Economic Insecurity and Older Americans

[aleabo]

I haven't noticed any comment about the definition of "economic security" in the study. Their minimum needs are $22,000 annually for a single renter, and $33,000 for a couple who are renting.

Note that a worker earning the minimum wage for a full-time, year-round job makes about $14,500 before taxes. And, we have hard working people in the US who earn minimum wage. That's one reason why people can arrive at 65 without much for savings.

I personally think that all 401K program is big mistake, to say at least. Instead of putting 12-15% of my salary in 401K and worry about right choices, market conditions, etc, I'd be happy to have my SS\Medicare taxes increased on the same amount and have guarantee SS and free (or all almost free) health insurance after retirement. This is basically European model ( and as far as I know Canada is close to it)

 

[haha]

I personally think that all 401K program is big mistake, to say at least. Instead of putting 12-15% of my salary in 401K and worry about right choices, market conditions, etc, I'd be happy to have my SS\Medicare taxes increased on the same amount and have guarantee SS and free (or all almost free) health insurance after retirement. This is basically European model ( and as far as I know Canada is close to it)

THe trouble is that they can and might means test you out of it, or put very stringent controls on who gets what at what age. To be completely cured of these ideas, gain some direct interaction with the Medicare or Social Security bureaucracy.

Ha

 

[NW-Bound]

A truly individualized system would miss the main benefit that both SS and insurance company's annuities have: the mortality credit. Individually, each of us would have to save for the worst (longest) case of survival, say, 95 or 100 years. Very expensive and most people will save too much because they will die well before that. Not an efficient system. Instead save through SS or an annuity. Because only survivors collect, the whole cohort does not need to save as much and can fund a consumer economy instead. This is why the Chinese savings rate is anywhere from 30% to 48%. Because every individual has to save for the worst case even though it is not very likely.

Really, this should be taught in high school so that all Americans understand what an extraordinarily stupid step it would be to revert to individual precautionary savings.

I understand what you meant was that because the Chinese do not have a social program to take care of the old, its citizenry has to ramp up the individual savings rate, hence the consumption rate was too low for an optimal economy. What I read was different however. Namely, it was because of failed economic policies of the past that the Chinese are too scared to trust their government. More about this below.

This does not explain the Chinese penchant for saving. Traditionally, in an agricultural economy like China, it was the duty of younger family members to care for the elderly, so people weren't saving money to see them through their old age. It has more to do with a dread of debt--this also stems directly from China's agricultural past, when landlords imposed usurious interest on peasants, which deprived them of their land and kept them in a practical state of lifelong bondage. In the more modern setting, credit from banks was not widely available to consumers until the last decade or so. So people saved to make the major life purchases: housing, furniture, cars, etc. That is now changing, and use of credit is becoming more and more prevalent.

I am no expert on Chinese economy, but recently read this info from the Web (WSJ perhaps). It said that the Chinese are commonly saving 40% or more of their income, because the state has abrogated its promise to take care of the citizens in their old age. People now have to fend for themselves! What was implied was that the savings rate was not that high, back in the Mao's days. Of course back then, the peasants were subsisting on a couple of rice bowls a day and would not have much to save anyway.

Perhaps someone more knowledgeable will either confirm or correct what I have read and recounted above.

But one thing is certain. All that wonderful utopia ideas promised by Communism have gone up in smoke, in countries such as the defunct Soviet Union to the few regimes like Cuba and North Korea that are still clinging to the ideas of Karl Marx and Lenin. Soon after the fall of the Soviet Empire, we read about the hardship endured by its retirees and veterans. Without production by the young generation, there is no free ride for the older retirees.

Now that Greece's debt binge has caught up with that nation, I wonder if the young Greeks will increase their savings rate because they now realize their government's promises are not worth much. This will be interesting to watch in the years ahead.

 

[stoutboy]

Chinese in the Mao era didn't make the kind of money that they do now, but they still had high savings rates. They had these same rates of savings in the Republican and imperial eras as well. You can also look at overseas Chinese, especially those in the West. The propensity to save is imbued in Chinese from a very young age due to the historical and cultural factors I mentioned.

I understand what you meant was that because the Chinese do not have a social program to take care of the old, its citizenry has to ramp up the individual savings rate, hence the consumption rate was too low for an optimal economy. What I read was different however. Namely, it was because of failed economic policies of the past that the Chinese are too scared to trust their government. More about this below.



I am no expert on Chinese economy, but recently read this info from the Web (WSJ perhaps). It said that the Chinese are commonly saving 40% or more of their income, because the state has abrogated its promise to take care of the citizens in their old age. People now have to fend for themselves! What was implied was that the savings rate was not that high, back in the Mao's days. Of course back then, the peasants were subsisting on a couple of rice bowls a day and would not have much to save anyway.

Perhaps someone more knowledgeable will either confirm or correct what I have read and recounted above.

But one thing is certain. All that wonderful utopia ideas promised by Communism have gone up in smoke, in countries such as the defunct Soviet Union to the few regimes like Cuba and North Korea that are still clinging to the ideas of Karl Marx and Lenin. Soon after the fall of the Soviet Empire, we read about the hardship endured by its retirees and veterans. Without production by the young generation, there is no free ride for the older retirees.

Now that Greece's debt binge has caught up with that nation, I wonder if the young Greeks will increase their savings rate because they now realize their government's promises are not worth much. This will be interesting to watch in the years ahead.

 

[justplainbll]

THe trouble is that they can and might means test you out of it, or put very stringent controls on who gets what at what age. To be completely cured of these ideas, gain some direct interaction with the Medicare or Social Security bureaucracy.

Ha

+ 1

 

[Midpack]

I think this is a false dichotomy. There's another option besides not helping the poor and forcibly taking the money from some to give to others. That option is "voluntary charity". Somewhat out of fashion in some countries today, it is the way mankind has cared for our poor since time began. When we forcibly take assets from people to be given to others, we deprive the potential givers of a chance to feel good about helping people. We deprive the recipients of a chance to feel grateful to those who have helped them. Most importantly, we allow people with "enough" to get off "cheap," to believe that their responsibility is done once they pay their taxes. Similarly, rather than digging into their own pocket, some "contribute" by seeking to pass laws that take other people's money for the benefit of the poor. That's a cheap imitation of true concern and love based on self-sacrifice that helps others. Look at Western Europe and other places with very generous social welfare programs--charitable giving is far lower than in the US as a percent of income. "I paid my taxes, that's my part."

+1. I would have dismissed this POV as nonsense 20 years ago, but the last 50 years has clearly shown this in the US. Despite good intentions, the more public benefits offered, the more dependents there are. Sadly now we've seen generations in the same family relying on public benefits. And the disconnect between giver and givee is more real than I would have guessed. While there are many who deserve help from the rest of us, there are also too many who could do more to help themselves (and our culture has made it far more "acceptable" to take money than was the case 50 years ago). A cruel reality...more benefits just won't solve the intended problem as far I can tell from any countries experience...

 

[Hamlet]

I think that this is a terrible idea.

I prefer to maintain as much control over my money as possible.

I accept the need for some sort of safety net, as a large number of people will fail to provide adequately for their retirement.

However, I don't think it is good to make absolutely everyone massively dependent on government programs that can change with the political winds.

I personally think that all 401K program is big mistake, to say at least. Instead of putting 12-15% of my salary in 401K and worry about right choices, market conditions, etc, I'd be happy to have my SS\Medicare taxes increased on the same amount and have guarantee SS and free (or all almost free) health insurance after retirement. This is basically European model ( and as far as I know Canada is close to it)

 

[Midpack]

I personally think that all 401K program is big mistake, to say at least. Instead of putting 12-15% of my salary in 401K and worry about right choices, market conditions, etc, I'd be happy to have my SS\Medicare taxes increased on the same amount and have guarantee SS and free (or all almost free) health insurance after retirement. This is basically European model ( and as far as I know Canada is close to it)

Sounds good doesn't it, AARP would agree. Too bad the changes in demographics & longevity, without remotely commensurate adjustments, have made Soc Sec an increasingly bad deal for recipients. Where it was a bonanza for recipients at the start, current payers are not going to get very good "returns" for their contributions. The chart below shows that in 2030, couples will get less than they contributed toward Soc Sec, nevermind any kind of "return" on their contributions. It's only due to the horrific imbalance between Medicare benefits and taxes that couples see any "return" at all.

You'd be in favor of your children and grandchildren paying more for your benefits than they will ever get out of Social Security when their time comes?

http://www.urban.org/UploadedPDF/social-security-medicare-benefits-over-lifetime.pdf

 

[MuirWannabe]

I think this is a false dichotomy. There's another option besides not helping the poor and forcibly taking the money from some to give to others. That option is "voluntary charity". Somewhat out of fashion in some countries today, it is the way mankind has cared for our poor since time began. When we forcibly take assets from people to be given to others, we deprive the potential givers of a chance to feel good about helping people. We deprive the recipients of a chance to feel grateful to those who have helped them. Most importantly, we allow people with "enough" to get off "cheap," to believe that their responsibility is done once they pay their taxes. Similarly, rather than digging into their own pocket, some "contribute" by seeking to pass laws that take other people's money for the benefit of the poor. That's a cheap imitation of true concern and love based on self-sacrifice that helps others. Look at Western Europe and other places with very generous social welfare programs--charitable giving is far lower than in the US as a percent of income. "I paid my taxes, that's my part."

+1 Right on.

 

[MichaelB]

Midpack, a Ponzi scheme is a criminal endeavor, Social Security is a social insurance program.

samclem, the poor have not been cared for over time. They died in poverty, and were doing so when SS was introduced. Charity is a fine option, but it is no substitute for a social insurance program. Assets are not being forcibly taken, they are the result of free choice in a democratic society.

The data in the study linked in the original post is aggregate and average, much like that in the urban.org study linked earlier. There is not enough segmentation or detail to support implied or stated conclusions.

There are a number of false dichotomies here. Only poverty or social insurance is one. Another is that poverty or financial security in retirement is primarily the result of personal choice and frugality earlier in life. Other factors are involved, many of which are beyond individual control.

No society has really found an answer yet. Perhaps we will need another century or so. I suspect an economy needs to have an aggregate surplus which is used to support or complement individual savings for retirement.

 

[GrayHare]

+1. I would have dismissed this POV as nonsense 20 years ago, but the last 50 years has clearly shown this in the US. Despite good intentions, the more public benefits offered, the more dependents there are. Sadly now we've seen generations in the same family relying on public benefits. And the disconnect between giver and givee is more real than I would have guessed. While there are many who deserve help from the rest of us, there are also too many who could do more to help themselves (and our culture has made it far more "acceptable" to take money than was the case 50 years ago). A cruel reality...more benefits just won't solve the intended problem as far I can tell from any countries experience...

+1 Leave charity to the charities, which, in contrast to gov't often impart some sort of social responsibility to the community.

 

[samclem]

Assets are not being forcibly taken, they are the result of free choice in a democratic society.

"Democracy is two wolves and a sheep voting on what's for dinner."
- Attributed to Winston Churchill

I beg your pardon, but they certainly are "forcible takings." When the government takes my property to give to others through the income tax, it is a forcible taking and I must give up my property or lose my freedom at the hands of the government. I'm sure we'll differ on the Constitutionality of this, and I'll admit to being out of step with the Court's decisions. The Constitution gives only certain enumerated powers to the federal government, and providing for the poor isn't among that list. Can we continue to justify this taking of property under the "general welfare" clause when clearly we are seeking to promote individual welfare (a very different thing)? Is it likely that the framers, who took great care to enumerate the powers of the federal government in such minor matters as postal roads really intended for over 50% of the federal budget to be consumed by this purpose which warranted only a single clause in the Constitution? Nope.

 

[MichaelB]

You'd be in favor of your children and grandchildren paying more for your benefits than they will ever get out of Social Security when their time comes?

In the same way I hope they pay for home and life insurance yet never get back what they paid.

 

[stoutboy]

As you note, you are certainly out of step with constitutional jurisprudence, and I'd argue also with the framers themselves. Taxes are not a "taking". The Constitution is very clear that Congress has the power to tax. A taking in a constitutional sense requires 'just compensation'. Not so with taxes. Providing for the poor to some degree through the power of taxation is certainly within the parameters of the General Welfare clause, as addressing the poverty of its citizens is a matter of interest to the Federal Government.

"Democracy is two wolves and a sheep voting on what's for dinner."
- Attributed to Winston Churchill

I beg your pardon, but they certainly are "forcible takings." When the government takes my property to give to others through the income tax, it is a forcible taking and I must give up my property or lose my freedom at the hands of the government. I'm sure we'll differ on the Constitutionality of this, and I'll admit to being out of step with the Court's decisions. The Constitution gives only certain enumerated powers to the federal government, and providing for the poor isn't among that list. Can we continue to justify this taking of property under the "general welfare" clause when clearly we are seeking to promote individual welfare (a very different thing)? Is it likely that the framers, who took great care to enumerate the powers of the federal government in such minor matters as postal roads really intended for over 50% of the federal budget to be consumed by this purpose which warranted only a single clause in the Constitution? Nope.

 

[samclem]

Providing for the poor to some degree through the power of taxation is certainly within the parameters of the General Welfare clause, as addressing the poverty of its citizens is a matter of interest to the Federal Government.

Why the federal government? When the Constitution was written the world was similar in many ways to our world today. There were tariffs, there was currency, there were post offices, there were sick people and poor people. Take a look at the document--it addresses the important things and the less important things. Tariffs, currency, and post offices were directly addressed. The document says exactly how old a person must be to be elected to Congress. It gives a specific time (the first Monday in December) when Congress will meet, and a Constitutional amendment (the 20th) was required to change this date. Is it possible, with all this detail, that the framers just forgot to specifically mention this "providing for the poor" responsibility you've identified? This taking of property from some and giving it to others now constitutes over 50% of the federal budget. By that metric, it's more significant than providing for a national defense, running the courts, and doing the scores of other things that are specifically mentioned in the Constitution.

We're talking here about the right to keep what you've earned (and/or to give it away freely and voluntarily to those you choose). There's hardly anything more fundamental to security in retirement. Ants and grasshoppers.

 

[Midpack]

Midpack, a Ponzi scheme is a criminal endeavor, Social Security is a social insurance program.

I provided that link for the "bad investment" aspect of Soc Sec and not for the Ponzi claim (just a hook by the author?). But I've removed that link nonetheless as Ponzi was not my point at all. There's no denying the current arrangement has/is becoming an increasingly 'bad deal' for each new generation, something we need to honestly confront IMO.

 

[Midpack]

You'd be in favor of your children and grandchildren paying more for your benefits than they will ever get out of Social Security when their time comes?

In the same way I hope they pay for home and life insurance yet never get back what they paid.

That seems like a surprising comparison. Home and life insurance are to protect us from large catastrophic losses on an exception basis. I assume (almost) no one hopes to collect substantially if at all on their home or life insurance.

While Social Security has an insurance feature to it, Soc Sec & Medicare taxes are much more than costly than home or life insurance and I assume (almost) everyone expects to collect a benefit. At some point paying taxes for current recipients knowing we're only a generation or two away from recipients receiving less than they even paid in (never mind a return) isn't going to be acceptable. Again, we just need to honestly confront the issue IMO...

 

[MichaelB]

I provided that link for the "bad investment" aspect of Soc Sec and not for the Ponzi claim (just a hook by the author?). But I've removed that link nonetheless as Ponzi was not my point at all. There's no denying the current arrangement has/is becoming an increasingly 'bad deal' for each new generation, something we need to honestly confront IMO.

No disagreement there. And it is incumbent (IMHO) on our generation (yours and mine) to step forward and man up, because we are contributing to both sides of the problem - taking too much out and not having put enough in. We have also sat by and watched this happen in slow motion for years, and not acted (conceptually, not personally to you or any individual).

It isn't all that clear to me how to provide a reasonable amount of social insurance that is always solvent and viable, but I think we should try. Sometimes ants do all the right things and still life doesn't end the way it should, and a society that is wealthy and enlightened, such as ours, can deal with that.

 

[samclem]

Sometimes ants do all the right things and still life doesn't end the way it should, and a society that is wealthy and enlightened, such as ours, can deal with that.

(Unstated) "But we don't truly trust in the goodness of individuals to help each other in the absence of federal coercion" (right?)

 

[MichaelB]

That seems like a surprising comparison. Home and life insurance are to protect us from large catastrophic losses on an exception basis. I assume (almost) no one hopes to collect substantially if at all on their home or life insurance.

While Social Security has an insurance feature to it, Soc Sec & Medicare taxes are much more than costly than home or life insurance and I assume (almost) everyone expects to collect a benefit. At some point paying taxes for current recipients knowing we're only a generation or two away from recipients receiving less than they even paid in (never mind a return) isn't going to be acceptable. Again, we just need to honestly confront the issue IMO...

Lets separate Medicare from SS. They are different programs with one common characteristic. I think SS is a good program poorly managed. It has two insurance features that are important - one is caring for dependents and disability, the other is insuring against a lifetime of low earnings. So it pays out more to the lower earning individuals and less to those that made more. It is more easily remedied. All we need is the collective will and a greater sense of urgency.

 

[MichaelB]

(Unstated) "But we don't truly trust in the goodness of individuals to help each other in the absence of federal coercion" (right?)

Aside from the terminology, which is inflammatory and politically charged but also, technically, not correct, history has shown some people share much goodness but it has never enough to offset the suffering.

 

[samclem]

Aside from the terminology, which is inflammatory and politically charged but also, technically, not correct, history has shown some people share much goodness but it has never enough to offset the suffering.

Yes, I see how this works. Thank you. Nothing to see here . . .

 

[M Paquette]

Why the federal government? When the Constitution was written the world was similar in many ways to our world today. There were tariffs, there was currency, there were post offices, there were sick people and poor people.

And the British government at the time required all parishes to construct workhouses (Workhouse Act of 1723, and Gilbert's Act of 1782), to provide relief for the 'poor by casualty' (the sick and senile), and specified 'outdoor relief' for the able-bodied poor. A poor collection (like a council tax) was authorized to provide funds to assist the elderly and blind. The 'idle poor', or 'sturdy beggars' could be whipped and returned to the place of their birth (the birth of SEP, or Someone Else's Problem).

Fun times, but not charity.

 

[samclem]

Fun times, but not charity.

Yes, not charity. Government programs.

 

[ratto]

No society has really found an answer yet. Perhaps we will need another century or so. I suspect an economy needs to have an aggregate surplus which is used to support or complement individual savings for retirement.

+1. I think having an economy with an aggregate surplus to support or complement individual savings for retirement is not the issue, it is how the surplus is distributed. The distributors will have more power over the recipients. When this happens, favoritism and abuse of power ensue. If this had not been the case, we would probably have been in paradise already.

Enough personal saving for unforeseen emergency and retirement is good for most of time, but a very complicated matter. It has so many factors intertwined together. It’s interesting to see that despite the lower income in some countries in Europe and Asia, they have much better personal saving rate than ours. For instance, here are 3 graphs attached: US saving rate (per Wikipedia), largest EU economies vs US 95-07 (per EuroStat), and cross country comparison (per World Bank, US,UK,AUS,DE,JAN)..

Admittedly, there are so many outside forces (or distributors) playing. So it’s probable that no society will ever be able find an answer.

It is hard to accept that we do not always get second chance for somethings in our life.