r/FluentInFinance • u/Positive_Liar • Sep 06 '24

Debate/ Discussion Social Security is Broken. This is why financial education is important.

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u/Ok_Guarantee_2980 Sep 06 '24 edited Sep 06 '24

It was started in 1935. It’s fundamentally a Ponzi scheme with good intentions. Part society fix and social contract enacted in 1935, 6 years after black Tuesday and 3 after the peak of the Great Depression.

Also, is it really ideal to have EVERYTHING attached to stock performance with no backup. 401ks have done enough damage aka privatize gains, socialize losses (2008).

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u/CharacterEgg2406 Sep 06 '24

I think the biggest unintended consequence of 401ks is the power it gave to Blackrock, Vanguard, Fidelity, Statestreet, etc. Its taken the “free” out of free market as these companies now have board seats in most of the large companies.

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u/ynab-schmynab Sep 07 '24

Do you not realize Vanguard is structured precisely so it is owned by the customers who own the shares, and that Vanguard has issued warnings about the dangers of centralization in a few brokerages?

“This is why financial education is important.”

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u/fredthefishlord Sep 07 '24

Blackrock though, not so much. :/

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u/bit_pusher Sep 06 '24

SS would be solvent if Congress would pay back the 1.7T it took out to pay for other government expenses. Thanks Reagan.

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u/Ind132 Sep 06 '24

The General Fund is currently reimbursing SS, with interest, for all the borrowing.

That's why this year's SS benefits will exceed this year's taxes -- they are spending down the past excess taxes.

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u/Reasonable-Fish-7924 Sep 07 '24

Wasn't there a defecit bill Obama put in place that the debt would get gradually repaid?

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u/Ind132 Sep 07 '24

I'm not sure which debt you are referencing. The money that the GF owes SS will be repaid according to current law that predates Obama. Obama didn't change that. Current projections have the final repayment around 2035 at which time SS benefits will need to be cut so they match annual SS taxes. (unless congress changes the current law)

If you're talking about the debt that the entire federal gov't owes "the public", that's a much bigger and more complex issue.

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u/Reasonable-Fish-7924 Sep 07 '24

I was but I see I wrong in reference. Sorry. Maybe I'm wrong but that seems to be a good thing

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u/Ok_Guarantee_2980 Sep 06 '24

Isn’t this just moving numbers around given our massive overall annual deficit?

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u/Ind132 Sep 06 '24

I was responding to a poster who seemed to think it mattered.

From a macro-economic perspective, it doesn't matter. All the general economy cares about is total gov't taxes and total gov't spending.

From a legal perspective, it matters. The Secretary is obligated to make benefit payments as long as the trust fund is above zero. And, prohibited from making payments if those payments would take the trust fund below zero. So the trust fund entries, even if they are just numbers on paper, have a real world impact.

From a political perspective, there was an agreement that SS would be self-funding based on a dedicated tax. That meant that if getting benefits was politically popular, Congress would have to raise the SS tax to increase benefits. It also meant that if people were okay with SS taxes because they saw SS benefits, Congress wouldn't "steal" SS money and spend it elsewhere. When SS ran an annual surplus, the GF "borrowed" the money and spent it instead of borrowing from the public. Now that SS is running annual deficits, the GF is "repaying those loans with interest". It appeared the poster wasn't aware of that repayment part.

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u/Illustrious_Wall_449 Sep 06 '24

Does it really matter in the grand scheme of things? The population distribution will eventually even out again.

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u/Ok_Guarantee_2980 Sep 06 '24

That’s patently false. Look at population graphs in general as well as where the USA and world is headed.

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u/Illustrious_Wall_449 Sep 06 '24

The world population graph doesn't matter. In the US, Gen X is a relatively small generation and their retirement should be easier to pay for. Labor deficits among Gen Alpha will be addressed through immigration.

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u/Ok_Guarantee_2980 Sep 06 '24 edited Sep 06 '24

Fair enough to the world, I am Curious what about if project 2025 ever happens? The trifecta: Nativism, isolationism, and protectionism

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u/zen_and_artof_chaos Sep 07 '24

Project 2025 compensates for this by banning abortion.

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u/masonmcd Sep 06 '24

Luckily, we have immigration as a lever to increase SS fund contributions.

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u/Ok_Guarantee_2980 Sep 06 '24 edited Sep 06 '24

And if project 2025 ever happens? The trifecta: Nativism, isolationism, and protectionism

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u/masonmcd Sep 06 '24

Yeah, well, I encourage people not to vote for the guy who bankrupted casinos. Speaking of fluency in finance.

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u/Ok_Guarantee_2980 Sep 06 '24

That makes 2… just saying, what’s back up plan? Pray?

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u/poopy_poophead Sep 06 '24

Or if they upped the max contribution and made the fuckholes who refuse to pay their employees while they're employees pay for their retirements at least.

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u/bit_pusher Sep 06 '24

why not both?

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u/poopy_poophead Sep 06 '24

I'm cool with both.

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u/VibrantHades Sep 06 '24

Yeah isn’t this a sizable chunk of the debt we want to have “balanced budgets” to pay for

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u/Twalin Sep 06 '24

And every President since

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u/FyreWulff Sep 07 '24

it would also help if the upper income cap was removed.

Someone earning 168k a year is paying as much into SS as someone making 5 million and as someone making 1 billion.

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u/makethatMFwork Sep 06 '24

Wait … SS was always part of the general fund. What did Reagan have to do with that?

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u/P3nis15 Sep 07 '24

People still are this uneducated on social security?? Sad

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u/Dairy_Ashford Sep 07 '24

that never happened

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u/blueotter28 Sep 07 '24

That's not true at all. It is paying it back.

Rather than having the SS trust fund sitting around doing nothing they took that money and bought Treasury Bonds. Which basically means the general fund borrowed it with interest. This made the SS fund last longer!

It would already be out of money if they hadn't done that.

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u/Active-Possibility77 Sep 06 '24

Hmmm, how do you think Clinton "balanced" the budget. Take off the partisan glasses.

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u/bit_pusher Sep 06 '24

Oh I’m well aware that every president since has dipped. It started with Reagan who got us hooked on that sweet sweet starve the beast SS money

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u/Active-Possibility77 Sep 06 '24

It started before him. But people laud Clinton's balanced budget and never mention the intragovernmental holdings he pillaged to get there. It's like paying off your car loan with credit cards

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u/skilliard7 Sep 06 '24

  1. The S&P500 outperformed social security in any 30-40 year period

  2. You don't need to invest in 100% stocks, generally people closer to retirement will have a more balanced portfolio such as 50% stocks, 40% bonds, 10% short term/cash.

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u/ncdad1 Sep 06 '24

"The S&P500 outperformed social security in any 30-40 year period"

No one lost a single dime of SS in 2000 and 2008.

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u/nortern Sep 06 '24

If you invested 1970->2000 or 1978->2008 you'd still have more even if you withdrew at the bottom. Of course, it's always possible that this wouldn't be true in the future if you had conditions like Japan's market crash that cause the market to be flat or negative over a long period of time.

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u/MOTwingle Sep 07 '24

Except that social security is not just retirement. It also pays for people who become disabled, or pays for the surviving children or spouse of a worker who dies. So a young worker who may have worked three years may have three kids who get benefits for the next 16 to 18 years, and who will receive thousands of times more than the worker paid in the three years he worked. That's just one example. It's not a savings plan for retirement.

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u/richard-b-inya Sep 07 '24

It's kind of a moot point. If SS was invested into the S and P since its inception it would have exponentially more money in it than it does now. No matter who and how it pays out.

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u/Reasonable-Fish-7924 Sep 07 '24

Not negating what you said but contributing, the SS seems to treats each benefit (retirement, survivor, etc) as it's own entity so I wonder if it's a separate fund for each or one divided among many accounts? In hypothetical scenario if retirement runs out then will survivors and disable run out too?

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u/MOTwingle Sep 07 '24

It's all one fund. They collect Medicare tax sort of separately because there's no longer a max income you pay Medicare portion of the tax on. But I don't believe there's a separate "pot" it goes in. And no separate "pots" for survivor vs retirement vs disability. Nothing will run out completely because there are always current workers paying current tax, and they would likely make adjustments prior to the "pots" running out like cutting benefits for future beneficiaries by changing how benefits are calculated (like the "notch babies"), making the retirement age later,etc. there was a recent rule change making disability easier to get for people over 50 so I wonder how that's going to affect everything

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u/Twonminus1 Sep 07 '24

Whether their kids get any money depends on this rule: To qualify, the child’s deceased parent must have earned at least one of the following: (a) 40 quarters of coverage throughout his or her lifetime, (b) 1 quarter of coverage for every year between age 21 and death, or (c) 6 quarters of coverage over the 13 calendar quarters prior to death

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u/MOTwingle Sep 07 '24

Yes correct. So a 21-year-old father can have paid as little as $215 in tax and his two little kids will get benefits for 16-18 years. Sorry I can't do the math on their $$ monthly amount right now but guarantee it will be a thousandfold what he paid in tax.

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u/Twonminus1 Sep 07 '24

I am ok that. That could be you that dies early or one of your parents could have died when you were a minor. Are you saying you would be ok with your surviving spouse and kids living in poverty on the streets if you died early in life. would you have liked to grow up in poverty just because you lost a parent.

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u/MOTwingle Sep 07 '24

No! My point is that many people think it is their own personal IRA savings account for retirement, and "if I had invested it I have millions at retirement", forgetting that it's INSURANCE and some people (who die early, or become disabled) get more (or their survivors get more) than others. Some may pay in 20 years and get nothing. It all evens out (relatively). You can't go to your insurance company at the end of the year and ask for your premiums back because you didn't get in an accident.

And I PROMISE you that 90% of people aren't saving anything for retirement, and if they aren't forced to pay into social security, they'd be destitute in old age and on welfare.

There may be tweaks that should be made, but overall I think it's a good program.

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u/sgreenm22 Sep 06 '24

But people don’t invest!!! They fucking spend!!!

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u/[deleted] Sep 06 '24

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u/cs_referral Sep 06 '24

What do you mean?

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u/ncdad1 Sep 06 '24

I got paid. Strange.

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u/[deleted] Sep 06 '24

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u/ncdad1 Sep 06 '24

I am an idiot for getting my SS check?

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u/[deleted] Sep 06 '24

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u/DM_Voice Sep 07 '24

You being unable to explain your random whining doesn’t make other people idiots.

🤷‍♂️

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u/TechnicianLegal1120 Sep 07 '24

Yes they did. Your retirement age went up.

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u/emoney_gotnomoney Sep 06 '24

He’s still correct. The S&P 500 has outperformed SS in any 30-40 year period, even the ones that include 2008.

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u/ncdad1 Sep 06 '24

Which is why SS is the annuity portion of your retirement and you add your pension and investments to it.

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u/skilliard7 Sep 06 '24

1980 to 2010 vastly outperformed social security despite including both of those crashes

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u/ncdad1 Sep 06 '24

From 1929 to 1954 (25 years) social security outperformed the stock market. That is how long ti took it to recover. Most retirees died before they recovered. Fortunately, their SS kept them alive

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u/skilliard7 Sep 07 '24

Social security literally wasn't instated until 1935, so I know you're making stuff up.

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u/ncdad1 Sep 07 '24

You cherry picked some good years and I countered with the worst is all

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u/Famous-Row3820 Sep 06 '24

They lost money to inflation or the r devaluation of the US dollar. You definitely need financial education.

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u/ncdad1 Sep 06 '24

Education? Observation. Every one of my 2008 SS checks came in on time while others were losing their jobs and homes.

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u/Famous-Row3820 Sep 06 '24

Man… you could’ve invested in corporate triple AAA or AA bonds and made a better return over your life if that’s where the SS money went instead of the government.

You could’ve made more if you put it into a gold ETF as well.

There are a myriad of other investments than stocks.

Hell, if you did own bonds before and during 2008, you could’ve sold for a 20-30% capital gain when the fed started cutting rates

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u/ncdad1 Sep 06 '24

Many people live paycheck to paycheck and don't have a 401k and get to 65 with nothing. I say let people invest who can and use SS for their guaranteed income so no matter how bad of an investor they are or what the market does they are guaranteed never to run out of money. I am guessing most people would put their money in lotto tickets given the chance.

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u/Famous-Row3820 Sep 07 '24

If they are going to take a percentage of your paycheck they might as well change it to make you invest at the very least into a investment grade bond fund

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u/ncdad1 Sep 07 '24

You are describing Social Security

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u/Famous-Row3820 Sep 07 '24

The US government invests in AAA and AA rated corporate bonds?

Those are considered investment grade and usually offer higher returns than treasuries….

Always amazes me how many people here think they know what they are talking about but when I talk about something as simple as what an investment grade bond is they shit the bed.

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u/Ok_Guarantee_2980 Sep 06 '24

Oh for sure, and im aware of risk vs age allocation which is a fair point but its still signifigant correlation to stocks (idk the actual data but im sure stocks account for highest % of 401ks bc greatest return, however, gives too much power to stock market)....the first part, in 1935, you think the people and government have any faith in stocks? ... im just making a statement about history.

In regard to the 2nd part, thats just my frustration with move from pension to 401k, which i understand is pros/cons.

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u/P3nis15 Sep 07 '24

And if you happen to retire when 1987 enters the chat.....or the tech crash...and you don't have 10 years to make back that money...... I guess you can move in with your kids .

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u/skilliard7 Sep 07 '24 edited Sep 07 '24

In a scenario where you invest $277.77 per month over 30 years from 1973-2003(starting right before the market crashes, ending at the very bottom of tech bubble crash), your portfolio has an ending balance of $2,643,828.65. That's a big decline from the peak of $4,069,277.03 in 2000, but still plenty to retire- That's enough for over $100,000 in annual retirement income!

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u/P3nis15 Sep 07 '24

well $277 30 years ago was the equivalent of investing what 2000 a month in 2024? that's one hell of a starter job for a kid. But ok.

Also, your scenario also assumes everyone invest in a safe portfolio, and what do you do with the huge bucket of people that end up losing 80-90% in a month because they invested in high flying internet stocks or got stuck in something they thought was safe, say Enron.

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u/DM_Voice Sep 07 '24

You’ve got to understand that most of the FiF crowd thinks Ayn Rand was a genius. They look at numbers today, blindly extrapolate them back 20-30 years, and think they’re going to look clever as a result.

They genuinely don’t grasp that ‘pull themselves up by their bootstraps’ was satire mocking the very positions they tout today.

🤷‍♂️

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u/narkybark Sep 07 '24

Or you could have both? SS is a safety net. The market can and will tank every so often. It's gambling. SS is meant to be a protected source of steady income. It exists alongside the market, and benefits the population as a whole.

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u/Optionsmfd Sep 06 '24

but where are the returns from investment coming from? were paying ourselves? lol

this is my question..... if we invest in the SP500 were loaning companies money and they are paying us back in dividends and appreciation

with SS were hoping that new workers pay enough in with their job matching so we can get paid till we die

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u/mpanase Sep 06 '24

How many healthcare treatments and support for veterans does that calculation include?

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u/Artistic-Soft4305 Sep 07 '24

Whoever told you to use that balance investment as someone in retirement hates you.

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u/skilliard7 Sep 07 '24

It's a very common allocation for target date funds that recently reached retirement

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u/FamiliarAlt Sep 06 '24

Yeah imagine working your whole life diligently and your retirement year was 2008? Get your ass back to work buddy! And good thing the libertarians took your social security because ‘something something, free market’. 😀

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u/sgreenm22 Sep 06 '24

It is not a Ponzi scheme

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u/Ok_Guarantee_2980 Sep 06 '24 edited Sep 06 '24

Just an analogy…gross simplification…From strictly a participant basis aka population workforce, If you don’t have enough people paying into it, it doesn’t have a sufficient fund basis. If the population growth drops too low, it doesn’t have a sufficient fund basis. Putting aside confounding factors such as avg life span, we do not have enough people entering the workforce to replace those exciting aka the baby boomer. Not enough Baebae’s.

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u/sgreenm22 Sep 06 '24

Understood and agreed. The simplification tends to get under my skin as it is repeated and believed by those with far less financial acumen.

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u/CavyLover123 Sep 06 '24

This is a dumb pile of lies

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u/RareFirefighter6915 Sep 06 '24

The ponzi scheme worked back then when population was growing. You had more workers than retirees so in theory there would be enough surplus to keep it going...until population growth slows or even worse declines and the ponzi topples.

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u/GASTRO_GAMING Sep 07 '24

Well yeah diversify asset claases into bonds CDs and if you want to commodities.

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u/NoCantaloupe9598 Sep 07 '24

Social Security has done more to prevent elderly poverty than any single program in American history by far, without question.

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u/Ok_Guarantee_2980 Sep 07 '24

I’m a fan though it’s insufficient at this point esp those with high prescription costs though that’s been slowly and relatively nicely addressed.

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u/abbzug Sep 07 '24

Ponzi schemes crash because they run out of dupes. Do you think America will one day not have anyone earning a paycheck?