Is Social Security a Good Deal?

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Each year at about this time you can receive an updated social security benefits statement from the Social Security Administration (https://www.ssa.gov/myaccount/). This document will tell you what you can expect to receive on a monthly basis when you retire.

We currently pay 6.2% of our wages towards our retirement (social security). Our employer matches that amount so together 12.4% of our wages are “set aside” for our retirement. Well here is the rub. Even though politicians constantly refer to the “Social Security Trust Fund”, there is no such thing. The trust fund is basically a promise to pay us something in the future.

It is helpful to look at this like a 401K plan. A 401K plan is a form of retirement whereby employees set aside a certain percentage of their earnings for retirement. This set aside is invested in a personal account that you own. Typically the investment choices are high quality mutual funds or ETFs (Exchanged Traded Funds). Many employers will match some or all of the employee deduction. Over a lifetime of employment this can add up to a nice retirement nest egg.

In essence social security is doing the same thing with some very important differences. First, the money that you pay in taxes and the amounts that your employer pays does not belong to you. If you would work for 40 years and die before becoming eligible for benefits, the money is lost; your surviving family has no rights to the money even though you paid into it for 40 years. The same goes if you collect a benefit for a couple of years then die, there is no surviving benefit for your family. Second, your money is not invested and does not grow. In addition, there is a maximum benefit amount that is capped by the social security administration regardless of the amount of taxes that you pay.

There have been efforts by Republicans to privatize social security. This would mean that you would own the money just as you do your 401K. You would decide how to invest it. And you would determine who your beneficiary is if you die. Under Social Security the government is everyone’s beneficiary. When social security was put in place in 1935 the retirement age was 65. The expected life expectancy at that time was 62 years for women and 58 years for men. This should be very telling.

There is always a big fight over privatization when it is proposed. The Democrats argue that individuals lack the ability to choose investments and would be at risk of losing their entire benefit. They say the stock market is too risky. They also argue that there would no longer be a guaranteed benefit (a legacy union concept). In reality the reason these politicians fight to keep it is one to preserve big government, but also since inception the taxes collect have far exceeded the benefits paid. This has created a slush fund to help balance the budget and provide money to spend on other projects. The problem with this is that the pendulum is about to swing the other way. When the baby boomers begin to retire in great numbers benefit payments will far outweigh taxes collected. And since the surpluses were spent rather than put in a lockbox or trust fund as you are told there will be major shortfalls which will have to be funded. From 2000 thru 2009 the taxes collected exceeded the benefits paid by an average of $164 billion per year, from 2010 thru 2016 that number dropped to only $34 billion.

To illustrate just how bad a deal that Social Security let’s look at how private accounts would work. I used a sample case from the SSA website. I assumed that the employee and employer taxes would be invested in an account that you own. The money would be invested in an S&P 500 fund to keep it simple. An administrative fee of 0.17% is used which is consistent with these funds. In this example the person began to work in 1975 and earned $14,100 and retired at age 66 making $137,100. The person would begin receiving $3,064 per month until his death.

If the employee was able to invest his taxes as described above, he would have an account with a balance of $1,299,737 at retirement. With this he could do a number of things. He could purchase an annuity which would give him a guaranteed monthly payment of $9,767 (assuming 2.5% rate over 13 years), or he could leave it invested and draw out money as needed. Even if it earned zero interest, he could take a monthly payment of $8,332 over 13 years. And when he does die his beneficiary gets to keep the money. In this example the taxpayer’s benefit was $1,045,660 less than a private account would have been.

Opponents to privatization always point to the riskiness of the stock market. Yes it is risky and you can lose 100% of your investments. But plan design and education can greatly limit risk. If you look at the returns over all of the years (link below) you see that years with negative returns are highlighted. In 2008 when the internet bubble burst you see a 40% loss. Despite this over this time period the average return was about 7%.

This is a travesty and all tax payers should be able to own and manage their retirement accounts. It is too late for the baby boomers to benefit from privatization but we owe it to our youth to address this.

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A New Hope for America

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Today is a historic day, one that occurs every four years — the inauguration of our newly elected President Donald Trump. President Trump says it is a new day, a day when the power is returned to the people of the United States.

In an era where a major political party is calling America’s choice for President as illegitimate and many from that party are skipping the election, let’s listen to what a few former Presidents had to say in their inaugural addresses:

First inauguration of Ronald Reagan

To a few of us here today this is a solemn and most momentous occasion, and yet in the history of our nation it is a commonplace occurrence. The orderly transfer of authority as called for in the Constitution routinely takes place, as it has for almost two centuries, and few of us stop to think how unique we really are. In the eyes of many in the world, this every-4-year ceremony we accept as normal is nothing less than a miracle.
You and I, as individuals, can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we’re not bound by that same limitation? We must act today in order to preserve tomorrow. And let there be no misunderstanding: We are going to begin to act, beginning today.
In this present crisis, government is not the solution to our problem; government is the problem. From time to time we’ve been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of governing himself, then who among us has the capacity to govern someone else? All of us together, in and out of government, must bear the burden. The solutions we seek must be equitable, with no one group singled out to pay a higher price.
So, as we begin, let us take inventory. We are a nation that has a government — not the other way around. And this makes us special among the nations of the Earth. Our government has no power except that granted it by the people. It is time to check and reverse the growth of government, which shows signs of having grown beyond the consent of the governed.
If we look to the answer as to why for so many years we achieved so much, prospered as no other people on Earth, it was because here in this land we unleashed the energy and individual genius of man to a greater extent than has ever been done before. Freedom and the dignity of the individual have been more available and assured here than in any other place on Earth. The price for this freedom at times has been high, but we have never been unwilling to pay that price.
To those neighbors and allies who share our freedom, we will strengthen our historic ties and assure them of our support and firm commitment. We will match loyalty with loyalty. We will strive for mutually beneficial relations. We will not use our friendship to impose on their sovereignty, for our own sovereignty is not for sale.
As for the enemies of freedom, those who are potential adversaries, they will be reminded that peace is the highest aspiration of the American people. We will negotiate for it, sacrifice for it; we will not surrender for it, now or ever.
First inauguration of John F Kennedy

Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe to assure the survival and the success of liberty.
Finally, to those nations who would make themselves our adversary, we offer not a pledge but a request: that both sides begin anew the quest for peace, before the dark powers of destruction unleashed by science engulf all humanity in planned or accidental self-destruction.
We dare not tempt them with weakness. For only when our arms are sufficient beyond doubt can we be certain beyond doubt that they will never be employed.
And so, my fellow Americans: ask not what your country can do for you–ask what you can do for your country.
First inauguration of George W Bush

We will build our defenses beyond challenge, lest weakness invite challenge. We will confront weapons of mass destruction, so that a new century is spared new horrors. The enemies of liberty and our country should make no mistake: America remains engaged in the world, by history and by choice, shaping a balance of power that favors freedom.
We will defend our allies and our interests. We will show purpose without arrogance. We will meet aggression and bad faith with resolve and strength. And to all nations, we will speak for the values that gave our Nation birth.
Government has great responsibilities for public safety and public health, for civil rights and common schools. Yet, compassion is the work of a nation, not just a government. And some needs and hurts are so deep they will only respond to a mentor’s touch or a pastor’s prayer. Church and charity, synagogue and mosque lend our communities their humanity, and they will have an honored place in our plans and in our laws.
Americans are generous and strong and decent, not because we believe in ourselves but because we hold beliefs beyond ourselves. When this spirit of citizenship is missing, no Government program can replace it. When this spirit is present, no wrong can stand against it.
Second inauguration of Abraham Lincoln

With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation’s wounds, to care for him who shall have borne the battle and for his widow and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations.

 

First inauguration of Thomas Jefferson

During the contest of opinion through which we have passed the animation of discussions and of exertions has sometimes worn an aspect which might impose on strangers unused to think freely and to speak and to write what they think; but this being now decided by the voice of the nation, announced according to the rules of the Constitution, all will, of course, arrange themselves under the will of the law, and unite in common efforts for the common good.
We are all Republicans, we are all Federalists. If there be any among us who would wish to dissolve this Union or to change its republican form, let them stand undisturbed as monuments of the safety with which error of opinion may be tolerated where reason is left free to combat it. I know, indeed, that some honest men fear that a republican government cannot be strong, that this Government is not strong enough; but would the honest patriot, in the full tide of successful experiment, abandon a government which has so far kept us free and firm on the theoretic and visionary fear that this Government, the world’s best hope, may by possibility want energy to preserve itself? I trust not. I believe this, on the contrary, the strongest Government on earth. I believe it the only one where every man, at the call of the law, would fly to the standard of the law, and would meet invasions of the public order as his own personal concern. Sometimes it is said that man cannot be trusted with the government of himself. Can he, then, be trusted with the government of others? Or have we found angels in the forms of kings to govern him? Let history answer this question.
About to enter, fellow-citizens, on the exercise of duties which comprehend everything dear and valuable to you, it is proper you should understand what I deem the essential principles of our Government, and consequently those which ought to shape its Administration. I will compress them within the narrowest compass they will bear, stating the general principle, but not all its limitations. Equal and exact justice to all men, of whatever state or persuasion, religious or political; peace, commerce, and honest friendship with all nations, entangling alliances with none; the support of the State governments in all their rights, as the most competent administrations for our domestic concerns and the surest bulwarks against antirepublican tendencies; the preservation of the General Government in its whole constitutional vigor, as the sheet anchor of our peace at home and safety abroad; a jealous care of the right of election by the people — a mild and safe corrective of abuses which are lopped by the sword of revolution where peaceable remedies are unprovided; absolute acquiescence in the decisions of the majority, the vital principle of republics, from which is no appeal but to force, the vital principle and immediate parent of despotism; a well-disciplined militia, our best reliance in peace and for the first moments of war till regulars may relieve them; the supremacy of the civil over the military authority; economy in the public expense, that labor may be lightly burthened; the honest payment of our debts and sacred preservation of the public faith; encouragement of agriculture, and of commerce as its handmaid; the diffusion of information and arraignment of all abuses at the bar of the public reason; freedom of religion; freedom of the press, and freedom of person under the protection of the habeas corpus, and trial by juries impartially selected. These principles form the bright constellation which has gone before us and guided our steps through an age of revolution and reformation. The wisdom of our sages and blood of our heroes have been devoted to their attainment. They should be the creed of our political faith, the text of civic instruction, the touchstone by which to try the services of those we trust; and should we wander from them in moments of error or of alarm, let us hasten to retrace our steps and to regain the road which alone leads to peace, liberty, and safety.

A Party in Denial

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The Democrats are in a state of denial about Donald Trump’s victory over Hillary Clinton. They are so arrogant that they could not conceive of losing, thinking rather of a landslide victory. Hillary did not even prepare a concession speech so she had to go into hiding on election night. The main stream media are just as perplexed. By any measure when you look at all races, including State races, it was an overwhelming victory for the GOP. Below is a map that shows that with the exception of the two coasts the country is dominantly Republican.

electoral-map-2016

When you look at it by county it is even more illustrative.

electoral-map-2016-by-county

A look at the numbers is helpful.

election-2016

The press and many Democrats focus on the fact that Trump lost the popular vote, a totally meaningless metric. Trump did fall short of Clinton’s total by 1.3 million votes, but if you take out California votes Trump has a 2.1 million vote edge. This illustrates the brilliance of our Founding Fathers. They created a Republic, not a Democracy to avoid the tyranny of a few and to preserve the powers of the States. Sadly there are many Americans who are not aware of this fact because our schools no longer teach American history.

Hillary Clinton’s campaign blames the loss on the racism of the white population. This is so ridiculous and desperate. Barack Obama was elected twice as our President and attracted a high percent of white votes. Plus Trump won Iowa, Pennsylvania, Ohio, Florida and Wisconsin, States that Obama won. Are they all of a sudden racist States? Hillary did not even campaign in Wisconsin. The Party just cannot accept the fact that they ran a terrible candidate who is now a two time loser. Clinton ran a campaign of “I’m with Her” rather than providing substantive proposals to help spur economic growth, protect our border and put back the record number of Americans that are out of a job back to work. The Democrats after the 2014 election felt that they did not need the white middle class voters. Her calling Trump supporters part of a basket of “deplorables” was very telling, and a slip made through arrogance.