Two linked problems & solutions: retirement savings and Social Security/Medicare

[Texas Proud]

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Originally Posted by Ed_The_Gypsy dex, I understand that it is virtually impossible to qualify for SSI disability. Expect it to get harder.

Then the inlaws of my sister have found the loophole in the 'virtually impossible' as there are 4 of the 6 kids from her husband's family on SSI disability...

The other way they pay for themselves is to do a stint in jail...

[Texas Proud]

The problem is that bringing it to the front that to save SS etc. we will want people to work longer and die younger is not a good political move...


As an example... remember the smoking lawsuits that the states had against the tobacco companies Basically they sued them saying that because smoking caused cancer etc., the states had to pay our more on healthcare... and the tobacco companies were liable for this extra cost....

Well, some lawyer figured out the smoking actually saved the states money as smokers died younger and quicker... but they did not use this defense for some reason...

[Martha]

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Originally Posted by Texas Proud I would think most companies stop health insurance when you qualify for medicare.... the last two I have been with did not offer it....

Age discrimination.

[ziggy29]

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Originally Posted by Texas Proud The problem is that bringing it to the front that to save SS etc. we will want people to work longer and die younger is not a good political move...

As I see it we have competing interests that seem mutually exclusive.

On one hand, we could say we want people to w*rk longer to make SS more secure. On the other hand, we want to reduce involuntary unemployment among people who still need to w*rk. Yet these seem at odds with each other; raising the full retirement age to 70 would create that many more people aged 62-70 who still need to find w*rk or stay employed longer than they had planned, thus making the job situation even worse.

It's quite a corner we've backed ourselves into.

[Martha]

I think the big problem is that people assume they can work "forever" but they will find out that they can't; maybe because there isn't an employer that will want them or they are no longer physically or mentally able to do the job.

[clifp]

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Originally Posted by samclem There is no fixed number of jobs. If/when more people come in to the labor market, wages will go down and more people will be hired (eventually) as the US becomes more competitive with foreign labor rates. We don't have to match Sri Lankan hourly rates for US workers and businesses to become more competitive and for our economy to flourish and employment rates to stay high. The US infrastructure, transparent corporate governance, good capital markets, and high English literacy are all significant plus factors that will allow us to do well in a global economy--but not if we are paying workers $30 per hour. So, we'll see a drop in hourly pay from the artificially high levels that we enjoyed from WW-II through the mid-70s. America, welcome back to the real world, the same one our grandparents knew. In this environment, you want to be an investor and have your capital producing your income. If you are earning a living by the sweat of your brow, life will not be a picnic. The older folks will be there alongside everyone else.

I think Sam is right. There is no reason we can't have more job in the US (or the world for that matter) it is really a function of wages, productivity and the amount of capital available.

We are already starting to see some company bring back some jobs to the states that outsourced to India. The generic call center/chat center jobs are ideally handled by senior citizen. Their life experience often make the more emphatic than a 20 year with his first non McDonald job. Even if the worse NY or southern accent is more understandable to me than a typical Indian accent. I imagine companies are even willing to pay premium for American workers, the problem is that number is certainly closer to 50-100% higher wage, not the 5 or even 10x differential we have seen in the past.

[MichaelB]

The only thing I've seen this year is from Gary Shilling’s newsletter

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A recent study found that the average 55-year old worker will need to work two years more to replace 401(k) losses in 2008.

The study is not attributed, does not cover the entire work force, only includes 401K – does not mention taxable investments, IRAs, loss of home equity, etc. Still, using these numbers as a starting point, some assumptions and numbers:

A person stays in the workforce beyond current expectations, earning $15 per hour.
$15 x 40 hours x 52 weeks @15.2% tax = $4772 in additional payroll tax. The US labor force is 150 million people. If 10% work 2 additional years they contribute an additional $143B to SS & Medicare. Compare this with the newly revised SS trustee projected 10 year surplus at $25B.

The trustees factored in the lower recession-driven contributions but do not allow for postponed retirements to offset loss of wealth, nor is it included in their list of potential remedies.

Jobs are and will continue to be there. Of course, wages will be low because competition will be high. An additional likely effect is lower wage inflation, which should keep total inflation lower as well and reduce the possibility of chronic inflation.

[Independent]

If I understand this correctly, the thought is that the switch from DB to DC pension plans makes workers less prepared for retirement. This means that we should see people working longer, increasing the revenue to SS and Medicare.

I think MichaelB is correct in trying to do some math. I'd look at it from this angle: Suppose workers had been averaging 40 years of work before retirement. Due to the DB/DC issue, they will average 42 years in the future. That's an increase of 5% in working years, and hence 5% additional payroll taxes. The SS shortfall is about 1/3 of payroll tax. So increasing tax revenue by 5% is worth something, but it wouldn't close the gap.

[Texas Proud]

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Originally Posted by clifp I think Sam is right. There is no reason we can't have more job in the US (or the world for that matter) it is really a function of wages, productivity and the amount of capital available. We are already starting to see some company bring back some jobs to the states that outsourced to India. The generic call center/chat center jobs are ideally handled by senior citizen. Their life experience often make the more emphatic than a 20 year with his first non McDonald job. Even if the worse NY or southern accent is more understandable to me than a typical Indian accent. I imagine companies are even willing to pay premium for American workers, the problem is that number is certainly closer to 50-100% higher wage, not the 5 or even 10x differential we have seen in the past.

An interesting post as I was talking to my sister last night about her job search... she worked for the same employer for over 20 years and was laid off a few months ago.... she was programming and tech writing... so a headhunter calls and wants her to work on a tech phone bank... for $10 per hour!!! As she said, I make more in unemployment than that... so no thanks..

But, if you are expecting to get educated people to work phone banks, I think you will have to pay more than $10... since she was told she could be working at any time of day or night.. as they are a 24/7 phone bank...

[samclem]

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Originally Posted by Independent Suppose workers had been averaging 40 years of work before retirement. Due to the DB/DC issue, they will average 42 years in the future. That's an increase of 5% in working years, and hence 5% additional payroll taxes. The SS shortfall is about 1/3 of payroll tax. So increasing tax revenue by 5% is worth something, but it wouldn't close the gap.

Right, an analysis is in order. At a back-of-the-envelope level of fidelity, I'd guess that the average extension of working time will probably exceed 2 years if what I read about the savings rate of Americans is accurate. Also, as far as SS taxes paid, if workers hang on to their regular careers (rather than getting a part-time job), then those last few added years will be at relatively high pay (generating more taxes) compared to the earlier years-- so even just a 5% increase in working years might increase their payroll taxes paid by 7-10%. And, they'll be paying regular income taxes, too, which will help with the overall federal budget picture.

Still, I agree it's unlikely to solve the entire problem. Another part of the answer might come at the other end--decreasing number of years people get SS checks. If the government would stop all this smoking cessation stuff, let Phillip Morris back on TV (broadcasters need the ad revenue--this is a stimulus!), and stop nagging McDonalds about trans fats, we could make some progress there. While at first it might seem that the new CAFE standards are going to be a helpful step in increasing mortality, it's not going to work. Most of the people killed as a result of that government mandate will be youngsters (paying into the system), not the helpful deaths we need among the older population. I think it's likely the social policy engineers are ahead of us--there's real potential that the new national health care program and the ensuing rationing of care for those who have become net "takers" could start moving the numbers in the right direction. A modest proposal.

This would be a good thesis topic for a quantitatively-inclined student seeking an MA in public policy, or maybe econ.

[ziggy29]

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Originally Posted by Independent I think MichaelB is correct in trying to do some math. I'd look at it from this angle: Suppose workers had been averaging 40 years of work before retirement. Due to the DB/DC issue, they will average 42 years in the future. That's an increase of 5% in working years, and hence 5% additional payroll taxes.

This assumes there are suddenly 5% more jobs out there to accommodate the labor pool becoming 5% larger. Otherwise you're not so much collecting more revenue for SS and Medicare as you are writing more unemployment checks. And that's before even factoring in the potential that there would be a lot more people in the workforce facing age discrimination issues.

[dex]

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Originally Posted by ziggy29 This assumes there are suddenly 5% more jobs out there to accommodate the labor pool becoming 5% larger. Otherwise you're not so much collecting more revenue for SS and Medicare as you are writing more unemployment checks. And that's before even factoring in the potential that there would be a lot more people in the workforce facing age discrimination issues.

You are hitting on one of the major problems facing the world a 50% increase in population by 2050 - majority in the developing world.

[samclem]

But more people require more goods and services=more jobs. There's no reason to think the markets will stop working as they've worked in the past.

The trick will be for the US to find a niche where we enjoy a comparative competitive advantage. We probably don't want to be part of the race to the bottom, trying to outcompete Vietnamese earning $3 per day assembling plastic toys. I'm not optimistic that our education system (and society in general) is cranking out large numbers of workers with the reasoning and communication skills needed for the knowledge-based economy (and whatever comes next). Now, if there's some industrial requirement for people with indepth knowledge of the Brangelina intrigue or Guitar Hero skills, we are all set.

[dex]

http://www.nytimes.com/2009/06/10/bu...nhardt.html?hp

[Independent]

Quote:

Originally Posted by samclem Still, I agree it's unlikely to solve the entire problem. Another part of the answer might come at the other end--decreasing number of years people get SS checks. If the government would stop all this smoking cessation stuff, let Phillip Morris back on TV (broadcasters need the ad revenue--this is a stimulus!), and stop nagging McDonalds about trans fats, we could make some progress there. While at first it might seem that the new CAFE standards are going to be a helpful step in increasing mortality, it's not going to work. Most of the people killed as a result of that government mandate will be youngsters (paying into the system), not the helpful deaths we need among the older population. I think it's likely the social policy engineers are ahead of us--there's real potential that the new national health care program and the ensuing rationing of care for those who have become net "takers" could start moving the numbers in the right direction. A modest proposal. This would be a good thesis topic for a quantitatively-inclined student seeking an MA in public policy, or maybe econ.

I tend to agree. I'd guess that things which tend to kill people toward the end of their working careers ("early" heart attacks, lung cancer) save the taxpayers in total. With all the research out there, you'd think that someone would have studied this, but I've never seen it.

[Independent]

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Originally Posted by ziggy29 This assumes there are suddenly 5% more jobs out there to accommodate the labor pool becoming 5% larger. Otherwise you're not so much collecting more revenue for SS and Medicare as you are writing more unemployment checks. And that's before even factoring in the potential that there would be a lot more people in the workforce facing age discrimination issues.

I wouldn't expect the jobs to appear "suddenly", but I would expect them over the long term. This is one of the places where long term and short term effects are different. In today's economy, older workers who suddenly decided to defer retirement because of the market drop are probably taking jobs that could have gone to younger workers.

But, over the long run, "supply creates demand". Experience has shown that when we get more workers, and greater productivity per worker, we simply consume more.

One other complication, over the last 60 years Americans have earned more in almost any job category than people in other countries. As we get more globalized, that gap has to narrow. But this is going to happen whether we retire at 63 or 65.