www.waltonsun.com
2/12/2011
Dear Jim:
It was good seeing you and Stephanie last weekend in the ATL. With her new ?do,? she looks like Uma Thurman?s Mia in ?Pulp Fiction? ? maybe better. Stay away from pawnshops; remember what happened to Ving Rhames.
Young people, like you, often wonder about their prospects of receiving Social Security benefits. Once you mentioned Social Security was akin to a Ponzi scheme, and I respectfully disagree. In 25 years, assuming no changes, Social Security benefits will be cut 25 percent. With a Ponzi scheme, benefits get sliced 100 percent and much, much sooner. For instance when I do a retirement projection for clients, I use a lower rate of inflation for Social Security to allow for future benefit reductions. I may not make it 25 more years but I bet your mother will live that long (and look good, too).
Today there is a deadserious game afoot to eliminate Social Security and to replace it with private accounts. The geniuses who wracked their brains for this harebrained scheme are the same folks who thought trading credit default swaps was a good idea. The Social Security privateers have a new tact this go-around: The federal deficit. Currently, Social Security does not cost the government one dime and the lame-stream media sits there like the tar baby and doesn?t say a thing.
Ignore the fearmongering swirling around the Social Security Trust fund. FACT: The Social Security Trust fund owns United States Treasury bonds. No financial professional with a lick of sense would dismiss a TBond as a mere I.O.U. like Stuart Varney of Fox News. The truth is financial markets view it as almost inconceivable that the U.S. government will not honor its bonds. Investors gladly own Treasury bonds and receive record low interest coupons because of minuscule default risk.
The New York Times once parroted the same lame line as Fox. Equal opportunity for ignorance, I guess.
Democrats have a worthless track record, vis-a-vis Social Security and young people, because basically their solution consists of raising taxes. President Ronald Reagan hiked Social Security taxes steeply during his first term (an inconvenient truth to many), but we can fix Social Security funding woes without jacking up anyone?s taxes. Raise the normal retirement age to 67 by 2012 and adjust it modestly by one month every two years, modify how the pre-retirement benefit formula is calculated for workers in the top 70th percent of earners and use a less generous (but what some economists claim is more accurate) inflation index for current beneficiaries.
If you don?t want to raise taxes then you have to cut benefits. The argument is not ideological but rather elementary school arithmetic.
Recently I challenged a college professor?s argument that Social Security should shift to a defined contribution plan. The defined contribution model (401k plan) is inferior to defined benefit plans because of high hidden costs and low participation rates. A more important, although currently ignored, weakness of defined contribution plans is how volatility (market fluctuations) affects portfolio survivability. The sequence of market returns in retirement distribution portfolios can be beneficial or catastrophic depending on what Jim Otar calls the ?luck? factor. Check out his website: Otar & Associates ?
Banks, brokers and insurance companies peddling retirement income products are licking their chops in anticipation. Remember 2008: Markets gyrate ? sometimes dramatically ? but these jokers have the deck stacked in their favor not yours.
I am so proud of you and your career.
Love always, Dad.
Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@ LivingstonFinancial.net? .
BUZ LIVINGSTON
Just Plain Talk
