Well the Trustees have issued a new report and things still look bleak for folks who are going to be reliant on Social Security and/or Medicare.
"The trustees estimate that by 2034 the combined trust funds for Social Security — which help fund the old age and disability programs — will run dry. At that point Social Security will be able to pay only 79% in promised benefits to retirees and disabled beneficiaries."
"The trust fund for Medicare Part A, which covers hospital and nursing home costs for seniors, would run dry by 2026, three years earlier than last year's projection. At that point the program would only be able to pay out 91% of promised benefits."
Thankfully I will not be in that group, however since I did save hard for my retirement... I assume Liberals will look at my nest egg as part of the solution for continuing payments to others. :-(
The correct solution would have been to raise the pay roll tax rate many years ago. (ie premium matches benefits) Unfortunately as is often the case, the voters back then were happy to leave their rate low and push the problem off into the future. As we continue to do even now. :-)
37 comments:
If there really were a problem, we wouldn't be cutting taxes. The reason why they call Social Security and Medicare entitlements, is because we are entitled to them. Tax cuts are great but no one is entitled to them.
If you have any doubts about this, ask Erik Paulsen about it at his next town hall meeting.
--Hiram
Hiram,
You are talking about a different funding source / issue.
SS, SS Disability and Medicare are funded by payroll taxes.
And unfortunately those rates (ie premiums) have not been high enough to pay for the expected benefits...
Why isn't it the other way around? The costs (benefits paid) of these programs are to high relative to the income taxed. Payroll taxes are currently 15% (employee and employer portion) Do you think they should be higher? What will happen if you raise taxes on workers?
Well... I am flexible... We can cut the benefits per the link I sourced to.
I am more interested in ensuring that the FICA premiums (ie payroll taxes) and the FICA Benefits are properly aligned.
Currently SS only replaces about 40% of a persons income... Dropping that may be hard for many folks... Especially for those with lower incomes and less savings.
Hi All
Kris is a co-worker and friend of mine. He leans Libertarian and Conservative, so Jerry may have some company here...
Kris,
Here is How to create links here if needed
The "correct answer" for twenty years ago was to phase in elimination of the SS program in favor of mandatory private accounts. The bill actually went before Congress but they preferred kicking the can down the road and making the transition more difficult. It can still be done, and has enormous benefits for all concerned, at least as I see it.
Same old problem... FICA is an Insurance plan / Pension. (ie pension, medical care, long term disability, survivors benefits, etc)
Not a retirement account...
Just like life and medical insurance, some people pay and get a little benefit. Some people pay and get a lot of benefit. Your plan does not address that issue.
The folks who run out of money because they lived longer or had health issues would become destitute.
The basic thing about Social Security, what everybody said before it became a political football, is that it has three natures. It' a pension plan, an insurance policy, and a welfare program. Comparisons and analogies to SS are always problematic because it really is one of a kind. No other single program is like it.
Lots of people criticize it, but especially today, it is the only retirement program young workers will ever see. It's like Churchill's observation about democracy. SS is the worst government program there is. Except for all the others.
--Hiram
John's post states that Medicare will experience benefit cuts in 2026, SS in 2034 unless Congress takes action. According to the CBO the US government will run an $800 billion deficit this year. The options are wait and see what happens, maybe we can keep borrowing money like Japan or we can change the budget now and avoid inflation or Greek style bankruptcy and austerity.
I am all for taking care of the poor but seniors are some of the wealthiest Americans.
Long-Term Household Income and Wealth Gains Favor Older Americans
Wealthy Americans over 80 control more assets than those under 50.
Social Security ($564B) is the largest budget item followed by Defense ($340) and then Medicare ($322). Taxing young poor working Americans to support old rich but able to work Americans seems wrong and it is not affordable.
Kris,
Excellent links...
So which solution(s)do you support?
If you support Increase or eliminate the tax cap or means-test. You are in essence turning these "pay for benefit programs" into welfare programs that are funded progressively by the wealthy / successful folks to benefit the folks who did not save adequately for retirement.
If you support Change the cost-of-living adjustment, Cutting the Payments or Raise the Retirement Age... In essence you are reducing the amount people who paid in their whole lives will receive. (ie "breaking the promise") This will make them very unhappy and may make it hard for the folks who did not save adequately for retirement to survive.
If you support Increase Social Security taxes, hopefully the payers will benefit from maintaining a stable system and caring for the elderly parents. And maybe those wealthy elderly parents will share that wealth via gifts or a large inheritance check.
Kris,
I thought your first link was most interesting, especially the comments at the end. It seems FICA has been a huge success for elderly people.
"What’s So Special about Older Americans?
Why are these (and other) measures of well-being improving most rapidly for the oldest Americans?
Three factors seem particularly important:
•The low starting point
•Public policies
•Demographic change within the ranks of the elderly
A Low Starting Point
A century ago, or even 50 years ago, older Americans arguably were the most disadvantaged age group:
•Health insurance was rare among the elderly before Medicare.
•Old-age poverty was rampant before Social Security began in 1935.
•Even as late as the 1960s, about one-third of people over 65 lived in poverty.
•Median household wealth and income were low compared to middle-aged Americans.
Thus, improvements in each of these measures of elderly well-being have been impressive, in part because they each started from a low base.
Public Policies
Public policies such as Social Security and Medicare have transformed the lives of older Americans almost beyond recognition. In addition to providing income security and insurance against catastrophic medical expenditures, government policies focusing on education, medical research, housing and wealth accumulation have helped millions of older Americans build better lives than any previous generation of senior citizens.
Demographic Changes among the Elderly
Today’s elderly are different than previous older generations. They are healthier, live longer and are much better educated than any previous generation. Together with supportive public policies and decades of strong economic growth, people born in the first half of the 20th century enjoyed unprecedented increases in their measured well-being.
There also may be aspects unique to today’s senior citizens—such as financial conservatism resulting from experience of the Great Depression and World War II and the small sizes of their birth cohorts—that make them different from other groups. Thus, for a variety of reasons and on a range of measures of well-being, today’s older Americans continue to enjoy unusually rapid progress toward higher living standards. "
I keep thinking of my living and dead "wealthy" family elders...
If young folks lived more like them they would be "wealthy" also...
They absolutely lived to learn, work, save and invest... (wonder where I got that from... :-))
Spending was / is very low on their priority list. (I strive to do more of that... :-))
"Your plan does not address that issue."
Wrong. If I have my "retirement fund" in a personal account and die at age 64-1/2, My family gets everything. If my retirement is in SS, they get zip, zero. Big difference.
Jerry,
You did not answer the concerns raised.
"Same old problem... FICA is an Insurance plan / Pension. (ie pension, medical care, long term disability, survivors benefits, etc)
Not a retirement account...
Just like life and medical insurance, some people pay and get a little benefit. Some people pay and get a lot of benefit. Your plan does not address that issue.
The folks who run out of money because they lived longer or had health issues would become destitute."
That said, what happens to folks who out live / spend their savings on your plan?
What happens if to the people who develop a chronic health problem?
John's post states that Medicare will experience benefit cuts in 2026, SS in 2034 unless Congress takes action.
What people do when they can't pay their health care bills is simply walk away from them. So that means they have to go some place else. Where should they go?
It's not just wealth that gets redistributed. Debt gets redistributed as well.
--Hiram
Good Point
SS is not a retirement account??! Try telling that to the 98.9% of people paying into it! Granted, it is not a GOOD retirement account, but that is its principal purpose and always was, to get older folks out of the workforce so the younger people could have jobs. Someplace along the line, the promises exceeded the ability to pay for them.
You can keep saying that. It does not make it true...
Old-Age and Survivors Insurance and Disability Insurance
Ask 10,000 people paying FICA taxes what they are paying for, and 9000 of them will say "for retirement." Originally the program was established to get those over 65 out of the workforce and make room for younger people, plus a "widows and orphans fund." As we live longer, and SS covers more and more retirees, you can see that the amount going to retirement benefits has gone from 2x those of the "insurance fund" to over 3x that of retirement benefits. Just by simple math, retirement benefits are 75% of the program.
What happens if I "outlive" my retirement savings, in the private account? Well, if I chose a life annuity at retirement (WHEN I chose to retire, my choice, no penalty), I can't do it. And what about those who cannot live on their SS now, or especially after the benefit cut that is coming? SS has the same problem as do private accounts, with the exception that private accounts pay better.
Food for Thought
And another one
"I say “simulated” because the amount of your Social Security benefit is not based on tax contributions, but on your lifetime wage history and longevity. Moreover, Social Security is not an investment vehicle dependent solely on market returns - it is more like a form of insurance, annuity or pension, since its promise is to pay a monthly benefit amount no matter how long you live. In that sense, there is a peace-of-mind value that is difficult to quantify."
Interesting. You have an "employer match" of FICA which more than doubles your rate of return automatically, and of course that is not voluntary like it is with your 401K. Your real rate of return is fixed by law, currently around 3%
trustfund
Twice that is 6%. Put that money into capital formation and economic growth rather than government spending, and that 6% looks pretty poor. And you could BUY an annuity out of your private account, if that is your concern, and have "peace of mind" that is easily quantified. It was once stated that "more young people believe in UFOs than that SS will 'be there for them.'"
The reality is that many people die early after contributing. The gains are tax free for many people. So the folks who make it to retirement and live a normal live span do pretty well...
And those who live into their 90's score big...
Which of course is the intent of the program.
It is not an inheritance plan for one's children. Remember the name...
Old-Age and Survivors Insurance and Disability Insurance
Part of the failing of the system. A private retirement account, even as an annuity, IS part of one's estate after death. And of course if one dies early, SS pays only a "survivors" (aka widows and orphans fund), whereas a private account goes to them entirely (plus any private life insurance they may have purchased). This continues insistence that government can run something like an insurance program or retirement fund better than private enterprise, free choice and free markets, I simply do not understand. Why would you defend it when clearly, it is not structured to fulfill the promises made for it?
Because many citizens are not fiscally responsible and they need it.
Can you think of a better reason?
Why would you want to undo something that has supported hundreds of millions of needy children, adults and the aged?
Other than the payroll tax rate being too low to fund the desired benefits, it is a pretty great system.
No citizens are permitted to be fiscally responsible-- SS is mandatory-- so you really cannot say that. But if it concerns you, simply make the private account contributions mandatory (phased in over the years, gradually supplanting SS). And the problem is that the millions who have received benefits have done so at the expense of those NOT receiving benefits, and the Ponzi scheme nature-- pay as you go-- almost guarantees it will remain over-promised and under-funded.
And I do NOT want to "undo" anything. I simply want to gradually phase out the government-run tax-and-spend Ponzi scheme and replace it with a system of personal capital investments that offer economic growth and freedom to everybody.
As we have discussed dozens of times, I am fine with it being a mandatory contribution professionally managed "insurance plan / pension". Where some folks don't get a pay out and some folks win big.
The reality is that until ~1930 we did give people freedom to save for their own disability and old age care. Many did not and therefore SS and Medicare were created.
I think this is where we agree to disagree. :-)
Back to my old adage, "you can agree with me, or you can be wrong."
I am fine with a mandatory contribution professionally managed pension (and optional insurance). I am not happy that some folks get nothing and others "win big" as is the problem with the current SS program. Just reroute the mandatory contribution (FICA) into an IRA-type personal account (gradually increasing the percentage over the next 40 years) and you are there. Keep the existing SS system for the next 40 years for current and future retirees, but the payouts will gradually decrease per current law (lower contributions because of partial diversion=lower payouts). After about 30 years, there will be nothing owed and SS can be shut down.
And let me make this observation: So many disagreements arise because of this ridiculous notion that if the government does not do something, it does not get done.
I know you for some reason dream of kids getting an inheritance from the old age and disability insurance...
However what would you do with those people who out lived their savings or out spent it on medical treatments?
What would you do with our disabled citizens who definitely will out live their savings?
I don't understand the first comment. Family collects "survivors insurance" (I assume) in addition to whatever private insurance someone has? That is in lieu of whatever "retirement savings" may have been accrued. But put that in private accounts, and the family gets EVERYTHING-- retirement accounts and private insurance proceeds.
As for the rest, same answer(s) you would give to 1) What do you do for people who cannot live on their SS benefits? 2) How do you justify taking away a lifetime of "savings" from someone who dies before collecting anything, or collecting a tiny fraction? Why do you insist on people who live longer receiving more money than what they put in? From whom is that taken?
And please understand that it is FICA taxes that make our tax system highly regressive. Change that to "forced savings" and suddenly the tax system becomes progressive. Isn't that worth doing?
1. You want people with parents who die early to be able to inherit the balance. That is not the purpose, that is why it is named "old age and disability insurance". Not the government retirement savings account...
2.1 It should cover 40% of their pre-retirement income. They may need a part time job and the govt has been promoting additional savings forever. When someone runs out of all savings at 78 years old. That is quite a different problem. How are you going to care for them. With what money? Let's say the little old lady runs out at 78 and lives until 104...
2.2 It is not a "lifetime of savings"... It is a lifetime of paying premiums. Just like those 20 years I paid term life insurance premiums. Thankfully I never got a penny back from that investment.
2.3 Repeat: It is not a savings account... It is insurance and/or a pension.
3. There is nothing regressive about FICA taxes. People pay their "premiums" while working and get it back when they retire or become disabled. And if they die their survivors receive some amount.
1. You keep insisting it is insurance, but ask 99% of people why they pay SS taxes and they will say it is for their retirement. Perception is reality, and having the government continually tell us it is for "retirement" doesn't help your view. Besides, If I took even a tiny fraction of my FICA taxes I could buy a nice insurance policy that would be MINE, and my heirs'. The rest I could put into an IRA. If it IS an "insurance program," it's terrible.
2.1 If it covers "40% of pre-retirement income" it is insufficient as a retirement plan, which you insist it isn't and so I must agree on that point. You ask what to do if that parttime job (taxable!) isn't enough or they didn't save enough, which is typical, what money do YOU propose to keep them going? A forced private investment put into an annuity would last a lifetime after retirement. Why must government do it, and badly?
2.2 It is a lifetime of paying taxes to support somebody else. Years ago the SSA gave up the fiction of sending out those "here's how much is in your retirement account" flyers. If you were paying into YOUR account, you would have a real asset instead of a promise.
2.3 Repeat. I don't believe it. It is a forced tax to support a Ponzi scheme.
3. Nothing regressive about FICA taxes. But it is the largest tax the poor pay, so the overall tax system is highly regressive. Just ask the AFL-CIO; they have charts.
1. Apparently 99% of Americans are uniformed idiots... :-)
2. Seems to be okay to me.
2.2 & 2.3 Let's repeat... Old-Age and Survivors Insurance and Disability Insurance
3. As long as everyone insists they personally receive benefits back + interest... The charts are misleading.
Now the taxes we pay to support welfare and Medicaid... Those are real taxes.
Though I am happy to convert all those FICA payments to taxes by stopping all payments and taxes immediately. Just let people spend their saving down and then go on welfare and Medicaid.
2. WHAT seems to be okay? letting government Rob Junior to pay senior until the end of days? or open up some economic freedom and opportunity?
2.2 and 2.3. You can repeat it all you want. Its principal purpose, and 75% of its benefits, go to retirees, but paid by younger workers. That isn't insurance or a retirement plan, that is a welfare scheme – income redistribution – by another name.
3. As near as I can tell the AFL-CIO solution, if they have one at all, is to vastly increase the progressivity of the income tax. I do not disagree with their chart as much as I strongly disagree with their solution, and I propose agreeing with you in this: as long as people are paying their "FICA" taxes into a personal account, they cannot be called taxes and should not count in those charts. But since I do not receive benefits from my FICA taxes – those are going to the old folks- it is a tax just as much as what I paid for welfare and Medicaid.
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