Is Social Security a failed experiment? (wage, rating, economy, examples)
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Location: Finally escaped The People's Republic of California
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Well they sure as hell better keep S.S. or something like it around, I've paid a small fortune into it. As have most of you. I also have a defined pension and a 401K (with company match) that I pay into, I hope to retire at 55, after working for my company 36 years.
BUT the fact of the matter is jobs like mine with a defined pension are going away, companies might offer the employee a 401k with a paltry 2% match, and no medical insurance upon retirement.
The Greed of the mega Rich, the CEO's and such of this country is the reason we will need a bigger entitlement program in the future. While workers salaries rise no more than 3% a year Senior Managment salry increases over the last few decades have been in the 100% area.
Already they are increasing retirement ages to 70 for full benifits, and unemployment is high, I'd hate to be a recent graduate looking for work...
Have decent retirement programs, retire folks at 60, and Hire the next generation, with enough benifits that they too will have a future....
i'd be so bold to say that most of the social programs are a failed experiment.
SS is just a safety net for those who by either choice or circumstance or both, have not saved enough themselves to be able to retire and self sustain.
I do think the actual idea of helping is a good one.
But with people living longer it is more taxing on the system.
Of course or fiscal system is a bubble of fakery and fiction only made real by belief, but that is irrelevant to the reality.
I was working 32-40 hours per week while going to college and living in a run down studio apartment. I have been dollar cost averaging into mutual funds since I was 16 and got my first job. I paid my way though college with no help from my family. I bought my first car by myself. I received a public school education through high school. I have never used a golf cart when playing golf. I enjoy the exercise of walking. I have always played on public courses and never on private. My self and my wife have always lived below our means. I have never owned a new car or golf cart. I learned about the law of compounding averages and the rules of doubling when I was in the tenth grade. I will never need government support if I decide to retire. So, yes the government has stolen a ridiculous amount of money from me. My investments since 1983 have averaged 11.4% total average on all years. I have had two periods of unemployment during that time. At no time did we lose a house or anything because I have had an emergency fund since 1987 earning 1.5-3% annually. Neither myself or my wife has ever earned more that five figures during any one year. Again Social Security is a POS.
I commend you for taking the time to learn something about investing and I think its terrific if you have been able to make these principles work for you. However, there are some serious problems with telling people they should give up social security and just worry about investing their money. You assume a certain sophistication that many people simply lack. Even if we assume all people had equal sophistication at investing their money, there is the all important issue of timing. Let me give you an illustration of what I mean.
If you had invested in the average Dow Jones stock in July of 2000, when the Dow was at 11,215, your investment--today--almost ten years later would be worth less than it was than. Today, the Dow is at a level of about 10,400. Your stocks would be worth 8% less than they were ten years ago. Suddenly, that 2% rate of return on government bonds doesn't sound so bad does it? Even worse, if you had invested back in the year 2000 in the average Nasdaq stock (which are riskier, but most porfolios contain shares in Nasdaq stocks) the Nasdaq average at that time was at 5000. Today, its only at about 1850. That's only 37% of what the stocks were worth ten years ago. That's a negative return of 63% over ten years.
I'm making the very worst assumptions here, but my point is really simple. The average person may begin investing at the very worst times. If he/she does this they are going to have much, much less money than someone who begins investing at a totally different time.
The returns in the stock market have the potential of being so much greater than 2% because of the risk involved.
I could never support abandoning social security and simply telling people to invest privately for precisely this reason. The results can be devastating simply because of the time that investments were made. In an ideal world we would have both social security and a private investment account. Maybe with that social security "POS" and a private account we could actually get somewhere in this world.
I never said it was easy. I concede your point. Having a safety net is possible. However we need to make it tougher to get public assistance than it is to get a job and get educated. My grandfather worked on the railroads for 45 years starting out as a track layer. Some of the toughest work to be had. He educated himself at night living in shacks reading books. He retired a locomotive engineer with a bachelors degree which he earned at the age of fifty. I also want to be able to op out of social security forever. If you opt in then you should have more money taken from your check. Oh and don't forget the matching funds that employers pay as a mandatory pension tax. Which is what Social Security should be called.
Your "math" is based on a 12% compounded return on your money. But in the real world, you can't even show me a low-risk investment today that pays one tenth of that (1.2%). Your barber must have written that book during the Carter administration.
That ten-fold exaggeration is like me "doing the math" and telling her how rich she will be if she makes $150K a year, when in fact she makes $15K a year.
Why don't you do the math for us and work up $2,000 a year for five years, how much will that be worth 40 years later, at a compounded 1.2%? And, while you're at it, estimate probable inflation over the next 40 years, and tell us how she can live on a nestegg of a mere $1.2-million, which in 2050, if she is very very lucky, will have a purchasing power somewhere between a current $120K and zero.
The simple truth is (and the truth is always simple) that the interest rate and the inflation rate go hand in hand, and cancel each other out. If her money earns 12%, it will also erode in purchasing power at 12%, leaving the investor with nothing at the end. Do you think the banks set those rates so the PEOPLE can get rich?
Unfortunately these "truths" are unrealistic and misleading.
Your "math" is based on a 12% compounded return on your money. But in the real world, you can't even show me a low-risk investment today that pays one tenth of that (1.2%). Your barber must have written that book during the Carter administration.
That ten-fold exaggeration is like me "doing the math" and telling her how rich she will be if she makes $150K a year, when in fact she makes $15K a year.
Why don't you do the math for us and work up $2,000 a year for five years, how much will that be worth 40 years later, at a compounded 1.2%? And, while you're at it, estimate probable inflation over the next 40 years, and tell us how she can live on a nestegg of a mere $1.2-million, which in 2050, if she is very very lucky, will have a purchasing power somewhere between a current $120K and zero.
The simple truth is (and the truth is always simple) that the interest rate and the inflation rate go hand in hand, and cancel each other out. If her money earns 12%, it will also erode in purchasing power at 12%, leaving the investor with nothing at the end. Do you think the banks set those rates so the PEOPLE can get rich?
Holy crap did you miss the point. I can redo the numbers with a 4% rate of return if you want, the result will be the same, but with a lower final payout!
The point is the dramatic effect of saving early, did that go completely over your head??
Obviously the numbers I used didn't matter. The fact that the second person invests 4.2 times as much money to achieve the same result simply because they wait six years to start is the point of that little story. Your single mother needs to start saving NOW. ANYONE can get independently financially secure if they put together a smart enough plan. Most people simply don't do the math and don't make the plan. If you are making 1.2% APR, you need to put your money in a new account. That is the rate an ING Direct savings account returns, and I hope to all that is holy that you do not have any long term savings in a savings account. Talk about shooting yourself in the foot!
Do you get that, or do I need to explain it in smaller words?
Oh, I get it. If a young person doesn't have enough income to start saving, she should, take out a credit-limit $10,000 cash advance on her credit card, at 29%APR, and invest it for her retirement in a 1.5% retirement fund. How come nobody else ever thought of that brilliant, can't-lose idea?
Let's do the math. Paying $200 a month on her credit card bill, after 40 years, her balance will be ---holy mackerel---$10,000. Her borrowed $10,000 invested at 1.5% will be---holy mackerel---$20,000. She can pay off her CC balance, and still have $10,000. The amount paid in? $96,000. Net loss $86,000, and the $10,000 that she winds up with will have the purchasing power of $1,000. If she pays $25 a year in late fees and penalties, she'll lose that, too, and wind up with exactly zero, which is the IQ of her financial adviser.
She pays out $96,000, and has the purchasing power of $1,000, and has wasted $95,000 with nothing to show for it. You're a genius. Holy crap, did you miss my point. If you pay higher interest than you get back, somebody gets rich, but it's not you.
You do understand, don't you, there is absolutely no difference whatsoever, between borrowing money to save, and saving money that could be used to pay off what you've already borrowed?
Originally Social Security contributions were sent to a TRUST FUND. Those funds were not to be spent by the government but held and invested to pay future benefits. I am not sure when politicians started raiding that trust fund but it has been going on for quite some time.
To answer the OP, yes, I think the SS program WILL be a failed experiment. Right now it's getting close to critical mass and the patch-ups are getting a bit flimsy.
Ancillary comment: I think it's quite arrogant for some of you to fluff up your feathers and do a little *** for us all, boasting about how good you are with money and investing, and basically saying screw anyone who does not have that capacity. The thing you don't seem to get, is that we all have strengths and weaknesses. If I told you to paint a Mona Lisa, could you do it? Not being 'good' with capitalism and money and investing is not synonymous with having a low IQ or being somehow defective. Some of the brightest minds in history, who did much to further the state of mankind, died paupers. A high IQ does not guarantee a capitalistic 'money mind.' There are some very, very bright people who are horrible with money. It's as foreign to them as being asked to do a nice ballet for us all (assuming they don't even know how to dance).
So, I think it's rather useless and arrogant to just say, 'If you don't have the ability to attract money like George Soros, die in the gutter, moron.' I don't think that's the answer.
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