Protect SS, it's important

[MasterBlaster]

I suspect that one's opinion of whether or not to have SS depends on how old you are. Young people look at it as a Ponzi scheme of which they got in late and will lose. Wheras older people have so much invested they need to stick with it even though the Ponzi scheme is flawed.

if you're robbing Peter to pay Paul, you can always count on having Paul's support.

 

[nun]

I am afraid, the lack of political will and the entitlement state of mind will continue and we will probably still have the current SS system for the forseeable future..

Why the charged language - "entitlement"? SS benefit is funded by FICA and provides a foundation for retirement and is an important part of American society. It's as American as apple pie and anyone how says differently is un American....... oops sorry lost all perspective there.

 

[nun]

I suspect that one's opinion of whether or not to have SS depends on how old you are. Young people look at it as a Ponzi scheme of which they got in late and will lose. Wheras older people have so much invested they need to stick with it even though the Ponzi scheme is flawed.

if you're robbing Peter to pay Paul, you can always count on having Paul's support.

People only think it's a Ponzi scheme because they are told that by people with a vested interest in undermining SS. Peter pays Paul in the knowledge (some may say naieve belief) that Susan will pay Peter. If the US economy can grow and if there is sensible taxation and payout policies its a completely solvent system.

 

[MasterBlaster]

People only think it's a Ponzi scheme because they are told that by people with a vested interest in undermining SS.

using my young/old discriminator and my SS model I have now determined that you are old.

 

[nun]

using my young/old discriminator and my SS model I have now determined that you are old.

middle aged I'd say - 49 - although my friends say I look older, probably because I worry about my SS "entitlement" too much

 

[GregLee]

Sure, unwinding SS would be complex, but it can be done by honoring our obligations to those far into the current system and migrating younger workers out of it.

And just how would that work? Each younger worker migrated out would make it even less possible to honor obligations to those already in.

 

[keegs]

What's the average 401k balance? Not much.
What's the average savings account balance? Not much.
When the young folks get to be old folks, what will they live on without SS? Not much.

And at that point in their lives, who will they rely on to get by?

 

[Rustic23]

Come on! Apple pie has been around a lot longer than SS.

 

[Independent]

As you may recall, there were initial proposals under President Bush to allow individual accounts within SS and to reduce somewhat public reliance on a government-determined monthly SS check. That modest effort had many of the features you describe (grandfathering of those above a certain age, etc). The idea was roundly shouted down by those who favor the present system, and it didn't get much public support. I doubt that the recent market "turbulence" will increase public desires for private accounts.

Now is not the time for this, I'm afraid--it's both too late and too early. "Too late" because many have already developed an expectation of what they are owed (never mind that what they paid in was already largely spent supporting previous retirees). "Too early" because many people still believe in the promises.

I'll agree that the proposals (IIRC, Bush never publicly supported anything with numbers) were "shouted down". Unfortunately, slogans usually trump thoughtful analysis in our system.

However, when I tried to look at the thoughtful analysis, I didn't see anything that I'd vote for. Bush's commission actually had three possibilities. The SS actuaries ran projections on them here: Proposals to change Social Security See the Jan 31, 2002 line.

My recollection is the idea was to:
1) Reduce benefits enough to make SS self funding on a paygo basis, then
2) Borrow enough money to fund "individual accounts". People could invest their individual accounts in some index funds. When they retired, they would pay the gov't the cost of the money the gov't borrowed with interest, then keep the excess to enhance their reduced benefit.

I'm okay with step 1. However, step 2 looks like smoke and mirrors. As I understand the market economy, we can't make Americans richer by having the federal gov't borrow money and invest it in the stock market.

 

[samclem]

However, when I tried to look at the thoughtful analysis, I didn't see anything that I'd vote for. Bush's commission actually had three possibilities. The SS actuaries ran projections on them here: Proposals to change Social Security See the Jan 31, 2002 line.

My recollection is the idea was to:
1) Reduce benefits enough to make SS self funding on a paygo basis, then
2) Borrow enough money to fund "individual accounts". People could invest their individual accounts in some index funds. When they retired, they would pay the gov't the cost of the money the gov't borrowed with interest, then keep the excess to enhance their reduced benefit.

I skimmed the information at the link provided (thanks--interesting), and I didn't see where the mechanism you describe in your "step 2" is outlined. Instead, the funding for the individual accounts in one of the options is described thusly:

Model 1 is described as a flexible framework in which the personal account contributions might be financed entirely as a "redirect" of OASI payroll tax revenue, entirely from the General Fund of the Treasury, or with some combination of the two.

That's not very clear.

At the time of the debate, a lot of proposals were discussed. Most promised ownership (something you could pass on to your kids/family), grandfathering of participants over 50 or 55, higher likely wealth for most participants (including the poor), restrictions on investment options, and a safety net to provide supplemental assistance for poor retirees.

— Reprinted from The Adventures of Unemployed Man by Erich Origen and Gan Golan.

 

[MasterBlaster]

At the time of the debate, a lot of proposals were discussed. Most promised ownership (something you could pass on to your kids/family), grandfathering of participants over 50 or 55, higher likely wealth for most participants (including the poor), restrictions on investment options, and a safety net to provide supplemental assistance for poor retirees.

I don't think there is any chance at all of Social Security going away. People can talk all they want. But in my opinion it's here to stay - warts and all.

 

[ziggy29]

And just how would that work? Each younger worker migrated out would make it even less possible to honor obligations to those already in.

I would imagine that some of the 12.4% contribution could be used to pt toward current and soon-to-be recipients, and the rest could be put into some owned account in the worker's own name.

 

[GregLee]

I would imagine that some of the 12.4% contribution could be used to pt toward current and soon-to-be recipients, and the rest could be put into some owned account in the worker's own name.

Let me try to be clearer. Every dollar put in the worker's owned account will not be available to pay benefits to current recipients. How will current recipients be paid? You might look forward to a future day in which workers will have sufficient benefits from their own accounts, but in the mean time, where does all the money for current recipients come from, if you're redirecting some of the SS tax money to private accounts?

 

[samclem]

How will current recipients be paid?

It;s not impossible, it's just the politics of compromise. First, as a recent thread discussed, even the level of current SS taxes will eventually only meet approx 70% of today's "promised" benefit. So, the "smart *ss" answer is that we'll just get any additional money needed from the same magic elf that's going to cough up the 30% we already know is missing. A more helpful approach might be to level with present recipients ("you're only going to get 70% of what you thought you were gonna get--sorry, you and your friends should have had more kids so we could keep the parlor game going") which at least gets us to "even." After that there are numerous approaches:
-- Make the private accounts an "in addition to" tax above present SS payroll taxes.
-- Tax (at a very low rate--5% of gain?) the funds in the private accounts. The proceeds go toward keeping the checks flowing to those in the legacy system. It would also be possible to tax the proceeds from these accounts when passed along to heirs. Some folks just LOVE the inheritance tax.
-- Keep the same total SS payroll tax, but adjust the max amount folks can contribute based on the amount needed to keep the checks flowing and the historical number of "takers" for private accounts. Many people may be hesitant to roll the dice with private accounts, they could be allowed to stick with the legacy system. If a lot of people stick with the old system (so a lot of money goes into the pool to pay current recipients), the brave souls who have private accounts would be offered a high max contribution level. Conversely, if there's a rush to the gates as folks decide they want private accounts, the contribution limits would be lower to keep enough funds to keep the checks flowing to the legacy folks.

Again, no serious proposals ever allowed people to entirely opt out of paying anything into the common SS pool. I'd imagine any future proposals would also require folks to keep contributing to the common pool at about 70% of their present rate, and to take the other 30% and put it into these private accounts if they want to.

There may be a "hump" period, but after awhile we'd expect the participants in the private accounts to begin to predominate and pressure on the system to abate.

 

[Independent]

I skimmed the information at the link provided (thanks--interesting), and I didn't see where the mechanism you describe in your "step 2" is outlined. Instead, the funding for the individual accounts in one of the options is described thusly:

That's not very clear.

The personal accounts and individual "pay backs" are described on page 2, Section b. *

The funding is vague in model 1. They talk about "funding" as if SS taxes or FIT aren't being used for anything else, so they are available for personal accounts. It's true that there was a time when SS was running a surplus, if we would have started PAs in 1986, people would have some money now (but the gov't would have a bigger debt, or people would have paid more FIT, or we wouldn't have spent a bunch of money on popular programs).

Today, and over the near future, 100% of SS taxes are/will be used to pay current SS benefits. The only source of money for personal accounts is the well known higher taxes, less spending somewhere else, or borrowing. Because these proposals make no recommendations for taxes/spending, the only source is borrowing.

Models 2 and 3 have an explicit Section e. "Provision for Additional Transfers from the General Fund..." that highlights the issue.

But the best way to see the borrowing is just look at the numbers on pages 53-62. The descriptions of the columns in those tables starts on page 24. Positive numbers in the 6th column and negative numbers in the 7th column both indicate additional borrowing.

(Notice that in plans 2 and 3 on pages 57 and 60, the unified budget looks better. That's because those plans have benefit decreases. If we use those decreases and don't do the PAs, we make progress on the SS balance sheet. That's step 1 in my prior post.)

At the time of the debate, a lot of proposals were discussed. Most promised ownership (something you could pass on to your kids/family), grandfathering of participants over 50 or 55, higher likely wealth for most participants (including the poor), restrictions on investment options, and a safety net to provide supplemental assistance for poor retirees.

Politicians "promise" lots of stuff. As far as I've been able to research this, there was/is no proposal which does all of that appealing stuff without some add-on tax or additional borrowing.

We can certainly create personal accounts by adding a new payroll tax on top the existing SS tax and directing 100% of that money into PAs. Maybe that's in one of the many proposals in the first link, but I don't think that's the structure that you're thinking about.

* http://www.ssa.gov/OACT/solvency/PresComm_20020131.pdf

Edit: We cross-posted. I just read your post #114. Your first idea is the add-on I mention above. The second and third are variations on the "borrow now, make it up later" approach. Your "hump" is what I call "additional federal borrowing".

 

[GregLee]

... level with present recipients ("you're only going to get 70% of what you thought you were gonna get--sorry, you and your friends should have had more kids so we could keep the parlor game going") which at least gets us to "even."

Reminding you that I was commenting on this statement:

it can be done by honoring our obligations to those far into the current system and migrating younger workers out of it.

A "solution" in which we fail to honor obligations does not show that we can do it by honoring obligations.

In my view, what you call the "hump" is an impossible sticking point. There will be no way to convince current workers to support current recipients without this support benefiting themselves.

 

[samclem]

In my view, what you call the "hump" is an impossible sticking point. There will be no way to convince current workers to support current recipients without this support benefiting themselves.

Two observations:
-- Present workers would still be benefiting from their payments into the common SS pool. These payments would buy them true insurance--a monthly check they'll receive if, in retirement, their individual investment accounts don't produce income up to a pre-defined level (the funds for these checks will come from future workers--just as the funds do today).
-- "Luckily" the present system is such a bad deal for most workers that they'd jump at the chance to free even a small portion of their contributions for use in private accounts, even if they expect the rest of their SS taxes are a total loss. After all, according to polls, many already believe they'll get nothing from the system as is.

Basically, if this proposed change won't be popular with younger folks, how will it be possible to convince them to support the present arrangement which promises them even less?

 

[samclem]

Edit: We cross-posted. I just read your post #114. Your first idea is the add-on I mention above.

Agreed

The second and third are variations on the "borrow now, make it up later" approach.

I may have miscommunicated. #2 (taxing the individual accounts) is clearly not borrowing, it is taxation (though it is taxation of accounts the individuals wouldn't have had at all in the absence of this proposal, so that should help gain acceptance) #3 (limit the portion of payroll tax that can be deposited into personal accounts) is not a revenue stream but a way to manage the channeling of the total funds collected as SS payroll taxes to help assure enough goes to the "common pool" to allow the monthly checks to be written.

Your "hump" is what I call "additional federal borrowing".

I'm sure there are ways other than those suggested above to do this without more borrowing. But, that's not to say some borrowing couldn't be part of the mix. It's fashionable this year.

 

[Emeritus]

-- "Luckily" the present system is such a bad deal for most workers that they'd jump at the chance to free even a small portion of their contributions for use in private accounts, even if they expect the rest of their SS taxes are a total loss. After all, according to polls, many already believe they'll get nothing from the system as is.
?

Of course some people find the prospect of watching the losers starve to be depressing but we can always locate the soylent green factories behind big screens.

SS is a great deal for the lower income worker. after you have run them over, what will you do with the pieces ?

 

[nun]

There are plenty of retirement accounts that we can own and direct the investments, IRAs 401ks etc. The insurance component of SS provides vital diversification to a retirement portfolio and we don't need Wall Street to be charging fees on that money as well.

I like SS so much that I also pay into the UK system. FYI their approach is interesting. They are going to increase the age for full benefit to 66 for both men and women, increase the pension to a flat rate of $1k per month for a single person and $2k for a married couple irrespective of the amount of National Insurance they've paid. This is to get those that don't have a full work history (stay at home mums etc) a larger benefit. $12k a year for a single person might not seem much, but the cost of living is cheaper in the UK than in many parts of the US (no really it is) and of course you don't have to pay for medical care.

Of course the higher paid workers subsidize the lower paid in this scheme, but that sort of progressive taxation and redistribution of wealth is seen as a necessary component of a society in the UK, even by the Conservative Party.

 

[meierlde]

I suspect that one's opinion of whether or not to have SS depends on how old you are. Young people look at it as a Ponzi scheme of which they got in late and will lose. Wheras older people have so much invested they need to stick with it even though the Ponzi scheme is flawed.

.

However at least some people in the 1960s had the same attitude about SS. My parents (born in the 1920s) felt that they would get nothing back, but in fact got 16 and 19 years of benefits from SS. So in one sense that point of view is an old one. (Of course my mother thought that FDR was one of the worst things that ever happened to the US, following the viewpoint of her father).

 

[kyounge1956]

Raising the age puts the cuts disproportionately on poor African Americans due to shorter life expectancies. Not to mention that the working ability of low income workers declines dramatically as they reach the middle and late 60s

(snip)That's not true, they would not be "cut" out of anything by that.

OK, LE for African Americans on average is shorter, I believe that to be true. Should we base policy on it? SS provides payments for life. You don't get any past that, it is there to help support you while you are alive, whether that is one year or 40 years - that's the deal. Once I'm dead, I don't need support.

If we want to match payments or contributions to LE, I guess everyone needs to fill out a questionnaire - how long did your parents live, what are your indicators, risks, etc. Seems that would be "fairer" than basing it on ethic background. And Oh, do I get my money back if I come down with a terminal disease before retirement age? I think this is one of those areas where we have to treat everyone equal. The whole purpose of an annuity is to group risk together.

-ERD50

I found 2006 U.S. life expectancy statistics here. People born after 2000 would have been 5 at the time this data was gathered, so I looked at the life expectancy for five-year-olds. An average white child age 5 in 2006 could expect to live another 73.7 years. Under current rules, this child would be eligible for full SS at age 67, and draw benefits, on average, for 11.7 years, or 8.7 years of benefits if FRA were raised to 70. This is a decrease of a little over 25% in the time that person would receive benefits. An average black child age 5 in 2006 could expect to live another 69.4 years, drawing benefits for 7.4 years under current rules. Raising FRA to 70 decreases the average black person's time of eligibility to 3.4 years, less than half of what it would be under current rules.

I am not suggesting that retirement age should be different for blacks than for whites, but there is no way to get around the fact that losing (on average) over 50% of eligibility for benefits is a much larger effect than losing 25% of it.

 

[cb7010]

I would Love To Opt Out..

I am 39 years old and at this point don't expect a dime back from SS, and, despite the handy statements that I am sent regularly. For the good of all, I would be willing to continue to contribute some amount to pay for those who above a certain age who were "promised" benefits and will rely on them to live (sorry Mr. Gate and Mr. Buffett..you are out, as means testing is a great idea)

The bottom line for me is that I do not want the federal government having any part of my retirement planning or investing. I can find better, smarter, more efficient, and higher yielding options on my own.

I will agree to pay a small tax into a "social security"-like fund that will provide for those that simply don't have enough money to take reasonable care of themselves.

I, morally, cannot demand that other people fund my retirement with their hard earned money. And, I cannot understand why anyone would willingly choose the federal government to manage their money for them (ex: see federal deficit & debt). How about this to make everyone happy, let the federal government's retirement program compete in the open market with all the other investment options and those that think it's the best can send in their money for handling

Again, it's an interesting debate and I continue to be surprised by all of those who think SS is a good program for us all....

 

[keegs]

I am 39 years old and at this point don't expect a dime back from SS, and, despite the handy statements that I am sent regularly. For the good of all, I would be willing to continue to contribute some amount to pay for those who above a certain age who were "promised" benefits and will rely on them to live (sorry Mr. Gate and Mr. Buffett..you are out, as means testing is a great idea)

The bottom line for me is that I do not want the federal government having any part of my retirement planning or investing. I can find better, smarter, more efficient, and higher yielding options on my own.

I will agree to pay a small tax into a "social security"-like fund that will provide for those that simply don't have enough money to take reasonable care of themselves.

I, morally, cannot demand that other people fund my retirement with their hard earned money. And, I cannot understand why anyone would willingly choose the federal government to manage their money for them (ex: see federal deficit & debt). How about this to make everyone happy, let the federal government's retirement program compete in the open market with all the other investment options and those that think it's the best can send in their money for handling

Again, it's an interesting debate and I continue to be surprised by all of those who think SS is a good program for us all....

CB... Can you identify a place in the world where you'd like to live where libertarian ideals are the principle economic and governing philosophy?

SS does compete in a free market and most folks support it.

 

[ronocnikral]

SS does compete in a free market and most folks support it.

this is interesting. to me in this case, "free" means having a choice without being put in jail, having wages garnished etc. i don't get to choose if i participate in SS. so how does it compete in a free market? even within the mandated contributions, one does not get to elect how the money is invested.

futhermore, i would say most people support the idea of SS, many more would disagree with its operations. if by "support" you mean "pay in to," see above.