The guy over at Coyote Blog ran some numbers on his social security statement (see it here), and the results are not good. It seems that he is getting a -.8% return on his payments into the ss program. Not only are we not getting any interest on the money being taken out of our paychecks for our “retirement”, we’re being charged for it. People yell and scream that we can’t privatize social security because people will make bad decisions and they will lose their money… If you put the money into just about ANY mutual fund, you will get SOMETHING back on the investment. Or to put it another way, we’re already losing money, you might as well let us decide what to do. Gah….
Isaac
2 replies on “Don’t look, it’s not pretty…”
But it’s not an investment program, it’s an insurance program. I don’t expect a ‘return’ on my health insurance, I expect to be covered when I need it. I don’t expect to get rich off of social security, I expect to not have to eat cat food.
It’s not about the bad decisions people make on their own, it’s about pooling risk. It’s about setting a floor below which we as a society will not allow seniors to fall below – at least those who have participated in our economy for a period of time. The size of the pool allows us to administer the program with incredibly low administrative costs.
So there 🙂
Barbara
Social Security is NOT insurance, it is a forced annuity plan. At a predetermined time, we get a fixed amount of money every month until we die. Yes, there are other benefits as well, but this is the main benefit. I do not agree that we need this, I believe that people will plan accordingly when they know there is no net, but let’s assume that you’re right, that we need this sort of risk pooling… The entire point of the first guy’s post (did you read it?) was that this is a terrible way of doing things. IF we HAVE to have a forced plan, why not do it in a way that maximizes the benefits? His point was that he could invest that money conservatively in Mutual funds, and then buy an annuity at retirement and expect to have anywhere between 3 and 5 times more money per month, for the rest of his life! If we are “saving” so much, why is the return on OUR money so poor? There are two possible explanations in my view. Either the social security system and the people working for it are evil (which I don’t believe, I think they think they are doing the right thing, just like you Barbara), or the system is incredibly inefficient.
Any insurance company that dared offer a “deal” like this would be shut down. There are no assets backing this program, and the terms can be rewritten at any time. All in all a really bad, nonoptional program. IF we HAVE to HAVE this sort of program, at least make it so that we are not losing money, can we at least break even?
Isaac