I just watched President Obama’s weekly address given on the 75th anniversary of Social Security. Of course, anything implemented or done by President Franklin D. Roosevelt is praised, admired and drooled over by any Democrat; but I digress.
President Obama said, “One thing we can’t afford to do though is privatize Social Security. An ill-conceived idea that would add trillions of dollars to our budget deficit.”
That’s confusing to me. Certainly President Obama has heard of Galveston County in Texas pulling out of Social Security back in 1980. (Sorry, no other counties can opt out thanks to Congress passing a law in 1983.) What were the results? How did those people do? Read about Galveston County’s smart move.
I appreciate President Obama’s concern about adding trillions of dollars to the budget deficit. But that seems a little half-hearted coming from him as he’s had the largest annual budget deficits of any president EVER.
Further, President Obama must also know that Galveston County invested the taxes (which would ordinarily have gone to FICA) in Fixed Rate Guaranteed Annuities. There are no ups and downs of the market. There are no potential losses (annuities have strict regulation guidelines). Any investor that has dabbled a little in the market knows how secure these are.
So claiming market instability as evidence of the ridiculousness of privatizing Social Security is simply put: foolish.
Checking your blog again, after many months. How are things?
I could be wrong, but I personally don’t think SS will be around by the time we retire. So I think that anyone say 45 or younger should live their lives as though SS is not guaranteed. Then, if we do get it, that’s gravy. Sadly, I don’t think many people are following that advice.
Though regarding FRGAs…I don’t think it’s wise to put all one’s eggs in that basket. Things that have low risk generally have low returns. Things that have high risk have the *potential* for high returns. I’m just saying it would be unwise to put all of one’s money in something that’s guaranteed to have a positive return, if that positive return is also guaranteed to only be 1 or 2%. That wouldn’t even keep up with inflation. I’m not sure what the answer is…since I’m young I’m looking at mutual funds…if they go down, that just means I can afford to buy more of them. The rub is that I’m pinning my hopes on them being high when I’m ready to retire…or the second-best scenario would be for them to peak when I’m say 55 *and* for me to recognize the peak and trade them for something more stable for those last 10 years.
I agree that putting all of our eggs in one basket is foolish. But isn’t that how Social Security works? Tax payers pay into one large system that has no investment strategies, diversification or options to invest. We’re forced to put all our eggs in one basket when it comes to the 12.4% we are required to put in of our gross income.
One thing to keep in mind with Guaranteed Annuities: They are strictly regulated by the government. Investment firms are required to keep Guaranteed Annuities in separate accounts from all other accounts and assets. Their set-up in such a way that should the company go belly-up, the funds for the Guaranteed Annuities are still intact.
1-2% guaranteed income is low. I guarantee you, however, that if the private market was allowed to compete for issuing those Guaranteed Annuities to people, then the rates would be quite competitive. Nothing like capitalism! In addition, have you ever run the figures on what you are putting into Social Security and what you will one day get out? It’s paltry. You are getting somewhere between 2-3% annualized return. That’s pretty pathetic because it does not keep up with inflation (as you mentioned).
Representative Paul Ryan from Wisconsin has some excellent thoughts on all of these issues at his website. The Congressional Budget Office reviewed his proposals and said they would dramatically increase the economic stability and recovery of this country if his ideas were implemented. You should check it out!