More SS undermining

[bbbamI]

In that case I must be a fossilized fossil.

Mmmm...perhaps I was a bit harsh proclaiming fossilism.... Hey, I imagine you and I are both well[-] pickled [/-] preserved....

 

[chinaco]

Of course the adviser is going to say don't include SS.... more fees for larger savings.

 

[FIRE'd@51]

As everyone knows, the reason SS has a surplus is because SS has been taking in more from taxes than it pays out in benefits. In about 6-7 years, this will reverse, and the difference will have to be made up by drawing down the surplus. Sometime around 2035-2040 the surplus will be gone, and the then level of benefits will not be able to be paid. At this point SS benefits will have to be cut significantly, or taxes raised significantly.

There is nothing inherently wrong with the current surplus being invested in government securities. We certainly wouldn't want the SS trust fund to simply hold cash and get a 0% (or less in real terms) return. The problem is that the trust fund has only been earning about 2% after inflation on the government securities it holds, not enough to grow the surplus fast enough to offset the coming decline in receipts from SS taxes.

IMO, the least painful way to fix this would be to increase the rate of return that the the trust find earns on the surplus. But current law requires that the surplus only be invested in non-marketable government securities. If Congress changed this law, and allowed a portion of the surplus to be invested in stocks (as is the case with any defined-benefit pension plan, public or private), presumably over 30-40 years the rate of return could be increased and the problem would go away (the magic of compounding). Unfortunately, because the entire surplus has already been lent (invested in government securities), there is no money in the trust fund to be invested in stocks. To come up with the money to invest in stocks, the government would have to stop rolling over the maturing securities and either pay down the deficit or borrow the money elsewhere.

 

[samclem]

If Congress changed this law, and allowed a portion of the surplus to be invested in stocks (as is the case with any defined-benefit pension plan, public or private), presumably over 30-40 years the rate of return could be increased and the problem would go away (the magic of compounding).

-Do we really want the government to become a major a stockholder in more private companies?

- Also, how are politicians going to continue to tell people that they shouldn't have private SS accounts because the market is simply too risky if they invest the government money in the same markets? It would be a sticky political problem that few have a vested interest in solving.

 

[MasterBlaster]

Fired@51:

You have eloquently described SS given that a trust fund actually exists independent of anything else.

In reality, the bond markets will see that unlimited borrowing and indebtedness to fund SS/medicare and other programs will be prohibitivly expensive. Changes and cuts are likely going forward.

 

[FIRE'd@51]

-Do we really want the government to become a major a stockholder in more private companies?

This is a valid objection. However, state government pension plans already invest in the stock market. I'm sure a way can be figured out to eliminate any problems associated with the government owning stock (maybe not allowing the government to vote the shares).

Also, how are politicians going to continue to tell people that they shouldn't have private SS accounts because the market is simply too risky if they invest the government money in the same markets? It would be a sticky political problem that few have a vested interest in solving.

A pension plan, whether public or private, can "diversify over time", so that the plan can still pay the defined benefit to an employee who retires during a bear market. An individual can't do this, and this is my main objection to private accounts.

 

[ronocnikral]

ss is an insurance plan, not a pension plan.

 

[keegs]

Fired@51:

In reality, the bond markets will see that unlimited borrowing and indebtedness to fund SS/medicare and other programs will be prohibitivly expensive. Changes and cuts are likely going forward.

If by other programs you mean the country continues to operate under the notion that the insurance and health care industries will solve our second to none healthcare cost problem, that wars of choice should be kept off budget and that tax cuts pay for themselves....I agree.

 

[FIRE'd@51]

ss is an insurance plan, not a pension plan.

Calling it an insurance plan doesn't solve the underfunded problem. If you take out the disability payments and death benefits it pays, it functionally acts like a defined-benefit pension plan.

 

[keegs]

As everyone knows, the reason SS has a surplus is because SS has been taking in more from taxes than it pays out in benefits. In about 6-7 years, this will reverse, and the difference will have to be made up by drawing down the surplus. Sometime around 2035-2040 the surplus will be gone, and the then level of benefits will not be able to be paid. At this point SS benefits will have to be cut significantly, or taxes raised significantly.

There is nothing inherently wrong with the current surplus being invested in government securities. We certainly wouldn't want the SS trust fund to simply hold cash and get a 0% (or less in real terms) return. The problem is that the trust fund has only been earning about 2% after inflation on the government securities it holds, not enough to grow the surplus fast enough to offset the coming decline in receipts from SS taxes.

IMO, the least painful way to fix this would be to increase the rate of return that the the trust find earns on the surplus. But current law requires that the surplus only be invested in non-marketable government securities. If Congress changed this law, and allowed a portion of the surplus to be invested in stocks (as is the case with any defined-benefit pension plan, public or private), presumably over 30-40 years the rate of return could be increased and the problem would go away (the magic of compounding). Unfortunately, because the entire surplus has already been lent (invested in government securities), there is no money in the trust fund to be invested in stocks. To come up with the money to invest in stocks, the government would have to stop rolling over the maturing securities and either pay down the deficit or borrow the money elsewhere.

Fire,

Our fiscal ills are a direct result of a tax, spending and deregualtion agenda not seen since the Reagan administration.

We're not going to fix SS without policies that address the aforementioned root causes.

 

[FIRE'd@51]

Fire,

Our fiscal ills are a direct result of a tax, spending and deregualtion agenda not seen since the Reagan administration.

We're not going to fix SS without policies that address the aforementioned root causes.

Fine. If your choice is to fix SS by raising taxes and cutting benefits, go for it. I was trying to suggest another "less painful" way.

If you were working for a private company that had a defined-benefit pension plan, and the plan sponsor suggested that the plan only invest in government securities, and by the way, your payroll deductions would be increased and your benefits would be reduced due to lower expected returns, would you applaud that suggestion?

 

[keegs]

Fine. If your choice is to fix SS by raising taxes and cutting benefits, go for it. I was trying to suggest another "less painful" way.

If you were working for a private company that had a defined-benefit pension plan, and the plan sponsor suggested that the plan only invest in government securities, and by the way, your payroll deductions would be increased and your benefits would be reduced due to lower expected returns, would you applaud that suggestion?

Fire,

I'm not paticularly opposed to this idea but can you identify a state that can claim that this approach avoided or resolved their employee pension funding woes?

 

[FinanceDude]

Of course the adviser is going to say don't include SS.... more fees for larger savings.

Yeah, that HAS TO BE THEIR only reason....good thing ya got a disclaimer in red........

 

[Pie Floater]

I'm interested in opinions on what the government might do with benefits already being received by SS recipients. Do you think the folks already receiving checks are going to see their paychecks cut or their COLA cut out or reduced.

Both my parents and the wife's parents rely heavily on SS. They are all 4 very spry and I could see all 4 living into their 90s. I'd hate to see their benefits cut to the point of not being able to live independently.

Any thoughts on whether SS cuts will be fazed in for future folks or is it possible to see the cut like I mention above?

 

[ronocnikral]

I'm interested in opinions on what the government might do with benefits already being received by SS recipients. Do you think the folks age going to see their paychecks cut or their COLA cut out or reduced.

Both my parents and the wife's parents rely heavily on SS. They are all 4 very spry and I could see all 4 living into their 90s. I'd hate to see their benefits cut to the point of not being able to live independently.

Any thoughts on whether SS cuts will be fazed in for future folks or is it possible to see the cut like I mention above?

do newspapers run articles with young workers talking about how hard it is to make ends meet? or do you get the article with a white haired old lady who acts sweet and talks about how she can't put food on the table. no sympathy here, sorry.

my solution is highly unpopular. i think we should follow the french and raise the retirement age on anyone younger than 62. and get payments in check.

and no, i don't believe the job market is zero sum.

 

[Pie Floater]

do newspapers run articles with young workers talking about how hard it is to make ends meet? or do you get the article with a white haired old lady who acts sweet and talks about how she can't put food on the table. no sympathy here, sorry.

my solution is highly unpopular. i think we should follow the french and raise the retirement age on anyone younger than 62. and get payments in check.

and no, i don't believe the job market is zero sum.

The 4 folks that I am talking about are all in their 80s and none of them have a snowballs chance of finding a job. In good times or in bad.

I have no problem with them gradually raising the retirement age. It would give incentive to younger folks to save for old age. They would not do it voluntarily I suspect, but at least they know what the consequences are. SS was a false sense of security for the last generation.

 

[ERD50]

Bold mine

Both my parents and the wife's parents rely heavily on SS. They are all 4 very spry and I could see all 4 living into their 90s. I'd hate to see their benefits cut to the point of not being able to live independently.

Others have mentioned that the original intent of SS was to be one leg of a three-legged stool. So if you rely on one leg too heavily, well you might not always be able to get what you want, but you might get what you need.

Any thoughts on whether SS cuts will be fazed in for future folks or is it possible to see the cut like I mention above?

The 4 folks that I am talking about are all in their 80s...

I really doubt that enough politicians could agree to cut SS significantly for people in their 80s. That's the last group that has this worry.

-ERD50

 

[ronocnikral]

The 4 folks that I am talking about are all in their 80s and none of them have a snowballs chance of finding a job. In good times or in bad.

I have no problem with them gradually raising the retirement age. It would give incentive to younger folks to save for old age. They would not do it voluntarily I suspect, but at least they know what the consequences are. SS was a false sense of security for the last generation.

my point is...politicians, and I believe americans in general, would rather break the backs of the working population than let am old person starve.

ditto to what is above.

 

[donheff]

I think the advice was just plain dumb. An FA telling you SS will not likely be there is making a political statement, not a financial statement. Worst case scenarios have SS benefits reduced by 25% not eliminated. On the other hand, it is reasonable to choose to ignore SS as a technique to force extra savings to fund an ER or better assure a good regular retirement. No different really than assuming a much lower than likely growth rate on your investments. If the advisor simply suggested that thinking OK -- but dire warnings that SS will not be there is misleading financial advice.

 

[FIRE'd@51]

Fire,

I'm not paticularly opposed to this idea but can you identify a state that can claim that this approach avoided or resolved their employee pension funding woes?

Perhaps a good part of the states' pension "funding woes" are the result of benefit promises that are out of line with their funding capabilities. In general, the benefits are relatively more attractive than SS both in terms of retirement age and $, especially for higher income workers. In any case, how would restricting the state pension plans to only investing in government securities improve this situation over the long term?

 

[keegs]

Perhaps a good part of the states' pension "funding woes" are the result of benefit promises that are out of line with their funding capabilities. In general, the benefits are relatively more attractive than SS both in terms of retirement age and $, especially for higher income workers. In any case, how would restricting the state pension plans to only investing in government securities improve this situation over the long term?

That wasn't the case even ten years ago Fire. State budgets are in crisis today because we deregulated the financial industry, because we've bought into this notion of a free lunch e.g. tax cuts can pay for themselves and because our political system is incapable of addressing the extraordinary rise in healthcare costs....the largest portion of any state budget today.

I don't think DB pensions in the public sector will survive in either case due largely to taxpayer resentment. One would have to go back thirty years to find the origins of that resentment. And if you take Germany as an example, one can conclude that globalization isn't the only reason for this.

A similar dynamic is taking place with Social Security....It's burden on the future generations,..... the certainty of it's demise, ....characterizations of it as another welfare program.....

We've all been mugged.

 

[ERD50]

... and because our political system is incapable of addressing the extraordinary rise in healthcare costs....the largest portion of any state budget today.

We've all been mugged.

Our political system is probably the single most significant cause of the "extraordinary rise in healthcare costs".

The housing & credit bubble was a large (if not the largest) part of the financial meltdown that brought down the value of pension & 401K funds. And it was the political system that encouraged it.

We are getting mugged indeed.

-ERD50

 

[GregLee]

How could SS or public pensions ever be reduced? What would be the mechanism? I don't see how it could be done by legislatures, because retirees are voters, there are a lot of them, and there are going to be more.

 

[FinanceDude]

How could SS or public pensions ever be reduced? What would be the mechanism? I don't see how it could be done by legislatures, because retirees are voters, there are a lot of them, and there are going to be more.

Uh, because we can't afford the promises the politicians made?

 

[GregLee]

Uh, because we can't afford the promises the politicians made?

That's a reason for cutting benefits. My question was about the mechanism for cutting benefits. Would checks to retirees be reduced in their amounts? On whose authority? Or would banks stop honoring the checks? What would actually happen?