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Old 02-03-2005, 01:52 PM   #1 (permalink)
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Bush's plan to forfeit your SS account profits

Someone tell me again why this scam is a good idea.

Quote:
Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately earn benefits more than those under the traditional system only if the return on their investments exceed the amount their money would have accrued under the traditional system.

"You'll be able to pass along the money that accumulates in your personal account, if you wish, to your children . . . or grandchildren," Bush said in his State of the Union address. "And best of all, the money in the account is yours, and the government can never take it away."

What Bush did not detail is how contributions in the account would reduce workers' monthly Social Security checks. Under the system, described by an administration official, every dollar contributed to an account would be taken from the guaranteed Social Security benefit, with interest.

"The person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive," the senior administration official said. "So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase."

If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today's dollars. All of that money would be the worker's upon retirement. But guaranteed benefits over the worker's lifetime would be reduced by approximately $78,700 -- the amount the worker would have contributed to Social Security but instead contributed to his private account, plus 3 percent interest above inflation. The remainder, $21,100, would be the increase in benefit the worker would receive over his lifetime above the level he would have received if he stayed in the traditional system.

Under the system, total benefit gains may be minimal. The Social Security Administration, in projecting benefits under a partially privatized system, assumes a 4.6 percent rate of return over inflation. Thus gains in an account would be offset by a reduction in guaranteed benefits equal to 70 percent of the account's balance.

The Congressional Budget Office, Capitol Hill's official scorekeeper, assumes a 3.3 percent rate of return. Under that scenario, the full amount in a worker's account would be reduced dollar for dollar from his Social Security checks, for a net gain of virtually zero.

If investments earned less than 3 percent a year above inflation, a worker would do worse in total benefits than he would have done in the traditional system.
http://www.washingtonpost.com/wp-dyn...-2005Feb2.html
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Old 02-03-2005, 04:19 PM   #2 (permalink)
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It is not a good idea. IMO Only because like the SS system we have now thesse accounts will gain a butt load of money and those in goverment can't keep theiir paws off of it and then they will start taking money from the private acounts. I think that we should take all the stuff out of SS except those who are retired. That is what it was meant for, we need to go back to the original plan if we want to fix it. There are too many different programs that draw off of it now. If we want to keep that money in SS we need to stop giving it all out for those who aren't retired.

Like if we put it into a lock box.
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Old 02-03-2005, 05:42 PM   #3 (permalink)
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The Wash Post piece was a hatchet job. The Bush Admin never claimed that there would be forfeitures of money. It's a shame that the press has already taken a side in this fight before all the ideas are proposed.
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Old 02-03-2005, 05:44 PM   #4 (permalink)
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bush is doing the best thing that can be done right now, and i'm supporting it
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Old 02-03-2005, 05:45 PM   #5 (permalink)
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Just so happened that I saw a retort to the WP story a few minutes ago:

http://drudgereport.com/flash3.htm
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Old 02-03-2005, 06:27 PM   #6 (permalink)
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Quote:
Originally Posted by CShine
Someone tell me again why this scam is a good idea.
I have been wondering when this would be mentioned here.

Before I spend time on a lengthy post, I have two questions for the thread starter:

#1 - What are the details of the SS plan the White House has given to Congress for approval?

Oh wait, there are none, because there is no plan yet. We are looking at options. There is no proposal, there is no specific agenda.....how do you target something that is merely being discussed? Especially when the floor for discussion has been opened up to everyone, regardless of the letter after their name. So, we are going after a guy who sees something that has problems and wants to come up with a way to fix it.

I love this, it is almost too funny to believe. "Bush is gonna [insert favorite catch-phrase] to [insert favorite group of people]" How can any say that something specific is going to happen when there isn't even a formal plan proposed? i.e. people are going to lose benefits Based on what information? This tired out crap is getting so old.

#2 - You cannot try and further the argument from your link until you offer one little piece of information: ROI. What is the expected ROI of the Bush plan? What is the current ROI for a person in their 20's or 30's under the current plan (hint: it is a really depressing number).

How can we discuss ROI if we are offered absolutely no facts whatsoever from the person starting this thread?

Along with the ROI discussion regarding SS, another little important tidbit kepts getting left out: Ratios.

Forget about ROI

Forget about the amount of money SS has or will have

Look at the freakin' history of the ratios. Looking at the ratios alone gives us more than enough reason to consider some type of major change to the SS system. I am not 100% set on the type of change, but when I look at the payee/payor ratios and where they are heading, I am scared and willing to look at almost any proposal for change.

Another note: That link is nothing but fearmongering. The information "offered" up in the link completely contradicts the factual minimum requirements already set in place for any proposed change to SS.
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Old 02-03-2005, 06:27 PM   #7 (permalink)
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Quote:
THE WHITE HOUSE
Office of the Press Secretary
(Great Falls, Montana)

____________________________________________________________________________________ For Immediate Release February 3, 2005

SETTING THE RECORD STRAIGHT
Participants get 100% of Their Personal Retirement Accounts, Both Principal and Interest

Myth: Jonathan Weisman's Washington Post Story today (p A13), includes the headline that "Participants would Forfeit Part of Accounts' Profits," which is flat wrong. The article says workers who opt for personal accounts "would ultimately get to keep only the investment returns that exceed the rate of return that the money would have accrued in the traditional system." This statement, unfortunately, is also flat wrong. Both the headline and this assertion are completely inaccurate. The White House is seeking a correction from the Washington Post.

Reality: Under President Bush's plan, participants would get EVERY SINGLE PENNY OF THEIR RETIREMENT ACCOUNTS -- BOTH the PRINCIPAL AND INTEREST.

Myth: The WP story suggests that President Bush's proposed personal retirement accounts actually benefits the Federal Government more than the account holder, by providing a "claw back." A "claw back" is typically a feature of a plan where the government guarantees a certain combined benefit from the traditional system and the personal account. Under such a plan, the better your account does, the less you get from the government. Therefore, the gains in the accounts are "clawed back."

Reality: The President's plan for personal retirement accounts does not have a "claw back." Under the President's plan, you, not the government, get all the gains in your personal retirement account. The amount you receive from the government is NOT reduced if your personal account does well. The better your account does, the better off you are.

Here are the facts:

Ř President Bush's plan allows you to make a decision to put your money in a different kind of prudent investment, with the potential for receiving higher pay-outs.

Ř For example, a worker who decides against taking a personal account might, in the future, get $15,000 annually in benefits from the traditional system, reformed to be permanently sustainable.

Ř Another young worker could choose to invest in a personal retirement account. In exchange for the right to get the account, he gives up benefits from the traditional system. For example, he might give up one-third of those future government benefits, and be entitled to receive $10,000 annually from the traditional system.

Ř A personal retirement account would belong entirely to the worker. If the account earns a 3% real rate of return - the worker would be right back where he started - at $15,000 of combined benefits per year.

Ř A worker could earn a higher return through his personal account investments. The Social Security Actuary assumes he will invest in a conservative mix of stocks, corporate bonds, and government securities that would result in a 4.6% real rate of return. In this case, the account would be large enough to provide about $7,000 per year of benefits, so he would have a combined future benefit of $17,000. His combined benefit would be $2,000 per year higher than had he not chosen the account.

Ř A worker's traditional benefit would be affected by the amount of investment in a personal account because some of his payroll taxes are flowing into the account, rather than into the traditional Social Security system. His government benefit would not, however, be affected by the investment performance of the personal account, as was suggested in today's Washington Post.

Ř Note that if he puts all of his account into safe government securities, he can expect an average 3% real rate of return (the break-even rate). In addition, the worker will own all the funds in the account. Even if the worker were only to break even financially, he would be better off because of his ownership rights:

o If he were to die before retirement age, he would have an asset to pass on to his loved ones.

o If he were to divorce, his account would be marital property.

o And if future policymakers were to change government-provided benefits, his account balance would be immune from those changes.

Remember:

Ř Personal retirement accounts help make Social Security better for younger workers. Personal retirement accounts give younger workers the chance to receive a higher rate of return from sound, long-term investing of a portion of their payroll taxes than they receive under the current system.

Ř Personal retirement accounts provide ownership and control. Personal retirement accounts give younger workers the opportunity to own an asset and watch it grow over time.

Ř Personal retirement accounts would be entirely voluntary. At any time, a worker could "opt in" by making a one-time election to put a portion of his or her payroll taxes into a personal retirement account.

o Workers would have the flexibility to choose from several different low-cost, broad-based investment funds and would have the opportunity to adjust investment allocations periodically, but would not be allowed to move back and forth between personal retirement accounts and the traditional system. If, after workers choose the account, they decide they want only the benefits the current system would give them, they can leave their money invested in government bonds like those the Social Security system invests in now.

o Those workers who do not elect to create a personal retirement account would continue to draw benefits from the traditional Social Security system, reformed to be permanently sustainable.
From the drudge report link posted by fro....thought maybe some of you wouldn't link to it since it came from mr. drudge.
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Old 02-03-2005, 06:32 PM   #8 (permalink)
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Why not make the whole thing optional? I would rather not pay into it and I am certainly not depending on it. That's what savings and financial planning is for. Personal responsiblilty and accountablility go a long way.

I can manage my money better than the government for sure.
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Old 02-03-2005, 06:35 PM   #9 (permalink)
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Edit: i was off my meds.....

Last edited by KMA-628; 02-04-2005 at 09:58 AM..
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Old 02-03-2005, 06:35 PM   #10 (permalink)
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Quote:
Originally Posted by KMA-628
What are the details of the SS plan the White House has given to Congress for approval?

Oh wait, there are none

Guess you missed the plainly obvious fact that this thread is about one the DETAILS which the White House itself says will be part of the Bush's SS plan.
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Old 02-03-2005, 07:01 PM   #11 (permalink)
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you missed my point (and also, the last six words)

There is no official plan. We are in the beginning stages of what will be a long, drawn-out process full of changes.

By simplying starting out with this being a scam, based on potentially inaccurate information, you do absolutely nothing to help the situation. The thing is, you want this to be a scam, you couldn't handle it any other way.

This is why people on the right get frustrated with people on the left. Nothing but negative with no proposed alternatives. Knee-jerk reactions and boiler-plate comments won't help us in coming up with a plan that could potentially benefit millions of Americans for many, many years to come.

Don't like some of the ideas? State why they are bad and offer up an alternative. All you do is go around and bash all things Republican. Can you do anything more than bash? How about offering something up in exchange for your pithy comments?

We aren't going to get anywhere if this is the type of oppostion that is being offered.
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Old 02-03-2005, 07:04 PM   #12 (permalink)
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Edit: Removed, as it was not useful or conducive to discussion. Thanks to KMA-628 for thoughtful outside discussion on this subject.
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Last edited by Kadath; 02-04-2005 at 09:58 AM.. Reason: Rethinking
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Old 02-03-2005, 07:13 PM   #13 (permalink)
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I would ..........unfortunately, have to agree with the above statement.
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Old 02-03-2005, 07:35 PM   #14 (permalink)
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How many people here actually think that there will be ANYTHING left in SS by the time they retire? I'm prolly older than most here, and the idea of getting half of what I put into SS back out again sounds GREAT to me, since I honestly don't think that I'd actually ever see a dime under the current system.

Half of something is far better than all of nothing.
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Old 02-03-2005, 07:38 PM   #15 (permalink)
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OK KMA, here you go. DO NOTHING. THERE IS NO CRISIS.

We do not need to be leveraging ourselves into $1-2 trillion of new debt at the exact moment that we need to be spending enormous sums of money on Iraq.

Bush's SS plan is a scam because SS will not have any financing problems for many decades. This reform movement is driven only by conservative ideology and not fiscal pragmatism. It is incredibly ironic that the GOP postures itself as wanting to do this for the sake of the fiscal health of Social Security and yet they sit there with a straight face and tell us that they want to wreck our federal budgetary health now IN WARTIME just so we can fix some fiscal problems that forecasters say won't even crop up for at least 40 years. That's reckless and ridiculus.

Hardliners on the right have made no secret of their decades-old ideological dream of stripping down SS. Any truly level-headed fiscal conservative would instantly recognize that wartime, occupation, and reconstruction of an entire nation makes for the worst possible budgetary environment to reform gigantic social programs. It's really too bad that responsible fiscal conservatives have been pushed into irrelevancy by people who want to go with a max-out-the-credit-cards mentality.

Unfortunately, the conservatives who are driving this reform movement have no sense of pragmatism where it comes to the budget. They're doing it now because this is the first time they've ever had the power in both Congress and the White House and they're scared as hell that if they don't do it right away that they could lose power in one of those places and never get the chance to do it again. They don't seem to care about unsustainably high levels of debt. They only want to ram through their ideology this first chance they get.

Well sorry, I'm not willing to accept taking on trillions in debt for Social Security at the very moment we need tons of money for Iraq. That's just plain budgetary stupidity. Do first things first. Take care of Iraq and then take care of Social Security LATER because it is not in crisis now. IRAQ IS! I am not going to quietly sit by and watch the GOP wreck America's fiscal health just for their own personal ideological agenda. We literally have decades to address Social Security. We do NOT need to be doing it while we're in the middle of a wartime foreign occupation and reconstruction project on a scale not seen in more than half a century.

SOCIAL SECURITY IS NOT IN CRISIS!

Last edited by CShine; 02-03-2005 at 07:48 PM..
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Old 02-03-2005, 07:54 PM   #16 (permalink)
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Quote:
Originally Posted by CShine
We do NOT need to be doing it while we're in the middle of a wartime foreign occupation and reconstruction project on a scale not seen in more than half a century.

SOCIAL SECURITY IS NOT IN CRISIS!

Correct me if I'm wrong, but didn't Social Security come into being during the Great Depression? Wasn't it changed during the years when we were reconstructing Europe and Asia?

The time to deal with the problem is when it hasn't grown to crisis proportions yet. Social Security has always been about theft, plain and simple. It's never been long-term sustainable. And it needs to be massively pruned.

If not us, who? If not now, when?
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Old 02-03-2005, 08:07 PM   #17 (permalink)
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Quote:
Originally Posted by daswig
Correct me if I'm wrong, but didn't Social Security come into being during the Great Depression? Wasn't it changed during the years when we were reconstructing Europe and Asia?
No, there were no changes to Social Security at all during the 1940's.

Quote:
The time to deal with the problem is when it hasn't grown to crisis proportions yet. Social Security has always been about theft, plain and simple. It's never been long-term sustainable. And it needs to be massively pruned.

If not us, who? If not now, when?
How about at a time when we're not already taking on huge debt for the war effort? The amount of debt Bush is wanting for Social Security reform will increase the federal debt by anywhere from 15-30%. Never in history has anyone asked for such a huge debt increase for one single program, and Bush wants to do it in WARTIME??

Why is it so hard to understand that you don't take on huge debt for domestic programs when we're in a war that's already got us strapped for cash? Don't give us this "if not now, when" crap. When we are no longer spending trillions of dollars on Iraq, THAT'S when.
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Old 02-03-2005, 10:28 PM   #18 (permalink)
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Quote:
Originally Posted by daswig
How many people here actually think that there will be ANYTHING left in SS by the time they retire? I'm prolly older than most here, and the idea of getting half of what I put into SS back out again sounds GREAT to me, since I honestly don't think that I'd actually ever see a dime under the current system.

Half of something is far better than all of nothing.
I think it was my now near-retirement parents who said exactly that about themselves back when I was but a child.

SS is not in a crisis. It will eventually, maybe in the next 30 years, need to be adjusted slightly for a brief period of time and then it can be adjusted back. There is going to be a slight boom in retirees in about 40 years, after which there will be a decline.

What a waste of power by a President to so obviously and devisively push such an unecessary change.

But hey, atleast it's better than starting an unecessary war. Maybe he'll get distracted with SS and forget to invade Iran. Now that would be a good thing.
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Old 02-03-2005, 10:41 PM   #19 (permalink)
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Quote:
Originally Posted by CShine
No, there were no changes to Social Security at all during the 1940's.
Really? Are you sure you want to stand by that? I invite your attention to the following: http://www.ssa.gov/history/1940.html

Quote:
How about at a time when we're not already taking on huge debt for the war effort? The amount of debt Bush is wanting for Social Security reform will increase the federal debt by anywhere from 15-30%. Never in history has anyone asked for such a huge debt increase for one single program, and Bush wants to do it in WARTIME??
And we weren't taking on huge amounts of debt in the 1930's? Wasn't that the entire IDEA behind the New Deal?

Quote:
Why is it so hard to understand that you don't take on huge debt for domestic programs when we're in a war that's already got us strapped for cash? Don't give us this "if not now, when" crap. When we are no longer spending trillions of dollars on Iraq, THAT'S when.
"Trillions" is plural, which implies "more than one". Cite, please?

In case you didn't realize it, we're ALWAYS spending "trillions" on SOMETHING or other. And we've always been spending trillions of dollars annually (well, within recent history) on domestic programs and entitlements. This will continue for the forseeable future. So when is a good time to deal with it?

The more Liberals bellow about it, the better an idea I think it is.
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Old 02-03-2005, 10:49 PM   #20 (permalink)
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Why not just raise the retirement age by 5 years starting in year x?
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Old 02-03-2005, 11:18 PM   #21 (permalink)
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Quote:
Originally Posted by theusername
Why not just raise the retirement age by 5 years starting in year x?

Did you ever read the book Catch-22?
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Old 02-03-2005, 11:57 PM   #22 (permalink)
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There is no Social Security fund. The SS money we pay goes into the general fund like any other tax and the benefits are paid out of the general fund like any other government outlay. So there is no fund to go broke, just current workers paying FICA taxes and current retirees taking money out of the general fund based on how much they earned over their lifetime. At present there is more FICA money going in to the general fund than there is SS money being paid out but in the future this will not be the case unless something is done. The longer we wait to do something, the more drastic the change will have to be, so doing something now makes sense.

The proposal to establish personal accounts is the first step to creating a real retirement fund. I am too old to benefit from this but younger workers should welcome this change. If the money I invested in SS over the years had been put to work in almost any average mutual fund I would have far more money than I will get from SS. The personal account would be a real fund that can be invested instead of just having the FICA tax going into the general fund.

It is interesting that neither the Republican or Democrat polititians have proposed one change that would benefit SS and that is to make government employees (including themselves) pay FICA taxes like the rest of us. Instead they are excempt and have their own retirement plans which are put into real funds that can be invested. I'm sure they would want no part of having to join SS. If only we had the same choice.
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Old 02-04-2005, 12:24 AM   #23 (permalink)
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Nope, notin' in there about money when you retire.
That leads me to my question, why on earth does this plan still exist?
That the baby boom generation saved no money and bought on credit to dig their own hole is no ones fault but theirs.
A problem for me this does not make.
At it's current trajectory, this will be a problem for the younger generation to shoulder, and nothing about Mr. Bush's plan eliminates this. Even the presidents plan tactily acknowledges that the adminstration is afraid to reduce benifits or eliminate the system for the baby boomers.

You speak about entitlments Daswig. Put your money where your mouth is and acknowledge that the entire principal of SS is one giant entitlment.
And since it is, you shouldn't have any issue with killing the program here and now.
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Old 02-04-2005, 12:26 AM   #24 (permalink)
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Quote:
Originally Posted by arch13
You speak about entitlments Daswig. Put your money where your mouth is and acknowledge that the entire principal of SS is one giant entitlment.
And since it is, you shouldn't have any issue with killing the program here and now.
Huh? Where did I say it wasn't, or that I wouldn't rather it be killed off? Killing off Social Security isn't a viable political option. If reforming it is the best we can do, I'm all for it.
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Old 02-04-2005, 12:27 AM   #25 (permalink)
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I dont see why teh ARRP has its panties in a bunch- this wont effect anyone over 55- so why are they even getting involved in this?!
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Old 02-04-2005, 01:33 AM   #26 (permalink)
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Quote:
That leads me to my question, why on earth does this plan still exist?
Good question. Because the government forces us to. If it was voluntary it would die.

Quote:
That the baby boom generation saved no money and bought on credit to dig their own hole is no ones fault but theirs.
Many of us have saved plenty including paying FICA taxes for 35+ years which we were promised would give us the right to collect SS when we retire based on the amount of money we paid in FICA taxes..

Quote:
A problem for me this does not make.
It's a problem for you in that you will have to pay for current retirees just like we have been doing all these years. I would have loved to have taken my FICA taxes and put them in a real retirement plan but they wouldn't let me. With personal accounts the younger folks may eventually be able to break away from this transfer cycle and have some real money to retire on instead of the piddling amount SS gives you.

Quote:
At it's current trajectory, this will be a problem for the younger generation to shoulder, and nothing about Mr. Bush's plan eliminates this. Even the presidents plan tactily acknowledges that the adminstration is afraid to reduce benifits or eliminate the system for the baby boomers.
Yep, you will have to shoulder it just like we have all these years.
They are reluctant to reduce benefits because they know that we are already getting so little back compared to what we have paid in. You will notice that the polititians and their fellow government employees have exempted themselves from SS, they know the return is far better in private plans.
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Old 02-04-2005, 01:33 AM   #27 (permalink)
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Quote:
Originally Posted by daswig
Huh? Where did I say it wasn't, or that I wouldn't rather it be killed off? Killing off Social Security isn't a viable political option. If reforming it is the best we can do, I'm all for it.
My point is that the plan is still screwing the pooch so to speak,
It does nothing to mitigate the current problem of the babyboom genration that acts like Social Security is a right they have earned.
Any real reform that is actually "reform" would feed the tough medicine to that generation that their failure to save doesn't mean they are going to get a dime.
All this plan does is tell a younger generation that always assumed SS would be broke that they have a responsability to save and use the market to generate retirment income. It does nothing to releive the taxpayers, especially the younger ones, of supporting a generation that had no fiscal intelligence and now demands that a younger generation support them.

Edit: it should be pointed out that the average baby boomer has saved less than 1% of anyhting they have ever earned. That some looked ahead is good. That others did not does not mean we should support them.

If this is about making sure a future generation does not get stuck in this cycle, that requires the older generation to accept that they will not be getting what they put in. If the claim is that those in their 40's-60's are trying to do something good for the younger generation, then that requires not just talk, but action, including sacrafice.
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Old 02-04-2005, 02:00 AM   #28 (permalink)
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Quote:
Originally Posted by arch13
If this is about making sure a future generation does not get stuck in this cycle, that requires the older generation to accept that they will not be getting what they put in. If the claim is that those in their 40's-60's are trying to do something good for the younger generation, then that requires not just talk, but action, including sacrafice.
How much of a sacrifice should we make? We are already getting so little out of SS compared to what we have put in. At least younger workers will be able to build a retirement account with real money in it if they allow for personal accounts. I wish we had that choice when I was younger.
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Old 02-04-2005, 03:18 AM   #29 (permalink)
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When will we stop allowing moronic Bush to distract us from dealing with
pressing and important problems. Unlike Bush, even a broken clock is right
twice a day:
Quote:
<a href="http://www.texasobserver.org/showArticle.asp?ArticleID=1175">http://www.texasobserver.org/showArticle.asp?ArticleID=1175</a>
Both USA Today and the Texas Observer have reported Bush claimed in 1978 that Social Security would go broke in 1988 unless Congress privatized the system. As the Observer reports, Bush "warned that Social Security would go bust in ten years unless people were given a chance to invest the money themselves."

According to USA Today, as a congressional candidate in 1978, George W. Bush was claiming "Social Security would go broke in 10 years" - 1988. Even then, he said the only way to fix this crisis was to privatize the system. Source: USA Today, 7/28/2000
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Old 02-04-2005, 03:23 AM   #30 (permalink)
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Tell me again why you support Bush? Oh......factcheck.org has it all wrong?
The "war prezdent" has a much better grasp on this issue. He'll save our
retire-munt!!!!!!!!!!
Quote:
<a href="http://www.factcheck.org/article305.html">http://www.factcheck.org/article305.html</a>
Bush's State of the Union: Social Security "Bankruptcy?"
That term could give the wrong idea. Bush also makes private accounts sound like a sure thing, which they are not.

February 3, 2005
Modified: February 3, 2005

Summary

In his State of the Union Address, President Bush said again that the Social Security system is headed for "bankruptcy," a term that could give the wrong idea. Actually, even if it goes "bankrupt" a few decades from now, the system would still be able to pay about three-quarters of the benefits now promised.

Bush also made his proposed private Social Security accounts sound like a sure thing, which they are not. He said they "will" grow fast enough to provide a better return than the present system. History suggests that will be so, but nobody can predict what stock and bond markets will do in the future.

Bush left out any mention of what workers would have to give up to get those private acounts -- a proportional reduction or offset in guaranteed Social Security retirement benefits. He also glossed over the fact that money in private accounts would be "owned" by workers only in a very limited sense -- under strict conditions which the President referred to as "guidelines." Many retirees, and possibly the vast majority, wouldn't be able to touch their Social Security nest egg directly, even after retirement, because the government would take some or all of it back and convert it to a stream of payments guaranteed for life.

Analysis

Bush made Social Security the centerpiece of his Feb. 3 State of the Union address. He gave more details of how he proposes to change the system -- but left out facts that don't help his case.

Social Security "Headed Toward Bankruptcy?"

The President painted a dire picture of Social Security's finances:

Bush: The system, however, on its current path, is headed toward bankruptcy . And so we must join together to strengthen and save Social Security.

"Bankruptcy" is a scary term that Democrats have used too, when it suited them, but it could easily give the wrong idea. Nobody is predicting that Social Security will go out of business the way a bankrupt business does. It would continue to pay benefits -- just not as many.

The President was a little more specific about that later in his address, while repeating the word "bankrupt":

Bush: By the year 2042, the entire system would be exhausted and bankrupt . If steps are not taken to avert that outcome, the only solutions would be dramatically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs.

But how severe would those benefit cuts be? In fact there are two official projections -- one by the Social Security Administration (SSA) and a somewhat less pessimistic projection by the Congressional Budget Office (CBO). The President referred to the SSA projection, which calculates that the system's trust fund will be depleted in 2042. After that, the system would have legal authority to pay only 73 percent of currently promised benefits -- and that figure would decline each year after, reaching 68 percent in the year 2075.

The CBO doesn't project trust-fund depletion until a decade later, in 2052, and figures that the benefits cuts wouldn't be so severe, a reduction to 78% of promised benefits. But either way, even a "bankrupt" system would continue to provide most of what's promised currently.

Furthermore, the President did not specify what he would do to fix the problem. He again urged creation of private Social Security accounts. But those would be of no help whatsoever in shoring up the system's finances, as acknowledged earlier in the day by a senior Bush administration official who briefed reporters on condition of anonymity:

"Senior Administration Official:" So in a long-term sense, the personal accounts would have a net neutral effect on the fiscal situation of the Social Security and on the federal government.

And that "net neutral effect" is just over the long term, 75 years or more. In the shorter term, creation of private accounts would require heavy federal borrowing to finance the payment of benefits to current retirees while some portion of payroll taxes is being diverted to workers' private accounts. The administration projects it will borrow $754 billion (including interest) through 2015 to finance the initial phase-in of the accounts, and much more thereafter. The liberal Center on Budget and Policy Priorities -- which opposes Bush's proposal -- projected that $4.5 trillion (with a "t") would be required to finance the first 20 years of the accounts after they start to be phased in in 2009.

Private Accounts: A Sure Thing?

The President made those private accounts -- which he now prefers to call "personal" accounts -- sound like a sure bet:

Bush: Here's why the personal accounts are a better deal. Your money will grow, over time, at a greater rate than anything the current system can deliver -- and your account will provide money for retirement over and above the check you will receive from Social Security.

History suggests that the President is correct -- the stock market has averaged a 6.8 percent "real" rate of return (adjusted for inflation) over the past two centuries, according to Jeremy Siegel, professor of finance at the University of Pennsylvania's Wharton School. The administration says a conservative mix of stocks, corporate bonds and government bonds would return 4.6 percent, even after inflation and administrative costs. And the administration also figures that private accounts would need to generate only a 3 percent rate of return to beat what Social Security provides.

But there's no guarantee that history will repeat itself. Markets are inherently unpredictable and volatile. At present, for example, all major stock-market indexes are still well below where they were five years ago.

Benefit Offsets

The President made no mention of one crucial aspect of the proposed accounts -- anyone choosing one would also have to give up an offsetting portion of their future guaranteed retirement benefits. If their investments in private accounts returned more than 3 percent annually over the years, they would end up better off than under the current formula. But if those investments did worse, they wouldn't make up for the portion of benefits that were given up, and the owner of an account would end up worse off. The President didn't explain that trade-off.

"The Money is Yours?"

The President also glossed over some severely restrictive aspects of the accounts he is proposing, saying flatly "the money is yours."

Bush: In addition, you'll be able to pass along the money that accumulates in your personal account, if you wish, to your children and -- or grandchildren. And best of all, the money in the account is yours, and the government can never take it away .

That's not exactly true.

As described by the "senior administration official," the owners of personal accounts wouldn't be able to touch the money while they are working, not even to borrow. The money would remain in the hands of the federal government, which would administer the personal accounts for a fee which the official said would be about 30 cents per year for every $100 invested.

And even at retirement, the government would control what becomes of the money. First, the government would automatically take back a portion of the money at retirment and convert it to a guaranteed stream of payments for life -- an annuity. The amount taken back -- called the "clawback," descriptively enough -- would depend on the amount of money the retiree requires to remain above the official poverty guideline. That's currently $12,490 for a couple or $9,310 for a single person. Only after the combination of traditional Social Security benefits and the mandatory annuity payments from the private account equal the poverty level would any remaining portion in the account be "yours."

"Senior Administration Official:" They would be permitted to leave those (leftover) funds in the account to continue to appreciate; they could withdraw those amounts as lump sums to deal with a pressing financial need -- and, obviously, any additional accumulations in the accounts could be left as an inheritance. But the main restriction, again, to repeat, is that people would not be permitted to withdraw money from the accounts to such a degree that by doing so they would spend themselves below the poverty line.

The President didn't mention the "clawback" or the mandatory nature of these restrictions, calling them only "guidelines" and describing them only in positive terms:

Bush: (W)e will set careful guidelines for personal accounts. We'll make sure the money can only go into a conservative mix of bonds and stock funds. We'll make sure that your earnings are not eaten up by hidden Wall Street fees. We'll make sure there are good options to protect your investments from sudden market swings on the eve of your retirement. We'll make sure a personal account cannot be emptied out all at once, but rather paid out over time, as an addition to traditional Social Security benefits. And we'll make sure this plan is fiscally responsible, by starting personal retirement accounts gradually, and raising the yearly limits on contributions over time, eventually permitting all workers to set aside four percentage points of their payroll taxes in their accounts.

Sources

George W. Bush, "State of the Union Address ," The White House, 2 Feb 2004.

"The Short- and Long-Term Outlook for Stocks," Knowledge@Wharton website, The Wharton School, University of Pennsyvania: 2 June 2004. (Free subscription required.)

White House Office of the Press Secretary, "Background Press Briefing on Social Security," press release, 2 Feb 2005.

US Department of Health and Human Services, "Annual Update of the HHS Poverty Guidelines," Federal Register 13 Feb 2004: 7336.

Related Articles
MoveOn.org Social Security Ad
Liberal group's ad falsely claims Bush plan would cut benefits 46 percent.

Does Social Security Really Face an $11 Trillion Deficit?
Bush and Cheney say yes. But actuaries say the figure is "likely to mislead" the public on the system's true financial state.

Social Security Ads: Risk or Protection?
Pro-Bush group's first TV ad states the problem correctly. But the AARP uses a misleading photo.
<h3>The collapse of the value of our paper fiat currency will occur
long before anything is done to effectively deal with our $650 billion
annual trade deficit, average household debt, importation of 12.3 million
barrels per day of oil, along with also using the additional 7.7 million
barrels peoduced domestically, or 25 percent of total world oil production. Add the continued strain of financing the soon to exceed $8 trillion in federal debt, and the resulting impending U.S. currency crisis will make social security look like an insignifigant irritant. Since Bush has no plans to deal with this country's actual fiscal timebombs, he cooked this Bush Shit up as distracting "theater" for the masses to focus on.</h3>

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Old 02-04-2005, 06:44 AM   #31 (permalink)
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I have little faith in Bush's Social Security plan. Not because I adhere to the "OMGWTFBBQ privatization is teh evil!!!!111" mindset, but because 1) I'm not so sure the government has every TRULY privatized something and 2) the government will still be forcing people to give money to SS *on the basis the government knows better how to plan for their retirement than they do.*

In the past when the government has "privatized" something, it's only been a frankenstein child of private at public control. Take the CA energy crisis which was "caused by privatization." Nevermind the fact that the "privatized" version had more convoluted public regulations trying to falsly manipulate the market than existed when it was "public." Of course there were critics saying this, but no one listened to them.
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Old 02-04-2005, 07:02 AM   #32 (permalink)
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My whole question to those in favor of SS is why do you want to let the gov't save your money for your retirement? I sure as hell don't. It's my money, I'll save it how I want.

Please, I'd like to hear some of your reasons why the gov't is better at providing for your retirement than you are.
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Old 02-04-2005, 07:11 AM   #33 (permalink)
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That would require self-responsibility and self-thought. I'll take credit for my own screw-ups thank you very much, I don't need the government doing it for me.
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Old 02-04-2005, 07:19 AM   #34 (permalink)
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First off:

Kadath: how is my post a troll while the title (which wasn't even true) and the tiny single sentence used to start off this thread weren't? Someone please tell me what kind of discussion can be started in this manner?

Quote:
Originally Posted by CShine
OK KMA, here you go. DO NOTHING. THERE IS NO CRISIS.
Now you are offering up something that I can respond to.

Frankly, I question this whole "no crisis" crowd that has cropped up overnight. If there isn't a problem with SS, why did we have the cnahges in the 80's? Why did Gore wanna put it in a "lock box"?

Those questions aside, I have two serious questions regarding SS that I would like answered (I have asked them several times before here, but nobody ever tries to answer them).

#1 - If there is not a problem with SS, please explain the payee/payor ratio. Why is it where it is? Where was it in the past? What is the history of changes to the ratio?

#2 - The graph for the ROI on SS looks like a guy jumping off of a cliff to the right. It is scary how sharp and massive the decline is. How can you say there isn't a problem when looking at info like this? If the ROI graph for SS was a sales graph for a large company, you would see everybody with a "C" in their title jumping off the roof.

I have much more to actually add to this discussion, but I would like to see how the 'no crisis" crowd answers these questions.
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Old 02-04-2005, 07:22 AM   #35 (permalink)
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Quote:
Originally Posted by SecretMethod70
Take the CA energy crisis which was "caused by privatization." Nevermind the fact that the "privatized" version had more convoluted public regulations trying to falsly manipulate the market than existed when it was public. Of course there were critics saying this, but no one listened to them.
That's a stretch Secret.

The private sector would have been just fine if gov't hadn't tried to artificially control the market.

I disagree here, the problems in CA had to do with the gov't and its wacky regulations and nothing to do with the actual owners of the energy companies.
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Old 02-04-2005, 07:49 AM   #36 (permalink)
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um....that's what I said That's why I put the phrase "caused by privatization" in quotes.
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Old 02-04-2005, 08:01 AM   #37 (permalink)
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sorry, when I read it first, it looked like you were trying to say that privatization caused the problem. I read it again and see differently.
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Old 02-04-2005, 10:08 AM   #38 (permalink)
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First: my thanks to Kadath, that was refreshingly surprising.

Anyway, I found this and thought it very interesting: LINKY

Quote:
"In the important field of security for our old people, it seems necessary to adopt three principles: First, non-contributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps thirty years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans."

MESSAGE TO CONGRESS ON SOCIAL SECURITY- January 17,1935
(This message transmitted the Administration's legislative proposal to Congress. Note that the original proposal included a third system of voluntary annuities [like IRAs] as a supplement to Social Security. This aspect of the Administration's proposal was not adopted by Congress. It is also interesting to note that the President clearly intended that the Social Security program, supplemented by voluntary annuities, would eventually eliminate the need for welfare programs for the elderly.)
It seems that the SS program we have today is not the one originally intended by FDR.

It is especially relevant in that there is a media event involving the Democrats and the FDR memorial recently regarding their opposition to privatization.

Invoke the memory of the founder of the system by disregarding his stated wishes?

In all fairness, this is not proof that privatization needs to occur, but it does bring into the discussion that it was an ultimate goal for the plan.

I am getting the impression that FDR actually thought about the ever-increasing number of retired people and ways of protecting his baby.

In regards to some of Pelosi's comments on the matter: note the word supplement, not add on.
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Old 02-04-2005, 10:19 AM   #39 (permalink)
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In addition, the only reason SS was passed to begin with wasn't because democrats and republicans suddenly agreed on the issue, only that the republicans felt that if SS was not introduced more power would be given to the unions since they would then feel the need to control the entirety of workers' retirement funds. By passing SS legislation congress, in effect, was limiting the unions' power.

At no time did all of congress believe that SS was a good thing, only a necessary evil.
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Old 02-04-2005, 11:28 AM   #40 (permalink)
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Quote:
Originally Posted by arch13
My point is that the plan is still screwing the pooch so to speak,
It does nothing to mitigate the current problem of the babyboom genration that acts like Social Security is a right they have earned.
Any real reform that is actually "reform" would feed the tough medicine to that generation that their failure to save doesn't mean they are going to get a dime.
It's a matter of taking small steps, or "boiling the frog" if you will. It's not politically survivable to say "sorry, folks, but to save your grandkids, you're going to have to suck it up." What IS possible is to slowly divert part of the current income stream from going to the general fund which is quickly spent to a form of individual retirement account that's set aside for the use of the people who put the money in. It's like putting Godzilla on a diet...if you say "we're not going to feed you at all any more", he is gonna be mega-pissed and eat Tokyo. If you say "we're going to keep feeding you, but we're going to feed you healthy food instead of junk food", you might get away with it. And later on, down the road, you can then say "OK, we've gotten you used to eating twigs and berries, you can now forage for yourself." Baby steps and all that...
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