How to fix Social Security

[Chuckanut]

Raising the SS retirement age is fine, but please also toughen age discrimination laws. And allow more part time work. Otherwise a lot a people 55-retirement will drain there savings hanging on a few more years.

 

[Gunni]

Social Security

...wouldn't it be great if the Government would pay back what they borrowed from SS over the years. We spend enough bailing out other countries financially with no expectation of payback. On and On it goes!

 

[REWahoo]

...wouldn't it be great if the Government would pay back what they borrowed from SS over the years. We spend enough bailing out other countries financially with no expectation of payback. On and On it goes!

Off topic, but what happened with your country club issue? Were you able to get out?

 

[Independent]

Forgive my ignorance (maybe something like this is already being done) but why not just set the system up to give a smaller interest rate of return to those getting the most out and a higher one to those getting the least. While paying people back AT LEAST what they put in.

I suspect that something kind of like this is already being done? If so, can't we just adjust the scale a little more to fix things?

Since SS is mostly paygo it doesn't have any real "interest". That makes it kind of hard to address this.

However, if the economy grows and wages grow, then the taxes collected grow. That growth does allow SS to pay each generation of workers more than they paid in.

When the number of workers was growing at 2.0% per year and real wages were growing at 1.5%, the total 3.5% of growth provided enough room to make it appear that something like what you're suggesting was happening.

In the future, if the number of workers grows at 0.5% per year, and real wages grow at 1.0%, the resulting 1.5% annual increase in taxes doesn't leave much room to give the top earners an apparent 0.0% while giving the bottom earners enough to provide a "socially acceptable" benefit.

It just comes down to the numbers.

 

[pb4uski]

Slightly off topic... but sort of on topic.
A family member in his late 50's just had an epiphany. He's been unemployed/underemployed for years - he lives a frugal lifestyle, but lived off cash he'd made selling investment rental properties. He's had a few very-much part time jobs in the past decade... but not a lot of income.

He just realized he's not going to get much from Social Security because he hasn't had much in the way of wages.

Family has been telling him to get a job for years. It's probably too late now. Savings is spent, and not much SS in his future.

DW had a female friend like him. I can't ever recall her friend being employed for more than a year, and works many jobs under the table for cash. It seems unlikely that she will have enough credits to get much of anything and she is totally clueless as to the situation she will be in.

 

[myself]

Well, I would not try to fix it, i would ditch it altogher. Figure out some cut off age or a phase out approach so that current folks on SS are not hurt. Im 46, I would gladly forgo all SS if I was able to get my contributions suspeded going forward. My fear is not for myself so much, its clear some SS will be there for me, but for my children, I think its doomed. I have zero expectation that such an approach would be taken though

Steel

That sounds good to me. My plan in that even would be to simply increase my 401k withdrawals appropriately. But, alas it would be the same for people who feel they make enough money to live on as opposed to those who believe they don't.
FWIW, I used to be in the latter category.

 

[tjscott0]

80 is the new 65

Looks like 25-30% of boomers will be paying into social security in their 70's. Assuming they can find work that is.

25% of Americans expect to wait until age 80 to retire - Nov. 16, 2011

A quarter of middle-class Americans are now so pessimistic about their savings that they are planning to delay retirement until they are at least 80 years old -- two years longer than the average person is even expected to live.
It sounds depressing, but for many it's a necessity. On average, Americans have only saved a mere 7% of the retirement nest egg they were hoping to build, according to Wells Fargo's latest retirement survey that polled 1,500 middle-class Americans.

While respondents (whose ages ranged from 20 to 80) had median savings of only $25,000, their median retirement savings goal was $350,000. And 30% of people in their 60s -- right around the traditional retirement age of 65 -- that were surveyed had saved less than $25,000 for retirement.

 

[Khufu]

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.

This is the right solution because this is the problem, not unexpectedly extended life spans or a bond default. At the time of the 1983 reforms the payroll tax covered 90% of the total payroll in the US. Now it covers only 85% and that number will probably go lower. The dramatic increase in inequality in America means that the upper income levels now take more of the total payroll than before. And because of the cap on the payroll tax, those high-income earners don't pay. If the payroll tax were revised to apply once again to 90% of aggregate payrolls that would solve a large part of the problem.

The rise in inequality also means that the rich get more of their income from capital gains and dividends than they used to. This income has never been subject to the payroll tax, but it should be. There is no good reason why investment income should be privileged.

Otherwise, the US will eventually be Brazil.

 

[explanade]

Yeah but will they be allowed to work until they're that old?

Talk about pitting generations against generations, geezers working until 80 would result in a lot of jobs not being freed up for younger workers, including possibly some senior positions.

Meanwhile, some employers may prefer to replace older workers with younger, cheaper ones.

 

[samclem]

This [investment] income has never been subject to the payroll tax,

Because it's not payroll? SS is designed (primarily) to replace employment income for people who are old and who were expected to retire (and therefore not be employed.) The tax is on employment income for this reason, and the amount that recipients get is based on how much they earned when they were employed.

There's a theme here.

 

[Independent]

80 is the new 65

Looks like 25-30% of boomers will be paying into social security in their 70's. Assuming they can find work that is.

25% of Americans expect to wait until age 80 to retire - Nov. 16, 2011

When I was 35, I assumed I would work till 70. Why not?
My new job was interesting,
I felt healthy,
I figured that by the time I got to 70 employers would have part time jobs available.

By the time I was 55, I was crunching the numbers on when I could retire.
The job was getting boring,
I had developed a couple chronic medical problems,
the new CEO seemed to think that anybody who had been with the company more than 5 years was an idiot,
and he definitely wanted people who were willing to work 50 hours a week.

 

[Independent]

Because it's not payroll? SS is designed (primarily) to replace employment income for people who are old and who were expected to retire (and therefore not be employed.) The tax is on employment income for this reason, and the amount that recipients get is based on how much they earned when they were employed.

There's a theme here.

I agree that it's designed to replace employment income.
That doesn't mean it needs to be funded with taxes on employment income.

The funding mechanism was a political decision which could be changed.

 

[Culture]

If you still do not believe that SS contains a strong welfare component, here is a chart showing your benefits as a percentage of your lifetime payroll taxes paid. As you can see the bottom tier wage earner gets about 2.25 times more return than the top tier. Depending on your outlook on things, this can be good or bad. However, it is true.

 

[huusom]

When I was 35, I assumed I would work till 70. Why not?
My new job was interesting,
I felt healthy,
I figured that by the time I got to 70 employers would have part time jobs available.

By the time I was 55, I was crunching the numbers on when I could retire.
The job was getting boring,
I had developed a couple chronic medical problems,
the new CEO seemed to think that anybody who had been with the company more than 5 years was an idiot,
and he definitely wanted people who were willing to work 50 hours a week.

You described my situation exactly

 

[MichaelB]

Welfare and Social Security are not related. The former is a series of government programs that provide benefits and economic assistance to individuals with little or no income. The latter is a program of employment based social insurance where all workers contribute, and like insurance, those with less need withdraw lower payouts while this with more need receive greater distributions.

 

[Culture]

A few of my thoughts:

If SS has to be means tested (which I think is a bad idea), it should be means tested against lifetime earned income, not wealth or retirement income. Don't reward the spenders.

Everyone should be forced to participate in the SS program, including all state and local government workers. SS is partially a welfare program, and they should help carry the burden.

SS taxes should be levied on pension contributions. I pay SS tax on my 401k and IRA contributions, would shouldn't you pay on your pension contributions?

Given that SS has a strong welfare component, shouldn't SS taxes be paid on capital gains and dividends? Why should wage earners bear all the burden for the welfare component of SS? Obviously, the tax rate on investment returns should be lower than the payroll rate, as they should only be charged for the welfare component. Perhaps a 3-5% tax rate?

 

[Culture]

Welfare and Social Security are not related. The former is a series of government programs that provide benefits and economic assistance to individuals with little or no income. The latter is a program of employment based social insurance where all workers contribute, and like insurance, those with less need withdraw lower payouts while this with more need receive greater distributions.

Well, I agree that in good faith you can define welfare such that SS is not included. However, I think that one can posit a good faith definition of welfare that includes SS. Honest minds can differ.

In my opinion, SS combines a welfare program with a pension program. They are coupled (IMHO) because if they were decoupled the public would not allow the welfare portion to exist.

 

[Culture]

I have no problem with the welfare component to SS. I am a believer in reasonable social welfare, and don't want our parents living under bridges eating dog food. The problem is that when the programs are combined, the public is fooled regarding what they are getting and what they are paying for. Most Americans have no idea how SS works, and what they are getting relative to what they are paying. Very few understand that there is a welfare component (or whatever word you want to use to describe getting less/more than you paid in).

Medicare is even worse, but that is a topic for another time.

 

[samclem]

If SS has to be means tested (which I think is a bad idea), it should be means tested against lifetime earned income, not wealth or retirement income. Don't reward the spenders.

Okay, but it won't be "means testing" anymore. If you earned the money but spent it (or lost it in the market, etc) then you don't have those "means." Maybe we need "MIHBAG* testing."

* "Means I had but are gone"

Which would amount to cutting the benefits of those who did the most to support the retirees who preceded them, even if they now have no assets and need the money.

 

[Independent]

A few of my thoughts:

If SS has to be means tested (which I think is a bad idea), it should be means tested against lifetime earned income, not wealth or retirement income. Don't reward the spenders.

Yes (but I don't think it's a bad idea).

 

[bld999]

"(or whatever word you want to use to describe getting less/more than you paid in)."

Insurance is a fair word and good working model.

 

[MasterBlaster]

Welfare and Social Security are not related. The former is a series of government programs that provide benefits and economic assistance to individuals with little or no income. The latter is a program of employment based social insurance where all workers contribute, and like insurance, those with less need withdraw lower payouts while this with more need receive greater distributions.

Oh please, all those words to confuse what SS is.

 

[Culture]

Insurance is a fair word and good working model.

Well, that is a good point. There certainly is an insurance component to SS. SS really has four parts:

1) Insurance: Disability and survivor benefits.
2) Pension: Return of principal and accumulated interest.
3) Welfare: Payments in excess of principal and accumulated interest.
4) Tax: Underpayment of principal and accumulated interest.

Most here agree that annuities are bad, and that investments and insurance should be separated. Why doesn't the same principle apply here? We need three programs, separately funded and separately disbursed, so that the American public clearly understand what they are paying and what they are getting. It could all be run by the SSA, but the taxes, payment and accounting should be separate.

Calling SS Insurance is no better than calling it Welfare, Pension or a Tax. It is all four rolled into one, and any of these labels by themselves are deceptive.

 

[Animorph]

If SS has to be means tested (which I think is a bad idea), it should be means tested against lifetime earned income, not wealth or retirement income. Don't reward the spenders.

According to your chart (thanks, that was interesting), SS benefits are already means tested against lifetime earned income. And with the current taxation of some SS benefits, it's already means tested by retirement income as well. It could always be adjusted for more or less effect I guess.

 

[MichaelB]

I have no problem with the welfare component to SS. I am a believer in reasonable social welfare, and don't want our parents living under bridges eating dog food. The problem is that when the programs are combined, the public is fooled regarding what they are getting and what they are paying for. Most Americans have no idea how SS works, and what they are getting relative to what they are paying. Very few understand that there is a welfare component (or whatever word you want to use to describe getting less/more than you paid in).

Medicare is even worse, but that is a topic for another time.

Repeating it frequently does not make it so. "Most Americans" seem to have a pretty good idea how SS works. Do you have any sources that show hhow they are confused?