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This page contains a single entry by Westley Annis published on November 7, 2008 11:17 AM.

Fundamental Differences was the previous entry in this blog.

The Real Cause of Bank Failures During the Great Depression is the next entry in this blog.

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IRA vs SSA

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The stock market has wounded many 401(k) and IRA retirement accounts. Many people are wondering ever more so if they will have the funds to retire and lead the retirement lifestyle they were looking for.

Here's the first basic rule of saving for retirement: Never put into the stock market what you will need in the next five years. This is such a basic rule, that a lot of advisors who are scared of risk, will tell their clients to have a percentage no more than their retirement age minus their current age in stocks.

I don't think you could search too many financial web sites or talk to too many financial planners and not be told this.

What bothers me about this is when I hear people who supposedly have three college degrees and have operated a successful small business yet still believe that Social Security is a better retirement vehicle than a 401(k) or IRA.

In 2005, Alan Reynolds of the Cato Institute wrote a scathing report on the media's coverage of efforts to privatize Social Security. Besides showing how the main stream media and their paid economists jiggered the numbers to make Social Security look better, he also cited a Federal Reserve Bank of St. Louis Review that slams the returns on Social Security.

The Federal Reserve Bank, comparing the return on Social Security to the return on an S&P 500 index fund, found a low wage earner retiring at 65 would need to live to at least 96 years old. According to the Centers for Disease Control, in 2005, only 3.6% of the population was expected to live past the age of 95, much less 96.

If Social Security was such a great thing, American's would have been screaming to contribute more money into the system years ago. Instead, most American's are still looking for ways to keep as much of their current funds out of the system as possible and at the same time, looking for ways to take care of their retirement without relying on Social Security. No one would look to their employers for any kind of retirement benefits. There would be no market for 401(k) or IRA accounts.

I am ready, right now, to sign a paper releasing any claims to any Social Security benefits if the Federal government would give me an exemption to paying into the Social Security system. Even with the stock market as topsy-turvy as it is now, I would rather take my chances with it than with Social Security.

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