Monday, June 22, 2009

Another Casualty of the Financial Crises - Privatized Social Security

George Bush, February 2, 2005 State of the Union: "As we fix Social Security, we also have the responsibility to make the system a better deal for younger workers. And the best way to reach that goal is through voluntary personal retirement accounts..."
Imagine if social security funds were invested in the market.
"We'll make sure the money can only go into a conservative mix of bonds and stock funds. We'll make sure that your earnings are not eaten up by hidden Wall Street fees. We'll make sure there are good options to protect your investments from sudden market swings on the eve of your retirement."
Choose your poison. Corporate bonds, or equities?
Personal retirement accounts should be familiar to federal employees, because you already have something similar, called the Thrift Savings Plan, which lets workers deposit a portion of their paychecks into any of five different broadly-based investment funds. It's time to extend the same security, and choice, and ownership to young Americans.
Because TSP funds have been very effective at capital preservation.

Consultant Ninja Analysis: Social Security Privatization is dead for at least 20 years.

Source:,, Consultant Ninja Analysis


Alex said...

I think a more interesting graph would show each fund against a respective benchmark (e.g., international fund against MSCI EAFE) to give us a better sense of the relative underperformance.

House said...

While I appreciate the point you are trying to get at, this is a very short-sided example. Utilizing a 13-month timeline for evaluating the effectiveness of retirement savings is ridiculous. To be statistically sufficient you need a 30-40 year timeline (a typical length of time one works before retirement). Read a few books about the core of retirement planning or economics before you start to chime in about it. Unfortunately public outcry and panic that sets in will likely kill Social Security privatization anyway (your closing statement). Too bad the average American doesn't understand basic financial planning and just wants the government to take care of them.

Consultant Ninja said...


You miss my point.

The stock and bond markets deliver higher long-term returns with higher volatility over the short-term, than the risk free rate.

This last year is a demonstration of that variation, across all of the various fund options for government employees. Psychologically and politically, the current generation of the US population and congress will not expose their social security to that degree of variation.

Try not to be an annoying analyst who thinks they know more than anyone else at the firm.

House said...

After reviewing your comment I didn't miss your point at all. I'm pretty sure we're both on the same page (long-term returns vs. short-term volatility and political concerns of SS privatization). In fact your comment and the essence of my original comment are roughly the same thing paraphrased differently.

Regardless, I truly appreciate your reference to that "annoying analyst". Nice touch on stifling constructive discussion.

--Long time reader, first and probably last time commentator.

Consultant Ninja said...


I agree, we were on the same page from the beginning. That's why I wasn't sure why you told me to go read some books before chiming in.

If you can't take the heat, get out of the kitchen. Otherwise, I look forward to hearing your thoughts in the future.

Consultant Ninja

Chris said...

@Alex - in the context of politics and SSI reform, who cares about relative performance? All you need to do is show losses of 25-50% for these funds and game over.

I went to a constituents meeting for Rep Chris Van Hollen in early 2005 when SSI reform was the big issue. All he had to do was talk about how redirecting "contributions" from the general SSI fund might, maybe, perhaps threaten the ability for the Feds to honor SSI commitments in the future. Never mind the median age in the room was around 70 and the staffers (plus me) were the only people under 40.

@House - whoa, that was a really aggressive statement for someone you agree with.

NumbaJockey said...

I'd hope that in an ideal world the hit the market took would not discourage people from privatizing social security. But in reality, most people are idiots. (Politics is about convincing people something is a good or bad idea, not necessarily the truth)

Sure it may suck that our stocks were devalued greatly, but a long-term investment would still be beneficial... even if not as much as it was a year ago. Moreover, if you are nearing retirement, you should obviously be heavily allocated to bonds. But those two things are lost on the people who are dumb enough to rely on the government to take care of them in retirement.

Social security is just DC's Ponzi scheme and another tax on my income that won't benefit me in the end. Anyone half intelligent should be socking away heavily in their Roth 401(k)'s... even if it'd be nice if we could have access to the money the government is taking from us for our retirement in order to better allocate it for better returns.

Monday, June 22, 2009