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Bernstein - Boomers among us will have SS....
Old 11-25-2004, 08:43 AM   #1
 
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Bernstein - Boomers among us will have SS....

Primarily for the same reasons others have posted here. Most of the Boomers have not saved for retirmement, so they can't

From the Retirement from Hell articles that Nord posted in another thread.


Bernstein commenting on Social Security and the coming problems.

Quote:
The solution, then, is for folks to retire later. We've already started down that road by raising the retirement age for future retirees to sixty-seven. Unfortunately, we have a ways to go. In order to keep the current worker-to-retiree ratio at 3:1, Arnott and Casscells estimate that the retirement age will gradually have to be raised to seventy-three. Of course, the government need take no action; politically, it will prove far simpler to let poor asset-class returns and low savings force older Americans to postpone their retirements. In the past few years, millions rudely awakened to the fact that they weren't going to retire at forty. Over the next few decades, most of the remainder will discover they won't be doing so at sixty-five, either.


That's the bad news. The good news is that this analysis pertains only to society at large; if you're reading this article, you are likely saving more than average. To the extent that you do, you'll be able to retire that much earlier than seventy-three. The really good news is that your cohorts are saving so pitifully little that this will be relatively easy to do.


The above applies only to the Boomers. The X-ers, and those coming after, will have a much harder time of it. If you are currently under forty, you will shortly be traumatized by the sight of large numbers of your parents' generation subsisting on cat food, and your generation will begin to save prodigiously. In such an environment, it will be very difficult to gain a comparative advantage over your peers.
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Re: Bernstein - Boomers among us will have SS....
Old 11-25-2004, 09:36 AM   #2
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Re: Bernstein - Boomers among us will have SS....

If you are currently under forty, you will shortly be traumatized by the sight of large numbers of your parents' generation subsisting on cat food

My cat seems to really like Fancy Feast brand of cat food so if I need to go that route in the outlying years I will probably go that route. *My dog is fond of Milk Bone treats so that will also be a consideration.

Happy Thanksgiving. :-/
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Re: Bernstein - Boomers among us will have SS....
Old 11-25-2004, 03:40 PM   #3
 
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Re: Bernstein - Boomers among us will have SS....

I don't get what he's driving at - why would X-ers saving prodigiously have a harder time of it than boomers who save a little above their pathetically low average rate? Of course X-ers may end up having significantly longer life spans to provide for but that's a pretty good trade-off in my book...
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Re: Bernstein - Boomers among us will have SS....
Old 11-25-2004, 03:51 PM   #4
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Re: Bernstein - Boomers among us will have SS....

Good post Cut-Throat. They'll likely tinker with it some, but it's too late in the game to stick it to boomers who are approaching retirement. We have already paid in for 30-40 years and have been counting on it to be there. It's too late now for most of us to recoup. If they try, I think they'd be buried in the next election.
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Re: Bernstein - Boomers among us will have SS....
Old 11-25-2004, 04:36 PM   #5
 
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Re: Bernstein - Boomers among us will have SS....

Quote:
I don't get what he's driving at - why would X-ers saving prodigiously have a harder time of it than boomers who save a little above their pathetically low average rate? Of course X-ers may end up having significantly longer life spans to provide for but that's a pretty good trade-off in my book...

What he's getting it is that the SS system depends on having a ratio of 3 to 4 workers to one retiree to continue to have decent payouts. If everyone retired at once, there would not be enough workers to pay the SS.

The *links to the entire series of articles are posted by Nords in the thread 'Market Return' under Investment Strategies.
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Re: Bernstein - Boomers among us will have SS....
Old 11-25-2004, 04:39 PM   #6
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Re: Bernstein - Boomers among us will have SS....

Has anyone done any analysis to see how much the "hole" would be plugged if the SS cap (around 85K) is removed? i.e. charge the 12.4% no matter what the income?

Not saying its right, or fair even, but given that a very small number of voters would be punished, and it has the added benefit of "sticking it to the rich", wonder why this option is not discussed much; maybe it doesn't raise much money?



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Re: Bernstein - Boomers among us will have SS....
Old 11-26-2004, 03:56 AM   #7
 
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Re: Bernstein - Boomers among us will have SS....

FarmerEd, I just read an article recently where raising the earning cap was one of 3 elements proposed to close the gap. The other 2 were changing the COLA formula and bringing all new state and local government workers under SS. (The last element is problematic because state retirement systems are also partly pay-as-you-go and so would have to find some additional funding for existing workers and retirees).

Raising or removing the cap by itself isn't enough, partly because the cap will continue to rise anyway (2.4% in 2005) and only something like 6% of workers hit it now. Also, I think the existing formulas would provide a slightly higher benefit to those paying more than the present cap.

Personally I think it is quite possible that life spans could increase substantially during this century, making longer working careers inevitable. One way to make that more acceptable would be to provide more time off during working years...
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Re: Bernstein - Boomers among us will have SS....
Old 11-26-2004, 04:49 AM   #8
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Re: Bernstein - Boomers among us will have SS....

Quote:
Not saying its right, or fair even, but given that a very small number of voters would be punished, and it has the added benefit of "sticking it to the rich", wonder why this option is not discussed much;
The Republicans control the House, Senate, and White House. "Sticking it to the rich" is not an option, since the rich are major Republican campaign contributors. Sticking it to the middle class is more likely. Specifically, the 40 to 55 middle class age group is likely to be targeted to bear most of the pain of the changes. The formula will be changed to lower their benefits, and there is not enough time for $1000 per year personal accounts to build up enough to compensate. Early retirees in this age group will suffer the most, since they will not even have the personal accounts.
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Re: Bernstein - Boomers among us will have SS....
Old 11-26-2004, 05:31 AM   #9
 
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Re: Bernstein - Boomers among us will have SS....

Ooh Michael! Negative negative. Be careful or you will end up old and cynical like me

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Re: Bernstein - Boomers among us will have SS....
Old 11-26-2004, 06:09 AM   #10
 
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Re: Bernstein - Boomers among us will have SS....

Quote:
Early retirees in this age group will suffer the most, since they will not even have the personal accounts.
Michael,

I agree that the middle class will end up getting stuck with the problem, but certainly not the 45-55 age group. Maybe younger than 45. And those changes would be very, very gradual like they have done with the retirement age itself. The least amount of changes would go to a group retiring within 10 years.

If you look at your above statement, you are basically agreeing with Bernstein. Since the majority in this age group cannot afford to retire, they won't. Politically it is far easier to do nothing, than to rile up the electorate. And those in the age group you mentioned will not be retiring in the numbers that have been forecast. They are more likely to die working after they have continued to pay into the system.

I have listened to many, many financial and economic debates on this topic, and have never heard anyone with any depth of knowledge on this topic, come anywhere near your hypothesis.
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Re: Bernstein - Boomers among us will have SS....
Old 11-26-2004, 10:08 AM   #11
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Re: Bernstein - Boomers among us will have SS....

Hello John. I prefer to think of it as realistic rather than cynical. I suppose that I will wind up old no matter what I do.

Quote:
Politically it is far easier to do nothing, than to rile up the electorate.
Politically, politicians tend to reward their friends, and punish their enemies. They only try not to rile up the people that vote for them.

I base my 55 estimate on Bush's statements, and his actions with regard to early retirees from the steel industry. He lobbied for, and got, a bill that gave medical insurance tax breaks to retirees over the age of 55. Those younger than 55 got their pensions cut, and no tax breaks for their medical insurance. Basically, Bush doesn't believe in early retirement, and punishes those who do as an example to others. I suspect that he will design a system that punishes any one who retires before age 55. I could be wrong, as this is just a wild guess based upon his views and past actions.
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Re: Bernstein - Boomers among us will have SS....
Old 11-27-2004, 04:38 AM   #12
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Re: Bernstein - Boomers among us will have SS....

I think Michael is close. Eventually, however, all retired persons will feel the impact. Two elements rarely considered are a change in algorithm for benefits and a change in indexing for COLAs. The lower end of the income scale will need to be indexed to the poverty level. The new indices for COLA computation will slow the growth in income for all recipients. Inevitably, the lower end will fall below the poverty level. The algorithms will need adjustment to keep the money flowing down from high to low end. Two ways exist to do this. One is to increase the taxes on the higher end and flow the tax receipts to the low end. The other is to change the algorithms so that this flow is automatic before the checks go out. Either way, the higher amounts of SS will eventually erode the most if new revenues are not found. New revenues can be found by means testing the recipients. If this is done, middle class people who saved will be punished more severely than those who did not save. It is probably the only way to guarantee that all recipients are above poverty level without increasing taxes on the entire population.

Therefore, I agree with Michael except that I believe that the impact will be on all and that it will increase with decreasing age except at the poverty level. The impact will increase with the amount of contributions to the fund prior to retirement. The impact might be worse for those with savings. The over 55 guarantee is, in my opinion, a myth. By the time a person 55 hits 65, COLA index changes will have already eroded the initial benefits relative to a current estimate for that 55-year-old person.

If the private accounts are carved out of the SS money (IOU) pool and the transition costs are also charged to the SS money (IOU) pool, the adjustments will need to be accelerated.

People will put off the retirement age? Who will guarantee them their job until that age? Even the federal government has stepped up "early retirement incentives"; and many private employers are phasing out older employees for whom benefits are costly. Indeed it will help the SS situation too. Many of these older workers will go from working for Exxon to working for Wal-Mart. Ten years of lower wages will result in lower SS payroll tax for 10 years but the reward will be 25 years of lower benefits.

I have listened to people discuss the SS problem. I cannot escape the theme of both the currently retired and the young worker. That theme is - take it out of the boomer's hide. The weaseling around is laughable. Since most solutions boil down to: Take the middle class savings, put them in the SS pool, and redistribute the total equally to all retirees current and future, WHY NOT JUST DO THIS?
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Re: Bernstein - Boomers among us will have SS....
Old 11-27-2004, 06:33 AM   #13
 
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Re: Bernstein - Boomers among us will have SS....

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Re: Bernstein - Boomers among us will have SS....
Old 11-27-2004, 12:28 PM   #14
 
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Re: Bernstein - Boomers among us will have SS....

SS means-testing is an interesting subject. On one hand, SS is already indirectly means-tested to some extent. Benefits are disproportionately higher for lower-income earners, who presumably have lower assets and non-SS earnings in retirement. The pre-65 reduction of benefits for earned income is a form of means-testing. Taxation of up to 85% of SS above certain fairly low combined income levels is effectively a means-tested reduction of benefit.

But if they go too far with it, it could have some very negative side effects. Workers nearing retirement could find it to their benefit to quit earlier than they would otherwise (and stop paying into the system) to keep their private pension benefit under the threshold, and spend down accumulated assets. And in general it would be a huge disincentive to work and save for workers of all ages. Finally, it may be fine to say that your contributions are just another tax that may never be returned to you, but what about the fact that you already paid federal, state and local income taxes on those contributions?

Public support for the SS system is eroding as it is - I think full-blown means testing would kill it completely...

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Re: Bernstein - Boomers among us will have SS....
Old 11-27-2004, 12:53 PM   #15
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Re: Bernstein - Boomers among us will have SS....

Quote:
...many private employers are phasing out older employees for whom benefits are costly.
Many people will lose their jobs, and wind up in jobs with no benefits. This means no health insurance. Health care costs are rising so rapidly that benefits for older employees are becoming a real issue.

Quote:
Public support for the SS system is eroding as it is - I think full-blown means testing would kill it completely...
This is the goal of many. Social Security is a bad deal for well to do people Many want it eliminated, and the payroll tax used to fund the military. That way the "immoral" income tax could be eliminated.
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