Sunday, November 30, 2008

Look at the value of Social Security now that Wall Street has collapsed

We have heard for years from Investment salespeople what a bad investment Social Security is and how much better we can do if you buy their snake oil investment products.

Yeah. Right. Nathan Newman, riffing off of a Wall Street Journal article points out that for all the money investors have lost in the recent Wall Street meltdown, financial assets provide only 15.4% of the income for those over age 65 while Social Security provides 39.6% of their income.

That social security income is not tied to Wall Street ups and downs. Instead it is contracted to be delivered regularly with annual updates for inflation. The WSJ article points out that this is "an inflation-adjusted immediate annuity." As such it has an immediate value to retirees and those nearing retirement that can be measured in thousands of dollars. It is also guaranteed by the government and cannot be taken away, unlike all Wall Street products.

That makes Social Security a damned good investment for most Americans.

Oh, and the scare tactic line the investment salespeople offer "It won't be there when you retire?" That's a load of crap. The very worst case scenarios suggest that after 2041 the income of the Social Security System will be only 89% of what is needed to pay full promised benefits. OK. Say the worst case scenario comes true. The law already states that if there is a shortfall in revenue the Social Security System will pay out the benefits at the level permitted by the incoming revenue, which means at worst, the promised benefits would be reduced 11%.

But the fact is that the estimates for future benefits have always exceeded the most likely estimates, with the worst case never having occurred.

Which would you prefer? A contractual annuity paid by a private insurance company that could go bankrupt as AIG just did, or a contractual annuity that is guaranteed by the U.S. government? The best you could hope for if you had a contract with AIG or a similar insurance company is that the government would step in and guarantee your benefits. With Social Security you already have that.

That makes Social Security a very good investment.

That means that Social Security is a much more certain and reliable source of retirement income than the more volatile wall street gambles investments can provide.

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