Another Reason Not to Privatize Social Security

[Joe Steel]

This short article is about hedge funds and their increasing popularity and warns of their dangers. If anyone needed another reason for not privatizing Social Security, try this:


But corporate and government pension plans are increasingly investing in these funds, with money that was previously invested conservatively on behalf of their beneficiaries. Some states are now putting 20 percent or more of public employee pension savings into them. Corporate pension plans, as much as 40 percent of employee savings. But the individuals counting on retirement checks are neither big enough nor tough enough to take care of themselves.

Hedges, Private Equity, and the Little Guy (http://prospect.org/cs/articles?article=hedges_private_equity_and_the_lit tle_guy)

Boiled down, it means the little guy can't bear the kind of risk the privatizers will sell him.

[Mr. P]

The American Prospect was founded in 1990 as an authoritative magazine of liberal ideas, committed to a just society, an enriched democracy, and effective liberal politics.
Now there's a non-bias source we should all listen to. :laugh2:

[Joe Steel]

Now there's a non-bias source we should all listen to. :laugh2:

Yes.

You should.

Reality has a liberal bias.

[Mr. P]

Yes.

You should.

Reality has a liberal bias.

Reality has no bias, it is what it is.

[Joe Steel]

Reality has no bias, it is what it is.

OK.

The article, regardless of its source, reflects the reality of capital markets. High returns mean high risk and the average American doesn't have the skill to deal with it.

[Mr. P]

OK.

The article, regardless of its source, reflects the reality of capital markets. High returns mean high risk and the average American doesn't have the skill to deal with it.

It also doesn't address 401k or IRAs that don't have high risk..a very misleading article on privatization written to scare the reader, IMO.

[JohnDoe]

It also doesn't address 401k or IRAs that don't have high risk..a very misleading article on privatization written to scare the reader, IMO.

Don't they though? At least with 401k's?

All the Enron Employees lost all that they earned, almost overnight?

A great deal of States had invested in Enron and their pension funds lost big time, and the same with investments in Global Crossing.

Many Mutual Funds had invested in these companies too, at least from what I remember reading?

And yes, maybe this is few and far between, I can agree on this.

But also consider that those going in to retirement right after 9/11, when the Dow had dropped down to around 8000 or even less I think, after it had crossed 10000 had to continue working to make up for their 401k losses.

Again, not everyone was retiring at the time but a great deal were and it affected them in a negative sense.

It can happen! This is why diversity investment is important, and having a certain amount of money NOT invested in things like 401k's or the "market"
is a necessity imho.

[Joe Steel]

It also doesn't address 401k or IRAs that don't have high risk..a very misleading article on privatization written to scare the reader, IMO.

You're right.

The article doesn't address 401(k)s and IRAs. I never said it did.

The article points-out the dangers of hedge funds and I said it would be a danger to unsophisticated investors which includes the vast majority of Americans.

That's the truth.

[Mr. P]

Don't they though? At least with 401k's?

All the Enron Employees lost all that they earned, almost overnight?

A great deal of States had invested in Enron and their pension funds lost big time, and the same with investments in Global Crossing.

Many Mutual Funds had invested in these companies too, at least from what I remember reading?

And yes, maybe this is few and far between, I can agree on this.

But also consider that those going in to retirement right after 9/11, when the Dow had dropped down to around 8000 or even less I think, after it had crossed 10000 had to continue working to make up for their 401k losses.

Again, not everyone was retiring at the time but a great deal were and it affected them in a negative sense.

It can happen! This is why diversity investment is important, and having a certain amount of money NOT invested in things like 401k's or the "market"
is a necessity imho.

401s and IRAs provide a wide variety of investment models, high risk to no risk. If yer eggs are in one basket (ENRON) the risk is high. It's a choice.

However in the long run, privatization vs SSI is much more profitable, 401/IRA models beat the hell outta SSI..It's been done already. Congress just won't let everyone do it.

[Mr. P]

You're right.

The article doesn't address 401(k)s and IRAs. I never said it did.

The article points-out the dangers of hedge funds and I said it would be a danger to unsophisticated investors which includes the vast majority of Americans.

That's the truth.

hedge funds are a danger to any investor, sophisticated or not.
The problem I had with the article is that it argues privatization is bad based on hedge fund risk. Truth be known most retirement funds 401k IRAs are not in hedge funds to any significant degree, I would bet regulations would even prevent it. Now Corp pension plans..donno, but then how many Corps offer pension plans today? Very few.

[Joe Steel]

hedge funds are a danger to any investor, sophisticated or not.
The problem I had with the article is that it argues privatization is bad based on hedge fund risk. Truth be known most retirement funds 401k IRAs are not in hedge funds to any significant degree, I would bet regulations would even prevent it. Now Corp pension plans..donno, but then how many Corps offer pension plans today? Very few.

In point of fact, the article didn't argue privatization is bad because of hedge funds. I said hedge funds were another reason not to privatize. Privatization is a bad idea for a number of reasons and hedge funds are just one example. They represent the kind of attractive danger which will threaten the financial future of everyday, financially unsophisticated Americans.

[avatar4321]

dont you just love people who dont understand the market trying to tell us how it works? its amusing.

Nevermind the fact that government shouldnt be taking our money to begin with and that people should be responsible for their own life. I mean heaven forbid you actually produce something when you are older...

[avatar4321]

In point of fact, the article didn't argue privatization is bad because of hedge funds. I said hedge funds were another reason not to privatize. Privatization is a bad idea for a number of reasons and hedge funds are just one example. They represent the kind of attractive danger which will threaten the financial future of everyday, financially unsophisticated Americans.

And considering you hedge funds are only available to the extremely wealthy to begin with how do you expect this to be an issue?

[Mr. P]

In point of fact, the article didn't argue privatization is bad because of hedge funds. I said hedge funds were another reason not to privatize. Privatization is a bad idea for a number of reasons and hedge funds are just one example. They represent the kind of attractive danger which will threaten the financial future of everyday, financially unsophisticated Americans.

Show me a retirement fund 401 or IRA that invests in hedge funds.

Privatization is a great idea because the results beat the hell outta the government run SSI farce.

[Mr. P]

dont you just love people who dont understand the market trying to tell us how it works? its amusing.

Nevermind the fact that government shouldnt be taking our money to begin with and that people should be responsible for their own life. I mean heaven forbid you actually produce something when you are older...

They know what's best for "US" AV and they know only the government can take care of us, we are not capable.

[Joe Steel]

And considering you hedge funds are only available to the extremely wealthy to begin with how do you expect this to be an issue?

Did you read the article?

[Joe Steel]

Show me a retirement fund 401 or IRA that invests in hedge funds.

Privatization is a great idea because the results beat the hell outta the government run SSI farce.

Nonsense. On a risk-adjusted basis, average returns are just a little better.

[Joe Steel]

And considering you hedge funds are only available to the extremely wealthy to begin with how do you expect this to be an issue?

Do you understand English?

I mentioned hedge funds as an example of the kind of high-risk investment which would be offered to the public. Hedge funds may have some restrictions but not all other such investments have them. And it doesn't mean the restrictions won't be changed.

[glockmail]

Nonsense. On a risk-adjusted basis, average returns are just a little better.

I have a canned response for this that I posted a while back in another forum:

Have you ever calculated how much you would have in retirement funds if you had invested all of your social security taxes, incrementally as you have paid them, in a safe investment portfolio, such as municipal bonds (5-6%, almost no risk), or corporate real estate (7%, slight risk). After 45 years of working most people would be millionaires. And if they die the day after they retire, their spouses or children get to fight over the money.

The only difference between you, with your mortgage, college bills, and retirement worries, vs. the old money people living in mansions, is that their grandparents had enough money in the bank to set them up in a comfortable lifestyle. These people perpetuate their wealth by adding to the principle to keep up with inflation and living off the interest. The current social security system virtually assures that this will never happen to the middle and lower classes. Since we are forced to pay so much taxes, we can't afford to retire!

Say at age 20 you make $20,000/yr ($1667/mo) and pay 6.2% of your income into a fund matched by your employer, and continue this practice until you retire at age 65. After 45 years in a slight risk investment (and with a 45 year term it is almost inconceivable that a "slight risk" investment would have any risk), earning 7%, you would have $783,802 dollars in the bank. (Let's forget inflation here because we will assume that your raises would at least keep up with inflation.) By continuing your 7% investment, never touching the principle, you would be able to draw $4572 in interest per month upon retirement. That's 2.74 times your pre-retirement income. A low risk, 5% investment would earn you almost twice your pre-retirement income.

And the numbers simply multiply with income. Under this scenario, a retired couple would have over $1.5 million in the bank and earn over $100,000 per year in interest.

Compare that with the paltry amount given back by the government in social security. But here is the real rub: after you die, all your principle can be given to your children and grandchildren, basically setting them with "old money". Comparatively, your social security “investment” evaporates, and some people die unable to pay for a decent funeral.

The Republican plan is to transition from the system that we have now to full privatization over several decades, to allow support of the retired and retiring who have been duped all these years. You and I won’t see full privatization, but maybe our grandchildren will.

This is the truth that Democrats don't want you to know. By throwing crumbs, rich liberals like Kennedy and Edwards will continue to be supported by poor people. After all, a retired couple living on 100 large doesn’t really care about the cost of prescription drugs, universal health care, or the current question of social security. They are unlikely to vote for a Democrat.

Do the math. Be smart about your life decisions. See more at http://calculator.socialsecurity.org/.

[Mr. P]

Nonsense. On a risk-adjusted basis, average returns are just a little better.

Nonsense? Really? Just a little better? :laugh2:

Check it out....way more than nonsense or just a little..


A Private Retirement Plan That Works. The initial Social Security Act permitted municipal governments to opt out of the system - a loophole that Congress closed in 1983. In 1981, employees of Galveston County, Texas, chose by a vote of 78 percent to 22 percent to leave Social Security for a private alternative. Brazoria and Matagorda counties soon followed, swelling the private plan to more than 5,000 participants today. In the private plan, contributions are similar to those for Social Security but returns are quite different.

* Initially, employees and their employer were each required to contribute 6.13 percent of income; recently, the counties increased their contribution to 7.65 percent - for a total contribution of 13.78 percent.

* Of that 13.78 percent, 9.737 percent goes to the employee's individual retirement account, which pays a 6.5 percent average interest rate, compounded daily.

* The remainder pays for disability and life insurance premiums to cover the employee in case of an accident or death.

* Workers continue to pay their Medicare payroll taxes and to receive Medicare benefits upon retirement.

But while the cost of the private program, known as the Alternate Plan, is virtually the same to the employee and employer as Social Security, the benefits are far greater. According to First Financial Benefits, Inc., which created and administers the plans:

* A person retiring today at age 65 with 40 years of deposits and an annual salary of $20,000 would retire with $383,032 in a personal account.

* Someone with a $30,000 salary for 40 years would retire with $573,782.

* And a person with a $50,000 salary for 40 years would retire with $956,303.

A personal retirement account this size provides a much larger postretirement income than does Social Security. Moreover, retirees under the Alternate Plan have a number of options not available to retirees under Social Security. For example, those with the Alternate Plan can choose among several annuities or take their money in a lump sum. As the figure shows, under one option:

* A retired $20,000-per-year worker with the personal retirement account would receive $2,740 each month at current interest rates, while Social Security benefits would be about $775 per month.

* A $50,000 per year worker would receive $6,843 from the private plan, compared to $1,302 from Social Security.

http://www.ncpa.org/ba/ba215.html

[nevadamedic]

Do you understand English?

I mentioned hedge funds as an example of the kind of high-risk investment which would be offered to the public. Hedge funds may have some restrictions but not all other such investments have them. And it doesn't mean the restrictions won't be changed.

Man, do I wish I could negative rep you again today. :laugh2:

[Joe Steel]

Nonsense? Really? Just a little better? :laugh2:

Check it out....way more than nonsense or just a little..


http://www.ncpa.org/ba/ba215.html


Risk-adjusted.

[glockmail]

Man, do I wish I could negative rep you again today. :laugh2:
I did it for you, for ignoring the issues that I raised.

[Joe Steel]

I did it for you, for ignoring the issues that I raised.

When you deal with the issue at hand, I'll deal with your nonsense.

[avatar4321]

Did you read the article?

I dont have to read the article to know that you cant invest in hedge funds without previously having alot of money to begin with and lots of investing experience. Take a finance class and youll learn this too.

[LOki]

This short article is about hedge funds and their increasing popularity and warns of their dangers. If anyone needed another reason for not privatizing Social Security, try this:



Boiled down, it means the little guy can't bear the kind of risk the privatizers will sell him.Faulty premises.

[Mr. P]

Faulty premises.

Totally!

[Joe Steel]

I dont have to read the article to know that you cant invest in hedge funds without previously having alot of money to begin with and lots of investing experience. Take a finance class and youll learn this too.

Looks like you need the education. If you knew how to read, you'd know that's not what I said.

[Joe Steel]

Faulty premises.

Sorry, no.

In fact, it's perfect. As one of the other wingnuts has been saying, little guys can't invest directly in hedge funds because they're so risky and the little guy is presumed to be incapable of understanding and bearing the risk. That's why they're the perfect example of extremely risking investments which have to be kept away from small investors.

[glockmail]

When you deal with the issue at hand, I'll deal with your nonsense.
Sure, Lucy. No one else sees your inability to debate. Keep telling yourself that lie as well.

[LOki]

Sorry, no.

In fact, it's perfect. As one of the other wingnuts has been saying, little guys can't invest directly in hedge funds because they're so risky and the little guy is presumed to be incapable of understanding and bearing the risk. That's why they're the perfect example of extremely risking investments which have to be kept away from small investors....and then there are your faulty premises.