"Fifth Grade Math"

  1. “Fifth Grade Math”
    Copyright 20 September 2007, Zashagalka (Used by permission, of Course)

    MoveOn.org recently ran a full-page ad in the DNC-NYTs, accusing General Petraeus of “cooking the books” for the current Administration over the war in Iraq. Since we’re in the kitchen, let’s talk about “cooking the books”. Social Security (and Medicare) is a lie. There is nothing secure about it. It is doomed to fail. At some level, most current wage earners either directly know or subtly fear this fact. The reason why Social Security is doomed is simple and straightforward. It violates the basic tenants of fifth grade math. It is, to put it simply, an orchestrated, political lie.

    It is a cooking of the books.

    Money is fluid. It moves. It is a currency. As it moves, money must do one of three things in your life. If you balance it perfectly, money flows in and out of your possession at break even. That kind of balance is simply too exacting for even the most dedicated economist. Short of perfect flowing balance, money either makes you interest, or costs you interest. As a result, if you want money to work for you, instead of working against you and for somebody else, you must put money to work earning YOU more interest than you pay out in interest.

    If you are paying more money out in interest charging accounts than you are earning in interest bearing accounts, then money is your master instead of you being master of your money. This is simple, fifth grade math. The secret to wealth is the miracle of compound interest. You know this (so does your credit card company). You’ve heard it time and time again.

    Your government has lied to you. It has devised a retirement plan for you that includes the concept of a perfectly balanced flow of money, from you to current retirees so that some day, you become the retiree, receiving direct transfers of wealth from tomorrow’s worker. If you didn’t know this already, I hate to break it to you, but your government sucks when it comes to finances. Why would anybody depend on such a house of cards for something as important retirement security? Why? Most people suck at THEIR finances, too. Therein lies the problem.

    Social Security is working, today. That won't last. The shrinking worker-to-retiree ratio, combined with the government stealing any surpluses from itself, and by extention, you, has turned the program into a pyramid scheme. The first ones in are always the ones that make money. It is the suckers on the backside of the deal that get the con. When it was first enacted, Social Security depended upon 17 workers to pay for each retiree. Now, it must depend on just 3. If you are under forty, when YOU retire, it will have to depend on just 2 workers to pay for you. What about the surplus? There IS NO surplus; your government has spent it and given you an IOU.

    There is a word for the future of Social Security: unsustainable. Your government has been telling you for 25 years that eventually, serious changes will have to be made to the system. Then, every few years or so, the current fools in Washington tell you everything is fine, for at least a few more years. No it’s not. But, if you’re going to tell a lie, it might as well be a big one.

    Alan Greenspan, the former fed chairmen, released a book this week. In it, Greenspan claims that the failure of Social Security is as inevitable as it is needed to disabuse YOU that the government can entitle you to anything you don’t actually earn. Like it or not, the hard truth is that you have not "earned" a Social Security check by paying into the system only a portion of the potential payout to you. Greenspan isn't against you receiving a retirement check. He’s against the lie that the current system is sustainable. It isn't.

    If you want money to work for you, you have to capture the interest of its currency. That is basic economics. President Bush, to his credit, attempted to make minor changes to Social Security to do just that. The proposed changes didn't go nearly far enough and still, it went nowhere. Neither you nor your elected dolts wanted to challenge the mirage. So the short-term solution to this long-term problem is to ignore it, for now. Burying your head to hide the view of approaching storm clouds is NOT protection from the coming storm.

    The bottom line is this – do you trust your government with the way it handles money? Think. NINE. TRILLION. DOLLAR. DEBT. Either money makes you interest, or costs you interest. What do you think is the case with your government? Do you trust Uncle Daddy with money? Then you are a fool. Do you trust Uncle Daddy with your retirement? Then you are a bigger fool.

    Fifth grade math. Compound interest. It’s not rocket science.

    So, what should we do? Here are a few suggestions. First, Social Security needs to be shored up. Means test it. Scale back other entitlements to make room for it. Elect a politician (or maybe a few) that understands fifth grade math.

    Then, take half the current child tax credit of about a thousand dollars a year per child and place that money, beginning at birth, in that child’s name, in a mandatory IRA (MIRA) account. Using a simple formula, invest that money in a moderate growth fund until the child becomes a wage-earning adult. At that time, in addition to paying into Social Security for current retirees, that child contributes a percentage point, or two, into his own MIRA account and gains the control to direct its investment, within reason. The account can be withdrawn from only upon the person’s death or reaching 59.5 years of age.

    Now, let’s do some fifth grade math. Five hundred dollars a year from birth to age 16, plus 2% of earnings, for an entire lifetime - all of this, compounded by interest: that is the making of a multi-millionaire. In fact, using simple fifth grade math, just like this, is what has made most of the millionaires that live quietly, all around you. And you’d be surprised how many there are. Who knew your fifth grade teacher knew the secret to make you a millionaire? One thing IS for sure: your Uncle Daddy isn’t able to do that kind of complex, fifth grade math.

    You SHOULD be able.

    Last edit by ZASHAGALKA on Sep 21, '07
  2. 40 Comments

  3. by   Cursed Irishman
    wow...i feel stupid....i didnt learn to compund interest until i was in college :smiley_ab
  4. by   ZASHAGALKA
    Quote from Cursed Irishman
    wow...i feel stupid....i didnt learn to compund interest until i was in college :smiley_ab
    Don't feel stupid, after all, you STILL have a decided advantage over practically every member of the Federal gov't.

    If ONLY they had gone to YOUR college (or, no offense, my jr. high). . .

  5. by   Spidey's mom
    Quote from ZASHAGALKA
    Don't feel stupid, after all, you STILL have a decided advantage over practically every member of the Federal gov't.

    If ONLY they had gone to YOUR college (or, no offense, my jr. high). . .

    At our local high school, the kids who opt out of taking higher math classes like Trig can take what is called "Dumbbell Math" and it teaches things like budgeting, investing, business math stuff. I actually think kids should have to take this 1st.

    A good economics class would be very helpful prior to college.

  6. by   HM2VikingRN
    I think this is a better idea (BUT NOT TO REPLACE SOCIAL SECURITY):

    Universal access: Anyone at any income level could open a UP with the assurance that its growth would be tax-free until retirement. Most workers could contribute up to $5,000 per year when the plan is fully implemented, with much higher contributions available to those who have no 401(k) plan (though contributions by the highest income Americans would be limited). To encourage universal enrollment, every worker would receive a $500 stake at age 25 if he or she opens a UP at a qualified private financial institution. The retirement savings tax credit created by last year's tax bill could also be used to fund a UP, and the credit would be made "refundable" (i.e., available as a check to families without income tax liability) so that low-income Americans could participate.
    Greater choice: UP's would allow workers to control how their savings are invested far more than is the case with 401(k) plans, which typically allow employers to set up limited investment options. Furthermore, after a three-year vesting period, employees could divert a portion of their 401(k)'s into UP's, and employers could continue to receive tax incentives for matching UP contributions.
    Simplification: While existing IRA accounts would be "grandfathered," future IRAs would be replaced by UP's, eliminating the current welter of eligibility and paperwork requirements for 15 of the 16 tax-favored personal retirement savings accounts (401(k) plans would remain).
    Portability: Old-fashioned defined benefit pension plans were totally linked to one employer. 401(k)'s can be "rolled over" into an IRA, but not without complex paperwork requirements, which typically convince employees changing jobs to either leave their 401(k) under the control of their old employer or cash them out, reducing their retirement nest egg. Under Weinstein's proposal, all vested 401(k) contributions and earnings would automatically roll over into the worker's UP when he or she changed jobs. Protected savings: The "Enron problem" would be addressed by letting workers shift funds from company-run 401(k)'s into UP's after a three-year vesting period, which would not only protect their "nest egg" but give them more control over how it is invested. UP funds would also be protected from creditors in bankruptcy proceedings. Finally, 401(k) funds would be treated as fully vested and rolled over into a UP after one year of full-time work if the employee left the job to become a full-time parent.
    Full text at:

    Ensuring Social
    Security and Medicare solvency is a
    prerequisite to guaranteeing that the elderly
    do not retire in poverty. But a vibrant, private
    pension system is the key to guaranteeing that
    retirees are not just getting by, but are
    financially secure.
  7. by   HM2VikingRN
    see also:
    institute american dream accounts. a lifetime of work should lead to a financially secure retirement. american dream accounts would change our current notion of defined benefit contributions. instead of placing the responsibility on the individual to open a 401k, employers with more than five workers would enroll each worker unless the employee opts out.
    additional reading:
    the american dream initiative
    create a saver's credit. the current tax code provides many breaks for individuals in the top income brackets. it is time to create savings incentives for all americans -- not just the wealthy. a permanently refundable saver's credit would provide a 50 percent match for the savings of working and middle class savings up to $2,000 annually.
    additional reading:
    the american dream initiative
  8. by   HM2VikingRN
    See also http://econ-www.mit.edu/files/684 for an extensive discussion about SS financing issues and the Diamond Orszag plan.

    Social Security is one of America's most successful government programs. It has helped millions of Americans avoid poverty in old age, upon becoming disabled, or after the death of a family wage earner. To be sure, the program faces a long-term deficit and is in need of updating. But Social Security's long-term financial health can be restored through modest adjustments. Major surgery is neither warranted nor desirable, in our view.
    [FONT=Georgia,Arial,Helvetica,sans-serif]Over the next 75 years, the actuarial deficit in Social Security amounts to 0.7 percent of Gross Domestic Product (GDP); projected out forever, the deficit is 1.2 percent of GDP.

    see also: http://www.brookings.edu/dybdocroot/...04security.pdf

    The point of posting these links is that while SS security/medicare financing needs tweaking the sky is hardly falling. (I have posted numerous studies over time that show that the current SS system is actually more efficient than private accounts for retirement benefit distribution. (Experiences in both Chile and the UK have both shown that this is a bad idea both from poor results and a fee structure standpoint.) The problem as I see it with reallocating the child tax credit to a savings vehicle is that it actually pushes lower income workers backward economically. (Also the child tax credit is not fully refundable which means that the families in greatest need of long term assistance with building a nest egg would not be able to fully avail themselves of this idea.)
    Last edit by HM2VikingRN on Sep 21, '07
  9. by   ZASHAGALKA
    Quote from HM2Viking
    The point of posting these links is that while SS security/medicare financing needs tweaking the sky is hardly falling.
    Your government has been telling you for 25 yrs that these programs need more than just tweaking. Then, because the hard choices are, surprise, hard, they do nothing.

    These programs are unsustainable in their current forms.

    Direct transfers of wealth do not create wealth.

    I'm not against a retirement program. I'm not even against a mandatory one. What I AM AGAINST is a retirement program that doesn't recognize that the one most fundamental key to saving for retirement is compound interest.

    I understand that SS has been successful. I don't discredit that fact. I question its sustainability. Like it or not, the world has turned. There are more retirees, living longer. What a blessing. The result however, is to make SS unsustainable.

    It could become sustainable. In order to do THAT however, it needs to mature, to grow up. It needs to become a program that allows people to capitalize on compound interest.

    SS, in its current form, was devised for a 1930's world. If SS is to survive, it needs to be redevised, for a 21 century world. It needs to transition AWAY from direct transfers and to compound interest.

    There is more wrong with the current program than tweaking can fix. The wheel has turned on SS. As it stands, those under 40 would be better off being told that the program will be discontinued, for them. That would be much better than the false sense of security being offered now.

    How about a simple start. Something you and I can probably agree upon, Viking. Start by means testing it. If you are well off, congrats - our way of life has been good to you. You don't NEED SS. Come back if you do.

    Last edit by ZASHAGALKA on Sep 21, '07
  10. by   llg
    Quote from ZASHAGALKA
    How about a simple start. Something you and I can probably agree upon, Viking. Start by means testing it. If you are well off, congrats - our way of life has been good to you. You don't NEED SS. Come back if you do.

    I'm not sure about all of the issues you bring up in this thread ... but I do support an increased use of means testing. On that, we can agree.
  11. by   pickledpepperRN
    Alan Greenspan lowered interest rates so people could borrow beyond their means.
    He even encouraged variable rate mortgages. He is no authority to me.

    WE had a so called Social Security "surplus" just a few years ago.
    Social Security is not part of the Federal Budget general fund. It is a separate account and has its own source of income. Social Security payments do not go into the general fund, they go in the Social Security trust fund, and should NOT be counted as general revenue.

    Currently, there is more being payed into the Social Security Trust Fund than is being paid out to beneficiaries. I have been paying it fo 48 years. This administration has been "borrowing" and using as if it were general budget revenue.

    All we have left is IOU's. That's part of the National Debt.

    According to the Treasury Department, from 1776-2000, the first 224 years of U.S. history, 42 U.S. presidents borrowed a combined $1.01 trillion from foreign governments and financial institutions, but in the past four years alone, the Bush administration borrowed $1.05 trillion.

    I think WE the people = government. WE need to elect someone who is fiscally responsible. We cannot blame only the President because Congress passes the budgets and the President signed them.

    Here is a blog by the Nationa Debt Awareness Center: http://www.federalbudget.com/SSdebate.html
    In August of 2001 the White House released new budget numbers showing that almost all of the remaining surplus came from the Social Security Trust Fund:

  12. by   ZASHAGALKA
    Quote from llg
    I'm not sure about all of the issues you bring up in this thread ... but I do support an increased use of means testing. On that, we can agree.
    Good to know. I desire to be more agreeable, or, at least, more pleasantly disagreeable. I'll work on that.

    Have a good Saturday.

  13. by   HM2VikingRN
    Means testing is a non-starter. SS is NOT welfare.

    Expanding the tax base is the simplest way to tackle the problem. The cap on SS tax should be lifted to the point that it erases the deficit. Currently earnings above 90,000 (more or less) do not pay taxes into the system above that point.

    Raise the earnings cap to help bring the system into balance. (and then index the cap to inflation).
    Restructure capital gains/dividend taxation to include a contribution to the SS system (with an exception for low income retirees)
    Restructure the estate tax to include a contribution to SS
    Bring ALL state and local public employees into the system
    Remove current penalties for working during retirement

    Each of these could be used to address the relatively minor problems facing the system over the next 75 years.
  14. by   pickledpepperRN
    Pay back the money "borrowed" from the Social Security trust fund.