Why are older Americans so against Bush's Social Security plan?

[Locrian]

Invest in the stock market only with money you can afford to loose. It is not a safe investment. Its a gamble.

Calling stock market investment a gamble is highly misleading. All investments have risk, including ones generally seen as very safe, such as bonds. Historically, the stock market has low long term risk. The stock market drops of 2000 and 2001 were small and expected - what, did you think the 18%+ increases of the 90's were sustainable?

The only plausible possibility of real loss in the stock market is due to a total economic fallout. If such a thing were to happen, your stock market investments would actually be the least of your worries, and your other investments would most likely also default.

 

[russ_watters]

Pardon the lateness (I've been sick), but these were my best guess as to why seniors would be against investing SS money:

Invest in the stock market only with money you can afford to loose. It is not a safe investment. Its a gamble.
I personally lost a lot of money after 9/11, but am young enough to recoup. We have no way of knowing what will cause the next crash.

I find it ironic that the suggestion that you 'invest' your SS money is a bit obtuse. For one, what would it be invested into? For example, if you have less than 100k to invest quite often the best way to go is to put it into a 'conservative' portfolio, ie bonds and/or cd's. With only that much money you do not have enough capital to cover the risk of putting it into other things such as stocks or markets. Of course you could put it into mutual funds but there is a greater risk.

They essentially boil down to:

-Investing (in the stock market) is risky.
-Small-time investors can't invest/do well investing.

While I think these reasons are understandable, I don't think they are valid.

First off, the risk: hypatia, while its true that over 5 years, the stock market can be risky, the past 5 years have been among the worst in the stock market's history. Basing your opinion of the stock market on the past 5 years alone gives an incomplete (and incorrect) picture of how good of an investment the stock market really is. Second, and much more importantly, this topic is about investing for retirement - this starts (with SS), for most people at about age 16 or 17 and lasts fifty years. To get a true picture of how good the market really is requires taking into account that double-bonus of super-long term investing and amortization (with SS, you put money in every other week for the duration). The reality is that a diversified stock fund (say, an S&P index fund) is a far better deal than what you get from Social Security (better even than from a bond fund) and very (though not perfectly) safe.

For the second part, its more understandable: SelfAdjoint informed me in a thread a few months back that index funds (even the older loaded mutual funds) and small-time investing are a pretty new thing. Today, anyone can own all 500 stocks on the S&P at a typical starting investment of $5,000. This wasn't so 20, 30, or 40 years ago when current retirees were working. So while I think about investing all the time (and put a fair amount of effort into educating myself on it), older people don't because when they were my age, it simply wasn't an option.

Beyond that, I think that getting a government check every month may provoke a knee-jerk "don't touch my money" reaction to any question about the subject.

 

[polyb]

Obviously when it comes to investing, I am much more 'conservative' than you are; the irony!

How about this russ, the money that I am putting into SS is money that I can rely on when the time comes for me to retire regardless of what happens with the markets. Because I know I have that as a back-up, I can endevour to riskier propositions such as investing in the markets. So perhaps I would be more willing to lose my shirt with that security. If I am to take a 'nest-egg' such as SS and invest it, how prudent am I being with my money? The real secret is risk minimization(take the derivative of the risk function and set it to zero) and with SS as a reliable source of income, I am more free to take risks with other assets. But to not have a prudent formulation where I do not have the capital to cover my risks there is a good chance I will be screwed and the people that 'win' will say 'tough luck'. I am surprised to hear you promote such a risky notion of capitalism. You should really go back and look into the whole idea of having sufficiant capital to back up your ventures.

 

[russ_watters]

If I am to take a 'nest-egg' such as SS and invest it, how prudent am I being with my money? The real secret is risk minimization(take the derivative of the risk function and set it to zero) and with SS as a reliable source of income, I am more free to take risks with other assets.

Actually, the real secret is risk vs reward calculus. And with 15% of your income going to SS (including the employer's half), that's a huge chunk to be wasting on a negative return (caveat: that depends on how long you live) "investment".

edit: using an online SS calculator and a spreadsheet, I calculate that SS is a zero-return investment if you live for about 15 years after you retire. If you live for 20 years, that makes it about a 1% return investment. Now I've focused on the S&P, but a true diversified retirement account would include some combination of stocks and bonds/cd's. Even with a fund that's completely bonds and CD's (ie, zero risk), you can expect something like than 3-5% over inflation.

 

[adrenaline]

obviously Bush hasn't learned about the " Social security privatization success" in Chile

http://www.umwa.org/journal/VOL113NO4/jul4.shtml

My dad is a commodity and stock broker and a republican and says it's a damn awful idea. As a broker who would be managing all these "little" acccounts it would just clutter up his real work on larger investments, they would not be high on their agenda in terms of ensuring good investments (not worth their while in commissions) and the brokerage firm would still charge a brokerage fee that benefits the company but not the individual broker. (Ie; no incentive to tailor and refine the investments regularly to ensure good returns)

Why "personal accounts"? If the issue really is that we are not getting a high enough return on our tax dollars, why not simply have the gov't invest part of the SS fund in the market on our behalf? It would certainly be MUCH cheaper in terms of fees than maintaining millions of “personal accounts”. People like my dad's brokerage firm will be the only ones benefitting.

 

[SOS2008]

If the issue really is that we are not getting a high enough return on our tax dollars, why not simply have the gov't invest part of the SS fund in the market on our behalf? It would certainly be MUCH cheaper in terms of fees than maintaining millions of “personal accounts”. People like my dad's brokerage firm will be the only ones benefitting.

I asked this question before in regard to the "Trust Fund" because I agree this is better than individual accounts (and as others have stated above, SS would provide a guaranteed retirement check in addition to riskier investments individuals may choose to make). But what about the changing ratio of workers per retirees, and longer life span with poorer quality of health? The D-line is that this can be adjusted for, beginning with removal of Bush's tax cuts for the wealthy, but I'd still like to hear something more substantial.

 

[russ_watters]

adrenaline, one of the keys to the plan is that there is a limit on what individuals can do with the money. You can't just bet your money on penny stocks - you have a choice of half a dozen safe mutual funds, bond funds, etc., and that's it. That also means that brokers are not a part of the process at all.

Regarding the original issue and, more specifically, Bush's plan, I had a discussion with my dad about this yesterday (he's 60). He pointed out that the loss of the income from younger people would lead to a short-term fundage problem, which means something would have to be done about existing and near retirees. And that "something" could be a reduction in (taxing of) benefits (it could also just be taking on more debt).

Anyway, while that is a short-term problem that needs to be dealt with, it still doesn't explain the poll results.

 

[selfAdjoint]

Anyway, while that is a short-term problem that needs to be dealt with, it still doesn't explain the poll results.

Doesn't it? Your "short-term" is your Dad's, and my, "long term". While you young folks won't care about that little cut in current benefits that comes along with your privastisation, it will be my lifestyle that goes down the drain. I am just able to stay comfortable now; I don't know what I would do if there were a significant cut. And every non-rich oldster is in that fix. Wake up and smell the coffee.

 

[russ_watters]

Doesn't it? Your "short-term" is your Dad's, and my, "long term". While you young folks won't care about that little cut in current benefits that comes along with your privastisation, it will be my lifestyle that goes down the drain.

Check the poll in the OP: my dad is in the 50-64 age bracket that is overwealmingly in favor of privatization (my dad didn't really say if he was for or against it, we just discussed pros and cons). If worry over short-term loss was the whole issue, I'd expect that age bracket to lean closer to the 65+ bracket. It seems like the key difference between the two brackets is one is getting that monthly check now and the other will be getting it soon. But it "soon" is 10 years or less and the "short term" negative impact on the fund is 5 years or more, those two brackets should overlap more than they do.

I am just able to stay comfortable now; I don't know what I would do if there were a significant cut. And every non-rich oldster is in that fix. Wake up and smell the coffee.

I am perfectly aware that people have planned all their lives for the time when they will get SS and that getting that monthly check is a status quo that people don't want/can't afford to have messed with. But do you really have more to lose than I do? Indeed, you've had the luxury of (near) certainty - when you were my age, you didn't have to consider the possibility that you wouldn't get SS. I do have to consider it. Plus, you've already gotten some of your money back, so its impossible to lose all of it: it is still possible for me to lose all of what I've put in and will put in. And a failure of the system would certainly hurt my dad more than you, since he's put in about all he will and has yet to get any money back. Yet his age group still favors privatization.

I'm planning ahead and trying to be able to provide for myself with or without SS - but should I really have to do that? Perhaps the main difference is one of confidence: you're confident that if nothing changes before you die, you'll get all those checks. My dad's bracket, having yet to receive a check is less confident. Guys like me (the ones who think about it at all at my age) are downright pessimistic about the long-term prospects of SS - and for a country predicated on optomism, pessimism is a very destructive thing.

 

[SOS2008]

I'm planning ahead and trying to be able to provide for myself with or without SS - but should I really have to do that?

What do you think the older generation did? As stated before, many worked all their lives at the same job in order to get a pension, most paid off their homes, most had savings, some had investments, and most did not have credit card debt and learned to spend wisely. The younger generation will need this check even more. If we get rid of SS, we should get rid of all social programs (welfare), because we won't be able to sustain the needy with programs that have not been paid in to. As a side note, I've asked a few retired folks their thoughts, and they express concern with the reliability of the stock market, and just exactly what Wall Street interests will be served (Enron? Haliburton?).

 

[selfAdjoint]

I thought that after the tech bubble collapsed people would get over the notion that the securities markets are some magic cash machine, but I guess vanity springs eternal. It's not greed, but the fantasy that you can outthink the wise guys.

 

[SOS2008]

These individuals are losing money in the market right now during their retirement--one said they've lost $30,000 or more so far, and who knows how these stocks will perform over the remaining years of their life. Like my own parents who are retired and on SS, they own their homes, have no debt, and live very frugally so they are making it okay.