John, thx for the post. I want to make a comparison for you. I have a few different lumps of money. A couple of those lumps are 529 plans. The other is the sum of all my funds earmarked for my wife's and my retirement.
When my kids were born, I projected outward for 18 years to determine what it would cost me to send my kids to college. I took the current costs of the state college and estimated that those costs would rise at 5% per year. Then I estimated how much of a lump sum I'd need to fund that future college cost, assuming an avg annual return of 7.5%. I then funded the accounts of my children one by one with the necessary lump sum as they were born.
Every year, I checked to see how their lump sums were growing. Everything was fine until 2001 and 2002. During those years, I noticed that their accounts had taken a beating and weren't going to hit the amount I needed for when they go to college. So we saved a little more and put enough money in each account to bring them back up to where they needed to be.
You see what I've done? I predicted how much I'd need 18 years in advance and then I've been proactive about ensuring that it will get there. I do the exact same thing with our retirement.
Social security should be no different. They have a longer time horizon, 75 years instead of 18, but we should be acting responsibly. That means using our best actuarial estimates to shore up the system when those projections tell us we're going to fall short.
So yes, projections are always imprecise. Shit happens. But to give up and not use projections is not the best answer. Instead, a good finance person would check to see whether there was an assumption that was bad in his projections or if it was an unforeseeable macro issue. For social security, they probably needed to adjust a few assumptions like life expectancies, smaller population growth projections, etc. Their projections now show us we need to shore the system up, which I am all for.
So that's one issue, fixing the system. I'm for it. The last issue is privatization. You know where I stand on that one. |
