Bush is not proposing that SS gets to share in my upside. My plan potentially would produce a net game to the system, so I think the real cost would need to be discounted for that.

Transition costs should be obvious. Right now, funds paid in go to two places: to pay current benefits and to build up a reserve. If your X is less than the amount that goes into the reserve, you have less in the way of transition costs. If it is greater than the amount that goes into the reserve, then you have to cut benefits to current recipients to fund your private account.

OK, what if the stocks you invest in dramatically underperform, resulting in nothing in your private account - is the answer that you should be left to starve?

Now assume a great depression style crisis happens about once a century. Stocks collapse. Is everyone who retires in the next 10-15 years just SOL?

I'm glad Dad has a military pension.

Dude, it's rhetoric.

I understand all of this, but the main objection to personal accounts seems to be that we borrow lots of money for no net gain to the system. However, if the system were to share in the gain, the calculus is a bit different.

My apologies. It's the guy you are supporting who wants the government to borrow 2 or 3 or 4 trillion.

Question: You said Bush thinks it is morally necessary to provide a safety net (not exactly your words, but close). If private investments turn out to have risk -- obviously they do, but you wouldn't know it from listening to Bush -- then what happens to the people on the downside of that risk? Are they just fucked, and will the Republican Party that you say will still be in power 25 years from now have the political will to say that they are fucked?

I think Sidd meant: Aren't they commies too, rhetorically speaking?

In other words, the government should invest in the stock market?

Commie.

Even under the Bush plan, as I understand it, the permitted investments narrow as you get closer to retirement, so that you are only permitted to invest in "safe" investments.

You're dad's pension, in all likely hood, is invested in the market.

No, I object to borrowing a ton of government money. Make the modest fixes to Social Security to ensure it continues to do what it does. We have private accounts now. People who want more money -- including most of us -- can go to Schwab or Fidelity and open a private account. You don't have take money away from Social Security to allow this happen.

I don't think this is a real risk, given that a very small portion of our total retirement pool will be permitted to be in private accounts.

No, I should invest in the market.

The government already does invest in the market via management of pension accounts.

It's also used to fund government operations, magically reducing the deficit because it's not counted as part of it. (Does anyone remember who recently said that the 2-4 trillion Bush wants to borrow shouldn't be considered "debt" or "deficit", because it was really a "savings"?) This may explain why Bush wants to postpone PRAs until after his term ends -- he's not prepared to accept the immediate bloating of the deficit that will come, before a single penny of the 2-4 trillion transition costs is spent.




This explains the gleam in her eye when she saw my Kraut car.

That is a reasonable objection. Would you also support increasing the 401(k) and IRA limits?

Ah, the conservative wish-think. Let's just pretend the risks aren't real.

But, clubby, risk and reward correlate, don't they? If they didn't, wouldn't we all move to nothing but the high reward investments?

(I'll note that the above correlation isn't exact and may point to one potential "fix", but a "fix" that, as Burger noted, isn't permitted because it would be communistic -- generally, a well diversified portfolio with part equity and part debt has both a higher return and a lower risk than an all debt portfolio, which is basically what SS is invested in; we could lower risk and increase return by letting the current trust fund invest in a portfolio of 20-30% stock).

Maybe. How do you propose to make up the lost revenues?

Yes.

The retirement system was supposed to stand on three legs -- private savings, employer pensions, and the social security safety net.

I think we should increase the IRA limits to encourage more of the private savings leg. The truth is, though, that there are many other avenues towards tax-advantaged private savings -- I'm embarassed to say how much I put away tax-free for retirement last year, and how much more I put in tax-advantaged accounts (529s are really for education but it leaves me more money for retirement, so six of one....). Most of these accounts are only available to people who have a certain level of income -- but people below that level generally don't take full advantage of the 401(k) and IRA options already available to them (a fact that gives me some reason to doubt that notion that PRAs will really benefit a lot of people).

Employer pensions are rapidly becoming ancient history, though that is somewhat offset by employer contributions to 401(k)s. As you've said, the government invests in the market -- but it does it as part of this "leg".

SS is the one "guaranteed" portion. We shouldn't open that portion up to market risk. Period. Raise the retirement age, impose a means-test on benefits if need be. But don't cut holes in the safety net, and for god's sake don't take on huge new debt in order to allow people who have other avenues to private savings to have a little more.

I'm not a conservative.

The risk of someone being on the streets because X% of their retirement was invested in a worthless stock, assuming X is a very small portion of their total retirement pool, is essentially non-existent. That is the risk you were talking about. You are right that the reward is incremental return on investment, but that tends to add up over 30 years to a significant amount.

Other than cuts, I guess you could have some sort of offset to SS payouts, but that would only work in the future.

Or you could tax something else, although I understand that that's anathema to you folks. The lure of something for nothing is strong indeed. Let's just get rid of the income tax entirely, and fund the government by borrowing. That would spur savings.

You don'tnecessarily have to tie a rise in the cap to a rise in benefits. And it isn't really a stick it to the rich situation. The system was never intended to allow more than a modest benefit. It was supposed to provide a basic livable benefit level originally. Of course, under current payouts, it doesn't provide that, but without means testing and/or a sliding scale phasing benefits out as other income rises, we can't begin to afford to provide one.

The transition costs derive from the fact that curent benefit payments come from current contributions. If contributions go down (through diversion into private accounts), then the amount available to pay current benefits is less. The shortfall has to be made up soemwhere.

You're looking at this from the perspective of someone who doesn't actually rely on social security for their retirement.

Talk to the person who cleans your office, who won't get employer benefits and probably doesn't have much in the way of private savings now. Assume social security will pay him less than it will cost him to live on, and he'll be scratching around trying to find the rest somewhere.

ANY reduction in his benefit means he has to cut from his budget for basic food and shelter.

Yeh, not a big deal if you or I don't have a spare few hundred a month in retirement. But that few hundred a month counts if we're living off $12,000 a year.

If I was in that situation, I would be willing to take the chance, and I am risk adverse by nature. In other words, this is not your side's best argument.

It's not something for nothing. It's a restoration of what should be mine in the first place. But that's just something on which we'll never agree.

I'll agree with you when you move to your island and stop enjoying the benefits of federal spending.

I'm willing to pay for the ones I enjoy.

It's not a buffet table, it's a government.

They get taxed on withdrawal, so it's just a time shift.

But you could also remove the limits on Roth conversions, and take the immediate gains from the revenues paid on taxes resulting from conversions.

Here's the problem with that argument--by keeping the percentage in private accounts low, you lose most of their purported benefits. If they're the real cheese, why not go all in?

And, btw, go do a compouding calculator and see the difference between a 2% and 4% return over 40 years. It's a pretty big nut by the time you're done.

If you were in that situation, I would not be willing to take the chance that you invest wisely. Why do you think we give food stamps instead of cash money to the poor?

And just like that, 290M people stopped paying for your retirement, your health care, your roads, your defense, your air traffic control. And so on.

If it's a revenue-neutral time shift, then there's no advantage for us. But we're planning to take out the money when we're in a lower tax bracket, so I can't believe it's revenue neutral.

I don't have a particular problem with increasing the limits on 401(k) and IRA contributions. I also don't have a problem with the government giving everyone a Kraut car, freeing up income that I could then save for retirement.

Ha! No libertarian, you.

Haven't you read all the shit on the Ownership Society? Once freed with the right to determine their own financial destinies, Americans from all economic and educational strata will be investing on par with Buffet, W.

And, I wish I could find the ad or article or something I saw recently about the effect of admin/investment mgmt fees eating into people's accounts. Another big nut that does not affect those who receive defined benefits, but most definitely does affect any kind if investment acct.

Just a realist libertarian. I know that most of the country will want to tax me to pay for gruel for the shits who mortgage their house to go to the super bowl and then, surprise, have no retirement savings. Taking the lowest-cost approach by forcing everyone to pay for the stupidity of everyone else in advance.

This is why, sometimes, I love you.

Sorry. Too late!

Bush specifically said in SOTU that my account wouldn't be eaten away by "hidden Wall Street fees." So that's that.


I have faith.

Although my plan is to take it out when I'm in a lower bracket, I strongly suspect that, although then in a "lower" bracket the rate attached to it will be higher.

The benefit, if revenue neutral, is that people save more and are therefore less likely to become destitute. Odysseus bound himself to the mast for a reason.

This is why, sometimes, Atticus loves you.




Just so you know.

When you're looking, keep an eye out for the article explaining that the management fees for the government-run TSP are lower even than Vanguard's