The Clash of Generations

[MasterBlaster]

Scott Burns says it again.

The Real Doomsday: Less Bang, More Whimper - Registered Investment Advisor

...when I go to McDonald’s, I compare my Social Security check with the pay of those who work there. As I have pointed out in other columns, the average monthly Social Security check is now $1,230. It is not subject to the employment tax and at age 65 you also get great health insurance for only $99.90 a month.
Workers at McDonald’s, which is hiring, earn about $8 an hour, pay the employment tax and, most often, don’t get health insurance. Just as some once asked how many cars $60 an hour workers in Detroit could expect to sell to $8 an hour workers in Peoria, we need to start worrying about whether millions of uninsured low wage workers will be capable of supporting the growing millions of well insured retirees who no longer work...

 

[Independent]

As Burns says at end of the piece

"I’ve written a lot more. If you’ll forgive a craven plug, you can read “The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy.” Co-authored with economist (and presidential candidate) Laurence J. Kotlikoff, my new book lays out the problem, the policy solutions..."

But, if you're a committed to LBYM, you can ignore the book plug and see Burns' Social Security proposal here: The Purple Social Security Plan | The Purple Social Security Plan

 

[growing_older]

The first step in the plan is to pay all existing Social Security obligations. The second step is to take all contributions and put them towards a new PSA. So what money is used to pay those Social Security benefits if all new money coming into the system is directed elsewhere?

I love the idea of converting from a pay as you go system to an investment system. But you cannot do that without a plan for the transition.

 

[Independent]

The first step in the plan is to pay all existing Social Security obligations. The second step is to take all contributions and put them towards a new PSA. So what money is used to pay those Social Security benefits if all new money coming into the system is directed elsewhere?

I love the idea of converting from a pay as you go system to an investment system. But you cannot do that without a plan for the transition.

That's pretty much what I thought. Hence, I wasn't impressed by the plan.

(I actually assumed that he would continue to collect current SS taxes at the current rates for another 20+ years in addition to the new 8%. But that wasn't clear, and it's not attractive to me if that's the plan.)

 

[M Paquette]

(I actually assumed that he would continue to collect current SS taxes at the current rates for another 20+ years in addition to the new 8%. But that wasn't clear, and it's not attractive to me if that's the plan.)

and once the obligations are paid off, the old SS taxes will go away, just like bridge tolls once a bridge is paid off... ;-)

 

[packrat44]

and once the obligations are paid off, the old SS taxes will go away, just like bridge tolls once a bridge is paid off... ;-)

 

[Nords]

and once the obligations are paid off, the old SS taxes will go away, just like bridge tolls once a bridge is paid off... ;-)

Except for the occasional "special assessments" to repair potholes and paint the structure...

 

[Steel Rain]

Well, my take is this is considerably more negagitve. In all of recorded history, there are zero examples of Democratic forms of governement surviving 300 years or more. The reason is very simple, when the citizens figure out they can vote themselves resources from the governement, they do and the country ultimatly collapses due to overspending.

We are not going to immently collapse, but our decline has begun, Europe is ahead of us so we can see a preview by watching them. I dont think this will have a significant impact on myself, but I have started my children down the road of viewing themselves as citizens of the world and to feel free to move to where the opportunities are best. Sorry to sound so dire, but im not a big beliver in "This time its different"

Steel Rain

 

[M Paquette]

We are not going to immently collapse, but our decline has begun, Europe is ahead of us so we can see a preview by watching them. I dont think this will have a significant impact on myself, but I have started my children down the road of viewing themselves as citizens of the world and to feel free to move to where the opportunities are best. Sorry to sound so dire, but im not a big beliver in "This time its different"

Steel Rain

So, we probably shouldn't bother setting our Safe Withdrawal Rate for that 100% success rate. 80% is probably good enough.

http://www.efficientfrontier.com/ef/998/hell.htm

 

[winger]

Well, my take is this is considerably more negagitve. In all of recorded history, there are zero examples of Democratic forms of governement surviving 300 years or more. The reason is very simple, when the citizens figure out they can vote themselves resources from the governement, they do and the country ultimatly collapses due to overspending.

We are not going to immently collapse, but our decline has begun, Europe is ahead of us so we can see a preview by watching them. I dont think this will have a significant impact on myself, but I have started my children down the road of viewing themselves as citizens of the world and to feel free to move to where the opportunities are best. Sorry to sound so dire, but im not a big beliver in "This time its different"
Steel Rain

I don't disagree with your pessimism, but citizens voting themselves "rich" will be a minor problem. Pollution, shortage of fresh water, overpopulation, and competition for dwindling resources will be the challenges.

 

[Gatordoc50]

The first step in the plan is to pay all existing Social Security obligations. The second step is to take all contributions and put them towards a new PSA. So what money is used to pay those Social Security benefits if all new money coming into the system is directed elsewhere?

I love the idea of converting from a pay as you go system to an investment system. But you cannot do that without a plan for the transition.

Ya. It makes more sense to transition slowly. Maybe over 50 years where in year one you contribute 98% to SS and 2% to a PSA and so on until in year 51, which would be a 15 year old, would contribute 100 % to PSA.

 

[Independent]

Ya. It makes more sense to transition slowly. Maybe over 50 years where in year one you contribute 98% to SS and 2% to a PSA and so on until in year 51, which would be a 15 year old, would contribute 100 % to PSA.

That always sounds appealing, but I can never make the numbers add up.

Note that SS old age benefits currently use about 10% of payroll. If we carve 2% of payroll away for the PSA, then the traditional SS gets 8%, which only covers 80% of current benefits, not 98%.

 

[Gatordoc50]

That always sounds appealing, but I can never make the numbers add up.

Note that SS old age benefits currently use about 10% of payroll. If we carve 2% of payroll away for the PSA, then the traditional SS gets 8%, which only covers 80% of current benefits, not 98%.

If you go by percentages using 10 % for SS then first age out would contribute 98% of the 10 % or 9.8 % to SS and .2 % to PSA..

 

[justplainbll]

Interesting how things change. What used to be termed a contribution (Federal Insurance Contribution Act- FICA) is now commonly referred to as a tax. What kind of earnings have been realized on these contributions?

 

[jerome len]

Going back to the original quote on McDonald's employee's starting at $8.00 an hour .....nothing has really changed since I was a kid. Back then teenagers worked at grocery stores making .75 cents an hour or babysitting at .50 cents an hour. Today, that 8 buck an hour person could end up managing or buying a McDonald's 10 or 15 years from now and driving a Cadillac or Lexus.

Now, I hope we don't turn into Europe. We've been the envy of the world and I won't mind letting someone else having part of the job. We've also been the policeman of the world, spending our assets and youth on "conflicts" since the end of World War 2. Yes, people will vote themselves more and more and that's a problem. But, I've lived in other Countrys and the good old U.S. is by far the best. I can't tell you what will happen tomorrow or 50 years from now but I can tell you we have elections and we can vote for our future........this fall will be interesting.

Regardless, I'll go out to dinner tonight, buy gifts for my kids, drive a nice car, live in an air conditioned home, shop deals at Costco, Wallmart and my grocery store and go to the bank when I need a little money. I have gold, silver, investments and a great family. I am a very lucky person......today. Most of us are.....we just have to have forums like this, count our blessings and do our best so our kids have a good life in the future.

 

[Steel Rain]

Going back to the original quote on McDonald's employee's starting at $8.00 an hour .....nothing has really changed since I was a kid. Back then teenagers worked at grocery stores making .75 cents an hour or babysitting at .50 cents an hour. Today, that 8 buck an hour person could end up managing or buying a McDonald's 10 or 15 years from now and driving a Cadillac or Lexus.

Now, I hope we don't turn into Europe. We've been the envy of the world and I won't mind letting someone else having part of the job. We've also been the policeman of the world, spending our assets and youth on "conflicts" since the end of World War 2. Yes, people will vote themselves more and more and that's a problem. But, I've lived in other Countrys and the good old U.S. is by far the best. I can't tell you what will happen tomorrow or 50 years from now but I can tell you we have elections and we can vote for our future........this fall will be interesting.

Regardless, I'll go out to dinner tonight, buy gifts for my kids, drive a nice car, live in an air conditioned home, shop deals at Costco, Wallmart and my grocery store and go to the bank when I need a little money. I have gold, silver, investments and a great family. I am a very lucky person......today. Most of us are.....we just have to have forums like this, count our blessings and do our best so our kids have a good life in the future.

I fully agree that we stand very tall and have stood very tall for over a century. Im a patriot at heart but also a realist. Human nature is what it is and the vast majority of people will not make hard choices. Compared to the rest of the world, our standard of living is super high. This will continue for decades, even in Europe, the standard of living is very high even though they are very obvoiusly collapsing. My kids are what i fear for, and they need to have a more expansive view of the world and how opportunities will be created as the US declines. I will not live to see the end state, at least i hope not.

Steel

 

[Independent]

If you go by percentages using 10 % for SS then first age out would contribute 98% of the 10 % or 9.8 % to SS and .2 % to PSA..

That's a good start. Next, I'd look at the goal of getting to 8% in 50 years and figure that means the PSA contribution should go up about 0.15% per year and the SS tax should go down 0.15%.

Then I'd pick a couple specific ages, say people turning 45 or 55 in 2013, for some examples. I'd see what tax rates they would pay during the remainder of their working careers, what PSA balances they'll have at retirement, and how much their traditional SS benefits should be reduced. I'd compare those reduced traditional SS benefits to the money available from the reduced SS taxes above.

 

[ziggy29]

I'm not sure I like the idea of moving away from the *model* of SS as we know it into another glorified 401K plan. I might like that if I had a large DB pension waiting for me, but I already feel too much at the whim of the financial markets for my retirement dreams.

I do think SS needs to be reformed and shored up, and inevitably that will mean yet another example of the young getting screwed. But I think it can be done in a way to minimize the pain.

 

[Hamlet]

I think hat what has changed is that more people end up staying in low paying jobs for most of their career, rather than graduating to higher paying jobs.

General Motors used to be the largest employer in this country. Now it is Walmart.

It's tough to build a strong middle class when most of the new jobs being created pay $10/hr with no benefits.

Going back to the original quote on McDonald's employee's starting at $8.00 an hour .....nothing has really changed since I was a kid. Back then teenagers worked at grocery stores making .75 cents an hour or babysitting at .50 cents an hour. Today, that 8 buck an hour person could end up managing or buying a McDonald's 10 or 15 years from now and driving a Cadillac or Lexus.

Now, I hope we don't turn into Europe. We've been the envy of the world and I won't mind letting someone else having part of the job. We've also been the policeman of the world, spending our assets and youth on "conflicts" since the end of World War 2. Yes, people will vote themselves more and more and that's a problem. But, I've lived in other Countrys and the good old U.S. is by far the best. I can't tell you what will happen tomorrow or 50 years from now but I can tell you we have elections and we can vote for our future........this fall will be interesting.

Regardless, I'll go out to dinner tonight, buy gifts for my kids, drive a nice car, live in an air conditioned home, shop deals at Costco, Wallmart and my grocery store and go to the bank when I need a little money. I have gold, silver, investments and a great family. I am a very lucky person......today. Most of us are.....we just have to have forums like this, count our blessings and do our best so our kids have a good life in the future.

 

[Steel Rain]

I think hat what has changed is that more people end up staying in low paying jobs for most of their career, rather than graduating to higher paying jobs.

General Motors used to be the largest employer in this country. Now it is Walmart.

It's tough to build a strong middle class when most of the new jobs being created pay $10/hr with no benefits.

Bingo. How this manifests itself today is like Europe. In Europe and now here, the newer generation is just not being hired at all. Spain i belive has something like 50% youth unemployment The reasons for this is that companys are unwilling to hire anyone in the developed economies who is not already skilled. I see this at my mega corp all time time, we talk about using leverage in our skills, meaning offshoring the entry level work to free up senior folks to do the senior level stuff. This off course will cut off the number of skilled folks down the line.

The costs, to hire and train someone in our field here in the US or in Europe is so high, that the value is not there, so it does not happen. The folks here that do have the skills and experiecne are paid a premium but there is no cohort behind them. In the not too distant future, the more highly paid jobs will go overseas as well, not because of economy, but because there is noone left here with the skills.

You hear about this in the news all them time, employers saying they cant hire skilled people, and its true. I am a hiring manager and I find it more and more difficult to get skilled folks. I am not allowed to hire entry level folks here, those all go to india. So, in one sense, i hit the lottery by having the skills but in another, i fear where this will lead....

Steel

 

[ziggy29]

Bingo. How this manifests itself today is like Europe. In Europe and now here, the newer generation is just not being hired at all. Spain i belive has something like 50% youth unemployment The reasons for this is that companys are unwilling to hire anyone in the developed economies who is not already skilled. I see this at my mega corp all time time, we talk about using leverage in our skills, meaning offshoring the entry level work to free up senior folks to do the senior level stuff. This off course will cut off the number of skilled folks down the line.

I see a lot of this too. I guess it's pretty obvious that a combination of demographic and economic trends are coming together to ensure that today's younger generation gets a raw deal (on average) compared to their parents and grandparents. The question to me becomes: is there anything we can reasonably do about it? Youth today have much higher poverty rates than the elderly, but our economic and social policies continue to transfer wealth from young to old (in many cases, regardless of means or income). How much longer will the younger generations put up with the status quo?

 

[Texas Proud]

As to the wages of a McDonald's worker....

When I worked in London, someone pointed out to me that the parking meter outside the McDonalds made more than the guy behind the counter...

 

[Steel Rain]

I see a lot of this too. I guess it's pretty obvious that a combination of demographic and economic trends are coming together to ensure that today's younger generation gets a raw deal (on average) compared to their parents and grandparents. The question to me becomes: is there anything we can reasonably do about it? Youth today have much higher poverty rates than the elderly, but our economic and social policies continue to transfer wealth from young to old (in many cases, regardless of means or income). How much longer will the younger generations put up with the status quo?

Well, im not sure much can be done, at least in the near term. Without trying to get to political, its clear the size and invasive nature of our federal government has driven costs so high, that its not profitable to risk training local people. The same is true in Europe, but even more so. Thats a shot at both parties by the way....

When i discuss this with my euro zone collegues, very smart and educated folks, they almost to a person want more protectionsm in trade and more government mandates that try to force employers to create jobs there. This will not work of course, but that is the mind set that the developed countries are up against. We are no different, just further behind them.

Until costs equalize more, meaning our standard of living will go down, while emerging countries will come up, I dont see any way to stop this trend. As I said in an earlier post, I have instilled into my kids that they must view opportunity in a global sense and not feel they are married to this country. Just the way it is im afraid.

Steel

 

[FIREd]

Bingo. How this manifests itself today is like Europe. In Europe and now here, the newer generation is just not being hired at all. Spain i belive has something like 50% youth unemployment The reasons for this is that companys are unwilling to hire anyone in the developed economies who is not already skilled.

I will disagree. What is happening in some European countries (let's not generalize as some countries do not have a youth unemployment problem) is not that young people can't find jobs, it's that most can't find jobs with meaningful security and benefits anymore. More and more young people are hired as contract workers which means that, when the economy tanks, they are the first to go. Jobs are becoming more precarious for everyone, but more so for the younger generations. The root problem, IMO, is not a lack of skills. It's the inflexible job market incentivizing employers in some countries to avoid hiring full-time workers because they are exceedingly hard to lay off.

 

[ziggy29]

Until costs equalize more, meaning our standard of living will go down, while emerging countries will come up, I dont see any way to stop this trend. As I said in an earlier post, I have instilled into my kids that they must view opportunity in a global sense and not feel they are married to this country. Just the way it is im afraid.

Yeah, perhaps. And learning 2-3 other languages might be a good "hedge" against becoming marginalized by globalization.