Have you ever wondered about how the Social Security trust funds are invested? Probably you know they're invested in U.S. government bonds but you wonder about the mechanics. Here are all your answers in a report by the Congressional Research Service.
By the way, if you don't like the idea of the Trust Funds being invested in government bonds, how would you have them invested? Are you comfortable with the U.S. government owning trillions of dollars in corporate stocks and bonds? Isn't that more than a little socialistic? How would the government decide what to buy and sell? How would it vote on elections of corporate boards of directors? What happens when the markets go down in value?
Here is a better idea: Let people have individual accounts that can be invested in 401k type accounts that are heavily regulated so the investments are relatively safe and are insured by a program like the FDIC. Think about it, then these accounts could be inherited so the next generation could start out ahead on saving for retirement. But, then Congress wouldn't have complete control.
ReplyDeleteSSA wasn't about complete control. It's because private investments failed during the Great Depression. You'd have us live through that all over again. Retirement should be a three legged stool of SSA, employer pension, and personal savings.
DeleteSounds great if you live to retirement. If you die with a family or become disabled, you're out of luck under your plan.
ReplyDeleteRecession historically results in higher unemployment, meaning decreased wages. Also, I suspect there is some correlation as to a higher number of people forced into retirement, despite some workers being forced to put off retirement due to a recent loss of income. Both these factors would increase costs to the trust funds. Finally, because capital flees to the bond market during a stock market crash, yields plummet. While a federal rate is not equivalent to private bond rates, federal reserve tends to keep it at least close, to encourage capital investment. This means Social Security's investments make even less interest.
ReplyDeleteUltimately, I see no harm in a significantly better rate to social security by the treasury than offered to the general public. It does not risk capital flight because to the best of my knowledge, the general public cannot invest in the special treasury securities offered to social security. It would cause an extremely small increase in federal debt interest, but the creation of the trust funds themselves already does this, by removing a 2.9 trillion dollar pool of assets from the treasury.
Simple solution is, either given a far better rate to Social Security, maybe x1.50 the prevailing rate, or better yet, actually invert it so that when the market is doing well, cut the Social Securities treasury rate, and when it is doing bad, increase it.
@12:30
ReplyDelete11:45's plan is absurd, but I believe their point is that if you die, your private social security benefits would be passable to your descendants. That would be entirely unsustainable, but it's technically an idea.
11:45, what 401k investments are "relatively safe"? Stocks and bonds carry risk and are not FDIC insured. You could have a low interest rate that is guaranteed...which is exactly what we have now with government bonds. If you want people to be able to invest their retirement savings you have to cope with the idea that some of them are going to buy Gamestop and lose it all.
ReplyDeleteSpeaking of Gamestop, imagine the swings in the market when a bunch of people start promoting various stocks to people to trade in their Social Security portfolios. The pump and dumps would be extreme.
People today can have individual accounts and when given the opportunity and even the incentive to do so, most people don't. Only 23 percent now choose have an IRA and only 10 % a Roth so unless you plan to make contributions mandatory, it just won't happen. And, the plan suggested would also provide little help for someone who is disabled and hasn't paid in very long or for someone who dies.
ReplyDeleteSocial Security may not be as great as it could be but it has been there for 75 yers and is better than the nothing people had before or would have today without it.
Always a fun topic. Fact is most folks don't save, as others have said, whether it be savings, participation in 401k or other vehicles. When your financial floor is unstable, putting anything away, or enough away takes away from the needs of today. The theory of "401k for all" will fix things is based on a flawed premise. It's great for teh upper and middle class, but flawed beyond redemption for teh rest.
ReplyDeleteThe big issue with how to invest the trust funds is age old. Charles is correct that the big issue was government control of the market via SSA investments.
Remember that George W. Bush said repeatedly after he left office that his biggest regret was not privatizing Social Security.
ReplyDeletehttps://www.politico.com/story/2010/10/bush-has-social-security-regrets-044021
This was in 2010. Two years after the 2nd biggest financial meltdown in American history, which would have wiped out half of any privatized Social Security value. And he was still saying this.
It bears repeating, because people seem to forget how terrible GWB was (what with the contrast to the most recent disaster of a POTUS): his biggest regret was not starting a war that lasted 20 years, nor starting another (completely unnecessary) war that lasted 15 years, costing over 5000 dead American military and a trillion dollars.
His biggest regret was, years after the 2008 market crash showed what a terrible idea it was, to the point that he even his completely ideologically captured party couldn't run from this idea fast enough, that he couldn't crack open the RSI trust fund to let Wall Street at it.
Every single person advocating some form of privatization, from the full-on "dump it in your 401(k)" lunatics to the incrementalist "well just let them direct their investment" crowd, need to have I'M A BIG DUMMY WHO CAN'T REMEMBER THE YEAR 2008 tattooed on their forehead.