How many Americans (adults) understands how Social Security works?
- Thread starter UCFhonors
- Start date
About 50%. I'd guess anyone paying Social Security has some idea what it is and those over 65 certainly know what it is. 67% of the population are working age (15-64) with a 60% employment-population ratio (equates to ~40%) plus those over 65 (13.4%). I come up with 53%.
Not sure which to pick in the poll though since 50% could be 3 different answers.
Not sure which to pick in the poll though since 50% could be 3 different answers.
I know that I won't see a dime of what I've been paying into it.
Yes you will or the country will have gone bankrupt. There isn't a leech in Washington that will risk losing votes and make cuts to entitlements. They'll just keep borrowing more money and raising taxes.
I like the logical and mathematical approach.
But I'm trying to make a a distinction, not how many know what SS is, but how many knows how it works.
I heard people say the Social Security Trust fund like their money is going into some bank account that the government is holding for you. When in reality it's Ponzi scheme aka as a "pay-as-you-go system, meaning that payments to current retirees come from current payments into the system.
True. The bigger issue is the negative real return you get from the 30 years of "investing". It'd be better off in a 50/50 split between the total stock market index and total bond market index in an IRA with no ability to withdraw.
So true. I just did the opportunity cost calculation for someone who makes $50k year for 45 years assuming 9% real rate for return, and someone would retire at 67 and die at 85. SS would pay a total of ~$468k over those 18 years of retirement - although they would have only paid ~$146k into SS. (3 payers for every recipient)
Investing the same $ taken out of person paycheck for SS, would give someone right below $1m at 67 years old. At that point, you take it all and put in bonds. Let's say a mixed grade bond portfolio net %5 per year. You could live off of $50k a year and never touch that $1m. Add those together 50k *18 = 900k +$1m =$2m
$2m
-$468
-----------
$1.532m of real opportunity cost of SS for the "average" American.
But it's worst than that. The CBO estimates that people under 45 y/o will only see 70% of their current expected benefits. So 468k becomes $327k.....
12% is the historical rate of return of the stock market. 3% is for inflation. So 12-3=9% is a real effective rate that everyone can achieve.
But you're right. Most would take safer bets.
Google says 10% from inception 7% real (after inflation).
I'll bet on myself to pull money out of stocks before they bottom out thus higher than 7%
If you're 100% stocks, you could realize 10%. Most people will be in a glide path that reduces risk as retirement approaches. If you follow the very general wisdom of % of bonds equivalent to your age, you'll end up with roughly 8% gross, or 5% real. That's a much more conservative approach with an appropriate risk strategy.
When it comes to retirement, you should be using the conservative estimate. If you underestimate the returns, you have more money than you thought in retirement. If you use a less conservative estimate and you overestimate the returns, you run out of money in retirement.
Don't even try to time the market. Buy and hold through all market conditions.
When measuring opportunity cost, you have to look at the maximum realistic upside.
Sure, be conservative when looking at your own expectations.
90+% of your performance is asset allocation - stock, bonds ect.... The other is is timing. Most of the time, market don't collapse overnight. They take a year or more to bottom out, leaving plenty of time to liquidate and reallocate. Bad timing can wipe out any gains or losses.
Your advice is solid for people who don't want to educate themselves or pay for help.
There's a ton of literature on timing the market and all of it says you can't. Think of it this way, if one could adequately time the market, then returns would be significantly higher than market returns. Professionals, on average, trail the market by a few percentage points. If they can't do it, why do you think you can?
Sure you can get out before the bottom, but will you get back in on the way up at a lower price then when you got out. If you buy back in at a higher price, you were better off holding through the downturn.
One study tracking individual stock trading concluded the following, "Examining 66,465 US household trading accounts over the 1991 – 1996 period, Barber and Odean find that the average household account earned an annual return of 16.4% over the period, compared to the 17.9% market return. Those households which traded most earned an annual return of 11.4%." Another analyzing mutual funds had this conclusion, "Over the 1980 – 2006 period the US market return an annualized return of 12.3%. Over this period, the average equity fund produced an annualized 10.0% return. Individual investors earned an annualized 7.3% return."
I am not timing the market but I moved everything in my 401K to bonds.
Did you buy or refinance your house with considering market conditions? If so, you have tried to timed the market.
Have you ever reallocated your portfolio of stocks and bonds not based on your age %? If so, you've tried to time the market.
I would never recommend day trading. All my point is, is people respond to market conditions. It's extremely hard to measure how or why people make slight changes to allocation.
Call that whatever you like, but that is timing the market. When did you do that? Recently, sounds good. Just watch out for the pending Bond Bubble everyone has been talking about for 4+ years.
If you rebalance in order to align to your desired asset allocation, it's not timing. This is because you're doing so with no regard to the state of the market. For example, if I have a 80/20 stock/bond portfolio and there's a significant run up on stocks which makes my portfolio look like 90/10 stock/bond, rebalancing back to 80/20 is not timing the market.
Investing based on market conditions is a recipe for disaster. The old saying, "The market can stay illogical longer than you can stay solvent." comes to mind. Invest based on accepted risk exposure and rebalance annually (or with bands) to prevent risk creep.
That's not what I said. I said, if you didn't do that, then you are "timing" the market.
In the pure mathematical sense, if you rebalance every 6months like many suggest, then allowing gains to happen from market movement outside of your strict 80/20 allocation. If you really wanted to keep that 80/20 allocation then each one of your contributions would be different to adjust for any market movements. For example, in you portfolio became 81/19, then you bi-weekly contribution would attempt to rebalance to 80/20. And nobody does that. You don't do that.
I gave Trump a few months and changed everything to the money market option. I'll jump back in when the market hits 10,000 again
Agreed.
You're right no one does that. It's too much work for a minimal gain. I rebalance annually (April 1) or when I'm greater than 5% of my band.
