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That's nothing. If you had property insurance last year, and didn't have a break in or a fire, your rate of return was negative infinity!
1. It assumes half your money is invested in US government bonds, ie, the same thing it's invested in now. Hmmm
2. It assumes the other half is invested in Blue Chip, big-cap companies' stocks. The total value of decent US companies right now is about $8 trillion. Imagine if everyone had private accounts now. According to the Heritage calculator, that's over $100 trillion, or more than the total market value of every asset in the world.
The sad fact is, our economy doesn't produce enough solid assets for all of America's workers to invest in. It doesn't help that foreigners see the US as the safest place to invest, either.
If everyone had PRA's, we would soon be forced to put our money in investments far riskier than the S&P; 500 companies...
Are you saying with a straight face that the government could set up a unbiased commision to quietly negotiate the placement of trillions of dollars effectively in companies?
Most startups go under with in five years. Existing comapnies have all the money they need through profits to finance expansion.
There is already an excess of cash in the world financial markets. Do you really think that foreigners would have bought $500 billion worth of US debt last year if there were thousands of Microsofts that just needed a few bucks to get started?
The US Stock market alreadys reflects this surplus of funds. Do you honestly think that EBay, essentially a website with a data base, is worth $75 billion? Can you say internet bubble 2.0 ready to burst?
You can change how your PRA is allocated on the calculator. 50/50 in bonds and blue chips is just the default. I set it to resemble the allocation in my actual retirement fund (which I pay into in addition to SS), and the (estimated) performance over the long haul is much better.
As for the US economy having enough for everybody to invest in...I'm no economist, but if everyone was investing in the private sector (instead of giving the government a very low-interest load), I think the private sector might grow a little. No?
Here's why:
Domestic companies made about $800 billion last year. They paid out about $400 billion to shareholders in dividends and kept the rest to finance expansion. So, if they wanted it, domestic companies already have a source of funding...their own profits.
Out of the approximately $8.6 trillion in disposable personal income in the US, we managed to save just $40 billion last year. Tack on the increase in consumer debt and you find that Americans are spending every cent they make now.
Who is going to buy the output of the new companies formed by the increase in funding from SS private accounts? We're tapped already...
The US government borrowed $500 billion from the rest of the world last year. This is over 80% of the savings of the ENTIRE WORLD. Private Social Security accounts will require, conservatively, $2 trillion in new funding the first decade alone.
The only place this can come from is if Americans or foreigners consume less...hardly a scenario for a period of business expansion.
The US trade defecit was $600 billion last year, ie, American companies got their asses kicked by foreign companies. I assume private SS accounts will only get to invest in US companies, are we really gonna buy a new clothing factory in China with our SS accounts?
We live in a global economy now. Of the 24 companies listed on US stock markets worth over $100 billion, 8 are foreign. Accounts limited to investing in US stocks will miss out on much of the gains in value made by companies in the coming years...
And finally, anyone who wants to start a company, can do so. They can use their savings, borrow from relatives or max out credit cards. If their idea is good enough, there are plenty of venture capitalists ready to help out.
The only thing increasing the supply of money available to start new companies will do is fund the starting of companies that nobody is willing to finance now...most new companies go broke rather rapidly. Do we really want to fund the companies nobody will fund now?
The chances of it paying off are 100%. When people say it's an insurance policy, they mean a social insurance policy, not an individual insurance policy. You might object in principle to the existence of social insurance, but that doesn't mean you get to make claims about it maybe not paying off.
Similarly, John says: The likelihood of me getting ANYTHING is about as high as the likelihood of me being elected President.
According to the Social Security trustees, in the status quo scenario and with their (underestimated) projections of growth, you would get somewhere between 75-80% of Social Securities obligations to you. This is more, in real dollars, than current retirees get. Please explain the possible scenario under which you get nothing.
Why don't you explain th scenario in which paying 75-80% of what is owed is something to brag about?
I didn't know that refuting a false claim was bragging, thank you for clearing that up.
Paul-
Maybe I'm confused (not saying that for rhetorical flourish) but wouldn't a privatization scheme function as a switch from defined benefit to defined contribution? If privatization would function as a defined benefit scheme in which no person's benefit is less than it would be under the status quo and some people's benefits are higher, I've been misled. Also, it's defined benefit plus additional disability and other types of insurance, but I assume you just mean the primary function of social security.
"Sir, Social Security isn’t really a retirement plan, it’s more like an insurance plan, making sure that the elderly, the disabled, their dependents and survivors don’t go destitute. Some people get a lot more out than they put in; others get a lot less; it’s like insurance that way."
Will knows this. He also knows that SS is not pay-as-you-go, that actuarial analysis is not just guessing and that Social Security faces no greater risk of insolvency than the US Government itself. He doesn't care because he wants to social engineer Americans into a mass investment class. He calls this the "moral argument".
What I don't get is why the moral argument requires so much sophistry...
If you die before you hit 65, you get bupkis.
Next question?
And yeah, you can say it's "insurance", but it's a funny kind of insurance that pays off if you manage to avoid disaster for 65 years. Especially if you're forced into it...
If you die before you hit 65, you get bupkis.
Next question?
And yeah, you can say it's "insurance", but it's a funny kind of insurance that pays off if you manage to avoid disaster for 65 years. Especially if you're forced into it...
It's not so funny if you outlive your savings.
Especially if you're forced into it...
Tu quoque, my friend, since you are defending a forced defined contribution scheme.
Anyhow, there is a good reason why insurance is (sometimes) more efficient if people are forced into it. It's called adverse selection.
Soc Sec is NOT 'invested' in bonds right now. It's not 'invested' in anything. The surplus is spent and the 'bonds' represent an IOU from one portion of the gov't to another. To pay that off, the gov't will have to either raise taxes or cut benefits.
All financial assets are IOUs. IOUs from the US Federal Government are generally considered the safest financial assets around.
Sure, to pay off US Govt bonds, the US Govt will eventually have to either raise taxes or reduce spending (almost certainly, raise taxes BTW). That is solely because of George W. Bush and his enablers in Congress.
But how is that an argument that the Bonds are not really financial assets? They are only not really financial assets if the US Govt is going to default on them. That would be unconstitutional, and would result in a global financial crisis.