social security proposal

[Independent]

Some interesting thoughts here: first, if employers simply paid their share of the SS tax to employees it wouldn't be zero-sum: employees would now pay both halves of the tax out of taxable income. Round numbers: let's say the total SS contribution is 14% and you make $50K per year. Right now, you pay $3,500 to SS and your employer pays another $3,500. If your employer raises your pay to $53,500 and then takes the total $7,000 out of your gross pay, you just got stuck with another $3,500 in taxable income.

On spousal SS: we HAVE to have something. I have a wonderful DDIL who's a full-time Mom for my delightful granddaughter (and another on the way) and she has very little earnings record on her own. We can't have a system that leaves full-time parents and other caregivers with nothing as they age. I like the idea of splitting a married worker's SS contribution and putting half of it on a spouse's record with an accrual formula (possibly increasing their % contribution to do so).

There will still be losers, though. I've been married 26 out of the last 32 years so, in theory, have been paying for Spousal benefits all my life. So did my previous and current husband. I remarried at age 50 so had no claim on the Ex's SS. Neither did his first wife, who was able to collect on her own record (precious metals chemist with an armload of patents). DH is unlikely to live till I reach FRA at age 66 (just diagnosed with acute myelogenic leukemia and he's 78). I may get Widow's benefits for a few years but will collect my own SS at 70. And no one will collect Spousal SS on me. If I outlive DH I'm open to the possibility of the companionship of a good man but not marriage.

Yes, in an alternate universe where it's politically possible to be honest and say the employee pays both halve, tax brackets, ACA subsidies, food stamp formulas, etc would all need to be adjusted.

The spousal proposal is to split the earnings record, no need to accrue anything. All the complications in your last paragraph just disappear. There wouldn't be a widow's benefit, you'd get a regular retirement benefit based on your earnings record - which would include half your spouse's earnings and half your earnings in those years when you were married.

 

[Independent]

The impact may not be immediate, but it would settle itself out in a few years.

The demand for employees is [-]much less[/-] more flexible than the supply. That's why the economic incidence falls on the employee.

As I pointed out, the business has multiple ways of getting the work done without being an employer -- just outsource to a self employed contractor, for example.

That's what my employer did. They made no bones about the fact that contractors got more cash than employees doing the same job, and the workers understood why that happened.

Frustrating, there's an error in this post,. and I can't edit it. So I copied it here and corrected the error.

 

[unno2002]

[FONT=&quot]Social Security has for its entire history been a tax that supplied a slush fund for the policitians to use, and of (in my opinion) NO benefit to those from whom the tax was taken. I have run spreadsheets that show that anyone subject to the SS tax would have been better off putting the same dollars into even US series EE savings bonds. Anything beyond the bonds would have been a greater benefit to those subject to this tax. [/FONT]
[FONT=&quot]The slush fund benefit to the politicians is disappearing, and they are concerned for their ability to spread around money, not necessarily your SS “benefits”.[/FONT]

 

[samclem]

[FONT=&quot] I have run spreadsheets that show that anyone subject to the SS tax would have been better off putting the same dollars into even US series EE savings bonds. [/FONT][FONT=&quot][/FONT]

(Bold added). Sorry, but this is just incorrect. There are plenty of people who draw out more in SS benefits than they could have drawn out by investing their funds in EE savings bonds. Obvious examples:
- The person who works 20 years at minimum wage, retires at FRA, and draws SS for 35 years.
- Case as above, but the person is married for 10 years to a person who earns $150K per year. SS spousal benefits would be far greater than what the person would have had on her own SS record, and much, much greater than what she would have been able to withdraw from a EE-bond savings account.

I fully agree that most people would come out financially ahead with private accounts, but that's not everyone. Overselling the idea hurts your case. And it sidesteps the very important issue that the recipient knows the SS won't run out (not true with any private investments given unknowable real returns and an unknowable drawdown timeline). It also ignores the role of SS as a part of the safety net (i.e. oldsters who don't save, or who make poor investment decisions, or who draw out too much, etc will wind up on the public dole anyway, unless we fundamentally change even more things.)

 

[Big_Hitter]

^ he lost me at slush fund so I didn't bother to respond


Obviously, people like my father got a great return on SS. So did my sister who became disabled.


Disability benefits alone are a counterargument.

 

[scrabbler1]

If I were to make such a comparison to EE bonds, I would start with a subset of the total FICA taxes paid because some of them, as Big_Hitter pointed out, pay for benefits other than pure retirement benefits. I don't know what the percentages are today, but I recall checking this out years ago and saw that about 30% of the payouts go to disability benefits, something I know I don't want to ever have to collect from SS. IOW, I want my rate of return on that portion of my FICA taxes to be ZERO. Same for survivor benefits. I think of those two parts of SS to be akin to a national disability insurance program and a national life insurance program. They will provide benefits only if something unforeseen and tragic happens to me or a close loved one.

 

[Clone]

The value of SS can be argued from many different viewpoints. The concept of personal investment of all SS payments rather than the existing system is interesting, but the percentage of the population that would actually do that is tiny. Look at the statistics of how many folks nearing retirement age have no or minimal savings.

If they want to make all earned income subject to FICA, they could easily put an additional bend point in the formula. I think that the folks with the manual labor jobs where their bodies have worn out would be negatively impacted by increasing the FRA.

 

[pb4uski]

Agree with others that if one is going to try to compute a "return" on social security that you have to bifurcate the retirement funding, disability and survivorship elements since it is a bundled program. To simply compare SS taxes to SS retirement benefits is naive.

 

[travelover]

..........The concept of personal investment of all SS payments rather than the existing system is interesting, but the percentage of the population that would actually do that is tiny. Look at the statistics of how many folks nearing retirement age have no or minimal savings...............

I couldn't agree more. If you let them keep the cash to invest themselves, we'd end up with a sizeable retired population either starving or on welfare, which the savers would fund.

 

[Independent]

If I were to make such a comparison to EE bonds, I would start with a subset of the total FICA taxes paid because some of them, as Big_Hitter pointed out, pay for benefits other than pure retirement benefits. I don't know what the percentages are today, but I recall checking this out years ago and saw that about 30% of the payouts go to disability benefits, something I know I don't want to ever have to collect from SS. IOW, I want my rate of return on that portion of my FICA taxes to be ZERO. Same for survivor benefits. I think of those two parts of SS to be akin to a national disability insurance program and a national life insurance program. They will provide benefits only if something unforeseen and tragic happens to me or a close loved one.

I agree that putting a value on SS requires valuing the disability and young survivors portions. However, the 30% is high. See actual payout dollars here: https://www.ssa.gov/oact/FACTS/

Another way of looking at it is that the DI is legally a different fund, the 12.4% total tax has been split, with 10.6% going to OASI and 1.8% going to DI. (But, that split results in the DI fund running out sooner, so congress "temporarily" changed the split last year).

 

[Independent]

[FONT=&quot]Social Security has for its entire history been a tax that supplied a slush fund for the policitians to use, and of (in my opinion) NO benefit to those from whom the tax was taken. I have run spreadsheets that show that anyone subject to the SS tax would have been better off putting the same dollars into even US series EE savings bonds. Anything beyond the bonds would have been a greater benefit to those subject to this tax. [/FONT]
[FONT=&quot]The slush fund benefit to the politicians is disappearing, and they are concerned for their ability to spread around money, not necessarily your SS “benefits”.[/FONT]

The first benefit I get from SS is that my MIL didn't live with us. Neither did my mother, but that would have been easier. They both lived independently until they died.

And, we never sent them monthly support checks. And, we never debated with our siblings regarding how big the checks should be from each of us, given our different financial resources. And, I didn't have to worry about also caring for other old people who didn't have children.

However, if I wanted to ignore that huge benefit and pretend that SS is some sort of mandatory savings program, then I could look at one of the periodic calculations from the SS actuaries and compare my numbers to their numbers. Yes, the "return" is low for a lot of people, but not everyone.
https://www.ssa.gov/oact/NOTES/ran7/an2012-7.html

 

[pb4uski]

You had me at the first part. MIL and I didn't get along well and Mother smokes like a chimney which would not go well with DW and with me.

The first benefit I get from SS is that my MIL didn't live with us. Neither did my mother, but that would have been easier. They both lived independently until they died.

And, we never sent them monthly support checks. And, we never debated with our siblings regarding how big the checks should be from each of us, given our different financial resources. And, I didn't have to worry about also caring for other old people who didn't have children.

However, if I wanted to ignore that huge benefit and pretend that SS is some sort of mandatory savings program, then I could look at one of the periodic calculations the SS actuaries and compare my numbers to their numbers. Yes, the "return" is low for a lot of people, but not everyone.
https://www.ssa.gov/oact/NOTES/ran7/an2012-7.html

 

[scrabbler1]

I agree that putting a value on SS requires valuing the disability and young survivors portions. However, the 30% is high. See actual payout dollars here: https://www.ssa.gov/oact/FACTS/

Another way of looking at it is that the DI is legally a different fund, the 12.4% total tax has been split, with 10.6% going to OASI and 1.8% going to DI. (But, that split results in the DI fund running out sooner, so congress "temporarily" changed the split last year).

My 30% figure is a little high, but not far off the mark.

From your link, the total monthly rate is $73,642 (millions). The total monthly rate which goes only to retired workers is $53,790 (millions), or 73%. That leaves 27% which goes to disability and survivors benefits. A table like that was what I recall seeing years ago, so my memory was pretty good.


EDIT: I found this table, also in the SSA report.


https://www.ssa.gov/OACT/TR/2016/III_A_cyoper.html#985713


In this chart, the 2015 amount (millions) for Retired workers is $592,243 and the grand total is $886,221. The percentage which goes to retired workers is 66% which leaves 34% which goes to everything else.


Maybe my 30% estimate isn't as far off as I thought?

 

[Independent]

Certainly, somebody trying to do a "money's worth" calculation needs to match up taxes and benefits. For example, do you include remember to include survivors' benefits paid to older widows and widowers? That's a surprising (to me) 10% of all benefits.

If I did the math right, these are the percentages from your 2015 link:

71%	Retired workers and auxiliaries
67%	Retired workers
3%	Spouses
1%	Children
13%	Survivors of deceased workers
10%	Aged widows and widowers
0%	Disabled widows and widowers
2%	Children
0%	caring for child beneficiaries
16%	DI benefit payments, total
15%	Disabled workers
0%	Spouses
1%	Children

 

[athena53]

I couldn't agree more. If you let them keep the cash to invest themselves, we'd end up with a sizeable retired population either starving or on welfare, which the savers would fund.

I'm also in favor of some forced savings (e.g. SS), with an element of re-distribution. Without SS, especially Spousal and Widow's benefits, more women than men would be impoverished. Women are more likely to leave the workforce to care for children or ageing relatives, so have less income to save for their own retirement. Add to that the fact that women live longer, and the resources for a husband's last illness may mean that the widow is left with very little to live on. Even with substantial savings, if the husband needs extended LTC and Medicaid has to pay for it, the widow may end up with insufficient funds for her own retirement. Finally, studies have shown that although women live longer, they start to get frail, and less likely to be able to live on their own, at about the same age as men.

I'm an exception because I had a good education and a lucrative career, and learned the value of savings and the power of compound interest early- but if we don't have some sort of lifetime annuity protection for workers, I believe women would be hit a lot harder.