Retirement Security for All

[samclem]

Quote:

Originally Posted by harley The commerce clause relates to EVERYTHING. Without exception. It's the law of the land, and I'm sure that it will soon be interpreted as covering the requirement to buy health insurance. Resistance is futile. You will be assimilated.

And its twin, the "general welfare" clause, which also apparently applies to everything, even things that are clearly "individual welfare."

This "general welfare" clause appears exactly twice in the Constitution and only by way of general introduction before more specific responsibilities are enumerated. None of these specific functions involve pensions, supporting the poor, tending to the sick, etc. Is it not likely that the Framers would have maybe provided more guidance if they'd really intended for this "general welfare" function to consume fully 55% of the entire federal budget? When one sees the care with which other items are spelled out, it's clear that if taking care of the elderly and running hospitals were intended to be federal functions then this would have been included in the actual document.

[M Paquette]

Quote:

Originally Posted by samclem This "general welfare" clause appears exactly twice in the Constitution and only by way of general introduction before more specific responsibilities are enumerated. None of these specific functions involve pensions, supporting the poor, tending to the sick, etc. Is it not likely that the Framers would have maybe provided more guidance if they'd really intended for this "general welfare" function to consume fully 55% of the entire federal budget? When one sees the care with which other items are spelled out, it's clear that if taking care of the elderly and running hospitals were intended to be federal functions then this would have been included in the actual document.

That's OK. The whole dagnab Federal budget is only worth one line (Article 1, Section 9). You'd think something that humongous and contentious would have more text. Of course, it's been in trouble ever since Jefferson, Hamilton, and Madison bailed out the States in 1790. Goldurn spendthrifts...

[kyounge1956]

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Originally Posted by dex You are looking for a solution before determining why pensions were eliminated. Basically, the current (employer contribution) and continuing (after employee retired) contributed to higher labor costs and a resulting product cost that was not competitive with non USA mfgs. So, pensions were eliminated and eventually, the companies outsourced the labor to lower priced areas or went out of business. So the answer needs to address the pension and possible other issues - increased labor costs resulting in unemployment and/or companies going out of business or increased taxes with similar results. One suggestion that does not increase labor costs would be to require all workers to put a % of their gross salary into a plan where the $ was segregated and invested conservatively (e.g. US treasury Bonds and world stock fund; % allocation determined by age) and the pot of money at a retirement age was theirs or if they died prior to retirement the $ went to their beneficiaries. The $ could not be touched by gov't in any way and could be administered by a commission.

No, I'm asking an open ended question, you are presenting a reason you don't think pensions (by which I assume you mean defined benefit pensions) aren't the answer, and an alternative solution, and that's what was supposed to happen.

I don't think your alternative would provide "retirement security for all". To my way of thinking, retirement security does not exist unless it's impossible to outlive your income. The only way I see that your suggestion could provide income for life is if the money were used to purchase an annuity, but annuity prices vary with interest rates at the time of purchase. I had occasion to look up the interest rates on Treasury bonds for another thread a short time ago, and found that rates today are only about half of what they were ten years ago. That means that someone retiring today would get a lower income from their pot of money than an otherwise identical retiree who left the workforce in 2000. They worked the same, earned the same, saved the same, and invested the same, but they are less secure than the retirees from 2000, because they have less income, and/or a lower proportion of their total income is impossible to outlive.

That doesn't sound like "security for all" to me.

I do think your idea of a commission, or some other form of independent administration, is an excellent one. I think it would eliminate a host of problems if retirement funds were not managed by people (either employers or employees) who are in a position to benefit over the short term by winking at the sort of abuses that have been described in other pension-themed threads.

[kyounge1956]

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Originally Posted by clifp (snip) I don't believe it is a possible to design a pension system which says if you contribute X$ over Y years we are going to give you a pension of $Z for the rest of your life no matter what happens. The world is too uncertain for us ever to have made that promise and it is irresponsible for us to do so in the future.(snip)

Why not? Isn't this what insurance companies do when they sell annuities? And they don't just do it, they make a profit doing it. If an insurance company can do it, why not a pension fund?

It may be true that many, or even most, pension systems, have skimped on X & Y, or made Z too high, or both. But that just means they have done their math wrong, not that what they are trying to do is inherently impossible.

[NW-Bound]

Yes, you pays your money and you takes your chances. Most people understand that concept.

Quote:

Originally Posted by travelover I'm really hostile to people that have invested in stocks that have appreciated dramatically while I plod along in index funds. When they start feeling sorry for me, then I'll be less hostile.

So, shouldn't people get upset when bankers who made stupid and greedy bets on subprime loans got bail-out money?

And why shouldn't people get upset when they get more taxed to support public pension funds that are underfunded because they overpromised to their beneficiaries and allowed salary spiking?

And why shouldn't people who are not public workers nor work for the above Wall St firms get doubly hostile?

The above said, I have read some posters describe how their public pension fund is conservatively funded and poses no burden to the tax payers. Why should anyone be hostile to that kind of fund? Obviously, many pension funds are not that well funded, else tax payers would not get upset. No?

Quote:

Originally Posted by kyounge1956 Why not? Isn't this what insurance companies do when they sell annuities? And they don't just do it, they make a profit doing it. If an insurance company can do it, why not a pension fund? It may be true that many, or even most, pension systems, have skimped on X & Y, or made Z too high, or both. But that just means they have done their math wrong, not that what they are trying to do is inherently impossible.

Yes, as brewer has said in a post that I quoted below, and if I understand him correctly, it is possible but the payout would not be that great. People want both high yield and low risk, and there is no way to get that.

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Originally Posted by brewer12345 I will start by stating that I think the average long term board reader will be unlikely to ever consider me to be a shill for the insurance industry. (i.e. consider yourself warned) There is a way to do this that is reflective of economic reality, while softening the blow. If you look at the history of the life insurance industry, many mutual insures sell "participating" policies. Put simply, the insurer sells a product (whole life insurance, fixed annuity, etc.) and guarantees certain minimum policy benefits over the long term. These minimum guarantees are typically way "out of the money" and not likely to get triggered in most states of the world. These guarantees are also backed by the insurer's capital base. Anything beyond the minimum guarantee depends on how well the insurer does with a particular block of policies. If they have good insurance experience and/or above expected investment returns, that is reflected over a period of years in the policyholder's return. Conversely, if they have bed experience/results the policyholders take the hit as well. There are plenty of drawbacks and potential pitfalls to this sort of thing, but there is a model out there. But it is expensive and most of the electorate are firm believers in something for nothing.

[obgyn65]

+1

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Originally Posted by keegs The shift in income distribution over the past decades, the resulting hyper-concentration of wealth and income and the overwhelming political clout it has put into the hands of a small group of monied interests has addled the government’s capacity to address what can only be characterized as a moral issue.

[kyounge1956]

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Originally Posted by Independent Wow. I have a much simpler plan. Step 1) The gov't provides a paygo plan with the same minimal benefit for everyone. Say, anybody over age __ gets $800 per month. The $800 is probably CPI indexed. (snip) I don't see the advantages of complex mandatory savings schemes. "But what about the people who don't save?" Step 1 provides them a minimal income in their old age. That's all the rest of us should care about.

Quote:

Originally Posted by samclem Even the hard-core libertarians should favor this, if they are realistic. The fact is that the American public will demand that the government (i.e. taxpayers) not let people starve. That's just the way it is, and is gonna stay. If we grant that, then we have to decide how to fund it--is it more "fair" that everyone contribute to this baseline "net" that will provide a check for them, or is it best to make "the rich" pay for a few other people? Once it is means-tested, it becomes a welfare program.

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Originally Posted by keegs Sam, Am I misunderstanding you or have you just described SS? (snip)

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Originally Posted by Independent I think Sam was referring to my post. The difference is that the current SS system has graded benefits that reflect what you earned when you were working. My suggestion was that everyone gets the same flat, minimal benefit.

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Originally Posted by samclem Yes. No "progressive" payout as there is with SS. Everyone pays the same absolute $$ in and receives the same absolute $$ out (per month--the ultimate value of the payout depends on how long the recipient lives). (snip)

I'm not sure how this would work out in practice, especially for people at the lowest income levels. Is minimum wage minus "same absolute $$" greater than poverty level, i.e. would someone working full time at minimum wage have enough left to live on in the present, after contributing toward retirement income for the future?

I also wonder how demographics would affect this idea. We've probably all heard about the difficulties expected to arise with SS, at least partly because the soon-to-retire baby boomers are so much more numerous than the generation following us. I just heard recently on the radio that there is a "baby boomlet" expected as the children of the boomers are now reaching childbearing age themselves, so the demographic issue may arise again 70 years from now when all of the boomers' grandchildren are retiring. I've also heard (but it was quite some time ago, so it may not be what current population projections are saying) that by mid 21st century, the U.S. population will level off and then start to decrease, which would make the demographic of a smaller generation coming after a larger one more or less permanent. Would a minimum retirement benefit funded by equal absolute dollar contributions from all workers be financially sound under those circumstances?

I also wonder if the $800 amount was a serious suggestion for the income to be provided by these benefits. That's less than $10K a year. I doubt that it's enough for rent, food and utilities, even sharing living space. Never mind medical care. To me, "retirement security for all" means that nobody, including minimum wage earners, works their whole life only to wind up old and destitute. A benefit of $800 a month doesn't meet that standard, IMO. Or was that just a number pulled out of the air?

[samclem]

Amended to reflect the problem as some see it:

Quote:

Originally Posted by keegs The shift in income distributiongrowth in the number of people receiving government benefits and simultaneous decline in those paying net income taxes over the past decades, the resulting hyper-concentration of wealth and incomecreation of a huge and growing block of voters which benefit from more government spending and higher taxes and the overwhelming political clout it has put into the hands of a small group of monied interests people intent on using government to confiscate money from others for their own benefit has addled the government’s capacity to address what can only be characterized as a moral issue (referring to the debt we are leaving our kids).

[dex]

Conversation on Coverage | Other Studies and Statistics

[dex]

Quote:

Originally Posted by kyounge1956 No, I'm asking an open ended question, you are presenting a reason you don't think pensions (by which I assume you mean defined benefit pensions) aren't the answer, and an alternative solution, and that's what was supposed to happen. I don't think your alternative would provide "retirement security for all". To my way of thinking, retirement security does not exist unless it's impossible to outlive your income. The only way I see that your suggestion could provide income for life is if the money were used to purchase an annuity, but annuity prices vary with interest rates at the time of purchase. I had occasion to look up the interest rates on Treasury bonds for another thread a short time ago, and found that rates today are only about half of what they were ten years ago. That means that someone retiring today would get a lower income from their pot of money than an otherwise identical retiree who left the workforce in 2000. They worked the same, earned the same, saved the same, and invested the same, but they are less secure than the retirees from 2000, because they have less income, and/or a lower proportion of their total income is impossible to outlive. That doesn't sound like "security for all" to me. I do think your idea of a commission, or some other form of independent administration, is an excellent one. I think it would eliminate a host of problems if retirement funds were not managed by people (either employers or employees) who are in a position to benefit over the short term by winking at the sort of abuses that have been described in other pension-themed threads.

If we do not have to be concerned with the consequences of the plan there are several easy solutions:
A. Mandate all businesses have a pension plan that guarantees enough income for the life of the person. For those people who did not work or the company goes out of business the federal government picks up the tab.

B. Institute a national sales tax to pay for the program.

[Independent]

Quote:

Originally Posted by kyounge1956 I'm not sure how this would work out in practice, especially for people at the lowest income levels. Is minimum wage minus "same absolute $$" greater than poverty level, i.e. would someone working full time at minimum wage have enough left to live on in the present, after contributing toward retirement income for the future? I also wonder how demographics would affect this idea. We've probably all heard about the difficulties expected to arise with SS, at least partly because the soon-to-retire baby boomers are so much more numerous than the generation following us. I just heard recently on the radio that there is a "baby boomlet" expected as the children of the boomers are now reaching childbearing age themselves, so the demographic issue may arise again 70 years from now when all of the boomers' grandchildren are retiring. I've also heard (but it was quite some time ago, so it may not be what current population projections are saying) that by mid 21st century, the U.S. population will level off and then start to decrease, which would make the demographic of a smaller generation coming after a larger one more or less permanent. Would a minimum retirement benefit funded by equal absolute dollar contributions from all workers be financially sound under those circumstances? I also wonder if the $800 amount was a serious suggestion for the income to be provided by these benefits. That's less than $10K a year. I doubt that it's enough for rent, food and utilities, even sharing living space. Never mind medical care. To me, "retirement security for all" means that nobody, including minimum wage earners, works their whole life only to wind up old and destitute. A benefit of $800 a month doesn't meet that standard, IMO. Or was that just a number pulled out of the air?

I respect the effort it took to pull all those scattered comments together and try to make sense of them. I'll try to respond from my perspective.

When I said "paygo" I intended to mean "pretty much like SS, just scaled back benefits". So I envisioned a payroll tax, but everyone gets the same monthly benefit. The benefit would be lower than the current average benefit, so the payroll tax rate could be a little lower. I think Sam may have had a different view on the taxes.

Low income people could "afford" that tax to about the same extent they can afford the current payroll tax. Note that the current Earned Income Tax Credit is essentially a payroll tax rebate for some workers, I wouldn't change that.

IMO, demographics impact all retirement income schemes, it's just more obvious with a public paygo system than with others. (One reason I don't see the gain from mandatory savings plans.) If you index the retirement age to longevity, then the affordability is driven by birth rates. As long as we don't go back to the "3 children per couple" of the WWII generation, we won't get back to their favorable dependency ratio. BUT, it doesn't get worse either, if future generations stay with 2 children per couple.

The $800 was a guess, but something in that range is right. The current average SS benefit is around $1,150, and I assume that means about half the people get less. There's a limit on how much I'm willing to compel people to do. I'm okay with enough so you can live indoors and eat, but I don't know if I'm willing to force taxpayers (or savers, for that matter) to provide a lot more. Note that I would give everyone the choice of how much saving they want to do so they can have more than a basic lifestyle.

[ERD50]

Just had a little time so mostly skimmed these posts, but...

The problem I see with the Original Post is that it jumped to 4 possible solutions before it even defined the problem and/or goals. It is common for people to skip that definition step, but you can't even know that you came up with a "solution" without knowing what it was you were trying to solve. I've seen it time and time again in real life and it usually derails from the real solution.

W2R touched on it in post 7 (IIRC) as did a few others. Are we defining "retirement security for all" as some basic level of food, shelter and health care? Or are we talking about retiring in the style that we may have enjoyed during our careers, or something close, regardless of personal savings? Is "retirement security" the same for all, or different for some? Those were off the top of my head, there are probably a bunch of other valid definitions to consider.

-ERD50

[Independent]

Quote:

Originally Posted by ERD50 Just had a little time so mostly skimmed these posts, but... The problem I see with the Original Post is that it jumped to 4 possible solutions before it even defined the problem and/or goals. It is common for people to skip that definition step, but you can't even know that you came up with a "solution" without knowing what it was you were trying to solve. I've seen it time and time again in real life and it usually derails from the real solution. W2R touched on it in post 7 (IIRC) as did a few others. Are we defining "retirement security for all" as some basic level of food, shelter and health care? Or are we talking about retiring in the style that we may have enjoyed during our careers, or something close, regardless of personal savings? Is "retirement security" the same for all, or different for some? Those were off the top of my head, there are probably a bunch of other valid definitions to consider. -ERD50

Good point. I'll try to clarify.

If "retirement security" means basic needs, then I thought it's good policy to have the gov't guarantee that.

If "retirement security" means maintain your lifestyle, than the layer above basic needs should be your own business, not the government's.

[samclem]

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Originally Posted by Independent Good point. I'll try to clarify. If "retirement security" means basic needs, then I thought it's good policy to have the gov't guarantee that. If "retirement security" means maintain your lifestyle, than the layer above basic needs should be your own business, not the government's.

That's pretty much the view I was taking. I'd just slightly re-word one part:

If "retirement security" means basic needs, then I thought it's good policy to have existing workers fund that gov't guarantee that.

And, I think from what we've already experienced, I would prefer to keep things on a strict year-to-year PAYGO basis. That would mean that due to demographics the tax rate would vary over time, but the same thing is going to happen with the present "build-up-a-surplus-of-promissory-notes-but-really-spend-it-and-then-pay-ourselves-back" approach. Let's instead just pay the bill as it comes due and leave the max amount possible for people to save in their discretionary personal retirement accounts.

[Rustic23]

So, it appears what we are creating is a new right. 'The right to retire' If you can't afford it, for what ever reason, the government has to provide it. I guess we can find that in the constitution some where. We seem to have found several others.

[dex]

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Originally Posted by Rustic23 So, it appears what we are creating is a new right. 'The right to retire' If you can't afford it, for what ever reason, the government has to provide it. I guess we can find that in the constitution some where. We seem to have found several others.

You might have missed one of the assumptions with this discussion i.e. the consequences of your plan do not have to be addressed.

[samclem]

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Originally Posted by Rustic23 So, it appears what we are creating is a new right. 'The right to retire' If you can't afford it, for what ever reason, the government has to provide it. I guess we can find that in the constitution some where. We seem to have found several others.

It's just a bow to reality. I agree that the Constitution doesn't provide for this, but since 1935 this is what we've had. So, from my perspective, what we're trying to do is limit the damage.

The most honest thing to do would be to require a Constitutional amendment to allow government taxation of some private citizens for the purpose of providing resources to other private citizens. That would prompt a long-overdue national discussion on the issue and at the very worst it would result in an explicit statement of what we're trying to accomplish and the means of accomplishing the goal. That's better than the creeping collectivism we've been conducting.

[clifp]

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Originally Posted by kyounge1956 Why not? Isn't this what insurance companies do when they sell annuities? And they don't just do it, they make a profit doing it. If an insurance company can do it, why not a pension fund? It may be true that many, or even most, pension systems, have skimped on X & Y, or made Z too high, or both. But that just means they have done their math wrong, not that what they are trying to do is inherently impossible.

I think you answered your own question in a previous post.

Quote:

The only way I see that your suggestion could provide income for life is if the money were used to purchase an annuity, but annuity prices vary with interest rates at the time of purchase. I had occasion to look up the interest rates on Treasury bonds for another thread a short time ago, and found that rates today are only about half of what they were ten years ago. That means that someone retiring today would get a lower income from their pot of money than an otherwise identical retiree who left the workforce in 2000. They worked the same, earned the same, saved the same, and invested the same, but they are less secure than the retirees from 2000, because they have less income, and/or a lower proportion of their total income is impossible to outlive.

Note also that insurance companies sell a product that is if you invest X$ for Y years will give you $Z for the rest of your life. The amount that $Z can increase is generally limited to a couple of percent per year. This is different than the typically COLA provision of public pension. Defined benefit differ from insurance annuities in another very important way.
Your benefit is typically ~2% * number of years * your final salary, while your contribution is percentage of your current salary. Since the final salary is unknown insurance companies don't sell this product, there are simply to many variables.

In addition, remember that insurance company have a group of people supervising them (insurance commissioners) who's job is to make sure insurance don't over promise the benefits. Despite this supervision insurance companies do still go broke on occasion and leave their policy holders screwed.

[Independent]

Quote:

Originally Posted by samclem That's pretty much the view I was taking. I'd just slightly re-word one part: If "retirement security" means basic needs, then I thought it's good policy to have existing workers fund that gov't guarantee that. And, I think from what we've already experienced, I would prefer to keep things on a strict year-to-year PAYGO basis. That would mean that due to demographics the tax rate would vary over time, but the same thing is going to happen with the present "build-up-a-surplus-of-promissory-notes-but-really-spend-it-and-then-pay-ourselves-back" approach. Let's instead just pay the bill as it comes due and leave the max amount possible for people to save in their discretionary personal retirement accounts.

I like your italics, it's clearer than my wording.

I'm also in favor of "pure" paygo as a good communication and spending management tool. However, I know that maintaining SS across sudden drops like the current drop is one of those "automatic stabilizers" that economists like. I think I could go either way if it were possible to do the other stuff I suggested.

[Independent]

Quote:

Originally Posted by Rustic23 So, it appears what we are creating is a new right. 'The right to retire' If you can't afford it, for what ever reason, the government has to provide it. I guess we can find that in the constitution some where. We seem to have found several others.

I think "right" is a much over used word. I wouldn't say that funding public schools, or roads, or cancer research or anything else creates a new "right".

I'd reserve "right" for things that Congress can't change - stuff like freedom of speech and assembly.

I'd also say that my suggestion is a scaled back version of Social Security, so it's kind of hard to imagine the "new" part.