SS


TABLES 66-70

 

UNDERSTANDING SOCIAL SECURITY AND A SUGGESTION.

Social security and POC

TABLES 66-70
UNDERSTANDING SOCIAL SECURITY AND A SUGGESTION.

Social security and POC
First one need to consider following facts.
From letter to its members by Robin Talbert President, AARP Foundation
AARP Foundation (giving@aarp.org) 11 December 2008
“Today a growing number of seniors find themselves needing a helping hand and quite likely you know someone like this. Consider these facts:
5 million seniors live on less than $10,000 annually
29% of Americans skipped treatments, tests or prescriptions because of costs.
25% of seniors survive on social security alone.
An estimated 5 million regularly sacrifice food to pay bills.”


Mr. Stanley Logue retired in 1994 after in job since 1950. He recorded all the payroll taxes he paid into the system (including the matching amount from his employer), tracked down the return the Social Security Trust Fund earned for each of the 45 years, and then compared the result with what he would have gotten had he been able to invest the same amount of payroll tax money over the same period in the DJIA (Dow Jones Industrial Average) (including dividends). To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.The author was astonished with these finding as the DJIA represents blue-chip stocks and the Social Security fund is invested in UST treasury bonds. Over long periods of time, Dow Jones stocks have outperformed bonds; it did not happened during this period as calculated by Mr. Logue.

Between 1950 - 1995 periods (identical period except one more year as of Mr. Logue’s SS fund return), Ms. Ann Scheiber (she started at age 54 and she lived another 45 years or so) made 22 million from the one time of investment $5000. Ms. Scheiber converted her $5000.00 into $22 millions in stock market investing in blue chip stocks. See page......; though, this was the same period when Mr. Stanley Logue also made his contribution in the Social Security Fund. The reason is being that from 1965 to 1982 (17 years cycle*), the DJIA made no progress and the real run-up in stocks occurred after this period, more so during the latter half of 1990s.
The author's conclusion was: The real lesson from his analysis is that any pension plan based on stock investments carries extra risks. According to Mr. Logue’s calculation: The difference between the two investments techniques was $5,873.00, not much difference. So, it really does not matter, in these situations, where one had invested. Mr. Logue must have contributed lot more than $5000.00 in the SS fund and grew to only $261,372 as compared to Ms. Ann Scheiber converted $5000.00 to $22 million in about 45 years (during the same period except one more year for Ms. Scheiber).
Results of these two person (Mr. Logue and Ms. Scheiber) investments’ result were so vastly different, need further evaluation.
One of the most important factors was Ms. Ann Scheiber obtain an average return of over 20% per year as compared to average effective return of SS Fund was only 5.402% between 1950 and 1994 in the SS fund by Mr. Logue (see the Table on page. ).
Reference:
1.One man’s retirement math: Social Security wins. By David R francis. Staff writer of The Christian Science Monitor from the December 27, 2004 edition.

http://www.csmonitor.com/2004/1227/p01s03-cogn.html

2. “10 SECRETS FROM THE INVESTOR WHO TURNED $5,000 INTO $22 MILLION.” Money Magazine, January, 1996 (cover story).
From above examples, it is obvious that SS investment needs a different approach to have a better return without compromising safety, which is the main worry of most people and political circle.

Those who are opposed to higher return investment vehicle of SS fund, such as stock market, they are afraid of taking the risk of investing in stock market. To them, this is like gambling. And there will be no money to pay to the elderly, children and sick, if the stock market investment fails.




SOCIAL SECURITY (1,2,3)
History

Purpose

Funding

Problem

Management, investment & rate of return

History

The Social Security Act was started by President Roosevelt's committee on economic security as a part of New Deal in 1935.

Purposes:

This was an attempt to reduce the problems and protect from poverty in old age, unemployment, the burdens of widows and children without earning father. This was established as an insurance program and not as an pension investment fund. Idea is to provide guaranteed monthly income to retirees, the disabled, widows, and orphans (1).

Funding:

SS is funded through deduction (tax) from payroll and called Federal Insurance Contribution Act (FICA) . This is entrusted to Federal Old-Age and Survivors Insurance Trust Fund, or Federal Disability Insurance Trust Fund, Federal Hospital Insurance Trust Fund or the Federal Supplementary Medical Insurance Trust Fund and abbreviated OASDI (Old Age, Survivors, and Disability Insurance) or RSDI (Retirement, Survivors, and Disability Insurance). It also includes unemployment insurance (1).
Social Security fund paid out almost $500 billion in benefits in 2004. Social Security program is the single greatest expense in the federal budget, with 20.9% for social security and 20.4% for Medicare. This is also the largest government program in the world (1).

Problems:

USA population are living longer with an average age of close to 74.83 years for male and 79.96 years for female and getting longer.

People are retiring between 62 to 65 years of age. Increasing imbalance is being created between increasing number of retired people (demand factor or takers from SS Fund) and young working people (supply factor or contributors to SS fund). Comparatively, more money is going out as benefit distribution than money is coming as contribution in the SS fund.

Period Life Table, 2004: http://ssa.gov/OACT/STATS/table4c6.html)

Solvency:

For more than 30 years, there are major or minor crisis of solvency of the SS fund developed. These created a great deal of anxiety to population in general and major political issues among the politician (1).

Status:
The present situation is Social Security Trust Funds :

It is general belief that Social Security is going to broke very soon and it will not be there for many people.
Social Security will able to pay 100% of promised benefits until 2040.After this, if nothing is done, SS Fund will be able to pay more than 70% of benefits for many years
(2, 3).

25 August 2009: Things have changed. "Social Security is also facing long-term financial problems. The retirement program is projected to start paying out more money than it receives in 2016. Without changes, the retirement fund will be depleted in 2037, according to the Social Security trustees' annual report this year." (4)

References:

1. Social Security ( United states):

http://en.wikipedia.org/wiki/Social_Security_(United_States
)
2. Social Security: http://www.aarp.org/money/social_security/
AARP: Frequently Asked Questions About Strengthening Social Security
http://www.aarp.org/money/social_security/frequently_asked_questions_about_social_security.html#position
3. Demographic Characteristics
http://www.ssa.gov/policy/research_sub3.html
http://www.ssa.gov/
4. Millions Face Shrinking Social Security Payments. By Stephen Ohlemacher
Monday, August 24, 2009
provided by The Associated Press.
http://finance.yahoo.com/focus-retirement/article/107590/millions-face-shrinking-social-security-payments.html;_ylt=AqekkoG7KCaCYk7nHt6YVym7YWsA;_ylu=X3oDMTE1ZmlrN3Q3BHBvcwMyBHNlYwNmaWRlbGl0eUZQBHNsawNtaWxsaW9uc29mcmU-?mod=fidelity-livingretirement

How SS Fund is managed and invested?

"The Social Security trust funds, managed by the Department of the Treasury, are the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds. Since the beginning of the Social Security program, all securities held by the trust funds have been issued by the Federal Government.

There are two general types of such securities:

1. special issues securities available only to the trust funds; and

2. public issues securities available to the public (marketable securities).
“* The average special-issue interest rate for a calendar year is the average of the 12 monthly interest rates on new issues during the year.

* An effective interest rate for a calendar year is the interest earned in that year divided by the average level of assets held during the year. This rate reflects the entire portfolio of securities held by the Social Security trust funds (OASI and DI). Effective rates for the trust funds on a combined basis are shown below; rates for each trust fund, separately, are also available.”
The trust funds now hold only special issues, but they have held public issues in the past.

Investment Holdings Updated July 12, 2007
http://www.ssa.gov/OACT/ProgData/transactions.html

Rate of return:

S &P 500 Index is one of the standard barometers of investment.

The table 64 shows the average annual special-issue interest rates and effective annual interest rates (percent) and rate return of S&P 500 index between 1/1940 and 12/31/2007 = 68 years.



Table 64

Year

Average annual special-issue interest rates (%)

Effective annual interest rates (%)

Index Rate of Return with Full Dividend Reinvestment (%)

(Adjusted for Inflation)

Index Rate of Return without Dividend Reinvestment (%)

(Adjusted for Inflation)

Annual dividend of S&P 500 index

(%)

Annual inflation rate %

1940

2.5

2.4

-11.74

-16.90

5.16

1.57

1941

2.5

2.4

-20.95

-26.37

5.42

10.88

1942

2.2

2.3

6.64

-1.05

5.39

8.37

1943

1.9

2.1

17.38

11.51

5.78

3.23

1944

1.9

2.0

14.45

8.83

5.26

2.51

1945

1.9

2.1

33.90

28.28

5.72

2.45

1946

1.9

2.0

-28.23

-31.10

2.87

19.93

1947

2.0

1.9

-5.31

-10.00

4.69

9.68

1948

2.1

2.8

6.58

0.79

5.79

1.84

1949










2.1

1.3

18.16

10.42

7.74

-1.82

1950

2.1

2.0

18.81

10.94

7.87

6.98

1951

2.2

2.9

13.72

6.33

7.39

4.73

1952




2.3

2.2

13.95

7.49

6.46

0.82

1953

2.4

2.3

-1.22

-6.76

5.54

1.23

1954

2.3

2.3

49.74

42.53

7.21

-0.81

1955

2.3

2.2

34.92

29.75

5.17

0.41

1956

2.5

2.4

6.29

2.33

3.96

3.26

1957

2.5

2.5

-11.44

-14.88

3.44

3.17

1958

2.6

2.5

36.77

31.72

5.05

1.14

1959

2.6

2.6

8.51

5.18

3.33

1.51

1960

2.9

2.6

-0.69

-4.10

3.41

1.86

1961

3.8

2.8

24.87

21.26

3.61

0.73

1962

3.9

2.8

-8.36

-11.40

3.04

1.46

1963

3.9

2.9

16.94

13.33

3.61

1.80

1964

4.1

3.1

12.87

9.60

3.27

1.06

1965

4.2

3.2

8.09

4.92

3.17

2.10

1966

4.9

3.5

-14.23

-17.07

2.84

3.78

1967

5.0

3.8

13.95

10.43

3.52

3.32

1968

5.5

4.0

11.70

8.36

3.34

4.49

1969

6.6

4.4

-14.23

-16.95

2.72

6.45

1970

7.3

5.1

-2.07

-5.77

3.70

5.79

1971

6.0

5.3

6.25

2.97

3.28

3.57

1972

5.9

5.4

14.12

10.96

3.16

3.72

1973

6.6

5.8

-25.97

-28.20

2.23

9.25

1974

7.5

6.2

-37.24

-39.95

2.71

12.47

1975

7.4

6.6

21.21

16.20

5.01

7.14

1976

7.1

6.7

7.49

3.57

3.92

5.11

1977

7.1

7.0

-12.22

-16.09

3.87

6.73

1978

8.2

7.2

3.31

-1.84

1.47

9.11

1979

9.1

7.5

1.08

-4.06

2.98

13.49

1980

11.0

8.6

14.96

9.33

5.63

11.98

1981

13.3

9.9

-10.61

-15.01

4.40

8.81

1982

12.8

11.2

23.10

16.27

6.83

3.82

1983

11.0

10.8

15.83

10.95

4.88

3.91

1984

12.4

11.6

-0.25

-4.72

3.47

3.65

1985

10.8

11.2

23.23

18.24

4.99

3.94

1986

8.0

11.1

24.43

20.27

4.16

0.90

1987

8.4

10.1

-10.60

-13.23

2.63

4.13

1988

8.8

9.8

10.31

6.54

3.77

4.53

1989

8.7

9.6

22.89

19.02

3.87

4.51

1990

8.6

9.3

-5.35

-8.61

3.26

5.49

1991

8.0

9.1

21.97

18.13

3.84

2.68

1992

7.1

8.7

5.15

2.07

3.08

3.01

1993

6.1

8.3

8.09

5.15

2.94

2.45

1994

7.1

8.0

-3.88

-6.54

2.46

2.61

1995

6.9

17.8

35.70

32.40

3.30

2.32

1996

6.6

7.6

22.11

19.53

2.58

2.97

1997

6.6

7.5

28.53

26.32

2.21

1.51

1998

5.6

7.2

25.82

24.00

1.82

1.55

1999

5.9

6.9

14.21

12.82

1.39

2.66

2000

6.2

6.9

-11.82

-12.91

1.09

2.42

2001

5.2

6.6

-15.17

-16.30

1.13

1.00

2002

4.9

6.4

-22.04

-23.29

1.25

2.38

2003

4.1

6.0

22.90

20.82

2.08

1.56

2004

4.3

5.7

5.06

3.33

1.73

3.01

2005

4.3

5.5

5.67

3.84

1.83

3.49

2006

4.8

5.3

11.68

9.69

1.99

1.93

2007

4.7

5.3

1.91

0.11

1.80

4.11

Average

68 years

5.382%

5.488%

7.05

3.10

3.95

4.08

Average unadjusted for inflation

5.382%

5.488%

11.21

3.10

3.95

4.08

68 years

366.00

373.20

 


1.Average and Effective Interest Rates
http://www.ssa.gov/OACT/ProgData/annualinterestrates.html

http://www.ssa.gov/OACT/ProgData/intRates.html

2. Political Calculations: http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html

 

 

Historic S&P 500 Index average data including rate of return were studied from 01/1871 to 12/1939, 1/1871 to 12/2007 & 1/1940 to 12/2007 compared to SS fund between 1/1940 to 12/2007 shows in Table 65 .

 

Table 65

Month/Year)

01/1871 to 12/1939

1/1871 to 12/2007

1/1940 to 12/2007

SS Fund

Between 1/1940 to 12/2007

Effective annual interest rates (%)

Index Price

4.44 to 12.37

4.44 to 1.479.2

12.30 to 1,479.22

12.30 to 1479.2

Average Dividend Yield %

5.49

4.73

4.11


Rate of Return without Dividend Reinvestment %

(Adjusted for Inflation):

1.33

2.20

3.10


Rate of Return without Dividend Reinvestment (%)

(Unadjusted for Inflation)

1.50

4.33

7.31


Rate of Return with Full Dividend Reinvestment (%)

(Unadjusted for Inflation)

6.99

9.16

11.42

5.488%

Inflation rate %

0.17

2.08

4.08

4.08

Political Calculations:

http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html

http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html

 


Table 66 shows
SOCIAL SECURITY FUND RETURN BETWEEN 1/1940 to 12/2007 (68 years), from Table 64 and S & P 500 Index average rate of return and predicted rate of return for future.

Table 66

SS Fund effective rate

(Unadjusted for Inflation*)

SS Fund average rate

(Unadjusted for Inflation*)

S & P 500 Index average rate of return with dividend reinvested (Unadjusted for Inflation*)

S & P 500 Index

predicted future rate of return with dividend reinvested**

(Unadjusted for Inflation)

5.382%

5.488%

11.21

8.3%

* Inflation rate between 1/1940 to 12/2007 was 4.08%

** see on page in the Chapter 10%


Contribution and Benefit Base
Social Security and Medicare taxes


The OASDI tax rate for self-employment income in 2008 is 12.4 percent (6.2 percent each for employees and employers). Monthly maximum contribution for an individual with wages equal to or larger than $102,000 would contribute $637 and for couple will contribute $956.

A maximum Medicare taxes contribution for an individual is 1.45 percent for employees and employers, each. 2.90 percent for self-employed persons. This is applied to all earnings without a taxable maximum under Medicare's Hospital Insurance program.

Update 2008 SSA Publication No. 05-10003, January 2008, ICN 451385
http://www.socialsecurity.gov/pubs/10003.html

 

DEBATES & DISCUSSIONS ON HOW TO BUILD THE SS FUND?

The most important missing elements in this debates and discussions are TIME & POWER OF COMPOUNDING (POC) in relation to SS Fund investment. IF MORE TIME IS GIVEN FOR THE POC TO WORK, MORE LIKELY THE SS Fund INVESTMENT WILL BE HIGHLY SUCCESSFUL irrespective of vehicles of investment.

Very small amount of investment will become huge, if enough time is given to grow, irrespective of rate of return; More so, if some one keeps adding small amounts of principal frequently to an initial pool of investment either in the present format or in a diversified fund such as S & P 500 Index fund utilizing “dollar cost averaging” or other acceptable methods such as “value averaging” or in a combination account of present format and S&P 500 index fund.

(http://en.wikipedia.org/wiki/Dollar_cost_averaging) over several decades.

"The time is money" is very true in this situation. The whole idea is to capture the time with a “sensible & simple” investment method. More time is passed, more opportunity is gone for wealth creation.




Obviously, beside the SS Fund in present form, people need to save and invest more and think of creating wealth more outside the SS fund rather than depending it.


HOW TO START THE FUTURE SS FUND?

Government should consider to invest $10,000 or slightly over $1/day till age 24 ( =25 years) for each baby born in USA. Investment should be made in a fund with long term average return of 10% or more such as S & P 500 index. One should consider to continue to invest till death. It is better to die rich than die poor. Longer a person lives, more money is needed for health care of the person.

Retirees Need Up to $376,000 to Pay Future Health Bills

From a June 2008 CNN Money.by Lara Moscrip
Tuesday, June 10, 2008

http://finance.yahoo.com/focus-retirement/article/105218/Retirees-Need-Up-to-%24376,000-to-Pay-Future-Health-Bills?mod=retirement-post-spending

The retirement health cost could be between $64,000 and $122,000 for a 65-year-old man ( $86,000 and $140,000 for a woman) whose former employer pays his/her insurance premiums, and between of the same age.

With no access to a former employer's insurance and rely on Medicare, the main cost is for medication, would need anywhere from $79,000 to $331,000 ($108,000 to $390,000) in savings depending on his drug needs and risk level.

Presently $50,000/ year is enough for most people. This means presently, one needs $500,000.00 with a rate of return of 10% or one million, if the rate of return is 5% from the investment to earn $50,000.00 per year. Taking into consideration of diminishing purchasing power of money, in 65 years, roughly, these values are multiply by 13 (approximately), which is the average diminished purchase power in last 65 years ("Purchasing Power of Money in the United States from 1774 to 2007:http://www.measuringworth.com/ppowerus/result.php
).
This means to obtain the same purchasing power in about 65 years, a person will need these amount multiply by about 13 times that is $6,500,000.00 ($500,000.00 X 13) and $13,000,000.00 (one million X 13), respectively provided the purchasing power continue to diminish at present rate. These figures may be modified as needed.
This calculation is based on $12.72 in the year 2007 has the same "purchase power" as $1 in the year 1942. However, purchasing powers varies considerably from decades to decades. As the purchasing power remained quite good between 1900 and 1964:"$3.81 in the year 1964 has the same "purchase power" as $1 in the year 1900".

Reference;
"Purchasing Power of Money in the United States from 1774 to 2007:http://www.measuringworth.com/ppowerus/result.php

THE WHOLE IDEA IS THAT SS FUND HAS TO BE FUNDED AS EARLY AS POSSIBLE.
The idea is not only to generate these amount of money from SS fund, but keep

the principal growing like the endowment funds. So, SS fund continues to grow . When the person dies, his/her SS fund reverts back to government in a huge sum. This is oppose to present situation. Now, longer a retired person lives, more money he/she gets from the SS fund, exhausting the fund.


THE BENEFIT OF CONTRIBUTING APPROXIMATELY $1 PER DAY FROM AGE 0-24 YEARS (=25 YEARS) !!!
This is a working model. It does not have to be $1.00, it can be a flexible amount.
How much $1 a day at 10% rate, if invested, will become in 25 years, compounding monthly?
The answer is $40,886.20

.
Then one time investment of $40,886.20 at 10% compounding for the next 40 years will be worth $2,195,616.05

Calculation:
Savings start date: Date of birth that is day 0
Deposit amount: $1.00
Deposit frequency: Daily

Number of years: 25
Rate return: 10%
Growth amount will be $40,886.20

Source of calculation:

http://mutualfunds.about.com/gi/dynamic/offsite.htm?zi=1/XJ&sdn=mutualfunds&cdn=money&tm=264&gps=99_1092_1020_587&f=11&su=p649.0.147.ip_p284.5.420.ip_&tt=2&bt=1&bts=0&zu=http://www.tcalc.com/tvwww.dll?Save?Cstm%3Dfundadvice%26IsAdv%3D0%26SlvFr%3D6

As many people thinks that 10% goal is not achievable if safety of investment process is considered!!
Then consider investing one dollar a day at 5, 6, 7, 8 or 9 % instead of 10% in 25 (age 0 to 24) years starting at age zero.

After this from age 25 to 65 with out further additional money, investment process continued at the same rates till age 65, is one scenario

In other scenario, the SS contribution ($500, an arbitrary number to $7,644.00 per year, maximum for a single person) are also included in the SS investment fund from age 25, considering that the most individual will start working by then. The values are shown in the table 67.


Table 67

%

Values in

25 yrs from

age 0 to 24.

Invested $1 daily & compounding daily

(column b)

End values after 25 years (from column b) without further investment will be in 40 years or at age 65, compounding monthly

End values after 25 years (from column b) with additional yearly $500 investment will be in 40 years or at age 65, compounding monthly

End values after 25 years (from column b) with additional yearly $7,644.00 investment will be in 40 years or at age 65, compounding monthly

5

18,201.76

134,659.73

196,076.31

1,083,934.95

6

21,208.30

232,388.96

313,110.49

1,466,459.59

7

24,827.12

404,965.37

510,867.95

2,024,003.94

8

29,194.43

708,647.66

848,849.61

2,852,055.08

9

34,478.26

1,245,006.59

1,432,145.83

4,105,991.21

10

40,886.20

2,195,616.05

2,447,259.26

6,042,737.33



If some one keep funding the required SS contribution as discussed above $500 (arbitrary number) to $7,644.00 per year (maximum for a single person) in the already built up SS fund to age 65, it will be worth between $196,076.31 to $6,042,737.33.

It appears form this that if one entirely depends on SS fund, these amounts are not enough to generate minimum living income for a retired single person. Presently it is about $40,000 to $50,000 per year, say $45,000/year.

Though these amounts are quite large sums, to obtain the same purchasing power in about 65 years, as it is now, a person will need $45,000 X 13. This is based on the purchasing power continues to diminish at present rate. This is discussed earlier.
To get complete need covered at retirement by SS fund, one will need about $36,500.00 built up by age 24 years.

To achieve this, one will need about $5.00/day, compounding daily at annual 10% since birth and then continued as one time investment ($36,500.00) till age 65 years at the same 10% rate compounding monthly. This is worth $10,537,888.33. These figures may be modified as needed. This will generate over $50,000 per year at 5% annual rate.
This calculation is based on “$12.72 in the year 2007 has the same "purchase power" as $1 in the year 1942”. However, purchasing powers varies considerably from decades to decades. As the purchasing power is remained quite good between 1900 and 1964: “$3.81 in the year 1964 has the same "purchase power" as $1 in the year 1900”.
"Purchasing Power of Money in the United States from 1774 to 2007:http://www.measuringworth.com/ppowerus/result.php

What happens if Government pay full $10,000 in one time investment for each newborn and at 10% annual rate of return, for next 65 years? It will be $6,474,659.42, compounding monthly.
There is risk of one lump sum investment. This is discussed later.


Other very important point to note is the difference values, if the person does not make any further contribution Vs. makes usual ranges of minimum and maximum contribution as in the SS Funds, from age 25 shown in the Table 66

If by now the reader is lost, then summary and conclusion are:
TIME IS THE MOST IMPORTANT FACTOR IN STARTING AN INVESTMENT FUND, EARLIER THE BETTER. IF ENOUGH TIME ( 5/6 DECADES) IS GIVEN, SMALL SUM OF MONEY TURNS INTO AN ASTONOSHINGLY HUGE SUM, AT A REASONABLE RATE OF RETURN.


Disadvantage of one lump sum investment:

One lump some investment may result in investing at the top of the stock market for some newborns and this should be avoided. As this will definitely happen that the market will collapse and develop a prolonged bear market. The bear market is discussed in the chapter. So, a compromise technique will be to spread the $10,000 contribution like “dollar cost averaging” or other method of investment procedure over a few months/ years time in both up and down markets.

If this amount is invested for 65 years, will be a substantial amount, if a reasonable rate return is obtained such as investing in S & P 500 Index Fund with an average rate of return over 10% between 6/1940 to 12/2007 as shown in Table 63.
This is as opposed to present method of SS investment, which has an average rate of return of 5.382%/ and effective rate 5.488%. since inception about six plus decade

ago. However, even the present investment method of SS Fund will provide huge return if invested for 65 years.
Ms. Scheiber, Mr. Buffett and others had achieved average rate of return of over 20% for several decades.

Contributing into SS from starting at birth to age 24, or some form of modification, is one of the BEST duty a government can do for its’ citizen. The first duty of a government is to protect its citizen from outside enemies.
Protection should not only be from out side enemies and but also from inside problems such as health care, education etc. If the country becomes financially weak, becomes venerable to outside threat more easily.
If the citizens are financially stable they can look after their health and educational and other needs themselves.
The third best is to provide free education which is true for public school education presently.

Finance, investment and money management should be taught in the school.
If one has the proper education, one can look after oneself.

The government or the parent need to start investing for the babies from age zero or, as early as possible after birth of the baby.

This is like setting a tax free retirement fund for the children.
This is because to earn above 10 percent will require riding market ups and downs

over many decades.

The whole chapter comes down to:

THE TIME IS THE MOST IMPORTANT OF ALL FACTORS FOR AN INVESTMENT TO BE SUCCESSFUL. THE TIME IS MONEY. TIME PAST IS MONEY LOST. THE BEST TIME TO INVEST IS FROM AGE ZERO, & THE SECOND BEST TIME IS NOW.
To further reinforce the idea that start early is the best choice of any investment as shown in the Table below.



The table 68 shows the results of one time investment of $100, 500, 1,000, 2,000, 3,000, 4,000, 5,000, 6,000, 7,000, 8,000, 9,000 & 10,000 at 10 % for 65 years, compounding monthly.

Table 68

One time investment in $

Value in 65 Years in $

100

64,746.31

500

323,732.96

1,000

647,465.93

2,000

1,294,931.90

3000

1,942,397.83

4,000

2,589,864.04

5,000

3,237,329.73

6,000

3,884,796.05

7,000

4,532,262.06

8,000

5,179,727.56

9000

5,827,194.08

10,000

6,474,659.42

 

 

ESTIMATED EXPENSE AND POSSIBLE SOURCE/S EARLY START FOR SS FUND

Number of births in USA in 2004: 4,115,590
Source: Births: Final Data for 2004, tables E, 1, 18, 32
http://www.cdc.gov/nchs/fastats/births.htm

Birth number will increase in future, these figures are adjusted to:
Total number of births per year is presently about 4.5 million. This is most likely to be 5 million in few decades. Calculations will be based on 5 million births per year.

At present SS investment fund is being invested in a very conservative way with no or little risk but with a very low return. This is discussed earlier on pages . The return is so low that after adjusting inflation factor and managements fee, the SS fund has a marginal gain. The policy makers are afraid of loosing money in stock market or in any other higher returned investment vehicles as they are risky. If investment in stock market is made for 65 years or so, this risk is eliminated, and the rate return will be substantial.
The problem is the initial investment.
If $10,000 ( as lump sum or small sum spread over time) is invested for each baby at birth, it will cost 5 million X $10,000 = $50,000 millions = $50 billion/year.

Presently Iraq war is costing $12 billion a month and $16 billion if Afghanistan included. The total cost for Iraq War will cost over $3 Trillion. Future will tell how much is the benefit!!

Reference: The Iraq War Will Cost Us $3 Trillion, and Much More

By Linda J. Bilmes and Joseph E. StiglitzSunday, March 9, 2008; Washington PostPage B01. The authors are Democrats.

http://www.washingtonpost.com/wp-dyn/content/article/2008/03/07/AR2008030702846.html

Sub prime melt down will cost few trillions.

Government pays thousands of dollars to all its citizens in various ways. One example of this is that the government is spending almost $25,000/student in the DC public school educational system every year.
Good sum of money is being spent for all other states and territory in USA for public school education.
Yearly, it costs educational budget is over 500 billion for public school education system in USA (This figure need to be verified).
Perhaps, it is worthy of consideration spending 50 billion for all new born every year.
With better rate of return, SS can provide enough money to its recipients after retirement. They will be have enough money for full living including health care.

After 6.5 decades or so, SS fund will be self sustaining. without any assistance from government fund or any fund as the retired person dies, his /her SS fund, whixh has grown tremendously, will revert back to government.

“Today a growing number of seniors find themselves needing a helping hand and quite likely you know someone like this. Consider these facts:
5 million seniors live on less than $10,000 annually
29% of Americans skipped treatments, tests or prescriptions because of costs.
25% of seniors survive on social security alone.
An estimated 5 million regularly sacrifice food to pay bills.”
These facts will unlikely get any better, most likely get worse. Large percentage of US population for many reasons, will have same problems in future. The two things government can do for effective solutions:
1. US government fund the SS fund as soon as the baby is born in USA and invest for 25 years about $10,000.00 -20,000.00 for each child.
2. If unwilling to do so, engage in mass education of US population - why some kind of retirement fund need to be statrted by the parents/grand parents/wellwishers as soon as the child is born.



THE WHOLE IDEA IS THAT SS FUND OR SOME KIND OF RETIREMENT FUND NED TO BE FUNDED AS EARLY AS POSSIBLE, THAT IS AGE 0.