A Real Fix for Social Security


The return on Social Security is truly terrible because of the way it is structured.  It is in fact set up exactly like a Ponzi scheme (but without the great returns for the initial investors).  As time passes and the government is running out of the ability to even borrow money, it is looking more and more like the system will need to cut payouts and those who are under 55 will not even get the paltry returns it currently provides.

Unfortunately, all of the “fixes” suggested by our representatives just keep the same, bad system going by increasing taxes but still provide the same, poverty-level income each month to retirees.  We already raised Social Security taxes in the 1980’s to get ready for the retirement of the baby Boomers today.  All that happened was the government spent all of the extra tax money.  We still have no lock-box full of money ready to support today’s seniors.

The other plan to fix Social Security is to make the retirement age higher for people entering the workforce today.  That means they will be working longer and paying in more, but receive less than today’s retirees  since they’ll collect fewer payments.  Plus, how exactly will cutting benefits for someone retiring in 40 years help pay for a deficit today?!  Can someone explain the logic here?

Given my criticism, a fair question would be, “So what is your plan?”  Well, here it is.

To develop a good plan, the first step is to look at the issues with the current system.  These are:

1.  The return on Social Security currently  is absolutely terrible.  Even though individuals put away enough to fully fund their retirement under the system, the amount they get back would not even pay for basic expenses, let alone medications and enjoying life.  This is largely because the trustees spend the money as it comes in instead of investing and letting it grow.

2.  There are individuals who are currently depending on social security, at least to some extent.

3.  Those 55 and older are expecting Social Security and feel entitled to it since they have paid in for all of these years.  Never mind that they could have done the math and seen that the system was going insolvent.  And never mind that they have “enjoyed” the results of that spending (it was spent by the government for various things, appropriate and not).  And never mind that they could have demanded that the system be changed to a private system (remember the push by George W. Bush for privatization and the cheers by the Democrats when it didn’t pass?)  Their mindset is that they paid in and therefore they should get what was promised (although there never really is a promise since it can be changed at any time).

4.  We need something since people do not tend to save for retirement and will become a burden on society or die in the streets without some mandatory savings requirement.

So, here is my plan:

1.  For those 65 and older, there would be no changes.  Yes, this is spending money we don’t have, but this is technically already debt-on-the-books (in a business, this would be listed as an obligation).

2.  The retirement age for everyone not 65 or older would immediately be set at 70 years old.  Most politicians would only raise the age for younger workers, but we are broke now, there is a large number of older workers who will overwhelm the system, and people are living into their eighties routinely.  We just can’t afford to start paying at 65 for everyone currently in this age group.  Plus, many of these people have not saved enough to retire and therefore will probably go on working anyway.  Fair, no, but here again, they had 40+ years to change things.  And is it fair to have younger workers work longer and pay extra while this group gets a pass?

3.  For those 60-65, private accounts would be established and every dollar currently going into Social Security would be put into bank CDs.  This group does not have enough years to invest in stocks, but at least they could stash away the money they already contribute.  These funds would be used first when they reach 70, paid out at the current rate for Social Security with the government taking over once those funds are depleted.  This would provide 5-10 years of funding.  Note that this would reduce collections, which would drive up the debt, but here again, that money is really an obligation currently – it is just off-the-books.  By putting the money in private accounts, this would ensure the money is there when needed and not spent on food and drinks on a Congressional flight or something.

4.  For those 16-60, a portion of their money would be diverted into private accounts invested in mutual funds.  These funds would be locked away and invested in a wide range of stocks and bonds, appropriate by age.  A portion of the funds each year would be sent into the current system to pay current retirees, with younger workers paying in a greater percentage.  Note that this would allow for some of the obligations to paid from growth rather than just payroll taxes.  This portion would decrease with age, and would be phased out for everyone as time passes and the number of those collecting traditional benefits decreases.  None of the people in this group would ever receive traditional benefits, but I doubt they would mind since they would do far better investing in private accounts(see my analysis in this post).  Those who are 40 or under today in this group could start drawing on the money once they reach 65 (there would be plenty), while the retirement age for older individuals would be phased from 70 to 65 as appropriate to ensure adequate income for their entire retirement.  Funds left in their account on their deaths would go to their heirs.

We need to accept that a time of change is needed.  That change will not be pleasant, but should be as fair as possible.  Once we shift to private accounts, invested in a wide range of stocks and bonds which gradually shift to income investments and cash as one nears retirement age, we will actually have a system that will  let individuals retire with dignity, even if they have not saved otherwise.

Your investing questions are wanted.  Please send to vtsioriginal@yahoo.comor leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Do You Celebrate Christmas or Xmas?


Barrel Christmas Tree

C.S. Lewis of Narnia/ The Lion, the Witch, and the Wardrobe fame, was actually very devout religiously.  In reading the Narnia series, while initially one may think he is inventing a separate religion with Aslan as a god, you realize in completing the series that the stories are actually tied in with Christianity with YHWH (God) represented by Aslan.  When he is killed on the stone table by the Witch and her minions, it represents the crucifixion of Jesus on the cross and the rising from the grave.  The final battles, of course, represent the end times and the large battles where good overcomes evil in Revelations.

A little over 50 years ago C.S. Lewis published an essay in which he transposed the word, Britain, to create a group of people he called the Niatirbs, who celebrated what he called “Exmas” instead of “Crissmas.”  An excerpt from that essay:

“In the middle of winter when fogs and rains most abound, (the Niatirbians) have a great festival called Exmas, and for 50 days they prepare for it (in the manner which is called,) in their barbarian speech, the Exmas Rush.

“When the day of the festival comes, most of the citizens, being exhausted from the (frenzies of the) Rush, lie in bed till noon. But in the evening they eat five times as much as on other days, and crowning themselves with crowns of paper, they become intoxicated. And on the day after Exmas, they are very grave, being internally disordered by the supper and the drinking and the reckoning of how much they have spent on gifts and on the wine.

“(Now a) few among the Niatirbians have also a festival, separate and to themselves, called Crissmas, which is on the same day as Exmas. And those who keep Crissmas, doing the opposite to the majority of Niatirbians, rise early on that day with shining faces and go before sunrise to certain temples where they partake of a sacred feast.

“But (as for) what Hecataeus says, that Exmas and Crissmas are the same, (this) is not credible. It is not likely that men, even being barbarians, should suffer so many and so great things (as those involved in the Exmas Rush), in honor of a god they do not believe in.”

Many people (probably most people) today think they celebrate Christmas, but in actuality they are celebrating Xmas.  The tradition of gift giving that started out small with family members giving each other small trinkets as a way to make the Savior’s birth a little more special became the focus of the Xmas season.  Stores have caught onto this bonanza of gift buying and encouraged people to buy gifts for everyone they know and several for the people they know well.  Every checkout counter is crowded with gift boxes filled with junk that no one would buy someone normally in an effort to encourage people to put down another $10 or $20 in addition to the money they’ve already spent based on wish lists.   Stores now open on Thanksgiving day to start the season as early as possible.  Many stores are open Christmas Eve until midnight and even on Christmas day.

Going beyond buying gifts for others, many people are now also buying all sorts of things for themselves during the Xmas season.  They utter what are probably the three most dangerous words from a personal finance standpoint: “I deserve it.”  They then proceed to spend money with abandon and fill their homes to the rafters with things the don’t really need.  Probably the worst of all are all of the Santa and snowmen decorations and signs saying “Ho Ho Ho” and other dribble that adorn every room of the house in celebration of Xmas from November through January.

So what’s wrong with Xmas?  Well, beyond the overspending that occurs, while Christmas, when celebrated properly, brings joy and selflessness, Xmas brings stress, selfishness, and a big letdown in the end.  Christmas was started to celebrate the birth of Jesus and his bringing of salvation to all of those who were not among YHWH’s chosen people.  (Note, Christmas is not Jesus’ birthday as is often said, since he was most likely born during the warm months.  It is a celebration of His birth and timed to replace an older Pagan celebration of the Winter Solstice.)  It is a celebration of Jesus entering the world, where suddenly the gates of heaven were open to all, with the sacrifice of Jesus and the grace of God enabling entrance for everyone and not just the Jewish people.  The most special gift of all is the ability of Jesus to cleanse us of our sins and enter even though there is nothing we could do to be deserving of that gift.  This is probably the reason why people started giving gifts:  Because they were receiving such an enormous gift from God, the least they could do was do something within their power to try to pay it forward.

Xmas, on the other hand, is empty and devoid of meaning.  It is a celebration of greed and gluttony.  It starts with fights at the malls for gifts and parking spaces.  It ends once the gifts are opened with the typical feeling of letdown, even when one gets all he wanted.  Xmas ends Christmas morning, but Christmas is just the start of something.  It is the opening of a new doorway and the opportunity for a change in our hearts that can last the whole year and the rest of our lives.

Now many readers may think this is an odd topic for a personal finance blog.  After all, one would think that the whole focus of a personal finance blog would be the amassing of money.  If this is your belief, you would be wrong.  The whole point of this blog is not the amassing of money for the acquisition of material things.  It is to help people collect and grow a portion of the resources they earn through their work so that they can then use those resources to pay for their basic needs.  To gain financial independence so that people can have the money they need for food, shelter, clothing, and so on without needing to depend on a job.  Reaching this state reduces stress and also allows people to be more generous since it is easier to help others when you have the financial means to do so.  Most people who do what is needed to make a middle class income can achieve financial independence by their mid-thirties.  Sadly, most people squander the opportunity.

So if you’re feeling depressed by the passage of Christmas day, perhaps the cure would be to change your focus from Xmas to Christmas.  Stop making the focus of the season the buying of the perfect gift at the lowest price, the decorating of every room in an effort to have the perfect Norman Rockwell look.  The making of tons of food for fifty events.  The giving of gifts out of obligation to coworkers, bosses, and people you barely know.

Do what you feel like doing in celebration of Xmas.  Hang a wreath on the door if you want to.  Put up a string of lights.  Bake a couple of dozen cookies.  But don’t feel obligated to do a bunch of things and spend a bunch of money.  Searching for the perfect Xmas will always lead to emptiness because Xmas itself is void and empty.  Instead, put the focus on the greatest gift you could every receive.  That of a salvation that will last long after the things you’ve bought have rotted away.  Use it as a way to bring God into your everyday life and not just December 25th.

Your investing questions are wanted. Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Want a Better Fiscal Life? Ride with the Pack.


BikeAnyone who has ever been in a road bike race or gone on group rides knows the power of riding in a pack.  For those who haven’t, bicyclists tend to ride very close together when they are going long distances.  The reason is that the group of bikes will actually change the headwinds, reducing the amount of effort needed to go a certain speed.  Normally, like a flock of birds, a rider will be the lead rider for the pack.  This rider will be heading into the headwinds and therefore putting out more effort than those behind her.   When she gets tired, she will drop back into the pack and let someone else take a turn at the front.  The stronger riders normally spend more time leading the pack, but everyone gets a turn.

The power of the pack extends even to the person in the lead, however.  The  pack actually changes the wind patterns, such that there is a mass of air that moves with the pack, breaking the air ahead of the pack and creating a slight force forward.  In the frame of reference of the lead rider, it will seem like there is less headwind than he would see if riding alone.  The whole pack can therefore ride faster as a pack than they could alone.  In a bike race some strong individuals will break away from the pack temporarily, but the pack will always catch up to them if given enough time (watch American Flyers for more on bike racing).  There is just no way one person can ride faster than the pack due to the way they change the winds.

The same holds true for those who fall away to the rear of the pack.  Once they fall back a certain distance, about 10 feet, they are no longer in the wind stream of the pack and are no longer being pushed along.  It is very difficult to catch up to the pack if you fall behind since you must put out more effort than they can.  Fall more than a few lengths behind the pack, particularly if you fall back because you are tired, and the pack will sail on without you.

If you invest, it is like you are riding with the pack.  You still need to put in some effort, but your accounts can grow faster than they would if you were just stuffing the money in your mattress.  You are using the efforts of others, in addition to your own efforts, to grow wealthy.  Your pack will gain members as you go, as your money compounds, and eventually you will be growing wealthy much faster than you thought possible.  For example, if you start putting away money in your 20’s, you can easily become a millionaire when you are forty.  You will then become a $2 million-millionaire far faster than it took to gain your first million – when you are 50.  You could have $10 million by the time you are ready to retire.  As you get the momentum rolling, things happen quick.

Going into debt is like falling behind the pack.  You need to work even harder than those in the pack to catch back up.  While you are working harder to catch back up to the pack, those in the pack are adding members and gaining speed.  If you fall deeply enough into debt, you will never be able to catch the pack again.  Eventually you will tire out and stop at the side of the road, out of energy.  While someone who has saved and invested will find it very easy to make his second million, you will be working every hour you can just to pay your bills.

So, get with the pack early and stay there.  While it is tempting to slack off your peddling and drop back a bit, it takes twice the effort to catch back up.  If you fall far enough behind, you’ll see the pack ride off and leave you in the dust.

Your investing questions are wanted.  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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