Hey young people! A word of caution for those taking the bait being offered by the Romney/Ryan plan to Privatize Social Security & Medicare
After being laid off in the fall of 2009 and concluding that at age 61 I was not going to get rehired in the severe recession competing with 5 other applicants, I decided instead to take the money in my 401k I had earned over the last 18 years, pay off all of our bills except the mortgage, roll the remainder into an IRA and go into to semi-retirement. I figured I could find some part-time work that would allow me to have a little spending money and within a couple of months I would be eligible to collect early Social Security benefits. I’m thankful my wife still has what seems to be a secure job as a registered nurse for the local school district because with both of us out of work this could have gone south real quick. Luckily too, both of our adult children are out on their own and are doing relatively well for the time being. It wasn’t what we planned for our lives but then things seldom work out the way you want.
We were more fortunate than a lot of people who found themselves unemployed in this Great Recession. I know, I know. The recession is actually over and we’re waiting for the job situation to recover. Wall Street is making record profits but Main Street has yet to fully recover. We could have been one of those poor souls that lost their home and health care coverage along with their jobs. But a monthly stipend from my IRA and $1500 a month in Social Security benefits along with my wife’s salary allows us to maintain the resources we need to remain solvent. Now if our luck and what savings we have will only last until we die.
Until earlier this year I was able to afford health insurance by adding myself to my wife’s benefit plan. But that changed when the school district replaced the insurance provider to keep costs down after state funding started drying up from the budget planning failures of Texas state legislators. The deficit the state faced last year “was created by a deal to lower property taxes while transforming the state’s business tax. It has never generated as much money as expected.”
When the new policy raised premiums and deductibles while lowering benefits, it became a financial impracticality to pay nearly $400 a month to keep me on it. This was my mothly premium but the new policy didn’t cover expenses until I cleared a $3000 deductible. I have instead been tucking a large part of that money into a separate account and using it sparingly until I am eligible for Medicare late next year. We keep our fingers crossed that a catastrophic health crisis doesn’t occur before then.
But I digress. The point I want to make here is to alert Americans, especially those in their twenties, thirties and forties, to view with suspicion the Romney/Ryan plan to privatize Social Security and make Medicare a voucher system. Despite Paul Ryan’s claim as being “indisputable fact” that bankruptcy for both of these safety net issues are inevitable, evidence by more rigorous authorities say nothing could be further from the truth. According to information put out by The Progress Report
[T]he possibility of Medicare going bankrupt is — and historically has been — greatly exaggerated. In fact, if no changes are made, Medicare would still be able to meet 88 percent of its obligations in 2085. Social Security is fully funded for another two decades and could pay 75 percent of its benefits thereafter. There is also an easy way to ensure the program’s long-term solvency without large changes or cuts to benefits.
What is an indisputable fact is that these programs that were instituted to keep more people out of poverty and serve as a means of last resort for people who fall between the cracks in our economy have been attacked by wealthy financial interests since their inception. In his book, The People’s Pension, Eric Laursen has detailed how specific politicians, lobbyists, and groups “have waged a steady battle to discredit and undermine” Social Security. They have aggressively pushed proposals to cut, privatize or dramatically transform” this trust fund for elder citizens.
Wall Street has been trying to get their hands on the billions in the Social Security trust funds for years. They assure us that putting your money into the stock market will see greater returns than what you’ll see after decades of payroll deductions applied to the government-managed system that has reliably paid benefits for more than 75 years. In his article, The Solvency of Social Security, Stephen J. Foster, Jr. points out what should be an obvious fact even to the casual observer.
Wall Street is known for gambling with other people’s money which has led to the Great Depression in the past and the 2008 recession. If you have a 401(k), you have experienced firsthand what can happen to your retirement portfolio when it is entrusted to Wall Street. People with IRA’s, 401(k)’s and other types of retirement accounts watched helplessly their savings disappear as the stock market took a historic tumble.
After clearing most of my debt and depositing the remaining $140,000 from my 401k into my new IRA on January 1st, 2010, the DOW was sitting at 10,428.04. Last Friday it closed out the week at 13,328.85, which was down 281 points from what it started at the beginning of the week. The DOW has gained just over 2900 points since I opened that IRA. My investments were primarily low risk investments. However, when things really started looking bad after Republicans refused to raise the debt ceiling in 2011 and the country’s credit rating was lowered as a consequence of this dysfunctional action, I shifted everything into the safer areas of bonds and money markets.
We all know the stock market is volatile and that there will be ups and downs but even with my safe investments that were being handled by a professional money management agency I have lost roughly 4% of my overall investments into the stock market from the time I opened my IRA account. Clearly Wall Street has done well while my resources are losing ground.
A 4% loss over three years isn’t much when you are just beginning your life and putting some away in your twenties or thirties but for those of us who are at retirement age or getting close to it such losses hurt, especially as your health deteriorates from age and the costs of health care and insurance increase faster than the rate of inflation.
Ups and owns in the stock market are expected but over a 40-50 year period you can realize significant gains. But when our economy takes serious hits like it did in 2000 and 2008 people like myself watched their 401k’s take tremendous losses. My 401k lost a third of its value in each recession. I never did fully recapture those losses before I was laid off in 2009.
I worked 18 years building up a retirement fund and under normal circumstances would have accumulated about $350,000 at the rate I was going. Instead, because of two economic recessions within 8 years of each other where the DOW lost more than half of its value nine months before I was let go, I wound up with less than half of that. How much more would I and others have lost if the economic crisis reached Great Depression levels? Perhaps all of it.
The only people who really do well in the stock market are very wealthy people who can afford to take the losses that occur when hard times hit. The average investor is likely to suffer irreparable economic consequences at the most vulnerable times in their life as an aged retiree. Stephen J. Foster rightfully points out that once the wealthy financiers get their hands on your money they offer no guarantee that you will come out ahead. In fact, in rough times when markets are down, as your investments dwindle they lose very little because they are using your money to gamble with.
People like Romney and Ryan like to tout the notion that people can do better when they manage their own money but they would be hard-pressed to find evidence of that with most people who work all their lives. Unless wages allow enough to stick aside most people live from paycheck to paycheck to make ends meet. And we all know wages for 95% of wager earners have not kept pace with the top 5% over the last 30 years.
If the payroll deductions for Social Security and Medicare were eliminated low and middle-income families would indeed have a little bit more money in their pockets but it wouldn’t necessarily go into a savings or a retirement plan in an economy where prices are rising faster than most people’s wages can keep up with. As much as it may hurt during those times when families are struggling to provide basic essentials for themselves, without the deductions going toward future social security benefits and health care coverage, adult children would suffer even worse, especially during economic hard times, when faced with caring for their aging parents down the road.
So I would ask all those young people who Mitt Romney and Paul Ryan are appealing to – are you willing to risk this small percentage of your earnings each payday in the uncertainty of a volatile market or put it towards a financially secure, long-term investment? If you opt for those markets, how much time and energy do you think you will have to make sure your investments are as sound as they can be? When even professionals fail to read the tea leaves in the markets each day, how much better will those of us with an untrained eye do making such decisions?
When asked in a recent interview “Why should younger people of lower- and middle-incomes be especially concerned about Social Security?” Eric Laursen conveyed the following:
So many of their traditional sources of retirement income are eroding. Millions of younger workers will not be able to rely on employer-based pensions or from sales of their homes. Also, the stock and bond markets, which were supposed to be a vast new source of wealth through 401(k)s and IRAs, are treacherous. Health insurance costs and student loan payments eat away at what savings they’ve managed to acquire. Employment itself is a lot more volatile. Social Security is the one thing they have that is guaranteed. SOURCE
It’s a pipe dream to believe that the volatile stock market offers more security for the average working American than a secure fund backed up by the full faith and creditof the U.S. Treasury. One that wealthy investors want you to believe in order to increase their own capital wealth. By itself it will not meet all the creature comforts many people are used to but for an average worker, Social Security replaces about 40 percent of annual pre-retirement earnings, constituting about two-thirds of income for the average older beneficiary. Even more revealing is the fact that Social Security amounts to 90 percent or more of the income for one-third of seniors.
Making the government look like a bogey-man on this issue is part of a deception to extract even more of the remaining wealth from the 98% so when they lose their life savings and have to fall back on vital government assistance programs, they can be accused by people like Romney of being “dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them” rather than accepting responsibility for the failure to be honest with the American people about the risks involved with privatizing Social Security and Medicare.