Social Security Reform
I feel that a political post is a good way to get things going.
Now, chances are, if you're reading this, you either support the basic idea of the President's reform plan, or you're at least warm to the idea; either that, or you've gotten completely lost on the web and stumbled across this blog. So I may not have any readers to persuade, but perhaps I can offer a few more details than some of my readers than they already know (though this assumes that I actually have readers -- or, to be more precise will have readers, as this is less than an hour old as of this typing).
Some basics:
1) Private accounts will not affect those already retired or those nearing retirement. Most of the plans I've seen only allow those under 50 to opt into the program, which leads to the point I should have posted first ...
2) Private accounts are optional. If you want to stick with the old Social Security system, you can. Your loss, frankly, but you can choose to do that. So if you're too lazy to worry about private accounts, or too scared of them, you can stick with the old system all you like; that's no reason to deny private accounts to others.
3) You own your personal account. Amazing concept, huh? Well, with the current system, if you die soon after you start collecting benefits, or before you start collecting benefits, that's it. Your widow/child/whatever can receive a death benefit (at least if you're collecting -- don't think so if you haven't started collecting, but don't quote me on that). Actually, slight modification, for a married couple, if the chief income earner dies, the spouse can elect to forfeit their own benefits and take those of the dearly departed. At any rate, the death payment is a rather small amount that tends not to cover all the fees associated with death. However, with your own personal account, you actually own the money in it, and can bequeath it to others at the time of your unfortunate demise. So, even if you're not around to enjoy it, it can go to the people you love instead of the government.
4) Only a portion of your Social Security funds will go into private accounts (again, that's if you opt into the system). All those fearmongerers out there who warn that you could lose all your money in a "risky investment" in private accounts are dead wrong. Leaving aside the probable government bail-out of anyone that happened to (which is another matter entirely), and the downright improbablity of such a thing (which I intend to address in a bit), only a portion of your money would be invested in private accounts, and you would still be entitled to receive (reduced) benefits from the current system.
5) "They'll reduce your benefits if you get a private account!" There's an important semantic shortfall in that statement -- namely, a more accurate statement would be "They'll reduce your guaranteed benefits if you get a private account." Of course they will; otherwise, private accounts would be like giving out free money and only a complete sucker (or someone with the moral fortitude to resist handouts like that) wouldn't sign up for a private account. Basically, you'd get guaranteed benefits on the money you pay into the old system (actually, those will probably be slightly reduced, too, for various fiscal reasons, but by a smaller amount than the "reduced benefits" crowd would lead you to believe, plus that additional reduction would almost certainly be offset by the greater return on investment that personal accounts are likely to yield).
6) "Private accounts will be too complex for the average citizen." (Yeah, I kinda changed format in the middle of this; it seemed easier to state the opposing position and then briefly refute it.) While private accounts do require a tad more thought than the old system, it's still not that much. Proponents of private accounts are not trying to create a nation of stock brokers. Basically, you'd have a choice of several funds to invest in. Something like seven. They'd run from higher-risk to low-risk investments. Choosing one fund out of seven isn't nearly as difficult as picking out seperate stocks and bonds to invest in. You'd be allowed to change which fund you used once every so often (annually, quarterly, something like that).
7) "A downturn in the market as a senior is about to collect could ruin their retirement fund." A somewhat more sophisticated charge, as those who make it tend to know that the market moves in cycles, but still not overly hard to refute. As you approach retirement, your private account would switch to the low-risk investments automatically. While a loss would still be possible, it would not be massive. Moreover, even in bad market times, a well-managed fund can still make money. Under some versions, you could opt out and stay in (relatively) riskier investments; under other versions, you couldn't. I tend to favor great personal freedom, but that's not pertinent to the argument I'm making here, so I'll leave that for another time.
8) "Private accounts are like gambling with your retirement fund." AARP has made this argument (maybe not these exact words, but that basic argument). It's rather hypocritical, as the AARP is linked to various mutual funds and the like (not very good ones, either, apparently). A private account really is not much different from a 401k. I know most readers won't be overly familiar with those, but most recognize at least that the 401k is a respectable retirement savings method.
9) "Government-run retirement accounts are untested and risky." Actually, they're already in use. The Thrift Savings Plan is available to government employees. Here is a list of rate of returns it has produced. The "G" fund seems to be the most low-risk, with others offering varying degrees of risk. I didn't look through everything, but on a quick check I did not find a single month in which the G fund did not offer a positive return, let alone an entire year.
10) "Private accounts will be a windfall for Wall Street." Nope. Well, at least aside from any benefit extra money in the market might have (a debate I'll leave aside for now). Factcheck.org did a good job on this here (and responded to a liberal group's attacks on it here; they take on AARP here). Basically, they found that under the Thrift Savings Plan (which the private accounts will be based on), "brokers netted only 16 cents in fees to manage a $10,000 retirement account," which I would hardly call a windfall.
Well, ten points seems like a good place to stop, and this has gone on longer than I originally planned. In the very least, I've provided more information than most people who oppose personal accounts know. Now, dear readers, go forth and educate the masses. I can post more detailed arguments for private accounts (both my own and links to those of others) if there is any demand for it, or if I later feel like it.
In the next few days, expect posts dealing with Iraq and the Middle East, the 2004 elections (and possibly a look ahead at 2008 and/or 2006), and other topics. I'll even throw in something non-political (I think).
Now, chances are, if you're reading this, you either support the basic idea of the President's reform plan, or you're at least warm to the idea; either that, or you've gotten completely lost on the web and stumbled across this blog. So I may not have any readers to persuade, but perhaps I can offer a few more details than some of my readers than they already know (though this assumes that I actually have readers -- or, to be more precise will have readers, as this is less than an hour old as of this typing).
Some basics:
1) Private accounts will not affect those already retired or those nearing retirement. Most of the plans I've seen only allow those under 50 to opt into the program, which leads to the point I should have posted first ...
2) Private accounts are optional. If you want to stick with the old Social Security system, you can. Your loss, frankly, but you can choose to do that. So if you're too lazy to worry about private accounts, or too scared of them, you can stick with the old system all you like; that's no reason to deny private accounts to others.
3) You own your personal account. Amazing concept, huh? Well, with the current system, if you die soon after you start collecting benefits, or before you start collecting benefits, that's it. Your widow/child/whatever can receive a death benefit (at least if you're collecting -- don't think so if you haven't started collecting, but don't quote me on that). Actually, slight modification, for a married couple, if the chief income earner dies, the spouse can elect to forfeit their own benefits and take those of the dearly departed. At any rate, the death payment is a rather small amount that tends not to cover all the fees associated with death. However, with your own personal account, you actually own the money in it, and can bequeath it to others at the time of your unfortunate demise. So, even if you're not around to enjoy it, it can go to the people you love instead of the government.
4) Only a portion of your Social Security funds will go into private accounts (again, that's if you opt into the system). All those fearmongerers out there who warn that you could lose all your money in a "risky investment" in private accounts are dead wrong. Leaving aside the probable government bail-out of anyone that happened to (which is another matter entirely), and the downright improbablity of such a thing (which I intend to address in a bit), only a portion of your money would be invested in private accounts, and you would still be entitled to receive (reduced) benefits from the current system.
5) "They'll reduce your benefits if you get a private account!" There's an important semantic shortfall in that statement -- namely, a more accurate statement would be "They'll reduce your guaranteed benefits if you get a private account." Of course they will; otherwise, private accounts would be like giving out free money and only a complete sucker (or someone with the moral fortitude to resist handouts like that) wouldn't sign up for a private account. Basically, you'd get guaranteed benefits on the money you pay into the old system (actually, those will probably be slightly reduced, too, for various fiscal reasons, but by a smaller amount than the "reduced benefits" crowd would lead you to believe, plus that additional reduction would almost certainly be offset by the greater return on investment that personal accounts are likely to yield).
6) "Private accounts will be too complex for the average citizen." (Yeah, I kinda changed format in the middle of this; it seemed easier to state the opposing position and then briefly refute it.) While private accounts do require a tad more thought than the old system, it's still not that much. Proponents of private accounts are not trying to create a nation of stock brokers. Basically, you'd have a choice of several funds to invest in. Something like seven. They'd run from higher-risk to low-risk investments. Choosing one fund out of seven isn't nearly as difficult as picking out seperate stocks and bonds to invest in. You'd be allowed to change which fund you used once every so often (annually, quarterly, something like that).
7) "A downturn in the market as a senior is about to collect could ruin their retirement fund." A somewhat more sophisticated charge, as those who make it tend to know that the market moves in cycles, but still not overly hard to refute. As you approach retirement, your private account would switch to the low-risk investments automatically. While a loss would still be possible, it would not be massive. Moreover, even in bad market times, a well-managed fund can still make money. Under some versions, you could opt out and stay in (relatively) riskier investments; under other versions, you couldn't. I tend to favor great personal freedom, but that's not pertinent to the argument I'm making here, so I'll leave that for another time.
8) "Private accounts are like gambling with your retirement fund." AARP has made this argument (maybe not these exact words, but that basic argument). It's rather hypocritical, as the AARP is linked to various mutual funds and the like (not very good ones, either, apparently). A private account really is not much different from a 401k. I know most readers won't be overly familiar with those, but most recognize at least that the 401k is a respectable retirement savings method.
9) "Government-run retirement accounts are untested and risky." Actually, they're already in use. The Thrift Savings Plan is available to government employees. Here is a list of rate of returns it has produced. The "G" fund seems to be the most low-risk, with others offering varying degrees of risk. I didn't look through everything, but on a quick check I did not find a single month in which the G fund did not offer a positive return, let alone an entire year.
10) "Private accounts will be a windfall for Wall Street." Nope. Well, at least aside from any benefit extra money in the market might have (a debate I'll leave aside for now). Factcheck.org did a good job on this here (and responded to a liberal group's attacks on it here; they take on AARP here). Basically, they found that under the Thrift Savings Plan (which the private accounts will be based on), "brokers netted only 16 cents in fees to manage a $10,000 retirement account," which I would hardly call a windfall.
Well, ten points seems like a good place to stop, and this has gone on longer than I originally planned. In the very least, I've provided more information than most people who oppose personal accounts know. Now, dear readers, go forth and educate the masses. I can post more detailed arguments for private accounts (both my own and links to those of others) if there is any demand for it, or if I later feel like it.
In the next few days, expect posts dealing with Iraq and the Middle East, the 2004 elections (and possibly a look ahead at 2008 and/or 2006), and other topics. I'll even throw in something non-political (I think).
posted by DC | 4:21 AM
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