Friday, April 29, 2005

The AARP's forked tongue

This NewsMax article is really all you need to know. The AARP is heavily advertising against the very notion of individual accounts within the Social Security system, yet it speaks with hypocrisy. The best part of the article:

....AARP's stock offerings include far riskier options than what proponents of personal retirement accounts propose, including a Latin American stock fund, a junk bond fund and a gold and precious metals fund.

"It seems that as long as AARP gets a cut, investing in the market is fine," states Investor's Business Daily. "But if you do it on your own, you're one step from crushing poverty."

AARP's investments in what it calls the "risky" securities market have brought in a healthy average return of 7.29 percent a year since 2000. Only 8 percent of the organization's portfolio was invested in safe government-backed securities in 2003.

On a tangential note, I know that many people who are near and dear to me do not understand the full extent of the Social Security taxes they are now paying. This is because there is purportedly an "employee payment" and an "employer payment." Don't be fooled. Here is an article from a non-partisan source that might help anybody understand that half of the Social Security tax is "hidden" from them. Anybody who is self-employed (and bless your hearts) finds this out on day one. For those who don't have time to visit the Newsday Link, this sums it all up:

Would you be surprised to learn that you pay more in Social Security tax than you pay in income tax? If you are like most people, you do!

Now that we've been made aware of the cost, what's the benefit? Yes, many people value the reliability of a check of a certain amount arriving every month. However, it is my contention that one of the effects of the Social Security system, especially in more recent times (with higher tax rates), has been an ever larger number of elderly people in poverty than would have existed without the program. And that's even if, instead of saving the money that would have gone into the black hole of Social Security, everyone had spent every last cent on utter frivolity. Simply stated, money kept in private hands will benefit the economy to a much greater extent than money handled by the government, due to the inefficiency of government. A strongly growing economy will do more to provide for the poor of all ages than any government program.

As for Bush's proposal last night, I'd like to see it pass, as opposed to staying with the status quo. Even better would have been to allow folks to totally opt out of the system, but I know that's a pipe dream. Yes, I would happily abandon all that I've already paid into the system and waive all future benefits for the right to leave now.

Realistically, I think it might have been better to allow the Social Security trustees to invest about a third of the incoming funds in broad-based market index funds to avoid all the transaction and administrative fees that the personal accounts will entail. But Bush's trip is better than the one we're currently on, so it's a no-brainer to try and hitch a ride.

About ten years ago, I made a simple financial calculation. What if the money that had been deducted from my checks up to that point were simply allowed to grow at 4% tax free, without putting any more money into the fund? And then, at retirement age, I'd just live off the interest. The result blew me away. My monthly check would be about double what the SSA told me I'd be getting from them. But to get that "guaranteed" benefit, I'd have to keep earning and contributing till retirement. The inequity of this scenario is appalling, especially if you do what I should have done and add in the "employer's matching contribution."


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