It has been widely reported that the average rate of return on SS "contributions" is about 2%. Compared to historical inflation rates that is actually a net negative ROI. Compare SS to the Federal Employee's Thrift Savings Plan:
(1) There are five funds from which employees can chose to invest in. The three most popular are the "G" or government securities, "F" which is basically a money market/bond fund, and the "C" which is a common stock fund. The average rates of return from 1988 through 2003 for these funds were: "G" 6.78%, "F" 8.05%, and "C" 13.64%. The "G" fund has never had a negative annual rate of return. The "F" fund has had two years of negative returns, and the "C" has had four. Pro-SS argument--What if the stock market goes down? Answer--You can see, based on the average TSP rates of return and the historical performance of the stock market that this argument is basically a bogus scare tactic.
(2) You can choose to invest all or any portion of up to 10% of your earnings in any mixture of the five funds. I contribute 50% to the "G" fund and 50% to the "C" fund. Fund balances or contributions can be moved between funds online. Pro-SS argument--People do not know hpw to invest. Answer--Given the limited options available, the TSP is basically dummy-proof. You could also set up some restrictions such as setting minimum age-based percentages that must be invested in low-risk funds.
(3) When I retire I can start drawing an immediate annuity or roll over my balance into another qualified plan. If I die before I draw out all my balance, my heirs will get the balance as opposed to SS which ends when I die.
(4) My contributions are non-taxable, and will be taxed when I start drawing an annuity, presumably at a lower marginal rate.
Why wouldn't the general populace DEMAND that the government replace SS with a plan such as this?
(1) There are five funds from which employees can chose to invest in. The three most popular are the "G" or government securities, "F" which is basically a money market/bond fund, and the "C" which is a common stock fund. The average rates of return from 1988 through 2003 for these funds were: "G" 6.78%, "F" 8.05%, and "C" 13.64%. The "G" fund has never had a negative annual rate of return. The "F" fund has had two years of negative returns, and the "C" has had four. Pro-SS argument--What if the stock market goes down? Answer--You can see, based on the average TSP rates of return and the historical performance of the stock market that this argument is basically a bogus scare tactic.
(2) You can choose to invest all or any portion of up to 10% of your earnings in any mixture of the five funds. I contribute 50% to the "G" fund and 50% to the "C" fund. Fund balances or contributions can be moved between funds online. Pro-SS argument--People do not know hpw to invest. Answer--Given the limited options available, the TSP is basically dummy-proof. You could also set up some restrictions such as setting minimum age-based percentages that must be invested in low-risk funds.
(3) When I retire I can start drawing an immediate annuity or roll over my balance into another qualified plan. If I die before I draw out all my balance, my heirs will get the balance as opposed to SS which ends when I die.
(4) My contributions are non-taxable, and will be taxed when I start drawing an annuity, presumably at a lower marginal rate.
Why wouldn't the general populace DEMAND that the government replace SS with a plan such as this?