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Comment by mattmaroon | Hacker News Reader

Even if it wasn't for the anomalous population boom that is causing the problem, you would essentially be being forced by the government to put a portion of your salary into an investment with a 0% interest rate. Which granted, would look good to a lot of people right now, but is bad financial planning on the whole.

On the other hand, I reject his cries of paternalism for the simple reason that other people's poverty has a negative effect on my life, liberty, and pursuit of happiness. Poor people have incredibly high rates of criminal activity, drug use, etc. Granted, I don't see a lot of retirees selling crack or robbing banks, but the effect it could have on their families, who sometimes they support or sometimes support them, could create a serious ripple down through generations.

Which doesn't necessarily mean I'm for Social Security or forced savings of any kind, but the issue is not nearly so simple as paternalism.

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In defense of social security:

It pays significant disability and survives benefits which has little to do with investing and everything to do with insurance. So consider SS as insurance in case of a long life.

Some people will live well over 100 so finding the "correct" amount of money to save is overkill for most people who die far younger than that. If you invested a portion of your savings each year and pooled you money with 10,000 other people your age then paid dividends from that to the survivors you could save less money and still not worry about running out. Granted if to many people lived until retirement age you might need to reduce benefits. Granted you would not be able to give people money at the time of your death but if your single what's the point?

Now the implementation of social security is broken in several ways but minor changes in retirement age will fix the "benefit gap" long before it runs out of money. The basic problem is people are living longer so they need to increase average retirement age. The surplus was also invested in government bonds with terrible long term returns etc, but when you consider how much more important the first 20k/year is over the next you might consider guaranteed benefits even at high cost are worth a lot more than the simple math would suggest.

PS: There are a lot of things I hate about SS, but it's not really a Ponzi scheme.

This was one of the intellectual flaws of the Bush privatization scheme; they calibrated returns from individual private accounts to the average lifespan, without noting that a pretty large contingent of social security beneficiaries would outlive the average.

Current estimates are that many of us will be long retired before there even is a "gap" between Social Security funding and Social Security benefits. The trust fund, for instance, doesn't run out until the 2040's.

The privatization plan would give the beneficiary ownership over the investment, so there is not a problem, it just means that the investment has longer to grow. Ideally someone doesn't just build up a pile of money and intend to die with $0, he/she intends to leave some to the next generation or to charity.

I am single why should I give my money to charity, my will is going to say take it out into the forest and burn it.

Only slightly kidding. A close friend of mine had a trust fund worth a little over 6 million and was looking to inherent a lot more when his grandmother died. He is dead now and imo money really messed up his life.

The trust fund doesn't exist. It's a line on the books, but it's been borrowed fund to pay for other expenses.

So, when do you think the government is going to default on its own bonds? 2010? 2018?

The life insurance aspect of SS is always overlooked in discussions on its impending collapse. I would guess that it's just not a significant factor. The yearly Social Security/Medicare payments for the average American is something like $7,500. Term Life would be what, $600?

I'm not sure what you meant after that. Actuarial tables take life spans into account. And people are not living longer, see my original comment. That's a myth, and not the problem at all.

The average lifespan is not increasing but the percent of people living into old age is. Someone dieing at 55 vs 60 does not save SS the money of someone dieing at 85 vs 80.

The baby boom also distorted the number of young people supporting old people, but over the next 40 years far more people will reach 95 than did 40 years ago. The other main support of SS was the long term increase in income, but middle class wage stagnation has also impacted SS. Most of the economic growth over the last 20 years has occurred well above the SS cap so it's not capturing that growth.

PS: (technology) Cars kill the young, medicine and sanitation keeps the old alive. Few young people need much in the way of medicine and few old people drive.

You have it backward. The percentage of people living into old age has not changed significantly. The average lifespan from birth has, but that's not relevant to SS. The average lifespan of someone who enters the system (an adult, at let's say age 18) is the same.

The percentage of people who live from the age of 18 to the age of 95 will not be higher than 40 years ago, in fact, it may be lower.

The average lifespan has not changed much once you hit 18, but your chances of dieing between 30 and 40 have gone up where your chances of dieing between 60 and 70 have gone down. I need to find and old actuarial table from the 50's to show compare with today.

Edit: http://www.ssa.gov/OACT/STATS/table4c6.html

I should say the odds of hitting 100 from 1 are about the same but the odds of hitting 100 from 65 have increased.

Male death probability with some comments by me:

  01) 0.000513 
  06) 0.000182 
  11) 0.000104
  12) 0.000156	
  13) 0.000273  (wow big jump suicide?)
  14) 0.000435  (some car)
  18) 0.001061  (more car)
  21) 0.001361  (full car)
  23) 0.001438  (peak of early death risk)
  31) 0.001367  (still car)
  41) 0.002629  (start of heath issues?)
  51) 0.005657
  61) 0.012966
  71) 0.030131
  81) 0.075724  
  91) 0.199019  	
  101) 0.388563

PS: Old age is bad for your heath but 21 vs 31 is about the same because it's mostly accidental death aka car accidents. Just watch the increase from 14 till 23.

That's not worth much in and of itself. It has to be compared with past data to be relevant to the argument. Also, it would have to be that 18-65 has gone down while 66+ has gone up. Seems highly unlikely to have done so significantly.

Still looking, but I found one for japan: http://www.mhlw.go.jp/english/database/db-hw/lifetb04/2.html

  1955: 40 and live to 60 = 71%;
  2004: 40 and live to 60 = 88%; 
  1955: 60 and live to 80 = 32%;
  2004: 60 and live to 80 = 64%;

Edit US: http://www.infoplease.com/ipa/A0005124.html (Looks like deaths are down per 100,000 people but I can't find the right tables.)

Edit: Got it: Even more old people in the US: 1990 vs 2000: http://www.infoplease.com/ipa/A0905042.html look at Percent change in the over 75 age range. The US population was not growing anywhere near that fast.

That's not showing anything about life spans, just the baby boomers getting older. It's the retiree to worker ratio shifting as they age.

Baby boomers are not that old yet. These are the number of people over 75 in 2000 vs 1990. 1990 - 75 = 1915 and before vs 1925 and before.

95 years and over + 34%. Are you suggesting that there was a 34% population boom between around 1885 and 1905?

This is an important point you've raised. In particular, lowered infant mortality combined with a poor grasp of statistics makes it look like you and I are living longer, even when those infants that might have died before could end up keeling over at 30 from health problems and we might die a few years earlier than we were likely to a few decades ago.

Also, people who are living longer as a result of advances in life-saving surgery are doing so in poor health as a result of the reasons for the increased necessity of these surgeries such as coronary heart disease and type 2 diabetes. Increasing the retirement age in this context could mean attempting to employ a bunch of people not fit to be productive, in a worst case scenario.

I blame it on the government for citing the worthless stat in the first place. They rarely express it as anything other than from birth expectancy. They should mention it from some stable age like 5, then simply show infant mortality stats separately. Though I guess they don't want to do that because we have one of the worst rates in the developed world.

Congress is good at fund raising, not math.

SS is a Ponzi scheme. Payout for current investors is provided by the payin of future investors.

Then to fool you, a small fraction of the program is devoted to other legitimate purposes. Disability/survivor benefits are an extremely small portion of social security, less than 1% last time I checked.

Incidentally, as far as living to 100, buy a lifetime annuity. Or even just have the government pay for retirement for the poor 90+ crowd. Again, an extremely small part of SS.

SS has collected trillions more than it has paid out. To deal with the post baby boom reduction in the work force. A true Ponzi scheme can't be stable over hundreds of years but SS could be.

PS: I would like to see SS start at ~75 which seems to be the time when most people are incapable of meaningful work. And it's the age where most people who retired young start having major problems with their savings keeping up with inflation. I would also increase benefits slightly because it would be the only source of income for many people. I fear a lot of people retired far younger than the would have because of SS and ended up far poorer because they outlived their savings.

A Ponzi scheme is an investment system where the payout of current investors comes from the payin of future investors. That's the definition of ponzi.

Does SS meet that definition or not? If so, it's a Ponzi scheme. The fact that it lasted longer than other historical Ponzi schemes does not change it's nature.

A Ponzi scheme is a fraudulent investment operation that pays returns to investors out of the money paid by subsequent investors rather than from profit.

SS does not hide the fact that it pays money from dead investors to the living so it's not fraudulent. It does use some money from new investors to payout money but so does life insurance.

PS: While some people get far more out of SS than they pay in many people got zero benefits. With a SS their will would still "own" their money but with SS it diapers into the void. I don't mind calling SS a period scheme, but a lot of 22 year old's are going to die before their 60's so the math can work out just fine.

One point that has not appeared in your dialog, in favor of identifying SS as a Ponzi scheme, is that the excess accumulation of Social Security taxes has been spent on other things and replaced with IOUs by Congress (this is how the Clinton administration produced a so-called budget 'surplus').

First, the Clinton administration did not synthesize a surplus out of the social security trust fund; they simply had the good fortune to take office during a period of historic productivity expansion.

Second of all, the "IOUs" you're talking about are government bonds. For your argument to hold, you have to assert that the government is going to default on its own bonds.

Governments default on their own bonds often enough. Cf. Argentina plus a whole slew of third-world countries.

I'll skip the theory and offer a single data point: the employees of the Social Security Administration do not, themselves, use or pay into SS. Neither do any other US Government employees. That is, the people who know the most about the system think it's so good that they don't want any part of it. It's almost like they know something some of us don't.

I would suggest that the general fund is a Ponzi scheme backed by selling IOU's. We are borrowing more money to pay the interest on money we already borrowed and adding more debt on top of that. Long term we need to start borrowing less than the interest on our debt - inflation. Which is not all that high a number vs GDP.

Social Security isn't an investment system; it's a social insurance program. A Ponzi Scheme is an investment scam; victim investors are, for a short time, paid an unnaturally high rate of return based on the recruitment of an ever-broadening base of new victims.

The retirement component of social security is not insurance. It does not spread the cost of low probability, high cost events among the insured. Only the very small disability insurance part of SS does this. As I mentioned, that is a separate issue.

Tell me; if Madoff called his hedge fund an "insurance program", and actually devoted 1% of it to providing disability insurance, would that make it not a Ponzi scheme? Incidentally, Madoff's returns were not unnaturally high, just unnaturally regular.

As for the fraud, it's true that the nature of SS is quite clear. SS uses force instead; if you don't pay in, you get locked up. So maybe "Ponzi Protection Racket" would be more accurate than "Ponzi Scheme".

You're arguing that Social Security isn't an insurance program. I'm arguing that it isn't an investment system. If we're both right, it's still not a Ponzi Scam. It doesn't blow up like a pyramid scheme, and it doesn't attract victims with returns on investment. What it does is allow a generation of entrepreneurs to start companies instead of working for Geico and Alcoa to keep their parents out of the cat food.

I'm not sure how it isn't an investment system; you put money in because you are forced, but with the hope of getting money out later. That's closer to an investment than to insurance, though I guess the use of force confuses things.

You could be right, I never thought of it this way. Take a scam, then use a gun to force people to participate without disguising your intentions. Is it still a scam? Maybe not, I'll have to think about it.

SS is based on the assumption that people will die at some predictable rate. http://www.ssa.gov/history/genrev.html "If I have anything to say about it, it will always be contributed, both on the part of the employer and the employee, on a sound actuarial basis. It means no money out of the Treasury." It's only a scam if people who live don't get paid.

Anyway, they are projecting problems 40 years into the future if nothing changes. An influenza outbreak could dramatically change those predictions as could moving retirement age back 1 month. Suggesting we know the shape of the economy in 40 years is probably overly optimistic.

What's the odds you live to be 105? What's going to pay your income if you live that long? Ok, what happens in the great depression II shows up in 40 years?

As I noted before, the really old are a small fraction of SS. If SS were really just protecting people against outliving their investments (say, it kicked in at age 90) and against disability, I'd have little objection to it. That's just insurance, and a small portion of SS.

As for GDII, I'm not sure how SS helps there. That sounds like a place where the ponzi-like nature of SS will become readily apparent: not enough money from new investors to pay off the old ones.

I agree that increasing the SS age is a good idea.

Anyway, Employment is vary stable even in the GD I vs. every other asset class. If unemployment goes from 5% to 20% the drop in income does not change much on a year over year basis, but just about every other asset class is going to tank. If unemployment stays over 20% vary long there is not much that can save your retirement.

The reason to fund SS with workers income is it's more stable than just about everything else in the economy. Inflation or deflation and people still make about as much money.

If you have 5x what you need to live off of and it's extremely diversified then it's not a problem but what's the point in waiting that long?

You might have 20% cash on hand but how long is that going to last you? You might have some bonds but if the company tanks your out of luck. You could have some property but who's buying? etc.

PS: How much money do you think you need to save and how would you invest it to have a 99.9% chance to live off of 20k inflation adjusted for the next 30 years?

Madoff was a Ponzi scheme because he paid 12% interest. That interest meant he had to get new people in the door to fund it. Ponzi himself borrowed money, then paid it back with interest.

Social Security doesn't do this.

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