Economic Insecurity and Older Americans

[Danmar]

Been there, done (and still doing) that...

OHOH, I'm not depressed (along with DW). My/her family made their own decisions in life, and now have to live with the results. Who is to say they are wrong? While DW/me lived an LBYM lifestyle and put aside a good deal of our earnings toward our future, who's to say that others in our family were wrong?

You make your "bet", and you live with the results.

This pretty well describes my attitude. You make choices and they have consequences. Thems the breaks. I don't worry too much about the tax burden that might result on us. This will be mostly paid for by working people, at least for quite a while. We have such a cushion in our finances and life style that it wouldn't matter in any event.

 

[Independent]

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...

I think the bold is overstating the problem. Some individuals have always had negative "returns" on SS, that's the nature of the program. But there is little reason to believe that will apply to entire generations.

A paygo retirement system can provide an apparent return equal to the growth rate of the tax base. Unless we believe the tax base will actually shrink, SS has enough money to provide a gain to the average worker.

 

[Independent]

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

I think some people will and some won't. That's the free-rider issue.

As an analogy, suppose we agreed to fund national defense through voluntary contributions rather than taxes. I think many people would contribute what they felt was their "fair share" (with many different definitions), while some would sit on their hands and let "someone else" pay.

 

[Midpack]

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...

I think the bold is overstating the problem. Some individuals have always had negative "returns" on SS, that's the nature of the program. But there is little reason to believe that will apply to entire generations.

A paygo retirement system can provide an apparent return equal to the growth rate of the tax base. Unless we believe the tax base will actually shrink, SS has enough money to provide a gain to the average worker.

My apologies, but I stand by the bold statement. You may not have seen it, but the supporting chart and source were in an earlier post on this thread, here's the chart again showing projections for 2030, about one generation from now. The trend is undeniable if you compare the SS benefits to the SS taxes columns, and the income levels used are probably close to the bulk of recipients.

And if I read your second paragraph correctly, I agree. If we adjust Social Security, Medicare and other expenses, revenue and/or benefits, to maintain solvency there wouldn't be an issue. That's the other distinction in the earlier comparison between home & life insurance vs Social Security & Medicare that surprised me. No insurance company would let solvency get so far out of whack as Social Security & Medicare have clearly become - with our (tacit) consent. Again, I just wish we'd confront it honestly...

 

[samclem]

I think some people will and some won't. That's the free-rider issue.

Yes, the free-rider issue is huge. Oh, I see you are talking about donors.

 

[haha]

Prior to all these welfare systems old people tried to make themselves useful to their children, and there were strong social pressures for the children to step up to the plate. Obviously some families did this better than others, and these families over time tended to do better and also have more reproductive success. This was thought to be a natural outcome of virtue.

Only time will tell whether societies have lost a valuable if harsh lesson, or have become wonderfully enlightened.

Ha

 

[Independent]

My apologies, but I stand by the bold statement. You may not have seen it, but the supporting chart and source were in an earlier post on this thread, here's the chart again showing projections for 2030, about one generation from now. The trend is undeniable if you compare the SS benefits to the SS taxes columns, and the income levels used are probably close to the bulk of recipients.

And if I read your second paragraph correctly, I agree. If we adjust Social Security, Medicare and other expenses, revenue and/or benefits, to maintain solvency there wouldn't be an issue. That's the other distinction in the earlier comparison between home & life insurance vs Social Security & Medicare that surprised me. No insurance company would let solvency get so far out of whack as Social Security & Medicare have clearly become - with our (tacit) consent. Again, I just wish we'd confront it honestly...

I'm not sure if we agree or disagree here. I saw the charts and clicked on the source. I noticed that some people get more benefits than they paid in taxes, others the reverse. I'm thinking that the generation as a whole gets a positive "return".

You see a trend in SS benefits. I'm asking what caused that trend, and whether the cause will continue. The WWII generation averaged three children per couple. Their children, the boomers, averaged two. That's one big reason that boomers shouldn't expect the same good deal their parents got. If some future generation has only one child per couple, that generation will probably get less in benefits than they pay in taxes. But, if birth rates level off at the replacement level, the SS downward trend stops.

I certainly agree that we should have changed the formula for future benefits by now, largely so people don't say they've reached retirement age relying on the old formulas and now we can't change them.

 

[Independent]

Yes, the free-rider issue is huge. Oh, I see you are talking about donors.

Yes, I was referring to the potential donors, not to the recipients.

Your earlier post on the advantages of voluntary charity made me think that you see the people on the receiving end as truly needy, not simply lazy.

 

[ziggy29]

I But, if birth rates level off at the replacement level, the SS downward trend stops.

This forgets about a couple other factors: rising life expectancies and falling real wages. Both of these would tend to continue a "downward" trend on SS (in terms of the benefits per person it could pay out) even if the birth rate were fixed at the "replacement" level -- and would be even worse if the proposal to tie SS benefit growth to inflation instead of wage growth were enacted. If that happened, the combination of rising prices and falling real wages would give SS another sucker punch.

 

[MuirWannabe]

Yes, I was referring to the potential donors, not to the recipients.

Your earlier post on the advantages of voluntary charity made me think that you see the people on the receiving end as truly needy, not simply lazy.

The receiving end consists of both types of course. The truly needy and the simply lazy. And various degrees in between. Volunteer charity organizations seem much more capable and effective at distinguising the difference than government programs. When researching charities you patron with your gift dollars is that not one of the big criteria you use to evaluate? You want your money going to deserving causes and deserving truly needy people. Tax dollars lack bang for the buck along with the moral issues of coerced giving.

 

[MichaelB]

The amount of the benefit vs the amount of tax paid is the result of a methodology that has not changed recently, so what is the point of the urban.org study, and what is different for someone looking at this exact same analysis 10 years ago? The pay-in vs pay-out would be no different if the SS trust had a 100 year surplus.

 

[Midpack]

I'm not sure if we agree or disagree here. I saw the charts and clicked on the source. I noticed that some people get more benefits than they paid in taxes, others the reverse. I'm thinking that the generation as a whole gets a positive "return".

You see a trend in SS benefits. [b[I'm asking what caused that trend, and whether the cause will continue.[/b] The WWII generation averaged three children per couple. Their children, the boomers, averaged two. That's one big reason that boomers shouldn't expect the same good deal their parents got. If some future generation has only one child per couple, that generation will probably get less in benefits than they pay in taxes. But, if birth rates level off at the replacement level, the SS downward trend stops.

I certainly agree that we should have changed the formula for future benefits by now, largely so people don't say they've reached retirement age relying on the old formulas and now we can't change them.

As you know, what caused the trend is changes in demographics largely due to increased longevity. Without looking back for exact numbers, in the early years of Soc Sec began there were 40 workers for every recipient and average life expectancy was 63 - or thereabouts, again IIRC. Now life expectancy is 78.5 years and there are something like 3 workers for each recipient. And as you mention, we're closing in on 2 to 1. So the trend hasn't quite reached 'worst case' yet. The chart back in post #79 shows the 'payback' to be worse in 2030 than 2010. And there's no comparison vs 1960 of course.

Maybe we are in heated agreement, I certainly agree with your closing statement. I hope we put Soc Sec and Medicare back on track sooner rather than later, even of it means later eligibility and/or reduced benefits for me! Cheers...

 

[Independent]

This forgets about a couple other factors: rising life expectancies and falling real wages. Both of these would tend to continue a "downward" trend on SS (in terms of the benefits per person it could pay out) even if the birth rate were fixed at the "replacement" level -- and would be even worse if the proposal to tie SS benefit growth to inflation instead of wage growth were enacted. If that happened, the combination of rising prices and falling real wages would give SS another sucker punch.

Falling real wages is potentially a big deal. That could make the tax base shrink. Note that wages actually need to fall, not just grow more slowly.

I don't see "rising life expectancies" as an issue for the type of money's worth calculations in the chart. Those calculations (should) include both the size of the monthly benefit and the number of years they are collected.

For example, I think that getting the same replacement rate as an earlier generation, but getting it for more years, counts as a benefit increase. In the worker/retiree chart, the assumption is that the normal retirement age never exceeds 67, so that projection is trying to fund increasing benefits.

Certainly, the benefit formula has to be designed to pay out the taxes collected for the system to be paygo. I'm just saying that if the system is truly paygo, the only way to get negative real "returns" is to have a declining tax base. I'm not trying to say that we shouldn't be adjusting the benefit formula today, but that the adjustments shouldn't need to be so severe that an entire generation gets a negative return.

 

[Midpack]

Falling real wages is potentially a big deal. That could make the tax base shrink. Note that wages actually need to fall, not just grow more slowly.

I don't see "rising life expectancies" as an issue for the type of money's worth calculations in the chart. Those calculations (should) include both the size of the monthly benefit and the number of years they are collected.

For example, I think that getting the same replacement rate as an earlier generation, but getting it for more years, counts as a benefit increase. In the worker/retiree chart, the assumption is that the normal retirement age never exceeds 67, so that projection is trying to fund increasing benefits.

Certainly, the benefit formula has to be designed to pay out the taxes collected for the system to be paygo. I'm just saying that if the system is truly paygo, the only way to get negative real "returns" is to have a declining tax base. I'm not trying to say that we shouldn't be adjusting the benefit formula today, but that the adjustments shouldn't need to be so severe that an entire generation gets a negative return.

+1 on all...

 

[Letj]

Older people who cannot support themselves should be living with their children if they have any and contribute whatever income they have to the household. That is the way it works in developing countries. It is a good model. They can help with household chores, help raise grandchildren and pass along traditions and values. Their very presence can help young people to be less selfish and become kinder gentler human beings as they watch their grandparents descend into old age. There would be better and more cohesive communities as a result not to mention that families will be less stressed with grandparents there to help.

 

[Mulligan]

Older people who cannot support themselves should be living with their children if they have any and contribute whatever income they have to the household. That is the way it works in developing countries. It is a good model. They can help with household chores, help raise grandchildren and pass along traditions and values. Their very presence can help young people to be less selfish and become kinder gentler human beings as they watch their grandparents descend into old age. There would be better and more cohesive communities as a result not to mention that families will be less stressed with grandparents there to help.

I have no problem with your logic. But I hope I never have to do that. While I have a smallish 1500 sq. ft home with finished basement, it is only me living in it. I would feel crowded if anyone besides possibly my SO would move in. And if anyone of those potential grandkids moved in and put there dirty paws on my spotless white painted walls, Im afraid the only traditions and values they would learn from me is after I finally cornered them with my future walker in tow.

 

[rescueme]

Older people who cannot support themselves should be living with their children...

Really?

BTW, it's not that simple ...

 

[MichaelB]

Looking again at the study linked in the original post, what stands out is that single women suffer much greater rates of poverty, yet the SS program was designed in part to help them avoid this.

What the study does not tell us is what their circumstances were earlier in life, but I suspect one possibility is that their poverty began before they retired. SS formulas are designed to pay in pension a much larger percent of the total income for lower earning workers, and also leave a non-working spouse (or very low earning) with 100% of the higher pension if widowed. With that formula, a “below poverty level” pension is the result of either not enough earning years or lifetime low earnings by the primary earner. This is a problem, but not necessarily up to the SS fund to remedy.

This has nothing to do with the viability of the SS trust fund, but that is a different topic. Poverty among seniors, though, will not improve until we see real wages start to rise again, median as well as the lower deciles.

 

[Finance Dave]

Just read an article saying that only a chosen few will be able to retire in the future. The rest will have to work to the very end.

We don't think we are one of the chosen few. We worked our behinds off for 30 years preparing for our retirement. We weren't chosen, my DW and I chose it. We made calculated choices through our work life that brought us to this moment.

Sounds like those that did not make good choices early on, are now trying to build a case for their lake of preparation.

My two cents.

Hear hear!

I'd suggest saying a "choosing" few will be able to retire. You did your own choosing.

 

[JPatrick]

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'd be willing to bet that the Chinese culture will begin to look like ours much sooner than we like theirs..To the determent of both..

 

[H2ODude]

Older people who cannot support themselves should be living with their children if they have any and contribute whatever income they have to the household. That is the way it works in developing countries. It is a good model. They can help with household chores, help raise grandchildren and pass along traditions and values. Their very presence can help young people to be less selfish and become kinder gentler human beings as they watch their grandparents descend into old age. There would be better and more cohesive communities as a result not to mention that families will be less stressed with grandparents there to help.

Ummm. Yeah. It works but not always the idyllic panacea you describe. My children (chuckle) are 34 and 35 and the MIL who has no source of funds other than SS lives with us (I built addition). It's about a full time job for DW to run her to Drs and take care of her. There's no travel for us unless we make arrangements with BIL, and there are limits there. We had about 10 years of empty nest and man do we miss that. Have the money to travel, I would quit the job today if we could. As it is, ER means me hanging around house with the DW. And MIL. Ugh. We cared for both my parents in our home with Hospice the last 6 months of their lives, so we've done this on my side of family.

So as opposed to dumping her into medicaid (or figuring out how to hide assets so when we do we can keep the $$$ -- woohoo!) we're shouldering the full cost of her eldercare. The extra tax deduction is not worth it.

 

[Letj]

I have no problem with your logic. But I hope I never have to do that. While I have a smallish 1500 sq. ft home with finished basement, it is only me living in it. I would feel crowded if anyone besides possibly my SO would move in. And if anyone of those potential grandkids moved in and put there dirty paws on my spotless white painted walls, Im afraid the only traditions and values they would learn from me is after I finally cornered them with my future walker in tow.

You've just identified one of the biggest pitfalls of present day Western culture. Want to guess what this sounds like to an African or Chinese?

 

[Letj]

Ummm. Yeah. It works but not always the idyllic panacea you describe. My children (chuckle) are 34 and 35 and the MIL who has no source of funds other than SS lives with us (I built addition). It's about a full time job for DW to run her to Drs and take care of her. There's no travel for us unless we make arrangements with BIL, and there are limits there. We had about 10 years of empty nest and man do we miss that. Have the money to travel, I would quit the job today if we could. As it is, ER means me hanging around house with the DW. And MIL. Ugh. We cared for both my parents in our home with Hospice the last 6 months of their lives, so we've done this on my side of family.

So as opposed to dumping her into medicaid (or figuring out how to hide assets so when we do we can keep the $$$ -- woohoo!) we're shouldering the full cost of her eldercare. The extra tax deduction is not worth it.

Eldercare is an entirely different story. I am sorry if it was not clear in my post that I meant able bodied grandparents. Unless, you're retired or at home, it's not always practical to care for sick parents. That's where the state should come in (European and Canadian style in my humble opinion).

 

[Letj]

H2O Dude, I am not sure which part of the country you live but in many places, you can find in home care from Home Attendants for little more than $200/week for a 40 hour week.

 

[dmdunca44]

H2O Dude, I am not sure which part of the country you live but in many places, you can find in home care from Home Attendants for little more than $200/week for a 40 hour week.

I am guessing that you live in the South. Here in the PNW the average charge for non medical assistance is $24/hr for Mon-Fri days only. Evenings, nights or weekends about 10% more. That is strictly non-medical assistance (driving to the dr, helping prepare meals, light housework, assistance with dressing, toileting, bathing).

Someone who needed 24/7 care would be paying upwards of $4000/week. (My last part time gig was for such an agency whose fees were in the mid range)