Brookings: Why Everyone Should Care About These Trustee Reports
Annual Trustees Reports provide estimates of the financial status of Social Security's Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds under current law. Recent Reports call for informed discussion, creative thinking, and timely legislation to address expected future deficits. Many policy makers have developed proposals and options to address this long-range solvency problem. Listed below is a broad range of policy options that would address Trust Fund solvency and other issues related to Social Security benefits and financing. Many of these options are part of comprehensive proposals intended to restore Trust Fund solvency.
We group the options into categories, as shown below. We also provide a summary list of all options (PDF version).
102 comments:
nobody willing to admit that SS was a giant pipe-dream, and that the solution to the solvency of Social Security is to simply dip it in an effective solvent. That is, phase it out in favor of mandatory private accounts. The math is irrefutable, but no one wants that answer because it reduces government control.
Unfortunately as we have discussed before... The math does not work at all. Or the politicians would have opted for that long ago.
The current system:
- covers people no matter how long they live
- covers people who become disabled earlier in life
It is an "insurance / pension" system.
No savings account system can do this.
Social Security is a math problem, with a series of reasonable options available to fix it. We should pick a couple of items from that menu and fix it.
The much bigger issue is Medicare and our health care system in general. Let's not forget that Medicare Part D has a bigger deficit over the next 75 years than Social Security, because Republicans passed it with no pay-fors.
" The math does not work at all. Or the politicians would have opted for that long ago."
Whose math? What were the limiting assumptions? My math works, and math is math. And, you say, politicians would do what makes the most sense, based on solid math and science? I almost never say this, but ROFL!
Jerry,
Show us your math. :-)
Sean,
I am pretty sure the healthcare challenge in the USA is not a GOP created problem.
It seems to me to be a problem of too many expensive ways to extend lives.
And everyone wanting to live as long as they can whether they can afford it or not.
Healthcare was cheap in the 1950's, there wasn't much they could do for a person in many cases... Now the sky is the limit.
I'll tell you what; I will share the assumptions and let you spend 3 days running the spreadsheet.
Assumptions and inputs
Death expectations: from Social Security actuarial tables
Initial Conditions: current SSA
Income: present--87% from FICA and associated, assume 100%. NOTE: employee and employer each 6.2%
SS income is assumed equal across each ten-year cohort, at the relative % of each cohort to the total. Wages increase over the years according to the SSA wage index.
SS outgo/benefits is assumed to remain constant forever, but reduced each year according to the SSA actuarial tables.
Assumes retirement at age 67 and benefits begin
The reform assumes that immediately:
-Those 55 and older continue with taxes and benefits unchanged
-those 45-55 move 2% of their pay to private accounts and receive 2/6.2 or 32% less benefit.
-those 35-45 move 4% of their pay to private accounts and receive 4/6.2 or 65% less benefit.
-those under 35 move 6.2% of their pay to private accounts and receive no SS benefits after retirement.
That the number of people who die before the start of benefits will continue to pay in to the system (and receive no benefits) on the same schedule as currently. That is, that their premature death will have no effect on the reform calculations.
We assume the working population remains the same size and has the same salary distribution
Assume the percent of new retirees remains at the historic average over the last five years
Private accounts pay the same 3.2% as SS Trust Fund bonds, or could BE Treasury bonds.
Disability and Survivors benefits are paid from the employer portion, which does not reduce over the life of the reform (~45 years).
At some point the employer portion can be reduced and the employment disincentive it creates reduced-- a policy decision, but that will alter the accrual of some 23 TRILLION dollars against the national debt.
Now, do the math, quibble away, or simply deny the possibility.
Sean is correct. The much larger problem are the unfunded liabilities in Medicaid and Medicare. The solution is the same, which is to reform them by reducing or eliminating the government involvement and control and returning competition and personal control and accountability. But let's concentrate on SS for now.
Jerry,
I think I will just keep believing that you are incorrect, since no one else has published your solution...
AARP Proposals
CNBC SS Bill
NYP How To Save
Actually, my "solution" is based on a proposal to Congress way back in 1996. All I did was to check if the math was still good. And again, math is math. Too bad our elected "elders and betters" aren't thinking about actually /solving/ problems. Are you?
If you disagree with my solution, WHY? Have you done the math and gotten a different answer?
Based on your history of questionable calculations and opinions, I have no desire to spend anytime trying to recreate a likely errant fantasy that will go no where in Congress.
The simple reality is that no one is talking about your solution anymore because it does not fulfill the need.
Any system that allows money to flow out of the system for non-retirement, non-healthcare, non-dependent care or non-disability care is going to fail. And your system is setup to collect wealth that can be passed on to one's children if one dies early, instead of helping to care for other people who live longer.
The math will simply not work.
So, Microsoft Excel is a blatant liar, not to be trusted? I didn't think the math would work, either, because we have gone so much further down the road to SS collapse. But it does, subject to the assumptions I have posted, and in fact works much better than I ever expected. I suppose you can deny it, just as you deny the real facts about climate change, but you obviously do not have a better alternative.
Apparently I have a better proposal right here and right here.
OK, your first one offers the right solution to Medicare, and the same old nostrums about Social Security. You know, the ones that make clear the LIE that this is either an insurance or retirement investment. My proposal keeps all those promises, while actually paying down the national debt rather than increasing it.
The second calls for substantially increasing taxes, and then admits the programs are "unsustainable." My proposal makes them fully sustainable without raising taxes, never depletes the trust fund and in fact reduces federal debt. I claim that is better.
Try again.
And no one is talking about my proposal because one side of the aisle will demagogue it to death, and the other side is more interested in simple answers than in real solutions-- that is, kick the can down the road 'til it rusts out.
The simple question as always is...
Where does your plan save money???
Or create more money???
Because as I noted above. If a bunch of adult kids are going inherit their young dead parent's balance the idea just won't work.
Especially for the folks who have lower paying jobs and live to a ripe old age.
10 Facts about social security
Payroll Taxes / Programs are Progressive
"Payroll taxes are regressive: low- and moderate-income taxpayers pay more of their incomes in payroll tax than do high-income people, on average. The bottom fifth of households will pay an average of 6.9 percent of their incomes in payroll tax in 2019, according to Tax Policy Center estimates, while the top fifth will pay 5.9 percent and the top 1 percent of households will pay just 2.3 percent. These figures include the employer and employee shares of the payroll tax.
However, if one looks at the overall impact of Social Security, Medicare, and unemployment insurance — the benefits they provide as well as the taxes they collect — these programs are progressive. For instance, Social Security benefits represent a higher proportion of a worker’s previous earnings for workers at lower earnings levels; and while all Medicare beneficiaries are eligible for the same services, high-income beneficiaries pay more in Medicare taxes and premiums."
well, if you had read the list of assumptions I used, you would notice that the plan "saves money" by gradually phasing out the employee portion of Social Security taxes, and "creates money" by putting those dollars into private accounts that earn interest rather than being immediately spent by government. You do know there is no money in the "trust fund," right?
Just because you do not like where the trust funds invest their money does not mean that do they not exist.
And you know as well as I do that the Trust Fund assets receive interest just like all the other people and countries who invest in US securities.
I don't see any savings or additional income. Just different money managers, different investments, more risk and people inheriting what is now used by people who live longer than average.
Oh, the trust fund certainly exists, but it is essentially a bookkeeping entry. The government issues special U.S. Treasury bonds, deposits those in the trust fund, and then promptly spends all of the money. Yes, those bonds have the "full faith and credit" behind them, but the only money they represent must come from Congress and the General Fund budget When those bonds are redeemed. Now if you simply took those bonds and put them into private accounts, they would actually be an asset. They would still be a safe investment, and the money would need to be repaid out of the general fund, but they would be an asset, not an "IOU."
Yes, the trust fund bonds receive interest, which is why one of my assumptions is that these private accounts will be paid interest at the same rate as the Social Security Trust Fund bonds, or could BE US treasury bonds paying that same rate of interest. Oh, and what you are saying is that we have an easy fix to the insolvency of Social Security. All Congress has to do is to raise the interest rate to, say, 100% on those bonds. Problem solved!
You don't see any savings? if somebody under age 35 today receives NOTHING from the Social Security program when they turn 67, isn't that a savings for the Social Security system?
That there isn't any additional income, that's the point. The point is to create an equally safe private [savings] account to gradually replace the government-run [pay go/Ponzi] system.
tell me, what Straw man are you looking at?
As noted above, T Bonds are or were one of the safest investments one could make...
No need to have an inflated yield. Just need to fund it in alignment with the benefits to be paid.
What again would be "equally safe"?
Or equally low investment cost for that matter?
Is China part of the "ponzi scheme" since they invest in trillions of USD via T Bonds?
Are you planning on the US government failing?
Is that why you blindly support a POTUS who is driving record deficits?
Oh my... :-)
You clearly LOVE your straw man arguments. One of my assumptions is that these private accounts are invested in the exact same T-bills as are in the Trust Fund. Now are those less safe? Do they pay less?
By definition, a Ponzi scheme is one in which the new investors fund payments to those who invested earlier. The problem is that eventually there are not enough new investors to pay the previous investors. That is exactly what SS does. Privatization converts that to "investment accounts."
Sorry...
Same people putting the same money into the same investment... Just in individual names...
While some of the money is siphoned off to inheritance means less money for the old folks.
Again...
Social security works because every dollar goes to living "program" beneficiaries...
And because it is fairly progressive. Meaning that the low income folks get more bang for their buck.
Your proposal seems to not have either of these positive attributes.
Remember this useful fact sheet
You have absolutely no knowledge of what my program is, having never bothered to do the math or even examine the assumptions. You are correct that for the first 10 years or so, the drain on the "trust fund" (that is, benefit payments from the general fund) will be higher than usual, with those near retirement getting full benefits, those under 55 contributing less, and the only offset being that the oldest beneficiaries are dying off. But as the younger workers retire and get less out of SS and more from their private accounts, and the oldest, highest-earning beneficiaries continue to die off, the trust fund stabilizes and then starts to grow.
Let's try this again.
"But as the younger workers retire and get less out of SS and more from their private accounts"
And those who make good salaries, do not become disabled and/or die off early will do good on your system. In fact their kids may even inherit well from it.
Unfortunately those with low salaries, people who become disable and/or live to 95 will likely be impoverished.
What you seem to be promoting is a mandatory 401K... Which is great for a person like me, but terrible for people with low incomes... Or single income families?
The "bugs" you observe are actually features:
--If you do not work a minimum of ten years, SS pays you nothing. This plan does.
--If you die before retirement, SS pays you nothing. This plan gives you all you put in, plus.
--SS benefits do not benefit from compound interest over 30-40 years.
--SS benefits are based on your salary, just like this plan.
--Those concerned about their private accounts "running out" if they live a long time can simply purchase an annuity.
Yes, a "mandatory 401K" sounds like a good description, but it is at all times vested, can be inherited, and is NOT a simple tax that goes to somebody else's benefit, subject to the whims of Congress. And it doesn't go broke because more was promised than can be delivered.
Notice that Social Security is a "defined benefit" form of "pension." Almost all private corporations have moved to a "defined contribution" system, like the proposed. It is done to avoid the kind of fiscal failure facing the SS system.
I think you should read my above links about SS and Medicare being Progressive.
And yes SS payment schedules are based on amounts CPI / compounding.
Again... Your proposal will screw the low income and folks that live a long time.
By the way, annuity payments depend on how much you have to invest. Little in fund... Little payments.
Based on CPI, not compounding other than the CPI compounds on the benefit end, not the funding end. That's part of the problem.
My proposal lets EVERYBODY that would now contribute to SS to retire with MORE money than their SS contributions would provide, and long-living recipients can buy a life annuity to guarantee their income for life.
And your concern for low income folks is touching, so why not do what you always do, which is augment their savings with a "welfare" payment? Oh, and you ignore the fact that moderately low income folks have learned to live on moderately low incomes, and continuing that into retirement isn't the hardship you imagine.
And depending on how long you live, you may get MORE from your annuity than you put in.
Oh Jerry... The trust fund invests the money and receives interest... Which compounds...
Today the SS payment is pretty small for everyone... I can not imagine how small it would be if the low income folks were not getting more than they put in due to it's highly progressive nature.
Now why would we setup another progressive old folks welfare funding scheme when we already have one in place?
I mean it was an excellent marketing system... People do not fight paying payroll taxes for old age welfare because they know they will benefit in someway / someday... And a lot of the funding goes to care for the disabled and folks who did not save adequately during their life.
This is kind of funny...
"And depending on how long you live, you may get MORE from your annuity than you put in."
It pretty well describes how some people win with social security and medicare today...
If you want big returns on your life long premiums... Just stay alive longer... :-)
So, another way in which private accounts are as good or better than SS. What is wrong with that?
By the way, notice the new figures that say SS Trust Fund will last until 2034 or so? My calculations for the reform show it dropping to a low of $393,496,000,000 in 2030 and then increasing every year thereafter.
The other thing to note is that RIGHT NOW, SS is paying out more than it is taking in (redeeming some TF bonds), which means some of those SS benefits are coming straight out of the general budget and driving up the deficit.
Just like when anyone, firm or country redeems their is bonds.
Yes, except it perpetuates the myth that the Trust Fund will "fund" SS benefits. Every penny that comes from the TF is money taken from the general fund OR borrowed from our children. And to think that most of that, AND the ultimate insolvency of the TF, could so easily be avoided...
I may take a look at the other approach, here, which is to implement the FAIR tax (which eliminates the SS tax) and require a mandatory 401K for everybody. I don't think that will work, either, but I might be surprised.
There is no myth here.
The Trust fund will pay as long as it has assets.
They just happen to be bonds.
What makes them an asset? The "full faith and credit"? How is that different than if those same bonds were in a private account? Redeeming the bonds puts a claim on the General Fund either way. The notion that the "trust fund" contains any real assets, and especially that they are held in trust for any particular person, is a myth. And redeeming those bonds adds to our national debt, so how is the TF an asset? It's an IOU against future revenues, not a means of paying immediate debts.
Quite simply, it is a bookkeeping entry and once the account goes to zero, promises will be broken. Why NOT reform the system so that never occurs?
You had said the mandatory 401k’s would also be invested there. (Investments of equal security)
Your concern over where the trust fund assets are invested is just a distraction...
Our government would have borrowed that money from someone if the trust fund existed or not. I would rather be in debt to trust funds / citizens than to the Chinese. At least we control and no the schedule of payments required far in advance.
By the way, your are correct about one thing.
No one person has assets in the funds. Anymore than we have assets in a pension or an insurance investment fund.
My concern over the government holding those bonds versus ME holding those bonds is the deceit involved. And I don't understand your last. My 401k belongs to me, it is an asset, despite the fear that some liberal politicians are now talking about seizing and "holding it for me" as a means to shore up the SS TF. I would be happier if we went the OTHER way.
Wouldn't it be great if SS was turned over to its beneficiaries rather than to politicians' promises?
My point was that if you hold the bonds or the trust fund holds the bonds, they are still bonds that the government needs to pay back. (ie debt, deficits, etc)
You keep confusing personal accounts with our government controlled old folks welfare system that is there to ensure old folks, disabled and dependents can have some income and medical care if needed.
Making the insurance / premium system into an accounts system may be good for me and you, But it would harm the vast majority of people who did not pay large payroll taxes. It only works because it is progressive in nature, dead people don't collect and few "inherit"...
Well, the promises made were progressive in the first place, and it doesn't matter whether it is promises to high incomes or low incomes (actually both) that cannot be kept, they cannot be kept. It is an actuarially uunsound program, and the reason is that the promises-- i.e. the welfare portion-- make it so. It is the problem with all defined benefit pensions, which is why most private industry is abandoning such things (as required by law).
My proposal lets everybody that works "all their life" retire with MORE money than SS. If that is not enough, then a true welfare program may be needed OR, since we more or less do away with the mandatory retirement age, people may be able to work longer without penalty and at a "profit" to their account.
You are correct that the bonds must be redeemed regardless of who holds them. But my point is that they still represent (deliberately) some sort of "magic" that prevents consideration of necessary reform. Had this been done back in the 90s, we would now have found ourselves a much easier time of it.
We will have to agree to disagree as usual. :-)
OK, disagree with actual math. The repeated triumph of opinion over fact.
I was thinking the same thing... :-)
Wow. You never looked at the math or even questioned the underlying assumptions. So all you have is a completely unfounded opinion. It would be one thing if you had an opinion going into the discussion, and found ample evidence to support that opinion, but you don't.
I am not going to try to create a spreadsheet to prove a theory that apparently only you hold.
Good try though.
I mean if you had a good proposal, I am assuming you could point us to a link with a full analysis. Not blame others for failing to make your argument for you.
Wow. Here you have a unique opportunity to re-evaluate a commonly-offered alternative, and you choose to rabidly defend the status quo and a few really, really bad alternatives (all of them equal to "raise taxes or cut benefits"). And I don't NEED "a link with a full analysis"; I've done it myself. You had the opportunity to quibble with the fundamental assumptions that went into the exhaustive calculation, but you didn't even do that, just dismissed the idea completely, out of hand. Be wary of open minds, they might let a little light in.
So if I put my analysis up on the internet somewhere and give it a link, does it automatically achieve some sort of validity?
I am happy that you are confident in your assumptions and analysis.
The simple reality is that a system:
- with the same total amount of contributions
- with the same investments
- non-program members inheriting assets
- no progressive distributions
The system is going to leave a bunch of folks old and out of money and services.
As I asked earlier:
- where are the savings?
- where are the extra earnings?
that are needed to offset all the withdrawals that will be made to pay inheritance to wealthy families who did not need the program in the first place?
Today that money is going to pay for the care of old broke people, disabled persons and survivor's.
The savings come about because those who are far from retirement get reduced payments from SS, in exchange for their reduced payments into it. VERY simple, just like current SS law.
The extra earnings come about from the fact that I have a real investment, and get a earnings from the interest from the (bonds, assumed), rather than having those monies go into the general "pot" paying current retirees.
And explain, please, "all the withdrawals made to pay inheritance...." Money NOT paid to SS does not constitute a "withdrawal" from SS.
As for all those old, broke, people, this proposal continues to fund them at their current benefit level until they die. Disability and survivors make up less than 10% of current benefits, and could easily be funded out of the individual private accounts.
And once again, the proposed change would let people retire with MORE money and MORE security. Why you dislike it so I cannot comprehend.
I disbelieve because it is silly.
Stop worrying about whether the total investment is in one or many names... At a macro level it does not matter.
The current SS system has inputs, investment gains, and disbursements.
Your proposed plan has inputs, investment gains, disbursements and inheritance.
There simply will be less money going to someone if the rich are sending their inheritance to the kids. :-(
So now you want to add faulty math to your fantasy? The proposed plan has the same inputs as SS. For those in or near retirement, it has the same "investment gains" and "disbursements." The proposed plan has the same "investment gains" as SS, except that they are NOT immediately disbursed to current beneficiaries.
And you seem mightily concerned about someone passing on a share of their lifetime earnings to their heirs, rather than getting nothing at all from their "investment." I also point out that dying before retirement age gets everybody, rich and poor alike, ZERO from the current system. Seem fair to you?
You know, for a long time, SSA sent everybody an annual report telling you how much was "in your account." They quit doing that. Any idea why?
Again, why do you want a "solution" that raises taxes or cuts benefits, or both, when it is totally unnecessary to do so?
Again....
Stop worrying about whether the total investment is in one or many names... At a macro level it does not matter.
The current SS system has inputs, investment gains, and disbursements.
Your proposed plan has inputs, investment gains, disbursements and inheritance.
There simply will be less money going to someone if the rich are sending their inheritance to the kids. :-(
The problem is that you keep thinking that these are personal retirement accounts... Which they are not... They are insurance / pensions...
We all pay premiums and we all get benefits.
Those who live the longest get the most, no matter how much they made during their working years.
So what you continue to advocate is "socialized retirement" and a massive welfare scheme benefiting only those who live a long time. PAID for by they young, or those who don't live a long time.
I don't think of them as personal retirement accounts; I know better. What I am proposing IS a personal retirement account. The "pension" of SS doesn't exist because I am never "vested" in it.
And you seem to forget that people who earn more receive higher benefits than those who earned less but live to the same age. No difference with the proposed, except that everybody's benefits are higher than what they would receive from SS.
Again, why do you want a "solution" that raises taxes or cuts benefits, or both, when it is totally unnecessary to do so?
Sorry...
- Same withdrawals
- Same earnings
- People inheriting
This is NOT Possible...
"everybody's benefits are higher than what they would receive from SS."
Your math is wrong...
And of course everyone is vested until the law changes.
Just like some pensions fail...
Withdrawals are NOT the same, because younger workers will receive less from the system, and their private accounts will grow faster than their "investment" in SS because the SS benefits are constrained. SS is a "bad investment" on a strict investment basis.
And I fail to see how having people pass their own money on to their heirs is a deficiency in the program.
My math is correct because I see no error, and neither do you.
NOBODY is vested in SS, by law, and you know the courts have thus decided. The only thing keeping it together at all is politicians reluctant to admit their pernicious lies.
Jerry,
I'll try one more time...
Option 1: All the money flows into and out of the SS Trust Fund. (Total 1 = SS)
Option 2: All the money flows into and out of a combination of the SS Trust Fund and/or Accounts in someone's name. (Total 2 = SS + Other)
Comparison
Total 1 = Inputs + Interest - Disbursements
Total 2 = Inputs + Interest - Disbursements - Inheritance
Over time there is NO CHANCE that TOTAL 2 will exceed Total 1.
Therefore we know that the disbursements for some people will be less.
And that number is likely pretty large since the number of people making little is far larger than the number of people making a lot.
Regarding if one is vested. Of course they are, just like one is in a pension.
You don't get to take a lump sum payment out of the pension account either in most cases.
"An "entitlement," as a type of federal spending, is a government program in which recipients automatically receive benefits that they're eligible for based on the applicable legislation. Social Security is an entitlement because everyone who meets the eligibility criteria (40 "quarters" of eligible earnings) is entitled to a benefit. No one is dependent on Congress to appropriate spending every year in order to receive their Social Security checks."
SS Reqts
You are using a different definition of "vested." In a vested private account, if I die before using it all up (or simply change employers), my heirs get all the money. With SS, they get nothing. SS does not "vest" until I have worked 40 quarters. Otherwise I get nothing. With a private account, you would get something if you worked just a month-- immediate "vesting."
Yes, it is an "entitlement," and that is a bug, not a feature. It is essentially a defined benefit retirement plan, (or a Ponzi scheme, but you dislike that term) and they are not sustainable. Interesting that private companies must meet funding requirements for their pension and health plans, but the government does not. That should tell you something.
Why are you so insistent that a mathematically proven approach cannot possibly work?
Except that "inheritance" <= disbursements-inputs. (Private accounts reduce inputs and subsequent disbursements.) Therefore, inheritance in the general case =0. If SS never gets the money, and never spends the money, then inheritance is not a consideration, except as a benefit which SS cannot offer.
And how about if we make this reform optional, where anybody that wants can stay in standard SS? What do you think they'll do?
Please remember that I am comparing apples and apples by summing your future proposal and comparing total assets.
Option 1: All the money flows into and out of the SS Trust Fund. (Total 1 = SS)
Option 2: All the money flows into and out of a combination of the SS Trust Fund and/or Accounts in someone's name. (Total 2 = SS + Other)
Comparison
Total 1 = Inputs + Interest - Disbursements
Total 2 = Inputs + Interest - Disbursements - Inheritance
Over time there is NO CHANCE that TOTAL 2 will exceed Total 1.
Therefore we know that the disbursements for some people will be less.
And that number is likely pretty large since the number of people making little is far larger than the number of people making a lot.
Jerry,
If we make it optional... All the wealthy people will leave, the poor people will stay, and then there will be a BIG funding problem.
Please remember that the programs work well because it is Progressive in nature.
The Low Income folks get much more out of it than the folks like me who have been paying the maximum payroll tax for over 10 years now. On the upside my Mrs pays little into the system... It will be interesting to see how it turns out.
Your option 1 and option 2 tell me clearly what you THINK will happen. Unfortunately you haven't done the math and therefore have no basis for saying that your "NO CHANCE" will actually eventuate. I think what you overlook is that full-disbursement people will die off, replaced by reduced-disbursement people.
That you have a problem making this optional says a lot. You admit that this is a lousy investment for those with the means. You admit it is a welfare program for those of lesser means. You admit that letting people have their own money is a bad idea and that an "inheritance tax" of 100%, for those who die early, is just peachy keen. The way you describe it, only those evil rich people would opt out. Do you really believe that? Especially if people were told they would get MORE out of the private account, and that it would be in their name and not some government IOU that eventually could not be repaid?
Jerry,
Same investment, same rate of return, same contributions, and no progressivity (because those funds went to already wealthy kids)...
At least 50% of the people would get less in your dream world...
Wrong. Do the math, and everybody gets more. Yes, the progressivity gets taken out of it, but what you miss is that right now the benefits are disconnected from the inputs and the rate of return--not fair and a definite problem. And once the "trust fund" "expires," everybody gets even less. With my proposal, the TF never expires and in fact grows.
I think you also missed the fact that anybody over 55, including those already in retirement, receive full benefits for life, just as promised. Under the current system, somebody age 55 would likely see their benefits CUT shortly after they retire, when the TF expires. And every other proposal being offered either raises taxes or cuts benefits, just to sustain a basically unsustainable system. Why you want to defend it continues to escape me, when we could have "same investment, same rate of return, same contributions" AND higher benefits. Plus paying down the debt.
Seemingly you want to ensure that the people who put too little into the trust fund during their working careers which caused this problem get their high returns back. And you want to screw the younger less affluent folks.
Let's try this again. If I set up 2 IRAs:
- invest the same amount of money,
- at the same times
- invest them in the same bond
- which yields the same return
They will grow identically.
Now if I start stealing from Account #2 to help my kids pay for college or a wedding... (ie inheritance)
Account #1 which does not help to pay "the kids" will grow far greater and be able to provide better support in retirement.
You keep stating that Account #2 will be bigger than Account #1 even with all the non-retirement withdrawals which of course makes no sense.
What magic are you proposing to make the Account #2 account grow so much faster to support the non-retirement withdrawals while making the account out pace Account #1?
I mean you keep saying that Account #2 (individual accounts with inheritance rights) will provide far more than Account #1. (group pension where money goes to the living recipients only) And that no one will be harmed by the change...
Prove it with some simple math...
"what you miss is that right now the benefits are disconnected from the inputs and the rate of return--not fair and a definite problem"
Personally I think the words above are your biggest gripe with the current system.
You think that your old age welfare payment should be higher...
And that the old age welfare payment for those who made / paid less during the working years should be lower...
Even in retirement you seeking to increase your government welfare payment.
And you wonder why the government spends so much. Most of it's citizens want hand outs or lower taxes whether they need the money or not. :-)
"what you miss is that right now the benefits are disconnected from the inputs and the rate of return--not fair and a definite problem"
Personally I think the words above are your biggest gripe with the current system.
You think that your old age welfare payment should be higher...
And that the old age welfare payment for those who made / paid less during their working years should be lower...
Even in retirement you are seeking to increase your government welfare payment.
And you wonder why the government spends so much. Most of it's citizens want hand outs or lower taxes whether they need the money or not. :-)
Please remember that SS and medicare are "money for old low income people"...
Not an IRA for people like us to shelter our earning from taxes. We already have those and they have saved me from paying a ton in taxes so far.
My biggest gripes are that the whole system is a Ponzi scheme-- founded on the lie that you have a "retirement account"-- and that the system is going broke; it's unsustainable and will soon cheat EVERYBODY out of what they were promised.
And it is no use trying to imagine some strawman scheme of yours in which the math magically does what you think it should. The REAL math says you are simply wrong and you will BE wrong until you either do the math for yourself or take my word for it. I will say I didn't believe it either, didn't expect it to work at all since we have dilly-dallied so long and gone so far down the road to perdition, but it does.
And what I meant by "disconnected" is that this is a defined benefit plan, and they are ALWAYS disconnected from the inputs; that is their fatal flaw and the reason nobody except government does them any more.
Jerry,
You are correct about one thing, people in your generation did not put enough money into the system to adequately fund the benefits you are receiving.
That is why I believe it is okay to reduce benefits by 25% starting today...
Unfortunately folks like yourself would cry foul because you liked the low Payroll taxes back then, but now you want the "too big" payments.
The only reason the system has a problem is that citizens like a "magical system"...
Low premiums and high payouts. :-)
All your proposed change does is double down on IRA's / 401K's...
The rich will have more money tax sheltered...
The low and mid-income folks will be impoverished when retired.
Is that your goal?
You are talking through your hat. My proposal gives more money to EVERYBODY at retirement. Why do you want to argue against that? How popular do you think a 25% cut in benefits will be, either immediately as you suggest, or whenever the magical, mystical "trust fund" runs out of money?
You may impute all the evil motives you wish, but it's the same irrelevant nonsense as when you insist that the mathematics do not work when you haven't a clue as to how the mathematics work.
My "goal" is to save the government-run retirement income system from itself, to the benefit of everybody, if possible. And it is. Unless and until you find a flaw in the assumptions, the math proves it.
"My proposal gives more money to EVERYBODY at retirement."
I call BS... :-)
You can avoid the simple math question as long as you want...
Let's try this again. If I set up 2 IRAs:
- invest the same amount of money,
- at the same times
- invest them in the same bond
- which yields the same return
They will grow identically.
Now if I start stealing from Account #2 to help my kids pay for college or a wedding... (ie inheritance)
Account #1 which does not help to pay "the kids" will grow far greater and be able to provide better support in retirement.
You keep stating that Account #2 will be bigger than Account #1 even with all the non-retirement withdrawals which of course makes no sense.
What magic are you proposing to make the Account #2 account grow so much faster to support the non-retirement withdrawals while making the account out pace Account #1?
I mean you keep saying that Account #2 (individual accounts with inheritance rights) will provide far more than Account #1. (group pension where money goes to the living recipients only) And that no one will be harmed by the change...
Prove it with some simple math...
As for intent... I really do not know your intent, maybe you are just really screwing up the assumptions and/or calculations.
But there is NO WAY to give everyone more, when a significant amount of gains will be inherited by people who are not in the programs.
No place in any of my assumptions will you see "inheritance" or "drawing out." You can avoid the real (and admittedly complex) math as long as you want, but you will continue to completely miss the point.
One of the points you miss is that people now and SS DIE, and cease drawing benefits. If they are replaced by younger people who draw less out of SS, the "outgo" drops and eventually disappears.
Another point you overlook is that you say in one breath that SS is not an investment and then in the next insist that "Account #2" pays exactly what "Account #1" does. They don't. SS is a fixed benefit plan, only very roughly tied to lifetime earnings. The private accounts are a real asset that grow in a secure way and have a guaranteed payout exactly proportional to the amount invested.
I've posted the assumptions above, should you ever want to discuss something other than straw men.
Oh, and if I understand it correctly, you are proposing government continues collecting a 100% "death tax."
For simplification I am just comparing total balances, not caring about who's name the sub-total are in.
SS Trust Fund Current vs [SS Trust Fund New + the Sum of All your individual accounts]
The SS Trust Fund Current will always be bigger because nobody inherits from it.
[SS Trust Fund New + the Sum of All your individual accounts] will always be smaller because the non-elderly receive funds from it...
The bigger one can pay out more benefits.
And there is no "death tax" because it is "Welfare for the Elderly" and their Needy Dependents.
As I said... You are just upset because someone else may benefit more than yourself from the premiums you paid in. :-( It is insurance... You want more benefit just live longer or have hip replaced...
You analysis is fatally flawed because you have an emotional attachment of some sort to the current unfair and unwise system.
The trust fund under the proposed system NEVER goes to zero, as it does in the current system, so your statement that the current trust fund will always be greater is irredeemably false.
And to say that there is no death tax just because of where the money is spent – "welfare for the elderly" – does not alter the fact that it is a grossly unfair 100% Death tax.
Once again you impugn my motivations for no good reason. Is it simply possible that, knowing the current scheme is going broke, I am trying to save Social Security for everybody? that I would like to see the politicians' promises actually be kept?
I actually have no emotional attachment to the current systems at all.
I don't think about what is taken out of my check or where it is spent, and I sure do not plan my retirement around ever getting the money back...
You are the one who seems emotionally invested in this topic. So worried that your kids will not inherit if you die early, and that some needy elderly person or their dependent will get the money instead.
My guess is that you have no ill intent... I think you worship personal / family wealth and it drives you crazy to see "what you consider your assets" going to the low income old folks.
I have elderly family members who see the world the same way.
I am just thankful that I will hopefully never "NEED" SS, SSD or Medicare...
Gratitude reduces stress much better than Coveting what others receive.
"I don't think about what is taken out of my check or where it is spent, and I sure do not plan my retirement around ever getting the money back..." Then why do you fight so hard against a proposal that would solve the problems that you apparently do not see nor care about?
My retirement is secure, and So my only concern is for everybody else that stands to be cheated out of what they were promised, and the fact that it is not necessary for that to be the case. To the degree that Social Security is providing benefits to those 55 and over, this new proposal guarantees that will continue, While making it possible for younger people to "get their money back," which is simply NOT possible under the current system.
Skip gratitude and coveting. Move on to the altruistic desire to help others, at no cost to anybody except abandoning some political mindlessness. If changing a program produces BETTER results at the same cost, why should it be opposed? if you don't care because you are not personally affected yet have no care for the millions of others who are, who is being selfish?
Let me repeat...
Your new program can not be better for everyone...
as long as a lot of the assets...
go to young healthy workers via inheritance...
instead of the old people who need the money...
Unless your new program has a money tree hidden in the proposal.
And as for...
"Move on to the altruistic desire to help others, at no cost to anybody"
Since we know that someone loses out with you new proposal...
Who do you think it will be?
1. The folks who had high wages and do not need SS
2. The folks who had low wages and rely on SS for their food and rent
You seem totally unwilling to accept the reality that the money people put into SS is NOT the government's money! It is the people's money, and if it is invested in mandatory retirement accounts for them, then THEY get the benefit of it, even if they die early and it passes to their heirs. Since government never held that money, and will not have to pay out to that recipient, it is obvious that everybody DOES in fact benefit, including those in or near retirement who, by 2034 or sooner WILL see their benefits cut.
"We know" absolutely nothing of the sort. If you haven't done the math, you're just arbitrarily believing that the government runs SS with maximum efficacy and benefit for everybody. Isn't that highly unlikely? Why do you think all other proposals involve either raising taxes or cutting benefits? Is any of that preferable to sustaining the benefits without raising taxes? Please explain.
Of course that money is the government's money, it is collected via a tax.
The Supreme Court has made that very clear. Even this pro-privatization group agrees.
If the funds paid by low income citizens would not pay the same benefits to them the SS and Medicare do today. Especially those who live to a ripe old age.
Here are Pros and Cons And they admit that it only works if the yields can be increased by taking on more risk / investment diversity.
More Pros and Cons
As for your questions:
- I have never heard anyone question the efficiency of SS. Definitely more cost effective than a managed fund.
- Because people like yourself did not pay a high enough tax rate for the benefits you are currently enjoying.
Again... Your math is wrong... The low income folks will suffer if your plan is ever passed. That is not acceptable to me.
Here is a different concept
And another
AARP SS Facts
"Most people get back more than they put in worried that the money taken out of your check to fund Social Security will never come back to you? Over the years, studies have shown that most people receive more in benefits than they paid into the program. The Urban Institute issues reports that estimate how much people are paying into the program and what they are likely to receive in retirement benefits. As a general matter, married couples are more likely to get back more than they contributed than single people, and both low-income and high-income people may receive more dollars from the program over a lifetime than the amount of money they contributed to it. "
A. So you are happy with the government taxing you "for your own good" and then giving the money to somebody that didn't earn it?
B. I asked about efficacy, not efficiency.
C. Your "other proposals" are some non-defined total instant privatization, which of course will not work. But phase it in over 40 years and it DOES.
D. Most people got more than they put in. Ever since the program was started, that has been the case, making a marvelous case for saying this is a Ponzi scheme.
E. My math is still correct, that everybody receives more than they would under a straight percent-of-income SS benefit would provide. That the "poor" receive more says this is, indeed, a welfare program with an absolute NO-work requirement. Seems to me we should separate the two and encourage private savings. No more "SS will take care of me" mindset.
A. Did I earn my wealthy well educated stable family and all the benefits that came with it? Of course I am fine paying some so ALL old people have some monthly income and healthcare. Especially if I get some benefits from the system.
B. One would have to define "success" to score various systems. And if the primary goal is that "ALL old people have some monthly income and healthcare", then SS and Medicare are wonderful.
C. Prove it. Share a source.
D. I agree that is why I am fine with cutting the benefits by 25% immediately.
E. Prove it. Share a source.
A. Fine, you are OK with the grossly inefficacious welfare system that we have for everybody, but seniors get their own, special, very generous, no-work-required-or-allowed system that makes them the wealthiest age cohort in the US?
B. If that is success, then the reform proposal is equal to or better than the current system.
C. What am I proving? That instant privatization doesn't work? Your cite does that. That phasing in privatization DOES? My math (and that proposed to Congress back in the 90s) does that.
D. Wow. If old folks are so in need of these funds, how is cutting them off going to be popular? What about the "promise" of SS? And WHY, for cat's sake, would you prefer that to guaranteeing 100% payouts forever?
E. Prove what??? You are encouraged that the current system is "progressive" in its benefits, but overlook that the SS tax is the most regressive tax we have. So for those who live long enough, maybe it balances out, but, again from your citation, the poor get short shrift up to that very old age.
The whole reason SS is mandatory is to provide "forced savings" for retirement. That it goes into Social Security to pay current benefits rather than into an actual savings account is the wrong way to meet the primary goal.
As often is the case, we disagree. :-)
Maybe I will bring some of this up again soon in a new post.
We disagree based on your complete (and deliberate?) lack of understanding of the the proposal. The list in your original post was simply incomplete. Maybe we can disagree on THAT.
I am okay accepting the blame for your poor argument and proof of your proposal results... :-)
AND, I blame you for not making any attempt to verify the proof I have offered you. It shouldn't be an argument, at least not until you have reviewed the clear and convincing evidence. You haven't even tried.
Your original post bemoaned the fact that SS was going broke and couldn't fulfill its promises, and that some reform was needed (again, all of which involved raising taxes or cutting benefits). Yet you insist that a better proposal is totally unwelcome. Odd.
You always do have unique perspectives. :-)
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