American Savings Rate IS NOT ZERO
- Thread starter aeliodon
- Start date
They get screwed. White women, as usual, get the best deal.
The ratio is moving in the direction of zero, but of course it is no where near zero and is unlikely to get there. Again, only minor tweaking is needed to make the Social Security system sound sound for the foreseeable future. It is likely, however, that the government will not be able to pay back the money it has borrowed from the trust fund in dollars equivalent in purchasing power to the dollars borrowed. This will naturally affect the purchasing power of future social security payments. This effect will be the same in the case of private 401K plans, and similar, where the ROI in constant dollars will also be reduced by inflation.
How does this work out for those at the low end of the wage scale? Or do those folks choose not to opt out? If we allow anyone to opt out, i does not take a genius to see what the affect on social security benefits for those at the low end of the wage scale might be, assuming that there is now a slight subsidy in the system for low wage earners. This, of course, gets into the question of whether it is a good idea to provide subsistence and disability benefits to low wage earners to keep them from falling into poverty in old age.
I also noted that you mentioned, depending on salary, that the Galveston Plan monthly benefit can be up to 3X more than Social Security. To make a fair comparison, you will have to compare benefits for identical dollars paid in over the same number of years. Is the Galveston plan a "defined" benefits plan with shared risk? If it isn't, you must take that into consideration when you compare plans. Also, if the Galveston plan is not Government sponsored, State or Federal, you must consider the possibility that the plan will not be able to meet its investment objectives and therefore benefits could fall short of projection. Is there any risk that one could outlive benefits in the case of the Galveston Plan. Does the Galveston Plan include a disability benefit? It likely does, as most plans of this sort do, but on the other hand some such plans require that private disability insurance be purchased. What ROI does the Galveston plan assume?
These are questions that must be addressed if one wants to make a valid comparison to social security and an alternative. I have personally not found any private, defined contribution plans, that assume reasonable ROI's that don't require a greater monthly contribution to equal the social security benefit, provide disability coverage, and offer a low risk of outliving ones benefit. Again, this is because defined benefit plans, such as social security, incorporate shared risk. On the other hand, private plans will often result in an estate being left to heirs, whereas of course the typical defined benefit plan does not.
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Oh God that was funny! Thanks for the belly laugh! You're right, you should quit trading and just work until you're 70, then retire on that huge monthly surplus income called social security. What will you do with all of your excess income? We'll be looking for ya... the 75-year old skinny, single man renting a studio apartment off Main St, up four flights of stairs. You betcha, turkey!
You bring up an excellent point, and one that illustrates that even a Fed Board member can present a misleading view of Social Security. The Fed Board member is quite correct to refer to the problem of debt. This might make it impossible for the Federal Government to repay the Trust Fund in dollars with anything like the purchasing power of the dollars borrowed. Thus when the government cheats its creditors by inflation, it cheats the social security system as well. If the US government is to pull out of the debt death-spiral it is currently in, it is obvious to everyone that it is going to take far more that "minor tweaking" of the federal budget.
This is a problem apart, however, from the basic actuarial soundness of Social Security. I had that in mind when i said "minor tweaking." I was not thinking of problems external to the system. If we can't pull out of the debt spiral we find ourselves in, than in the end, none of our problems can be satisfactorily solved, including the minor one of social security.
Far too many erroneously believe that the US Social Security system is a "Ponzi" scheme or some such. To believe these things is ridiculous. There is also the constant problem of people making erroneous comparisons between defined benefit and defined contribution plans without understanding the trade-offs involved. These sometimes rather crazy comparisons have done social security a great disservice.
If only that was true. Problem is the money isn't saved it is spent and an IOU is issued in its place.
That is of course one of the proposals being considered, i.e., upping the retirement age. Assuming this is one of the changes adopted, than it seems your suggestion to tie the retirement age to the CDC's life expectency is a good one. But i do wonder how much those figures are being slanted by our ability to keep a heart beating and the money coming in to nursing homes, versus our ability to keep a brain functioning.... We might need a new definition of "alive".
Most of the answers are provided on that page. Their annualized return over the reported 24 years was 6.5%, through fixed income annuities.
My wife's plan here in GA is invested in a combo of annuities, stocks, bond & REITS. She is only required to contribute 1% of her salary for long term disability. Therefore, her income is 5.2% higher than with SS, and for that amount, I have set her up with a tax deferred plan. The rest is contributed by the county. That 5.2% is hers and can be passed along, unlike SS.