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Those balances are earning interest at an average annual rate of 3.046%. What's in your wallet?
Interest rates for US Treasuries have been falling for years. The benchmark 10-year bond is currently at 2.0%. That average rate of 3.0% for SS ROI is going to drop as bonds currently held by SS mature. Current inflation rate is about 1.8% so the current bond coupon is barely keeping pace with inflation.
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I know the Trustees Reports inside and out,
Yes, thanks for the post. It was very informative. One quibble though is this:
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Wall Street works for Wall Street. That's where the Great Recession came from. You do not want these people playing games with SS.
I agree that we do not want Wall Street managing SS. I was never suggesting that. But there is a difference between using investment vehicles other than US Treasuries (which is really moving money from one pocket to the other since it it the US government that is paying the interest to SSA) and handing it over to Wall Street.
Endowments, public pensions funds (other than SS), private pension funds, annuities, private retirement accounts (like 401k, 403b, IRA, etc.) all invest in the stock market for a good reason - the returns over time far surpass those of credit markets. And they keep pace with inflation far better than bonds do. It seems silly to me for SS to have one investing hand tied behind its back.
Interest rates for US Treasuries have been falling for years.
And they've been falling for SS held surpluses for years as well. But SS has always kept a step or two ahead of the game.
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Originally Posted by TwoByFour
The benchmark 10-year bond is currently at 2.0%. That average rate of 3.0% for SS ROI is going to drop as bonds currently held by SS mature. Current inflation rate is about 1.8% so the current bond coupon is barely keeping pace with inflation.
The point was to raise the existence of the $2.8 trillion surplus at all, along of course with the fact that it is still earning interest at higher than current market rates.
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Originally Posted by TwoByFour
I agree that we do not want Wall Street managing SS. I was never suggesting that.
Bush did in 2005 and Republicans are again calling for it.
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Originally Posted by TwoByFour
But there is a difference between using investment vehicles other than US Treasuries (which is really moving money from one pocket to the other since it it the US government that is paying the interest to SSA) and handing it over to Wall Street.
Debt is debt. The identity of the investor does not change the nature of a debt obligation in any way at all. SSTF is no different from China or your niece who was gifted with a Savings Bond.
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Originally Posted by TwoByFour
Endowments, public pensions funds (other than SS), private pension funds, annuities, private retirement accounts (like 401k, 403b, IRA, etc.) all invest in the stock market for a good reason...
Different investment objectives. The primary objective of SSTF has always been conservation of principal. Well, at least since the practice of investing in loans to foreign governments was ended.
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Originally Posted by TwoByFour
...the returns over time far surpass those of credit markets. And they keep pace with inflation far better than bonds do. It seems silly to me for SS to have one investing hand tied behind its back.
That's mostly marketing malarkey from securities dealers. How often should an equities investor expect to lose at least 10% of the value of his portfolio? Is there a reason to expect a long-term real after-tax annual rate of return of more than 2% in the stock market?
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Originally Posted by TwoByFour
Do you know why this was rejected in the past?
For some of the reasons noted above, and also the fact that there are few markets capable of efficiently absorbing $2 trillion and more that is attached to easily calculated forward buy and sell trends.
That's mostly marketing malarkey from securities dealers. How often should an equities investor expect to lose at least 10% of the value of his portfolio? Is there a reason to expect a long-term real after-tax annual rate of return of more than 2% in the stock market?
Well, you can accuse CALPERS (the California retirement/pension fund), the Harvard Endowment, the Yale Endowment of all falling pray to marketing, but I think I will side with their experience on this and say that investing in equities is a reasonable thing to do.
As to how often equities investors experience a 10% correction (it is not a loss since it always recovers) - About once every 6 years. But the important thing is despite the ups and downs, the trend is always upward. Annuities, and retirees, glide through the downs with reserves.
Lots and lots of studies have been done on the US equities market. The longest one I am aware of is by Jeremy Siegel (Stocks for the Long Run, 5th edition) covers the period 1802-2012. The annualized real return (real = inflation adjusted) was 6.6%. More recent studies from 1925 - 2012 put it at 7.5% real. Taxes are irrelevant - annuities are not taxed, they pass the tax burden on to the recipient of the benefits, just as SS pays no tax on the bond interest it receives but SS recipients pay tax on their SS benefits.
Well, you can accuse CALPERS (the California retirement/pension fund), the Harvard Endowment, the Yale Endowment of all falling pray to marketing, but I think I will side with their experience on this and say that investing in equities is a reasonable thing to do.
No one said it wasn't reasonable. Expecting more than a 2% long-term real rate of return may well be unreasonable though. Meanwhile, the gigantic breadth and depth of markets for US Treasury securities make them a very good place to settle down if your primary investment objective is conservation of principal.
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Originally Posted by TwoByFour
As to how often equities investors experience a 10% correction (it is not a loss since it always recovers) - About once every 6 years. But the important thing is despite the ups and downs, the trend is always upward. Annuities, and retirees, glide through the downs with reserves.
Mathematics says these losses are in fact losses. While market indexes may appear to recover, the value of your portfolio does not. Your growth curve has simply been shifted to the right, meaning that you have gotten closer to the end-date of your plan without having realized some of the projected gains you had counted on.
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Originally Posted by TwoByFour
Lots and lots of studies have been done on the US equities market. The longest one I am aware of is by Jeremy Siegel (Stocks for the Long Run, 5th edition) covers the period 1802-2012. The annualized real return (real = inflation adjusted) was 6.6%. More recent studies from 1925 - 2012 put it at 7.5% real. Taxes are irrelevant - annuities are not taxed, they pass the tax burden on to the recipient of the benefits, just as SS pays no tax on the bond interest it receives but SS recipients pay tax on their SS benefits.
SS is indeed funded by taxes, and in the revisions of 1983, those taxes were raised to create surpluses because people of the time could easily see the demographic blip of baby-boomer retirements coming, Those surpluses are invested in US Treasury securities -- the safest, most secure investment vehicle in the history of the world -- and as of November 30 of this year, they amounted to a stash of $2,831,724,354,000.
Because nothing is safer than a 100% non-diversified portfolio.
So that is $2,831,724,354,000 of US Treasuries that at some point will be redeemed, to be paid with $2,831,724,354,000 of taxes (plus accrued interest) that must be collected from future workers and companies.
Perfect. What could possibly go wrong?
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Originally Posted by Pub-911
Keep in mind that in 1997, the Trustees forecast that the trust funds would be exhausted in 2029. In 2007, they said it would be 2042. So a decade had gone by, but rather than getting ten years closer, the projected date of exhaustion got three years further away. Imagine that.
SO, you are asserting that government forecasters are incompetent? Were they incompetent in 1997? Or were they incompetent in 2007? Or both? Are they still incompetent?
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Originally Posted by Pub-911
Wall Street works for Wall Street. That's where the Great Recession came from.
No it wasn't.
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Originally Posted by Pub-911
There is an array of preferable steps that could be taken instead, starting with the one mentioned above, raising or eliminating the SS wage cap.
That's a bad idea, as the burden fall solely on high income workers. Far better to leave the cap in place and raise the percentage being withdrawn from employees paychecks. This is one of the few ways the federal government can extract some much needed revenue from the ~ 50% who pay no federal income taxes.
Last edited by SportyandMisty; 12-05-2016 at 01:57 PM..
Because nothing is safer than a 100% non-diversified portfolio.
Again, Treasuries are the safest investment vehicle in world history. They are the yardstick by which the safety of everything else is measured.
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Originally Posted by SportyandMisty
So that is $2,831,724,354,000 of US Treasuries that at some point will be redeemed, to be paid with $2,831,724,354,000 of taxes (plus accrued interest) that must be collected from future workers and companies.
There is an annual appropriation to cover interest on the public debt. Maturities are paid off with proceeds from the sale of new securities.
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Originally Posted by SportyandMisty
SO, you are asserting that government forecasters are incompetent? Were they incompetent in 1997? Or were they incompetent in 2007? Or both? Are they still incompetent?
I was perfectly clear in noting that they were being pessimistic -- as they should have been. One always wishes to err on the side of caution when doing projections for policymakers. But many uninformed general public-type casual readers of the data may be unaware of the situation and its implications.
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Originally Posted by SportyandMisty
No it wasn't.
Yes, it was. The Great Recession was produced through the licentious greed of cowboy capitalists on Wall Street in combination with the blind-as-a-bat failures of deluded laissez-faire "regulators" in the Bush administration.
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Originally Posted by SportyandMisty
That's a bad idea, as the burden fall solely on high income workers.
Exactly. Ordinary Joe's are hit with payroll taxes on every penny they earn. The hogs at the top have been getting a free pass on everything after $118,500. Why is that?
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Originally Posted by SportyandMisty
Far better to leave the cap in place and raise the percentage being withdrawn from employees paychecks. This is one of the few ways the federal government can extract some much needed revenue from the ~ 50% who pay no federal income taxes.
LOL! 50% is a grossly out of date number, and the reason people PAY no federal income taxes in any year is that they OWE no federal income taxes in that year. They do of course owe many other taxes, so many in fact that the lowest 20% of people by income lose about 17% of their incomes each years to taxation of all sorts. The plainly wealthy would check in at quite a bit less than twice that level.
So much easier said than done. Obamacare set out some first steps in a very long journey. Beware the ones who want to turn back now. .
Oh, it won't be turned back. It will just be renamed either RWC or TC.
(right wing care or trump care). That's what all the fuss is about....
Here in MA. we've had "teddycare", often called RomneyCare (Romney was forced into it by our people and representatives) and it works fine. Even before ACA I had a free yearly physical (just got one last week). My insurance is the same as it was 10-15 years ago (in NJ) with perhaps a few more deductibles. But, heck, inflations and my aging should have made it much higher, so there must be something to this "pool".
It's so dang obvious that you need to have everyone in the pool...that I can't bother to even discuss it with know-nothings any longer. Those who approve ACA actual features (most do) and yet are against a mandate....are saying they approve of freeloaders. That's plain silly.
We never seem to get around to grown up conversations in this country.
The Great Recession was produced through the licentious greed of cowboy capitalists on Wall Street in combination with the blind-as-a-bat failures of deluded laissez-faire "regulators" in the Bush administration.
Certainly they allowed the Great Recession to occur.
But it was "produced" by a gullible and uneducated and selfish population whom Wall Street and Corporations and every breed of criminal was allowed to feast upon.
My view is that much of civilization is the attempt to protect the weak - and that includes those subject to all human frailties (all of us) - from those who would prey upon us.
Bush and friends...and many who promote the so-called "free market" (bad definition, but that's the vernacular they use) take it as "faith" that when you allow the strong to rise above they will shave off some of their caviar and sprinkle it on their shoeshine boys.
It was really interesting watching the Great Recession happen. We have no debt and bought no houses, etc. and so it didn't really affect us at all other than the IRA (way down, but then back up as I knew it would)....
I knew things were bad when I went to get a haircut from a woman I know who owned her own tiny business. She made 40K a year (she told me). First she showed me a pic of her 750K house. The next time I was in she showed me her 750K house AND a 400K house she bought for investment. After all, with houses going up 20% per year how could she lose.
The 3rd time I went back she had pics of both on the counter -and said she would sell either or both. The fourth time I went she said she was negotiating with the bank for them to take the houses back.
And yes, it was corporate criminals who allowed a woman with no net worth and a tiny income dependent on her wielding the scissors each day - to have a million dollars worth of credit.
Another reason for the economic turn down is the cost of housing. Buying a new home in 1963 would have cost you
around $19,300. This is the equivalent to $151,780 in 2015. A new homes in 2015, though, actually cost $360.000. You can see the problem here. As for renters:
"The decade from 2000-2010, however, was the worst for renters. They were hit by rising rents (+12%) and declining incomes (-7%), making them significantly worse off overall. That decade was also the only decade in which real household incomes fell. Things have improved a bit since, as rents and incomes flattened from 2010-2014, but it’s not surprising that many Americans say that they are worse off now than eight years ago."
Thank you for this link. I've been talking for a few years on these boards about the astonishing rents that the next (millennial) generation is paying. I lived in a fab 2BR prewar doorman building in NYC not even 15 years ago and paid less than some of these kids are now paying for 2BR cardboard-and-spit suburban apartment complexes in Austin TX or Seattle WA.
It is NOT unusual to hear about millennials paying 2000-3000 monthly rents. My starter rent as a GenXer was $385 per month in Chicago proper in the 1990s. I'm 40-something now and my housing costs for a 6000 square foot house are maybe $3000 per month. Something is out of whack.
I don't know what the government needs to do to encourage more housing, but it is apparent that the market alone is not solving this problem.
Mathematics says these losses are in fact losses. While market indexes may appear to recover, the value of your portfolio does not. Your growth curve has simply been shifted to the right, meaning that you have gotten closer to the end-date of your plan without having realized some of the projected gains you had counted on.
Our discussion was about the stock market, not about portfolios. A personal portfolio is quite different, even if it is 100% equities. For one thing a portfolio for most of us has a finite life time which causes us to make certain decision regarding risk. For another thing they have two distinct phases: accumulation and draw-down.
Not sure why you cited that article by Wade Phau. There is nothing in there that contradicts what I said about equities. Phau is talking about a personal portfolio that is balanced with stocks and bonds.
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