Rationing Retirement

[Tekward]

Thought provoking piece on the macro future of retirement. Shock line:

The government must simply means-test public benefits, increase taxes to fund more retirement welfare, ration healthcare resources, and pursue a regime of low interest rates and higher inflation to erode the assets of retirees with large savings balances.

The Risk of Government Policies and the Rationing of Retirement

[timo2]

Based on the article, most of the presenters were first wave boomers. Nothing irritates me more than people older than myself (60)- wanting to mess with my life including cutting my benefits. It's called pulling up the ladder behind you, and the first wave boomers have been doing it to the rest of the boomer generation for years.

If people younger than me want to cut their benefits, go for it.

[daylatedollarshort]

I think there are places where people retire okay without robots or innovation. Maybe they just have tiny houses, don't have cable TV, grow vegetable gardens, use herbal remedies for minor illnesses, borrow books and DVDs from the library, walk or take mass transit and utilize hundreds of other simple living ideas. Then it doesn't cost that much to live, retired or not.

[Independent]

Quote:

Originally Posted by Tekward Thought provoking piece on the macro future of retirement. Shock line: The government must simply means-test public benefits, increase taxes to fund more retirement welfare, ration healthcare resources, and pursue a regime of low interest rates and higher inflation to erode the assets of retirees with large savings balances. The Risk of Government Policies and the Rationing of Retirement

The section titled "Economics Has Its Own Laws of Conservation" is better than much of what I see on retirement from private investment firms.

However, the quote that begins "The government must simply means-test ...." is flat wrong because it has an "and" instead of an "or". The gov't has many options for dealing with a higher ratio of old people. Simply putting a cap on SS benefits (without means-testing) would solve SS without starving any old people. Putting a limit on how much Medicare will pay for, without limiting what people can buy on their own (call that rationing if you must), will solve Medicare.

[JoeWras]

I got a little lost with the Aliens, Robots and Terminators talk.

Talk of "inflating away" our hard earned savings is sobering. But that last odd bit has me discounting this whole article.

If I need robots to wipe my butt, just give me the injection.

[sheehs1]

Quote:

Originally Posted by JoeWras But that last odd bit has me discounting this whole article.

My thoughts exactly when I read that part. Almost like it had no place in this article. Inconsistent to the say the least.

[Gatordoc50]

The trick is to means test the retired wealthy without letting the younger generation find out.

[Animorph]

Quote:

Originally Posted by Tekward Thought provoking piece on the macro future of retirement. Shock line: The government must simply means-test public benefits, increase taxes to fund more retirement welfare, ration healthcare resources, and pursue a regime of low interest rates and higher inflation to erode the assets of retirees with large savings balances. The Risk of Government Policies and the Rationing of Retirement

Good luck trying to keep interest rates low and inflation high.

[2B]

Social security and medicare are already means tested in a sense. The more you made while employed the lower your percentage of benefits you receive versus your contributions. A low wage worker has a much higher amount of their working pay replaced with social security than someone paying the max. To add to the "reduction" for the "wealthy," up to 85% of social security benefits are included in taxable income for those that have "significant" other income. That "significant" income is a mighty $34,000. Remember that we have all paid income tax on our income that was withdrawn as FICA. None of this is a direct "means test" but it certainly reduces the net income for the recipients.

Medicare benefits are the same for the "rich" and "poor." However, higher incomes can result in higher premiums. This income hurdle is fairly high but it again serves as a way of reducing the benefits for those deemed to be too affluent.

[Chuckanut]

Quote:

Originally Posted by Tekward The government must simply means-test public benefits, increase taxes to fund more retirement welfare, ration healthcare resources, and pursue a regime of low interest rates and higher inflation to erode the assets of retirees with large savings balances.

These boys need to learn about the Law of Unintended Consequences.

[foxfirev5]

Quote:

Originally Posted by 2B Social security and medicare are already means tested in a sense. The more you made while employed the lower your percentage of benefits you receive versus your contributions. A low wage worker has a much higher amount of their working pay replaced with social security than someone paying the max. To add to the "reduction" for the "wealthy," up to 85% of social security benefits are included in taxable income for those that have "significant" other income. That "significant" income is a mighty $34,000. Remember that we have all paid income tax on our income that was withdrawn as FICA. None of this is a direct "means test" but it certainly reduces the net income for the recipients. Medicare benefits are the same for the "rich" and "poor." However, higher incomes can result in higher premiums. This income hurdle is fairly high but it again serves as a way of reducing the benefits for those deemed to be too affluent.

Great observation. Far too often we observe the current situation and pick apart one aspect. The big picture is that it's going to cost you one way or another.

[Khufu]

Means-testing will not solve the eventual funding problem with Social Security unless the cut-off level cuts off a lot of middle-class people along with the rich. The reason is that 75% of the Social Security PIA benefits go to retirees who have less than $20,000 in non-SS income as described in this paper from economist Dean Baker:

The Potential Savings to Social Security from Means Testing | Reports

If you want to save 10% of the total amount that the SSA pays out in retirement benefits you have to cut off every individual with a non-SS income of $50,000 per year or more. Is $50k plus SS benefits what is means to be rich in America?

Moreover, if we are discussing denying payments to workers who paid their payroll taxes throughout their working years and were promised benefits, then we are talking about the expropriation of income by the govt. If expropriation has become morally acceptable then curely better candidates can be found than SS recipients. US Treasury Bonds are overwhelmingly held by wealthy people, many of whom do not "need" the interest on the bonds. Why is means-testing of US Treasury Bond interest not discussed as a solution to the SS funding issue or, indeed, for any other govt funding problem?

An alternative would be to raise or remove the cap on the payroll tax, a solution that does not involve expropriation by the govt.

[NanoSour]

Quote:

Originally Posted by Khufu Means-testing will not solve the eventual funding problem with Social Security unless the cut-off level cuts off a lot of middle-class people along with the rich. The reason is that 75% of the Social Security PIA benefits go to retirees who have less than $20,000 in non-SS income as described in this paper from economist Dean Baker: The Potential Savings to Social Security from Means Testing | Reports If you want to save 10% of the total amount that the SSA pays out in retirement benefits you have to cut off every individual with a non-SS income of $50,000 per year or more. Is $50k plus SS benefits what is means to be rich in America? Moreover, if we are discussing denying payments to workers who paid their payroll taxes throughout their working years and were promised benefits, then we are talking about the expropriation of income by the govt. If expropriation has become morally acceptable then curely better candidates can be found than SS recipients. US Treasury Bonds are overwhelmingly held by wealthy people, many of whom do not "need" the interest on the bonds. Why is means-testing of US Treasury Bond interest not discussed as a solution to the SS funding issue or, indeed, for any other govt funding problem? An alternative would be to raise or remove the cap on the payroll tax, a solution that does not involve expropriation by the govt.

That just about covers it. This SS discussion has been going on since the program was enacted. It simply sells advertisements. Mission accomplished by those that reap the benefits.

[Independent]

Quote:

Originally Posted by Khufu Means-testing will not solve the eventual funding problem with Social Security unless the cut-off level cuts off a lot of middle-class people along with the rich. The reason is that 75% of the Social Security PIA benefits go to retirees who have less than $20,000 in non-SS income as described in this paper from economist Dean Baker: The Potential Savings to Social Security from Means Testing | Reports If you want to save 10% of the total amount that the SSA pays out in retirement benefits you have to cut off every individual with a non-SS income of $50,000 per year or more. Is $50k plus SS benefits what is means to be rich in America? Moreover, if we are discussing denying payments to workers who paid their payroll taxes throughout their working years and were promised benefits, then we are talking about the expropriation of income by the govt. If expropriation has become morally acceptable then curely better candidates can be found than SS recipients. US Treasury Bonds are overwhelmingly held by wealthy people, many of whom do not "need" the interest on the bonds. Why is means-testing of US Treasury Bond interest not discussed as a solution to the SS funding issue or, indeed, for any other govt funding problem? An alternative would be to raise or remove the cap on the payroll tax, a solution that does not involve expropriation by the govt.

I agree that means-testing, based on after retirement assets or income, is a bad idea. Baker has good information here regarding how far we would have to take means-testing to fully close the gap.

However, "removing the cap on the payroll tax" does not fully close the gap either. The SS actuaries have run numbers on many ideas. Removing the cap entirely would close about 60% of the gap if we don't give benefit credit for the additional taxes, and somewhat less if we do give benefit credit. See proposals E2.1 and E2.2 here: Individual Changes Modifying Social Security

I suppose that whether cutting benefits is "expropriation" depends on definitions. I know people who would claim that any tax is an immoral "expropriation". So those people would object strongly to raising taxes. I would avoid the word entirely since it seems to add more heat than light.

[Khufu]

Quote:

Originally Posted by Independent However, "removing the cap on the payroll tax" does not fully close the gap either. The SS actuaries have run numbers on many ideas. Removing the cap entirely would close about 60% of the gap if we don't give benefit credit for the additional taxes, and somewhat less if we do give benefit credit. See proposals E2.1 and E2.2 here: Individual Changes Modifying Social Security I suppose that whether cutting benefits is "expropriation" depends on definitions. I know people who would claim that any tax is an immoral "expropriation". So those people would object strongly to raising taxes. I would avoid the word entirely since it seems to add more heat than light.

You misread the SSA graphs. In fact, they make my point that removing the payroll tax cap would completely solve the SS funding problem, except in one, very narrow sense.

Under the E2 funding proposal that you cited, the payroll tax cap is removed and there is no benefit credit above the current cut-off. This proposal would affect the Trust Fund in this way:



The Trust Fund would not be exhausted for the next 63 years while the SSA not only continued to pay full benefits, but also increased the real benefits as planned, over and above the COLAs. It is true that the incoming payroll tax collections alone would not match the outgoing benefit payments, but since the Trust Fund would still be available to make up the shortfall (as it does now and was designed to do) the funding problem would be put off for the next 63 years. It is hard to see by what reasonable standard of funding govt programs this is not effectively a solution to the problem.

Although you and I may not agree with every opinion as to the morality of govt policy choices, that can hardly mean that ignoring the moral implications is therefore justified. The current funding problem with SS is about 50% due to the fact that increases in income over the past 20 years have escaped the payroll tax because they are above the payroll tax cut-off. That to me is profoundly unfair, but then to turn around and threaten to cut benefits to "fix" the problem of diminished payroll taxes to the benefit of the rich and at the expense of the lower income majority is unconscionable.

Morally neutral language for policy discussions is, in fact, not morally neutral. At least not always.

[sheehs1]

Quote:

Originally Posted by Chuckanut These boys need to learn about the Law of Unintended Consequences.

+1
There are arguments for what is "morally correct" on both sides of this fence.

Even the so called Rich who chose to LBYM for decades paying into the system most if not all of their lives, and understood they had a so called "promise" to receive some of it back under the SSN program used it as a part of their retirement planning. To means test it now, possibly even a second time if one considers it was already means tested when they paid into it, ,and EVEN if those same people have a net worth north of a million or more just doesn't seem right. I don't care what the reason is. Whether or not a person "deserved" it at the end of their life and after decades of accumulation was never part of the rhetoric until the last what..10 years or so?? To this way of thinking then SSN is nothing but a "tax".

Once again, I am bothered by the message our government will possibly send to it's citizens if they do this, which is "it doesn't really pay to work" when "you will be taken care of otherwise". Just so darn contradictory to what most of grew up with.

I agree increases the income cap again on wages may help. In the very least it is a start.

[Gatordoc50]

Quote:

Originally Posted by Khufu You misread the SSA graphs. In fact, they make my point that removing the payroll tax cap would completely solve the SS funding problem, except in one, very narrow sense. Under the E2 funding proposal that you cited, the payroll tax cap is removed and there is no benefit credit above the current cut-off. This proposal would affect the Trust Fund in this way: The Trust Fund would not be exhausted for the next 63 years while the SSA not only continued to pay full benefits, but also increased the real benefits as planned, over and above the COLAs. It is true that the incoming payroll tax collections alone would not match the outgoing benefit payments, but since the Trust Fund would still be available to make up the shortfall (as it does now and was designed to do) the funding problem would be put off for the next 63 years. It is hard to see by what reasonable standard of funding govt programs this is not effectively a solution to the problem. Although you and I may not agree with every opinion as to the morality of govt policy choices, that can hardly mean that ignoring the moral implications is therefore justified. The current funding problem with SS is about 50% due to the fact that increases in income over the past 20 years have escaped the payroll tax because they are above the payroll tax cut-off. That to me is profoundly unfair, but then to turn around and threaten to cut benefits to "fix" the problem of diminished payroll taxes to the benefit of the rich and at the expense of the lower income majority is unconscionable. Morally neutral language for policy discussions is, in fact, not morally neutral. At least not always.

I agree that increasing the contributions for some while holding their benefits to current levels should raise revenue. Of course, to be fair we would have to find a way to include all benefits as income. Health insurance, employer retirement contributions, vacation and sick pay, maternity leave, auto and meal allowances, etc. The biggest hurdle would be to figure out the value of DB benefits in the year they were earned.

[Independent]

Quote:

Originally Posted by Khufu You misread the SSA graphs. In fact, they make my point that removing the payroll tax cap would completely solve the SS funding problem, except in one, very narrow sense. Under the E2 funding proposal that you cited, the payroll tax cap is removed and there is no benefit credit above the current cut-off. This proposal would affect the Trust Fund in this way: The Trust Fund would not be exhausted for the next 63 years while the SSA not only continued to pay full benefits, but also increased the real benefits as planned, over and above the COLAs. It is true that the incoming payroll tax collections alone would not match the outgoing benefit payments, but since the Trust Fund would still be available to make up the shortfall (as it does now and was designed to do) the funding problem would be put off for the next 63 years. It is hard to see by what reasonable standard of funding govt programs this is not effectively a solution to the problem. Although you and I may not agree with every opinion as to the morality of govt policy choices, that can hardly mean that ignoring the moral implications is therefore justified. The current funding problem with SS is about 50% due to the fact that increases in income over the past 20 years have escaped the payroll tax because they are above the payroll tax cut-off. That to me is profoundly unfair, but then to turn around and threaten to cut benefits to "fix" the problem of diminished payroll taxes to the benefit of the rich and at the expense of the lower income majority is unconscionable. Morally neutral language for policy discussions is, in fact, not morally neutral. At least not always.

I can see that we differ on the "trust fund". Those extra taxes that would be collected this year, that are supposed to pay benefits 20 years from now, aren't going to be used to buy private stocks and bonds. They will simply disappear somewhere in federal spending. 20 years from now we'll be back to arguing about whether to cut benefits or raise taxes again.

I think SS is only "self funding" when annual taxes = annual benefits.

Table 4 here gives the ratio of taxable earnings to total earnings over time The Evolution of Social Security's Taxable Maximum
Some people seem to think that 1983 had the "right" proportion, and all the others are "wrong". I'm not that sure.

There are people who think that taxing some people to provide "charity" to others is morally unfair. I'm not one of them, but if you want to get into a moral argument you need to recognize their views. I can accept such taxes if the needy are actually going to starve without the transfer. But, I don't see why we should increase taxes on current workers just so someone like me can get a benefit that is clearly more than I need to provide the necessities of life.

(If I could fine-tune the program, I'd remove the tax cap so that we can lower the tax rate on lower income workers, not so we can continue high benefits to high income workers.)

[Gatordoc50]

Quote:

Originally Posted by Independent I can see that we differ on the "trust fund". Those extra taxes that would be collected this year, that are supposed to pay benefits 20 years from now, aren't going to be used to buy private stocks and bonds. They will simply disappear somewhere in federal spending. 20 years from now we'll be back to arguing about whether to cut benefits or raise taxes again. I think SS is only "self funding" when annual taxes = annual benefits. Table 4 here gives the ratio of taxable earnings to total earnings over time The Evolution of Social Security's Taxable Maximum Some people seem to think that 1983 had the "right" proportion, and all the others are "wrong". I'm not that sure. There are people who think that taxing some people to provide "charity" to others is morally unfair. I'm not one of them, but if you want to get into a moral argument you need to recognize their views. I can accept such taxes if the needy are actually going to starve without the transfer. But, I don't see why we should increase taxes on current workers just so someone like me can get a benefit that is clearly more than I need to provide the necessities of life. (If I could fine-tune the program, I'd remove the tax cap so that we can lower the tax rate on lower income workers, not so we can continue high benefits to high income workers.)

Why lower the tax rate on lower income workers rather than just eliminate it?

[Animorph]

Quote:

Originally Posted by Independent I can see that we differ on the "trust fund". Those extra taxes that would be collected this year, that are supposed to pay benefits 20 years from now, aren't going to be used to buy private stocks and bonds. They will simply disappear somewhere in federal spending. 20 years from now we'll be back to arguing about whether to cut benefits or raise taxes again. I think SS is only "self funding" when annual taxes = annual benefits. Table 4 here gives the ratio of taxable earnings to total earnings over time The Evolution of Social Security's Taxable Maximum Some people seem to think that 1983 had the "right" proportion, and all the others are "wrong". I'm not that sure. There are people who think that taxing some people to provide "charity" to others is morally unfair. I'm not one of them, but if you want to get into a moral argument you need to recognize their views. I can accept such taxes if the needy are actually going to starve without the transfer. But, I don't see why we should increase taxes on current workers just so someone like me can get a benefit that is clearly more than I need to provide the necessities of life. (If I could fine-tune the program, I'd remove the tax cap so that we can lower the tax rate on lower income workers, not so we can continue high benefits to high income workers.)

There are specific bonds SS buys, all fully accounted for. The only real problem with them is that SS needs to start cashing them in instead of buying more.