Retirement Security for All

[samclem]

I think Sam was referring to my post. The difference is that the current SS system has graded benefits that reflect what you earned when you were working. My suggestion was that everyone gets the same flat, minimal benefit.

Yes. No "progressive" payout as there is with SS. Everyone pays the same absolute $$ in and receives the same absolute $$ out (per month--the ultimate value of the payout depends on how long the recipient lives).

Next we have to decide if these are individual benefits or family benefits. I'd say it's most equitable if these are individual benefits earned via an individual work record. If Mr and Mrs Smith want two of these safety-net level checks in their retirement years, then they both would need to have a work history. I suppose the plan could also include provision for electing a "survivor's benefit" payout based on joint life expectancy.

Yes, an "absolute" Libertarian might balk at the idea of any govt seizure of personal assets for this purpose. I'm sympathetic to that. But given the real situation (a Supreme Court that is not strictly constructionist in outlook and which will not prohibit government wealth transfers), this is probably the least intrusive way to prevent steps that would be far worse.

It could also be done at the states, rather than at the federal level. I'm sure NY would set higher taxes and greater benefits than MS. That's the way the cookie crumbles--the taxes and benefits established by the states would be yet another factor that allowed states to tailor programs to suit their situations.

 

[haha]

We have to accept the unfortunate conclusion that the majority of Americans are ignorant about personal finances. Never mind the debt and credit problems that so many get themselves into. Was reading an article in Money magazine that stated 45% of Americans believe that 10-15% is a safe withdrawal rate to keep their retirement savings from running out, 26% believe 7% is a safe withdrawal rate. Unless we can fine a good way to educate our folks on finances...

The difficulty is that most non-masochists would turn and walk away if told that from $1million they could only safely take $35-$40,000.

ha

 

[GregLee]

I personally like the option I read in a SF book long ago. Let those who can't or don't want to work live in cheap housing, eat nutrutious if not delicious food, have free pot, beer, and cable TV. That will keep them happy. Then those who like to work or want a better lifestyle can get on with it.

I think there was a Robert Heinlein story whose premise was that when taxes rates were reduced, private companies became so much more productive that the government had to somehow avoid controlling too much wealth, so it started giving all citizens a "social dividend", sufficient for a comfortable, but not a luxurious, life.

 

[clifp]

Clifp,
It should not be who can do what easier, or fairer. IMHO, a pension is a promise/contract. At the end of a work week, does your employer, look around and distribute the weeks payroll based on who needs it the most? Or, does he distribute it based on what he promised to pay each individual.

The most successful companies (and not just financial services like Goldman Sacks but even steel companies like Nucor) tie a large portion of employee compensation to the overall profits of the company as well as the output of the employee and/or team. During good times employees may get an additional 10-30% bonus for rank and file employee, and 50% to 200% for managers and executives. During bad times these companies typically ask employees to take pay cuts in the 10+% range first before resorting to mass layoffs (Although in this recession I think they did both.)

I agree that pension are treated as promises/contracts. The problem is that institution making these promises were never in a position to keep them. We know this now, witness Social Security, state pension funds, and the large number of private pension plans being taken over by the PBCG.
It is delusional to think that a company, city, or even country can tell a 25 year old if you save X% of your salary now, we will pay you Y % of your salary in 50 years when you are 75. The only thing we know for certain about the world 50 years from now is that it will be much different than today.

 

[haha]

It is delusional to think that a company, city, or even country can tell a 25 year old if you save X% of your salary now, we will pay you Y % of your salary in 50 years when your are 75. The only think we know for certain about the world 50 years from now is that it will be much different than today.

Well, it came up roses for people who made just that bet with any government entity over the past 50 years or so.

 

[brewer12345]

I think the biggest problem with our current pension system, and many of the proposals is that benefits are completely divorced from the economic situation of the institution (company, city or country) that provides the funding. The Detroit Three pensions are a classic example, other than health care cuts AFAIK GM retirees didn't see their benefits cut until the very end. We are seeing same thing with city and state pensioners, the mere thought of them not getting the mandatory annual increase is causing howls of protest.

I don't believe it is a possible to design a pension system which says if you contribute X$ over Y years we are going to give you a pension of $Z for the rest of your life no matter what happens. The world is too uncertain for us ever to have made that promise and it is irresponsible for us to do so in the future.

We a need a system that recognizes that when the Dow drops from 14,000 to 7,000, interest rates go from 5% to 0%, inflation drops from 3% to 0%, and unemployment jumps from 4.5% to 9.5%, that keeping social security and pension (both public and private) checks the same is crazy.

Now I am not advocating that we tie your pension check size to the Dow Jones directly. We need to buffer and moderate the effects. However, I don't think it is unreasonable to have seen a decrease of 5-10% in SS and pension checks in the last couple of years. Plenty of American families have had to with getting by on one instead of two income, many many more have seen a cut in their hours and/or wages. By and large retirees have accumulated the stuff they absolutely must have cars, houses, clothes and are in a better position than a single mom who's full time job just cut cut back to 20 hours a week to tighten their belt.

I will start by stating that I think the average long term board reader will be unlikely to ever consider me to be a shill for the insurance industry. (i.e. consider yourself warned)

There is a way to do this that is reflective of economic reality, while softening the blow. If you look at the history of the life insurance industry, many mutual insures sell "participating" policies. Put simply, the insurer sells a product (whole life insurance, fixed annuity, etc.) and guarantees certain minimum policy benefits over the long term. These minimum guarantees are typically way "out of the money" and not likely to get triggered in most states of the world. These guarantees are also backed by the insurer's capital base. Anything beyond the minimum guarantee depends on how well the insurer does with a particular block of policies. If they have good insurance experience and/or above expected investment returns, that is reflected over a period of years in the policyholder's return. Conversely, if they have bed experience/results the policyholders take the hit as well.

There are plenty of drawbacks and potential pitfalls to this sort of thing, but there is a model out there. But it is expensive and most of the electorate are firm believers in something for nothing.

 

[clifp]

There is a way to do this that is reflective of economic reality, while softening the blow. If you look at the history of the life insurance industry, many mutual insures sell "participating" policies. Put simply, the insurer sells a product (whole life insurance, fixed annuity, etc.) and guarantees certain minimum policy benefits over the long term. These minimum guarantees are typically way "out of the money" and not likely to get triggered in most states of the world. These guarantees are also backed by the insurer's capital base. Anything beyond the minimum guarantee depends on how well the insurer does with a particular block of policies. If they have good insurance experience and/or above expected investment returns, that is reflected over a period of years in the policyholder's return. Conversely, if they have bed experience/results the policyholders take the hit as well.

There are plenty of drawbacks and potential pitfalls to this sort of thing, but there is a model out there. But it is expensive and most of the electorate are firm believers in something for nothing.

Participating policies, I haven't heard that term in a very long time. I am guessing the insurance industry doesn't push it much lately. But this is essentially what I am talking about.

I also have no objection to what Sam says and W2R is concerned about. I certainly don't want to see homeless old folks living in tent cities, and I more than happy to pay additional taxes/receive lower benefits to support this minimum level of benefits. In my ideal world most retirement saving would be controlled by the individual. However as we know lots of people are clueless about money and the government has some obligation to protect them from their own stupidity. If for no other reason than to keep the rest of us from having to support them in their old age. So I would favor requiring a mandatory conversion of a portion of your retirement account into one of participating annuities.

So for example at age 68 you had 1 million saved up in your retirement account and the minimum 'pension' benefit was say $1500 month, you'd need to purchase one of these annuities that paid at at least $1500/month. How you investing the remaining money was up to you but taxpayers would no longer be on the hook if you meet Bernie Madoff...

 

[M Paquette]

I think there was a Robert Heinlein story whose premise was that when taxes rates were reduced, private companies became so much more productive that the government had to somehow avoid controlling too much wealth, so it started giving all citizens a "social dividend", sufficient for a comfortable, but not a luxurious, life.

"Beyond This Horizon"

The citizens received an annual dividend courtesy of the social credit, an oldie but goodie, where supposedly surplus production, a sort of economic growth, would be balanced by a surplus credit (the value of the production) paid as the dividend. The model proposed by Douglas as his Social Credit system doesn't match up well with modern understandings of economics or monetary systems.

 

[GregLee]

"Beyond This Horizon"

The citizens received an annual dividend courtesy of the social credit, ...

Yes, thank you. That's the one I was thinking of.

 

[harley]

"Beyond This Horizon"

The citizens received an annual dividend courtesy of the social credit, an oldie but goodie, where supposedly surplus production, a sort of economic growth, would be balanced by a surplus credit (the value of the production) paid as the dividend. The model proposed by Douglas as his Social Credit system doesn't match up well with modern understandings of economics or monetary systems.

Yes, thank you. That's the one I was thinking of.

excellent book. But I was actually trying to remember Mercenary from Tomorrow - Wikipedia, the free encyclopedia by Mack Reynolds.

Welcome to the corporate wars! It's a crooked road to world peace...but it works. Warfare between nations has been banned. Taking it's place are the Corporate Wars-full scale battles between mercenary armies hired by large corporations ostensibly to settle trade disputes. But the wars are also free entertainment for the masses. In a world where most jobs have been taken over by automation, free tranquilizers have to be issued to the vast lower class to keep them subdued. The Corporate Wars offer what little excitement their lives hold - deadly serious fighting action - live and in color. But when you play with armies, you play with fire. The world's leaders seem to have forgotten that, but Joe Mauser hasn't.

 

[keegs]

if you're suggesting we follow a model of other countries, i'm sure the average voter would vote down that proposition if given all the facts. while the US is roughly 3.5x larger by population than germany, the US also lacks the generally higher income tax rates, the ~15% or so SS/healthcare tax (other half matched by employer) and the 19% VAT.

if we could "fix" SS to keep it solvent for an infinite number of moons and distribute the burden of that balance to everyone, i would be happy to turn it more into a limited insurance program to provide basic necessities to those who are unable to. of course, the debate then turns into what are "basic necessities."

Morning Ron,

I was responding to Dex's comments regarding labor costs and US global competitiveness (or perhaps the lack thereof).

Clearly we're not going to maintain our living standard exporting tube socks but I don't believe labor costs tell the whole story here. As I pointed out, Germany has maintained a competitive manufacturing sector despite its relative high cost structure, including as you mention, its very high taxes.

So what's their secret and how can we steal it? That's my point.

Perhaps some of our problem here in the US (assuming you see this as a problem of course) has to do with corporate quarterly earnings pressures and perhaps to court rulings as it relates to shareholder rights etc..etc.....

For example there's the odd businesses model like Costco, which routinely outperforms its competitors only to take a pounding from WS for its generous hourly compensation packages. It's interesting to me that corporate executives aren't likewise taken to task or to court for their bazillion dollar pay packages or their reckless management decisions.

So maybe one could conclude this has something to do with the golden rule?

As this all relates to SS though...my position is that it's fully funded until 2040. I have never in all my forty years in the labor force been unemployed. I have allot of skin in the game. The Mrs. as well.

I'm in favor of lettng actuarial science determine what adjustments need to be made to sustain it (SS) beyond that point but there's time for that.

 

[keegs]

The good folks of New Jersey should not be taxed to help the economy of Texas or any other state other than New Jersey. And, they should not be taxed to build a stadium, art museum, zoo, hotel, local road i.e. one not used for interstate commerce, or anything else Texan's might want. Neither should Texans have to pay for things New Jersey wants.

Yep, you guessed it, I am am not a proponent of the way the commerce clause has been interpreted. "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes".

Rusty,

Can you say how the commerce clause relates to NJ taxpayer contributions to federal spending in Alabama, Alaska, Mississippi, Texas...?

 

[brewer12345]

Rusty,

Can you say how the commerce clause relates to NJ taxpayer contributions to federal spending in Alabama, Alaska, Mississippi, Texas...?

Why argue about this? It is the law of the land and so I am taxed to provide tobacco farmer subsidies, bridges to nowhere in Alaska, Canadian border crossings from West Nowhere, Montana (where the Canuckistani have closed their side of the crossing), and any other damn fool thing you can imagine. But I am tired of being the rented mule of the rest of the US, so I will be splitting in a few years. Good luck with your local funding problems.

 

[Independent]

However as we know lots of people are clueless about money and the government has some obligation to protect them from their own stupidity. If for no other reason than to keep the rest of us from having to support them in their old age. So I would favor requiring a mandatory conversion of a portion of your retirement account into one of participating annuities.

So for example at age 68 you had 1 million saved up in your retirement account and the minimum 'pension' benefit was say $1500 month, you'd need to purchase one of these annuities that paid at at least $1500/month. How you investing the remaining money was up to you but taxpayers would no longer be on the hook if you meet Bernie Madoff...

When I see these mandatory savings schemes I always think the same thing.
1) The gov't is going to take a chunk of my earnings off the top, regardless of my current financial position.
2) I can't get at that money during my working years.
3) When I retire, the only way I can get it is in the form of a monthly check that lasts as long as I live.

I put 1, 2, and 3 together and get something that looks remarkably like Social Security.

 

[harley]

Rusty,

Can you say how the commerce clause relates to NJ taxpayer contributions to federal spending in Alabama, Alaska, Mississippi, Texas...?

The commerce clause relates to EVERYTHING. Without exception. It's the law of the land, and I'm sure that it will soon be interpreted as covering the requirement to buy health insurance. Resistance is futile. You will be assimilated.

 

[samclem]

The commerce clause relates to EVERYTHING. Without exception. It's the law of the land, and I'm sure that it will soon be interpreted as covering the requirement to buy health insurance. Resistance is futile. You will be assimilated.

And its twin, the "general welfare" clause, which also apparently applies to everything, even things that are clearly "individual welfare."

This "general welfare" clause appears exactly twice in the Constitution and only by way of general introduction before more specific responsibilities are enumerated. None of these specific functions involve pensions, supporting the poor, tending to the sick, etc. Is it not likely that the Framers would have maybe provided more guidance if they'd really intended for this "general welfare" function to consume fully 55% of the entire federal budget? When one sees the care with which other items are spelled out, it's clear that if taking care of the elderly and running hospitals were intended to be federal functions then this would have been included in the actual document.

 

[M Paquette]

This "general welfare" clause appears exactly twice in the Constitution and only by way of general introduction before more specific responsibilities are enumerated. None of these specific functions involve pensions, supporting the poor, tending to the sick, etc. Is it not likely that the Framers would have maybe provided more guidance if they'd really intended for this "general welfare" function to consume fully 55% of the entire federal budget? When one sees the care with which other items are spelled out, it's clear that if taking care of the elderly and running hospitals were intended to be federal functions then this would have been included in the actual document.

That's OK. The whole dagnab Federal budget is only worth one line (Article 1, Section 9). You'd think something that humongous and contentious would have more text. Of course, it's been in trouble ever since Jefferson, Hamilton, and Madison bailed out the States in 1790. Goldurn spendthrifts...

 

[kyounge1956]

You are looking for a solution before determining why pensions were eliminated. Basically, the current (employer contribution) and continuing (after employee retired) contributed to higher labor costs and a resulting product cost that was not competitive with non USA mfgs. So, pensions were eliminated and eventually, the companies outsourced the labor to lower priced areas or went out of business.

So the answer needs to address the pension and possible other issues - increased labor costs resulting in unemployment and/or companies going out of business or increased taxes with similar results.

One suggestion that does not increase labor costs would be to require all workers to put a % of their gross salary into a plan where the $ was segregated and invested conservatively (e.g. US treasury Bonds and world stock fund; % allocation determined by age) and the pot of money at a retirement age was theirs or if they died prior to retirement the $ went to their beneficiaries. The $ could not be touched by gov't in any way and could be administered by a commission.

No, I'm asking an open ended question, you are presenting a reason you don't think pensions (by which I assume you mean defined benefit pensions) aren't the answer, and an alternative solution, and that's what was supposed to happen.

I don't think your alternative would provide "retirement security for all". To my way of thinking, retirement security does not exist unless it's impossible to outlive your income. The only way I see that your suggestion could provide income for life is if the money were used to purchase an annuity, but annuity prices vary with interest rates at the time of purchase. I had occasion to look up the interest rates on Treasury bonds for another thread a short time ago, and found that rates today are only about half of what they were ten years ago. That means that someone retiring today would get a lower income from their pot of money than an otherwise identical retiree who left the workforce in 2000. They worked the same, earned the same, saved the same, and invested the same, but they are less secure than the retirees from 2000, because they have less income, and/or a lower proportion of their total income is impossible to outlive.

That doesn't sound like "security for all" to me.

I do think your idea of a commission, or some other form of independent administration, is an excellent one. I think it would eliminate a host of problems if retirement funds were not managed by people (either employers or employees) who are in a position to benefit over the short term by winking at the sort of abuses that have been described in other pension-themed threads.

 

[kyounge1956]

(snip) I don't believe it is a possible to design a pension system which says if you contribute X$ over Y years we are going to give you a pension of $Z for the rest of your life no matter what happens. The world is too uncertain for us ever to have made that promise and it is irresponsible for us to do so in the future.(snip)

Why not? Isn't this what insurance companies do when they sell annuities? And they don't just do it, they make a profit doing it. If an insurance company can do it, why not a pension fund?

It may be true that many, or even most, pension systems, have skimped on X & Y, or made Z too high, or both. But that just means they have done their math wrong, not that what they are trying to do is inherently impossible.

 

[NW-Bound]

Yes, you pays your money and you takes your chances. Most people understand that concept.

I'm really hostile to people that have invested in stocks that have appreciated dramatically while I plod along in index funds. When they start feeling sorry for me, then I'll be less hostile.

So, shouldn't people get upset when bankers who made stupid and greedy bets on subprime loans got bail-out money?

And why shouldn't people get upset when they get more taxed to support public pension funds that are underfunded because they overpromised to their beneficiaries and allowed salary spiking?

And why shouldn't people who are not public workers nor work for the above Wall St firms get doubly hostile?

The above said, I have read some posters describe how their public pension fund is conservatively funded and poses no burden to the tax payers. Why should anyone be hostile to that kind of fund? Obviously, many pension funds are not that well funded, else tax payers would not get upset. No?

Why not? Isn't this what insurance companies do when they sell annuities? And they don't just do it, they make a profit doing it. If an insurance company can do it, why not a pension fund?

It may be true that many, or even most, pension systems, have skimped on X & Y, or made Z too high, or both. But that just means they have done their math wrong, not that what they are trying to do is inherently impossible.

Yes, as brewer has said in a post that I quoted below, and if I understand him correctly, it is possible but the payout would not be that great. People want both high yield and low risk, and there is no way to get that.

I will start by stating that I think the average long term board reader will be unlikely to ever consider me to be a shill for the insurance industry. (i.e. consider yourself warned)

There is a way to do this that is reflective of economic reality, while softening the blow. If you look at the history of the life insurance industry, many mutual insures sell "participating" policies. Put simply, the insurer sells a product (whole life insurance, fixed annuity, etc.) and guarantees certain minimum policy benefits over the long term. These minimum guarantees are typically way "out of the money" and not likely to get triggered in most states of the world. These guarantees are also backed by the insurer's capital base. Anything beyond the minimum guarantee depends on how well the insurer does with a particular block of policies. If they have good insurance experience and/or above expected investment returns, that is reflected over a period of years in the policyholder's return. Conversely, if they have bed experience/results the policyholders take the hit as well.

There are plenty of drawbacks and potential pitfalls to this sort of thing, but there is a model out there. But it is expensive and most of the electorate are firm believers in something for nothing.

 

[obgyn65]

+1

The shift in income distribution over the past decades, the resulting hyper-concentration of wealth and income and the overwhelming political clout it has put into the hands of a small group of monied interests has addled the government’s capacity to address what can only be characterized as a moral issue.

 

[kyounge1956]

Wow. I have a much simpler plan.

Step 1) The gov't provides a paygo plan with the same minimal benefit for everyone. Say, anybody over age __ gets $800 per month. The $800 is probably CPI indexed. (snip)
I don't see the advantages of complex mandatory savings schemes. "But what about the people who don't save?" Step 1 provides them a minimal income in their old age. That's all the rest of us should care about.

Even the hard-core libertarians should favor this, if they are realistic. The fact is that the American public will demand that the government (i.e. taxpayers) not let people starve. That's just the way it is, and is gonna stay. If we grant that, then we have to decide how to fund it--is it more "fair" that everyone contribute to this baseline "net" that will provide a check for them, or is it best to make "the rich" pay for a few other people?

Once it is means-tested, it becomes a welfare program.

Sam,

Am I misunderstanding you or have you just described SS? (snip)

I think Sam was referring to my post. The difference is that the current SS system has graded benefits that reflect what you earned when you were working. My suggestion was that everyone gets the same flat, minimal benefit.

Yes. No "progressive" payout as there is with SS. Everyone pays the same absolute $$ in and receives the same absolute $$ out (per month--the ultimate value of the payout depends on how long the recipient lives). (snip)

I'm not sure how this would work out in practice, especially for people at the lowest income levels. Is minimum wage minus "same absolute $$" greater than poverty level, i.e. would someone working full time at minimum wage have enough left to live on in the present, after contributing toward retirement income for the future?

I also wonder how demographics would affect this idea. We've probably all heard about the difficulties expected to arise with SS, at least partly because the soon-to-retire baby boomers are so much more numerous than the generation following us. I just heard recently on the radio that there is a "baby boomlet" expected as the children of the boomers are now reaching childbearing age themselves, so the demographic issue may arise again 70 years from now when all of the boomers' grandchildren are retiring. I've also heard (but it was quite some time ago, so it may not be what current population projections are saying) that by mid 21st century, the U.S. population will level off and then start to decrease, which would make the demographic of a smaller generation coming after a larger one more or less permanent. Would a minimum retirement benefit funded by equal absolute dollar contributions from all workers be financially sound under those circumstances?

I also wonder if the $800 amount was a serious suggestion for the income to be provided by these benefits. That's less than $10K a year. I doubt that it's enough for rent, food and utilities, even sharing living space. Never mind medical care. To me, "retirement security for all" means that nobody, including minimum wage earners, works their whole life only to wind up old and destitute. A benefit of $800 a month doesn't meet that standard, IMO. Or was that just a number pulled out of the air?

 

[samclem]

Amended to reflect the problem as some see it:

The [-]shift in income distribution[/-]growth in the number of people receiving government benefits and simultaneous decline in those paying net income taxes over the past decades, the resulting [-]hyper-concentration of wealth and income[/-]creation of a huge and growing block of voters which benefit from more government spending and higher taxes and the overwhelming political clout it has put into the hands of a [-]small [/-]group of [-]monied interests[/-] people intent on using government to confiscate money from others for their own benefit has addled the government’s capacity to address what can only be characterized as a moral issue (referring to the debt we are leaving our kids).

 

[dex]

Conversation on Coverage | Other Studies and Statistics

 

[dex]

No, I'm asking an open ended question, you are presenting a reason you don't think pensions (by which I assume you mean defined benefit pensions) aren't the answer, and an alternative solution, and that's what was supposed to happen.

I don't think your alternative would provide "retirement security for all". To my way of thinking, retirement security does not exist unless it's impossible to outlive your income. The only way I see that your suggestion could provide income for life is if the money were used to purchase an annuity, but annuity prices vary with interest rates at the time of purchase. I had occasion to look up the interest rates on Treasury bonds for another thread a short time ago, and found that rates today are only about half of what they were ten years ago. That means that someone retiring today would get a lower income from their pot of money than an otherwise identical retiree who left the workforce in 2000. They worked the same, earned the same, saved the same, and invested the same, but they are less secure than the retirees from 2000, because they have less income, and/or a lower proportion of their total income is impossible to outlive.

That doesn't sound like "security for all" to me.

I do think your idea of a commission, or some other form of independent administration, is an excellent one. I think it would eliminate a host of problems if retirement funds were not managed by people (either employers or employees) who are in a position to benefit over the short term by winking at the sort of abuses that have been described in other pension-themed threads.

If we do not have to be concerned with the consequences of the plan there are several easy solutions:
A. Mandate all businesses have a pension plan that guarantees enough income for the life of the person. For those people who did not work or the company goes out of business the federal government picks up the tab.

B. Institute a national sales tax to pay for the program.