US Economy 2nd Qtr Growth: 3.3%/yr

[Master of Ossus]

So? You're not the kind of person who really needs social security anyway. The program was never created for the likes of you.

This is like asking me how much earlier I could retire if I stopped paying for all kinds of insurance, on the rationale that as a healthy, smart and cautious person, I probably won't need it. I could probably compute an impressive figure, but it's kind of beside the point of insurance, is it not?

I had assumed that just because a program was designed for one group of people didn't mean that its affects on other groups of people were complete non-factors in the evaluation of the program. My calculation pretty clearly demonstrates that, contrary to the belief of some people on this board, the effects of social security are not "miniscule." Moreover, the calculations showed not just the inadequacy of the program for people like me, but how much the entire structure affects others. None of my calculations were dependent on the magnitude of my earnings: only the fraction of earnings that could be saved. It would, very likely, be the same or similar for other people using similar assumptions.

[The Dark]

Furthermore, the argument that "well it won't be there for me so fuck 'em" seems not only enormously selfish but short-sighted. It's broken so let's abandon it rather than fix it? We go down that path and eventually we won't have much of a government or social welfare system at all. That doesn't seem preferable to me at all.

That's pretty much what libertarians want, and the libertarians have been at the wheel of the economy for a long time now. Greenspan was an Ayn Rand fan, after all.

Economists on the whole seem to be libertarians, to one degree or another. I wonder if, to successfully describe the economy, they have to abstract to such a point that they don't really "see the trees for the forest"?

I would argue that the Austrian, Chicago, and Freiburg (Ordoliberal) schools are libertarian-leaning. Keynesians (and Post-Keynesians and New-Keynesians) are rarely libertarian. The reason so much of the economic community seems libertarian is because many of the current leaders in political economics are from the Chicago school (Greenspan and Bernanke are both Chicago school economists, as is David Wyss (MIT)).

Yamarone went to SUNY Oneonta; I'm not familiar enough with their department to know what school they're associated with. All I can find is that Oneonta requires 6 hours less than Florida Southern for a BA in Economics

Brusca went to Michigan State and University of Michigan. Based on the lecturers they've had at past seminars, MSU is Chicago school. I'm not sure about UofM.

[Broomstick]

Withholding a small (and despite screams to the contrary, it IS small) portion of a paycheck to provide a guaranteed source of income in old age OR in the event of disability is hardly "running peoples' lives for them" any more than the government paying for roads and sewers out of tax money is "running peoples' lives for them" rather than requiring everyone to set up a purification plant in their own backyard.

But it's taking autonomy away from people who, like it or not, COULD make better investments for themselves than social security makes for them.

"Could" in what sense? "Could" right from the get-go, or "could" after a few years of study and making mistakes? "Could" as in people "could" successfully run a marathon, it being within the scope of the average person, but most never do it?

We could require people butcher their own meat animals, too, but that doesn't mean it's the best way to go about things.

Historically, the returns on social security savings for individuals have been incredibly low due to the idiotic structure of the system (e.g., continuously take money out of the system and put money back into it at the same time). This structure severely handicaps the types of investments that the Social Security Administration is able to make, since it essentially cannot take risks to realize higher rewards. Individual accounts, however, get around this problem by allowing young people to make riskier investments with the knowledge that even if they don't pan out this year or in the next five years, they are all but certain to pay off before they retire.

Do you understand why there are such restrictions on social security, or is history unimportant to you?

The social security system was instituted during the Great Depression. Prior to the crash of '29, a LOT of poeple had invested in stocks and a LOT of them, the majority of investors, lost their shirts. It was instituted as a social safety net, so in the event of something such as that (or any other calamity either on a personal or a societal level) there would be a fallback EVERYONE would have. That's why everyone paid in - so all would be covered. There were strict restrictions on the investments permitted because the point wasn't to turn maximum profit but to to keep the money secure.

I was once on the board of a credit union - said CU was also restricted in what could be done with money. We couldn't put it in stocks to generate massive returns because it was considered too risky. We traded higher potential profits for greater security on returns. But of course you should understand this.

It's not always about wringing the maximum money out of something, sometimes security is of higher importance to an investor. Or, in some cases, an investor wants to use his or her money for causes/businesses believed to serve some other end than just pure profit.

A privatized structure will also help elderly people manage their funds to realize greater returns by eliminating the issue that Social Security in its current state must retain substantial liquidity, which further limits the returns on investment.

Some of the elderly, despite being of sound mind, do not have the time to manage their investments. My mother's health is such she is only conscious perhaps 6-8 hours a day and she has little strength or stamina. Are you seriously proposing that she spend this time fucking with investments rather than trying to eke some enjoyment out of what is left of her life? How about my father - he's healthy, yes, but nearly 80. Much of his day is spent taking care of the household which my mother is no longer capable of doing, he does the cooking, the cleaning, the shopping, wakes her up for her medicine, stands watch when she showers in case she falls or needs physical assistance, and ferries her to the doctors and therapies that keep her alive and somewhat comfortable. When my sisters or I go to visit it's not a relaxing visit - we take over many of these duties just so he can catch up on his rest. How much time do you think he has to track and manage investments?

This, by the way, has been going on for about 10 years. It's not "temporary" in the usual sense. How much longer can it go on? 5 years? Another 10?

Clearly you have NEVER been in a position like that, or you wouldn't blather on about how privatization is the best solution for everyone and how everyone would be happier spending their time managing their investment portfolios.

There are, believe or not, people for whom managing investments would be a burden and not a freedom or a joyous choice.

YOU'RE the one saying people are willfully stupid regarding economics, and now you're saying they should be allowed to fuck up?

Yes. I think they would both care more and learn faster if they had a greater incentive to do so. The precepts of sound investments are not difficult, and what the social security administration does for people is both useless (because they do it worse than anyone else I've ever heard of) and alleviates no significant burden from taxpayers even if they did it properly.

What about the burden of time, as in my parents case?

Moreover, it's a false analogy: police and fire services are designed to protect people from others as well as themselves

What protection will the average citizen have, under privatized social security, from bad investment advice?

So... the government, which hires actual economists, can't do this, but you expect the average person, who described over and over as a lazy moron, to do better?

The government has all sorts of handicaps because of the structure of social security that an individual citizen would NOT have to worry about. These handicaps, as well as the government overhead, combine to make it essentially impossible for Social Security to realize any meaningful returns on investment.

It was never intended to turn a profit - it was intended to keep the money safe and secure. Now, yes, there are issues with it. Why is that shocking, for a program almost 70 years old now? Circumstances change. But, as has been pointed out, some rather simple changes could be made to greatly improve things, and continued tweaks could be made as we go forward.

Yet you're the one arguing that the average person is an ignoramus!

Yes I am. That doesn't mean that the best policy is to take away any individual liberties that they have.

What "liberty" is being taken away here? Outside of the SS withholding, you are entirely free to do whatever you want with your money. You can use it to pay your bills, play slots at the casino, invest it, burn it... whatever you want.

Someone entering old age destitute doesn't just affect them, it affects their family as well.

Granted, but it surely affects them more than it affects their family.

Not necessarily - if my in-laws had to move in with me I'm pretty sure I'd be much more unhappy than they would. If my mom had to move in with me there would be an instant war between her smoking and my asthma. These issues can get quite ugly.

Moreover, I think it's very unrealistic to suggest that people under a privatized social security system would wind up with nothing. Under all of the privatized proposals that I have seen, at worst they would wind up with what was left of their invested savings, but at best they would realize vastly more than what they can expect from social security.

Here's the scenario - they have the direction of their retirement money, they make bad choices, they lose the money. They have no money left.

Although I've seen plans that reserve 80% to traditional SS and 20% to the recipient to invest as he or she pleases, I've seen others than just propose we entirely abolish the system and everyone is on their own again. Although I might - might - be able to stomach a 80/20 split I can tell you I would expect arguments for a 60/40 split, then a 50/50 split, and so on until the SS system is abolished entirely and we no longer have any last-resort safety net.

This translates to "well, people might fuck up and lose everything, but that's OK for them to be homeless at 82 because it was their choice"

Again, it's highly specious to conclude that screwing up an investment with social security results in people having nothing. Even in, historically, the worst years the stock market has had trouble shedding more than 25% or so of its total value.

Sure, 25% of the total stock market, but every time there's a down turn there are investors who lose money, and more than just 25%. This is the same bullshit that encourages everyone to be happy because the economy is "healthy" no matter that they've just lost everything in a tornado and broke their left leg the next day.

At worst, then, an elderly person who not only screws up and who then gets massively unlucky will retain 75% of his retirement savings going into retirement. I'm not pretending that that's not a big issue for him, but it's absurd to claim that it's "nothing," particularly since such an individual likely realized returns far greater than the current social security system for the prior course of his investment life.

And he can also realize far greater losses.

What if someone doesn't want "autonomy" in their retirement planning? What if they aren't confident in their ability to handle and WANT to leave it in more capable hands?

I assume that guidelines would be provided, comparable to what happens in a 401k plan.

Most people don't understand shit about their 401(k), they blindly follow what's in the brochure.

I generated an enormous argument one day when, instead of setting my retirement date for 65 I set it for 70. NO! THAT'S NOT WHAT IT SAYS!

Well, the truth of it is that I started retirement planning later than some folks, the payout per month is higher if you take SS at 70, my pension (yes, I really do have an old-style pension coming from an employer) payout is higher at 70, and given my family and personal health history, I will probably be healthy enough to work until 70... yeah, I decided that planning to work until 70 is a reasonable choice for me. I also stand a good chance of living to my mid or late 90's in a good state of health as well, so if I retire at 70 I will also need enough to live on for 20 years. I don't want to outlive my money.

But no....! The little brochure says "if you retire at 65", so that means you need to plan to retire at 65.

My understanding of privatized social security is that it's essentially a mandatory 401k plan that people must invest in while they are working.

That's one plan I've heard, yes, but I've also heard plans to entirely abolish SS.

What about people like compulsive gamblers? Oh, yeah, they'll "invest" in casino points

Over in "healthcare vents" I mentioned a man who used ALL of his retirement funds to pay for his kid's healthcare after an accident - and now he has no retirement funds at all. On one level that's not rational, but people will do this because their parents and their kids need help.

I'm not entirely sure, but my understanding of the privatized social security plans is that this would not be realistic under many of them (I'm not actually sure which precise plans have found political favor, recently, so I can't tell you if this would realistically be possible). But moreover, that strikes me as being reasonable: if you have an expense that's even more important to you than your retirement, why not be given the ability to use your money?

Why don't we fund a medical system that doesn't require people to make such choices in the first place? Other countries manage to do that.

And compulsive gambling is a piss-poor reason to spend your retirement funds.

[snip]You are subscribing to the "all government is bad" meme. Ideally the individual should be able to take care of all this, but when he or she can't what's wrong with a government safety net?

Nonsense. I observe both that the current social security system has essentially failed, and that it provides only modest real returns, and have suggested a privatized scheme that you have obviously demonized without researching significantly.

How has SS "failed"? It makes regular monthly payouts. Yes, it needs some changes to remain viable, but when has the government failed to issue the promised checks?

Again, it was NEVER intended to maximize or even generate a profit, it was intended to provide an income floor and elderly person would never fall beneath.

In other words, you allow people enough rope to hang themselves. Such circumstances as you describe should be rare - but they seem to have become common.

I admit that people have made mistakes and have probably mismanaged their lives. What does this have to do with anything?

With no social safety net where to fuck-ups go? What about someone who, for instance, loses everything in a natural disaster through no fault of their own?

But it's not even working then. Social Security has all sorts of structural problems that prevent it from adequately addressing investor needs.

It was never intended for "investor needs", it was intended to be, essentially, a guaranteed pension for all, not an investment scheme or profit generator.

And, again, I fail to see how allowing someone to use their money to fund something other than retirement (like healthcare costs so they don't go bankrupt paying for them) is a huge condemnation of individual autonomy.

Actually, people DO go bankrupt from medical bills even after throwing their entire life's savings, selling their home, AND throwing in their retirement investments. But I don't want to turn this into a health care debate.

I do not view retirement as some right to which people are entitled. I think they should be able to make decisions as to how important it is to them, because I do not subscribe to the philosophy that one-size fits all, in terms of lifestyles.

Right, this is right in line with "the poor chose to be poor". Dire poverty is a "lifestyle choice".

It's not even always a matter of retirement - past a certain age there are some jobs that become closed off to you. Even healthy elderly people do not have the energy and stamina of younger people. Many people in, say, their 70's are capable of working, but not working long hours, or strenuous jobs, which means their choices are limited and their incomes may fall. In such cases SS can supplement a diminished income, particularly when things such as healthcare costs and copayment costs rise.

It is one thing to CHOOSE not to retire... it is another to be UNABLE to retire.

Okay, but I do not view retirement as a right to which someone is entitled.

I don't think SS was ever intended to fund the idle lifestyles of older people for 20 or 30 years... the intention was to make sure no elderly person was left penniless and at the mercy of others.

It's rather like unemployment insurance - it's a safety net and all pay into it and there's no means testing. If you meet the requirements you're covered whether you "need" it or not. Yes, a few people collect who don't needp it, but it's a small price in comparison for assisting the millions of people for whom it is the difference between destitution and paying the basic bills. Funny, no one seems to bitch about that one...

Nor is SS just for retirement... it is also intended to be a safety net in case you are disabled, which can happen to anyone.

True, which is another reason why the program was cobbled-together and is another handicap to the social security structure. Most or all of the privatized social security proposals that I've read about have included allowances for disabled people, but even if (hypothetically) one was passed that did not include those benefits there's no reason why they couldn't come from somewhere else (e.g., an expanded Worker's Compensation program, some other social insurance program, etc.).

Worker's comp only covers injuries at work. That's a TERRIBLE idea. A system that only covers people disabled due to work injuries? So those with birth defects can just go fuck themselves? You get in a car accident going to the grocery store on the weekend just fuck you, you're useless now, go and starve.

What the fuck is wrong with keeping the disabled on the SS rolls? Frankly, getting ON them in the first place is a complete and total nightmare, but I don't want to derail this thread with a rant about disability benefits.

Wah-wah-wah .... people have been crying doom on SS since the beginning. It's still here.

Precisely: the problems of social security are not ones that we can ignore once the Baby Boomers are gone. They are endemic to the system because of its poor structure and because it was so poorly thought out.

The people who put it together had no way of knowing that life expectancies would rise 10 or more years in a generation or two. Hence, I am in favor of raising the age at which people can collect SS.

Second, the easiest way to "fix" the problem is by raising the retirement age. It was set at 65 because most people didn't live much longer than that. It was never intended to be a mechanism to support healthy people for 20 or 30 years - if you want that you SHOULD have to earn it. People are living longer and healthier lives - raise the retirement age to 70 or even 75 and much of the problem goes away. IF someone becomes disabled and truly is unable to work then SS is supposed to kick in, whether 65 or 35.

Again, most or all of the privatized social security plans that I've read about have included allowances for disability. Rather than raising the retirement age, why not let people choose when they wish to retire?

You can choose when to retire NOW. You just can't collect SS until you're a particular age. If you want to retire at 25 you certainly can but it's up to YOU to fund that project. The government only guarantees SS at a certain age, in the 60's. If you want to retire sooner then you have to earn it.

Of course people won't like that - I won't particularly like it either - but it's already being done. I can't collect the full amount until 67, and presumably you're younger than me so your collection date has been moved back even farther.

Right, but as you glibly pointed out earlier the system is still here, it's just going through all kinds of ad hoc revisions that are designed to bandage its fundamental problems.

Raise the retirement age to 70 or 75 and vast majority of those problems go away.

Again, we're not talking about taking over every penny of the common man, we're talking about a tax for the common good, to construct a safety net any one of us might have need of later in life. You are still free to use all the rest of your money however you see fit. If you're good at making financial decisions then that minuscule amount taken by SS will make no difference. If you're bad at that decision making, however, SS may be a needed lifeline for you.

I wouldn't exactly call 6% of my pre-tax paycheck a "miniscule amount" (even discounting the matching employer funds that are set aside).

Actually, since I'm doing a fair amount of work as a self-employed/independent contractor I'll probably be paying 12% this year, as I will be obligated to pay both halves under that status. So yes, I am aware of how big a slice is being taken. Unlike a lot of other tax, though, I have some idea of where this money is (alledgedly) going. If I live long enough, I'll even get some or most of it back.

Even if I have other funds that I can utilize, I would certainly be much better off if I could set that money aside into a 401k plan or even realize it as income.

YOU would be better off. I'm not convinced a lot of other people would be so fortunate. In many cases, if you just allowed it to be incomes (rather than mandated for retirement) it would be spent immediately. Not by "choice" but by desperation to pay the bills.

Mind you, if SS was privatized my first action would be to put the money in a mutual fund of some sort, as I believe that would be the wisest action for me. But if that's what people are going to do, why not leave the situation as is?

Because the social security administration cannot invest in the types of financial institutions that we as private citizens (or our 401k plans) are able to invest in.

Because those investments carry risk, meaning you can LOSE money as well as gain it, and SS is supposed to be protected from risk and is not, in any case, intended to maximize profits.

"Average" would imply "most" in this context. The SS is withheld to provide that guaranteed safety net. No one is forced to do more than that, they are free to do more than that.

And, again, SS is the lowest common denominator, and people are forced into the Social Security structure. To say that it doesn't affect people by downplaying its costs is not a rebuttal of the underlying statement that people shouldn't even be forced to enter into social security.

If everyone wasn't forced into it, it wouldn't work. The costs of a social safety net need to be spread as widely as possible because the people it's intended to help are those who are least able to pay. That's why they need a "safety net" in the first place!

Again, it was intended to be a fall-back, a pension of last resort.

Having to pay SS tax never prevented me from making my own financial decisions, or living my life as I saw fit. Given that I am NOT particularly wealthy and never have been, I can't possibly see how SS tax is soooooo burdensome on those making even more than I do, which is the majority of the country. It in no way "stripped" me of my "autonomy". I might as well whine about my taxes supporting the fire department - I've yet to have a house fire, why should I pay those guys to sit around the firehouse all day "doing nothing"? SS is the same thing - you pay it for in case you need it, not because you want it to be your sole support in old age.

And you would do the same thing under the privatized social security plans that I've seen. You would just be able to exercise far greater control over your retirement plns and the finances that had been set aside than under the current structure, and would have many options that the SSA does not have with regards to your funds that are almost certainly better than what they are capable of doing. If people are capable of handling 401k plans, then they're capable of handling their social security retirement funds.

And if I chose to utilize an "investment" where my money is not used to maximize profit but rather to make absolutely sure it will be there, no matter what... how is that somehow an inherently poor choice? That seems to be what you're saying.

[Darth Wong]

So? You're not the kind of person who really needs social security anyway. The program was never created for the likes of you.

This is like asking me how much earlier I could retire if I stopped paying for all kinds of insurance, on the rationale that as a healthy, smart and cautious person, I probably won't need it. I could probably compute an impressive figure, but it's kind of beside the point of insurance, is it not?

I had assumed that just because a program was designed for one group of people didn't mean that its affects on other groups of people were complete non-factors in the evaluation of the program.

No one said they have to be "complete non-factors". However, saying that you have a comfortable life but it could be even more comfortable is not sufficient justification for wiping out programs which people depend on just to keep food in their bellies.

My calculation pretty clearly demonstrates that, contrary to the belief of some people on this board, the effects of social security are not "miniscule." Moreover, the calculations showed not just the inadequacy of the program for people like me, but how much the entire structure affects others. None of my calculations were dependent on the magnitude of my earnings: only the fraction of earnings that could be saved. It would, very likely, be the same or similar for other people using similar assumptions.

You're assuming that you will actually invest money in your own private program (not to mention assuming that most people will make 8% on their money). Maybe you can, but you live in a nation where tens of millions of people don't even pay their goddamned credit card bills. Do you really think that if you put the money back in their pockets, they will invest it wisely, or at all?

You say (and I paraphrase) "why should I be penalized for the sake of idiots who won't take care of their future?" That's just another way of saying that the herd should leave the sick and weak behind. Yes, they're inferior to us (yes, I said it). That doesn't mean we should just say "fuck 'em", which seems to be your inclination.

[Illuminatus Primus]

Ossus' premise seems pretty threadbare in an age with a net private savings rate that's negative in the States.

[His Divine Shadow]

Right, because "people don't make ideal choices for themselves"="we should run peoples' lives for them." Is this the way you raise children? Wait until they can infallibly make optimal decisions and THEN let them run their own lives?

I can believe that someone will likely make mistakes but still think that it's better to let them make their own choices than to have the government come in and run things for them, especially because I have serious reservations about the government's ability to handle things like retirement packages, given its historically extraordinarily poor track record of doing so.

I basically agree with this sentiment, government should not dictate how we should lead our lives, even if we make bad decisions now and then, it's the cornerstone of my beliefs in fact. But when it comes to economics I don't really think that sentiment carries over.

I think the case has been pretty solidly made for a canadian/european approach to economics as superior to the current american deregulation trend for the last 20-30-ish years, I won't bother with details as this thread is full enough of that. Point is, social freedoms are far, far more important than how big a slice the govt. takes of your paycheck, especially how much it takes of the richest few percent, considering how much the richest rely on society to be in a good shape anyway to keep themselves rich.

[Master of Ossus]

No one said they have to be "complete non-factors". However, saying that you have a comfortable life but it could be even more comfortable is not sufficient justification for wiping out programs which people depend on just to keep food in their bellies.

Again, we're hardly killing Social Security: we're just changing the way in which it's administered and making it a more reasonable use of money.

You're assuming that you will actually invest money in your own private program (not to mention assuming that most people will make 8% on their money). Maybe you can, but you live in a nation where tens of millions of people don't even pay their goddamned credit card bills. Do you really think that if you put the money back in their pockets, they will invest it wisely, or at all?

Probably depending on the Privatized Social Security program involved, but the way I envision it people are people are forced to invest in Social Security. So it's not like they have a "choice" in that sense. It's just a mandatory 401k plan.

You say (and I paraphrase) "why should I be penalized for the sake of idiots who won't take care of their future?" That's just another way of saying that the herd should leave the sick and weak behind. Yes, they're inferior to us (yes, I said it). That doesn't mean we should just say "fuck 'em", which seems to be your inclination.

How is it fucking them to ask them to run a 401k plan? Look, 401k plans are hardly roundly criticized for being difficult to handle and set up. If people can operate a 401k plan, they can operate a privatized Social Security account, and I can retire 7-9 years earlier.

[Darth Wong]

Again, we're hardly killing Social Security: we're just changing the way in which it's administered and making it a more reasonable use of money.

"Reasonable" as in "based on the assumption that the kind of people who find themselves destitute in old age must have good investment skills"? Especially this "conservative" 8% figure you rely on, even though so many investors actually lose money?

Probably depending on the Privatized Social Security program involved, but the way I envision it people are people are forced to invest in Social Security. So it's not like they have a "choice" in that sense. It's just a mandatory 401k plan.

You can force them to invest, but you can't force them to invest in something safe, which defeats the whole purpose of social security.

How is it fucking them to ask them to run a 401k plan? Look, 401k plans are hardly roundly criticized for being difficult to handle and set up. If people can operate a 401k plan, they can operate a privatized Social Security account, and I can retire 7-9 years earlier.

It's not a matter of being able to do the paperwork. It's a matter of choosing stupid things like complicated commercial papers that they don't understand, but which offer a great return on investment. Oops, highly trained investment banking managers did that, didn't they? Just try to imagine the bullshit that regular people will fall for, especially if this happens en masse, followed by the inevitable giant surge in targeted advertising of financial services.

[aerius]

How is it fucking them to ask them to run a 401k plan? Look, 401k plans are hardly roundly criticized for being difficult to handle and set up. If people can operate a 401k plan, they can operate a privatized Social Security account, and I can retire 7-9 years earlier.

Maybe you'd like to ask the millions of people who are now yanking money out of 401k's to pay off underwater mortgages & car loans which they'd be better of defaulting on, or using it to cover HELOC repayments after they blew the money on cars & plasma TVs. Or the people raiding their plans to cover losses in the stock market. People dip into the 401k's for all sorts of stupid reasons, and banks & financial advisors are now telling them that doing so is a GOOD thing even when it's completely against the interests of the individual. Yeah, great fucking system, if you're the bastard who's skimming off all the profits and sucking the funds dry. You're laughing, I'm sitting pretty, but the average person is getting skullfucked. I wouldn't mind retiring by age 40 but not when the cost to society is this high.

[Master of Ossus]

"Could" in what sense? "Could" right from the get-go, or "could" after a few years of study and making mistakes? "Could" as in people "could" successfully run a marathon, it being within the scope of the average person, but most never do it?

How long does it take to learn to manage a 401k plan? Five minutes? Two hours?

Do you understand why there are such restrictions on social security, or is history unimportant to you?

The social security system was instituted during the Great Depression. Prior to the crash of '29, a LOT of poeple had invested in stocks and a LOT of them, the majority of investors, lost their shirts. It was instituted as a social safety net, so in the event of something such as that (or any other calamity either on a personal or a societal level) there would be a fallback EVERYONE would have. That's why everyone paid in - so all would be covered. There were strict restrictions on the investments permitted because the point wasn't to turn maximum profit but to to keep the money secure.

Social Security was set up because of the rampant unemployment in the US during the Great Depression; not because investors lost their money in the stock market crash. Yours is a profound distortion of the actual reason for setting up the system. Moreover, even though there's risk involved in 401k savings, hardly anyone worries about people losing all of their money and being unable to retire because the systems are reasonably safe and secure, and because keeping yourself out of a financial disaster is not hard--you almost have to TRY to screw up a 401k plan in order to have problems.

I was once on the board of a credit union - said CU was also restricted in what could be done with money. We couldn't put it in stocks to generate massive returns because it was considered too risky. We traded higher potential profits for greater security on returns. But of course you should understand this.

Right, which is fine for a credit union (or Social Security) since those have continuous inflows and outflows of cash and must at no point lose any significant fraction of its total assets, but is a pointless restriction when you have a young worker (say, in their late 20's).

The young worker probably has comparatively little money saved, already (say, 1-2 times his annual wages at the most), so losing 30 or even 50% of that to him is not a total disaster (he would be able to work later to make up for those losses). On the other hand, it is highly unlikely that any 401k investments would continuously lose spectacular percentages of money for the next 25-35 years as he's building for retirement, and when his investments pay off, he'll be better off because of it.

This is the whole premise of a 401k plan.

So make something like it mandatory. In the structure I assumed for my calculations, I figured that a business could easily take 5% of your pretax pay, and layer on a matching donation. That's considerably less than is set aside for Social Security (well over 12%). Then make that a mandatory savings (or, in the alternative, give people the option of opting out of Social Security in favor of this choice), and let people select a mix of stocks, bonds, and safer investments. Depending on the privatized Social Security plan, it may or may not be possible to withdraw funds from the account prior to retirement (or retirement age) for, say, medical expenses or something like that, but realistically people are stuck with their savings account set aside this way.

It's not always about wringing the maximum money out of something, sometimes security is of higher importance to an investor. Or, in some cases, an investor wants to use his or her money for causes/businesses believed to serve some other end than just pure profit.

Sometimes, but not all the time. Retirement saving is NOT an instance in which all people must be uniformly risk-averse.

[snip]This, by the way, has been going on for about 10 years. It's not "temporary" in the usual sense. How much longer can it go on? 5 years? Another 10?

Clearly you have NEVER been in a position like that, or you wouldn't blather on about how privatization is the best solution for everyone and how everyone would be happier spending their time managing their investment portfolios.

There are, believe or not, people for whom managing investments would be a burden and not a freedom or a joyous choice.

[snip]

What about the burden of time, as in my parents case?

Please. How long do most workers spend managing their 401k funds every year? Two hours? That's hardly an unreasonable burden. You're hugely playing up the difficulties of managing a privatized Social Security account.

What protection will the average citizen have, under privatized social security, from bad investment advice?

I assume they'd have the same protections as 401k funds provide, but I suppose you could increase them if you absolutely needed to.

It was never intended to turn a profit - it was intended to keep the money safe and secure. Now, yes, there are issues with it. Why is that shocking, for a program almost 70 years old now? Circumstances change. But, as has been pointed out, some rather simple changes could be made to greatly improve things, and continued tweaks could be made as we go forward.

But it has to be able to turn some sort of a profit or its structure becomes meaninglessly stupid. If I pay into something my entire life, and have it billed to me as a "savings program," you can bet that I expect some sort of meaningful return over the course of my working career. Even very, very risk-averse investment packages have consistently outperformed Social Security because of the pay-in, pay-out nature of it and because the structure of the program prevents the SSA from taking on any risk at all, even if it's only a short-term risk that in the long-run will be virtually certain to provide meaningful returns.

What "liberty" is being taken away here? Outside of the SS withholding, you are entirely free to do whatever you want with your money. You can use it to pay your bills, play slots at the casino, invest it, burn it... whatever you want.

Something I cannot do with my Social Security withholding.

Here's the scenario - they have the direction of their retirement money, they make bad choices, they lose the money. They have no money left.

This is an absurdist horror story. How many people have you heard of that have lost their 401k funds because of poor financial choices on their part? Very, very few. Even very poor choices coupled with very bad luck have essentially no chance of wiping out someone's entire savings. I have made this point to you repeatedly.

Although I've seen plans that reserve 80% to traditional SS and 20% to the recipient to invest as he or she pleases, I've seen others than just propose we entirely abolish the system and everyone is on their own again. Although I might - might - be able to stomach a 80/20 split I can tell you I would expect arguments for a 60/40 split, then a 50/50 split, and so on until the SS system is abolished entirely and we no longer have any last-resort safety net.

Again, even in my best-case scenarios we're still reserving over 20% of the current social security funding for people who are legitimately disabled and to run as a safety net for those few, incredibly unlucky individuals who suffer from serious losses.

Sure, 25% of the total stock market, but every time there's a down turn there are investors who lose money, and more than just 25%. This is the same bullshit that encourages everyone to be happy because the economy is "healthy" no matter that they've just lost everything in a tornado and broke their left leg the next day.

Please. How many people lose more than 25% of their 401k plans every time there's a down-turn in the market?

Most people don't understand shit about their 401(k), they blindly follow what's in the brochure.

Isn't that what you want them to do? If they can't manage their stock portfolio, then just pick a reasonable option and go along with it?

I generated an enormous argument one day when, instead of setting my retirement date for 65 I set it for 70. NO! THAT'S NOT WHAT IT SAYS!

Well, the truth of it is that I started retirement planning later than some folks, the payout per month is higher if you take SS at 70, my pension (yes, I really do have an old-style pension coming from an employer) payout is higher at 70, and given my family and personal health history, I will probably be healthy enough to work until 70... yeah, I decided that planning to work until 70 is a reasonable choice for me. I also stand a good chance of living to my mid or late 90's in a good state of health as well, so if I retire at 70 I will also need enough to live on for 20 years. I don't want to outlive my money.

But no....! The little brochure says "if you retire at 65", so that means you need to plan to retire at 65.

But if you start getting your retirement funds at 65 and keep working to 70 or even later, there's no way you're going to "outlive your money" if you were planning to retire when you were 70--you still have all of the Social Security benefits that you would have received had you retired at 65, and you have additional earnings on top of that from working until you're 70. Ironically, you are actually demanding GREATER individual autonomy than my scheme, and are upset because the current Social Security system hasn't properly supported your decision.

That's one plan I've heard, yes, but I've also heard plans to entirely abolish SS.

As have I, but we're talking about a proposal for a privatized Social Security scheme, here: not some plan to abolish the system.

Why don't we fund a medical system that doesn't require people to make such choices in the first place? Other countries manage to do that.

I don't know, but this is a discussion of potential privatized Social Security systems, and medical coverage is a red-herring.

How has SS "failed"? It makes regular monthly payouts. Yes, it needs some changes to remain viable, but when has the government failed to issue the promised checks?

Again, it was NEVER intended to maximize or even generate a profit, it was intended to provide an income floor and elderly person would never fall beneath.

But it does a piss-poor job of that because of its ridiculously low yields. In other words, with a privatized system we'd likely be seeing both a higher floor and better options for the populace.

With no social safety net where to fuck-ups go? What about someone who, for instance, loses everything in a natural disaster through no fault of their own?

I assume they would go to the nearly 25% that was set aside for people who are disabled and such. What fraction of SS payouts go to people who can't work at all?

And, moreover, how can you lose your 401k plan when a tornado hits your house? Your horror projections are getting even LESS rational as this thread goes on.

It was never intended for "investor needs", it was intended to be, essentially, a guaranteed pension for all, not an investment scheme or profit generator.

And you don't think it could do a better job of this by realizing a reasonable return on all of the money that it administers? Can you honestly be this dense? If the system's money is allowed to generate a reasonable rate of return, there will be more money in the future, which will allow for a bigger Social Security program.

And, again, I fail to see how allowing someone to use their money to fund something other than retirement (like healthcare costs so they don't go bankrupt paying for them) is a huge condemnation of individual autonomy.

Actually, people DO go bankrupt from medical bills even after throwing their entire life's savings, selling their home, AND throwing in their retirement investments. But I don't want to turn this into a health care debate.

Genius rebuttal (especially given your efforts to use healthcare as a red-herring, earlier). So how is it that people going bankrupt from healthcare costs in a system that gives them LESS ability to use retirement savings to help manage those costs is a condemnation of a privatized Social Security structure?

Right, this is right in line with "the poor chose to be poor". Dire poverty is a "lifestyle choice".

It's not even always a matter of retirement - past a certain age there are some jobs that become closed off to you. Even healthy elderly people do not have the energy and stamina of younger people. Many people in, say, their 70's are capable of working, but not working long hours, or strenuous jobs, which means their choices are limited and their incomes may fall. In such cases SS can supplement a diminished income, particularly when things such as healthcare costs and copayment costs rise.

And privatized Social Security would not provide this to them... why?

You yourself have acknowledged that the current Social Security system doesn't really support you because you plan to work until you're 70. The privatized system handles people like you much better. Again, you seem focused on the idea that because investments involve risk there is therefore a reasonable probability that people will lose everything or virtually everything. This is not remotely true.

I don't think SS was ever intended to fund the idle lifestyles of older people for 20 or 30 years... the intention was to make sure no elderly person was left penniless and at the mercy of others.

It's rather like unemployment insurance - it's a safety net and all pay into it and there's no means testing. If you meet the requirements you're covered whether you "need" it or not.

A fair conception of the program, and one I actually subscribe to.

Yes, a few people collect who don't needp it, but it's a small price in comparison for assisting the millions of people for whom it is the difference between destitution and paying the basic bills. Funny, no one seems to bitch about that one...

Okay, so what does this have to do with a privatized Social Security structure vs. the one we have??

Worker's comp only covers injuries at work. That's a TERRIBLE idea. A system that only covers people disabled due to work injuries? So those with birth defects can just go fuck themselves? You get in a car accident going to the grocery store on the weekend just fuck you, you're useless now, go and starve.

That's why I suggested that we expand it.

What the fuck is wrong with keeping the disabled on the SS rolls? Frankly, getting ON them in the first place is a complete and total nightmare, but I don't want to derail this thread with a rant about disability benefits.

There's nothing wrong with it--that's why I reserved between 20 and 25% of the current Social Security funding to go to disabled people when I made my spreadsheet. Are you saying that people with disabilities currently collect MORE than that? Okay, that's fine, too. Then we're talking about the system keeping me working (maybe) 5-6 years longer than with the privatized system, instead of 7-9. I'm willing to cover disabled people--I just don't realistically know what fraction of Social Security payments go to people with disabilities.

The people who put it together had no way of knowing that life expectancies would rise 10 or more years in a generation or two. Hence, I am in favor of raising the age at which people can collect SS.

Okay, that's fair enough. At least that addresses the immediate problems with the system. However, I think you could realize far greater benefits with the privatized system that allowed people to make their Social Security payments work.

You can choose when to retire NOW. You just can't collect SS until you're a particular age. If you want to retire at 25 you certainly can but it's up to YOU to fund that project. The government only guarantees SS at a certain age, in the 60's. If you want to retire sooner then you have to earn it.

Okay, conceded. When I meant that we should give people a choice as to when to retire, I really meant that I wanted to couple that decision with the amount of retirement funds that would be available to them more specifically. So I would face a continuum option whereby if I work for a little longer, I will get a commensurately greater return on my investments. The current system's "step" process of determining pay-outs by age is another issue I have with it, albeit a very minor one in comparison with the rest of the things we've discussed.

Actually, since I'm doing a fair amount of work as a self-employed/independent contractor I'll probably be paying 12% this year, as I will be obligated to pay both halves under that status. So yes, I am aware of how big a slice is being taken. Unlike a lot of other tax, though, I have some idea of where this money is (alledgedly) going. If I live long enough, I'll even get some or most of it back.

Right, but this would be true under the privatized system, as well. And, yeah, I acknowledge that for self-employed people the employer and employee share an identity.

YOU would be better off. I'm not convinced a lot of other people would be so fortunate. In many cases, if you just allowed it to be incomes (rather than mandated for retirement) it would be spent immediately. Not by "choice" but by desperation to pay the bills.

I mean, I'm amenable to placing restrictions on withdrawals (although I don't think they would be strictly necessary). So, for instance, it's conceivable that we could implement a rule that says you can't touch the funds until you're 50, or 60, or whatever, or you can only make early withdrawals in the case of demonstrated medical expenses or something of the sort.

Because those investments carry risk, meaning you can LOSE money as well as gain it, and SS is supposed to be protected from risk and is not, in any case, intended to maximize profits.

Okay. I fail to see a big condemnation of the privatized system.

If everyone wasn't forced into it, it wouldn't work. The costs of a social safety net need to be spread as widely as possible because the people it's intended to help are those who are least able to pay. That's why they need a "safety net" in the first place!

Again, it was intended to be a fall-back, a pension of last resort.

So how is it that the privatized Social Security plan isn't able to do this? And, again, the current system's rules aren't working now. I'm sure that you'd concede that there are 65-year-olds who face great difficulty if they try to continue working, and your proposal would strip them of their safety-net far more completely than the privatized system (by making them ineligible to collect Social Security, vs. allowing them to collect from their private account).

And if I chose to utilize an "investment" where my money is not used to maximize profit but rather to make absolutely sure it will be there, no matter what... how is that somehow an inherently poor choice? That seems to be what you're saying.

Then that's fine, but that's not the best option for the vast majority of people. You would, obviously, have the option of making very conservative investments in the privatized scheme (and, realistically, even those have historically outperformed the Social Security trust). But for other people in different circumstances, there are much better options available, and privatized Social Security seems to me to be a reasonable way of opening up those choices to them.

From what you've written, it seems that you misconceive of "risk" in the stock market and in financial investments, generally. It's not an all-or-nothing gambling exercise in almost all cases: you have an average return on a particular asset, with some variance above and below that. The size of the variance of the return determines the risk. Even a moderately diversified portfolio (somewhere around 10-20 stocks--much less than a typical mutual fund) reduces risk to the point where the variance of the portfolio's returns is virtually indistinguishable from those of the general market.

So if someone takes what you seem to view as the "brochure" method of investing their Social Security funds, their investment performance is basically dependent on the performance of the overall market. As I've said, even in the famously volatile stock market, the historical performance has never dropped more than around 25%, and has rarely even approached those levels. On the other hand, it has frequently realized significant positive returns.

So good investment is pretty much a matter of just figuring out how much risk you are willing to accept in your portfolio. One has to make poor decisions (e.g., investing in volatile assets like stock right as they're retiring), and THEN get unlucky (have the stock market actually shed a significant amount of value after they picked that portfolio--remember that it could still go up, tread water, etc.) to lose even a part of their retirement fund. That doesn't seem like a terribly menacing threat to me, given that 401k investors don't typically have problems with anything of the sort. Moreover, it doesn't seem that hard to me. If you want to go with the brochure approach, just pick up the one for a 401k plan and do that (in fact, that's essentially what I do with my 401k because it's actually pretty good advice).

[Broomstick]

"Could" in what sense? "Could" right from the get-go, or "could" after a few years of study and making mistakes? "Could" as in people "could" successfully run a marathon, it being within the scope of the average person, but most never do it?

How long does it take to learn to manage a 401k plan? Five minutes? Two hours?

It takes little time to fill out the paperwork, but managing in what I (me) would call a responsible manner takes more than that. I don't find it acceptable to turn over a chunk of money to someone else (no matter how trusted) to spend/invest on my behalf without periodically checking up on it. That does take time.

For that matter, my husband and I sit down once a week to review our finances and budget. Sure, that doesn't take hours, but it's because we do that on a regular basis that our finances are as well managed as they are. Any purchase over $40 both parties have to be aware of (outside of the weekly grocery list, which is pretty consistent). Any major purchase has to be discussed. Frankly, I find this pretty ordinary because it's pretty close to the system my parents used growing up but when I describe it to other people half the time they look at me like I just grew a third eyeball.

There's no way in hell I'd buy into ANY investment plan without feeling obligated to keep an eye on it.

Nonetheless, I was once present at a meeting regarding the company 401(k) where at least half the room expressed outrage that they lost money that year (mid-90's dot.com bust). Now, you and I know that for something long term like a 401(k) one year where there is a loss is not the coming of the apocalypse, but frankly I was appalled at college-educated people who did NOT understand such a basic aspect of what they were putting money into, and they clearly had not read the literature distributed annually by the fund manager where is was very clearly stated that such things could occur, how the fund worked, the different levels of risk, recommended levels of risk based on age of worker, why you might choose a different risk level, and so on. Of course, I'm a weirdo who actually reads things like my car loan or my lease in entirety prior to signing it.

I agree, managing a 401(k) is not rocket science - yet people still manage to screw it up. I'd be less concerned if the people I saw fucking it up were high-school drop-out trailer trash but they weren't, they were MBA's who were running the country's largest private health insurance company.

Social Security was set up because of the rampant unemployment in the US during the Great Depression; not because investors lost their money in the stock market crash.

No, welfare was instituted due to rampant unemployment - during the Great Depression only those over 65 could collect SS, just like now. A lot of people lost their pensions, though, when their employers went belly up, and a lot of people who had invested for their retirement also lost funds. Hence, the idea of a government pension for all. Again, never intended to allow for a life a luxury but rather a floor.

Moreover, even though there's risk involved in 401k savings, hardly anyone worries about people losing all of their money and being unable to retire because the systems are reasonably safe and secure, and because keeping yourself out of a financial disaster is not hard--you almost have to TRY to screw up a 401k plan in order to have problems.

And yet, I have known people who have done exactly that. No, they rarely lose everything (though it can happen) but they make bad choices in investment, they make bad choices in other parts of their life, they borrow the 401(k) into nothingness... Or they make bad choices or fail to adjust their risk and take a big hit just before they plan to retire and wind up needing to work 5 or 10 years longer than they intended.

A lot of this is because people just don't know how manage money. But making them responsible for retirement will not magically remedy that problem.

I was once on the board of a credit union - said CU was also restricted in what could be done with money. We couldn't put it in stocks to generate massive returns because it was considered too risky. We traded higher potential profits for greater security on returns. But of course you should understand this.

Right, which is fine for a credit union (or Social Security) since those have continuous inflows and outflows of cash and must at no point lose any significant fraction of its total assets, but is a pointless restriction when you have a young worker (say, in their late 20's).

You're assuming a worker in his or her 20's wants to take a greater risk. There are circumstances where someone in their 20's might want to be every bit as cautious as someone in their 60's. There are 20 year olds with frail health who may be concerned they won't be able to work to their 60's. Certain career paths only offer subsistence wages for the first few years, and such people may not be able to start saving for retirement until 30.

Even if the above scenarios are only a few percentages of the population that still amounts to millions of people who don't fit the typical and average mold.

The young worker probably has comparatively little money saved, already (say, 1-2 times his annual wages at the most),

What the FUCK are you smoking????

I don't know anyone who had "1-2 time his annual wages", or even close to it, in their 20's or even early 30's. That is in no way typical. The only people I have known with that level of resources were at least in their 40's.

This is the whole premise of a 401k plan.

And yet people still manage to fuck it up.

Personally, I think it's more a matter of withdrawals that continual bad returns (though that is also a factor). But, as pointed out, people withdraw from 401(k)'s for stupid reasons. Borrow against it for education? That may be a reasonable thing to do. Borrow against it to pay the mortgage for a few more months, only to lose the house anyway? THAT's a problem

It's not always about wringing the maximum money out of something, sometimes security is of higher importance to an investor. Or, in some cases, an investor wants to use his or her money for causes/businesses believed to serve some other end than just pure profit.

Sometimes, but not all the time. Retirement saving is NOT an instance in which all people must be uniformly risk-averse.

Of course not, that's why different mixes are offered. Hey, there might be people in their 60's willing to assume more risk than many in their 20's, and I"m fine with that if they understand what they're doing. But, as I said, at my prior company people didn't take the time to even read a brochure a couple pages long.

Please. How long do most workers spend managing their 401k funds every year? Two hours? That's hardly an unreasonable burden.

Frankly, two hours a year isn't enough. I'd say reviewing at least quarterly would be a minimum. I don't think obsessing about it daily would be healthy, but, particularly with a strong exposure in stocks, you have to pay attention to what's happening to the market if you want to make any pretense of "managing" your finances rather than relying on a total stranger to do it for you.

What protection will the average citizen have, under privatized social security, from bad investment advice?

I assume they'd have the same protections as 401k funds provide, but I suppose you could increase them if you absolutely needed to.

Given how I've seen people fuck up 401(k)s, I'd say there aren't enough.

Even very, very risk-averse investment packages have consistently outperformed Social Security because of the pay-in, pay-out nature of it and because the structure of the program prevents the SSA from taking on any risk at all, even if it's only a short-term risk that in the long-run will be virtually certain to provide meaningful returns.

Then change the structure to allow a slight increase in risk for a slight increase in funds... we don't have to throw the concept out entirely.

What "liberty" is being taken away here? Outside of the SS withholding, you are entirely free to do whatever you want with your money. You can use it to pay your bills, play slots at the casino, invest it, burn it... whatever you want.

Something I cannot do with my Social Security withholding.

Right. It's a tax. Taxes are like that, you can't directly decided what to spend the funds on, you have to go through your elected representatives.

Here's the scenario - they have the direction of their retirement money, they make bad choices, they lose the money. They have no money left.

This is an absurdist horror story. How many people have you heard of that have lost their 401k funds because of poor financial choices on their part? Very, very few.

Well, I could name four individuals where I know that occurred, but I'll protect their privacy (not that anyone here would know them anyway). I agree, it's "an absurdest horror story" but the world can be absurdly horrific.

Even very poor choices coupled with very bad luck have essentially no chance of wiping out someone's entire savings. I have made this point to you repeatedly.

And yet... I have seen it happen to people. Not as hearsay or gossip, but in my capacity as a board member at a credit union I say incredibly stupid and horrible financial situations documented. I agree, it's rare, but it does happen I can only assume what I've seen is only a small subset of the financial horror stories out there, some better and some worse. Granted, it's not a scientific study but as I said, these weren't just hearsay and gossip, either.

Although I've seen plans that reserve 80% to traditional SS and 20% to the recipient to invest as he or she pleases, I've seen others than just propose we entirely abolish the system and everyone is on their own again. Although I might - might - be able to stomach a 80/20 split I can tell you I would expect arguments for a 60/40 split, then a 50/50 split, and so on until the SS system is abolished entirely and we no longer have any last-resort safety net.

Again, even in my best-case scenarios we're still reserving over 20% of the current social security funding for people who are legitimately disabled and to run as a safety net for those few, incredibly unlucky individuals who suffer from serious losses.

I'll be honest that my main concern is that an already threadbare safety net is not abolished. It's not there for you, who will almost certainly do well without it, it's for the fuckups and the hardluck cases, but since they're human beings, too, I feel a moral obligation that they be kept in at least minimally decent circumstances even if it may shave a little off my own excess above mere survival.

Sure, 25% of the total stock market, but every time there's a down turn there are investors who lose money, and more than just 25%. This is the same bullshit that encourages everyone to be happy because the economy is "healthy" no matter that they've just lost everything in a tornado and broke their left leg the next day.

Please. How many people lose more than 25% of their 401k plans every time there's a down-turn in the market?

Honestly, I don't know - does anyone even track that? I would think it would be an interesting question for someone who studies the economy.

(The flip side would be who does well during a market downturn, because someone always seems to manage to profit during adversity. I think that's a pretty interesting question, too).

Most people don't understand shit about their 401(k), they blindly follow what's in the brochure.

Isn't that what you want them to do? If they can't manage their stock portfolio, then just pick a reasonable option and go along with it?

I'm not even sure they're thinking about it - I swear, some of what I've seen looks like blindfolds and darts thrown at random.

(I was particularly amused at a lawyer who said that whatever fund she picked had better make money every quarter or she'd sue.)

I generated an enormous argument one day when, instead of setting my retirement date for 65 I set it for 70. NO! THAT'S NOT WHAT IT SAYS!

Well, the truth of it is that I started retirement planning later than some folks, the payout per month is higher if you take SS at 70, my pension (yes, I really do have an old-style pension coming from an employer) payout is higher at 70, and given my family and personal health history, I will probably be healthy enough to work until 70... yeah, I decided that planning to work until 70 is a reasonable choice for me. I also stand a good chance of living to my mid or late 90's in a good state of health as well, so if I retire at 70 I will also need enough to live on for 20 years. I don't want to outlive my money.

But no....! The little brochure says "if you retire at 65", so that means you need to plan to retire at 65.

But if you start getting your retirement funds at 65

I never said I'd start my retirement saving at 65.

I had a stab at being a professional artist in my 20's Even before I did this, I realized it was a gamble and that doing so could delay my ability to save in any capacity, much less for retirement. So I decided that I would plan to work a little longer before retirement - if the art career worked out and I became filthy rich, great, if not, I realized early I'd have to work a few extra years to "catch up". As you pointed out, someone in their 20's can afford to take such risks because of how many years they have ahead of them to recoup losses.

By some measure's I'm between 5 and 10 years "behind" in retirement planning, consistent with the above. I'm not upset about it, but that decision in my 20's has had a continuing impact on my life subsequently. (The only "advantage" I have over some of my peers is an actually honest-to-god pension from a former employer)

- and keep working to 70 or even later, there's no way you're going to "outlive your money" if you were planning to retire when you were 70--you still have all of the Social Security benefits that you would have received had you retired at 65, and you have additional earnings on top of that from working until you're 70. Ironically, you are actually demanding GREATER individual autonomy than my scheme, and are upset because the current Social Security system hasn't properly supported your decision.

How has it not supported my decision? I can collect a diminished monthly amount at, if I recall 62 or 63. I have to wait until 67 for the full amount. If I wait until 70 I collect the maximum. It's my choice when to start drawing down that money. The same applies to my defined-benefit pension - I can collect early, "on-time", or "late", it's my choice. You know, I have no control over the money in the pension, either (it being an old fashioned sort of pension). It doesn't bother me. I have SS, I have a pension, and I have whatever other investments I choose to make. Now, I don't want anything bad to happen to any of those three, BUT if any one of them disappears I still have the other two, yes? I find it reassuring that even if I fuck up horribly I still have SS and a pension. I find it reassuring that if the pension disappears (I don't care how secure they say it is, that sort of this has happened) I still have SS and my own independent investments.

That's one plan I've heard, yes, but I've also heard plans to entirely abolish SS.

As have I, but we're talking about a proposal for a privatized Social Security scheme, here: not some plan to abolish the system.

100% privatized is the same as abolishing it - I realize you've been talking about an 80/20 split but that's not the only option that is discussed out there.

Why don't we fund a medical system that doesn't require people to make such choices in the first place? Other countries manage to do that.

I don't know, but this is a discussion of potential privatized Social Security systems, and medical coverage is a red-herring.

Not a red-herring - medical bills are a reason people deplete savings and investments and go bankrupt. If we eliminated that risk we would eliminate one way in which people become destitute.

How has SS "failed"? It makes regular monthly payouts. Yes, it needs some changes to remain viable, but when has the government failed to issue the promised checks?

Again, it was NEVER intended to maximize or even generate a profit, it was intended to provide an income floor and elderly person would never fall beneath.

But it does a piss-poor job of that because of its ridiculously low yields. In other words, with a privatized system we'd likely be seeing both a higher floor and better options for the populace.

Then change SS so the money can be invested to the point of the system having sufficient funds to break even.

Privatizing the system isn't the only way to fix it. As I've mentioned, the retirement age could be raised.

With no social safety net where to fuck-ups go? What about someone who, for instance, loses everything in a natural disaster through no fault of their own?

I assume they would go to the nearly 25% that was set aside for people who are disabled and such. What fraction of SS payouts go to people who can't work at all?

People who lose everything in a natural disaster aren't necessarily disabled - and only the disabled collect disability (and you have to be REALLY BADLY disabled, not just a little bit).

And, moreover, how can you lose your 401k plan when a tornado hits your house?

Ask a few of my neighbors.

Here's what happens: you lose your job. You have trouble making the mortgage. A tornado destroys the house (happened to 20 of the homes in my town in early August) and you now are falling behind on a mortgage on a building that no longer exits, and you still don't have a job. Meanwhile, you have a spouse and kids who need a place to live and food to eat. So you draw from that 401(k) (it's an emergency, right?). Whoops, eventually you have nothing left in that, either. By the way - there is no government aid coming to those folks down the road from me, because the Feds and the state decided the area affected was "too small" to warrant it.

Sucks to be them, doesn't it? If you're under 35 you might be able to recover from a hit that bad, but if you're 50 or 55 you're sort of fucked.

It was never intended for "investor needs", it was intended to be, essentially, a guaranteed pension for all, not an investment scheme or profit generator.

And you don't think it could do a better job of this by realizing a reasonable return on all of the money that it administers?

As I said, if the rules on the money in the SS fund are too restrictive then loosen them up a little bit.

You yourself have acknowledged that the current Social Security system doesn't really support you because you plan to work until you're 70.

How does SS not support me?

Personally, I find the thought of doing nothing all day repugnant. My preference would be to be healthy and strong enough to work into my 90's. As I said when I had the corporate job, I fully intend to be working at something even when I "retire", just not THIS job. For me, "retirement" isn't so much quitting work, as having the option to work less or at a job I enjoy more even if it pays less.

I am enough of a realist, however, to know that I may not be able to work into my 90's... so if I am prepared to retire at, say, 70 then it will truly be an option whether I continue to work or not, rather than a necessity.

The privatized system handles people like you much better. Again, you seem focused on the idea that because investments involve risk there is therefore a reasonable probability that people will lose everything or virtually everything. This is not remotely true.

Yet I have seen it happen more than once. In some instances it was because the person was a fuckup - I think I can avoid that - but in others it was just a terrible combination of circumstances.

I don't think SS was ever intended to fund the idle lifestyles of older people for 20 or 30 years... the intention was to make sure no elderly person was left penniless and at the mercy of others.

It's rather like unemployment insurance - it's a safety net and all pay into it and there's no means testing. If you meet the requirements you're covered whether you "need" it or not.

A fair conception of the program, and one I actually subscribe to.

See, we do agree on something!

Yes, a few people collect who don't needp it, but it's a small price in comparison for assisting the millions of people for whom it is the difference between destitution and paying the basic bills. Funny, no one seems to bitch about that one...

Okay, so what does this have to do with a privatized Social Security structure vs. the one we have??

I feel that a societal safety net is something the government should handle, rather than leaving people to their own devices. Self-reliance is an excellent quality, but none of us can control everything in our lives. I believe one of the functions of government is to protect its citizens from disaster and to help them recover when it occurs.

As a rather timely example - while I'd prefer the people of the Gulf Coast be prepared for a hurricane, including the ability to launch a boat from a second floor window and row to safety, that isn't going to happen for everyone. That's why we have Coast Guard helicopters. Now, helicopters are expensive as fuck, and someone may argue that it makes more sense to tax people less so they can all afford to buy their own self-rescue boat, but that's not realistic. So our tax money pays for some helicopters and we get a warm fuzzy feeling when folks are hauled off rooftops after the storm.

Private investments are privately owned boats. SS is the Coast Guard helicopter. We all hope we don't need the helicopter, but life's can throw you a curveball. Maybe some drunken idiot crashes his car into your boat the day before the hurricane hits, so even though you were responsible and boat a nice boat, random shit means you don't have the use of it when you need it - oh, all of a sudden that helicopter is a welcome sight, right?

Shit can happen. That's why I'm in favor of a government-guaranteed floor on income in old age. Now, there is a LOT to argue about regarding the best way to fund that, or manage it, or dole it out, but privatizing it takes it out of the government hands and I don't think that's the best move because at the end of the day you'll still need to fund some helicopters because every day a few boats get smashed.

Worker's comp only covers injuries at work. That's a TERRIBLE idea. A system that only covers people disabled due to work injuries? So those with birth defects can just go fuck themselves? You get in a car accident going to the grocery store on the weekend just fuck you, you're useless now, go and starve.

That's why I suggested that we expand it.

If we expand it to injuries outside of work then it's no longer worker's comp, is it?

And why make employers, that is private business pay for covering ALL disabled? Isn't that more properly a role of government?

I just don't realistically know what fraction of Social Security payments go to people with disabilities.

According to what I could find on line in 5 minutes of google, it's about 14%.

Spouses of both retired and disabled workers is about 5.4% of the program

Survivors of beneficiaries is 9.5 %

Children of beneficiares is 8.2 % of the program.

From here

The people who put it together had no way of knowing that life expectancies would rise 10 or more years in a generation or two. Hence, I am in favor of raising the age at which people can collect SS.

Okay, that's fair enough. At least that addresses the immediate problems with the system. However, I think you could realize far greater benefits with the privatized system that allowed people to make their Social Security payments work.

And I favor making adjustments to the government-run system rather than converting it even partially to a non-governmental system. This, after all, is supposed to be the floor - people are entirely free to add to this floor by making their own investments.

You can choose when to retire NOW. You just can't collect SS until you're a particular age. If you want to retire at 25 you certainly can but it's up to YOU to fund that project. The government only guarantees SS at a certain age, in the 60's. If you want to retire sooner then you have to earn it.

Okay, conceded. When I meant that we should give people a choice as to when to retire, I really meant that I wanted to couple that decision with the amount of retirement funds that would be available to them more specifically. So I would face a continuum option whereby if I work for a little longer, I will get a commensurately greater return on my investments. The current system's "step" process of determining pay-outs by age is another issue I have with it, albeit a very minor one in comparison with the rest of the things we've discussed.

You are free NOW to work as long as you'd like - or as little as you can afford to.

YOU would be better off. I'm not convinced a lot of other people would be so fortunate. In many cases, if you just allowed it to be incomes (rather than mandated for retirement) it would be spent immediately. Not by "choice" but by desperation to pay the bills.

I mean, I'm amenable to placing restrictions on withdrawals (although I don't think they would be strictly necessary). So, for instance, it's conceivable that we could implement a rule that says you can't touch the funds until you're 50, or 60, or whatever, or you can only make early withdrawals in the case of demonstrated medical expenses or something of the sort.

All of which were supposed to be in place for first IRA's then 401(k)'s and all of which have been diluted over time due to people wanting control over their money.

Policy decisions of this sort have to be based on what people actually do, not what you hope they do or expect an idealized "average person" to do. While the scheme you favor would undoubtedly enable some to be better off I don't want anyone to be worse off than they would be under the current system.

So how is it that the privatized Social Security plan isn't able to do this? And, again, the current system's rules aren't working now. I'm sure that you'd concede that there are 65-year-olds who face great difficulty if they try to continue working, and your proposal would strip them of their safety-net far more completely than the privatized system (by making them ineligible to collect Social Security, vs. allowing them to collect from their private account).

How would my current proposal "strip them" of autonomy? If they want to retire "early" they must earn the privilege, the same as now. I don't expect an iron line at 70, but rather if you opt in to the "new" system earlier than 70 there is a penalty (just as there is now if you start collecting before 65) and you can increase the monthly amount for anyone willing to delay retirement a few years - as many already do.

IF you are unable to work prior to 65 the system is supposed to cover you under disability. Likewise, post changes, if you were disabled prior to the new retirement age you would be covered but SSD. The only change is that we're expecting people to work longer, which, given that most people are healthier in their 60's than they were a few generations ago, is not entirely unreasonable. Those who can't work would be covered as they are now*

* which is a whole 'nother debate in itself, because I don't think the system does a good job with that

But for other people in different circumstances, there are much better options available, and privatized Social Security seems to me to be a reasonable way of opening up those choices to them.

They can exercise those options NOW by making private investments so that they will never need SS at all.

[Master of Ossus]

It takes little time to fill out the paperwork, but managing in what I (me) would call a responsible manner takes more than that. I don't find it acceptable to turn over a chunk of money to someone else (no matter how trusted) to spend/invest on my behalf without periodically checking up on it. That does take time.

How much time? Are you talking on the order of a few dozen hours per year to review a 401k? That's how long it takes an average American to fill out their tax return, and the 401k is not even close to being as complicated.

There's no way in hell I'd buy into ANY investment plan without feeling obligated to keep an eye on it.

That's a reasonable policy, but checking up on my investments takes a few hours per year, and very little of that is spent on my 401k.

[snip story about college idiots.]

I agree, managing a 401(k) is not rocket science - yet people still manage to screw it up. I'd be less concerned if the people I saw fucking it up were high-school drop-out trailer trash but they weren't, they were MBA's who were running the country's largest private health insurance company.

But screwing it up does not mean destroying your chance at retirement, nor does a one-year drop in the value of a 401k account do any long-term damage to someone's finances (unless they are very, very close to retirement). I'm not saying that it's IMPOSSIBLE to screw up, I'm saying that it's hard and that the damage associated with mismanagement is not that great.

No, welfare was instituted due to rampant unemployment - during the Great Depression only those over 65 could collect SS, just like now. A lot of people lost their pensions, though, when their employers went belly up, and a lot of people who had invested for their retirement also lost funds. Hence, the idea of a government pension for all. Again, never intended to allow for a life a luxury but rather a floor.

Loss of pensions is not the same thing as a loss of investment money.

And yet, I have known people who have done exactly that. No, they rarely lose everything (though it can happen) but they make bad choices in investment, they make bad choices in other parts of their life, they borrow the 401(k) into nothingness... Or they make bad choices or fail to adjust their risk and take a big hit just before they plan to retire and wind up needing to work 5 or 10 years longer than they intended.

A lot of this is because people just don't know how manage money. But making them responsible for retirement will not magically remedy that problem.

It cannot make them LESS capable of handling money and it may well make them understand it, better. And, frankly, your personal anecdotes are growing tiresome: I have not seen anything like an organized push to revamp or do away with 401k plans because of the potential for mismanagement and the existence of risk in such plans. Indeed, both employers and employees in virtually all major companies have embraced such plans (as well as similar plans, such as the Roth-IRA).

Furthermore, if you're concerned about people borrowing money from their Privatized Social Security fund, why not just institute borrowing and withdrawal restrictions? The main problem you seem to be citing is people who don't take advantage of their 401k, but if the privatized Social Security account is mandatory and there are limits as to why and how people can access the money in their Privatized Social Security accounts then there is little problem with it.

You're assuming a worker in his or her 20's wants to take a greater risk. There are circumstances where someone in their 20's might want to be every bit as cautious as someone in their 60's. There are 20 year olds with frail health who may be concerned they won't be able to work to their 60's. Certain career paths only offer subsistence wages for the first few years, and such people may not be able to start saving for retirement until 30.

True, in which case the worker in his 20's may invest more cautiously. But under the Privatized Social Security plan, he may also invest more aggressively. Moreover, the whole point of the Privatized Social Security plan is to get people to start saving early--it uses (basically) the same money that's currently going into Social Security.

Even if the above scenarios are only a few percentages of the population that still amounts to millions of people who don't fit the typical and average mold.

You mean like the "everyone pays into Social Security, gets standardized payments at essentially standardized times in their lives, and has no say in how their money is handled or invested?" You are, ironically, arguing for greater flexibility in Social Security even as you argue that flexibility is harmful because some people won't be able to handle it properly.

What the FUCK are you smoking????

I don't know anyone who had "1-2 time his annual wages", or even close to it, in their 20's or even early 30's. That is in no way typical. The only people I have known with that level of resources were at least in their 40's.

I suppose the words, "at most" are totally lost on you. Moreover, if you acknowledge that young people DON'T have that sort of savings, then this only furthers my point--they don't have that much to lose, which allows them to invest aggressively.

And yet people still manage to fuck it up.

And, yet, no one argues that we should do away with 401k plans because people can screw them up.

Personally, I think it's more a matter of withdrawals that continual bad returns (though that is also a factor). But, as pointed out, people withdraw from 401(k)'s for stupid reasons. Borrow against it for education? That may be a reasonable thing to do. Borrow against it to pay the mortgage for a few more months, only to lose the house anyway? THAT's a problem

Again, the Privatized Social Security plans that I've seen proposed have generally placed restrictions on withdrawals that would make these scenarios impossible, or at least extraordinarily difficult or unlikely.

Of course not, that's why different mixes are offered. Hey, there might be people in their 60's willing to assume more risk than many in their 20's, and I"m fine with that if they understand what they're doing. But, as I said, at my prior company people didn't take the time to even read a brochure a couple pages long.

You'll forgive me for being less than sympathetic.

Frankly, two hours a year isn't enough. I'd say reviewing at least quarterly would be a minimum. I don't think obsessing about it daily would be healthy, but, particularly with a strong exposure in stocks, you have to pay attention to what's happening to the market if you want to make any pretense of "managing" your finances rather than relying on a total stranger to do it for you.

What, precisely, are you managing, here? What are you doing with all of this time?

Given how I've seen people fuck up 401(k)s, I'd say there aren't enough.

Oh, come on. What's honestly the worst 401k fuck-up that you've seen that didn't involve withdrawal of funds (which, as I have repeatedly pointed out, would be seriously restricted)?

Then change the structure to allow a slight increase in risk for a slight increase in funds... we don't have to throw the concept out entirely.

Interesting. How are you going to do this, given that even a relatively small, 10% drop in the Social Security basket over one year WOULD be a disaster because of the pay-in, pay-out nature of the fund? This, essentially, prevents it from being invested for the long-haul (as, frankly, does Congress which keeps raiding the thing).

Right. It's a tax. Taxes are like that, you can't directly decided what to spend the funds on, you have to go through your elected representatives.

Well, I could name four individuals where I know that occurred, but I'll protect their privacy (not that anyone here would know them anyway). I agree, it's "an absurdest horror story" but the world can be absurdly horrific.

Fair enough.

And yet... I have seen it happen to people. Not as hearsay or gossip, but in my capacity as a board member at a credit union I say incredibly stupid and horrible financial situations documented. I agree, it's rare, but it does happen I can only assume what I've seen is only a small subset of the financial horror stories out there, some better and some worse. Granted, it's not a scientific study but as I said, these weren't just hearsay and gossip, either.

Can you at least describe what sort of thing we're dealing with, here? What sort of mismanagement can allow someone to lose a substantial fraction of their 401k reserves? If it's just withdrawing funds from the account then the PSS structures I've seen would likely make this difficult or impossible, but moreover if you manage a 401k fund so badly that it essentially vanishes what are you going to do with your Social Security money? I simply cannot conceive of someone who can consistently make such bad decisions, and I'm frankly not that sympathetic if they do.

I'll be honest that my main concern is that an already threadbare safety net is not abolished. It's not there for you, who will almost certainly do well without it, it's for the fuckups and the hardluck cases, but since they're human beings, too, I feel a moral obligation that they be kept in at least minimally decent circumstances even if it may shave a little off my own excess above mere survival.

I admit that almost regardless of the safeguards instituted, it is likely that some small number of people will somehow manage to screw it up so badly as to significantly harm themselves, but I would be vastly more willing to help them if I hadn't gone through and found that Social Security's current structure is costing me such a large fraction of my life. As you say, I would be willing to shave a little off my own excess," but 7 years of my life is not "a little off my own excess." Frankly, I'm pretty pissed off about that. I don't think it's a reasonable for people to request that I do such a thing to cover for other people's screw-ups.

Honestly, I don't know - does anyone even track that? I would think it would be an interesting question for someone who studies the economy.

I'm not sure, either. I think you'd basically have to leverage yourself pretty heavily in order for it to even be conceivable, and I honestly can't imagine someone doing that with a 401k plan (let alone a PSS account, which would probably have restrictions in place based on that).

[/quote](The flip side would be who does well during a market downturn, because someone always seems to manage to profit during adversity. I think that's a pretty interesting question, too).

It happens, but even people who predict downturns accurately usually have trouble doing extremely well without insane leveraging, just because assets that are profitable during downturns are highly coveted and provide comparatively low returns, even then.

I'm not even sure they're thinking about it - I swear, some of what I've seen looks like blindfolds and darts thrown at random.

(I was particularly amused at a lawyer who said that whatever fund she picked had better make money every quarter or she'd sue.)

Yeah, okay. That's not realistic and I sort of have to question her legal expertise if she's going to sue them because of that. But realistically, throwing darts at a board to pick stocks wouldn't even be that bad, since if you threw 10 or 15 of them then you'd basically get the market returns. The only way I can see someone honestly fucking this up is if they decided, "Gee, I'm going to put everything into [X Industry]," right when X Industry was about to do really poorly. Frankly, that's a pretty colossally stupid move with a 401k (unless you're very young or particularly risk-seeking). I can see someone doing it, but if they're putting in that kind of effort then you wonder why they aren't doing better. Also, it may be reasonable to place restrictions on the PSS accounts so that people can't pick stocks that are very heavily correlated.

But if you start getting your retirement funds at 65

I never said I'd start my retirement saving at 65.

Nor is that how I read what you were saying. I said that IF you start COLLECTING ("getting") at 65.

[snip]How has it not supported my decision? I can collect a diminished monthly amount at, if I recall 62 or 63. I have to wait until 67 for the full amount. If I wait until 70 I collect the maximum. It's my choice when to start drawing down that money. The same applies to my defined-benefit pension - I can collect early, "on-time", or "late", it's my choice.

You just said you got into a huge fight over how you couldn't easily wait past 65 to start collecting Social Security because that's the age at which Social Security brochures generally assume to be retirement age. . I don't know what you're talking about, then.

You know, I have no control over the money in the pension, either (it being an old fashioned sort of pension). It doesn't bother me. I have SS, I have a pension, and I have whatever other investments I choose to make. Now, I don't want anything bad to happen to any of those three, BUT if any one of them disappears I still have the other two, yes? I find it reassuring that even if I fuck up horribly I still have SS and a pension. I find it reassuring that if the pension disappears (I don't care how secure they say it is, that sort of this has happened) I still have SS and my own independent investments.

What kind of pension plan do you have? If it's really one of the old fashioned ones then it essentially can't disappear until your company does, in which case I don't see why control over it would be valuable (since the company is likely investing it for you and generating returns on it--either by investing in their own operations or through an outside agent). The company is legally obligated to pay you specific amounts at specified intervals.

100% privatized is the same as abolishing it - I realize you've been talking about an 80/20 split but that's not the only option that is discussed out there.

Even a 100% privatized plan realistically provides a "safety net" of the same sort as normal Social Security. The net might not be as good if you really, really, really mess it up and you get really unlucky, but it's not the same thing as eliminating it entirely.

Then change SS so the money can be invested to the point of the system having sufficient funds to break even.

Privatizing the system isn't the only way to fix it. As I've mentioned, the retirement age could be raised.

Which screws up the social safety net that you've been so big on. Realistically the way to keep people in the safety net is to lower pay-outs or to increase income, and neither of them strikes me as being remotely attractive.

People who lose everything in a natural disaster aren't necessarily disabled - and only the disabled collect disability (and you have to be REALLY BADLY disabled, not just a little bit).

Correct me if I'm wrong, but people who lose things in a natural disaster aren't protected by Social Security, anyway (although they usually or always have other government resources to fall back on). And I really only want to cover people who are really badly disabled, because they're the ones who can't realistically support themselves.

Ask a few of my neighbors.

Here's what happens: you lose your job. You have trouble making the mortgage. A tornado destroys the house (happened to 20 of the homes in my town in early August) and you now are falling behind on a mortgage on a building that no longer exits, and you still don't have a job. Meanwhile, you have a spouse and kids who need a place to live and food to eat. So you draw from that 401(k) (it's an emergency, right?). Whoops, eventually you have nothing left in that, either. By the way - there is no government aid coming to those folks down the road from me, because the Feds and the state decided the area affected was "too small" to warrant it.

Sucks to be them, doesn't it? If you're under 35 you might be able to recover from a hit that bad, but if you're 50 or 55 you're sort of fucked.

So we return to the theme that 401(k)'s only work if you don't take the money out of it--a risk that is considerably reduced or or entirely eliminated with privatized Social Security (or at least the plans that I'm familiar with).

As I said, if the rules on the money in the SS fund are too restrictive then loosen them up a little bit.

But why do it only a little bit, especially because that structure retains the fundamental weakness of the system (which is that the entire population of the US is never young and therefore there is never a period over which the system can generate reasonable returns since it must constantly worry about liquidity issues and moreover because even a relatively modest loss can be a disaster)?

Yet I have seen it happen more than once. In some instances it was because the person was a fuckup - I think I can avoid that - but in others it was just a terrible combination of circumstances.

Again, what do you mean by "a terrible combination of the circumstances?"

See, we do agree on something!

I think we actually agree on virtually everything. Our only differences are on the appropriate role of government, the size of the social safety net (and what constitute reasonable sacrifices for people who are working).

I feel that a societal safety net is something the government should handle, rather than leaving people to their own devices. Self-reliance is an excellent quality, but none of us can control everything in our lives. I believe one of the functions of government is to protect its citizens from disaster and to help them recover when it occurs.
[snip]That's why I'm in favor of a government-guaranteed floor on income in old age. Now, there is a LOT to argue about regarding the best way to fund that, or manage it, or dole it out, but privatizing it takes it out of the government hands and I don't think that's the best move because at the end of the day you'll still need to fund some helicopters because every day a few boats get smashed.

And you don't feel that the guarantee on income in old age is sufficiently provided by the ability to receive payments if someone is injured or otherwise disabled and unable to work? I honestly don't have a problem with telling someone who mangles their finances that they must work to support themselves beyond the age at which most people retire--to me, that's a reasonable consequence of seriously mismanaging one's finances (and then getting unlucky, etc.).

Again, I do not view retirement as a right that we should guarantee to everyone, no matter what they do in life and what choices they make. Retirement is something that many, many people plan for and work for years to earn.

If we expand it to injuries outside of work then it's no longer worker's comp, is it?

And why make employers, that is private business pay for covering ALL disabled? Isn't that more properly a role of government?

First of all, even the privatized schemes that I think are reasonable provide payments for people who are legitimately disabled. Moreover, worker's compensation is fundamentally just another form of social insurance that covers specific kinds of disabilities. If you institute such a program that goes beyond workplace injuries with the funds saved from not financing Social Security, you can achieve a system identical to just retaining some funds that would otherwise go wholesale into Social Security and reserve them for people who are disabled.

In other words, privatized Social Security (or whatever you want to call the new system) is a much better system for targeting those who are legitimately in need of some safety net, because it only provides payments for those who are disabled and cannot reasonably support themselves.

I just don't realistically know what fraction of Social Security payments go to people with disabilities.

According to what I could find on line in 5 minutes of google, it's about 14%.

Spouses of both retired and disabled workers is about 5.4% of the program

Survivors of beneficiaries is 9.5 %

Children of beneficiares is 8.2 % of the program.

From here[/quote]

So, realistically, the 20-25% that I had ear-marked for disability benefits is about right for providing disability coverage.

And I favor making adjustments to the government-run system rather than converting it even partially to a non-governmental system. This, after all, is supposed to be the floor - people are entirely free to add to this floor by making their own investments.

But beyond government-sponsored savings programs like IRA's and 401(k)'s, saving money becomes quite expensive.

Even with the Bush tax cuts, I pay enough in federal and state income taxes so that it "costs" me close to $2.75 to save the equivalent of even $1 of my contribution to a Privatized Social Security system or to a 401(k) or an IRA account. In reality, depending on the scheme it's even a little worse than that because of tax issues I will have when I collect interest on a non-government savings policy. So I admit that it's possible to save more than is allowed by a government savings plan, but it gets quite a bit more expensive after that.

You are free NOW to work as long as you'd like - or as little as you can afford to.

It just... takes a lot longer for some people because of Social Security payments.

All of which were supposed to be in place for first IRA's then 401(k)'s and all of which have been diluted over time due to people wanting control over their money.

Policy decisions of this sort have to be based on what people actually do, not what you hope they do or expect an idealized "average person" to do. While the scheme you favor would undoubtedly enable some to be better off I don't want anyone to be worse off than they would be under the current system.

I fundamentally think that that's an unreasonable policy decision. You cannot disregard significant welfare gains to a massive fraction of the population to avoid slight discomfort to a very small group of people--especially since the only realistic way in which those people would get there would be by their own folly..

So how is it that the privatized Social Security plan isn't able to do this? And, again, the current system's rules aren't working now. I'm sure that you'd concede that there are 65-year-olds who face great difficulty if they try to continue working, and your proposal would strip them of their safety-net far more completely than the privatized system (by making them ineligible to collect Social Security, vs. allowing them to collect from their private account).

How would my current proposal "strip them" of autonomy? If they want to retire "early" they must earn the privilege, the same as now. I don't expect an iron line at 70, but rather if you opt in to the "new" system earlier than 70 there is a penalty (just as there is now if you start collecting before 65) and you can increase the monthly amount for anyone willing to delay retirement a few years - as many already do.

I never said it would strip them of autonomy: your system would strip them of their safety net if they're 65 and can't work anymore.

And I don't see the coupling of benefits to retirement age as a "penalty" as you describe. It's based on an evaluation of the present value of retiring at 65 and receiving payments until 88 (or whatever the life expectancy is for someone who's lived to that age) and someone who waits until they're 70 to start collecting. Not only are we paying the person who waits until 70 5 fewer years worth of payments, but we also have some savings thanks to the net present value effect. Your system of delaying the age at which people can collect funds will realistically realize only gains from the self-selection bias (since people who think they are unusually healthy or cautious will tend to wait to collect later, knowing that they will likely still be able to collect benefits for a long time, whereas 65 year olds in very poor health will tend to collect earlier just so they can still get something from social security). Actually, now that I think about it, that self-selection issue is probably already adjusted for, so you'd really only save on people who die before 70 and who would have collected at 65. Your proposal would, realistically, need to be coupled with benefits cuts even to beneficiaries in order to realize any substantial savings beyond that.

But for other people in different circumstances, there are much better options available, and privatized Social Security seems to me to be a reasonable way of opening up those choices to them.

They can exercise those options NOW by making private investments so that they will never need SS at all.[/quote]

As I said: that is VERY expensive because the government favors its own plans so heavily through tax laws. I almost need to avoid spending $3 to be equivalent of saving $1 of my money through an IRA (or, alternatively, if I save $1 through an IRA that's equivalent to me saving $3 personally). A lot of that, admittedly, is dependent on tax bracket, but people who have more limited incomes will face other problems if they try to save, because there are realistic limits as to how little someone can consume in any given period of time.

[Broomstick]

I have thought about your last post for a couple of days, and rather than engage in a paragraph by paragraph rebuttal (haven't we done enough of that lately?) I will mention three points I think are key:

1) We actually do agree on quite a few things (though obviously not everything)

2) There is an ideological difference between us, largely concerning how much of a role there should be for government involvement in this issue.

3) I think (we're getting into opinion territory here) that one of the reasons you are so much in favor of privatization and against maintaining the "government pension" of social security is that you are convinced that YOU will never need that form of government assistance. Although there are some people who are sooooo wealthy they really never need fear being poor no matter what occurs, I think that exalted state is rarer than people think. What you're saying is that you don't think there is any collection of poor decisions/bad luck that will result in you losing everything, including your private investments/pensions. I, on the other hand, am concerned about exactly that happening to me, or my family, or my friends.* I think those two different viewpoints are at the root of quite a few of our differences on this issue.

* In part, this is because I have seen exactly that happen. You tend to dismiss those instances as "anecdotes" but I take them as object lessons about what could happen. Again, differing viewpoints concerning the same data.

[Darth Wong]

So MoO, what happens if there's a serious illness in your family and you either don't have health insurance or your health insurer gives you a nice big fat "DENIED" on your claim?

This whole time, you've been talking about being able to retire early, and just waving away any fears of everything going to hell. You're looking at the upside, but not the downside. Ironically enough, in engineering, we use the words "conservative" and "liberal" in the opposite way: it is "conservative" to worry about the downside, while it is "liberal" to be optimistic.

[Master of Ossus]

So MoO, what happens if there's a serious illness in your family and you either don't have health insurance or your health insurer gives you a nice big fat "DENIED" on your claim?

This whole time, you've been talking about being able to retire early, and just waving away any fears of everything going to hell. You're looking at the upside, but not the downside. Ironically enough, in engineering, we use the words "conservative" and "liberal" in the opposite way: it is "conservative" to worry about the downside, while it is "liberal" to be optimistic.

Well, assuming that the family member qualifies for disability, they'd get comparable pay-outs as under current Social Security.

If you just mean the immediate medical payments, it would depend on the precise revision adopted. Under some plans, though, you would be able to make withdrawals from your own privatized account to pay for medical coverage--something that current Social Security does not let you do, so you'd be in a much better position to handle such a problem.

[Master of Ossus]

2) There is an ideological difference between us, largely concerning how much of a role there should be for government involvement in this issue.

3) I think (we're getting into opinion territory here) that one of the reasons you are so much in favor of privatization and against maintaining the "government pension" of social security is that you are convinced that YOU will never need that form of government assistance. Although there are some people who are sooooo wealthy they really never need fear being poor no matter what occurs, I think that exalted state is rarer than people think. What you're saying is that you don't think there is any collection of poor decisions/bad luck that will result in you losing everything, including your private investments/pensions. I, on the other hand, am concerned about exactly that happening to me, or my family, or my friends.* I think those two different viewpoints are at the root of quite a few of our differences on this issue.

I think that you have framed the central ideological divide reasonably. Here is my argument as to the "big picture" on Social Security:

1. Social Security was created at a time where there were more than 10 people of working-age for every retiree in the nation. In the near future, there will be one retiree for every three, or maybe even every two workers in the country. To saddle the workers with the upkeep of so many retirees is to impose a very substantial burden on the workers. In fact, I view this burden as being very unreasonable.

2. More personally, I am likely to be working an additional 5+ years of my life because of the current social security structure. During that time, as compared to the privatized Social Security plan that I presented in broad terms, above (e.g., 5% pre-tax from the employee, with matching funds from the employer, and the remainder of the current SS budget going to people with disabilities), the current Social Security scheme has me paying for people who are not disabled and are physically capable of working but nonetheless collect a Social Security check.

Essentially, I am working for an extra half decade so other people can retire. In such stark terms, that makes no sense to me. I can think of no moral justification for making someone ELSE work so that I can retire early. That doesn't strike me as being a legitimate trade-off: ideally people should work to earn their own retirements but should not be responsible for someone else's. I confess that I would be more willing to accept this trade-off (although I still would see little reason for it) if the magnitude of the burden were smaller, but because of demographic changes in the US the Social Security program no longer places modest demands on wage-earners. In fact, supporting the program has become quite onerous and will only grow worse from here.

To some extent, I am sure that my position on this trade-off is influenced by the fact that I am one of the ones who is paying through the nose to support it. And, yet, I can still see no moral imperative to provide such a program.

As a social safety net, Social Security is both under-inclusive and over-inclusive: it provides pay-outs to people who do not reasonably need them (wherever you draw that cut-off), but does not allow payments to be made to people who are, for instance, jobless or destitute unless they meet certain age requirements.

Furthermore, the structure of Social Security makes for very poor returns on investment, which prevents it from making any sort of financial sense to someone who's making any meaningful contributions to the program. The fact of the matter is, the vast majority of people could probably do better at saving for their own retirements, and depending on the plan this could arguably even help SS function better as a safety net by allowing people to spend their own money on things that are important to them.

[Darth Wong]

So MoO, what happens if there's a serious illness in your family and you either don't have health insurance or your health insurer gives you a nice big fat "DENIED" on your claim?

This whole time, you've been talking about being able to retire early, and just waving away any fears of everything going to hell. You're looking at the upside, but not the downside. Ironically enough, in engineering, we use the words "conservative" and "liberal" in the opposite way: it is "conservative" to worry about the downside, while it is "liberal" to be optimistic.

Well, assuming that the family member qualifies for disability, they'd get comparable pay-outs as under current Social Security.

If you just mean the immediate medical payments, it would depend on the precise revision adopted. Under some plans, though, you would be able to make withdrawals from your own privatized account to pay for medical coverage--something that current Social Security does not let you do, so you'd be in a much better position to handle such a problem.

Actually, that's half the problem with your society. If you run into serious medical bills, they expect you to drain all of your life savings and basically make yourself impoverished before the government will step in to reluctantly help. But please, feel free to go on pretending this is an advantage rather than a disadvantage.

Again, you're totally downplaying the risk of things going wrong. You don't delve into it because you simply don't think it could ever happen to you, and you feel that the people to whom it does happen are ... well, let's just say that you think they deserve it. Maybe you won't come out and say it in those terms, but that's what you think, whether you admit it or not. I know, because I used to say a lot of the same things you say.

[Broomstick]

1. Social Security was created at a time where there were more than 10 people of working-age for every retiree in the nation. In the near future, there will be one retiree for every three, or maybe even every two workers in the country. To saddle the workers with the upkeep of so many retirees is to impose a very substantial burden on the workers. In fact, I view this burden as being very unreasonable.

We do, in fact, agree on all of the above. I do wonder, though, how raising the SS collection age to 70 would affect those demographics. Would it be sufficient to increase the number of workers per retiree? What about raising the SS retirement to 75? Remember that when SS was started life expectancy was significantly shorter than today and this helped to keep the number of workers vs. retirees high.

2. More personally, I am likely to be working an additional 5+ years of my life because of the current social security structure. During that time, as compared to the privatized Social Se curity plan that I presented in broad terms, above (e.g., 5% pre-tax from the employee, with matching funds from the employer, and the remainder of the current SS budget going to people with disabilities), the current Social Security scheme has me paying for people who are not disabled and are physically capable of working but nonetheless collect a Social Security check.

And when you reach a similar age you, too, will be able to collect SS even if you are physically able to work. So, assuming you live long enough, you will get that money back.

Essentially, I am working for an extra half decade so other people can retire. In such stark terms, that makes no sense to me. I can think of no moral justification for making someone ELSE work so that I can retire early. That doesn't strike me as being a legitimate trade-off: ideally people should work to earn their own retirements but should not be responsible for someone else's. I confess that I would be more willing to accept this trade-off (although I still would see little reason for it) if the magnitude of the burden were smaller, but because of demographic changes in the US the Social Security program no longer places modest demands on wage-earners. In fact, supporting the program has become quite onerous and will only grow worse from here.

Again, changing the age when payouts can be taken will significantly affect that balance.

Keep in mind, too, that in addition to retirement this is also a form of disability insurance for everyone. How much does a long-term disability insurance policy cost? How much are premiums over a working lifetime.? Keep in mind, too, that SSD has NO upper payout limit, unlike most private disability insurance. Have you factored THAT into your equations? If you have, how does that affect the reasonableness of the situation.

You DO have long term disability insurance, right? I mean other than that nasty, government-run program you dislike so much. If not, why not? Are you unbreakable?

To some extent, I am sure that my position on this trade-off is influenced by the fact that I am one of the ones who is paying through the nose to support it. And, yet, I can still see no moral imperative to provide such a program.

Well, the Christians would say something like "I am my brother's keeper" but since I'm not a Christian I won't.

MY people would say "what goes around comes around" or some variant of it, with the idea that there is a spiritual good that comes from serving the larger community and taking care of those fallen on hard times so that you, in turn, will be taken care of when you need it.

But, if your an atheist I suppose appealing to such faith-based reasons will not work. In which case.... everyone pays into the social safety net with the idea that it will be there if they ever need it. In general, the only ones who object to such arrangements are those who are convinced they will never, ever need them.

In which case I ask - why do you think you are immune to misfortune?

As a social safety net, Social Security is both under-inclusive and over-inclusive: it provides pay-outs to people who do not reasonably need them (wherever you draw that cut-off), but does not allow payments to be made to people who are, for instance, jobless or destitute unless they meet certain age requirements.

No government run program - or really, ANY program - that deals with millions of people will ever be perfect. However, it may be good enough that the benefit to millions outweighs the few imperfections. Whether SS falls into that category is, of course, debatable.

I think, perhaps, you keep forgetting that SS is also disability insurance, and that will apply at any age should you meet the requirements. So, again, I ask you - why do you think you're immune to disability? Or do you have private, long-term disability insurance?

I also think that you, like many Americans completely fail to understand just how devastating a medical problem can be even with excellent insurance. Copayments and costs for cancer treatment, that is, what the patient has to pay over and above insurance coverage, can easily run $50,000 a year (or more). Tell me, are YOU capable of paying $50k right now for any bill?

A bad traffic accident can run up similar bills, or even higher.

A bad burn can cost millions of dollars to treat - tell me, could YOU handle a "co-payment" of $500K?

Unless you have that kind of money on hand and available to you, you are also vulnerable to financial destitution. And maybe you're thinking that you can "catch up" after you recover, but what if that accident or injury or condition leaves you NOT totally disabled, but with diminished ability to work? You will NEVER catch up.

And THAT is why SS exists - as a last resort. As insurance as much as a pension. If you make it to XX age without needing the insurance then you can collect as a pension.

[Master of Ossus]

Actually, that's half the problem with your society. If you run into serious medical bills, they expect you to drain all of your life savings and basically make yourself impoverished before the government will step in to reluctantly help. But please, feel free to go on pretending this is an advantage rather than a disadvantage.

The privatized Social Security accounts present a huge advantage over what exists, now.

Again, you're totally downplaying the risk of things going wrong. You don't delve into it because you simply don't think it could ever happen to you, and you feel that the people to whom it does happen are ... well, let's just say that you think they deserve it. Maybe you won't come out and say it in those terms, but that's what you think, whether you admit it or not. I know, because I used to say a lot of the same things you say.

Look, if you're not willing to read a brochure in order to learn how to invest your retirement money, then you do deserve what happens to you. That really is a case where someone is poor, if not because they wish to be, then because of total indifference to their own poverty. And that's the sort of scenario that we're talking about, here. I don't feel sorry for someone like that, and certainly not to the point where I think people like me should be obligated to step in and take care of them by working for years and years.

[Master of Ossus]

We do, in fact, agree on all of the above. I do wonder, though, how raising the SS collection age to 70 would affect those demographics. Would it be sufficient to increase the number of workers per retiree? What about raising the SS retirement to 75? Remember that when SS was started life expectancy was significantly shorter than today and this helped to keep the number of workers vs. retirees high.

True. I don't think that raising the eligibility age would change things much, though--people would just retire and then wait for their (now-larger) SS payments to come later. If anything, though, that would exacerbate the problem of retirees' dependence on the government because they would exhaust their nest eggs earlier and then be left at the mercy of Social Security system changes.

And when you reach a similar age you, too, will be able to collect SS even if you are physically able to work. So, assuming you live long enough, you will get that money back.

Bullshit. Even if Social Security exists when I get to be that old (and that they don't just disqualify me), I will never get out what I put into the system because of my income bracket because I will be hit with a pitifully low rate of return, as compared to what I could have gotten with a private account.

Again, changing the age when payouts can be taken will significantly affect that balance.

Keep in mind, too, that in addition to retirement this is also a form of disability insurance for everyone. How much does a long-term disability insurance policy cost? How much are premiums over a working lifetime.? Keep in mind, too, that SSD has NO upper payout limit, unlike most private disability insurance. Have you factored THAT into your equations? If you have, how does that affect the reasonableness of the situation.

I assume that disability benefits will cost the same as they do, today, so the coverage should be similar if not identical--that's what the "net loss" 2.44% goes to in the privatized scenario.

You DO have long term disability insurance, right? I mean other than that nasty, government-run program you dislike so much. If not, why not? Are you unbreakable?

I have disability insurance and long-term care insurance.

TWell, the Christians would say something like "I am my brother's keeper" but since I'm not a Christian I won't.

MY people would say "what goes around comes around" or some variant of it, with the idea that there is a spiritual good that comes from serving the larger community and taking care of those fallen on hard times so that you, in turn, will be taken care of when you need it.

A spiritual good that makes it worth working for seven years of my life? Come on. We both know that going to work takes a psychic toll on virtually everyone, and having to subject oneself to that for years is not made up for by any good feeling I get out of helping people who don't bother to read brochures in order to help themselves.

But, if your an atheist I suppose appealing to such faith-based reasons will not work. In which case.... everyone pays into the social safety net with the idea that it will be there if they ever need it. In general, the only ones who object to such arrangements are those who are convinced they will never, ever need them.

In which case I ask - why do you think you are immune to misfortune?

I think I would be much more immune to misfortune if I had a privatized Social Security account than what we have, now, because I'm paying vastly more into the system than I will ever get out of it, and because the private account would give me greater access and control of that money than I currently have. Moreover, I think that the PSS account is good for society, because many, many people would be better able to manage their money if they had the PSS account, and because it has additional advantages over the current system.

No government run program - or really, ANY program - that deals with millions of people will ever be perfect. However, it may be good enough that the benefit to millions outweighs the few imperfections. Whether SS falls into that category is, of course, debatable.

I think, perhaps, you keep forgetting that SS is also disability insurance, and that will apply at any age should you meet the requirements. So, again, I ask you - why do you think you're immune to disability? Or do you have private, long-term disability insurance?

I have long-term care and disability insurance through my job and my private expenditures, but moreover I did take into account disability coverage in the PSS scenario that I presented--that's the extra 2.4% of my pre-tax income that will be deducted.

I also think that you, like many Americans completely fail to understand just how devastating a medical problem can be even with excellent insurance. Copayments and costs for cancer treatment, that is, what the patient has to pay over and above insurance coverage, can easily run $50,000 a year (or more). Tell me, are YOU capable of paying $50k right now for any bill?

Uh... yes. And, anyways, it's a false analogy because I would be able to increase my liquidity over the course of an entire year to make those payments.

But, moreover, my copay is not large enough to have to pay that sort of amount, unless I'm literally getting hit with hundreds of separate medical visits.

Finally, and by far most relevantly, the PSS system is better for handling these (or, at least, no worse) because it would let people dip into their retirement funds earlier than planned if big disasters like medical emergencies arose.

A bad burn can cost millions of dollars to treat - tell me, could YOU handle a "co-payment" of $500K?

Can you explain to me how you're generating these co-payment figures? But, yes, I could pay that if I had sufficient time to sell off some illiquid assets (say a couple of months).

Unless you have that kind of money on hand and available to you, you are also vulnerable to financial destitution. And maybe you're thinking that you can "catch up" after you recover, but what if that accident or injury or condition leaves you NOT totally disabled, but with diminished ability to work? You will NEVER catch up.

And THAT is why SS exists - as a last resort. As insurance as much as a pension. If you make it to XX age without needing the insurance then you can collect as a pension.

[sigh] Social Security fails miserably in that regard. I'm not old enough to qualify for it, so in your scenario in which I am injured so seriously I could not continue working but not so seriously as to be disabled, then I would be out of luck with the current system, too. Except that the privatized account would make it MY money, so I could make adjustments to my lifestyle immediately that would help out considerably over the long-haul and, at least under some schemes, I would enjoy some immediate access to my cash. An injury as you describe would be seriously damaging from (among other perspectives) a financial standpoint, but with privatized social security I would be better able to handle it because I would have greater access to my money than under the current system.

I don't know why you and DW keep harping on medical expenses--the privatized Social Security system I have outlined, except under very exotic situations (e.g., a 65 year old who has never paid into Social Security or made only token contributions), is much better able to address such issues than the current system. Certainly it is no worse for people who make even modest contributions to the system.

[Broomstick]

A spiritual good that makes it worth working for seven years of my life? Come on. We both know that going to work takes a psychic toll on virtually everyone, and having to subject oneself to that for years is not made up for by any good feeling I get out of helping people who don't bother to read brochures in order to help themselves.

I'm not talking here about "reading brochures" - I'm talking about situations where you read the brochure, made investments, and your costs exceed the total worth of those investments.

No government run program - or really, ANY program - that deals with millions of people will ever be perfect. However, it may be good enough that the benefit to millions outweighs the few imperfections. Whether SS falls into that category is, of course, debatable.

I think, perhaps, you keep forgetting that SS is also disability insurance, and that will apply at any age should you meet the requirements. So, again, I ask you - why do you think you're immune to disability? Or do you have private, long-term disability insurance?

I have long-term care and disability insurance through my job

So, if you lose that job you also lose that insurance. How secure is your job?

If, like my current situation, you are laid off what then? COBRA is only good for 18 months, after which you're on your own. What if you're out of work for two years? If something happens when you're between policies you are fucked, aren't you?

I also think that you, like many Americans completely fail to understand just how devastating a medical problem can be even with excellent insurance. Copayments and costs for cancer treatment, that is, what the patient has to pay over and above insurance coverage, can easily run $50,000 a year (or more). Tell me, are YOU capable of paying $50k right now for any bill?

Uh... yes. And, anyways, it's a false analogy because I would be able to increase my liquidity over the course of an entire year to make those payments.

But, moreover, my copay is not large enough to have to pay that sort of amount, unless I'm literally getting hit with hundreds of separate medical visits.

Finally, and by far most relevantly, the PSS system is better for handling these (or, at least, no worse) because it would let people dip into their retirement funds earlier than planned if big disasters like medical emergencies arose.

A bad burn can cost millions of dollars to treat - tell me, could YOU handle a "co-payment" of $500K?

Can you explain to me how you're generating these co-payment figures?

I used to work for Blue Cross. We saw those situations happen to people. I could go into details, except that there are confidentiality concerns and you'd just dismiss individual cases as anecdote. There are papers published in peer reviewed journals about the issue, but while you can get the names of these documents on line they are not available for free - I used to get them at work, but of course, I was laid off last November and no longer have access to free copies.

However, let's look at a few unpleasant facts. The drug Gleevic is used ot treat certain types of leukemia. Out of pocket costs - that is, what the patient pays - can frequently run $1,000-2,000 a month, $12-24k per year. Out of pocket. For just the drug, not for doctor fees, tests or any other health care costs. If it puts the leukemia into remission that's good - but you have to continue the drug for life (or get a bone marrow transplant, which isn't cheap either and also cost major dollars). Tell me, could YOU afford, right now, to pay $12,000-24,000 per year over and above the cost of everything else in your life? For the rest of your life? AND have money to invest for retirement on top of that?

Nor is that the only drug I can think of that costs amazing amounts of money. Factor VIII for hemophilia is pretty pricey, too. Lucentis, used to help prevent blindness in macular degeneration, is about $2,000 per injection and is typically injected monthly, but when I left Blue Cross many health insurance policies refused to pay for it.

A lot depends on what your actual insurance policy covers. What a policy doesn't cover can be surprising to people. I've seen policies that impose a 20-30% copay on hospital costs. That's 200-300k for every million dollars of treatment, so a major burn that costs 2 million to treat would be a "co-pay" of $400-600K. Many policies have a 1 million maximum lifetime payout - meaning a 2 million dollar injury gives you 200-300K in "co-pay" then quits - leaving you with everything above that, or $1,200,000 to $1,300,000.

Hell, I've seen policies that only cover 50% of hospital costs.

But, yes, I could pay that if I had sufficient time to sell off some illiquid assets (say a couple of months).

Hospitals and doctors don't give you "a couple months" - payment is typically due within 30 days of getting the bill. They've gotten much more aggressive in recent years in sending people to collections or dragging them into court. A court-ordered garnishment of wages - which can and does occur - means those who hold your debt get first crack at your paycheck and will most likely leave you with barely enough to live on, much less to save/invest for retirement.

I don't know why you and DW keep harping on medical expenses

Because that's one of the most common scenarios where someone is left financially destitute because of circumstances beyond their control. Sure, your proposed system allows them to tap into 20% of social security, but then such a person at retirement only receives 80% of what they would now AND has additional medical expenses on top of that. How is this a gain? Remember, this has nothing to do with whether or not someone read a brochure but rather whether or not some misfortune occurs to them.

[Vendetta]

Because that's one of the most common scenarios where someone is left financially destitute because of circumstances beyond their control.

Medical costs are the most common cause of personal insolvency in the United States.

[Sikon]

Much of the discussion above can distract from a fundamental aspect of this:

Current social security already doesn't pay one cent of someone's medical expenses before retirement age, except for the disability insurance and survivors* small portion of the total program. That's a portion which can remain funded under plans for allowing a fraction of current payroll tax collections to be put into private savings accounts if the individual particular worker makes the optional decision.

* (Some spouses of retired or disabled workers, children of retired / deceased / disabled workers, and other survivors receive such, in addition to disabled workers).

For example, the average non-disabled worker who suffers a medical expense at age 40 receives nothing from social security now, and, in the potential case of a private savings plan not setup to allow withdrawal before retirement age, he would receive nothing under a partially privatized program either.

Nothing = nothing, an equal situation for typical pre-retirement medical care expense coverage by social security.

A difference from the preceding would occur *if* the partially privatized social security plan differed from current social security by allowing cashing in at any age, such as if someone wants to argue that the current social security program should be changed to permit it, in which case funds required are increased either way.

It is noteworthy but rather questionable how popular raising the retirement age is as an alternative to partially privatizing the system. For example, if it was raised to a higher figure like age 70 instead of 65-67 for normal retirement age, that becomes significantly closer to a person merely dying soon after starting to get benefits, when the average life expectancy is 78 years.

***************

In the U.S., there is Medicare providing health insurance coverage to people of age 65 and older, but that is separate from social security, financed not by the 12.4% (6.2% worker + 6.2% employer) social security tax but by a 2.9% FICA tax (1.45% + 1.45%). Although sometimes casually referred to lumped together, they are separate, and by default a partially privatized social security program doesn't change the amount of funding for Medicare.

[Sikon]

If a system can lower or provide an alternative to raising the average retirement age for most people, while having those unfortunate enough to suffer major medical expenses before Medicare eligibility age no worse off than they are currently, that's a net gain overall.

[Darth Wong]

Of course SS doesn't currently pay medical expenses. That's one of the good things about it: it can't be tapped to pay for medical bills, so it's one of the few parts of your assets which can't be seized for that purpose. The American medical "system", as noted previously, is set up to ensure that you are impoverished before it will help you out. It will attempt to drain every accessible resource you have.