Stock Market privatizing SS

T

Texoz

1,000+ Posts
Anyone want to guess where the market ends up by year's end?

As of last week, the stock market had lost 15% of its value since Oct 10th, when it reached an intra-day peak of 14,225.

Looking at the Asian markets tonight (Sunday night), they're down about 3% for Monday's trading. It's quite possible that by the end of next week, the NYSE could shed 20% of its value in 3 months.

Imagine for a minute that we had privatized, and you had moved those admittedly paltry, but guaranteed SS savings, into a private stock account last summer.

Let's say you're coming up on retirement in 5 years. Keeping in mind that many economists and investors believe it will take years to shake off this housing debacle, how many of you still think that privatizing Social Security 100% is a good idea?

IMO, it needs to be a hybrid of insured savings up to a certain value, like a bank account, or you could see Depression Era behavior where people freak out and sell all their stocks in fear of holding nothing.

I'll admit I haven't read in detail the ideas thrown out there to privatize, but I've spoken to people who envision putting their SS savings into private accounts that they can trade as they see fit.

For those of you that know more about this, what are the proposals? It's been proven that people can't be trusted to react rationally, so who is naive enough to enact a program that invites stock selling like an old fashioned bank run?
 
Privatizing social security is one of the worst ideas of the past 30 years and your point is exactly why. The market has upturns and downturns.

Aside from the broad based issues, what if we were to allow people to trade on their SS accounts? What if they lost their entire amount? Knowing politicians, they wouldn't let them twist in the wind but rather promise some sort of bailout, which means we'd be paying their retirement twice.
 
The OP clearly is ignorant to portfolio theory. The 20% you refer to is an undiversified "market" of the large U.S. capitalization companies. If you invest in other asset classes (commodities, t-bills, emerging markets, real estate, alternative energy, etc.) you don't lose 20% of your nest egg.
 
Privatizing would be a disaster for the majority of people in this country who can barely manage their monthly expenses.
 
if most people would have their SS in the market, do you think they would be adhering to your portfolio theory or trying to place all of their stock in one company?
 
Okay, so there's plenty of argument for some sort of paternalism -- folks in general are too dumb to manage their accounts for themselves.

There's also ample argument for some sort of privatization -- over any significant period of time, the market yields better returns than the gubmint. That's an inarguable fact.

SO -- why don't we do something similar to what Chile did, and to what most outfits with 401ks do? We set up, or select, a number of funds akin to mutual funds -- it could be quite a few -- 50, 100, 500, whatever.

We also categorize them according to investment type -- just like a lot of 401k portfolios have aggressive growth, growth, etc., with a sizeable component being the more stable low-risk funds (holding T-bills, etc.).

And, to satisfy the paternalistic needs, have the funds be self-directed until five years before minimum retirement age, at which time they will automatically be converted to low-risk funds. Of course, you are free to jump to a low-risk fund before then, if you think you have maximized what you want to get out of the market and/or you are more conservative.

Tie this together with the concept of making it somewhat hybridized on a rolling basis (in other words, we start with putting 10% of SS withholding in a private account, and increase that by 5% every 1-2 years, and by the end of a set term (maybe 20 years), we have a system that has us paying 70% of our SS into a personal account, and 30% into a general kitty which helps pay benefits etc. for those who are less fortunate, disabled, etc -- the social insurance role of SS, which while we may not all think is a great idea, is a promise that was made, and must be kept on some level).

I think this makes perfect sense, and satisfies the concerns from both ends.

But of course, it's so much better to demagogue the issue than to actually f'ing fix it. Sometimes I really hate my fellow Americans.
 
Just let people, at the very least, choose one of the Thrift Savings Plan options federal employees get. There's also lifecycle funds that automatically adjust as one gets closer to retirement.

For the record, all of these funds are up. You can see for yourself here:The Link
 
Texoz -

I like to think we have learned from the past and won't allow "bank runs" and the Great Depression happen again. We have evolved.
 
Under the current system, the government "manages" our money. The government then selects extremely conservatively what will be invested for everyone without choice. An improvement would be to allow those that feel qualified remove the government layer of this value chain. Of course, for those that are completely ignorant, they can still select to have the government manager their money with no money than 5% VAR (value at-risk).
 
So you are thinking that the government should have a qualification process at various levels of investment savviness? It is possible.
 
what would the SS program look like if the funds were actually kept and not spent and replaced by IOUs? i'm being sincere, i really don't know.

i ask because many vilify SS as a terrible program, when the reality may be it's a fine program if not for the thieving.


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I would be thrilled with being forced into one of the Thrift Savings Plan options. Thrilled. That would be SOOO much better than the current system, it's not even funny. Those funds are amazingly safe, yet actually harness the power of compound interest.

Eventually, I'd like to see further privatization, but I understand that people want a paternalistic system, and having personal accounts with even just small choices, all based on the TSP that federal employees have now, would be a fantastic improvement over what we have now.

Not only would people see their money grow over time, be able to pass it on to their spouse/children/etc., and have their name on an actual account, it would also help the federal government become more fiscally solvent.
 
SomeMildLanguage -

You are correct. The current situation is worse than described. They teach in school that value is created in quick, huge chunks, but I guess the best you can hope for with the government is consistent baby steps.
 
I agree with BrisketTexan's ideas. I thought I was arguing for the same thing, but I guess I need to be more detailed in my explanations.
 
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