Social security summary: the gov. does not invest the money that you put into Soc. Sec.; they transfer it immediately to older people on Soc Sec. In a typical retirement fund, a person puts away money every year and it is invested in something that gives them a return of interest, like the stock market or bonds. In this situation, that savings actually gets invested into the economy, and allows for business projects to be funded and for economic growth. When a person pays Soc. Sec. now, however, it gets transferred directly to older people, without time to create any value by providing finance for businesses. The reason that its a direct transfer is because the gov. started Soc. Sec. off in the wrong way--once Soc. Sec. was enacted, they immediately started to pay people who had only paid into Soc. Sec. for a month or so, and now they will receive checks from it for the rest of their lives. A better way to do it would have been to say all the young people who start paying now will have their savings invested and returned to them when they get old. That would allow the money to benefit the economy through investment. (what that really means is that- the old people would not be able to buy up goods and services with that money, and those goods and services would instead stay in the economy, and allow for less effort to be directed towards producing the good/services that the old people need, and more effort to be directed towards business ventures/production, etc.) So from day one, it started as a direct wealth transfer from young to old, and so it remains that way today. So then how can someone afford to get more out than they put in if that money never actually has time to earn interest? If there were a steady population, (i.e. the ratio of old to young was always the same) and there were no economic growth, then old people would get out exactly as much as they put in in real money terms. They paid $100 total, and since nothing changes, the young person now pays them $100 total. BUT there is economic growth, usually about 2.5%, so NOW, the young can pay the old the same % of income, but since the youngest people are always richer due to the economy always getting stronger, they now can pass that improvement up to the older people, essentially giving them a return of 2.5% on their money. So Soc. Sec. gives you a return of roughly the % of annual growth, or about 2.5%, but a slice of the stock market for instance gives you about 5%. So youd be much better off investing that money in the stock market. But unfortunately Soc. Sec. is mandatory. https://youtube/watch?v=PLTfOAYfbao
Posted on: Sat, 27 Dec 2014 09:19:41 +0000
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