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Forums - General - Can someone explain to me why... (US Social Security related)

mrstickball on 02 May 2009

We tolerate Social Security in America?

From the Heritage Foundation:

Social Security pays a very low rate of return for two-income households with children. Social Security's inflation-adjusted rate of return is only 1.23 percent for an average household of two 30-year-old earners with children in which each parent made just under $26,000 in 1996.1 Such couples will pay a total of about $320,000 in Social Security taxes over their lifetime (including employer payments) and can expect to receive benefits of about $450,000 (in 1997 dollars, before applicable taxes) after retiring at age 67, the retirement age when they are eligible for full Social Security Old-Age benefits.2 Had they placed that same amount of lifetime employee and employer tax contributions into conservative tax-deferred IRA-type investments-such as a mutual fund composed of 50 percent U.S. government Treasury bills and 50 percent equities-they could expect a real rate of return of over 5 percent per year prior to the payment of taxes after retirement. In this latter case, the total amount of income accumulated by retirement would equal approximately $975,000 (in 1997 dollars, before applicable taxes).

These numbers (1.23% rate of return, adjusted for inflation) are within numbers that any of us can argue as to what Social Security returns.

So I must ask: Why is the return so low? As it stands, you could take the same amount of money, and invest in a CD at a bank and earn a much greater rate of interest. You could even invest in government T-Bills and earn a greater rate of return. So why such a low return when the government itself honors a higher rate of return for it's investors?

Why are we forced to pay into, virtually the worst, possible system of retirement possible?

Why are there exemptions for government employees, but no one else? Why do they get a free pass? My finacee that works at a library has OPERS - Ohio's government retirement system. She earns over 10x the rate of return per month, as I do. She has a choice with where her money goes (traditional or directed retirement plans) whereas, as a private employee, I am forced to pay Social Security in a system and have virtually no choice in how my money is spent.

I would like to see opinions from everyone that could answer these questions, as it's a real headscratcher on why the public in America can put up with such a failed, and fraudulent system.



Back from the dead, I'm afraid.

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Tyrannical on 02 May 2009

The government, by law can only invest Social Security surplusses in US government bonds. So the government borrows from it's self and pays it's self interest. So we are forced into a cycle of deficit spending to keep the SS system afloat.
A Bernie Madoff investment fund would have been smarter.



Yet, today, America's leaders are reenacting every folly that brought these great powers [Russia, Germany, and Japan] to ruin -- from arrogance and hubris, to assertions of global hegemony, to imperial overstretch, to trumpeting new 'crusades,' to handing out war guarantees to regions and countries where Americans have never fought before. We are piling up the kind of commitments that produced the greatest disasters of the twentieth century.
 — Pat Buchanan – A Republic, Not an Empire

mrstickball on 02 May 2009

Interesting. The government takes the peoples money, uses it to fund their deficit, then pays a meager interest rate out.

Given the fact that they also print the money, am I just a little befuddled as to how such a system even works? We loan money from China at a much higher interest rate.



Back from the dead, I'm afraid.

Tyrannical on 02 May 2009
mrstickball said:
Interesting. The government takes the peoples money, uses it to fund their deficit, then pays a meager interest rate out.

Given the fact that they also print the money, am I just a little befuddled as to how such a system even works? We loan money from China at a much higher interest rate.

 

The Social Security "surpluss" is a bunch of US government IOUs in the form of treasury bonds. I don't think we borrow money from China at a higher rate, China buys the same US treasury bonds everyone else does, including the Social Security trust fund. US treasury bonds can pay a relatively small rate over inflation becuase they are so secure.

Under our current laws, what else could the government do with the SS trustfund's surpluss? Investing in private companies would almost be nationalization. Even if we allowed it, the oversight would be nightmarish. Was that investment "politicaly motivated"?

I guess an alternative use of SS surpluss money would be to lend it to banks that in turn lend it to home buyers or for student loans. But those are also low interest loans.



Yet, today, America's leaders are reenacting every folly that brought these great powers [Russia, Germany, and Japan] to ruin -- from arrogance and hubris, to assertions of global hegemony, to imperial overstretch, to trumpeting new 'crusades,' to handing out war guarantees to regions and countries where Americans have never fought before. We are piling up the kind of commitments that produced the greatest disasters of the twentieth century.
 — Pat Buchanan – A Republic, Not an Empire

mrstickball on 02 May 2009

Well, the government could always handle it the way of state-led pensions. They are allowed to invest in whatever they want to, and do a fantastic job of it.

Why such a nightmare at the federal level?



Back from the dead, I'm afraid.