like yourself. This is the big lie of modern conservatism: that conservative governments, as they are now, do not interfere with the market.

What are tax incentives? They are the payment of money to corporations to do certain things. Depending on the circumstances, they may be subsidies, or just plain corporate welfare.

In principle and practice, I’ve got no problem with limited government intervention. I don’t think people are capable of anticipating all ends; that’s why I support market-based economics. You get more people guessing and working on a problem, and you can do wonders.

However, some problems are both chronic and reliably emergent in the economy. There are some things businesses simply will not do unless they are legally obligated to do so, because it means a potential loss of profit.

Corporations are actually obligated to make money for their investors. A company can be sued if it does something on purpose that they know will harm the bottom line.

Corporations also face competition from those who use unscrupulous practices. When these practices yield high returns in the short term, and problems don’t seem to crop up immediately, such practices can spread. Bad business, if it’s profitable in immediate terms can become market-approved.

Some folks make an idol out of the market, praising its wisdom. It’s really not all that wise. It’s charm is that the market allows people to repent of their foolishness, and take on and test alternatives. Nothing about it automatically yields results.

The market, unfortunately, becomes an excuse for many to hand the problem to somebody else. If we don’t get the sense that there’s a higher authority than just our individual choice, we won’t act in a moral and reliable manner.

We can’t create a thriving, functional economy simply by saying so, or maintain coherence in the markets without rules that restrain harmful behavior. To create a fair, just, and growing economy, we cannot rely on any approach dogmatically.

Private accounts seems to me to be more of a piece of dogmatism than anything else. Some believe that simply because there’s a market involved, rather than just the intake and spending of money by government, that the system has a certain blessing to it.

That’s not the way it works. Either these people invest, and they skew the market for stockbroking, or somebody invests for them, and leaves decisions that can have broad reaching effects in marketing to government officials who are potentially vulnerable to corruption in their positions.

Same things with “market” solutions like Vouchers. They say they’re trying to give everybody the market-driven advantages of private education. We get into Heisenberg uncertainty principle territory here, though, as the Government’s plan to bring the market to the masses by taxpayer dollars ends up flooding the market with students, reducing the need for these private schools to compete for students within a limited market.

They don’t even realize it, but when the market becomes a plaything for those trying to do everything by and with it within the government, it becomes a form of socialism, a form of central control, skewing the markets and defeating their purpose.

Private Accounts seems to be heading in the same direction, and worse, doing so in a way that harms the system itself, turns it into a Frankenstein monster that works less efficiently in both regards.

Posted by: Stephen Daugherty at November 24, 2006 8:29 AM
Comment #196366


We largely agree on this one. Frankly, it puzzles me why most Democrats are bound and determined to preserve SS in its current form. What makes people so confident that something invented in the 1930s is the ideal? It’s like someone saying that their 1935 Hudson is the greatest car ever invented. To me that would sound ridiculous on its face, because I would simply assume that we have learned something in the past 70 years about building cars.

The current system is essentially a pension, a form that has basically been abandoned in the private sector. Now, it’s still POSSIBLE in my mind that private accounts aren’t the way to go. But can we at least have a rational conversation about it?

Having said all this, the pro-privatization side made a major strategic blunder when they tried to sell it in 2005. That mistake was starting out by saying there will be a major crisis when the Baby Boomers retire, and that privatization was the answer to that crisis.

The problem is, it is immediately obvious that privatization is NOT going to help balance the books. As Gore pointed out, the government will need to keep paying the Baby Boomers while at the same time letting the younger workers put their money in private accounts. So this creates a short term deficit, not a surplus.

Posted by: Woody Mena at November 24, 2006 9:10 AM
Comment #196367

What makes you think that the people of today are more finacially savvy than previous generations when it comes to investing?
Does a TSP plan have matching employer funds intergral to the plan? It seems for most employer sponsered 401k plans the employer would contribute up to 10 percent of the amount by the employees, by going to a private plan I would lose that. Why would I want to make that change?
Are you suggesting to rearrange these employer costs or to eliminate them?

Posted by: j2t2 at November 24, 2006 10:13 AM
Comment #196371
Private accounts seems to me to be more of a piece of dogmatism than anything else. Some believe that simply because there’s a market involved, rather than just the intake and spending of money by government, that the system has a certain blessing to it.

That’s not the way it works. Either these people invest, and they skew the market for stockbroking, or somebody invests for them, and leaves decisions that can have broad reaching effects in marketing to government officials who are potentially vulnerable to corruption in their positions.

Well, I for one am no free-market fundamentalist. A pure free-market healthcare system would lead to horrific tragedies. In fact, I favor a single-payer system (aka socialized medicine).

One thing markets are pretty good at, though, is turning wealth into more wealth. Which is all a retirement system really needs to do.

You are right that there would be bad to have the government micro-managing the stock market, picking winners and losers. But it wouldn’t have to work that way. People could choose between mutual funds with a low overheads.

Again, I’m not saying this is necessarily the best solution. But it’s worth a fair hearing. It’s not obviously crazy to me, as it is to many others on the left.

Posted by: Woody Mena at November 24, 2006 10:44 AM
Comment #196372

Jack, there is a reason that SS is the third rail. You do not gain people’s confidence by promising something, taking their money, defunding what they paid into and then promising something else. It smells, whether it comes from Democrat or Republican.

Private funds will simply be a pay off to Wall Street, everyone knows it. You won’t resolve the . theft of monies from SS by completing the theft. It can be funded. I think means testing it, is something that can be made to work. Loosening investment policies may be another way to fix the problem. Raising retirement age may be a help. I think any of these will fly. Privatizing or Piratizing(as I like to call it) won’t fly.

Posted by: gergle at November 24, 2006 11:12 AM
Comment #196376

gergle: My self and AARP disaprove of means testig for SS. It is NOT a welfare program and means testing would stigmatize it as such. An alternative option was started by Clinton when SS income was made taxable for higher income retirees. He was savaged for this by many of the same people who now call for privatization schemes. It is important to bear in mind that there is no immediate crises. The SS trustees estimate the program will remain solvent with No chamges until 2042.Most of us boomers will not be around to recieve benefits by then.
Private accounts are a bad idea. I would urge everyone to investigate the Argentine experience with them before lending them their support.
For the dogmatist that oppose SS merely because it is a socialist program please come to grips with the reality that some socialist programs do work just fine and succesful countries ,including this one have varying degrees of socialism. For example look at the interstate highway system. Should we privatize it and have toll booths every couple of miles? Of course not. Remember that if it had been built with private funds it would never have reached many states,mostly red ones, because there are not enough customers to ever make it pay. Another example is the postal service. Sure we can knock it but it is one of the best postal systems in the world and one can safely rely on it to deliver mail. Yes there is a private system also.Fed-x,UPS and the like. They correspond,for the sake of anology,to private annuities etc. They are valuable but they cost more. One can choose either option or both for services. That is what we have now. Most people have a mix of private accounts and SS to rely on for retirement. If it ain’t broke don’t fix it.

Posted by: BillS at November 24, 2006 12:23 PM
Comment #196377
Does the following make sense? Make EVERYONE pay the same percentage of their income to taxes.

No. Let’s use an example of a 10% flat tax. A person makes 100,000 a year, after 10% tax, he has 90,000 left. No problem. Another person makes 10,000 a year. 10% tax would take away 1,000, which to him would be more than a month’s worth of rent, bills, and food.

Unless by “EVERYONE” you meant “EVERYONE (who makes more than 60K a year).”

Posted by: Joseph Briggs at November 24, 2006 1:39 PM
Comment #196378

I don’t see SS as a program that needs to be fixed but rather tweaked to extend it’s solvency further out. As it stands, if we do nothing the program will be able to pay out %72 (?) of promised benefits on a continuing basis from the year it becomes insolvent, @ 2040. This suggests that the program needs adjustments not any sort of a permanent fix.
Taking a portion of SS payments by individuals and employers and creating separate accounts is a really, really bad idea. Even with investments restricted to funds (index and general) it is a given that a certain number of investors will not only have zero appreciation of principal but will actually lose some of that principal!!! Social Security is there to provide a floor of support to people no matter what their circumstances are. It provides disability insurance, spousal insurance and a GUARANTEE to people who make the required forty quarters of contributions. This is contrary to the insinuations of bush when he stood in front of the file cabinet and said (very stupidly, i might add) that the good faith of the government was only pieces of paper with no money to back it up (tell me the Chinese, Europeans and Japanese didn’t sit up and take notice of that remark!)
If you really want to help entitlement programs bring the federal budget back into balance as quickly as you can without derailing the economy.
All of this does not even address the problem created when you take a couple of trillion dollars out of the SS system and borrow the shortfall to pay current recipients. Regards

Posted by: charles Ross at November 24, 2006 1:55 PM
Comment #196379

Just Remember….

Tweaking the system is the same thing as an increase in taxes…

The Dems want everyones money, because we do not know how to spend it correctly…

Posted by: cliff at November 24, 2006 2:19 PM
Comment #196380

Let me see if I got this straight. Bush stumps the country trying to sell this privatization scheme concocted to make his Wall Street cronies happy. The more he opens his mouth, the more suspicious the American people become, and the further into the dumpster the plan goes, according to polls.

Then the GOP gets it’s proverbial clock cleaned in the elections.

And now, it’s back, a plan that won’t fly according to the majority of the American people, and that the Dems have said will not even be considered.

You’d go a long way to solving the problem of SS by taking off the $90,000 tax ceiling and having everybody pay into it. Some other minor tweaking, and it’s fixed. Instead of a 1.5-2 trillion dollar price tag to change over to a private system.

Guess that would look like class warfare, though.

However, class warfare on the right people…I like it.

Posted by: Tim Crow at November 24, 2006 3:27 PM
Comment #196384

The Republicans are doctrinally unwilling to raise taxes, and in practice showed themselves to be absolutely chicken about cutting spending. Democrats have shown a willingness to both raise more revenue and lower spending over the past decade. Because of that flexibility, and the Democrat’s willingness to subscribe to the doctrine of Pay As You Go, we’re the better party to be spending America’s money.

So long as Republicans are spendthrifts looking to pander to voters on doctrine while the country’s finances go to hell, claims that Democrats will only engage in the raising of taxes deserve to be shot down for the immature rhetoric they are.

Posted by: Stephen Daugherty at November 24, 2006 5:01 PM
Comment #196386

Sorry for the long response. I was out. I went to see the Liberty Bell & Constitution Hall.


A conservative in the American context believes in free markets, which include rule of law and reasonable regulation, limited government, & individual freedom. The idea that conservatives want NO government is not true. Read some of what Newt Gingrich writes. We want LIMITED government. The programs we are talking about here are tied to the tax codes. They are essentially tax cuts. Dems always say that tax cuts help only the rich; these help the poor and they help the non-poor build wealth. I think there is a lot of common ground here between the left and right.

Personally, I find a lot of common ground with people like Gene Sperling or Robert Rubin. Certainly, I disagree with a lot of the details, but I have been impressed by the Hamilton project and Bill Clinton was a relentless promoter of free trade.

We have got a big problem with Social Security. Neither side is going to get all it wants from a solution, but we have to find a solution nevertheless.


Private accounts will not save the ship, but it will allow us to get save most of the people in life boats and it will help the poor. The non-poor (most Americans, BTW) already have private accounts. We may need to think of a different name for them, however.


Some employers will not be able to support much of a pension plan at all. The workforce has changed a lot and so have the relative costs. Back in 1935, many workers did not live long enough to receive a pension at all and since life expectancy was 63, most did not collect long. Beyond that workers, tended to stay with an employer a whole life. A man might work 40 years and collect five years of pension. You and I may well be “retired” longer than we worked.

To your actual question, I would like employers to match contributions up to around 5%. I would also like to see the government provide generous tax breaks, even in the form of tax credits for the lower income workers.


People watch their private accounts. Most people probably cannot really understand all the finance necessary to mange high finance. I know I cannot. Yet I can successfully invest in stocks because enough other people do understand it to keep the markets and the brokers more or less honest. My own investment experience has been very good and once bad. I have been with Charles Schwab for a long time. That firm has been very good to me. I had a “personal broker” for a little while. I do not think he ripped me off, but he mismanaged my account. I learned a lot from that. I expect everybody will have such a learning experience.

Charles Ross

If I go down to McDonalds and order the Big Mac meal, but I tell them that I can only pay 72% of the price, so you think they will give it to me. What happens if your employer decides to pay you only 72% of your salary. Do you accept that? Being able to pay 72% is usually a sign of bankruptcy.

Please see below re SS and how it is funded.

Jim Crow

We still pretend that SS is a pension fund paid by the recipients. If you raise the ceiling (besides the effect such a tax hike will have on employers) you just make it another welfare program.

Bill S
That is why they called it insurance.

There is a long article that describes the difference between SS and a normal pension plan.

It also explains why we cannot save for SS. Since most people will not click on the link, let me excerpt.

A private pension fund accumulates the money paid into it, eventually using those reserves to pay pensions to the workers who contributed to the fund; and a private system is not universal. Social Security, on the other hand, is fundamentally a wealth transfer system. A private system can pre-fund because it does not try to cover everybody, so there can be net savers and net borrowers; on the other hand, any truly universal system by definition cannot save because in the aggregate, all agents’ financial wealth sums to zero because every loan nets out every debt. As a universal system, Social Security operates as a pipeline, through which current tax receipts from workers are used to pay current benefits to retirees, survivors, and the disabled.

BTW - Federal employees have paid SS since 1984. They have the type of system I wish for all Americans. They pay into SS, but they know that it is not enough to keep them in a comfortable retirement, so they also have a pension plan. Even SS and the pension is not enough so they also have the personal accounts (TSP), that I mentioned above. They pay in pre tax dollars and get a match up to 5%. A government bureaucrat who entered government service in 1985 made the median civil service wage for the last 21 years, contributed 10% of his salary to TSP and invested in the stock fund would today have more than ½ a million dollars in the fund and he would still have around 15 years more time in the workforce. If he did exactly the same things over the next 15 years, he will have around 1 ½ - 2 million dollars if the fund returns about what it has. Even if he started to put all his money into T-bills (which is as safe as anything the USG does) he still has a million to retire with in 2021. This guy made median wage, BTW. We are not talking a rich guy when he started, but he gets to be a millionaire.


You are right. Most things are simple, but not easy. Saving for retirement is like that

Posted by: Jack at November 24, 2006 5:31 PM
Comment #196388

The Republicans have admitted that the private accounts plan does nothing to save social security. Until you get a plan together that keeps things solvent, there’s not much point to criticizing resistance to the plan. The rule when dealing with SS is like that part of the doctor’s oath: first do no harm.

Posted by: Stephen Daugherty at November 24, 2006 6:11 PM
Comment #196390


Jim Crow

“We still pretend that SS is a pension fund paid by the recipients. If you raise the ceiling (besides the effect such a tax hike will have on employers) you just make it another welfare program. “

We also pretend this is a economically judicious society with a semi-level playing field. And Iraq is wallowing in Jeffersonian democracy.

It won’t be another welfare program—just the one promised the working classes many years ago.

Posted by: Tim Crow at November 24, 2006 7:58 PM
Comment #196394

Tim Crow

The field is not level. I was born in the lower working class & I now am in the upper middle. I can see the advantages of each and there are advantages of each.

But while the field in not level, it is possible for anyone to play and do reasonably well.

My father always told me not to set my sights too high because some things were “only for rich kids”. I believed much of what my father told me, but he was really wrong about that and I never believed it. BUT for those who believe it is IS true. It is the classic self fulfilling prophecy.

Re SS - I am surprised by it. When I entered the labor force, I was certain that I would never receive any SS. Now that I am closer to retirement, I think there is a good chance I will collect. But my erroneous belief was a big advantage.

Posted by: Jack at November 24, 2006 9:54 PM
Comment #196399

I disagree with you on two counts, Jack. I do not believe Social Security is a useful system (although that is a matter of opinion), and even if it was, I do not see how privatizing would make Social Security any more solvent.

Your talk of wealth and insurance against poverty is all very nice, but I would like to know where you think the money is coming from?

Posted by: Zeek at November 25, 2006 12:15 AM
Comment #196402


I am not sure what you objection is.

Do you dislike SS in general and would get rid of it? I do not think we can do that. Some people will not or cannot save for their own retirement. It is unacceptable for us as a society to have widespread poverty among the elderly. We need some system.

Re private accounts - I see them as a form of wealth creation. They get what is essentially a matching grant from the employer or a tax break or both. If we help people create wealth, they will be less dependent on the government and can be helping improve conditions for others rather than being a drag.

I think there are two important points with pensions and wealth creation. First (as I mentioned above) the goal of wealth creation is superior to the goal of income protection. People who enjoy high incomes but do not turn enough of that into wealth are not stable or solvent. We want people to save, invest and build.

Second, most people are not rational. We have a rational person view in economics and politics, but that is only of limited validity. Most people value a loss more highly than a gain. In other words, if you tell a person he will lose $10 he is much more upset than if you tell him he will receive $10 less. This is not logical, since the loss or gain is exactly the same, but it feels different.

In a perfectly rational world, you would not have to encourage people to save and invest for retirement. They would just do it and your only problem would be enabling them. In fact, they will not. Most people can think of lots of reasons why they cannot save enough. They need some round about incentive. Smart people do it to themselves. For example, the invest all of their raise and convince themselves that it is not really the same as taking it from their pockets etc. That is why a payroll deduction works. If it comes in advance, people are not bothered as much.

Re rational world - we do not live in one. If we did, poor people and fat people would be rare. Everybody would get good exercise. We would all drive sensible cars and wear comfortable shoes. Nobody would drink to excess or take drugs and the lottey would go out of business. Is this our world.

Posted by: Jack at November 25, 2006 12:56 AM
Comment #196403

Zeek: SS not a useful system? For my family it is like a godsend. My mother is 83. She is living with my eldest sister and takes much care. My other sister is nearby and helps much. We all are working folks with our own families to provide for. One sister is a legal secretary.The other a school teacher.I’m a carpenter. My mother recieves both her own SS and something from my father’s. My fathers career was cut short for health problems so my mother worked when she could. Niether of my parents had a private pension although they did put some money away by selling their home. SS helps us cover her expenses and allows us kids to better care for our own children.There are countless families all over the country in similer circumstances. Some day you may find yourself there also.It also allows her dignity. She knows she is not a financial burden.My father served in the Pacific theatre and my mother was a secretary for the Army. Thats how they met. They are some of the people that won WW2 for us. They do not deserve dignity? A useless system? Hardly.

Jack: Sorry. Even if private accounts from SS were a good idea it would go nowhere for the time being. Seeing as it is a bad idea the chances are even slimer.Until you can garentee the stock market will never again crash,the spector of millions of seniors eating out of garbage cans will never be overcome politically. That dog won’t hunt.

Posted by: BillS at November 25, 2006 12:57 AM
Comment #196405

Jack and all;
Section#4 of the 14th Amendment says that legal debt owed by the federal government for pensions may noy be questioned. In other words the bonds issued to the federal government by the SS trust must be paid unless we change the Constitution. Not bloody likely.
Lohnson changed the way the federal budget was reported. Seems the SS fund was running a substantial surplus while the rest of the federal government was in seriously in the red. By combining the two he made the federal budget look better. This was the first time the SS fund was used to cover up the cost of a war. It has been used by presidents ever since to do the same including the cold war military build up under Reagan. At one time there was a bill,pushed by Republicans to again separate the budgets. It passed the House but failed to get the 3/5 necessary to come to a vote in the Senate because of Democratic opposition. You guys ought to try it again. It would be politically smart and might gain some currency.It would help protect SS and pull the sheets off profligate spending. That is of course after you dump you idealogs whose real goal is to ruin SS .Then you can get back to really taking good care of the peoples business.

Posted by: BillS at November 25, 2006 2:46 AM
Comment #196408

Bill S,

While I agree SS can be fixed, I disagree that a means test would be disagreeable to most. The original intent of getting people to pay into it, was why there was no means test. That hurdle has been overcome. There is little point in someone recieving millions in retirement income recieving social security. It is intended as security insurance. Should a millionaire become poor he would again become eligible. I think this is quite sellable as an idea.

Posted by: gergle at November 25, 2006 4:48 AM
Comment #196409

What is the democratic parties plan to fix social security? It has none. It has declared there is no problem and it’s going to “protect” socialial security. Which I take it is propaganda designed to get votes and code for “we wont let anyone fix it because fixing it might hurt you”. So they instead intend to let the problems get worse and worse.

What can we expect in the next two years from a democratic congress in the way of eliminating ear marks, fixing social security, fixing medicare, balancing the budget, removing corruption? Nothing from what I can tell.

Democrats are going to stay far far away from the big issues that need fixing and instead try to find ways to impress upon the voters they are the party that will give them money.

Posted by: Stephen at November 25, 2006 5:35 AM
Comment #196410

I understand your point but disagree. Means testing has the conotation of welfare or charity. SS is not that. You must work for wages to recieve it. Many of the wealthy have never worked for wages anyway and if they have it was not for long so really do not recieve much benefit. Clinton started to tax benefits above a certain income level.He was savaged for it. That was one way we started running a budget surplus. A balanced or surplus budget,with surpluses used to pay down the national debt or avoid borrowing strengthens SS.
Another AARP suggestion would be to allow the SS fund to invest in more profitable ways than lending to the government. Sounds good but we are not a country where huge amounts of government money invest in private industry,for some pretty good reasons. The dreamer in me would like to see some of the fund used to set up an SBA type system to fund alternate energy and conservation start ups. Fat chance on that.

Posted by: BillS at November 25, 2006 6:09 AM
Comment #196411

It is not the Democrats that are saying SS is not in trouble. It is the SS trustees that project solvency until 2043 and after that they will still be able to pay 70% of benefits.That is with no changes. Their estimates are generally very conservative.If they have underestimated economic growth then that date gets even furthur back.The sky is not falling.

Posted by: BillS at November 25, 2006 6:18 AM
Comment #196412


You may want to amend your take on this. The trustess are recommending we take action before it goes bust.
News Release
Little Change in Social Security Solvency
Trustees Recommend Timely Action

The 2005 Social Security Trustees Report shows little change in the projected financial status of the Social Security program over last year. The Trustees Report projects that the Social Security Trust Fund will be exhausted in 2041 - one year sooner than last year’s projection. The Trustees recommend that projected trust fund deficits be addressed in a timely way to allow for gradual changes and advance notice to workers.

Posted by: Stephen at November 25, 2006 6:39 AM
Comment #196413


Even worse, by 2017 the crunch will start to hit. Hope you don’t plan to use social security!
They also now estimate that by 2017 the system will not be taking in enough in payroll taxes to pay all benefits promised and will need to tap the special-issue bonds that make up its trust fund. That date was moved up from 2018.

Posted by: Stephen at November 25, 2006 6:42 AM
Comment #196414

What’s amazing is that as we moved away form the 40 + payers that used to put into social security for every user and approach 2…democrats continue to pretend that everything is ok.

What is the democratic party plan to balance the budget? Fix Social security? Fix Medicare? Eliminate Ear marks?

Meet the new boss, same as the old boss, the democrats are not going to do the hard stuff, they are not going to address this nations real problems.

Posted by: Stephen at November 25, 2006 6:44 AM
Comment #196415


First, as Stephen points out, the Trustees are very clear that action is needed soon — not in 2043. See the summary of the Trustees’ report.

Moreover, even your statement that the fund can pay about 70% of benefits in the 2040s is an argument for fixing the system now. Unless you think that in the future we’re going to pay someone $1400 on month and pull them back to $1000 the next, we need to act now to smooth out the growth of benefits so that we can stay on a path that we can afford.

Also, the program enters the cash deficits in 2017, not 2040. Saying the program is “solvent” in 2030 because it ran a surplus back in 1985 is about as sensible as saying that the government has no deficit today because it ran a surplus several decades ago. The fiscal problem arises well before 2040.

This is not a new or controversial finding — it is agreed to by the Social Security Trustees, CBO, GAO, and each recent Presidential Commission and Advisory Council.

The last Trustees’ report found that the program’s total shortfall had reached $13.4 Trillion. This is up from $10.5 Trillion in the 2003 report, and most of the increase is solely due to the loss of time.

Also, the myth that the problem will go away and that the Trustees are being unduly pessimistic is just that, a myth. The Trustees are actually projecting faster real wage growth than we’ve had on average over the last 40 years, and even if the economy grows faster than projected, there’s still only a 2.5% chance that the shortfalls are postponed till 2022. Moreover, on balance, the Trustees have actually been somewhat too optimistic, not too pessimistic.

The Trustees’ projections are reviewed every few years by outside Technical Panels, and typically, they find that they are reasonable, or that they are understating the problem (due to demographic factors) as much as they are overestimating it (due to economic factors.)

Posted by: Feverishb at November 25, 2006 8:05 AM
Comment #196418

I don’t think Democrats are against the idea of personal accounts, but we also need to ensure the poorest have enough money to live on. Since there’s not enough money right now to even ensure that, it’s hard to put personal accounts into place to generate wealth. I’d be more than willing to take money from elsewhere to create these personal accounts.

Something I don’t understand about Republicans is their unwillingness to pull money from say, maintaining outdated weapons we will never use, to better invest our money.

The true situation is thanks to Republicans all ideas like this are off the table. We are deep in red, and until we get into black we can’t fund anything. Republicans talk about taking money away from things like education or social security. There’s no money left to take away from these programs without dismantling them.

The choice FAT, no matter how you look at it, is in the military. I’m talking about hundreds of programs with no relation to Iraq or the war on terror.

Let’s stop maintaining a small percentage of our cold war relics. That would be the easiest and most painless way of getting us back in black in my humble opinion.

Posted by: Max at November 25, 2006 8:35 AM
Comment #196421

Bill S

You can make lots of laws. SS is an entitlement program, not a contract. The Supreme Court decided, in Flemming v. Nestor (1960), that “entitlement to Social Security benefits is not a contractual right”. It is an entitlement Congress can (and has) changed the defitions of the class of entitled workers and how much they get many times.

I see two options. One is that we reform SS soon, extending the retirment ages, enouraging private accounts and enacting some needs tests.

The second option is that we pretend the system needs only some minor tweaks. Those who are smart and have the resources invest in private accounts. When the fecal matter approaches the cooling device, Congress revamps the entitlements effectively cutting benefits for all. The clever and the well off are pretty much in the same boat they would have been w/o the reforms, since they have private accounts anyway. The poor seniors (maybe 10% of them) are eating cat food (and not Fancy Feast).

Re welfare, for the poorer worker SS is a welfare benefit. It will be even more so if we raise the SS caps.


We can all disagree where to cut the budget. Our lawmakers are supposed to do that. The Republican Congress from 1994-2000 did a pretty good job. After that they did a poor job and Dems have never been able to do it at all. I hope the new crop of Dems proves me wrong.

The personal account with tax subsidies is the best possible Federal program. We help those who will help themselves AND encourage good behavior and thrift. It is a kind of investment. If we get some low income guy to save 5% of his income by giving him a tax credit, he has a good chance of becoming a better and more productive citizen and less a risk of becoming a public charge.

Posted by: Jack at November 25, 2006 10:58 AM
Comment #196424


BTW - As late as the 1960s, military was the biggest part of the Federal budget. Today 2/3 of all Federal spending is entitlements. This is a fast growing part of the budget. If you cut ALL the military spending, you still will have a serious budget problem in ten years if you do not address entitlements.

Posted by: Jack at November 25, 2006 11:09 AM
Comment #196427


They will print and borrow it, just like they have been doing for the last 70 years.

$12.8 trillion of surpluses have already been taken out of Social Security. $2 trillion of it is in the form of worthless government bonds.

Privatization is nothing more than a plan to eliminate Social Security.

Since government can’t manage it responsibly, perhaps it should be? Of course, that may lead to 77 million very unhappy baby boomers who paid into it their entire life.

Social Security quite possibly was started for similar reasons (murmurs of civil unrest)?

I used to think all of these huge social programs would go bankrupt a long time ago, but that won’t happen, because the Fed and government will simply keep printing and borrowing more money.

The question is, how much deeper can the whole nation get into debt?

Like playing Monopoly, imagine one player can print their own money. Before long, that person owns everything, and everyone else is deep in debt (just like what we are seeing happen now, for many decades now). The distribution of wealth between the top 1% of the remaining 99% of the U.S. population has shifted by 20% (from 20% in 1980 to 40% now).

The question is, how long can the nation-wide debt keep growing while the Fed and government simply keep printing more money ?

Due to massive borrowing that has accompanied excessive money printing, the Fed and government will have no choice but to print more money.

We have become conditioned to think 3% or 4% inflation is good. It’s not. Look at what it does to $100 …
For example, at only 4.5% inflation, $100.00 becomes:

  • $96.35 in 01 year

  • $92.70 in 02 years

  • $89.05 in 03 years

  • $81.75 in 05 years

  • $63.50 in 10 years

  • $45.25 in 15 years

  • $35.43 in 20 years
  • That’s what the looming shortages in Social Security, Medicare, Medicaid, and the wars in Iraq and Afghanistan will lead to … even more money-printing … they will have no other choice.

    The ever-present, insidious inflation hammers the lowest-income-classes the hardest, because they are on fixed incomes and/or retirement savings that they can not invest in risky instruments that might earn interest in excess of the continually eroding inflation (even at only 3% or 4%).

    And who knows? With the growing size of the National Debt and looming shortages for 77 million baby boomers, we may return to double-digit inflation like during the 1980’s ?, which is when the distribution of wealth suddenly took a sharp turn downward (and hasn’t stopped).

    Posted by: d.a.n at November 25, 2006 12:15 PM
    Comment #196431


    That is a good idea, I like it.


    you know what I like better.

    The idea of us not borrowing from social security to bulk up the general fund.

    I know, I know, how are we supposed to survive with out the extra income.

    Well let me remind everyone one that we did in the past just fine. In fact we survived two world wars and technology race with Russia.

    We also came out of it more powerful than we had ever been before.

    Sooooooo… ?

    Posted by: Bryan AJ Kennedy at November 25, 2006 2:22 PM
    Comment #196432


    Man, you are really on a ball with the money printing issue.

    I t hink we need to just get better fiscal amnagement in office.

    I don’t have debt.

    I saved sixty percent of the money I made from age 12 to 19 so that when I moved out of my grandparents I would have enough to pay rent in full and in advance till I am done with college. While in college I saved every red cent and lived off ramen noodles for two years so I could buy a car. A nice one two. Acura Legend, fully loaded, leather, real nice. =)

    But… since we probably won’t be getting any intelligent spenders in office anytime soon, or at least not enough of them to actual FIX anything.

    I will go ahead and side with you on the money printing. It is probably the closest thing to a real solution there is; or at least most of one.

    Posted by: Bryan AJ Kennedy at November 25, 2006 2:27 PM
    Comment #196434

    Bryan AJ Kennedy,

    The excessive money-printing is one of the most UNDER-REPORTED economic problems.
    People have been brainwashed to think 3% or 4% inflation is OK.
    Fiat-money advocates will say it’s all OK, but it isn’t.
    M3 Money Supply grew by a factor of 52.6 between 1950 and 2000, but we did not grow 52.6 times richer.
    Inflation is intentional.
    It is by design.
    However, it can snowball out of control if accompanied with massive debt and borrowing too.
    It’s easy to see how it erodes savings.
    Government and corporations don’t want you to save.
    They want you to spend.
    They want you to be in debt.
    Here’s a good 42 minute video about it.
    So, not only do we need Social Security reform, Medicare reform, budget reform, campaign finance reform, and a large number of reforms growing in number and severity, we also need Monetary System Reform.

    However, like the many reforms we discuss here weekly, none are likely to ever materialize as long as we ignore the FIRST fundamental requirement:

      Responsible Government
    We don’t have that, and won’t as long as voters keep re-electing, rewarding, and empowering bought-and-paid-for, look-the-other-way, irresponsible, incumbent politicians who truly answer only to a very few that abuse vast amounts of money and power to control government, and ignore the voters and the nation’s pressing problems growing worse every year.

    You are wise to avoid debt.
    It’s a trap.
    Before long, they have trouble just paying the interest, and become slaves to their debt, as the principal becomes more and more difficult to reduce.

    Not to mention the ridiculously high interest rates (e.g. 21% or higher). That is so usurious, it should be illegal.

    At any rate, the Social Security problem could be improved if the irresponsible Congress would stop spending the surpluses. In the beginning, it was supposed to be a lock-box, but Congress didn’t like not being able to plunder that money, so they changed the law. Now, to date, $12.8 trillion in surpluses havce been siphoned out of Social Security, which is why it is now facing looming shortfalls.

    In a voting nation, education is paramount, and the voters’ education is in the pipeline, and it appears they will have to learn the hard way.
    Especially if they keep re-electing the same politicians that have been selling out the voters for decades.

    Posted by: d.a.n at November 25, 2006 3:00 PM
    Comment #196437

    Like every government program, SS is inefficient. It is of little value to 30% of the retired (either because they are too wealthy or too poor). It has outlived its usefulness (about 50 years ago). Its funds have been robbed by congress for other purposes and not repaid.

    The only way to solve SS is to end it entirely, phasing it out over the next 25 years. It has been proven over and over to be one of the worst investment anyone can make. In its place should be a required self-directed IRA. If its your retirement money, you will pay attention to how well it is doing and you will do better. You take whatever risks you feel are appropriate.

    We don’t need to government to be handling our retirement money. There’s little chance that my investment plan will be worse than the government’s.

    Posted by: Don at November 25, 2006 3:27 PM
    Comment #196441

    You are factually incorrect about SS being inefficient.Their overhead is about 2%,far lower than private anuities. I realize that it is much easier to consider youself right all the time without doing it but really,you might want to try checking facts before comming to a conclusion.
    My 83 year old mother lives on SS.We find it quite useful,thank you.It is also the national widows and orphans fund and the disability for injured or sick workers.I hope you are never in that position but you might be one day. Perhaps then you would appreciate SS’s utility.

    Posted by: BillS at November 25, 2006 6:34 PM
    Comment #196443

    Question for my fellow-left column posters: What is so great about the current SS system, that makes people want to defend it like their mother’s virtue?

    Under the current system, you basically give money to the government and they promise (but not in a binding way) to give you retirement income decades later. You have no control over what happens to the money. All you can do is hope that you can pressure future politicians to fulfill the government’s end of the bargain.

    It is not a terrible system. The average citizen of say, Brazil, would probably sign up in a heartbeat. But it is a mediocre system. Why can’t we come up with something that makes more sense?

    Posted by: Woody Mena at November 25, 2006 6:52 PM
    Comment #196444


    I can buy and ETF fund or a Vanguard Fund for a tiny fraction of 1%. People are paying too much for social security and gettig too little in return.

    Combine very tiny returns (if any) on the money with the expence ratio and guess what, America if far better off in a well balanced, well diverfied asset allocation in the bond, commodity, and equity markets.

    Posted by: stephen L at November 25, 2006 6:57 PM
    Comment #196445


    Taxes are taxes. SS is a tax. The government cannot save money in the conventional way, since it originates the money and guarantees all the deposits. The bottom line is that the individual tax rate is actually 15% higher than we think it is. What they government does with that money after it takes it in really doesn’t make any difference. Read the link re how SS works. Today’s worker support today’s retirees. Tomorrows workers will support tomorrow’s retirees. The only way anybody can “save” is with personal accounts.

    The “trust fund” was always a myth. It is not possible for the government to save money. I do not mean they will not or are too untrustworthy. I mean they cannot. It is like you writing an IOU to yourself. It will only be repayed by the income you earn when you repay it (or not). The lockbox was a lie based on a myth.

    Posted by: Jack at November 25, 2006 7:00 PM
    Comment #196447

    Re SS being a good investment, we are arguing two different points. An individual can clearly get a better return on investment than SS. But SS has that welfare element. A person who pays the maximum could do better if he kept his and his employer’s contribution. A guy paying in the minimum gets back much more than he put in or could have earned.

    It all goes back to the trust fund/investment myth. We insist on pretending SS is like a private pension or a private investment. It is not.

    Posted by: Jack at November 25, 2006 7:05 PM
    Comment #196450

    Woody, Its the fear that the repub ideology of getting rid of the SS program will prevail over any attempt to actually improve the SS program. Its the fear that the politicians in the pocket of wall street will pervert the SS program for financial gain at the detriment of the people.

    Posted by: j2t2 at November 25, 2006 7:44 PM
    Comment #196451

    Please source the 12 trillion number.Also,the actuarial figures from SS show solvency until 2042 before benefits will potentially need to be reduced to 70%. That is a long way off and many boomers will be dead by then,reducing the burden on the fund. Those are conservative projections. That is NOT “looming.”

    The SS surplus was created for the purpose of insuring solvency of the program through the retirement of boomers. We have been paying extra for this for twenty years. By extra I mean over and above the cost of the current program. The surplus automatically is lent to the federal government at around 6% interest. The federal government is legally obligated to honor those bonds.Sometime around 2018 with the retirement of the boomers the SS fund will start having to cash in those bonds to pay benefits. Theres the rub. The federal govenment will have to come up with the money and it is a truly huge amount. It will call for spending cuts and tax increases. This is not the fault of SS and certainly not the fault of the millions of working people that paid into the fund with the expectation help for retirement. It is the fault of presidents and congresses of both parties that have failed to balance budgets and used the fund to cover up profligate spending. A major part of this has been hiding the real cost of wars from the American people. Vietnam, the Cold War build up under Reagan and now Iraq.Wether or not these wars should have happened is not my point here. Because of them a major program for Americans has been put in jeopardy. Why? Because our leaders were afraid we would not support these wars if we had to pay for them.Makes one wonder just what planet these leaders are from. We are Americans! If we can be convinced the reasons for a war are great enough we will gladly be willing to pay for it,even if it means hardship. We did in ww1&2,for Gods sakes.
    The prospect of having to pay back the fund brings chills to our leaders so we will be hearing plenty more “fixes” to try and get out of it as the time approaches. To damn bad. You borrow money,you pay it back. If we do not it means Friedman and co. concocted the largest theft in history.

    Jack :SS is welfare? If you told that to my 83 year old mother, feeble as she is,she would slap you. Military retirements are also entitlements. Are they welfare also?

    Posted by: BillS at November 25, 2006 7:45 PM
    Comment #196456

    Bill S

    You got the SS “surplus” right. There is no money. The government of the future will have to tax the taxpayers of the future to pay the promises of the past. But your idea that it is no fault of the SS recipients is incorrect.

    We current generation of Americans are receiving more than our taxes are paying. You may argue that it is the “politicians” but we elect them and they are doing what we want, whether or not we admit it. We are demanding they spend more than we are willing to pay for and we are currently getting the benefit.

    You might be for or against the military, but 2/3 of Federal spending is entilements. Bush has also increased spending on the poor by 16%. Maybe he should not have done that, but I bet the people who would cut military would not cut this and vice versa.

    Anyway, those paying the taxes in 2018 will have enjoyed LESS of this benefit than those retired in 2018. If someone suffers cuts, it should probably be the recipients (which will be me and probalby you, so we are not talking about screwing others)

    Re welfare - I would out of courtesy not say such a thing to your mother, but it is true. Military pension are not entitlements in the same sense as SS, since they are not universal. Pensions are contractual and a type of deferred compensation.

    Your mother paid in x amount in SS taxes. I bet she recouped her entire contribution (+ interest) about 10 years ago. The people who retired from the middle 1970s to now have been the real jackpot winners. That is why we all would like to have what they get. The problem is that the baby boomers paid for the rich retirement of the generations before. I will make no judgement as to whether or not that is just, but there is no comparable sized generation coming up now.

    Think of it in human terms. The five kids of the today’s retirees can more easily support their aged mother than the two kids (or less) most baby boomers produced. And the next generation will live longer.

    The numbers just do not add up.

    Posted by: Jack at November 25, 2006 10:33 PM
    Comment #196459

    Believe it or not I tend to agree with you about re-vamping SS. However!!!!
    You neglected to respond to:

    American Pundit at November 23, 2006 03:07 PM

    The poor do not save because they do not have the proper resources and they do not have the proper habits and skills.

    Jack, the poor don’t save because they’re poor. The poor don’t have the proper skills because they can’t afford the time and money for the education — they’re too busy working double shifts for peanuts.

    Please address this issue.

    Posted by: Linda H. at November 25, 2006 11:57 PM
    Comment #196462

    Linda H

    I do not believe it. I am not saying the poor have it easy, but I also believe it is very difficult to remain poor unless you have the poor mind set. I am not saying that everyone will get rich. Most people will never get rich, but few people will stay poor.

    A poor person might have little leverage, but he has some. If he uses it properly it grows. You can see that with people who have been successful in pulling themselves out of poverty. We see this all the time with immigrants.

    Besides, I recognize that some people might need the help. That is why I support the tax credits and matching funding. Still, not everyone will use this. They will find reasons not to save. Even among civil servants (who have the TSP I refer to) some do not save. ALL of them have full time jobs with benefits, so NONE of them have a financial reason not to invest.

    Posted by: Jack at November 26, 2006 12:29 AM
    Comment #196466

    Since WW2 this nations economy has been the greatest there is. No other nation has even come close. Our nation has done this despite having all those terrible socialist welfare programs dragging us down.

    Republicans have always made it clear that they want to destroy the New Deal and its additions. They have finally hit on a scheme that they are counting on to destroy the program they hate the most,social security. If they can get the people to buy into this plan, the market will go up and the Republicans will say, see it is working, pople are getting a better return on their money than ss. Then comes phase two, every one should be allowed to invest all of their ss contributions. Then what is phase three? Every one is responsible for their own retirement and it is unfair for employers to pay into a system that is the responsibility of the individual.

    When you here a Republican say that smart Democrats know we need personal accounts, keep in mind the fact that Republicans have vowed to destroy social security.

    I love the way we now change the word or the name of things that are unpopular with the people.The People don’t like private accounts so we will just it to personal accounts and try to resell it. My favorite name change, The New World Order changed to Globalization.

    Posted by: jlw at November 26, 2006 1:25 AM
    Comment #196467

    If you want to see poor people get on the early bus. The reason they do not save is because there is nothing to save.

    What I wrote about the SS surplus being used to cover up the real cost of wars and military build ups is a point of fact. I expressed no opinion as to wether or not they were necessary.Just that that is where much of the SS fund went. To counter your arguement that future generations should not have to honor the trust fund obligations,if one believes that these wars were necessary to protct the country then one also must believe that they served to protect these future generations so why should they not help pay for them. Not a bad point though. I will submit that military spending is out of control. That 600$ hammer we used to complain about now cost 1200$. 2.2 billion dollars for one airplane? Please.Anyone that thinks there is not room to cut expenditures without risking security must work for Lockheed.Sorry off thread.
    The SS fund is separate from the general fund. Just because the general fund has been mis-managed has no relevance to the SS fund. If you lend someone 50$ and they go out and buy a used bowling trophy or lose it at cards does not mean they do not owe you fifty bucks.
    I am surprised but you missed a very good arguement for private accounts from SS. It would be impossible for the feds to borrow them.
    SS also provides a benefit that is not mentioned much. It serves as disability and life insurance policy for youself,minor children and spouse. Premiums for such life long coverage in the private market are very expensive.

    Posted by: BillS at November 26, 2006 1:35 AM
    Comment #196469


    I used to be poor. Many of my relatives and the friends I grew up with still are. You just have to set priorities. First is training and education. I am convinced that anyone who want to go to college can. It may not be the fancy schools, but there are options.

    There are three problems for the poor. Only one is lack of money. The second is perhaps lack of necessary intelligence or health. That one is hard to fix. But behavior and attitudes are a really big part of staying poor.

    Let me repeat that most people will not get rich if they work hard, just not stay poor. Life may still be hard and all but the richest must make choices.

    Re “borrowing the money” the government taxes at a certain rate. In fact it is taxing at a higher rate than it says, that is the SS tax.

    You are right that the governent cannot borrow private accounts. I mentioned the similar point above. But the private account is a completely different thing. You CAN save in a private account that is yours to control. The government cannot save for ALL of us. If we all are included it is just like (as I wrote) writing an IOU to yourself or moving your money to a different pocket.

    Posted by: Jack at November 26, 2006 2:55 AM
    Comment #196473


    You haven’t been paying attention…it is simple to fix Social Security, without exposing it to the ill winds of chance.

    We pay Communist China twenty percent for the monies we borrow from them. All we need to do is pay the same interest on the monies we ‘borrow’ from the ‘trust’ fund, and walah, SS is fixed.

    Posted by: Marysdude at November 26, 2006 8:09 AM
    Comment #196481


    Let me explain one more time. There is no money in the trust fund. It is just an accounting entry, an IOU from us to us. You could pay 100% interest, but it still would mean that the taxpayers of 2018 have to pay for the recipients of 2018. They cannot draw on account.

    BTW - the Chinese are buying U.S. government securities. Over the last year, that rate has be less than 5%. If you know where you can buy T-Bills paying 20%, I suggest you beg and borrow all the money you can and buy them.

    Posted by: Jack at November 26, 2006 10:47 AM
    Comment #196487

    I really should not have mentioned my disapproval of Social Security since it’s a moot point and it is likely just going to step on people’s toes.

    Moving on.

    Jack, the reason “smart people” as you called them invest on their own is because they believe they can profit from investment. And in most instances they do. For want of a better term, “not-so-smart people” do not invest because they have no confidence in their abilities, and rightfully so. Most of that particular group of people do not know the difference between investing and throwing money in a hole. It is my belief that you will be hurting more people than helping them if you force them to invest, especially if you are taking it through SS.

    I would say that if you want people to become investors, they need to do so under their own volition. This means our solution needs to start early, with education so that people can have the tools necessary for building confidence. Having not-so-recently finished high school, I know that even the best schools have next to worthless business classes that rarely have any practical application. I would much rather we spent our time and money reforming our schools’ business classes than Social Security.

    Posted by: Zeek at November 26, 2006 12:36 PM
    Comment #196493

    Jack: You are correct that there is no money in the SS trust but there are assets. They issue redeemable bonds to the general fund. The US has never de-faulted and should not start now.For twenty years wage earners have been paying more than was immediatly needed by SS to fund retirement through the demograpic bubble of the post war baby boom.We have saved. It was prudent. Around 2018 we will need to start useing our assets to fund our retirement.The question is,will the federal government try and welch on the debt. Looks like the answer is yes. Us boomers have a lot of clout and any politician or official that tries to skip out on what is owed us will not be around long. Niether will any party that tries it. If that means repealing the Bush tax cuts so be it. If that means a national value added tax so be it. If that means selling off surplus bases so be it. Raiseing tariffs,so be it. incresing oil lease fees,so be it.etc.
    Private “carved out “accounts ? If you get a chance look at the Argentine experience. Look at the post crash stuff. the stuff posted before the the crash is nothing but praise and propaganda.Later events show utter failure.

    Posted by: BillS at November 26, 2006 1:34 PM
    Comment #196495

    I like it. Another real reason some people do not invest is that they have no money to invest.There incomes are barely sufficient to provide sustenance as it is. This is a hard concept for many more fortunate to grasp but it is true none the less. Policies that encourage wage increases would help investment by individuals.

    Posted by: BillS at November 26, 2006 2:01 PM
    Comment #196496
    BillS wrote: d.a.n. Please source the 12 trillion number.
    The total current (not future) Social Security debt is $12.8 trillion (source: CATO institute (read the first paragraph))
    BillS wrote: Also, the actuarial figures from SS show solvency until 2042 before benefits will potentially need to be reduced to 70%. That is a long way off and many boomers will be dead by then,reducing the burden on the fund. Those are conservative projections. That is NOT “looming.”
    Think so, eh? We will see. The nation is swimming in debt, and getting deeper all the time. At this rate, it is very unlikely we will make it to 2022 much less 2042. Social Security is Pay-As-You-Go. There are no surpluses.
    BillS wrote: The SS surplus was created for the purpose of insuring solvency of the program through the retirement of boomers. We have been paying extra for this for twenty years.
    False. There is NO surplus. Social Security is Pay-As-You-Go. The so-called surplus is worthless U.S. bonds.
    BillS wrote: The federal government is legally obligated to honor those bonds.
    OOHHHHHhhh … well then. That is an entirely different matter. N_O_T !
    BillS wrote: Sometime around 2018 with the retirement of the boomers the SS fund will start having to cash in those bonds to pay benefits.
    Yeah? And where will the money come from? They’ll will print it, of course.
    BillS wrote: It [government] will call for spending cuts and tax increases.
    Spending cuts? Not likely. Not until absolutely forced to do so. Tax increases? Yes, that’s a given.
    BillS wrote: This is not the fault of SS and certainly not the fault of the millions of working people that paid into the fund with the expectation help for retirement. It is the fault of presidents and congresses of both parties that have failed to balance budgets and used the fund to cover up profligate spending.
    Well sort of. We are all culpable, because we keep re-electing, rewarding, and empowering irresponsible, bought-and-paid-for, look-the-other-way, corrupt, FOR-SALE, incumbent politicians.
    BillS wrote: A major part of this has been hiding the real cost of wars from the American people. Vietnam, the Cold War build up under Reagan and now Iraq. Wether or not these wars should have happened is not my point here. Because of them a major program for Americans has been put in jeopardy. Why? Because our leaders were afraid we would not support these wars if we had to pay for them. Makes one wonder just what planet these leaders are from. We are Americans! If we can be convinced the reasons for a war are great enough we will gladly be willing to pay for it, even if it means hardship. We did in WW1 & 2, for Gods sakes.
    Agreed. But, we elect them, and keep re-electing, rewarding, and empowering them, and never hold them accountable.
    BillS wrote: The prospect of having to pay back the fund brings chills to our leaders so we will be hearing plenty more “fixes” to try and get out of it as the time approaches.
    No, they are not that worried. Why? They will print and borrow all the money they need. Why? It is clear once you understand why the fiat monetary systems are so popular among some economists, the business community, bankers, and government officials, who receive power and influence to put money in their hands, F_I_R_S_T, early in the circulation cycle, B_E_F_O_R_E the currency loses its value due to inflation and excessive money-printing. Especially since it shifts the loses to them; those that do not understand how they are being cheated.
    BillS wrote: Too damn bad. You borrow money, you pay it back. If we do not it means Friedman and co. concocted the largest theft in history.
    Yep. It sure is. See some others that agree with you.

    And, to make matters worse, Bernanke could prove to be one of the worst appotintments Bush ever made, because Bernanke is a die-hard inflationist-Keynesian, and a very aggressive advocate of printing-press economics. Bernanke is just the type who could become famous (or infamous) in history for having destroyed whole nations. Bernanke is utterly and completely dedicated to the idea that paper money will save the world, with no downsides. This is scary.

    Posted by: d.a.n at November 26, 2006 2:14 PM
    Comment #196501


    I agree with your assessment of people’s relative investing prowess. I know some people who just cannot hang onto money. Some are not fools either. But I do think that many people can learn to invest. It is not very hard, especially with index funds etc. Beyond that, some potentially good investors just do not have the money to do it. I want to encourage those who can.

    You learn about investing by investing. Some people will lose their money. Some will make a lot of money. Most will do okay. On balance they will do better with private accounts than with SS alone. BTW - I would not force anyone to have a private account. I would just give them the option and the help with matching funds and tax breaks. Of course, I would expect those with accounts to have a more comfortable retirement than those w/o.

    Bill S

    Those assets are worth as much as the government want to say they are worth. It goes in a big circle. The taxpayers of today can promise that the taxpayers of tomorrow will pay tomorrow what they people of today decide (complicated sentence). But the taxpayers of tomorrow do not have to pay. Yes, they have an obligation to redeem the bonds. But a future Congress will decide the terms of payment individual recipients receive. Sometime around 2025 spending on entitlements alone will cost as much as the total Federal budget. I doubt if a future government will allow that to happen, no matter what the political power of retired voters. If you do not have a private account, you will be getting that lower payment and that is it.

    Re Argentina - Argentina should be one of the richest countries in the world. Back in 1900 it was. God gave Argentina lots of gifts, including good soils, a moderate climate, natural resources etc. Good financial management skill is not among the gifts God gave to Argentina. In an American investment climate, you have a lot more and better choices. Besides, would you be any more enthusiastic to depend on the Argentine government?

    Posted by: Jack at November 26, 2006 4:27 PM
    Comment #196511

    It has been a pleasure discussing a subject close to my heart for reasons you can guess. I am getting close and I want to spend my golden years fishing and diving in the South China Sea, not working at Walmart partime.
    To the title of your piece. Can We Agree On Private Social Security Accounts Now?. Answer: NO.And it will not fly politically either. We can find some common ground though. We seem to have reached agreement that private accounts are esentially a good idea,just not carved out of SS. How do we incourage them even for those that cannot get it together to save on their own? I would suggest it be done through employers. I know you have an instant distaste for employer mandates but please bear with me.Responsible employers already provide retirement benefits of one sort or another,correct? Those that do not are basically leveraging the future hardship of their employees as a competitive advantage rather than providing goods or services more efficently,the foundation of free market economics. Were the government to mandate and set minimum standards for retirement vehicles,401 Ks,annuities,defined benefit etc.and perhaps offset at least some of the cost with tax incentives there are plenty of private financial firms that would be happy to help them set up systems. Companies that already have plans would also reap the benefits of these incentives and the additional benefit of a more level playing field against their competitors.
    A moment to tell you about waht I have through the Carpenters Union in my region. These are not nationally uniform.. This is a high wage area. We have a defined benefit plan where ones pension is based on how many hours you have and the amont credited for that particular year. If you worked a full year this year for example you will recieve about 200$ a month at age 62. The amount varies. It will be going down next year because of amortization rule changes by the federal government.If you drop dead there is a spousal benefit but it is not much. We also have an individual annuity. At this point the minimum contribution is 1.20 an hour. This is employer paid but in a nogitiated contract who pays it is kind of a wash. We have the option of contributig up to four dollars an hour ourselves into this annuity. I do this but wish I had started earlier.That is a total of 5.25 an hour I get to sock away. It mounts up fast and with tax deferment cost about 80 cents to put away to put in a buck. I have the option of taking all or part of the annuity and self directing it in a menue of mutual funds. The trustee directed fund pays around 6%. My wife only lets me play with 20,000 but I can usually get 13-15 %. Both funds are well managed and probably more secure than private annuities. The feds watch union pension funds like hawks. (thank you Jimmie Hoffa).
    The reason I am bringing this up on the red side ia that people should be aware that unions can and do contribute to the nations retirement security,plain and simple.
    FYI. We do not just back Dems. The Northern CA. Carpenters endorsed and contributed to Pombo’s failed race for example.

    Posted by: BillS at November 26, 2006 7:20 PM
    Comment #196515


    I do not care where the accounts come from. I do not think you can mandate for small employers. It is not because they cannot afford the money so much as they cannot handle the increased paperwork and legal environment. This could be handled if the accounts were completely private and all the employer needed to do was make a bank tranfer and forget about it. I would also like to see generous tax credits and deductions all around. If it is important to us, we can all pay for it.

    We probably do have common ground on this. My interest is for the working poor to have access to the same private accounts I have. I want to facilitate wealth creation for anybody willing to cooperate in his own enrichment.

    No matter what else we say however, I believe SS will not be able to pay out in the future anything like it paid out in the recent past. We have to do something to fix this system. I do not think we can (or want to) raise taxes high enough to give people what they get now. There is really no tradition of people just getting time off when they are old. Retirement came when you were rich enough or when you just could not work. It is essentially in our lifetime that we created the concept of non work for healthy people just because they passed a certain age. Maybe we need to reconsider that again.

    Like most people, I would like to work when I am older, but not too much and nothing too hard. I think we might find a lot of people opening small businesses and consulting in their older age. Maybe the problem of retirement will be solved by old people just working longer.

    Posted by: Jack at November 26, 2006 7:54 PM
    Comment #196516

    What Atrios says:

    Look, people who advocate adding “personal accounts” to Social Security are just stupid people. Really, just morons. There’s no reason to do it. There’s no reason to take any part of Social Security contributions and put them in a little fund account with my name on it. If you think some Social Security contributions should be invested in the stock market (I don’t) to raise returns overall, then it can be stuck into an index fund or managed by a fund manager or whatever. I still think that’s a bad idea, but there’s a rationale for it. There’s no rationale for dividing that up into millions of individual accounts. There’s no rationale for letting individuals “control their own money” by letting them choose across some finite number of managed funds. Social Security is a lovely program which works just fine and really needs no changes other than extraordinarily nonurgent tweaks to the tax formula at some point. And, no, there’s no need for modest benefit cuts. There’s no need for means testing it. There’s no need for any of these things The Serious People like Bob Kerrey want to do. There’s no need to strike a “grand bargain” which combines some stupid things with some smart things because there’s no need to do so. Leave it alone.

    There is no problem with the Social Security system. People who continue to argue that there is - and that the problem can be “solved” with the magic private accounts fairy - either have broken brains or are attempting to push an agenda for ideological reasons or for personal enrichment for themselves and their kind.

    I agree.

    Posted by: Jeff Seltzer at November 26, 2006 7:54 PM
    Comment #196520


    You’re right.
    Private accounts should NOT be carved out of the existing Social Security system.

    However, I will warn that Social Security will be facing looming shortages if voters keep empowering irresponsible incumbent politicians.

    Posted by: d.a.n at November 26, 2006 8:08 PM
    Comment #196534

    Jack, I’m not saying we should teach people the “right way” to invest. But as I said, most people do not know the difference between investing and throwing money in a hole. Teaching them that difference among other basic concepts would be a good idea.

    Ask yourself, what do people learn in schools today? They learn how to write a check and do fractions, they learn what command, market, and traditional economies are, they learn what economic goals are, they learn things that they should have learned and understood in middle school.

    Teaching people the “right way to invest” was the furthest idea in my mind when I said we need to reform our business education. I just think people are far too financially ignorant for the good of the nation.

    Posted by: Zeek at November 26, 2006 10:52 PM
    Comment #196543
    My interest is for the working poor to have access to the same private accounts I have.

    Jack, everybody has access to private savings accounts. Adding one more isn’t the issue. If a family has nothing to put into the account, then it’s useless.

    And unless you can show me some survey that states people don’t save because they think they can live off of Social Security, then your entire premise is just wrong.

    Posted by: American Pundit at November 27, 2006 12:55 AM
    Comment #196547


    YOu missed my point and maybe I did not state it clearly enough in that particular post because I had been writing it so often.

    There are people who will not save no matter what, but there are some who would save and invest BUT they do not have the money. What I advocate is matching funds and generous tax credits to the poor so that they have enhanced capacity to invest.

    I will take a minor issue with this too poor to save thing. People need to plan better. It is true that if someone is 20 years old with two kids, he (or more often she) has trouble. But maybe having those kids at the young age was a bad move.

    I made my first investments when I was working at McDonald’s. I was eligible for food stamps (although I never took them) at the time. My investments were pitifully small, but I made them. I did not intend to stay poor. I am not saying that I could have lifted myself out of poverty with those investments. I got a college education and I got better jobs. But the idea that a poor person cannot be expected to save is incorrect and anyone who makes the median income, barring extreme circumstances, should be able to put away 5-10% of their income easily

    Americans do not save enough. As far as I know, nobody knows why, or more correctly everybody has his own theory. Mine is that - among other things - we do not reward savings and our tax code and incentive structures can actually punish it. That is why things like Roth IRAs are such a good idea. I want to extend these benefits.

    Our anti-poverty programs have too often been a war on wealth. In many cases, you need to spend away your wealth before you can be eligible for some benefits. Financial aid in college is a lot like that. If you save enough to pay tuition, your kid gets no aid. If you waste your money on cigarettes and whisky and wild women you are poor enough to “need” it.

    Posted by: Jack at November 27, 2006 2:07 AM
    Comment #196588

    Do away with SS. It is going to go from a bad investment to a horrible hole in the ground in the next 25 years. There is no point in trying to save it. It is broken and it is way beyond repair. End it, pay off the current recipients, and move on.

    Posted by: Don at November 27, 2006 5:42 PM
    Comment #196589

    Well said Don.
    Sure would be a great to have freedom of choice again.

    Posted by: kctim at November 27, 2006 5:48 PM
    Comment #196645
    but there are some who would save and invest BUT they do not have the money. What I advocate is matching funds and generous tax credits to the poor so that they have enhanced capacity to invest.

    If they don’t have the funds to begin with, how does this help?

    Posted by: womanmarine at November 27, 2006 11:39 PM
    Comment #196667


    Even the little bird must feed himself from his own beak.

    If someone is so poor they cannot save any money, they are probably on public assistance already and I expect that if they do not experience some life change you will be there when they retire too.

    The very poor will not be helped by this. That is why we have the safety net or public assistance.

    I am not willing to force everyone go down with the ship because some people cannot jump into the life boats.

    Would you not allow preventive medicine because it will not help everyone?

    Posted by: Jack at November 28, 2006 9:30 AM
    Comment #196689


    Don’t take everything I write as a jab and respond in kind. I was asking a question, and you answered it, before your jab.

    I would love you to give me a break sometime.

    Posted by: womanmarine at November 28, 2006 11:57 AM
    Comment #196707


    I think you are mistaking my naturally combative style for a jab. I like to argue. I do not take much personally and I rarely mean what I write as a personal attack on someone else. There have been exceptions to this rule and I have been purposely nasty to some people, but never to you.

    I appologize if it sounds that way. When I say “you” it usually means the general you plural and/or is merely because I do not like the construction using one.

    I could have written: “One would not allow preventive medicine if not everyone could be helped,” but that is not my style.

    Posted by: Jack at November 28, 2006 1:26 PM
    Comment #196733
    I think you are mistaking my naturally combative style for a jab.

    There’s a difference? :)

    You always seem to expound on a simple question, and/or twist what I actually post. It makes it hard to have a straightforward give and take with you.

    My question was just that, not an argument for or against anything. Just trying to get your point clear in my head.

    Like my mother used to say: “Don’t be sorry, just don’t do it any more!”


    Posted by: womanmarine at November 28, 2006 3:28 PM
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