Saturday, May 31, 2008

Social Security - Where from Here?

Among my random thoughts last weekend I mentioned Social Security and was not surprised to receive a couple of comments on the subject. I guess I was surprised that I didn't get more comments. All of us are in one category or another -- we are either receiving the 'benefits' or we are paying for them. The simple fact is that Social Security clearly seems to be a failing program if not an already failed program. I guess my question to you is whether it is a program that should simply be abandoned or do you see a cure? As with so many things administered by the government there is a great cost simply in terms of paying for the bureaucracy that was created to maintain and administer the program. Those costs aside, investments have been somewhat less than sterling and it seems that some politicians all too often have attempted to divert or "borrow" from the funds. It has been no secret that Social Security will be out of money in the not too distant future. Back in the '80's, at least according to his diary, President Reagan recognized the approaching problem and was urging Congress to work to repair the situation. Now today, more than a quarter of a century later, little has been done other than raise tax payments and defer full eligibility for entitlement to benefits. Take in more, pay out less has seemed to be the solution so far. You are probably aware of at least parts of the approaches favored by the current presidential candidates, but if you aren't, there is a pretty comprehensive article on the front page of the Investor's Business Daily on May 27, 2008.

According to the IBD article, Senator Obama says that letting people invest a portion of their Social Security taxes is a way to "gamble away people's retirement on Wall Street." I disagree. After all, it is the people's money in the first place, isn't it? While some might inevitably invest badly, do they not still have the right to invest their own money as they choose or must they invest as the government says? It is the people who permitted the government to take their money in the first place to "invest" it for their social security. What kind of a job has the government done? I agree that our population in general is not well-educated regarding investments and investing, but I think it is high time that money management, risk awareness, debt control, and investment instruction become part of our public education (and private education) curriculum. Had that been done back in the '80s, those students would now have a much better foundation and be more competent to prepare for their own retirement. Is it time to start that now? I definitely believe it is. Otherwise, do we just keep raising taxes and/or lowering benefits until the taxpayer finally revolts or the benefits become completely meaningless? What do you think? Do you have any solutions?

While you are certainly at liberty to criticize my thoughts, I would suggest it might be more productive, if you disagree with me, to offer your own positive solutions. Criticism of the proposals of others in government has been the standard political fare for decades with no positive solutions offered and, quite obviously, that has solved absolutely nothing. I believe solutions rather than rhetoric are more necessary now than ever.

A wise subscriber last week questioned what would happen to the employers' contribution to Social Security if people were permitted to invest some of their social security money on their own. How about placing that money directly into an individual retirement account for each employee that is invested in interest bearing government bonds? That portion of an individual's retirement would then be reasonably safe and there would be an assurance that it would grow through interest payments. The employee's portion of the tax could be invested in a regulated employee account and, just like the current Social Security, the funds would not be available until a pre-determined retirement age.

I believe this is an important subject and I'd like to see your thoughts on the subject. I don't pretend to have the answers, I only have some thoughts like those I expressed above. The real point, I think, is that we better get a real dialog going in this country and find a solution or at least a direction other than simply continuing to feed a very hungry bureaucracy.

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by Bill Kraft, Editor
Copyright 2008, Makin' Hay, Inc.
All Rights Reserved

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To comment on Bill's article click on the "comments" link below.


Anonymous said...

Very wel written, you are right is money from my hard work. Why can't I take care of it the way I see fit.

Anonymous said...

These Senators are supposedly working on some new proposals, so I sent one of my own.

Senator Ron Wyden
Senator Judd Gregg

Dear Senators,

I am not from your state, but your interview on TV sparked me to provide some ideas while considering Social Security reform.

We could reform Social Security by dollar cost averaging new money into equal amounts of a broad-based US equity index and a broad-based international index (two indexes total). Purchase indexes until the Trust Fund has an equal balance of bonds, US indexes, and international indexes. Once this balance is reached, allocate new money to maintain this balance.

This is a common sense way to create future value, increase the value and confidence in the dollar, and cut off a source of funds for government spending. It also has a more important effect of creating taxpayer confidence in the American Government and the future of the economy.

The existing government structure can implement this plan without any additional spending or hiring.

Personal savings accounts (like those touted in Chili) really only address half the population. The lower half doesn’t have any money to invest in stocks, and will eventually become the liability of central government.. Try telling someone who makes < $50k they need to start saving $1000 per month so they can retire. Forced savings is the only way to get everyone to participate in their own capacity. It is the responsibility of government to address the needs of the greatest number not the majority.

To accelerate the process the US government may need to eliminate the cap on income and/or retire some existing Trust Fund debt. It will be difficult to make meaningful progress if only the excess cash flow is invested in equities.

Craig Cheatum
Retired Geologist
Houston, Texas

whs806 said...

The preferred way to solve the SSI system is to implement the Fair Tax Plan!

The Fair Tax removes the 100K cap on wages and replaces it with a sales tax. People spending over 100K per year continue paying taxes.

More importantly, the Fair Tax expands the tax base to include anyone who makes a retail purchase. Than includes 12 million illegal immigrants and 50 million tourists per year.

Another important factor is that the Fair Tax un taxes every legitimate citizen up to the poverty level with a monthly prebate equal to the taxes paid at the poverty level (about $170/month). That is much more progressive than our current system because we have a 22% hidden tax on all our products we don't even see. Therefore, even the poorest families pay 22% tax without knowing it.

Our current tax system encourages burrowing (via a tax deduction) for homes while penalizing those who save by taxing dividends. We have the system in reverse.

Also, our US Government has the 2nd worst corporate tax policy in the world. That results in exporting jobs and importing almost everything else from food to energy.

The Fair Tax eliminates corporate income taxes and taxes on savings.
Those companies who went overseas due to our lousy tax policy would be coming back home along with the jobs. Just think, no more filing income tax returns!

Also, the 12 trillion dollars (eurodollars) that are offshore will be coming home and can be invested in our economy.

But, those who beleive in Big Brother taking care of them (mostly liberals) will not be in favor of the Fair Tax because it will eliminate politicians manipulaing the tax code.

Over 65,000 pages of tax code will be replaced with 123 pages that everyone can see and print from the internet.

Time for a CHANGE. This will do more to revive our economy than anything. We keep putting lipstick on the pig (our current tax sytem) but we do not fix it.

The Fair Tax will fix the problem!

Anonymous said...


Anonymous said...

Well writen again. President Busch has asked the congress for another plan if they don't like his.
For seven years not a singel plan has been provided.
Just like congress sees everything bad ideas. DO NOTHING except earmark all bills.

Anonymous said...

I did a study about 15 years ago about the SS System. What I discovered really burned my #%@&*.

I compared the SS payout given the amount paid in with the same money as if it were put in an annuity from the time you first start paying into the SS System.

What I discovered is that for the same monies in SS the recipient would get back $3.45 for every dollar paid in as compared to the $28.90 return if put into a private annuity.

This is a very telling point about why the SS System should be privatized. Having said that, it will never happen, because the Congress wants that money to spend and maintain their power.

Chile privatized their SS System and when they did their economy grew by 15% for the next 5 years, and the recipients have received more monies upon retirement than had it stayed with the government

Anonymous said...

The only investment I would put my SS money in is QQQX. It has a good yield.

Anonymous said...

There is an "easy" solution to both social security and medicare. Simply put, the age of eligibility needs to be advanced until actuarial studies show that payouts will balance with forecast deposits and earnings. Since lifespan has increased by 10 to 15 years in the last 50 years, so should eligible ages. Otherwise we are paying for a 35 year period of retirement instead of the 15 to 20 years of yesteryear. One method would advance the age 1 year every 3 years, until we reach the balance point. So after 15 years it would advance 5 years. Benefits would not have to be changed, but something must be done right away. Most politicians do not have the nerve to suggest such solutions, but this way everyone is treated the same, and people who are very close to retirement will not be outrun by the changes.


Bill Kraft, said...

Thanks, "egrimes" sounds like that could be a basis for a workable solution. Would that anticipate people working longer as well, I wonder. That seems to be the case anyway, and many only work part time so they don't reduce their SS payments. Maybe under the suggested plan they could work more as many seem to want to do in any event. Thanks for the thoughtful suggestions. Now, how do we get the ear of the politicians???
Bill Kraft

Bill Kraft, said...

Thanks for writing "whs806." I certainly think the Fair Tax Plan or a simple flat tax would be a vast improvement on our current system that, at times, is unfathomable to everyone, including the IRS. How would you implement Social Security using the Fair Tax Plan in terms of earmarking and payout? I am concerned that the IRS because of its vast size will always effectively lobby against any simple system that will result in bureaucratic extinction.
Bill Kraft

Bill Kraft, said...

Thanks, Craig. I have little doubt that your investment plan could improve the Social Security monies investment return, but would you agree we would also need to limit Congress' access to the money so that it could stay put to earn?
Bill Kraft

Bill Kraft, said...

To the various "Anonymous" posters, congratulations on wanting to be able to invest your own money as you decide and further congratulations to those of you who have done exactly that and enable yourselves to enjoy financial comfort. It is laudable to set yourself so that social security payments are " walk around" money.
Bill Kraft

Anonymous said...

Social Security should only be available to those who really need it. Why should someone with $5 MM in retirement saving get SS. Yes they put in but do they really need it? I would suggest that we allow anyone to invest as much as they want tax defered/or tax free as long as it is in a retirement account. Once they reach a certain limit their SS benefits would be reduced until at some point,say $1MM in tax defered/free savings they have no more SS benefits. They would still pay into SS as it is now.

Anonymous said...

When my father was aged and on social security I asked him what has the govenment done to heip you since you are barely getting by with you social security checks and have out of the pocket expenses. At that time the Democarts were in control for years and I wonder why he voted on the democartic ticket if they could never come up with ways to help people. It look as though our government took the role of putting everyone on welfare. Competition was stolen and given to others. Juctice, media, education and political departments worked together to serve a few who reaped the benefits. Now as each year passes we lose more and more to serve others who do not serve the working class. There needs to be more education to all people to learn to invest in all world markets early instead sitting and waiting for how our government to decide how much one can earn and be taxed on their investment dollars. We are trapped paying taxes in social security, 401's, IRA's, and in homeownership -Question what is next?

JohnWatson said...

Bill—regarding your column on Social Security. I am a recently retired Senior Executive of the Social Security Administration in its headquarters in Baltimore, MD. I speak for myself, not for them. You say that “All of us are…either receiving the ‘benefits’ or we are paying for them.” That is not accurate. You might be interested in knowing that under the old Civil Service Retirement System, I did not pay Social Security taxes and am not eligible to receive benefits. You also say that Social Security “investments have been somewhat less than sterling.” While I don’t disagree with this statement, you should know that Federal law severely restricts what instruments trust funds may be invested in so our hands are really tied. I do not believe that Congress will ever let the program go bankrupt and will take piecemeal actions to shore up the system as needed. Their choices include reducing benefits (including retirement, disability and auxiliary), increasing FICA taxes, increasing retirement age, tightening up eligibility requirements for all the Social Security programs, and perhaps changing the rules so that the taxes received can be invested in a more wider range of (and much higher yielding) instruments than currently allowed. As for privatizing Social Security, I do not support giving unfettered discretion to the populace to do whatever they want with their Social Security taxes—they just generally are not qualified to do this in my opinion. I would favor allowing the populace to invest in any of a number of stock/bond/money market funds managed by the Federal Government, much like Federal employees now do under the new retirement system that replaced the one I am in, the Federal Employees Retirement System. This allows populace choice, but significantly increased safety and professional management of funds. I love to read your column each week and I learn something new every time I do. I hope you continue for a long time to share your thoughts with us! John Watson, ex-Associate General Counsel for SSA, Laurel, MD.

Bill Kraft, said...

I agree, Sam. Politicians and organizations like the AARP jumped all over President Bush when he suggested specific revisions to Social Security, but no one seems to have come forward with any positive solution. It is easy to criticize, but much more important in my view to contribute positively.
Bill Kraft

Bill Kraft, said...

Well, "joeserra1" I suppose you could do a lot worse. It gives you diversification among an index of stocks and has provided a nice yield.
Bill Kraft

Anonymous said...

While I appreciate the idea that we should have started teaching students back in the 1980's how to invest, so they might have a modicum of investment knowledge, I think we are naive to think that high school and even college students, have a clue about anything. They don't understand polictics, economics, or the global stage.
Our local high school graduated 137 students the other day. Only 16% graduated after passing Algebra, the other 84% slid by using a lesser form of Math.
When "Johnny Can't Read" yet is turned loose on society ill-equipped to handle the regular stresses of living a full life, this does not bode well for Wall Street, or Main Street.
Yes, there are still students of whom, excel - but when Johnny (or Janie) doesn't read a newspaper, watch the news, or join in constructive dialogue to correct deficiencies (with Social Security, or anything else) this is quite a corner our country has painted itself into, and the chickens ; it seems, have come home to roost.

Bill Kraft, said...

Thanks for your comments "iamnewatthis." Points well made and a needed indictment of the educational system in my view. Clearly throwing money at the problem has not worked. Seems like the re-introduction of discipline into the classroom and measurement of results followed by consequences when warranted might help. Obviously we can't go back to the '80s and teach what should have been taught then, but we surely can start now so the next generation is not so pitifully undereducated when it comes to financial matters (and a number of other things).
Bill Kraft

Bill Kraft, said...

Anonymous, I guess I have some trouble with defining "who needs it" and wonder who is going to decide who needs it and who doesn't. Isn't the idea of giving to those according to their needs and taking from those according to their abilities communism? It doesn't seem that that has worked too well in practice. Why should I work hard and pay into SS if I am not going to get it back??? It's one thing if I choose to do that charitably, it is another if I am forced to work to pay someone else's way.
Bill Kraft

Anonymous said...

Ah, where to start. No solution here but just some observations.

The common perception is that Social Security will run out of money in X number of years. Social Security is already out of money because there is no trust fund to run out of money, there is only the perception of a trust fund. The government uses the money we contribute as general funds and writes a note to social security. When the so called trust fund runs out of money in X number of years, i.e., SS will be paying out more than it is taking in, it won't have stocks, bonds or other assets to liquidate to fund the the excess, it will simply have an IOU from the federal government.

It is no different than borrowing from your Keough or 401.k to buy a new home and on retirement day the only asset in your retirement account is a note that you owe to yourself.

Having a true trust account, individually or professionally managed and beyond the grasp of "borrow and spend" politicians, where the assets were allowed to grow, would have solved the problem many years ago. However, to do so would have removed an irresistible candy jar.

I realize there are very complex issues involved, but recognizing the true problem at the outset is a major step in coming up with solutions.

I'm afraid we will continue to take the "gooney bird" approach. The gooney bird is an ancient bird that bgecame extinct by flying into continually smaller circiles until it eventually flew up its own rectum.


Bill Kraft, said...

Thanks, John, for your very interesting commentary. I agree that a system patterned after the present Federal Employees Retirement System might well be preferable to the current Social Security system or any modifications that simply resort to higher taxes and reduced benefits. I did mean to say that most, rather than all, of us are either paying Social Security taxes or are receiving benefits. I was aware of that since my Dad, as a U.S. District Court Judge, did not receive Social Security either.

I'm glad you are enjoying the articles and thanks for your thoughtful contributions.
Bill Kraft

Anonymous said...

As a young man, raising 4 children on an inadequate salary, I found all possible ways to maximize my available cash - and reduce my payment to social security. Young families with many demands are seldom
able to meet the distant demands of retirement against the urgent needs of family. I was 73 yrs of age before I had any money to invest!! If my retirement had been based on rational retirement planning - I would be homeless at this point in my life. Having young families plan rationally sounds great on paper but only a few are able to do the rational thing with family demands pressing them.

Anonymous said...

Since I will start receiving my Social Security in about 3 months, I am definitely not in favor of doing away with it. I do believe that it would be best to put the employees portion into an IRA, the Employers portion would still be there as a safety net and to cover existing SS obligations.

Anonymous said...

I have a plan and would like to know the pros and cons of the logic. I try to keep things simple so what I would think needs to be done with Social Security is for the Feds to admit they can't control it and turn it over to the public sector with only minimal strings back to the Feds (just enough to keep the greedy fingers from getting control of a bad situation). Turn SS funds into 5 equal bundles. Let the publicly traded companies bid on them by advertising what they plan to do with those funds. Have the Fed govermant sign an IOU for the money they've so cleaverly carved away and distribute these IOU's equally across the bidding companies. The companies can then offer their investment options to the public and the public can move their funds to any one of the companies they want (but can't take it out until the appropriate time as is the case with SS today). The funds will, over time drift from one company to another and whichever company builds the highest confidence level and best returns will typically retain the most funds. As performance changes, so do the investments in the rspective companies. Sound like a Tax Deferred Savings Plan? Yes, except the company is the Fed Government; not Exxon, AT&T, or Joe Blow's Bar & Grill. Let the system work. It's a great system. We built it and it's good. It has some problems now but so what; we solve problems and move on. It isn't that difficult folks!!!!

Anonymous said...

All SS employer contributions should be placed in low-cost index funds/ETFs that are allocated based on age. For example, allocate among ETFs for commodities, US stock indexes, bond indexes, international indexes, emerging markets, real estate/REITS, etc. They should be re-balanced automatically whenever any fund deviates 5% from the age-based allocation. The employee contributions should default to the same allocation as the employer contributions but you should have the option to self-manage the employee contributions. This way, people who do not want to manage their account will not have to do anything since it is managed for them based on their age. This would also allow people to manage their own contributions if they want to.

All income taxes should be eliminated. This would give more people incentive to work since they will be able to keep almost all of their income. This would eliminate all expenses related to filing federal and state income taxes. Also, welfare and other government handouts should be eliminated. Anyone that cannot work due to a disability should be provided/guaranteed a job by the government that is designed to accommodate their disability. This would help disabled individuals to become contributing members to our society.

Property/school taxes should be eliminated. The elderly and people without children should not be responsible for providing education to all of their neighbors children.

A consumption tax should be implemented on everything except nutritious food. Junk food and other non-nutritious food should be taxed. This would help solve the obesity problem if a bag of chips costs $10. These consumption taxes should partly be used to pay for universal healthcare and schools, including college. Payments should be allocated directly to hospital networks which will allocate the funds to the primary care physicians and specialists in their network based on utilization. This will cut out the health insurance company middlemen and will solve the uninsured problem. Many administrative costs such as bill collection and insurance company bureaucracy will be eliminated. Also, this will eliminate all medicare programs. This will lead to tremendous cost savings. This cost savings can in part be used to pay for the newest technological advances for the hospital network. You must be a US citizen to gain access to universal healthcare, schools, and college. If you are an illegal and attempt to access these services, you will be deported.

To do this (consumption tax), they would need a grandfather clause for all of the people that have paid into the social security system by increasing social security benefits for current retirees to help offset the consumption tax and gradually decrease the social security benefits (grandfather clause portion) over time to account for future retirees that were not taxed on their income. This should be based on the amount of money that was paid into Social Security by the retiree (adjusted for inflation). If the current retiree never paid into Social Security, they will not receive the increase in benefits (grandfather clause).


Anonymous said...

Hello Bill,
Your comments betray a strange view of American society, even though you are a bright investor.First, to make education in monetary matters mandatory may sound like a good idea, it is not for the simple reason there are too many really stupid people in our country. The reading of English is clearly a requirement of even a grade-school education, yet there are millions of illiterates in our nation, not even counting the recent immigrants - legal and illegal. Financial " literacy " if you will is no answer to the fact that many persons simply do not earn enough to save anything like a fund that would pay for their retirment. Anyone earning under $40,000 a year with a family of a wife and 2 children is in no position to save, especially if he must pay his family's medical beills. Furthermore, putting money aside in Social Security does not pay the full costs of retirement, as anyone knows. In the event of unfortunate investments, which many of us have made, you know the government would have to " bail out " people with no funds in any event. The problem with putting money in government " bonds " is what we have right now - i.e. SS money is in U.S. bonds right now - but these are just another vast unfunded liability of the Government. The money to meet these obligations is going to come out of the hide of future taxpayers. Years ago Pet Peterson put forth a cogent, sound proposal to "save " Social Security but there are no politicians willing to support it. So long as we live in a republic and it is unfashionable to face any problem honestly, it seems ( look at our recent farm bill ) there is little chance of averting a genuine economic crisis in the SS system.

Anonymous said...

I must agree with the article.

Regardless of whether one wants to look at race really does't matter.

I run a highly successful room of Black traders(their yields from an conservative trading approanc are astronomical), and knowing that many of my poeple are lucky to have social security in the first place, shows how much more critical it is to have the ability to control what little investment opportunity we have.

Not to be political but there is some unnerving conflits between hillary's health care agenda, regultions(not to mention the results of the clinton globalization plan) and the effects on traders(possibly comment on the details later).

Equally alarming are some of Obama's interest in the NIRB and if infrastructure get "securatized"(again will it present more 'regulations' for traders?). or Mccain's 'status quo' agenga in international affairs(especially if the 'destabilization' of china is successful)....

so many subjects so little time....

Bill Kraft, said...

Thanks for writing mm77. I totally agree with the removing the candy jar approach and creating a real trust from which the government cannot borrow if government run Social Security is to continue. What do you think the chances are?
Bill Kraft

pilotdan said...

Dear Mr. Kraft,

There are three important points about investing a large percentage of anyones FICA taxes in the stock market. 1) The investment needs to be for a minimun period of at least 35 years to guarantee an average annual return of 8% or better. This means you would have to start participating in the system by age 29 to start collecting at age 65.
2) The percentage of their taxes paid that someone is allowed to invest in the market should increase along with their salary level. This uses salary level as an determinant for financial accum. (A person earning $125,000 or more
would obviously know more about finance and markets than someone with a salary of $40,000.)
3) The investment options should be limited to five or six maximum
and should be of such nature such as index funds as to
minimize the chances of someone with little financial knowledge
blowing their 'Social Security'.

Additionally there are three other thoughts regarding insuuring future Social Security benefits last and do not run out as now is the projected case.
a) increase the minimum retirement age for Social Security from age 62 to age 65. And increase the maximum age for full Social Security to age 69.
B) Stop paying Social Security benefits to
illegals who are not American citizens and have not worked the required forty quarters.
C) Offer a tax incentive for married couples to have more children such as three instead of two. Then we will have enough future payees to cover the payouts without running out of funds.

These are all painless and if utilized collectively would avoid cutting benefits or increasing taxes at this time.

Also acknowledge that this is a 'Social Security' Fund, not to be confused with an only retirement source. And educte the public of the need to also save for retirement in IRA's , 401K's or other pension systems.

Anonymous said...

In his first term, the President made a half-hearted (or perhaps, half-a--ed)move to let us invest part of our FICA deposits. Liberals promptly stomped all over it with statements like Obama is still saying (I won't let Americans gamble away their retirement on Wall Street).
Hello, Barak-Ever hear of CALPERS? TIAA? Teamsters Retirement Plan? And hundreds of other retirement trusts? Where do you think their funds are invested?

Faced with the resistance on the part of Dems in Congress, President Bush lost interest in pursiung his plan. I wondered at the time, why did his advisors miss the obvious?
Their would have to be restrictions on how the money was invested. So set up a large respected firm like Merrill Lynch or
Vanguard to handle the deposits, and invest them in a tightly constricted
group of investments, such as have been suggested by earlier commenters.
One said the "government" should regulate the allowable investment vehicles. No, No, No, NO!
Don St.George

Anonymous said...

More than 25 years ago I testified before the House Ways and Means Committee on this very subject. It was and still is my opinion that all money should be given to a bank to manage and as you know, each account is insured by the federal government none like the Bear Sterns debacle, but just simply a savings account. After all, that is 7-1/2 percent from you and 7-1.2 percent from your employer. Investments could be in the blue chip stocks and gain year by year and stocks and dividends would in 20 years or so be an enormous amount like over 1,000,000 and one could retire when one wanted to and not the 62-65-66-67 or so years.

Anonymous said...

Two solutions are needed. First the American public needs a detailed accounting of Social Security receipts and benefits paid. There has been an excees of receipts every year since 1936. Show us the numbers!Our elected officials ( both parties are guilty)spend the excess every year for "general purposes". No wonder we are facing a crisis. We will likely need a national referendum to change this as our elected official are unable to keep their hands out of the cookie jar and they also have no desire to stop.

Second, we need to invest at least half of the receipts in US based companies via the stock market as these returns are historically significantly higher than US treasuries. Most people do not have the time or expertise to make their own investment decisions. Their are many highly skilled professional money managers who could make the decisions and keep the entire system away from the politicians.

Anonymous said...

Yes, Bill I agree. Its our money and we should at least have a choice on how to and where to invest our social security contributions.

Anonymous said...

Bill, thank you for inviting this discussion on Social Security and financial literacy. I am a high school mathematics teacher and investor. The county I work in does offer a "Personal Finance" course, but it attracts students who are trying to take the easy road to get an additional math credit in order to graduate. Teachers avoid being assigned to teach the class because the behavior of the students and the lack of effort is so bad! My room is next door (well, we don't have doors since it is open space)and I can barely hold the attention of my students because of the noise coming from the personal finance class. Every person, society, or even species that I can think of that rose to greatness or dominance did so though struggle and triumph. But our current education phylosophy tries to force education on those who do not want or value it. We need to reverse this situation and throw our money and support behind those who put forth the efforts! When we do this, personal finance courses may become more valuable through the depths of the topics the students are able to take on, and I for one, would be happy to teach such a class. However, as it is at this point, based on my proposed schedule for the next year, I will probably be leaving the profession to seek other opportunities. I am

Anonymous said...

I never cease to be amused when I hear that politicians are "diverting" or "borrowing" money from the Social Security trust fund to spend on other expenditures. Isn't that pretty much what you'd expect Congress to do with any of the funds raised from investors who have put money into U.S. Treasury obligations?

If Saudis or Chinese can put their money in U.S. Treasury obligations without fear of default, what makes American citizens such a fundamentally different type of investor, that we need fear our government might be "unable to make repayment" on our withholdings?

Currently the Social Security Administration can only invest our withholdings in U.S. Treasury obligations. If the debt obligations of the United States Government are such a risky investment, then wouldn't it make sense for the Social Security trust fund to be configured as a sovereign wealth fund empowered to "shop the globe" for the best and safest returns?

And if an empowered Social Security Administration should opt to pull its trust fund money and put it into euro-denominated investments, then hey, let the U.S. Treasury go hat-in-hand to the Saudis, the Chinese or the open market to borrow more funds to pay for foreign entanglements and other expensive misadventures.

The truth is (and I'm not just taking AARP's word on it) that the assets of and projected contributions to the Social Security trust fund are sufficient to pay 100% of projected obligations through 2040, and continuing at 70% payout indefinitely thereafter. (Check out for yourself.)

Is a "bureaucracy" which holds $2 trillion in assets, and in 2007 took in $675 billion while disbursing less than $500 billion in benefits, likely to get the United States Government into serious financial trouble anytime soon?

Shouldn't we rather blame an administration which has managed to run budget deficits of $400 billion (+/-) EVERY YEAR FOR EIGHT YEARS, adding $3.66 trillion to the public debt?

The truth is, the president and the Congress are so unwilling to raise taxes that a massive default on Social Security obligations is fast becoming an attractive alternative to floating even more debt in world markets.

Anonymous said...

Your comments are interesting but I don't agree. Social security is a social insurance program, not a retirement program. It provides various benefits, e.g. social security payments from the age of eligibility or claim (if later) until death, disability payments (which can be claimed at a much earlier age if eligible), spousal benefits, and survivor/death benefits. It does all this for a rather paltry 6.2% paid by the employee and 6.2% paid by the employer. Of course, you have to work and pay in to get benefits and if you don't work for a long time, your benefits will be rather paltry. Most of the comments indicate (as per President Bush) that people would like to get more for their money. This may be possible by reallocating the benefits, but there will be losers as well as winners. It is not a "fair" system, just one trying to provide a minimum level of benefits for a minimal investment.

Bill Kraft, said...

Hi Anonymous (73 before you could invest). No doubt it can be difficult for families to prepare for the "distant needs of retirement." In some situations, investing may literally be impossible. In many others, however, maybe a little more discipline in spending and how the spending is done might lead to the ability to invest a little at a time. Not using credit cards, for example saves 20%+ on the interest on the card balance. My guess is that patience in discretionary buying habits could help a lot.
Bill Kraft

Bill Kraft, said...

Some good points g l chronister. Thanks for writing.
Bill Kraft

Bill Kraft, said...

To all who commented with their plans and ideas, I applaud you for your thoughtfulness and thank you for your interest. It seems obvious that many of your ideas could vastly improve the current system, but whether they will or not, of course, is a political matter.
Bill Kraft

Bill Kraft, said...

To the Anonymous who judges that I have a strange view of American society, it sounds like you discard the notion of mandatory financial education because you believe many may not learn. I never thought that the failure of some was a reason to deny many. I know of no way to achieve perfection, but if we can gain improvement through education, why would you argue against it? Is it your belief that the vast majority of Americans are too stupid to absorb some basic financial education?
Bill Kraft

Bill Kraft, said...

Yes, Anonymous, it is our money. I find it interesting how many folks believe we should not be allowed to make our own decisions about how to invest it or what to do with it. Somehow the argument that we are too stupid to handle our own money bothers me. Is a brokerage that loses Billions smarter than you or I in handling money? Anyway, thanks for your thoughts and those of all who wrote this week.
Bill Kraft

Bill Kraft, said...

Papa Hog, what a fascinating and, in some ways, sad commentary. I guess it really comes down to the old saw: "You can lead a horse to water, but you can't make him drink." The question then becomes, it seems to me, are those who are willing to do responsible for the financial well-being of those who aren't? Thanks for your insight.
Bill Kraft

Bill Kraft, said...

Thanks for your comments, Glenn. I'm wondering -- are you saying all is OK with Social Security so we should have no concerns in that area?
Bill Kraft

Anonymous said...

I dont have a solution to the social security problem - but I do believe I have a positive starting point for a solution.
You described the lack of movement since president Ron Reagan voiced his concern over 20 years ago. Over this entire period of time - and before - this program came under the management of Congress and we have seen where that has taken it. Since this appears to be a nogo group of people it would seem to be frivolous to continue in this vein. It would be more sensible and practical to remove the program from the concern of Congress and set it up more as an independent agency that would be similar to the Federal Reserve Bank system in makeup with directors,etc. who could enact rules and bylaws to effect management on an ongoing basis - and only report to a specific congressional department on a time schedule. It would probably be appropriate that management be appointed rather then elected to avoid the biases involved with elections that play a large role in any congressional actions. From this point forward I believe most any intelligent human being can construct a satisfactory solution to the problem when not concerned with their electability.
Thanks for taking the time to read this memo.
M. L. Sieve

Anonymous said...

There would have been plenty of $ in SS had the govt invested it rather than diverted and plundered it for decades.

There is no question that Americans are entitled to their own money, to invest it as they see fit, and that entitlement programs should be left for the unhealthy, those in society that truly can't take care of themselves. We paid in the maximum for social security for years. We will have nothing to show for it. Hilary Clinton, Barack Obama, and even John McCain are all "status quo" tax and spend professional politicians.

We need a tax revolt to get the message across. If every person simply refused to go to work for a day, and brought US productivity to zero for one day, they'd all get the message, and fast.

I feel sorry for our children and grandchildren. They are saddled with awesome burdens--for social security, medicare, medicaid, health insurance, and of course, the cost of education.

The federal government makes a practice of writing laws that are left unfunded. The Fed Reserve prints truckloads of fiat currency devaluating the dollar and creating investment bubbles. The politicians want to take over every aspect of our lives, like the good socialists before them. Furthermore, the proposals to inflict additional healthcare burdens, to be administered by some government entity, should be decried--just like it was when Hilary Clinton first proposed it in 1992.

I believe that all health insurance and retirement investments should be individual and not tied to government programs, nor tied to employers. It is so burdensome for employers. I believe that individuals who are not savvy regarding investments have every opportunity to educate themselves, and I agree with you that investments and finance should be part of the public education curriculum. If people are allowed to keep their money, you can bet they would learn how to invest it. Americans are not stupid. We don't need the government to think for us.

There is no doubt that able minds can rectify this problem, but not with the current spate of politicians in office.

Unfortunately, there is really no one in political office, or any presidential candidate of the character and determination necessary to cure our ills. I lean toward voting Republican, not because John McCain represents me, but because Hilary Clinton and Barack Obama scare me. I feel McCain is the lesser of the evils, but have no confidence in him or either party. As a baby boomer myself, with a husband born during WW2, I am thinking of moving to some banana republic in order to make our money last.

Thanks for the opportunity to rant!

Anonymous said...

There is an easy answer to save social security. Just make the rich people pay their fair sure, instead of just paying on the first $95,000 or so. They should pay on the first $150,000 at least, & if that isn't enough later on, raise it to first $200,000.

Anonymous said...

Dear Sir,
I can't see how Social Security could be in trouble. I'm 62, HS Class of 64 and at least half the people I knew in HS are already dead! Most of them paid in and got nothing back!

Ed Funston said...

Bill, think about this one. Suppose that instead of lending SS receipts to the US Treasury (the right hand pocket leading money the the left hand pocket)thse SS receipts had been factored out the the divers home-loan mortgage companies. Supposed further that SSA receipts were disaggrigated into individual accounts. Thus, if one paying SSA tax purchased a house with, e.g., a 30 year mortgage at a 6% rate of interest, that payor would, at the end of 30 years have his/her house paid for and also have approximately twice that amount in his SSA account. Under such a system a home buyer would be paying interest to him/herself. Too logical, and besides, that way the Congress could not get it's hands on the money.

Anonymous said...



All the money the FED prints is "LOANED" to the U.S. for INTEREST! That interest alone, eats up more than all the illegal "income tax" that the IRS collects all by itself. That interest creates massive debt!

Doing the two things above will put more money into everyone's pockets, the economy, the government, and single handedly solve every financial problem in America! America was founded and built with a constitutionally PROHIBITED income tax for a reason! We are all experiencing that reason now! The Banks will impoverish us all if they are allowed to continue on the path they have been on since 1933!
BTW - The 16th Amendment - so called - has never been ratified, is not an amendment - and the Supreme courts have held consistently that it did nothing to change "existing tax laws!"
That means, income tax was not legal before it, and therefore, not legal after it!
Eliminating the IRS, will purge the only FASCIST organization plaguing Americans illegally from the face of the nation, and we will all be free once more!


Anonymous said...

I was just listening to a report on the radio while driving, decrying the fact that Canada (where I live) has the same problem as the U.S. "promises to pay" such as social security, medical and other UNDERFUNDED future liabilities that are demographically IMPOSSIBLY to meet! When I came
home the FIRST E-mail I read was Bill Krafts essay on the subject!

In Canada Social Security has the acronym SIN which some have dubbed as SLAVE Identification Number as opposed to its intended designation as Social Insurance Number, and indeed when we trust our fiture to politicians and bureacrats we sell ourselves into slavery.

While there have been many insightful and useful interesting comments NOBODY has identified the ROOT of the fiscal MESS we find ourselves in!

The foundational problem is our fiat currencies (created out of thin air) that results in constant inflation as interest is REMOVED from circulating medium requiring NEW BORROWING (debt creation) devaluing all existing dollars, the reason todays dollar has only 5c of purchasing power in terms of a dollar when the Federal Reservr came into existence in 1913!

Step #1 for reform would be to restore a SOUND commodity backed (gold and silver and perhaps today, copper and platinum) backed currency!

At the very least we need to get the politicians hands out of the cookie jar, i.e. social security funds are OFFLIMITS for anything other than their intended purpose.

2) Taxes for social security should be invested ONLY in these precious metals, as unlike paper currencies they HOLD their purchasing power even though PRICES fluctuate due to manipulation of the economy based on our present flawed system.

Under our present system of flawed statistics that HIDE the REAL inflation rate, which is at least DOUBLE official government figures, taxpayers get a DOUBLE WHAMMY, first of all because purchasing power is being constantly eroded! Secondly this erosion of purchasing power is MUCH FASTER than tax free allowances are being raised by government because of DELIBERATE understatement of ACTUAL inflation of living costs. NOBODY could live decently on the actual allownces!

People who ARE able and willing to do thier own investment allocations should be given HUGE tax incentives to do so to unburden the system that so many claim a RIGHT to receive without meeting the RESPONSIBILITY as a productive legal citizen.

Unknown said...

I believe that Congress's own Retirement program should be merged into the social security program. The congress makes decisions on our benefits when their own benefits are protected. Put them in the same boat and see how quickly social security is reformed

Anonymous said...

Senatorsor Congressman do not contribute to SS why have they been given the authority to manage the program. Why was the Clinton administration allowed to borrow from the fund, and who gave authority to use the funds for illegals . Why should anybody who has never contributed to SS be allowed to use the funds. Congress has no authority and we need as citizens to stop their irresposibility abuse of the program. Totally disgusted with congress all derelict in their duty to taxpaying Americans. Mike Clark

Bill Kraft, said...

Thanks, M L. I also believe it would be better out of the hands of Congress and in the hands of the individuals whose money it was in the first place or at least where it is protected from Congressional "borrowing."
Bill Kraft

Bill Kraft, said...

Wonderful rant, Anonymous. You definitely point out what I believe are critically important issues in our political system. Do you think term limits (as though the polls would vote them in) would be helpful? I often wonder why millions if not billions are spent to get a job that pays less than half a million -- that's tongue in cheek, of course.
Bill Kraft

Bill Kraft, said...

Anonymous, I agree that EVERYONE should pay their fair share. How about a flat percentage tax and reduce the behemoth of the IRS? Would everyone paying an equal percentage be fair?
Bill Kraft

Bill Kraft, said...

Anonymous with all the classmates who have passed on by age 62 -- it really can be an actuarial game can't it. Problem is, we assume all the money that was paid in is still there and wasn't used for something else. Thanks for your comments.
Bill Kraft

Bill Kraft, said...

Ed, just too logical to be permitted. Congress knows it can handle our money better than we possibly could :)
Bill Kraft

Bill Kraft, said...

Oh, Canada! Great thoughts. Thank you for your comments.
Bill Kraft

Bill Kraft, said...

Eileen, that's one of the points I hoped someone would make. I suspect you are absolutely right.
Bill Kraft

Anonymous said...

Hi Bill, I read your newsletter every week, and get a lot of info. from you. On the Social Security issue, it's really imp. to preserve it. No matter how people save, inflation erodes their savings, and so, just when it all seems to get out-of-hand, when one is older, retired or semi-retired, and can't earn enough to keep up with that inflation, the Social Security kicks in, and helps.
AND, it must be kept a "locked box" as Al Gore said. Money has already been "borrowed" from that lock box, I believe, and it shouldn't have been.

Anonymous said...

Social Security Trust Fund is a giant fraud. The is no trust und, Assets have all been dissapated, and current retun is somethin like 1% on spent money. Current income pays out present and future benefits, which is comparable to what most Ponzi Schemes do. The contingent liabilities are in the trillions of dollars.
Hillary said if we stop the Iraq War, we can spend the money to right the S>S> fund.... HELLO... anybody home?
Fiscal soundness anyone...? Our current answer is to print more money and issue more bods, notes and bills. Sorry, you asked... HGS P.s. Spent assets, low income and contingentcies growing geometrically.

Anonymous said...

Your comments re social security are right on the money. Keep it up. It is difficult to rationalize how we could have so many important subjects affecting as many people as they do ignored by the politicians in Washington who waste their time on stupid hearings which are meaningless while they do nothing.

Anonymous said...

Enjoy your thoughts as always. I live in Australia and believe that our situation is superior to that in the US retirement wise.

For quite some time the govt has been making people aware that the govt pension scheme will be inadequate to fund retirements. Even now it is pretty difficult to live on the pension.

What happens here is that employers have to contribute 9% of income (this applies to casual employees also) into a fund of the employees choice. All employers also support "salary sacrifice" where money sacrificed pre tax can also be sent to superannuation.

My only comment would be that here one has to set up a "self managed superannuation fund" to really get the best choice (one can buy an investment property with ones retirement money for instance and one needs to have the "SMSF" to be able to trade in shares) but the standard version is still pretty good too.

The 9% really needs to be 12% but otherwise this gives the employee the choice over where the money goes. Unfortunately I fear that most people here are just as financially ignorant as in the US.


Bill Kraft, said...

Thanks, Sue. I guess the only thing I would add is that I do believe people can learn to invest in ways to generate income so that even as they are retired they can earn more than enough to keep up with and surpass inflation. I am a perfect example.
Bill Kraft

Bill Kraft, said...

No, Anonymous, I'm not sorry I asked. I appreciate your contribution and believe we need to make our government responsive to the people once again. Unless we state our views and make the legislators hear us I can only see these problems escalating.
Bill Kraft

Bill Kraft, said...

Thanks, Chris. The Australian system does have some definite positives, doesn't it.
Bill Kraft

Anonymous said...

As naive as this may sound, and mostly out of disgust for the present system, First, there should be a lock box law passed to keep the goverment from "borrowing" (lol), any more money from the ss fund, it was never intended for that use.

Second, Maybe our goverment should stop sending billions dollars of inflated money to every country that comes begging and use those same funds to pay back what they have basicly "stolen" from the hard working American people who have contributed to this system all their working years. Myself included.

Third, take this payback money and do one of the other suggestions that have been put forth on this blog, A save investment with consistent growth would be and annuity, After all it was the Insurance Co's monies that helped get the WPA started after the depression in 1929.and thus turned this country around at that time.

Anonymous said...

I agree something should have been done years ago. My suggestion has been and always will be that the government should pay back the Trillions of dollars it owes to the social security system plus interest. Stop the Billions in Pork and Billions in giveaways to foreign countries run by Dictators and all the UN countries that continually do not support us at the UN. IF THEY START PAYING THE SYSTEM BACK WE WONT HAVE A PROBLEM. WHY WONT ANY OF THESE POLITICIANS OR PRESIDENTIAL CANDIDATES TALK THAT ISSUE???


Anonymous said...


Bill Kraft, said...

Well, Russ, I can't answer why the candidates won't address the issue you raise. I suspect they are just afraid it is too polarizing and, as far as polarizing goes, they may be right if the comments related to the article this weekend are any indication. Bottom line, I guess we need to get them to address it at things like Town Hall Meetings, in letters to the editor, and in our interaction with every politician we encounter. Thanks for your input.
Bill Kraft

Anonymous said...

You are right about social security. Keep on educating. this dummed down world needs it badly

Anonymous said...

When my father in law retired 10 years ago, he stood in line at the local SS office. Funny thing was
Any wonders what`s really wrong with the system? It really has nothing to do with retirees,and it has become a catch all WELFARE system for all commers. You don`t need to have ever paid into the system. I don`t think that you need to be a citizen. SS recipient
survivors, any disibility, real or otherwise. Get a lawyer and get on the dole. Come one come all.
How about a plan for retirement.

Anonymous said...

Sorry to respond so late I do beleive when you borrow you must pay back with interest I am angry when people say that social security is failing . It is time for the government to pay back the money they take and start making the people in government pay for their medical and also for all people in the united states instead of wasting it in other countries and also filling up their pockets.
thanks if you read this

Bill Kraft, said...

Thanks for your comment on SS, Anonymous.
Bill Kraft