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Old 05-15-2010, 08:36 AM   #21
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Here is a recent thread discussing the same subject: Social Security Question
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Old 05-15-2010, 08:37 AM   #22
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Originally Posted by Gone4Good View Post
This is very similar to the reform George Bush tried to implement. It failed because the transition costs are huge and most folks didn't see a "savings or investment account" as a good alternative to a government funded pension.
It is an interesting plan but it would require a commitment on the part of the country to let people who blow their PSAs suck rocks in old age without even the minimal safety net of SS. It is a tough call on whether that would be good or bad.
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Old 05-15-2010, 10:08 AM   #23
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Except I personally would only get 1% for 10 years, since I really don't plan on working more than 10 years from now. Wonder if that $400 gets contributed regardless of your working status? If so this is sounding better and better! If not, I could always "earn" $50 from self-employment income, pay my 15.3% self employment tax, and get a $400 SS PSA contribution. Win, win, win!
Sorry, I took a shortcut. The actual proposal is 8% of the first $10,000 of income and 4% of the excess. That's pretty wordy, so I shortened it to 4% + $400 because I figured everyone here makes at least $10,000 annually.

Similarly, note that Ryan's proposal makes SS solvent partially by reducing benefits. So it would be 60-70% of the reduced benefit. The big reduction is the "progressive indexing" which hits high income workers but not low income workers.
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Old 05-15-2010, 10:18 AM   #24
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I will turn 55 in 2011, so my PSA would only get 1% of earnings plus $100 and my eventual SS benefit would be reduced by 3%. Since I plan to retire in three years, the total that goes into my PSA would be 3% plus $300, which would earn at least CPI until I reach retirement age. I assume my eventual balance would be so small I'd be required to annuitize it. My projected SS benefit at full retirement age, if I retire as planned, would be very roughly, $2000 a month, so the reduction would be ~$60 a month or $720 a year. If I can buy an annuity that pays $720/year or more, it's a good deal for me. Have I got that right?
You've got everything right, but I calculated the 3% based on the assumption that people would work till 66. Thinking about it, a bad assumption for this board.

The wording is
Quote:
the benefit reduction would be equal to the scheduled OASI basic benefits under the plan multiplied by the ratio of (a) the present value of all contributions redirected to the worker’s PSA, to (b) the present value of all potential PSA contributions that might have been made if the plan had been in existence throughout the working lifetime of the worker with the contribution rate at the ultimate level of 8/4 percent.
So if you get 1% during the last 3 years of your working career, the reduction is more like 1% of your benefit.
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Old 05-15-2010, 11:51 AM   #25
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I quit working back in 2008 and I'm 45. When I quit I got a statement that said I had enough credits to qualify for the maximum payment amount of $2500/mo or something like that.
As I understand the rules, this is not possible. Many SS statements project your current earnings into the future, then estimate you benefit. Could that be what you received.

SS quarters of service are satisfied in short careers, but the actual benefit calculation uses the top 35 years of income (by their formulas and adjusted for inflation). Assuming that you do not have 35 years of max SS income (you would have had to start work at age 10) then at least some of those years will be zero in the calculation. With some zeros for yearly income in some years, it would be impossible for your benefit to equal the same as someone with 35 years of max income.
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Old 05-15-2010, 04:31 PM   #26
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Similarly, note that Ryan's proposal makes SS solvent partially by reducing benefits. So it would be 60-70% of the reduced benefit. The big reduction is the "progressive indexing" which hits high income workers but not low income workers.
I think I will look like a "low income worker" to the SS formulas. I'll have probably 14-15 years of moderately high earnings when I FIRE (but still not close to the ~$106000 annual limit) plus maybe 7 more years of piddling incomes. But the way I understand their formulas, they will increase my salaries over the years for inflation, then sum them and divide by 35 to figure out my hypothetical average salary over my career. Since half of my 35 highest earning years will be $10,000 or less, many being zero, my "average" salary will probably be around $30,000-35,000 or so in today's dollars. So the fact that progressive indexing hits the high income workers the hardest may not really impact me that much. Another advantage to having the government think you are poor!
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Old 05-15-2010, 10:43 PM   #27
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It is an interesting plan but it would require a commitment on the part of the country to let people who blow their PSAs suck rocks in old age without even the minimal safety net of SS. It is a tough call on whether that would be good or bad.
I don't think it would. The proposal says:
Quote:
At retirement, the participating worker would be required to purchase a life annuity with CPI-indexed payments using the portion of PSA accumulated assets necessary to provide a total monthly payment (including any OASDI monthly benefit under the plan) that is at least equal to 150 percent of the Federal poverty level.
If I understand this correctly, the only part of the account that can be blown, if that means withdrawn and spent, is what remains after the account holder has a lifetime inflation-adjusted income of 1.5 * poverty. Last year that was $16,245 for one person or $21,855 for two, which is certainly not ample, but neither is it the sort of utter destitution that I took "sucking rocks" to describe.
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Old 05-16-2010, 06:27 AM   #28
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i reject any social security 'plan'. abolish it now - stop payments immediately. the money has been spent.

to keep funding it you have to take it from other people.

spending it was wrong - as is bilking the public more to pay it back.

wrong + wrong = ?
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Old 05-16-2010, 09:34 AM   #29
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Just to clarify, one who gets the 4% plus $400 is still being taxed at the current 6.2% tax rate on their earnings, plus the employer pays another 6.2% on their earnings? Or a total tax rate of 12.4%. And the employee gets only 4% plus a flat $400
So a worker earning $30,000 per year would get $1600 ($1200 + $400) put in the "savings account" while paying $1860 plus another $1860 "from the empoyer" or $3720 total. A lot of the ultimate benefit amount will depend on the investment options available in the "savings account" portion of the plan. If it can earn a long term average of 8% annually, then the annuity available at age 65 might be $1900/mo or comparable to SS benefits. If the account is limited to investments earning only 5% (or whatever investments are allowed suffer poor performance) then the annuity might be under $1000/mo.

By the numbers this could be difficult to see a benefit, since a lot will depend on what choices are allowed to be made, and what "safety net" will be used if those choices do not work out well.
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Old 05-16-2010, 12:04 PM   #30
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Here's the language on investment choices:
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any of the following six investment options under Tier II: the default lifecycle fund, a government securities fund, a fixed income fund, a broad representative stock index fund, a small cap stock index fund, and an international stock index fund. The Personal Social Security Savings Board (PSSSB) would combine the assets of individuals for the purpose of transactions with private investment firms. Upon achieving a total PSA balance equivalent to $25,000 in 2011 (CPI-indexed thereafter), a broader range of investment options would be available in the Tier III fund. These options would be provided by qualified private investment companies, but would still be combined by the PSSSB for transactions with the investment firms. Due to the nature of the accounts, an ultimate annual administrative cost of 0.25 percent of PSA assets is assumed to be reasonable.
There is a side guarantee of at least CPI+0%.

I'm not sure if I follow your calculation. $1,900 a month seems bigger than the SS benefit on a $30k salary.
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Old 05-16-2010, 12:20 PM   #31
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That's because there is a lot of inflation to account for. I did a rough approximation based on a constant salary, but in the real world salaries go up like inflation, sort of, and there are SS formulas to adjust for that. A worker currently making $30,000 was probably making under $10,000 35 years ago, and possibly for many of those 35 years. Current SS calculators will "adjust" for that, while I was trying to project forward and tried to do it in constant (current) dollars. OTOH, if you want to project inflation forward, a worker with a $30,000 salary now, will likely make a lot more than that 35 years in the future.

In short, it looks like small adjustments in assumptions make big differences in benefits. Hard to compare the options with that much unknown variability in play.
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Old 05-17-2010, 08:51 AM   #32
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That's because there is a lot of inflation to account for. I did a rough approximation based on a constant salary, but in the real world salaries go up like inflation, sort of, and there are SS formulas to adjust for that. A worker currently making $30,000 was probably making under $10,000 35 years ago, and possibly for many of those 35 years. Current SS calculators will "adjust" for that, while I was trying to project forward and tried to do it in constant (current) dollars. OTOH, if you want to project inflation forward, a worker with a $30,000 salary now, will likely make a lot more than that 35 years in the future.

In short, it looks like small adjustments in assumptions make big differences in benefits. Hard to compare the options with that much unknown variability in play.
I see that I was mentally backing out inflation and you weren't.

I think your last sentence is important. If we had a voluntary PSA, people would have to decide, and their decisions have long term impacts. I expect that most people would struggle to understand the complexities of the rules (e.g. What happens if I retire early?), and doing a mathematical analysis is even harder. I'm not saying that's sufficient reason to avoid PSAs, but it is a real complication.
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Old 05-17-2010, 09:18 AM   #33
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Here's the language on investment choices:

Stock index, international, small cap blah blah blah...

There is a side guarantee of at least CPI+0%.
Sweet! So we can try to shoot the moon in our PSA and if we fail miserably, then we still get CPI+0% as a consolation prize for playing.
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Old 05-17-2010, 01:33 PM   #34
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I tend not to trust anything where I feel an urge to set up simulations to search a parameter space for minima and maxima.

But that's just me...
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