Obama and the Social Security Privatization Lie
By Blue Collar Muse Posted in Taxes — Comments (26) / Email this page » / Leave a comment »
Few things illustrate Democrat's penchant for preying on people's fears better than Social Security. Proposing changes to Social Security produces hysteria from any Democrat near a microphone. Barack Obama is no different as evidenced by his comments earlier this week.
Speaking to a crowd of retirees in Ohio,
Obama ... criticized McCain for being open to letting taxpayers invest part of their Social Security payments in private investment accounts.
"Imagine if your security now was tied up with the Dow Jones," he said, alluding to the recent slide in stock prices. "You wouldn't feel very confident about the security of your nest egg."
Senator Obama misses the point. It is not how well the stock market performs today as opposed to yesterday. There will always be ups and downs in the market and investing is for the long term. Social Security is the same. It is how well the Stock Market performs today as opposed to how well Social Security is performing today! The question Senator Obama should ask is, “Imagine if your security had been tied to the Dow Jones for the last 50 years? You'd be pretty excited about the security of your nest egg!”
Social Security, begun in 1935, is out of date. The financial world is vastly different today. Why then do we depend on an antique product? It's easier to amend the Constitution than to update Social Security. You'd think modernization would be beneficial after so long. You'd be wrong.
Just one factor illustrates the problem. In 1935, the age at which one began to receive benefits was 65. This at a time when life expectancy for Americans was 62. Today the terms are the same but people live longer. No wonder the plan is going bankrupt.
In 1935, only the very wealthy owned stock in many companies at once. If a stock or a market segment went bad, the entire portfolio wasn't at risk. Today, mutual funds make that strategy available to virtually any American. It also makes Social Security an antiquated, government run Ponzi scheme. To demonstrate the difference 75 years can make, we'll use Social Security's own benefits calculator and a simple financial calculator.
Meet Sam, our less than average American. Sam began working this year, at age 16, for just $7.50 an hour, $300 a week, $1,300 a month or $15,600 a year. Sam, while quite nice, is pretty much a loser. He is so unskilled he will never get a raise. He is industrious, though, and will work for 49 years, retiring at 65. This scenario gives Sam about $1,500 per year to invest for retirement based on current Social Security rates. Let's see how he does. The actual numbers generated below will, of course, be different based on a number of factors. However, they are accurate enough to make the point.
Using Social Security's own calculator and plugging in Sam's numbers (born 1/1/1992, $15K annually to 65), his total contribution is $73,500. At retirement, Social Security will pay Sam $703 per month. This is barely over half the income he enjoyed while working. Welcome to cat food cuisine! After working 49 years at $7.50 per hour, Sam must retire on $4.50 per hour. Once Sam dies, the benefits Mrs. Sam enjoys are drastically reduced. At Mrs. Sam's death, the benefits die, too. 49 years - $73,500 and there's nothing to pass on. This is what Obama, Democrats and central planning Republicans want for Sam. If that was all there was, the saying "60% of something is better than 100% of nothing!" would apply. But it's not.
If Sam is allowed to invest his money privately the results are astounding. A simple financial calculator shows Sam's $73,500 would grow to $1,975,000 with a 10% return, $920,000 at 8%, $446,500 at 6% and $228,500 at 4%. These sums provide monthly incomes of $16,458 at 10%, $6,133 at 8%, $2,232 at 6% and $761 at 4%. Sam could earn just 4% interest for 49 years and retire with more than Social Security provides. Check with any investment broker for the actual results over the last 25 years. The ones Barack Obama is sure would have been bad for your nest egg.
I've further assumed the principal is left intact so when Sam dies, Mrs. Sam's income stays the same. When she dies, the principal passes to their two children. There's an inheritance to leave on just $15,000 a year! If we assume Mrs. Sam is the same age and does the same thing then the numbers double. $3,950,000 at 10%, 1,840,000 at 8%, $893,000 at 6% and $457,000 at 4%. Barack Obama doesn't think you should feel confident about that.
Privatization's real power is seen when we get to the kids and the grandkids. If we assume the same scenario for the kids and grandkids, by the time the grandkids retire, they are multi-millionaires, even at 4%. And they did it with 3 generations of losers who never made more than $15,000 per year.
Most folks, of course, will make more than that. So much the better! Add in US economic expansion from the infusion of that sort of capital into private enterprise and imagine the earnings potential future Sams will have. With such wealth, questions about affording health insurance and what to do with Uncle Joe who would not save for himself become memories. Americans will take care of themselves and their own. The government is out of our lives on a grand scale. Increases in government revenue insure promises made to those now on Social Security are kept.
Barack Obama won't tell you this. Why? Why don't Democrats, and too many Republicans, want Social Security privatized? Because if you don't need government, you don't need them. It's a matter of personal and political power and nothing more. Their continued insistence that Social Security can be fixed and that they are the ones to fix it is a deception. It's an appeal to your fears stealing hundreds of thousands of dollars from you and your family. It's time for that to stop. It's time for someone to remind you of your dreams and tell you the truth about privatizing Social Security!
For more from The Muse, please visit Blue Collar Muse; and
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They can. They hope YOU can't.
Each day I am more convinced that many of the problems we have are perpetuated by our government.
It is our government, all three branches, that have the ability to take care of many of our problems, be it oil, social security, welfare, etc.
They all rant about these problems, yet when their respective parties are in power, their respective promised plans are not enacted.
The people with the power to solve problems either do nothing or propose a good solution and then enact a different solution that only creates more problems.
All the while, these politicians tell folks like you and me that if we just elect (or reelect) THEM, these problems will be solved.
How many times do we continue to fall for that?
How many more times should we?
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Dependence is Slavery.
For more from The Muse, please visit Blue Collar Muse; and
The Voice of Liberty Podcast Network
Thanks. If only I could do this for a living. heh.
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Dependence is Slavery.
That's what's been drilled into us by the liberals for a long time now, and more and more people buy into the mindset.
Until we break that spell, it won't change.
Unfortunately, despite their hippie-dippy goals, in reality outcomes are NOT all equal.
There is, generally, one or a few plans that can succeed well and a plethora of plans that fail horribly.
I do wonder, however, if some issues aren't left unsolved so that the two parties can argue about something in a way that lets the voters tell the two parties apart.
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Dependence is Slavery.
Everyone would be equally poor and dependent on the government for everything.
Oh, right. Almost forgot about those more equal than other folks.
A great reason to invest in your future.
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Dependence is Slavery.
the living in a cave in the mountains with guns & MREs scenario.
So am I.
That's why we vote.
However, remember the Boy Scouts' motto.
It isn't "Assume nothing can happen."
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Dependence is Slavery.
a study that I used to have that showed that even if you invested $$$ at the worst times (the peaks) that you still would have made $$$ in the stock market.
Now also found at The Minority Report
Here's what I link people to. It shows the difference between short term thinking of people like Obama (who, by the way, doesn't need to draw social security as long as he ends up serving a few terms if he doesn't win the bid for presidency)
Slide the selecter at the bottom all the way to 1970.
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Dependence is Slavery.
The only problem with the chart you linked to is that it isn't in semi-log format. It exaggerates volatility as you get higher up the chart. But your point is well taken.
Pluto, the Ninth Planet - Forever!
Well, the main focus of it when I link to it is to say "See how low it is on the left and how high it is on the right? That means that even if you have short term ups and downs, you still gain in the long run. Retirement is about long-term investments, not daily fluctuations."
Of course, by this time they're either asleep or trying to remember why this is all President Bush's fault.
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Dependence is Slavery.
You are so right. LOL!
"Vee get too soon olt, und too late shmart!"
Pluto, the Ninth Planet - Forever!
Obama has a big appeal among young people, but a lot of them are going to have huge regrets about that support when they reach retirement age. Anyone under 40 who is counting on Social Security is a fool.
What will happen to mutual funds if something were to happen to the stock market? Nothing lasts forever. An inquiring mind wants to know...
In any case, I agree with you that keeping Social Security as it is right now is foolish and needs to be reformed badly. The privatization of Social Security is probably the best answer available.
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Daniel 2:20 And he [God] changeth the times and seasons: he removeth kings, and setteth up kings: he giveth wisdom unto the wise, and knowledge to them that know understanding.
what happens if the US goes down in a never ending global depression?
The only way the stock market would tank on a perpetual basis would be if the economy itself tanked on a perpetual basis.
If the economy tanks on a perpetual basis, the tax revenues for SS, Medicare, defense, etc. simply won't be there.
Nothing in life is guaranteed.
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Daniel 2:20 And he [God] changeth the times and seasons: he removeth kings, and setteth up kings: he giveth wisdom unto the wise, and knowledge to them that know understanding.
I just got to read it and Sobieski beat me to the answer. If the country is that far gone, the government isn't far behind.
Consider this, too. We had the high profit Reagan years and the immense comeback of the US Economy after 9/11 and Katrina to post record profits. The Economy, while it can and may collapse, continues to be resilient. On the other hand, what shape is Social Security in? We've known about the Boomer pressure for decades. Has it been addressed? No. Because there is no impetus for government to do anything at all until they ABSOLUTELY have to. The 2 years between national elections is an eternity politically.
Thus, I would argue that I would trust the market with all its vagaries over government with its institutionalized inertia any day.
Thanks for the question!
Blue
For more from The Muse, please visit Blue Collar Muse; and
The Voice of Liberty Podcast Network
Cheetah, I'm not selling anything but self-education. This is just advice that I wish I'd had many years ago.
There is a way to mitigate overall stock market risk of loss that you refer to, at least as long as the whole thing doesn't collapse (and as others have said, then we'd have even worse problems). The way is to diversify into various sectors of the market. Those sectors often go in opposite directions, or sometimes in the same direction only slower or faster.
Better explanations than I can give are at this website.
Pluto, the Ninth Planet - Forever!
Highly Recommended.
I want to add that back in the early 70's it was possible to lock in very high interest rates for a reasonably long period of time at relatively little risk. I'm talking in the neighborhood of 10%. Sounds great, doesn't it? Of course, at the time inflation was almost that high, and mortgage rates were 14% up to 20% (hear that, Senator Dodd?). And the rate was "guaranteed" for maybe 20 years, but in actuality the government stepped in during the S&L "crisis" and terminated those 10% CD's, replacing them with a much lower rate.
Well, the S&P 500 grew at an annual rate (the true rate, not the inflated "average" rate) of 6.94% over the 30 years from 1/1/73 to 12/31/02. And that was not an especially favorable time period; in fact, it was the worst one I could quickly find. If you pick 1/1/75 to 12/31/06, the CAGR (compound average growth rate) is 9.9% over that 32 years. This information came from a different calculator.
Of course the S&P 500 returns are not "guaranteed" (scare quotes added because there are really NO absolute guarantees, other than the guarantee that Social Security as it now is formulated will eventually go broke). In fact, no responsible advisor would encourage most people to invest ONLY in the S&P 500 (see my response to Cheetah, soon to appear above). But for taking the risk that is inherent in true investing, you get something like 4 to 6 times as much return as the Social Security system provides, and you get to spend it as fast or slowly as you want, and leave what's left of it to your heirs if you want to. When you're talking about 4 to 6 times a couple of hundred thousand dollars, there might actually be something left to leave.
I write this with the caveat that the Social Security program is primarily an annuity set up for long-term contributions with a zero payout guarantee. So stock market investing comparisons have to be made over ten or more years of contributions to make the risks comparable. That's why Bush's plan allowed only those with ten (five?) or more working years remaining to transition to the new program.
There is only a miniscule chance that someone investing in the market over 20 or more years (and buying comparable peripheral insurance) will not beat anything that Social Security has to offer. In my own anecdotal case, I can tell you that if all the money that I and my employer put into Social Security taxes had been put into my investment plan instead, I wouldn't be sitting here typing. I'd be on a beach somewhere drinking a G&T (figuratively speaking, of course).
Obama's comments are nothing new. Change. CHANGE!!! The only change is that a different Democrat candidate is saying the same old Democrat fear-mongering words.
Pluto, the Ninth Planet - Forever!
It's funny how Democrats play on the fears of the elderly while ignoring the fears of those 55 & younger. Some of the elderly people I know still believe that there is a fund set aside for Social Security & will not believe the truth that ther is no "lockbox."
You have a d in front of the HTTP.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777