Why rich guys want to raise the retirement age

[scrabbler1]

And it is not worth my time any more to explain over and over again how the SS benefit formula works [Mod Edit]. Best of luck to you, too.

 

[youbet]

My point in mentioning my own particular situation was to rebut the idea raised by one or two others in this thread that the discussion of Social Security issues is primarily driven by self-interest. Both my give and take with Scrabbler1 shows that it's not generally the case.

Incorrect. It illustrates that your views on SS issues are not necessarily driven by your self-interest. But that cannot be generalized to anyone else.

 

[ChrisC]

Incorrect. It illustrates that your views on SS issues are not necessarily driven by your self-interest. But that cannot be generalized to anyone else.

Ok, I admit to imprecision in my language. Thanks for pointing that out.

 

[pb4uski]

Check this out.

Play the Social Security Game | AmericanAcademyOfActuaries

The options that I like the best are increasing the FRA to keep pace with increased longevity since the system began and increasing wages subject to SS (and ajust the higher cap for calculating benefits). These two alone solve 57% of the problem according to this calculator.

The other 43% of the problem could be solved by tweaking the COLA, slightly increasing the payroll tax and increasing the amount of SS subject to income tax.

 

[MichaelB]

Check this out.

Play the Social Security Game | AmericanAcademyOfActuaries

The options that I like the best are increasing the FRA to keep pace with increased longevity since the system began and increasing wages subject to SS (and ajust the higher cap for calculating benefits). These two alone solve 57% of the problem according to this calculator.

The other 43% of the problem could be solved by tweaking the COLA, slightly increasing the payroll tax and increasing the amount of SS subject to income tax.

Thanks for that. A quick and very easy tool to gauge the impact of the different fixes.

 

[Midpack]

Like the earlier reply stated, you're statement in red is terribly misleading at the very least. While income inequality (with payroll tax caps) may contribute, demographics is the overriding issue. Google for yourself, it's well discussed on the ssa.gov site as well...

Nope. Demographics is not the overriding issue.

What your graph of workers per SS beneficiaries actually shows, and why it's not the cause for hand-wringing that you suppose, is a the growth in productivity of American workers. That's the reason that, although the number of workers per beneficiary has declined, the living standards of both the workers and beneficiaries has dramatically increased.

Midpack evidently doesn't recognize a productivity graph when he posts one.

I acknowledged income inequality, and it has impacted Soc Sec revenue as the percentage of the country’s earnings covered by the tax max has dropped from 90 percent in 1983 to 84.2 percent in 2010, and is slated to drop to 83 percent in the coming years. That's a drop of just over 9%.

The changes in number of workers per beneficiary in the decades ahead due to mortality, birth rates, etc. varies, but every one I have seen suggest an impact due to demographics of much more than 9%. The GAO chart (yet another) below shows demographics a factor more like 30% - the Boomer wave is just beginning.

Income inequality is a legitimate issue, but I am not making the overriding connection with Social Security that you allege. If you're suggesting that demographics is not the primary issue (or not at all), you could make the case by showing the effect demographics have and the effect income inequality/productivity have in comparison...

 

[rbmrtn]

Here's another that is for the whole budget...

Budget Simulator | Committee for a Responsible Federal Budget

 

[skyvue]

One thing that annoys me about the article (and many others I have read like it) is the author assumes that by raising the age of when you can begin collecting SS benefits that means you have to work longer. When you decide to collect social security and when you decide to quit working are two different decisions. I would hope nearly everybody could quit working (if they want to) before reaching the age of social secuirty eligibility. Company pensions, your 401k or simply money you have saved post-tax can be used to get you from the age you stop working till the age you begin collecting.

For record, I earn above the current cap on social security income and enjoy paying no SSI taxes for 3-4 months, but I would still be in favor of removing the income cap as a way to make the program solvent for the time being. Also would gradually rise the retirement age. I view these as "more fair" than means testing based on assets which would discriminate against people who have lived below their means their whole life.

 

[haha]

I am not even slightly interested in these simulators. They take some time, and no one will ever ask me what I think is best. The less I think about it, the better I like it.

As I have said before, (likely too often for most readers) we have begun our descent, and the landing will not be pretty no matter what (at least of politically possible moves.) Most of what we might do will only make things worse.

Ha

 

[ERD50]

I am not even slightly interested in these simulators. They take some time, and no one will ever ask me what I think is best. The less I think about it, the better I like it.

I ran through the SS calculator, it was pretty simple, and it seemed that only modest adjustments are needed to get to 100% funding. The budget one looked to be more involved, I guess I'll skip that one.

As I have said before, (likely too often for most readers) we have begun our descent, and the landing will not be pretty no matter what (at least of politically possible moves.) Most of what we might do will only make things worse.

Ha

I'm afraid you are correct. I was recently thinking about a very simple, but extremely powerful political process that, if explained and understood, I think >99% of people would consider to be 'wrong' and would want to see corrected, but it won't happen.

That process is 'gerrymandering', adjusting congressional districts to maximize the number with a majority of one party - whichever group is in power uses it to their advantage. But they are in power, so who the heck is going to change it? Like most things, I fear we will need to hit crisis mode before any action is taken. But at that point, the action is (needlessly) painful.

So if something so universally seen as simply wrong has no hope of change, what hope is there for more complicated cases, like SS, which has winners and losers in almost every decision point?

I just watched a documentary on Thomas Jefferson - he said he expected a bloody revolution every 20 years - that is how long he thought it would take for any group in power to gain so much power that they needed to be forcibly outed! Geez, I hope it wouldn't come to that, but it makes one wonder.

-ERD50

 

[Midpack]

Here's another that is for the whole budget...

Budget Simulator | Committee for a Responsible Federal Budget

I thought this thread was about Soc Sec?

I am not even slightly interested in these simulators. They take some time, and no one will ever ask me what I think is best. The less I think about it, the better I like it.

As I have said before, (likely too often for most readers) we have begun our descent, and the landing will not be pretty no matter what (at least of politically possible moves.) Most of what we might do will only make things worse.

I assume you're talking about deficits in general. Soc Sec is no where near as big a problem as Medicare or total spending anyway, as you're well aware...

I just watched a documentary on Thomas Jefferson - he said he expected a bloody revolution every 20 years - that is how long he thought it would take for any group in power to gain so much power that they needed to be forcibly outed! Geez, I hope it wouldn't come to that, but it makes one wonder.

That would mean we'd be on our 10th or 11th "bloody revolution" by now, AFAIK we've had one - but you still "wonder" about the wisdom of Jefferson's quote?

 

[Khufu]

I acknowledged income inequality, and it has impacted Soc Sec revenue as the percentage of the country’s earnings covered by the tax max has dropped from 90 percent in 1983 to 84.2 percent in 2010, and is slated to drop to 83 percent in the coming years. That's a drop of just over 9%.

The changes in number of workers per beneficiary in the decades ahead due to mortality, birth rates, etc. varies, but every one I have seen suggest an impact due to demographics of much more than 9%. The GAO chart (yet another) below shows demographics a factor more like 30% - the Boomer wave is just beginning.

Income inequality is a legitimate issue, but I am not making the overriding connection with Social Security that you allege. If you're suggesting that demographics is not the primary issue (or not at all), you could make the case by showing the effect demographics have and the effect income inequality/productivity have in comparison...

Estimates of the net effect on the eventual SS shortfall, which is projected to happen 25 years from now, range from 30% to 50%, not 9%. This writer counts it as 47%, but says that closing the gap would solve 71% of the future "problem":
How Income Inequality Has Hurt Social Security | ThinkProgress

The boomer wave is largely paid for already. Our payroll taxes went up in 1983 to build up the SS Trust Fund for that purpose (meaning that we were the first generation to pay both for our elders' and for our own retirement in advance, but I'm not complaining.) The Trust Fund now has about $2.7 trillion. The intention always was to drain the Trust Fund to pay for us boomers.

I notice how scrupulously you avoid mentioning productivity increases in your analysis. Do you really think that a graph that equates the output of workers in 1960 with workers today makes any sense at all? What do you imagine a graph of the number of worker hours per automobile, bushel of wheat, or airplane from 1960 to the present would look like? It would have pretty much the same shape as your graph, wouldn't it? Would you find that graph alarming? Supporting non-productive older people is part of the output of an American worker. That output shows dramatic productivity increases which, far from being in itself a cause of worry, represent an economic achievement. It would be a different story if supporting retirees resulted in a declining standard of living for workers, but just the opposite has happened: living standards for both workers and retirees have also climbed dramatically, even since 1960.

But the previous discussion of the effect of the cap on payroll taxes is too narrow to tell the whole story. It wholly misses the shift in compensation from salaries to stock options, dividends and capital gains. This shift was accompanied by the change from defined benefits pension plans to defined contribution plans. At the same time the share of GDP that went to corporate profits climbed at the expense of employee compensation. None of these changes were envisioned by the Roosevelt and the early SSA. Therefore the formula for the payroll tax is now out-of-date and needs to be adjusted to accommodate the changed landscape. To me that means making the payroll tax fully progressive first of all and then taxing other sources of income previously exempt, especially those that benefit the rich primarily.

 

[pb4uski]

...I notice how scrupulously you avoid mentioning productivity increases in your analysis. ....

There is probably a good reason he failed to mention productivity increases... because they are totally irrelevant.... a fact that many have pointed out to you and that you just don't seem to get.

 

[scrabbler1]

There is probably a good reason he failed to mention productivity increases... because they are totally irrelevant.... a fact that many have pointed out to you and that you just don't seem to get.

[MODERATOR EDIT] can quote all he wants from [MODERATOR EDIT] think tanks such as thinkprogress.org and the Economic Policy Institute (epi.org), the main source used by the thinkprogress article, but such an echo chamber mentality can't escape this simple fact frm the SSA/gov website (empahsis mine):

"Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program limits the amount of earnings subject to taxation for a given year. The same annual limit also applies when those earnings are used in a benefit computation."

Contribution and Benefit Base

 

[Lazarus]

The trust fund does not exist. That money has been spent. All that remains are IOU's from a government that is running a huge deficit. The SS trust fund will have to be repaid by higher taxes or printing more money.

 

[donheff]

The trust fund does not exist. That money has been spent. All that remains are IOU's from a government that is running a huge deficit. The SS trust fund will have to be repaid by higher taxes or printing more money.

The trust fund is an account like any other. There was never any intent to store up cash in the trust fund any more than we store up cash to support other government funds. The trust fund is an obligation. It exists as much as any other obligation exists. No pile of cash exists to pay Treasury bonds but that doesn't mean the obligation isn't real. No fund exists for homeowners to tap to pay off their mortgage debt but that doesn't mean the obligation doesn't exist. The question isn't whether the fund is real or not, it is how best to deal with the overall budget shortfall. That may include changing SS revenues and benefits but will never involve ignoring the trust fund as if it doesn't exist.

 

[Lazarus]

There is a difference between debt secured by real property like a mortgage. And debt secured by only a promise to pay it.

No private pension is secured only by a promise to pay it by the company that sponsored it.

If more revenue was coming in than needed to pay SS then the SS tax should have been lowered to match what was needed.

 

[scrabbler1]

Once SS begins having a cash-flow deficit (which happened for the first time in 2010), here are the choices the U.S. Government (USG) will face to remedy the shortfall. I have created 5 general categories.

(1) The USG can authorize an increase in SS Payroll taxes to close the deficit. This can be done by raising the income cap, the tax rate, or both. The SSA will then not have to begin redeeming its special Social Security Trust Fund (SSTF) bonds.

(2) The USG can authorize a reduction of SS benefits to close the deficit. This can be done as an across-the-board cut, some form of price-indexing, a reduction in the benefit formula (i.e. bend points), raising the retirement age, or anything other benefit reduction method I have not mentioned or thought of.

(3) If neither Option (1) nor Option (2) is chosen, or the amount of SS deficit reduction achieved by them is not enough to cover the entire shortfall, then the special SSTF bonds will have to begin getting redeemed. This will transfer the (remaining) SS deficit from SS to the rest of the USG. What will the USG do then? It can raise non-payroll taxes, probably mostly income taxes because they are the largest revenue source.

(4) The USG can reduce (discretionary) spending outside of SS. This includes everything else in the federal budget other than interest on the national debt (because the USG is not going to default on its existing bonds).

(5) The USG can borrow from those outside the USG by issuing new bonds to generate the cash needed to pay off the SSTF bonds. This is basically borrowing from Peter to pay Paul. This is probably the easiest to be done politically, as long as we continue to have buyers for these new bonds. This new debt will be on top of the existing debt and any new debt generated by the rest of the current federal budget.

If, by some huge miracle, the rest of the federal budget is in a surplus, that surplus can be used to pay off some or all of the SSTF’s bonds as they are redeemed. Of course, those surplus dollars will not be able to be used to retire any non-SS debt or be spent on other things or used for tax cuts. These are more tough choices for the Congress and the President, of course.

Under the current “Do-Nothing Plan,” we will probably end up with Option (5), as we did in 2010. However, the details of these options is where the tough choices will be made.

Now, let us advance to the later date of legal insolvency, the one those on the Left love to quote – around 2037, give or take a few years. What will be the choices we face when the cashless SSTF’s bonds are completely redeemed?

(1) The USG can authorize an increase in SS Payroll taxes to close the deficit. This can be done by raising the income cap or the tax rate, or both.

(2) The USG can authorize a reduction of SS benefits to close the deficit. This can be done as an across-the-board cut, some form of price-indexing, a reduction in the benefit formula (i.e. bend points), raising the retirement age, or anything other benefit reduction method I have not mentioned or thought of.

(3) If neither option (1) or (2) is chosen, or the amount of SS deficit reduction achieved by them is not enough to cover the entire shortfall, then there will be have to be an infusion of cash from the rest of the USG to cover the SS deficit. What will the USG do then? It can raise non-payroll taxes, probably income taxes because they are the largest revenue source.

(4) The USG can reduce (discretionary) spending outside of SS. This includes everything else in the federal budget other than interest on the national debt (because the USG is not going to default on its existing bonds).

(5) The USG can borrow from those outside the USG by issuing new bonds to generate the cash needed to cover the SS deficit. This is probably the easiest to be done politically, as long as we continue to have buyers for these new bonds. This new debt will be on top of the existing debt and any new debt generated by the rest of the current federal budget.

If, by some huge miracle, the rest of the federal budget is in a surplus, that surplus can be used to cover some or all of the SS deficit. Of course, those surplus dollars will not be able to be used to retire any non-SS debt or be spent on other things or used for tax cuts. These are more tough choices for the Congress and the President, of course.

Under the current “Do-Nothing Plan,” we will probably end up with Option (2) - as that is what current law requires – that SS benefits be paid only using what funds are available after the cashless SSTF is exhausted. Will the USG enact any of the options to lessen the overall effects of Option (2)? I don’t know.

The point of this exercise is to show that once SS goes into a cash-flow deficit, the choices the USG has to close that deficit are basically the same before or after the SSTF’s bonds are completely exhausted.

 

[Tadpole]

Process control as a good analogy for SS

Social Security should be funded by itself and not counted as part of the federal budget. It should be pay as you go year by year. If there is not enough coming in then either the taxes have to go up or the benefits go down or a combination. This would keep all the drama about SS running out of money to a minimum.

Lazarus, You are thinking like an engineer and I like that as a "baseline" model. It provides insight about pay-go systems. You say "It should be pay as you go year by year." I add - monitor a process to adjust it as needed in the real world. So "year by year" would return the trust fund ratio to an amount that just smooths the blips in pay go.

But, who pays as you go? The answer is the younger generation; more importantly to this discussion, the answer is the working class younger generation. The question of fairness as regards the "Trust Fund IOUs" is interesting given a baseline of "pay as you go".

What is drama to an engineer is food and medicine to an old laborer living predominately on Social Security. The problem is that the process is not brought into long term balance by short term adjustments and the adjustments are unidirectional much longer terms than a year. (Note I am holding all variables constant or trending as predicted since obviously increasing salary will increase immediate pay go as will massive increases in worker age immigration.)

So what is the difference in capped worker paid "pay go" and capped worker paid "pre go" as in large trust fund ratios. Theoretically it is "who pays". When the general fund "owes" the worker money borrowed by the population, including those whose income is much larger than the cap, then paying the "borrowed money" back from general revenue makes things easer for both the worker and the retiree. Since the excess payroll tax either resulted in increased government investment or lower taxes, the population has received a benefit from the "loans". If that benefit was increased personal investment accruing a personal gain, then paying the trust fund IOU pay go portion is like returning the borrowed extra take home and keeping the gains (if any).

Until death is eliminated and the expense of being old brought into adjustment, it is hard to see using worker-retiree tradeoffs doing anything more than eroding an income flow badly needed by working Americans.

I have mused quite a bit on a control chart method of running these programs because of the refusal of people to recognize the SS trust fund as legitimate bonds, even as they recognize richer American's savings as legitimate bonds. It has something to do with sending the money to SSA and having them buy the bonds for you instead of sending it to the Treasury personally to buy a bond. Since all purchased bonds are both IOUs and spent money, the spent money argument is a fraud. This is a real disservice (criminal IMO) to the American worker that doesn't have an investment account at Vanguard.

"Money is fungible". Now, think just for a minute at two possible realities. The first is worker's wages increase as fairness in sharing productivity increases returns. The second is the top x% share of wealth increases and worker's share of increased productivity continues to erode. In each case (and cases in between) the argument of how SS should be funded is relative to the reality of the plight of the worker. (Sorry if this sounds like a socialistic statement but we are talking about the social side of government. There is just a certain amount of sharing that must occur in a developed society. When it doesn't occur with wage increases, it falls to poverty programs. That is the justice of worker paid insurance like SS.)

 

[ERD50]

The trust fund is an account like any other. There was never any intent to store up cash in the trust fund any more than we store up cash to support other government funds. The trust fund is an obligation. It exists as much as any other obligation exists. No pile of cash exists to pay Treasury bonds but that doesn't mean the obligation isn't real. No fund exists for homeowners to tap to pay off their mortgage debt but that doesn't mean the obligation doesn't exist. The question isn't whether the fund is real or not, it is how best to deal with the overall budget shortfall. That may include changing SS revenues and benefits but will never involve ignoring the trust fund as if it doesn't exist.

There is a difference between debt secured by real property like a mortgage. And debt secured by only a promise to pay it.

No private pension is secured only by a promise to pay it by the company that sponsored it.

If more revenue was coming in than needed to pay SS then the SS tax should have been lowered to match what was needed.

I think the points Lazarus makes are solid.

Private pensions have an actual account, funded per the PBGC requirements (which I do believe are too lax, but it is what it is). And when a corporation has funded that account in excess of PBGC requirements, and pulls funds from those actual accounts, the process is skewered in books like "The Retirement Heist". But when the government has no actual fund, it's OK?

It seems to me the 'security' of the Government promise is it's ability to tax in the future. We can see how that is working for some other countries.

-ERD50

 

[scrabbler1]

Here is my favorite link to statements about the cashless Social Security Trust Fund:

tr-statements

Among my favorites are these:

"Trust Fund balances are available to finance future benefits...but only in a bookkeeping sense...they do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes or borrowing." President Bill Clinton in his Analytical Perspectives section of the 2000 budget.

"It holds no real assets. Consequently, it does not generate funds to pay future benefits. These so-called trust fund 'assets' simply reflect the accumulated sum of funds transferred from Social Security over the years to finance other government operations." June O'Neill, former Director of the Congressional Budget Office (CBO) at the CATO Institute's Conference for Women and Social Security.

"Social Security's Trust Funds are not like private Trust Funds. They are simply budget accounts used to record receipts and expenditures earmarked for specific purposes. A private Trust Fund can set aside money for the future by increasing its assets. However, under current law, when the Trust Fund's receipts exceed costs, they are invested in Treasury securities and used to meet current cash needs of the government. These securities are an asset to the Trust Fund, but they are a claim on the Treasury. Any increase in assets to the Trust Funds is an equal increase in the claims on the Treasury." David Walker, Comptroller General of the United States in an article titled "Social Security And Surpluses: the Government Accounting Office (GAO) Perspective on the President's Proposals" February 23, 1999.

"The key point is that the Trust Funds themselves do not hold financial resources to pay benefits -- rather, they provide authority for the Treasury Department to use whatever money it has on hand (taxes or borrowed) to pay them." David Stuart Koltz, Congressional Research Service, April 29, 1998.

 

[pb4uski]

The trust fund does not exist. That money has been spent. All that remains are IOU's from a government that is running a huge deficit. The SS trust fund will have to be repaid by higher taxes or printing more money.

There is a difference between debt secured by real property like a mortgage. And debt secured by only a promise to pay it.

No private pension is secured only by a promise to pay it by the company that sponsored it.

If more revenue was coming in than needed to pay SS then the SS tax should have been lowered to match what was needed.

Fund accounting is typical in governments so the "trust fund" does indeed exist. In principle, the trust fund's assets would be receivables from the general fund and its obligations would be the pv of future benefit payments - similar to the assets and liabilities of a pension plan. In this case the USG general fund has an obligation to the SS fund for money that the general fund borrowed from the trust fund. This borrowing by the general fund is "collateralized" by the taxing power of the US government just like municipal general obligation bonds are backed by the municipalities' taxing authority.

Since most private pensions are underfunded, the obligation of a pension fund to pay pension benefits is backed by a combination of pension assets and an unsecured obligation of the sponsor to make pension contributions (with the PBGC as a backstop in the event the sponsor is unable to fulfill their obligation).

There are numerous things in life that are not on a pay as you go basis that one "saves" for and the demographics are such that SS is one of those things. OTOH, SS is arguably a bit of a ponzi scheme in that the initial beneficiaries paid in nothing and received benefits funded by workers, and those workers benefits were paid by the next generation, etc. However, don't fret too much - SS can be "fixed" with relatively modest and IMO reasonable changes - if only Congress has the political courage to do so.

 

[Midpack]

Reading the tangential (dogma) response I got to my question in post #81, Mark Twain's advice re: arguing comes to mind...

This is a thread that has definitely run it's course IMO. YMMV

 

[REWahoo]

Oink...

 

[Hamlet]

In before the lock!