Hotrods SS nightmare/thoughts

[Hotrod]

If this has already been brought up on one of the other SS threads my bad.

Anyway heres my thoughts on the SS Bushs plan. I will add I work in the financial industry. ;D (not that that makes me an expert just a self appointed expert ;D)

The biggest problem with the plan is the timing. Making each persons SS fund work somewhat like a 401k is the single worst idea Ive ever heard of and here is why.

1. The stock market is already WAY over valued.
2. People will have the ability (in my understanding) of placing some portion of their SS fund in Stocks.
2A. Do you have any idea what $ amount were talking here its huge.
3. The dumping of the type of $ into the stock market at this time will just cause further the over valuation of stocks.
4. Now not only do you have your retirement SS $ in over valued stocks leading to loss in future retirement value your 401K retirement funds will see the same end result.

I lean to the right thats no secret but this would/will be the single worst thing that can be done and very well might be the straw that broke the American economy's back period if in your mind its not already broke.

[Billy Clyde Puckett]

I have not heard the details, but a friend of mine who has a PhD in Econ is advocating a system where named accounts are made with the only investment option being Tbills. I have not thought this through, but it would solve the overvalued stock issue.

I am not "rich" but both my wife and I are well paid and have been maxed out in terms of receiving the maximum future SS benefit for years. That means that the money both my employer and I pay in SS tax goes to someone else. I understand there are those less fortunate who need to be taken care of, but I would feel better if I could take a portion of that money that I contribute after being fully vested in SS benefits (perhaps my half of the contribution and let the employer half go to the general fund) and invest it in some sort of person financial security vehicle.

[Garcia Bronco]

It's 3 percent of your money invested in very conservative ventures.

[enjolras]

3. The dumping of the type of $ into the stock market at this time will just cause further the over valuation of stocks.

I posed this question to my wife (PhD in Accounting, minor in ECON). She pointed me to this article without hesitation:

http://minneapolisfed.org/research/qr/qr2442.pdf

The basic Gist is that the market is not overvalued..

What follows is MY opinion (Note: I'm a math guy, with only minor education in ECON:) )..one implication of the weak efficient market theory is that it would be more or less impossible for a market to be overvalued (since the market is more or less efficient, all data is priced into the stocks themselves. In a macro sense, history has bore this out.. no matter how much money you throw into the market, the market has simply corrected.

And that is the danger with the SS plan. If we pump huge amounts of money into the market, the most likely response is that we'll actually see net LOSSES for invsetors as the market (instead of being overvalued) will simply correct back to it's proper valuation.

This is part of why I find markets so interesting. They are UNCANNY when used as tools of prediction. This is why I supported the 'terrorist attack market' that was proposed a couple of years ago. The fierce opposition to that plan belied a fundamental misunderstanding about how markets work. A market that was actively being used to predict when/where/how the next terrorist attack might occur would be an incredibly useful tool, and our own intellectual shortcomings prevented that....

[Hotrod]

Interesting article let me check all their math and get back to you ;D

On second thought Ill take their word for it they did the calcs correct :crazy:

[Hotrod]

This is an interesting article. Short and not enough detail to hang ones hat on but interesting just the same.

http://www.indusbusinessjournal.com/news/2004/07/15/Opinion/Beware.Stock.Market.Is.Overvalued-693084.shtml

[Old Dude]

The way I see it ...

For the younger folks, the deal is this. You could opt out a certain % of your SS payments, and those go into bonds & stocks, and you have a certain amount of flexibility in terms of how much you're willing to risk, vs. the potential returns.

But, your future SS receipts will be cut by an amount equal to whatever you take out if it had stayed in SS and brought a 3% return. So if you invest in conservative bonds with a 3% return, you wind up exactly where you started.

So, you're basically taking out a loan against your SS in order to buy stock, on the hope that you can beat the margin.

Which is something that most financial analysts advise against.

For the retirement age people, I guess the good news is that you aren't looking at any immediate slashes.

I'm not sure where it puts people in the middle - i.e. those who are only a few years from retirement. They aren't really guaranteed there wil be no cuts. OTOH, they won't be getting enough money from the opt out plan to really accomplish much in the 10-15 years that a lot of them have until retirement.


The problem is that SS is in some trouble, and at some point, somewhere, one of two things has to happen. Either the benefits have to be slashed (or withheld until people reach older ages, which is the same thing), or the amount paid in has to increase.

My guess is that we'll see benefits slashed for someone, and sooner rather than later, and that it will be the middle group who will bear the brunt of that.

The elderly are getting parachutes. The young are being told to get off the bus before it goes over the cliff. The group in the middle is just going to have to ride it out.

I guess I can manage that (because I've seen this coming for a long time, and I've taken steps.) Don't know about the rest of my generation.

And I still look at the younger people and I'm worried about the risks. Some are going to do okay. (Most likely the same ones who would have done okay anyway.) Some are going to break even. (Ditto) Some are going to lose their retirement and become charity cases. That's just the way it always goes.

I thought that this was the whole reason we had SS in the first place - so that we didn't have a big segment of society destitute in their later years.

So I guess I don't really see this as much of a reform. Mostly it looks like a shell game.

To paraphrase Krugman in the New York Times (who was in turn paraphrasing Voltaire) "You can kill cattle with witchcraft, so long as you feed them some arsenic to go along with it."

It's not a question of where the beef is.

Where's the arsenic?

[Rascal]

Does anybody know if cutting benefits from people who make 250,000 (this is just a random number) or more a year would do in acual numbers?

I think we all agree it needs to be fixed but we aren't sure how. I do know that most of Europe is worse off then we are and about 20 countries (world wide) have adopted some kind of reform that Bush has presented. Does anybody know how it works in those countries (Britain, Australia, Sweeden for example)?

[Rascal]

Old Dude,

So if I decide to do the 3% and invest it. When I retire, I would get the money I invested (plus whatever interest it accumulated) or what? I didn't follow what you are trying to say.

[RaiderH8r]

I'm not too concerned with what my SS cut will be in the future. As I see it the system will be tits up and cutting 3% annually from $0 return really doesn't hit me too hard. I want to keep my money. I know what I'm doing with my retirement.

[Old Dude]

Old Dude,

So if I decide to do the 3% and invest it. When I retire, I would get the money I invested (plus whatever interest it accumulated) or what? I didn't follow what you are trying to say.

It's like this.

You get to designate a certain percentage of what you'd otherwise pay to SS to instead go into certain investments, which include stocks, bonds, etc.

When you do get around to claiming your SS benefits years from now (based on the money that you left in SS) your SS benefits will be reduced at that time by an amount - not just equal to the percentage that you sent over to the investmment account - but by an amount equal to that percentage plus what that money would have netted if it had gained 3% per year.

IOW, there is no free ride here.