The Iconoclast Investor

We got some insightful comments on Mike’s post about social security and a few more through email that I wanted to share with you. Please respond with your view on the situation.

“I thought about this back in the mid-60s before I was 30 years old.  At that age I would have been willing to forgo any benefit if they just quit taking out money from my paychecks from then on.  Older workers wouldn’t of course be able to do that since the number of years to retirement would be much shorter.  Your idea about a buyout would solve the problem.”

B.G.

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“The problem with your plan is that many, many recipients of the buyout would spend their retirement buyout funds quickly and then the government would go back and bail them out. The only way to save social security is to gradually increase the retirement age to an age that is in tune with today’s life span.
“When social security was begun the retirement age was 65 and the average American died at about 65. Today the retirement remains at about 65 but the average American lives to be 77-78.
“Politicians refuse to move to a more realistic retirement age.”
B.

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“If you look at what has happened in England with the privatization of the social security system, you may rethink your idea. People could easily take the buyout you propose at 50-60, and find themselves broke at 60 to 70. What would the government do? Let them live on the street? I don’t think so. Never underestimate the ability of the population to lose all their money!”
M.M.

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“This sounds like a good idea, but I have a tendency to play devil’s advocate.

“I would be interested in knowing what groups you think would be most likely to take advantage of this.

“If it is the rich, then I think government might not be in favor because government probably already plans to reduce what goes to the rich.  They likely don’t want to pay them up front.

“If it is the poor (probably because they need money now), would they be better off filing for bankruptcy first and then getting the lump sum? Would they wisely save it, or would they be like lottery winners and go through it in two to three years?

“I guess I am saying that within some guidelines I like the idea, but would want to be sure it has been given enough thought before implementation.

“Now I have one for you.  Credit card debt and payments.  I believe our main problem is two -old.  First, the consumer is not able to consume.  They are tapped out-evidenced by the growth of payday loans and the like.  I think more foreclosures were the result of excessively high credit card payments then by increases in mortgage payments (not saying that wasn’t a big problem).

“Right now banks are negotiating balances down and have many cardholders in default.  I think it verges on criminal (though not by our laws) to charge high 20’s and low 30’s % interest rates and charge the fees they do.

“By most accounts I hear, the average American owes more that $10,000 on credit cards.

“How about capping the interest rate at a reasonable rate (credit card companies should be able to make money at 12%-15%, if they were actually getting payments), capping the amount of your income that your minimum payments can be at a reasonable percentage of your income, and capping the cumulative credit you can have on credit cards at what is reasonable based on your income.

“If you saved the average American 10% on their credit card debt, (At least $1,000/year), it would be greater than the stimulus package, would be ongoing and would only cost the government whatever the administrative cost would be.  For the banks, it assures them of regular payments and eliminates having to make all those phone calls and send those collection notices.  It turns non-performing assets into performing assets on their balance sheets.

“Of course for many it is way too late for this.  They are going to go bankrupt regardless of anything done now. But, we are still talking about an awful lot of people on the verge.

“The boost in consumer confidence would be great in my opinion.

“Secondly, those who are fortunate enough to still have plenty need to go shopping.  And they need to buy as locally as possible and as American as possible.  I know millionaires who shop at Wal-Mart.  There is no trickle down from that.  Low prices are nice in the short term, but when they eventually cost you or a family member a job, it is not so good.

“My thought is that you can define your “local economy” any way you want, your neighborhood, city, metro area, state, county, etc.  At any time there is X number of dollars in that economy.  Those dollars are your economy.  Every time you bring a dollar into your local economy you strengthen it.  Every time you send/spend a dollar out of your local economy you weaken it.  Our ultimate “local economy” is the United States of America.  We need to be making that economy stronger.”

Yours truly,
B.S.

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