Saturday, February 19, 2011

Social Security

Some thoughts on social security:

First, let's remember that Social Security actually provides support at a very modest level. Last year, the average retirement benefit was $1,170 a month, or about $14,000 a year, with the average disabled worker or widow receiving slightly less. (It would be wonderfully educational for the cable talkers and newspaper editorialists to live on that amount for a few months — they would not only lose weight but gain empathy.)
Remember, too, that despite our status as the largest and most productive economy in the world, Social Security is among the least generous retirement programs among all the developed nations. As a percentage of the average worker's pre-retirement wages, the benefit has been declining for years and will continue to fall without any further cutbacks.


The actuarial experts whose job is to monitor Social Security's fortunes have long assured us that small and gradual rises in the tax revenues that support Social Security, accompanied by small and gradual shifts in benefits over the coming years, will solve whatever fiscal challenges the program may eventually confront. There is no reason to panic, and there is certainly no reason to consider wholesale changes in benefits.

Well, there is a reason, but only if your real aim is to destroy the system and replace it with something less useful but more profitable. Wall Street and its servants on Capitol Hill have lusted after Social Security's revenues for many years. And they regard the current uproar over the budget as a fresh opportunity to get their hands on a trillion-dollar bonanza. Given their record in recent years, it is all too easy to imagine how badly that would work out for everybody — except them, of course.

I think that this is precisely correct. The amount of profit that could be derived from the privatization of social security is astounding and I think that it is the real reason that the program is always under attack. Consider this:

But Fred Reish, an employee benefits lawyer, says it is not uncommon for fees on a small 401(k) plan to break down like this: 0.25% a year for the plan adviser, 0.25% a year for the record keeper and 0.75% a year for mutual funds, totaling 1.25%.

Note that this is in addition to the fees charged by mutual funds that most 401k plans allow you to invest in. The average equity mutual fund charges around 1.3%-1.5% The real rate of return on the United States stock market is typically between six and seven percent; likely less under current market conditions. It is easily to imagine half of a person's returns being eaten up by fees (which is a very good deal for people who run retirement funds).

So it is worth keeping in mind that attacks on Social Security, as a program, seem to mostly revolve around attempts to create new markets for investment bankers. In terms of actual budget issues, Paul Krugman puts it best:

What would a serious approach to our fiscal problems involve? I can summarize it in seven words: health care, health care, health care, revenue.

I just wish we would see more of this sort of sanity in the discourse about government fiscal problems.

EDIT: See also; most interesting quote:

Recently, Vanguard has begun urging people to contribute 12% to 15%, including the employer contribution, because of the stock market's weak returns and uncertainty about the future of Social Security and Medicare.

But the article is interesting throughout.

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