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Social Security Thoughts
Old 12-03-2007, 10:33 PM   #1
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Social Security Thoughts

While posting to another thread on the complexities of mortage 'bailouts', I got to think about Social Security complexities.

One suggested solution to the current mess is 'means testing'. Now, I'm not exactly sure what that term means.

And again, I stray somewhat from my libertarian roots.

Given the same income or net worth history:

I have NO desire to subsidize someone who lives in a McMansion, with a gazillion-foot plasma TV, and multiple other toys that I denied myself in order to LBMM and ER.

However, I have GREAT sympathy for someone who has health problems, has parents with health problems that they (the children) paid for, or parents with children with health/mental problems that they (the parents) paid for.

So again, I come to the same conclusion: one-size-fits-all solutions don't work very well.
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Old 12-04-2007, 05:16 AM   #2
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So what you say is if one is prudent and LBTM and save, save, save throughout their lives that because they did that they should not received their SS benefits. That is even if they have contributed to the SS system for over 45 years.

Now if they always lived above their means and are financial dead beats the get their full benefits.

BTW SS is already means tested - do the math - up to 85% taxed, Medicare premiums come off the top and are considered part of SS which increases the potential taxes. If you have some money saved, after tax type, and a pension (which you EARNED) you will be lucky to see even 75% of your "benefits" now.

But you are right the McMansion inhabitant will more likely get full benefits while you, who saved, will not.

Additionally, you are right again, one size will never fit all.

The more the popular government approach is to "fix" it the more the LBYM types better get ready to BOHICA.

Its early, and on the first cup of coffee!
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Old 12-04-2007, 05:18 AM   #3
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Don't quite know what you are trying to get at...means testing for SS I've maxed out on paying SS for about 15 years or more (not maxed before that), with the expectation of receiving a benefit when I retire (well, not really, but I think there would be a general revolt if the govt made us pay with no promise of a benefit, no). Why would I have to be means tested, when I have paid for my benefits over many years, McMansion or not? All of this said, I LBMM, no debt, no mortgage, nice nest egg...yet still have a bit of a McMansion and a big screen LCD TV. By means testing, do you mean that because I have a few things I shouldn't get what I paid for?

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Old 12-04-2007, 07:01 AM   #4
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What I got out of Tick Tock's message was that he doesn't want to pay more on his SS than someone else who earned as much as he did. E.g. If TT earns $40K/yr he doesn't want his SS taxed extra because his income is greater due to return on savings (thru a means test). His extra tax thus benefits some guy who made $60K/yr but saved zip.

A lot of talk centers on upping the salary cap on paying into SS. With the progressive structure of payouts that would direct more toward the lower earners without benefiting the high earners. As a libertarian you might have other issues with that.
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Old 12-04-2007, 08:05 AM   #5
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I don't think Tick Tock has anything to worry about. The McMansionites are just fine as long as they stay on the treadmill and keep working. They won't be able to support their habit if they ever want to retire.

Just imagine trying to make $4000 mortgage payments with a SS check.

As long as they stay hitched to the plow, the fantasy is intact. Venture into retirement and collect the monthly SS check, the fantasy evaporates and the nightmare starts.
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Old 12-04-2007, 08:32 AM   #6
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Originally Posted by donheff View Post
What I got out of Tick Tock's message was that he doesn't want to pay more on his SS than someone else who earned as much as he did. E.g. If TT earns $40K/yr he doesn't want his SS taxed extra because his income is greater due to return on savings (thru a means test). His extra tax thus benefits some guy who made $60K/yr but saved zip.
Yes, that's what I was trying to say.

With the exception (and here's the break from my Libertarian roots) that I'd be more willing to subsidize someone who has no savings due to, say, catastrophic medical expenses than someone who blew it all on toys.
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Old 12-04-2007, 08:52 AM   #7
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Why would I have to be means tested, when I have paid for my benefits over many years, McMansion or not? ... By means testing, do you mean that because I have a few things I shouldn't get what I paid for?
I'm not proposing a means test. I don't support a means test. You (and I, and everyone else) shouldn't be denied benefits based on whether we saved or spent.

The thing is, look at the changes that have been made throughout the history of SS.

legislative history of Social Security Act prepared by CRS

At first, the focus was on expanding benefits and coverage. Later, it shifted to later retirement ages, higher taxes, and so on. The reality is, there will be more changes, and they'll mostly be higher taxes/benefit reductions. Given the benefits promised and US demographics, there's not enough money over the long haul to provide all the promised benefits, so something has to give.

Given that, I'm saying that (1) I don't want to be penalized for saving during my life, and (2) if I am penalized (subsidizing someone else who earned the same income) that I'd be more willing to subsidize someone who didn't save due to medical expenses than someone who spent their income on toys.
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Old 12-04-2007, 09:06 AM   #8
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Without going into weather it would be a tax increase or not, because it would, it seems if we want to be 'Fair' we would raise the income level one pays SS on to unlimited. Along with this you could raise the amount those with $1m+ incomes get in SS. If you used the formula similar to what SS uses now, those at the top of the schedule do not get a proportionally larger but smaller return in SS it should allow you to raise funds with a disproportionate increase in payout.

This would mean that someone that make $25,000 a year and pays SS tax on 100% of their salary would be equal to one that makes $1,000,000 and pays SS on 10% of their salary. However, as most of our politicians make more than the current cap on SS, I doubt they would pass such a bill.
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Old 12-04-2007, 09:07 AM   #9
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Considering the fact that an overwhelming majority of people approaching retirement do not have the remotest ability to fund their own retirement, it seems to me a forgone conclusion that there will be massive changes in the Social Security system that will in effect subsidize this segment at the expense of the prudent few who have saved all their lives. Good heavens, if our society is not willing to tolerate the prospect of a "no job, no income, no assets" borrower being forced to walk away from his or her home scot free (no loss of equity, no deficiency judgment), and after using the home as an ATM for years, I cannot in my wildest dreams imagine that it would allow three-quarters of the elderly population to live in poverty regardless of the reason for their predicament.
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Old 12-04-2007, 10:47 AM   #10
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Considering the fact that an overwhelming majority of people approaching retirement do not have the remotest ability to fund their own retirement, it seems to me a forgone conclusion that there will be massive changes in the Social Security system that will in effect subsidize this segment at the expense of the prudent few who have saved all their lives. Good heavens, if our society is not willing to tolerate the prospect of a "no job, no income, no assets" borrower being forced to walk away from his or her home scot free (no loss of equity, no deficiency judgment), and after using the home as an ATM for years, I cannot in my wildest dreams imagine that it would allow three-quarters of the elderly population to live in poverty regardless of the reason for their predicament.
I agree with you emilylynn.... I just wonder what happens to our society when all the wealth has been re-distributed from the "prudent few" to everyone else....
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Old 12-04-2007, 11:17 AM   #11
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I was looking at stats from the flow of funds report recently to get a handle on the housing crisis, and I calculated average household net worth and where it comes from.

114 million households
average net worth (assets - liabilities): $484,691

real estate equity: $95K (home value $184K - $99K mortgage)
durable goods: $34K
cash: $58K
bonds: $28K
stocks and funds: $99K
pension equity: $110K
business equity: $69K
life ins equity: $10K
non-mortgage debt: -$21K

Obviously, the average is skewed by rich people, but that's still a pretty impressive average.

And, of course, the greatest growth has been in home equity, which is currently at risk.
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Means testing
Old 12-04-2007, 11:53 AM   #12
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Means testing

much beyond what is already done, is a dead proposal. The reason is that it solves nothing, it raises no funds and saves next to nothing. All it does is complicate planning and annoy people. It is proposed by those who wish to eliminate SS, not preserve it, since everyone wants to believe they will be wealthy and will then see it as an obstacle rather than a benefit. Lifting the cap would largely solve it, but it is not even apparent we have a problem. The assumptions behind it haven't been revisited in over a decade. Before any solution, let us do that.
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Old 12-04-2007, 11:59 AM   #13
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Now if they always lived above their means and are financial dead beats the get their full benefits.
Well if you want a hint at what the government thinks just follow the current sub prime bailout proposal in the news. If you pay your mtg. you get no help. If you don't pay your mtg. the tax payer will bail you out.

Not a big stretch of the imagination to say if you did not plan for retirement the tax payer or those who did plan will bail you out.

It's all about votes .
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Old 12-04-2007, 12:33 PM   #14
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114 million households
average net worth (assets - liabilities): $484,691
Let's see. . . $484,591, taken out at a 4% withdrawal rate, gives you $19,387.64 per year, or $1,616 per month. That's before taxes and inflation, and it assumes that the home is liquidated.

And as Twaddle points out, this figure is skewed by the folks on the high end. I wish I could locate the stats which show how things break down for the unwashed masses. As I recall, it was was something like 50% that had less than $50,000 in savings, and something like 30% actually had a negative net worth. Don't quote me on this.
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Old 12-04-2007, 12:37 PM   #15
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Let's see. . . $484,591, taken out at a 4% withdrawal rate, gives you $19,387.64 per year, or $1,616 per month. That's before taxes and inflation, and it assumes that the home is liquidated.
Well, not everybody is shooting for early retirement like us.

But, I agree -- for the average Joe with no pension, no business equity, and a house they don't want to liquidate, it's not a pretty picture.
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Old 12-04-2007, 09:44 PM   #16
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Originally Posted by twaddle View Post
I was looking at stats from the flow of funds report recently to get a handle on the housing crisis, and I calculated average household net worth and where it comes from.

114 million households
average net worth (assets - liabilities): $484,691

real estate equity: $95K (home value $184K - $99K mortgage)
durable goods: $34K
cash: $58K
bonds: $28K
stocks and funds: $99K
pension equity: $110K
business equity: $69K
life ins equity: $10K
non-mortgage debt: -$21K

Obviously, the average is skewed by rich people, but that's still a pretty impressive average.

And, of course, the greatest growth has been in home equity, which is currently at risk.
Yes, the average is skewed by rich people. This source

www.levy.org/pubs/wp_502.pdf

breaks the average into smaller groups.

I'd suggest starting with Table 4.

(His underlying data is from the Federal Reserve survey, which is also the source I found when looking at the census.gov numbers.)

Table 11 has some data by age.
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Old 12-04-2007, 09:58 PM   #17
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much beyond what is already done, is a dead proposal. The reason is that it solves nothing, it raises no funds and saves next to nothing. All it does is complicate planning and annoy people. It is proposed by those who wish to eliminate SS, not preserve it, since everyone wants to believe they will be wealthy and will then see it as an obstacle rather than a benefit.

Lifting the cap would largely solve it, but it is not even apparent we have a problem.

The assumptions behind it haven't been revisited in over a decade. Before any solution, let us do that.
I hope you are accurate regarding means testing. I hadn't thought about the "everyone wants to believe they will be wealthy" angle.

I don't know what you mean about not revisiting assumptions. The SS actuaries review and may change their economic and demographic assumptions each year. (The demographic assumptions seem more important to me.)

They compare their current assumptions about the future to the actual values for the past in Section V of the Trustees report.

2007 Trustees Report: Section V.A, Demographic assumptions & methods
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Old 12-04-2007, 10:45 PM   #18
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We are the wealthiest nation on earth.

Some people absorb that fact, then resolve to continue doing whatever we're doing right that has made it so.

Others abhor that fact and wish to do what it takes to ameliorate it.

Others take it as a given and believe that no policies of redistribution will affect it.
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Old 12-05-2007, 02:05 PM   #19
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We are the wealthiest nation on earth.

Some people absorb that fact, then resolve to continue doing whatever we're doing right that has made it so.

Others abhor that fact and wish to do what it takes to ameliorate it.

Others take it as a given and believe that no policies of redistribution will affect it.
Good points all around samclem.... somehow when people are recipients of redistribution (because they have less than the donor) they are OK with it. Yet when suddenly THEY now have more than others, the thought of giving some of what they have to others is abhorant.
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SS updates its data
Old 12-05-2007, 02:41 PM   #20
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SS updates its data

but not its models. Over the last 10 years it has delayed the 'year of doom' by 13 years. By that measure, in 2042 we will be looking at trust fund exhaustion in the year 2087. Given the magnitude of increase, it most likely means the trust fund will never be exhausted but in fact may grow over time. Just imagine, the problem may not be a shortfall but what to do with the excess money! I am not saying that will happen, but project anything far enough out into the future and what you end up with is nonsense. What SS is determining is the accuracy of its models, not the data, and that seems to be consistently about 30-35 years. One large uncertainty is when the boomers actually will retire and we will only know that with more data. We need to know more about why the models were wrong. We need better models and more data before acting even makes sense.
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