LET’S GET THIS SOCIAL SECURITY THING STRAIGHT

Social Security was a topic fairly brushed over during the October 3 Obama-Romney debate. In fact President Obama stated words to the effect that there were no fundamental differences on the issue between him and the challenger.

Well Obama has walked this remark back a bit since then, as well he should have. Sam Stein of the Huffington Post described it as cleanup and noted the Friday blog post by the Obama campaign.

“While President Obama is committed to keeping the promise of guaranteed Social Security benefits for current and future generations, Mitt Romney and Paul Ryan have supported plans to privatize the program, and have put forward a plan that would slash benefits for current workers,” the blog post read.

The post goes on to highlight “key differences between the president’s and Romney-Ryan’s approach to Social Security.” Among them is a firm opposition, on the president’s part, to any reforms that would privatize the program or “slash benefits for future generations.” Romney, by contrast, has expressed support for optional individual retirement accounts and raising the retirement age.

http://www.huffingtonpost.com/2012/10/06/obama-social-security-debate_n_1945124.html

Now this idea of privatizing Social Security has been floating around the political arena for quite some time, a floating duration made possible only by its bloated notions and excess of body fat.

What is this privatization and what does it mean? Well, it is the proposition that younger workers would be given the option of investing for their future retirement using the same funds that are now their assessment of the payroll tax. The theory is that investing these funds in the usual vehicles available to the gullible…er…savvy investors will enable the money to grow much larger through gains exceeding the relatively puny guaranteed interest for the deducted payroll funds.

By law, the assets of the Social Security programs must be invested in interest-bearing government securities or securities guaranteed by the government. The Trust Funds hold a mix of short-term and long-term government securities. The Trust Funds can hold both regular Treasury securities and special obligation securities issued only to federal trust funds.  Currently, all securities in the Social Security Trust Funds are special obligations.

The rate of interest on special issues is determined by a formula enacted in 1960. The rate is determined at the end of each month and applies to new investments in the following month.

The average of the 12 monthly interest rates for 2010 was 2.760 percent. The effective interest rate (the average rate of return on all investments) for the OASI and DI Trust Funds, combined, was 4.6 percent in 2010. This higher effective rate resulted because the funds hold special-issue bonds acquired in past years when interest rates were higher.

http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/404/~/how-social-security-trust-funds-earn-interest

So Social Security funds, and the interest they earn, are backed with a guarantee of the United States government. Please tell me if Goldman Sachs, JPMorgan or any other dealer in stocks, investments, mutual funds, etc. can make a similar guarantee.

It wasn’t so long ago when relatives and friends with 401K’s were bitching out loud about how much their retirement vehicles had lost during the stock market/investment bank crisis/fiasco/criminal thievery that occurred in the last part of the first decade of the new millennium.

Note also that Social Security funds ALWAYS grow, even as the interest rate varies from year to year. They never lose base value. Now who can say that of private funds? So even as the stock market’s Dow, S&P, and NASDAQ indexes have recovered from the recession the losses incurred in the interim will never be regained even if the base value is now the same. Those are still net losses compared to what the SS Trust Fund has done.

Now I’ll readily admit this is an anecdote that may or may not apply to a large segment of private retirement investors. But in a recent comment thread in the Post-Gazette, a commenter opposed to Obama’s re-election cited as one reason that his own 401K had not yet recovered from the losses it sustained during the recession.

Another consideration as to making SS voluntary is the reality that millions of Americans right now, given the oportunity to establish retirement funds, either opt not to at all or woefully underfund them. Additionally, under the rules pertaining to 401K plans either under the law or by the plans themselves, owners of them may borrow from these funds. Some do so under only the most dire circumstances. Others simply want that vacation to Ibiza.

Having government oversight or compulsion applied to these plans is antithetical to the very idea of them in the first instance, but is the only way to ensure that millions of our citizens are not in financial distress when they retire and thus probably looking for government assistance anyways.

Social Security is thrown in with all the other “entitlements” that the 47% of Americans who feel they are “victims” feed off of. I have explained previously why these are not entitlements in the derogatory sense implied by these charges. (Though one does become “entitled” to them by meeting defined criteria…sort of like one becomes entitled to a college diploma by completing all the degree requirements.) https://umoc193.wordpress.com/2011/07/30/they-arent-entitlements/

The major lesson to be learned here is that Social Security was NOT designed to be a primary source of retirement income. Rather it was a lifeline to guard against poverty in old age when, during the Depression, that condition existed for more than half of our senior citizens. Through revisions in the law it became what it is today, an INSURANCE plan, not a retirement one. Repeating what I wrote in my earlier post it is Old Age Survivors and Disability Insurance (OASDI) which designation can be found on payroll stubs and elsewhere.

REPEAT, Social Security is INSURANCE. It ws not meant to replace all other retirement income options or sources. The benefit amount is determined based on the PRIMARY INSURANCE AMOUNT established through lifetime earnings. http://www.ssa.gov/oact/cola/piaformula.html

Some examples of how Social Security acts as insurance.

Old Age

Millions of Americans have either quit working entirely or at least full time and have reached an age where they are eligible to begin realizing benefits from Social Security. Some had retirement plans of some nature so the SS supplements those plans. Others were not able to benefit from such plans for a variety of reasons, most of which were beyond their control.

SURVIVORS

A prime example of this are the benefits that Paul Ryan received when Paul was 16 and his father died. Ryan was able to parlay this money into paying for his college education.

DISABILITY

Many people have disability insurance as part of their private health care package. If, due to illness or injury, they become unable to work, they have at least part of their former income replaced. I did so on two occasions in the 1980’s following knee injuries and subsequent surgery.

There are millions of our citizens who do not have such coverage privately but who have worked and pay into SS. When they become unable to work, they are evaluated and, if certain conditions are met, they are able to withdraw their benefits early…at a discount. I am currently one such beneficiary.

Insurance: coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril. http://www.merriam-webster.com/dictionary/insurance

So there are three contingencies or perils that Social Security insures against.

Old Age (Retirement, eliginilty detremine by age)

Survivors (After death of an insured payments to surviving spouses or children with defined criteria)

Disability (A working person can no longer do so due to illness or injury).

Treating Social Security as purely a retirement plan flies in the face of the program’s very name and the nature of the income assistance provided to millions of Americans. Trying to re-purpose it as purely a retirement “scheme” (and I use that term in the most perjorative sense possible) is intended not to benefit the majority of Americans whose lives it touches or will touch but inures mainly for the good of the investment moguls on Wall Street whose reputation for greed, double-dealing, deception, and outright thievery is well-earned.

Do NOT cash in this insurance policy prematurely.

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