Re: How much you lose under Social Security -- socialsecurity.org

[ichudov@algebra.com (Igor Chudov @ home)]

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eclan McCullagh wrote:

http://www.socialsecurity.org

> I'm over at the National Press Club now, just came from a Cato Institute
> press conference unveiling their socialsecurity.org web site. It lets you
> calculate your retirement income and compare how much you'd get from the
> Federal government's Social Security "fund" compared with a private system
> like a 401(k). 
> 
> And it's fun to play with. Let's say I was born in 1970 and make $30,000 a
> year (BTW, I wasn't and don't). Assuming I retire at 67 and inflation is 3
> percent, Social Security would give me $1,293 a month after I retire. And
> that's if you assume Social Security won't go belly-up, a hard position to
> maintain since its own trustees say it's underfunded by 25 to 33 percent.
> 
> Compare that to a stock fund, which yields so much more: $8,635 a month.
 
> I can't think of a better argument to privatize Social Security and move
> to a system like an IRA or 401(k), a solution the Cato folks have
> advocated for years.

Remember though that past performance does not guarantee future results.

I see no reason why the stockmarket should (or should not) continue
to give the spectacular gains that it gave in the past.

While having more options generally increases people's well being, we
have to expect a substantial amount of people whose investments will be
lost in various perturbations that lie ahead.

We may expect to the government to be under strong pressure to feed these
old folks.

What bothers me most is what would happen if the market went bust again
as badly as it did in 1929-1934. I believe that it is by far not 
impossible. Then we'd get stuck in a market downturn, with millions of
retured people with few means to support themselves, and the government 
unable to collect enough money to feed them (which is unconstitutional
anyway).

[I understand that the optimal allocation of assets in retirement funds
should become more and more conservative with age, as people are less
and less able to tolerate risk and recoup losses with more earnings, but
I am sure that many investors will not pay enough attention to that.]

Now, that does not mean that SS should not be privatized (it should),
but the picture is not as rosy and not as certain as that stupid Java
applet suggests.

	- Igor.

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