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Old 04-29-2012, 07:07 PM   #41
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Originally Posted by Animorph View Post

And no way SS gives you investment gains of 7%. It's strictly government bonds. Not something I'd invest in, but it is what it is.
I know we live in unusual times but if you look up the return on Vanguard's long term treasury fund (VUSTX) you'll see that the 5 year return is 9.1%, the 10 year return is 8.2 % and the 26 year return (since inception in 1986) is 8.3% of course, recent times are no indication but the return for 1 year is 23%. Although I note your comment that it's not something you'd invest in, I wish I was 100% invested in this for the last year since my own personal return for the last year is only 4%. I guess my crystal ball only works when looking backwards in time...
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Old 04-29-2012, 08:38 PM   #42
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Originally Posted by ShortInSeattle View Post

I think it would be interesting to define the purpose of social security. Is it like a government mandated retirement account that we pay into? If so that means it would be "unfair" to take my dollars and give them to someone else. Or is it another safety net like food stamps, in which case I contribute even if I get nothing back, because I contribute to the common good?

My understanding is that it came out in the FDR days as part of providing a safety net for those with no other savings/pension at retirement; a Depression era idea of 'spreading the wealth around' by paying it forward.

Not much seems to have changed and one could argue that it is as important now as it was 80 years ago.

Of course, the math stopped working and now here we are.
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Old 04-29-2012, 08:54 PM   #43
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Two suggestions that I would back and that have been mentioned before:

Remove the cap on taxed earnings. This year only the first $110,100 gets taxed. Granted only about 7% of personal income is above that in the US, but it will generate a fair amount of SSI.

Second, slowly raise FRA to 70.
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Old 04-29-2012, 09:16 PM   #44
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As globalization continues apace, hourly wages in the US can be expected to go down. Some of the jobs that won't be done overseas require physical labor--construction, etc. As a practical matter, people just can't do these jobs until they are 70. So, while we may/should keep sliding the full retirement age to the right, I think we probably need to keep options for people to retire earlier with a somewhat smaller monthly check. Those used-up bodies will still need the money at about 63, and if they can't get their SS retirement check many will just get disability checks instead.
I am so glad you brought that last point up. Analysts are seeing a high number of older folks who have exhausted their unemployment, file for disability. There are so many "globbing on" that it sounds like a major player in the acceleration of the SS insolvency date. So long as age disrimination and the recession/depression march on, we can likely expect that trend to continue.
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Old 04-29-2012, 09:39 PM   #45
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I think if the fix were easy we would have done it by now.

I see several factors at play:

1) unclear metrics - some say we are at the brink of insolvency, others say it's just a scare tactic that politicians use. I have a hard time understanding what the true scope of the problem is.

2) living beyond our means - it's not just a household issue, it's a governmental one. We've spent too much as a nation and saved too little.

3) demographic challenges - the large size of the boomer generation, which can't be fully supported by contributions from the smaller generations that followed.

I think it would be interesting to define the purpose of social security. Is it like a government mandated retirement account that we pay into? If so that means it would be "unfair" to take my dollars and give them to someone else. Or is it another safety net like food stamps, in which case I contribute even if I get nothing back, because I contribute to the common good?

As a 33 year old, I'm saving as if there will be no SS because I think that is a possibility for us. To be honest I think of SS as the "keeping our elders from starving to death" fund. While I'll appreciate SS as a component of my retirement plan, I'd also rather give my share up than see it go away for everyone. That might not be "fair" but then again life isn't always fair. When my bounty is overflowing, I'm not sure it's right to cry out because the poorer couple next door got something I didn't.

Thanks for the discussion.
1. See Table IV.B1 here:IV_B_LRest.html
The numbers are percents of covered payroll. A negative annual balance of -1.00 would mean that it would take an additional tax of 1.00% of covered payroll to cover that year's spending. Some people think these numbers are big, others think they aren't.

2. Okay. Note that SS ran annual surpluses from about 1986 up to the Great Recession. I'll let others comment on the political fallout from that.

3. Yes. The key metric is the worker:beneficiary ratio. See Table IV.B2 at the same link. It's hard to get a big ratio when the typical couple only has two children.

Workers taxes have been overwhelmingly used to pay benefits, they haven't been saved like a 401k, so it's hard for me to claim it's like a private retirement program. I think your "keeping our elders from starving" comment hits it on the head.
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Old 04-29-2012, 09:44 PM   #46
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Two suggestions that I would back and that have been mentioned before:

Remove the cap on taxed earnings. This year only the first $110,100 gets taxed. Granted only about 7% of personal income is above that in the US, but it will generate a fair amount of SSI.

Second, slowly raise FRA to 70.
The 7% is a low estimate.
Quote:
The Current Taxable Maximum Covers Roughly 84 Percent of Total Earnings
Distributional Effects of Raising the Social Security Taxable Maximum
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Old 04-29-2012, 09:50 PM   #47
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Two suggestions that I would back and that have been mentioned before:

Remove the cap on taxed earnings. This year only the first $110,100 gets taxed. Granted only about 7% of personal income is above that in the US, but it will generate a fair amount of SSI.

Second, slowly raise FRA to 70.
That plus decrease the SS COLA til the problem goes away.
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Old 04-29-2012, 10:05 PM   #48
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Ironically, I think removing the cap on SS taxes (which would hurt high wage earners) would also probably increase pressure to means-test SS benefits (another whack against these same folks when they get older). Right now, because of the cap on taxes, we don't hear stories about how Warren Buffet is getting a SS check for $20,000 per month. The cap on SS taxes effectively puts a cap on benefits for wealthy folks. Once the cap is removed, the news stories will start-- about the "huge, unneeded" SS checks received by wealthy Americans (never mind the paltry "rate of return" the wealthy get from SS due to the progressive payout schedule).
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Old 04-29-2012, 10:39 PM   #49
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Ironically, I think removing the cap on SS taxes (which would hurt high wage earners) would also probably increase pressure to means-test SS benefits (another whack against these same folks when they get older). Right now, because of the cap on taxes, we don't hear stories about how Warren Buffet is getting a SS check for $20,000 per month. The cap on SS taxes effectively puts a cap on benefits for wealthy folks. Once the cap is removed, the news stories will start-- about the "huge, unneeded" SS checks received by wealthy Americans (never mind the paltry "rate of return" the wealthy get from SS due to the progressive payout schedule).
not a problem if, at the same time, another knee(s) is inserted in the PIA calculation formula. something like 5% for income levels over the current max. and that can drop to 0-1% on incomes over $250k for example.
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Old 04-29-2012, 10:40 PM   #50
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I think if the fix were easy we would have done it by now. ......

I think it would be interesting to define the purpose of social security. Is it like a government mandated retirement account that we pay into? If so that means it would be "unfair" to take my dollars and give them to someone else. Or is it another safety net like food stamps, in which case I contribute even if I get nothing back, because I contribute to the common good?....
I think it is a combination of disability insurance, life insurance (for survivors) and a deferred payout annuity. If you could bifurcate the elements and ensure that the payout annuity is commensurate with the "premiums" paid and the system retains the premiums paid for disability and life benefits, then that would arguable be "fair".
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Old 04-29-2012, 10:46 PM   #51
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Historically, SS was designed to have some connection between taxes collected and benefits paid. Removing the wage cap would result in large benefits being paid to wealthy individuals. Means testing would sever the relationship between taxes paid and benefits received. It would turn it into a wealth transfer program.

At a minimum the retirement ages need to be adjusted up (as was done in the '80s). I think you could probably tweak the wage cap up some and means test some of the benefits without negating the original philosophical foundations too much though it may be a slippery slope.
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Old 04-29-2012, 11:10 PM   #52
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Historically, SS was designed to have some connection between taxes collected and benefits paid. Removing the wage cap would result in large benefits being paid to wealthy individuals. Means testing would sever the relationship between taxes paid and benefits received. It would turn it into a wealth transfer program.
The connection you mention between the SS taxes a person pays and what they receive is a very weak one--the more money you make, the less % of what you've paid will be received in benefits. In fact, SS is primarily a wealth transfer program. The transfer is across two gradients:
1) From the young to the old (because now every penny paid in taxes today goes immediately to recipients. Even when we had a surplus it was fairly small)
2) From the "non-poor" to the "more poor". Because of the benefit formula I mentioned above. SS is a great "deal" for the poor, they receive far more than they pay in. Those who make more money receive much less than they could have received by investing their money somewhere else.
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Old 04-30-2012, 12:36 AM   #53
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The connection you mention between the SS taxes a person pays and what they receive is a very weak one--the more money you make, the less % of what you've paid will be received in benefits. In fact, SS is primarily a wealth transfer program. The transfer is across two gradients:
1) From the young to the old (because now every penny paid in taxes today goes immediately to recipients. Even when we had a surplus it was fairly small)
2) From the "non-poor" to the "more poor". Because of the benefit formula I mentioned above. SS is a great "deal" for the poor, they receive far more than they pay in. Those who make more money receive much less than they could have received by investing their money somewhere else.
What I learned today was that the "more poor" get less from social security than they pay in, while non-poor get more. Why? More poor don't live as long, thus their greater benefits are distributed for a shorter time. So much for simple fixes.
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Old 04-30-2012, 12:38 AM   #54
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You know, we aren't talking about the mythical one percenters either. These folks that make a big salary usually are just like everyone else. They work hard, earn a paycheck, etc. They aren't the super rich. Asking them to pay some percentage of their wages that they will never receive in benefits is a little much. Hell, it's downright unfair. It's bad enough I've got to pay for people that don't work, but now I'm funding the retirement of my neighbor because he chose teaching instead of law?

Honestly, the government, especially the federal government, shouldn't be in the business of setting up retirement plans. The whole thing was a sham form the beginning. But were here and many people are counting on it. As far as I'm concerned. If you're 20 or younger, your on your own. We suck it up and pay what we've promised and then abandon the damn thing. Either this is a free country where anyone can become rich and successful and some people fall through the cracks, usually from their own lack of ambition, or were just another failing entitlement society.

Social safety net for those that truly cannot help themselves, sure. Government sponsored retirement plan, aka ponzi scheme, aka wealth redistribution scam, no.
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Old 04-30-2012, 08:23 AM   #55
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What I learned today was that the "more poor" get less from social security than they pay in, while non-poor get more. Why? More poor don't live as long, thus their greater benefits are distributed for a shorter time. So much for simple fixes.
There's some of that, but the shorter life expectancy of the poor does not make SS a worse "deal" for them than for the wealthy.
And if we want to get down to the nub of it, living a shorter life and being poor often spring from the same cause--bad decisions. Not always, but often. Maybe that's something else government (e.g. everyone else) should pay to fix, also.
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Old 04-30-2012, 10:03 AM   #56
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The connection you mention between the SS taxes a person pays and what they receive is a very weak one--the more money you make, the less % of what you've paid will be received in benefits. In fact, SS is primarily a wealth transfer program. The transfer is across two gradients:
1) From the young to the old (because now every penny paid in taxes today goes immediately to recipients. Even when we had a surplus it was fairly small)
2) From the "non-poor" to the "more poor". Because of the benefit formula I mentioned above. SS is a great "deal" for the poor, they receive far more than they pay in. Those who make more money receive much less than they could have received by investing their money somewhere else.
I don't disagree that it is fairly weak today but it would be much much weaker if we eliminated the wage cap. It was probably better when it was first implemented. At least that is what I read when doing a little research on the origins of the wage cap.

The old to young transfer was designed into the program from the start. I would guess to get the funds coming in right away. It wouldn't have done much good to wait 20-30 yrs for the program to kick in.
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Old 04-30-2012, 11:11 AM   #57
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I don't disagree that it is fairly weak today but it would be much much weaker if we eliminated the wage cap. It was probably better when it was first implemented. At least that is what I read when doing a little research on the origins of the wage cap.

The old to young transfer was designed into the program from the start. I would guess to get the funds coming in right away. It wouldn't have done much good to wait 20-30 yrs for the program to kick in.
Did you mean young to old?
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Old 04-30-2012, 11:15 AM   #58
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Did you mean young to old?
Ooops
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Old 04-30-2012, 11:35 AM   #59
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What I learned today was that the "more poor" get less from social security than they pay in, while non-poor get more. Why? More poor don't live as long, thus their greater benefits are distributed for a shorter time. So much for simple fixes.
Part of it is become more poor people smoke, which both shortens their lives and makes them poor.
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Old 04-30-2012, 11:40 AM   #60
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The connection you mention between the SS taxes a person pays and what they receive is a very weak one--the more money you make, the less % of what you've paid will be received in benefits. In fact, SS is primarily a wealth transfer program. The transfer is across two gradients:
1) From the young to the old (because now every penny paid in taxes today goes immediately to recipients. Even when we had a surplus it was fairly small)
2) From the "non-poor" to the "more poor". Because of the benefit formula I mentioned above. SS is a great "deal" for the poor, they receive far more than they pay in. Those who make more money receive much less than they could have received by investing their money somewhere else.
+1
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