Please drop by the Virtual Summit on Social Security
by Bruce Webb
I mention from time to time that I talk with a number of D.C. policy types about Social Security, but mostly don’t use names because the conversations are officially off the record. Well a group of them, spearheaded by Roger Hickey’s folks at Campaign for America’s Future, have gone on the record in a big way and moreover want you to join in and comment on their new blog The Virtual Summit for Fiscal and Economic Responsibility
The blog launched yesterday with a piece by Dean Baker, who as those of you who follow this topic has been a key defender of Social Security for years, being notably ahead of the curve when he and colleague Mark Weisbrot published Social Security: the Phony Crisis in 1999, and another by Congressman John Conyers, plus contributions by Bill Scher and Dave Johnson of CAF (Dave also being a veteran of the ‘There is No Crisis’ movement of 2005) and Barbara Burt of the Frances Perkins Center (Perkins being FDR’s Labor Secretary and so the foster mother of Social Security).
I have been asked to contribute and will from time to time. So for those who have been asking when supporters of Social Security were going to get organized and push back on the Peter G Peterson contingent in a public way, well the answer was ‘yesterday April 20th, 2010’. Be there.
Who is pushing? There are really no sides, all trades involve the paychecks of middle class citizens. Either they can make the trade or something has to be adjusted on the margin.
Matt,
I’ll let Bruce and coberly do the heavy lifting but I can take the low hanging easy ones.
The point is that SS should not be part of the discussion, By itself, SS is actuarily sound and not in any trouble and has its own dedicated funding source. It should be off the table and not part of the discussion. You can go to the ‘Webb’s Social Security’ Link at the top for the full detailed explination.
The issue is and has always been the general fund. That is where the tradeoffs are to solve this problem:
Matt
it’s a little hard to tell what you are saying here. Buff is right.
The “sides” seem to be the people who are going to need Social Security, including the ones who don’t realize they will, vs the Petersons and their hired guns and apparently their dupes. I can’t tell where Clinton and Obama fit into that last, but I haven’t trusted them for years.
For the middle class, Social Security is essentially insurance in case they suddenly find themselves old and not as “middle” as they expected. For workers Social Security is essential, they have no way to guarantee any retirement at all without it, and when you do an honest calculation of “return on investment” the odds are very much that they cannot hope to do nearly as well in private markets.
Not sure what you are suggeting be traded. The only margin adjustment that makes sense is adjusting the payroll tax by one tenth of one percent from time to time if needed. That’s eighty cents per week in today’s terms for an average income. And it will never “feel” like more whatever the future amount in current dollars, or future paychecks may look like.
coberly, anyone can comment at the Virtual Summit, but you do need to register
Thanks Buff
i need to point out that the “tradeoff” required in the general fund is for Congress to start paying back the money it borrowed.
Given the precident of raising the retirement age in the 1980s settlement, continue the process once the age reaches 67 indexing it to life expectancy so that the same number of years of coverage are provided as now. One could make the Disablity part a bit more lienient after 62 to provide that being unable to do the job one has done for a number of years is all the qualifing one needs, (which also puts the person on Medicare). This handles the issue of their medical care as well.
Lyle
Would admission to a nursing home qualify a person for Social Security automatically, or would he still need a note from his doctor saying he had less than one year to live?
I like the way you think: What is the use of workers except to work. Why should we allow mere working people to retire just because they have paid the costs of their retirement in advance. I mean, you start allowing the servants to think they can buy some time at the end of their lives to just relax and visit the grandkids or start a business of their own or think about the meaning of life and you will rot their moral fiber.
Besides, if old people can retire, think what it will do to the labor market. We might not be able to get 10% unemployment any more and have to pay young people real wages.
But no, I personally would never hire an old person. Despite the “reliability” they really can’t work as hard. Still, not have a retirement they can pay for themselves does help with the disciplline problem.
Bill Scher
Thanks. I did register. We were having another failture to communicate.
Here is what is wrong with Lyle’s suggestion:
First, he assumes we will all be living longer. Won’ work out that way. The rich will live longer. The poor not so much. Especially the poor and black.
Second, he assumes that living longer means being healthy enough to work longer. Ain’t necessarily so, the knees, the back, the brain, give out. And you can’t get to work while hooked up to those tubes that are extending your, and the average, life expectancy.
Third, he assumes everyone has a nice desk job that they love. No. You’d be surprised how many garbage collecters, cleaning ladies, secretaries, government clerks, mill workers, road workers, construction laborers, farm laborers… are dying to retire. In fact I think you’d be surprised how many of them would commit suicide if they couldn’t look forward to retiring soon.
Fourth, he assumes that working people have no need, desire, or right to retire. They aren’t really human are they? Only the rich are allowed to retire while they still have enough life left in them to make a profit for the boss.
Fifth, he assumes that he and you are paying for the workers retirement, so they should be damn glad you let them off with a year in the pasture before the knackers. But people pay for their own retirement. Yes it’s “pay as you go,” and yes, granny gets the money before you do. But you pay into the system in dollars which, plus an effective interest that comes from growth in the economy, pays for your own retirement. Just like putting money in the bank, or buying stocks. Without the risk.
The fact is that poor people, and middle class people have always had “retirement”, by which they meant “early” retirement as one of the prime goals of making money. That’s why they tried to save it. When they could.
With Social Security they can continue to pay for their own retirement. The expected 38% increase in life expectancy since the last time the tax rate was set, can be paid for with a 2% rise in the payroll tax. Explain it to the people so they understand it, and give them the choice to pay for their own retirement, and they will choose the tax and the same retirement age as their grandparents.
Except of course for those still too young to understand this.
Note I proposed to extend the disablity part of SS to cover those unable to work. And changed the defintion to be to be unable to work in the job they have held for the last period.
Moreover since there is a precident for it its easy to do again. Yes this might increase the Disablity Insurance part, but making that program more liberal, does solve the problem for those unable to work. Nothing says that if you save enough yourself you can’t retire earlier, just that there an average period you get SS benefits that is indexed with age. Yes some die earlier, and some die later, thats the bet involved in an annunity you make it with the insurance company or today if you take SS at 62 you bet you will live less than 18 years and the gov bets you will live more than 18 years.
And why is it that Matt seems to think that the middle class will be responsible for making up the budget deficit? Is he being ironically sarcastic? Is he stating a misguided opinion? Is it his preference that the middle class cover the cost of the profligate spending related to Iraq and Afghanistan or bailing out the very welathy bankers?
What poiint were youj trying to make Matt?
Lyle,
Why is it that yo believe that it is necessary to carry out such a change in the effective date of qualifying for benefits? You seem to have missed all the preceding discussions that point out that there is no serious deficiency in the Social Security system at present and none thought to be likely to occur for another 25 years. And that assumes that the economy stays stagnant for all that time. Why fix what isn’t broken? Why not remove the cap on FICA contributions? Why not simply raise the highest marginal rates for the One Percenters? Why not make all forms of income taxable as earned income? There are lots of good ways to re-balance the general budget if that is your goal.
Note that rasing the age as I suspect really would not have much effect for 20+ years It will be 2025 before the current increase finishes up so we are talking about 15 years there. Then add a 10 year stable period (to match the one at 66) and start again with two months per year for those born in 1970. So the savings would first kick in in 2035 about the time the problem is slated to occur. Giving folks 25 years warning at a minimum is plenty of time to change plans. Again for those who can no longer work, be a bit more loose on disability claims.
Jack,
I believe the reply to your comment would go along the lines: “That’s where the money is.”
We sure won’t be going after th ewealthy, maybe high incomes but not the wealthy. (To many D and R congress critter’s would be effected).
Islam will change
Lyle
you are impervious. your “solution” would turn Social SEcurity into means tested welfare. only now the means would be “ability to work.”
“if you save enough yourself” just destroys Social Security entirely. the whole point of Social SEcurity is that workers don’t make enough to be able to save enough subject to the risks of inflation and market losses. Social SEcurity takes the risk out so that they CAN save enough of their OWN money.
your proposal is confused as to the facts, the logic, and the morality.
and another thing wrong with Lyle’s proposal:
he assumes the increase in life expectancy will actually occur. might not. this is another one of those long range science fiction speculations.
we can easily afford to wait and see what actually does happen. if we all start living longer and working longer it STILL might not be necessary to change the retirement age. I can’t imagine all those happy healthy people with jobs they love quitting just to collect Social Security.
Jack
the reason not to raise the cap is that it would make the “rich” mad and they would join forces with Lyle to raise the retirement age instead. we don’t need to raise the cap. workers can pay for their own retirements.
as for raising those other taxes to addres the general budget deficit, i am all on your side.
Lyle
i understand the point of annuities. Can you explain in a non muddled way what this has to do with raising the retirement age and forcing people to work who could have paid for their own retirement?
and would have if you let them.
Lyle
i understand the point of annuities.
can you explain in a non muddled way what annuities has to do with raising the retirement age so people who want to retire, who have paid for their retirement, are not allowed to retire?
by the way when i retire at 62 I am not “betting I will die before 18 years.” I am not such a fool as to mistake a few dollars more or less gain as the reason for living.
As many point out if the question is maximizing the total return from social security one question is how long you will live. If you live less than 18 years from the point you start SS then starting at 62 gives you a greater total return, if you live more than 18 years and start at 66 you get more money total from SS. Since all insurance (and an annuity is a form of insurance) are really wagers in any annutity you make the opposite bet you make with life insurance. In an annuity you bet you will live longer than the average and the insurance company bets the opposite. (Which is why if you are very unhealth you can do a physical and get a higher annuity return). For life insurance the bet is the other way you bet you will die sooner, and the insurance company bets you will die later (why physicals are often demanded for life insurance to ensure that sick people are screened out).
So for SS the question of starting at 62 versus 66 (for those turning 62 now) really is a question of how long you think you will live, you gamble with the government taking the other side of the bet.
Interestingly a number of conservative religions eschew insurance because it is gambling, such as the Amish.
Lyle
again, what does this have to do with raising the retirement age? Only an accountant would worry about “maximizing the total return…” The accountants do need to balance the books so the total return is balanced actuarily so that on average people who retire ealry collect the same money as those who wait. But that is for the books. Real people make their decisions based on something else. Like, should I go to work today or kill myself.
There is no gamble. You do what you need to do. The government is not gambling because it is the house.
Oh, goody, lets raise the retirement age of people we will never have to look in the eye and explain to them why they can’t retire in spite of having paid for their own retirement.
Giving people a 25 year warning so they can change plans to WHAT? If there was a better plan than Social Security, we’d have heard about it by now. We have certainly heard about some worse plans.
Good thing you throw in that “be a bit more loose on disability claims.” Gives you a chance to close your eyes to the reality with a clear conscience.
This is the kind of “thinking” that infuriates me. Lyle is no worse than the President’s advisors. All of them honorable men, who were the brightest kids in class. They could always give a brilliant answer without thinking, or knowing much of anything. Then, of course, it’s off to the next question.
Give that kid an A. Never mind that the answer is fatuous and immoral. It sounds so briliant. And mostly it agrees with the teacher.
“indexing it to life expectancy so that the same number of years of coverage are provided as now”
This is the part I disagree with. I think most workers would agree that if they truly are going to live 2 years longer that it would be fair for them to work one year longer. What you said would mean that people should expect to spend all of their extra years working.
And if coberly is right that richer workers will gain life expactancy faster than poor, then the actuarial adjustments for early retirement may need adjusting (to be made more progressive) as well.
note
i said “should i go to work today…”
for most old people for most of history, it wasn’t a question of “should i..” but “can i…” “will anybody give me a job?” and the answer was no.
but Lyle, like the other very intelligent people doesn’t have to look seriously at that question. After all their job is the bottom line.
[note here… there are an infinite number of ways to balance the books. I am not suggesting unlimited welfare. I am pointing out that under Social Security the workers pay for their own retirement. A perfectly legitimate thing for them to do with their own money.]
“give them the choice to pay for their own retirement, and they will choose the tax”
I believe more people think of choice as: If someone can ‘choose’ to pay the tax, then they can ‘choose’ to set aside the same amount for themselves. I think you are losing your audience with this framing.
SS isn’t an annuity sold by an insurance company. There is no risk and no gramble involved. So, gaming the payout isn’t the point. SS is a source of a minimal replacement income when workers retire, become blind/disabled, or die and leave survivors. Annuities just don’t have anything to do with it. Annuities are for people who have money to invest. SS is a program for ordinary workers in an insecure, constantly shifting job market. These people (the majority of the population, by the way) typically have little or no money to invest.
This notion that everyone will live longer in the future workforce is absurd. We have just passed a massive HCR bill because many people have no assurance they can any get any health care at all let alone medical treatment for serious chronic conditions. Does that suggest an inevitable extended work life for everyone in the workforce?
Furthermore, some 25% of the population either have diagnosed DBI/II, undiagnosed DBII, or a prediabetic condition such as obesity. Diabetes is incurable, treatment or no treatment, and shortens life considerably under the best conditions. One way or another, the notion that raising the retirement age is justified based on ever increasing life spans is not borne out by the facts. One way or another, poor people die younger than their well-fed peers. And, we have more poor people (including recent immigrants) now than before. So, the longevity argument doesn’t hold water.
SS does what it is supposed to do and pays for itself. It doesn’t belong in a discussion about the national debt. In fact, we shouldn’t be talking about it at all right now. Remember the phony SS crisis? Here we go again: a phony debt crisis. After all the world is ending tomorrow and we have to pay it all off tonight! Right? You know, speaking of paying off all our debts, I’d like to discuss a real estate opportunity with you. It’s got real earnings potential but a real short window of opportunity. Got time to talk about the Golden Gate? It won’t be worth a nickle tomorrow, so now is the time to act!
Anyhow, you know, “twenty five years to act” isn’t a good deal if you don’t need to act at all. Lyle, about that bridge…. 😎 Nancy Ortiz
Arne
what is fair about working an extra year if you paid for your pension that year?
who are they working for? what are they working for?
are we really so poor we need all hands on deck?
or is one of the purposes of working to be able to buy time for ourselves?
Arne
could well be. but i don’t understand your point.
paying the tax IS setting aside the same amount for themselves. all social security does is avoid the dangers of inflation and market losses. all it “costs” is the opportunity cost of what you “might have” gotten by investing the money somewhere else. that “might have” would have to be better than 10% real return for the poorest people and better than 2% REAL return for the richest. not all that easy to do… not possible at all if you value the guarantee at anything.
by the way..
that “extra year” you were talking about above. there isn’t a financial planner in the world who would tell you to just spend the money now and forget about an extra year in retirement.
call that year 12,000 dollars in benefits, it would cost you six dollars a week extra “tax.” not counting the gains from “wage indexing.” seems like a poor trade to me to give up the chance of spending a year without working to save pocket change.
Nancy,
Sure there is a risk. At the first level social security taxes more than it needs for to pay benefits and administer the program. Alot more. And this overcharge is spent. So we’re not getting what we’re paying for. At the second level they can do things like raise the retirement age (which they have already done), reduce the cash payout of benefits, and means test benefits. Since all three are feasible future outcomes benefits are now stochastic driven by the degree of randomness in future possible policy changes. So there is a risk. You had a point but you can’t make defensible absolute statements on this issue.
– Edit – Moderate
One good reason for mandatory SS is that someone needs to drive a “wedge” between income and cost of living. Otherwise what magically happens is that companies either pay just enough so that employees can afford to live, or employees cost of living rises to their incomes (or higher as we’ve seen lately).
But back to raising the SS age. Proponents of this need to acknowledge the fact that having a pulse and breathing do not qualify you for most of the jobs out there. I know in the case of computer programming, the ultimate desk job (you are chained to one, except for periods when you are allowed to travel to night school), the brain starts to go about age 40. And that is if you are in the “cushy” part of the field, corporate IT programming. If you are a commercial software developer, they have something called “The Death March”. This is where they work around the clock to meet product release deadlines. The allure of this kind of work environment wears off around 30 years of age.
But the demands of most jobs in biz and professions get hard to take even in ones 50s and early 60s.
Social Security does not tax a “lot” more than it needs to pay for its benefits. And except for a brief period in the late 90s and early 00’s never did.
Like most people on this topic there is a wide apparent gap between what you “know” and what is actually true. Roughly half of the Trust Fund balance is simply the result of interest effects, a percentage that is projected to grow over time until almost all of the balance is made up of interest and interest on interest. And in any event the extra taxation was perfectly justifiable due to demographic outcomes that are not particularly stochasticly sensitive.
Plus you are using ‘risk’ in a different sense than Nancy. Social Security is riskfree in exactly the same way and for the same reasons that an FDIC insured deposit is. In contrast to say stock in that same bank that may be ultimately backing that insurance company annuity.
Bruce
Cedric
Thank you. The point about driving the wedge also goes to the question of “whose money” is the employers share of the tax. Nine New York economists say its the workers money, when they want the worker to think his returns on Social Security are lower than what he “could” get in the market. They say that if the employer didn’t have to pay the SS tax, he would naturally give the money to the worker.
These economists live in a fairy tale world.
But there is also this. A time might come in your life when a year without having to work would be worth more than a million dollars. It would be worth more money than you ever had. It would be worth more money than the whole world. But you would have sold it for less than 6 dollars a week which you frittered away on stuff you didn’t really want all that much.
The problem here is that you (not Cedric, the generic you) don’t know how to think about money. Lyle and Arne seem to think the point of life is to maximize your earnings. They think a dollar now is worth as much,or more than, a dollar later. Fact is it is quite the opposite. A thousand dollars when you have a hundred thousand is not worth all that much. A dollar when you don’t have a penny might be the difference between life and death.
But as long as these guys come out ahead ten cents over a lifetime they think they have won. This is the same game played by the Petersons. Except the Petersons play it better. And they will beat you every time.
Cedric
Thank you. The point about driving the wedge also goes to the question of “whose money” is the employers share of the tax. Nine New York economists say its the workers money, when they want the worker to think his returns on Social Security are lower than what he “could” get in the market. They say that if the employer didn’t have to pay the SS tax, he would naturally give the money to the worker.
These economists live in a fairy tale world.
But there is also this. A time might come in your life when a year without having to work would be worth more than a million dollars. It would be worth more money than you ever had. It would be worth more money than the whole world. But you would have sold it for less than 6 dollars a week which you frittered away on stuff you didn’t really want all that much.
The problem here is that you (not Cedric, the generic you) don’t know how to think about money. Lyle and Arne seem to think the point of life is to maximize your earnings. They think a dollar now is worth as much,or more than, a dollar later. Fact is it is quite the opposite. A thousand dollars when you have a hundred thousand is not worth all that much. A dollar when you don’t have a penny might be the difference between life and death.
But as long as these guys come out ahead ten cents over a lifetime they think they have won. This is the same game played by the Petersons. Except the Petersons play it better. And they will beat you every time.
Shake
there is always risk in life. but the risk for Social Security is political risk. all the other retirement plans are odinary risk of financial loss. at least with political risk you know who is biting you.
as for getting what you are paying for, you need to look at the numbers. the Trust Fund as been lent, not stolen (so far), for the purpose of the boomers paying in advance for their own generational inequity. if that money is repaid, well and good. if it is not repaid, but the payroll tax is raised to cover the boomers, the people paying… as we go…will still get what they paid for because they are going to be living longer than even the boomers.
being able to say “stochastic” doesn’t mean you have actually thought very much.
Bruce
Social Security is risk free in an even better sense. Because of wage indexing, it will beat inflation honestly every time, without even relying on a Boskinized CPI.
Coberly: “Lyle is no worse than the President’s advisors. All of them honorable men, who were the brightest kids in class.”
Your assessment of the Presidnet’s advisors is far too generous. Why assume that they are “honorable” in their advice and prognostications of what is best for the nation as a whole in regards to any financial issue? What objective evidence is there that any Presidential advisors have been serving the best interests of the vast majority of the American people? There wouldn’t be this prolonged debate, going on now for decades, about the value and results of the Social Security program if honor was the basis of “expert” advice and analysis. Would there be any debate at all in regards to the need for financial industry oversight and regulation if the analysis of the need for same was done by honorable advisors? This is not a question of honor. These issues and their eventual outcomes are a question of power and the driving force behind “expert” testimony and advice is money rather than honor. Wake up and smell the roses. We have at least four decades of income redistribution and loss to look to for evidence regarding the issue of honor as it may apply to arguments concerning finance.
My Site,
Social Security does not tax a “lot” more than it needs to pay for its benefits. And except for a brief period in the late 90s and early 00’s never did.
Every penny they transfered over to the general fund was due to over changing those in the current system. Pay as you go means you pay beneift and cover overhead from current social security tax. Pay more as you go means they took more then they needed. The social security trust fund is an admission of the over charge.
Coberly,
being able to say “stochastic” doesn’t mean you have actually thought very much.
And making a stock insult does not show that you have thought at all.
Why should the government steal when they can make laws declaring that they do is legal?
Jack
I was chanelling Mark Antony when he gave Caesar’s funeral oration and called Caesar’s killers “honorable men, so are they all, all honorable men.”
What I really think is that the President’s advisors have never learned the difference between telling the truth and being “brilliant.” But I have been told that calling them liars damages my credibility.
Coberly,
Oh, goody, lets raise the retirement age of people we will never have to look in the eye and explain to them why they can’t retire in spite of having paid for their own retirement.
This is an incorrect statement. In a pay as you go system you don’t pay for your own retirement rather you pay for the generation ahead of you and hope that the generation behind you does the same for you.
I also would raise the retirement age rather than lower the level of benefits once you retire or raise payroll taxes. Raising the retirement age is my prefered option and the political process will decide who will win. You may bark many times at people you disagree with but you only get to vote once.
All the finacial advice columns raise the question of when to start and point out the 18 year question. They discuss the issue of bird in the hand versus in the bush. Now maybe they are all economists who basically assume people are human calculating machines that make all decisions based upon NPV, but they try to push people in that direction.
The whole economic system is based upon a dollar now is worth more than a dollar in the future thats the whole concept of net present value a basic financial concept. NPV depends on the discount rate you apply. The concept is Assume you put a dollar in a bank in normal times. You will get say $1.04 back in a year and so on. So a dollar now is worth a 1.04 next year, and a dollar in a year is worth .96 or so this year. This is business case 101. Banks do this this is the theorectical value of stocks etc.
Agree Shake note that my proposal would raise the age to 70 for people born in 2007.
Recall that it becomes 67 for people born in 1960, put in the 10 year wait that occured from 66 to 67 so that we start the 6 year raise from 67 to 68 for folks born in 1970, the next cycle from 68 to 69 starting with folks born in 1986 and 69 to 70 for folks born in 2002. Note that if unexpectedly life expectancy were to stabilize then the process would stop. You would for example in 2035 when the 67 to 68 change start check the life expectancy numbers and if it had increased continue if not stop.
As noted you pay for the preceeding generation, the whole concept assumes a continiously increasing population. I will not say so buy many call SS a ponzi scheme, but since this is a well know fact it can’t be a Ponzi scheme, just an intergenerational transfer scheme.
Lyle
i don’t know about human calculating machines, but they are mindlessly equating “maximizing gain’ with “reason for living.” And sadly they invite the rest of us to mindlessly accept their reasoning.
btw
i know that Lyle is one of the good guys. i can tell from his other postings. but he has caught a very bad idea from the people who sell very bad ideas, and it is the bad idea that infuriates me.
and if it sounds like i am being mean to “Lyle,” try to remind me that it is not lyle, but the idea i am being mean to.
Shake, I am sorry that you don’t understand pay as you go. But tell me this… when you buy a stock and the person takes your money and spends it. And years later when you sell the stock, and some new person buys it, is the new person paying for your retiement, just as you paid for the retirement of the person you bought the stock from?
If I haven’t convinced you yet that raising the retirement age is cruel and stupid… well sometimes it’s hard to see ourselves as others see us.
Lyle
you are making it hard for me not to bark. it seems you haven’t considered a damn thing i have said. you have your own little “plan” and you put your nose to it and follow it whereever it goes, looking neither to the right nor left… at all the dead bodies you are creating.
and just in case you have any doubt, calling SS a ponzi scheme, even by the involuted reference you just came up with, is brain damaged. As for intergenerational transfer shcemes, that has been the way old age has been financed now for about fifty thousand or a million years, ever since we became human. actually Neanderthal understood the concept. what’s your problem?
Shake
i only offer stock insults at stock characters. you are absolutely right the government can steal by declaring what they do legal. that’s what i am trying to stop. but as long as they can find dupes like you, i am likely to be outvoted. that’s why i bark.
Lyle. Yep. That’s what they say. Now imagine yourself in the future without that dollar.
I appreciate the lesson on NPV. Now try to understand why I said it ain’t necessarily so.
Lyle
is it really possible you don’t notice that your replies to my argument ignore my argument entirely. I said that “they” think that a dollar now is worth more than a dollar later. then i gave my reason for disagreeing with them in this context. you replied that “they think that a dollar now is worth more tha a dollar later” as if that was a refutation. it’s not. it’s a restatement of the position i was arguing against. to “refute” my argument you would have to say something like, no. no, being old without a dollar to your name is much better than having to save a dollar when you are young.
Lyle
or “coberly says that at about the age of sixty most people (more than half) are getting desperate to retire, however long they expect to live. and they can afford to pay for it.” you come back with … sixty seven plus ten and a minus four…” what the hell did that have to do with “people desperate to retire and they can afford to pay for it”? ??
Lyle
NO!! !! The whole concept does NOT “assume a continuously increasing population.” All a continuously increasing population does is hold down the tax to benefit ratio marginally. A steady population can pay for its own retirement, through Social Security simply by taxing itself enough over a lifetime to pay for their “expected” lifetime in benefits. A simple model should suffice: 40 years at 12% will pay for 12 years at 40%. With an increasing life expectancy this formula could go as high as 40 years at 20% to pay for 20 years at 40%. The people could decide…hopefully based on experience and not the lies of the Petersons… if this was the right formula or if they wanted to pay a smaller tax and take less in retirement. 20% looks large to us because we are not used to thinking about retirement as a legitimate cost, and there is a whole nation of fools makeing twice what their grandparents made who can’t figure out how they can possibly live on a dollar less per week today in order to save for a future when they won’t be able to work, or will find that they really don’t want to.
Note that even a falling population or a declining level of prosperity would still allow people to choose to pay for their own retirement (by paying for granny’s) at a rate that would balance their needs and the needs of retired people.
keep calling that a Ponzi scheme and I think we can find a dunce cap that will fit you nicely.
and if you don’t like social security you still have to come up with a way to pay for retirement. what are you going to do, win the lottery. i mean the stock market.
here is a clue for you… stock market winnings come out of GDP (when you cash in.)
btw
now go back and answer the substantive argument. or at least think about it. or at least try to.
no one was overcharged. there is not a person living, or any in the forseeable future who will have paid more than they get back. except of course by dying without dependents. but then, i am told, they won’t care.
the “more” comes froma generally rising real standard of living. but even if we have a great famine, feeding the elderly will not be an unsupportable burden. it would just be one of those things that happens to some generations that others are spared.
or we could consult our accountant and say, see here, dad, mom, my accountant says that you are collecting more in Social Security than I will. thanks for the education, and taking care of me when i was small, but money is money you know, and, well, the fact is i just can’t afford to feed you anymore. write if you get work.
Hey, Shake–Consider this. SSA is a cheap outfit. Anyone who complains that it takes 20% administrative expenses to pay for the agency’s operations (as it does in HI companies) doesn’t know anything about it. As for the fact that FICA gets borrowed by the Treasury for general revenue purposes, that’s good. The TF pays out benefits from current FICA revenue but, in lean times, partly from interest paid on its borrowed principal. It’s a trust fund, remember? Anyhow, it takes about 2% annual payroll taxes to operate the benefit machine for 48 million beneficiaries.
Ok, now on to the Greenspan Commission’s central finding. We had to save in the TF for the Baby Boomers. And, that’s what we have been doing ever since. So, was the FICA revenue greater than the outlay? Yes, by design. To the tune of $2.5 trillion which the Peterson group and others do not wish to pay out in benefits. That’s the current situation.
The fact that many people don’t understand this wouldn’t matter if it were commonly undestood that this system works and has always worked. And, it will if we don’t mess it up. FYI. Nancy Ortiz
Lyle
“I will not say so buy many call SS a ponzi scheme, but since this is a well know fact it can’t be a Ponzi scheme, just an intergenerational transfer scheme.”
So what does that make life insurance? Disability insurance? Those function the exact same way. Intergenerational transfer schemes are not BAD! When you use the term scheme perjoratively they sound bad but there is no other way to provide insurance. Now you may want to argue that there should be NO insurance whatsoever, that the whole idea of insurance is flawed form the start and you might be able to make a coherent argument to that effect, but you cannot argue that SS is any different in its structure than any other insurance. It simply is mandatory and transparent.
Greg
buying diapers for your kid and sending him to harvard is an intergenerational transfer scheme. So is letting your aged mother in law live with you. Intergenerational transfer schemes form the core of what Moses called “Honor your father and your mother” and poor old Jesus had to come back to remind people that “honor” was all about the money.
Don’t mean to offend the irreligious, just point out that the idea has been around for a long time and considered important.
My own take is that the Petersons are a category of created beings whose whole purpose on earth is to increase the sum of human misery by appealing to people’s greed to fool them into doing things that hurt themselves. And of course the whole art of the Lie is to never say anything that is objectively untrue. Just weave a tissue of hints that the mark fills up with his own greed and lusts.
on a more secular level, putting money in a bank or buying a stock is an intergenerational transfer scheme. the bank, or the company, or the guy who sold you the stock, uses your money for his own purposes… including retirement. what you rely on is that when you want or need the money back… in twenty or forty years… there will be some young person putting money in the bank, or buying the companies products, or wanting to buy your shares, to transfer his money to your older self.
All Social Security does is take the risk out of the transfer.
Shake,
Your argument doesn’t really make a great deal of sense. Of course any government can change its laws to make certain actions legal if not wise. You might say that the country is in the sorry shape it is currently sufferinig because of our own lack of good sense in choosing our elected representatives. We’ve now got a variety of laws that significantly reduce our freedom from government intrusion into our private lives. There has been legislative allowances for wasteful wars and reckless financing.
So all in all the Congress can screw things up. It has not yet been very successful in screwing up Social Security because there is less an issue of patriotism and older people, along with younger people with good sense, have been a bit more diligent in voicing their outrage at each effort to screw with Social Security. That can change, as you say. So stay alert and let your elected representatives know that you’re watching their actions and listening to their words in regards to this issue. In the mean time recognize that the Social Security program is the last safety net any of us have regarding retirment age financial security. And it’s only that, but it’s the last thing left that requires your employer to participate in covering a share of the cost. Think of that part as deferred compensation. The excess FICA is well invested, through the Trust Fund, in your country. That’s what the Treasury Notes represent, our investment in our county’s function and future. So tell your congressional representatives to keep their f–k–g hands off the program and the Trust Fund. If they don’t support the integrity and sanctity of Social Secruity you shouldn’t support them at election time. It ain’t broke, so don’t fix it.
coberly: “The rich will live longer.”
I believe you are wrong.
http://blogs.wsj.com/economics/2008/04/18/income-inequality-extends-to-life-expectancy/
All groups are increasing.
from http://health.dailynewscentral.com/content/view/0002418/42/:
“The differences were attributed to a combination of injuries and such preventable risk factors as smoking, alcohol, obesity, high blood pressure, elevated cholesterol, diet and physical inactivity — particularly among people from 15 years to 59 years of age. They were not due to income, insurance, infant mortality, AIDS or violence”
Social Security (OASI) is insurance against running out of retirement funds before you die. My grandmother lived to 98. She had nothing but SS for a long while. My aunt is 92. She has nothing but SS, but since she was not wiped out by the depression, she was not on SS alone until into 80’s.
There are many reasons why someone may need to start retirement already having used up retirement funds, but designing SS around what is a small group does not make sense. We may want a program which gets Granny off her knees scrubbing floors before she destroys her knees, but SS is not the right program.
coberly: “what is fair about working an extra year if you paid for your pension that year?”
Right now we pay for a year of SS benefits by working for two years. If you are going to get an extra year of retirement (which is supported by the numbers), then paying for it by working an extra year is as fair as by paying the extra year’s worth of premiums over the course of 40 years.
Lyle: “note that my proposal would raise the age to 70 for people born in 2007.”
This would be going too far to be fair. Compared to today’s retirees, you would ask them to work 4 years longer even though their average life expectancy at retirement is only 3.5 years longer. I don’t think you can justify more than one additional year in the next 75-year span.
Arne
no. SS is the program that gives people the option to save for retirement at a reasonable age without losing their savings to inflation and market losses, not to mention lack of prudence or failure to thrive.
as i said before, we can afford to wait to see if this brave new world of people living longer and stronger and wanting nothing more than to work for their boss actually comes about. if it does, some of the adjustments will take care of themselves. the rest of them the people can decide about if they are given the chance to make an honest decision.
i really can’t understand why you are so in love with the idea of making granny work longer. is it the money? do you have a business that hires old people cheap?
Arne
right now we work about 40 years to pay for a retirement that lasts about 14. we are looking at a future in which we may work about 40 years to pay for a retirement that lasts about 20. turning this into “we work two years to pay for one” is mathematically and morally absurd. The cost of paying for those extra six or seven years is about 2% of wages… or 4% if you count the boss’s share as “your” money. seems to me to be a damn poor bargain to save yourself five dollars a week against the chance that you will never wish you could have retired this year instead of next.
If I make 40,000 a year and can expect about 13,000 a year in retirement, it doesn’t seem to me that working an extra year “pays for” a year in retirement. Maybe you need to look at the numbers you are playing with and try to see what they stand for. And of course if you wait until the last year before you want to retire to “work to pay for” that extra year, you are going to have to work about four months. But most people have figured out by this time that it’s easier to save a little bit every year. It adds up, and you don’t miss it.
coberly: “SS is the program that gives people the option to save for retirement at a reasonable age without losing their savings to inflation”
no. SS was never meant to be the sole source of income throughout retirement.
“i really can’t understand why you are so in love with the idea of making granny work longer”
I really can’t understand why you are so in love with this particular straw (wo)man.
“retirement that lasts about 14”
No. It is 17 for men, 20 for women, and more than 20 if you account for early retirement. Two years for one is both mathematically accurate and socially meaningful, even though, obviously, all the years of premiums are paid up front.
2 percent of wages pays for the increase of 3.5 years in lifespan that I referenced in my response to Lyle. Paying premiums for an additional year will not be enough to pay for the scheduled benefits without additional adjustments; a one percent increase along with would. I would be happy to support choosing to leave the NRA where it is, but a one year increase over the next 75-years is not the disaster you portray it to be.
“we can afford to wait to see “
Yes. Changes to the normal retirement age should be based on actual increases in lifespans. Increasing the tax rate should not happen until we see how fast the trust fund is actually used up. In about 2020 Congress should decide what the rates will be for 2025-2040. In about 2030 they may have evidence to increase the retirement age (by 1 year) for people born in 2000.
Agreed that we need to evaluate at each point where the retirement age is suggested to be raised if life expectancy has increased. So if unexpectly it stops rising the retirement age would stop rising. I guess I look at it as I was affected by the 1983 deal (born in 1950) and figure it was not a big deal when your in your 30s being 30 years out.
Arne, Lyle
you seem to be unable to come to grips with the idea that people want to be able to retire. note “option of retiring” is not the same as “fully funds retirement at your desired level.” at least pay attention when you slide off one concept into another.
people want to retire at as early an age as is consistent with how much they want to save, how much they will want to live on, how healthy they are, how much they like their work. 30 year olds are not in a position to have good judgement about how they will feel when they are fifty, let alone sixty five. and people who have good jobs they like with high pay apparently have trouble understanding how the other half lives.
people want to retire. by the time the longer life expectancy shows up, if it does, people will be making on average more than twice as much as they are today. but you can’t stand the idea that they might want to spend some of that extra money on retiring… not sooner, but no later.
why is that?
Arne, Lyle
you seem to be unable to come to grips with the idea that people want to be able to retire. note “option of retiring” is not the same as “fully funds retirement at your desired level.” at least pay attention when you slide off one concept into another.
people want to retire at as early an age as is consistent with how much they want to save, how much they will want to live on, how healthy they are, how much they like their work. 30 year olds are not in a position to have good judgement about how they will feel when they are fifty, let alone sixty five. and people who have good jobs they like with high pay apparently have trouble understanding how the other half lives.
people want to retire. by the time the longer life expectancy shows up, if it does, people will be making on average more than twice as much as they are today. but you can’t stand the idea that they might want to spend some of that extra money on retiring… not sooner, but no later.
why is that?
by the way
don’t correct my numbers. it makes me grouchy. the increase in retirement age that i referred to was the increase since the last time the tax rate was set. and i pretty much don’t care what a speculative article in the wall street journal said about the future of life expectancy. we can deal with the future when it gets here.
the Trustees report says the horrible huge increase in Social Security because the next generation will live longer than the last is less than one percent of GDP… from 4.8% today to 5.8% in 2983,
By 2083 the GDP will be more than twice as big as it is today. So lets see, America, You are going to double your income, but you can’t afford to spend one percent of that on feeding the elderly, even if the elderly pay for it themselves? Paid for it themselves when they were young.
about the numbers
what makes me grouchy is the complete lack of sense behind your calculation. the life expectancy at 65 is going to increase about 38% compared to what it was in 1985. so should we make people work 38% longer? say from 40 years to 55. that kind of “arithmetic” makes as much sense as your two for the price of one special offer.
coberly
Perhaps you need to clarify your concepts better for me. It is not very appealing, but even someone with no savings has the “option of retiring” at 62. The retirement age under discussion is the Normal Retirement Age. Retiring at the NRA gives you higher benefits, but still short of what most people consider enough to “fully fund retirement at [their] desired level.”
If people really are making twice as much (from the same data that says they will live longer), then a (one year) increase in the NRA will leave people taking early retirement at 62 with more buying power than today’s early retirees.
You can’t stand the idea that they may prefer to put that extra money into a Roth IRA. Why is that?
Arne
here is a parable
there was once a poor man who broke a law for which the punishment was a fine of 5000 dollars or a year in jail. the judge found him guilty and sentenced him to a year in jail.
the man was hauled of to jail sobbing and weeping.
afterwords the man’s lawyer went up to the judge and asked him why he didn’t fine the man instead. the judge said, because it never occured to me he would have the money. the lawyer said, oh, he had the money. he had saved his whole life just in case something like this happened. he knows he will die in prison because of his sickness and he did so want to see his granchildren and walk on the beach a few more times before he died.
now the question is will the judge call the man back in and change his sentence from prison to the fine? or will he save face by pretending he was the infallible judge of true justice? not to mention save himself the bother.
Arne said
“A one year increase over the next 75 years is not the disaster you portray it to be.”
not a disaster for you. it will be a disater for millions.
of no doubt straw people.
and why the “over 75 years”? do you think that makes it any smaller?
Arne
among the things under discussion are raising the MINIMUM retirement age. that means no more 62. Also under discussion is cutting benefits by one dodge or another. Do you really trust the Boskininzed CPI.
How is your IRA doing today?
What infuriates me about your “argument” is that it amounts to one and one is two and therefore it is fair to force people to work another year rather than let them save an extra five dollars a week of their own money in a safe place.
The difference betwen you and me is that i believe in Social Security and understand it. You don’t believe in it for the same reason Peterson doesn’t believe in it, but you don’t even understand that. It’s always some goddam little lusting after the next nickel. What is the difference on the return for you between Social Security and your IRA that justifies forcing people who are sick and tired and hate their jobs to work another year when they could have paid for their own retirement?
Why the difference is that you are still young and healthy and have a job that you like and can afford an IRA. And can’t imangine that that might change.
I would not advocate raising the minimum age, but would lower the payment to be actuarially equivalent. The 5% per year number used today is harsher than this. I went to immediate annunities.com and asked for a whole life annunity (no inflation protection) for a woman at 62 and 66 and the numbers are 1150 and 1235 /month a difference of about 7% where as ss would charge you a 30% penalty for starting early. Trying other combos I get about the same result. So it appears that SS is already structured to discourage early retirement with its penalty. Now of course there may be the fact that you may pay in for that period, but SS only uses 35 years in calculating benefits, and once you go past 35 years it wont make much difference.Plus in addition the bend points in the benefit formula.
So it does appear that as sort of stated by various government types they want people to work longer already.
Arne: “no. SS was never meant to be the sole source of income throughout retirement.”
Only partly correct. Social Security was intended to be a social safety net devised in the form of a required participation of all working people and, maybe more importantly, employers. The motivation for the program was all of those destitute elderly who were becoming the responsibility flop houses, tent cities, hovels and soup kitchens. Charity was catch as catch can. It was thought to be unacceptable that in a democratic society there would be people who had spent their lives working, but with insufficient income to be able to save for retirement. In addition there were, and continue to be, working people whose employers did not adequately fund their pension funds. Then there were private pension funds that evaporated with the demise of a business. And more lately there are no defined pension funds in private industry. Those that remain in the public sector are a pale comparison of what they once were. Salaries are barely adequate to allow for retirement savings for a very significant portion of the working population. So Social Security ahs taken on an increasing importance in our economy. It keeps the elderly fed, clothed and hooused, if not very adequately so.
So you’re only a little bit right. Maybe Walmarts might start paying workers $30 an hour with reasonable health care wo that they can actually save for their retirement years. Oh, I almost forgot. Employers like there to be a large number of destitute elderly to fill their part time positions at minimum wage. It’s good for the bottom line to keep workers at the bottom of the income ladder.
yes. the replacement rate will have fallen from 40% to 33% by the end of the actuarial window. feel free to check my numbers. i am doing this out of the top of my head.
i think the private annuity companies are not guaranteeing you against inflation, so that may have an effect on their prices. if you can come up with good numbers, i’d be glad to look at them. but i do get tired of numbers that are not well thought through.
on the other hand, and this is a huge difference between you and me, i don’t care what the “return” on social security is. i am paying a small amount of money for a guarantee that i can retire at a date certain. a few pennies here or there makes no difference to me.
Jack.
Yes. that too. We have 10% unemployment today. 20% if you count the people who aren’t really looking. So add an extra year to the working life of old people and what have you accomplished?
nothing, except that Arne gets an extra five dollars a week to put in his IRA.
And yes, if Arne is working at the high end of the employment ladder he may be putting in more than five extra dollars per week. but you know, being that high on the ladder gives you a different perspective. You understand how you have EARNED every penny of what you get in pay and investments. While those people at the low end are lucky someone GIVES them a job.
Just to point out that over a lifetime the average return on the S&P 500 is between 5 and 8 % inflation adjusted (1970 to 2009 inflation adjusted is 5.2%) Partly the whole issue of investment depends upon what you invest your funds in.
As noted elsewhere legally congress could cancel SS tommorrow and thats that, the courts have said there is no legal right to SS. (I.E. you could not enforce SS thru the courts). Of course politically it is extremely unlikely that this would happen.
Completely agree Coberly.
I hope you understood my comment as saying that intergenerational transfer schemes were NOT bad. In fact, as you said, that is how things are done in society. The term is used perjoratively by the right but is one of those things that if you think about it is “just the way commerce works”. Its kind of like calling Nursing Homes “Places where they keep unproductive people who cant control their bowels alive”
Lyle
in case you come back. the average return on the stock market won’t be much use to you if you want to retire in a year when the average returns are down about 30%. no one says that social security is going to beat the market. social security is insurance so you don’t HAVE TO beat the market to be able to retire when you HAVE TO.
btw the “return” on your Social Security “investment” runs about 10% real per year if you are near the bottom of the income range, are married, and don’t think your boss would have given you the money the govenment made him put into Social Security in your name.
I can’t see what anyone is complaining about regarding the “return” on their Social Security FICA contributions. Currently the maximum individual contribution is $6,622 annually. if one were at that maximum for all forty working years of their life, a highly unlikely circumstance, that would be a total “investment” of about $265,000. That’s the most any one would be putting in. The maximum benefit, at present, is $28,000 annually which would require a 10.5% return on equity if you were lucky enough to have all the equity intact when you reach 66 years of age. The primary benficiary of an alternate retirement system would be your employer since it did not have to match your FICA each year.
Granted I’m not taking into account earnings on the “nest egg” each year, but neither am I counting losses. If you only doubled your money in a private account you would have no more than Social Security is currently able to guaranty. Don’t forget that I’m using the maximum contribution for all forty years of work, which virtually no one makes. And none of this takes into account the Disability aspect of Social Security should you fall on your head. And what about your dependent children if you should happen to croak before they’re adults. Anyone who thinks that they can do better is worse than short sighted.
Jack
you are essentially correct. but i need to point out that if you are self employed at near the cap you would put in 12,000 per year. this is enough money to get the attention of even the well to do. as it happens the pension for someone who has paid in that much is about 26000 per year… all of this in “real” dollars. So they get their money back with enough “effective interest” to at least beat inflation in they live about twenty years in retirement… which may be the average for rich folk. i don’t know. ask Arne. plus of course their “return” is guaranteed… as long as they live. and as you point out it is also guaranteed if they fall on their head or go broke some year, and if they have a live at home wife their return is 50% higher. so they can’t complain.
except they will. that 12000 times 35 is 420 thousand dollars, real money, and if invested at 4% real return would double to 840 thousand in the same 35 years, take away the 520 thousand Social Security would pay them and this leaves about 300,000 in champagne money.
they can’t keep their minds off that. all the if’s don’t register. 4% REAL return ain’t that easy to get year after year. the other thing, is that with their 100k incomes, if they treated the rest of their money like they say they will treat their SS… after all what is the difference between “investing” your (former) social security money and investing your children’s milk money? but lets say they invest 50k at 4% for 35 years… they would have 3 and a half million dollars. now against this, their 300k “profit” from not paying the SS tax may still look big to them, but it’s what i would call pissing-away money. would they really notice it if they only had 3 million instead of 3 and a half million?
and then you’d have to ask, where did the 3 milion come from… was it really “returns” on productivity improving investments, or was it gambling winnings, or money squeezed out of workers and bamboozled out of consumers?
i don’t know, but at my level, ten thousand a year from SS is a lot easier on my nerves than that huge tower of speculation.
well, it was before better accountants than me starting figuring the fees on managing all that money, not to mention the 90,000 per year they can make on each person forced to work over the age of 67.
that last number was taken from a USA today report a few years back which said in so many words that was the amount of GDP that is lost when a worker retires. somebody besides the worker is making that money.
Coberly,
You’re assumiing that the self employed report all of their income. That’s a huge assumption. I only wish I had had the stamina and good sense to have been a bread baker.
jacl
i don’t know, but i bet a good accountant could find a way not to pay the self employed’s income as “wages.”
in fact i agree with you. and my “analysis” was mostly “in the eyes of the believer”. the fact is that there are considerations not considered. and as much as i don’t believe in raising the cap, i don’t think those near the cap today are getting a bad deal.
Coberly,
I’m above the cap. Have been for a good many years. Recently my wife has gone above the cap. We’re not complaining. My only complaint is that the income tax schedules are regressive. The reliance of local property tax to cover local school costs is regressive. Sequestering both dividend income and capital gains income is regressive. If the income tax side of the budget were made equitable we’d have no issues in regards to Social Security as it has been repeatedly demonstrated that benefits are not the basis of the general budget deficit. Wars and a regressive income tax system is now, and has always been, the basis of deficit budgets. Correcting those problems would require that the very wealthy begin to shoulder their share of the budget weight. They won’t do it voluntarily and the elected representatives won’t do it until the rest of us start making that demand more clearly.