Social Security Crisis?

[porpoise]

I find the dialog on such an issue as social security changes to be poorly stated and often reflecting personal situations or the like.

Well here is my contribution.
First it would be useful to forget about any mention of a so called trust fund. Since it is only an accounting fiction anyway.
Now one way to look at this is that our government has two main streams of money coming in. (plus some lessor ones and of course borrowing but I belive they should be ignored for the moment)
First there is the general income tax
Then there is the social securty tax.

Up to now and for some time into the future the social security tax has been sufficient to pay all retiree costs and leave the government with a surplus which it has used for whatever it saw fit.

Now in this century and not that far off the social security tax will become insufficient to pay for the retirees currently drawing money from it. So the difference will need to be made up by general tax revienues or benefits will need to be cut.

I have read that by midcentury the cut would amount to about 30% if only the social security tax is used. I will leave that to the actuaries and economists to determine the exact numbers.

We need to decide what we as a country can and wish to pay to our elderly. I personally beleive it is not sufficient to say to someone who is old and ill that they did not prepare for the future and therefore they will have to make out as best they can on less. That is my opinion however it may well not be the majority opinion and the rules may well be changed.

I think however that the arguements need to be couched in this way.
The current dialog is I fear not going to properly look at the issues. It is instead revolving on the question of so called private accounts which is rather misleading. What private accounts will do is move some or most of the risk onto the indiviaul instead. If one chooses well then maybe they will benefit, if one chooses badly they will not.

Now the current benefits are based on the current wage level which reflects the standard of living of the day. This is the actual benchmark which should be used in looking at the level of benefits the system provides. Will private accouts do as well? I do not know. It is not intelectually honest to assume that this the case as there will be both winners and losers in this and we as a society need to be able to say to the losers either we will help you or you have no recourse.

To put it simply what is the purpose of social security? It was if I remember my history to provide a minimal income to those who in their later years have little else. It put a floor on the incomes of the older population so they did not live in abject poverty. It was never intended as conceived to provide a legacy to the next generation or to provide a full returement income to those who recieve it.

I think we should aim for what its creators had envisioned and to the extent possible be true to that.

Thoughts??

[shostakovich]

The problem with "privatization" is that it allows people to spend a portion of the SS tax in another way. Presumably this other way would be some investment for the future. Unfortunately, many (I'd say most) people will simply piss it away. This helps nobody, and weakens ("strengthens" in Bushtalk) what SS is today.

Few, if any, can live on their SS payments. The idea of additional investments is a good one (always has been). But if many/most are not prone to doing this (either by indolence or inability) --- as I believe is the case --- the opportunity to do it with some of the SS tax will fall flat.
Cynic

[shostakovich]

PS: I agree that SS reform is a good idea. It's just that I find Bush's preferred method to be detrimental to the general public.
(No news flash there.)
Shos

[OperaTenor]

Hi Porpoise, welcome to the pit.

This is silly. Every financial consultant will tell you not to invest in stocks and bonds without sufficient liquidity. GWB has no idea what it's like to involuntarily live on the edge financially, so he doesn't understand the need lower middle class folks have for some solid base to look forward to as they retire. These are people who never have been able to build their own safety net for a variety of legitimate reasons. There are a lot of folks out there(my parents, for example), who worked hard their entire lives and never had much to show for it beyond a place to live and food on the table for their family(seven dependant mouths to feed). They weren't from well-off families, and they didn't have access to the education and career opportunities so many of us take for granted (my dad was on his own at 12). They didn't dwell on their lot in life, they simply did the best they could with the resources they had.
I believe they were entitled to some form of relief in their retirement, especially since they paid into it. I think porpoise is right, perhaps getting back to the original intent of the system, and maintaining the integrity of the system's funds is the best solution. Gambling people's money away in the stock market is reckless, foolish, and irresponsible, if not criminal(but then, so was invading Iraq).

[BigJon]

I can fix SS in two steps, but they would be political suicide.
1. Remove the cap on SS taxes. Call it our first experiment with a flat tax.
2. Means test the recipients.

As much as I'd love to divert some of my SS taxes to my own account. I think the above changes are the fairest and least painful since they impact those most able to afford the changes.

BigJon

<small>[ 01-18-2005, 12:52 AM: Message edited by: BigJon ]</small>

[OperaTenor]

Amen, *igJon.

[BigJon]

Almost every written argument against Bush's proposal turn into an attack on Wall Street and the high administrative costs the authors "just know" the big, bad wolves of Wall Street are going to pull out of the individual accounts. Just because the vast herd of sheeple don't know how to invest for cost doesn't mean they can't be taught.

My IRAs are with Vanguard and are primarily invested in their S&P 500-index fund. The annual expenses for the fund in 2003 were 0.18% of the invested amount. There is a $10,000 threshold, above which they charge no maintenance fees, below which they charge $10 a year. I opened my account as a rollover so I had more than the no-fee threshold to start. The account cost me nothing to open. Therefore, for returns that have averaged over 10% for the last ten years, I'm paying one dollar and eight cents per thousand per year to "Wall Street" for them to manage my investments.

If anyone thinks that the opening of private SS accounts would be a windfall for Wall Street, they haven't really seen the free enterprise system at work. All it takes is a little education.

I'm working on a chart for my adult financial literacy class that shows the stockbroker's dirty little secret. When you let him manage your money in a full account, he will have more of your money after 25 years that you will. Investment costs matter!

BigJon

[BigJon]

Originally posted by Haggis:
"The 1935 act established SS as a savings program, gov't paid 3% interest and returned it to employees at 65, or to the employees' heirs."

The heirs? really? It's always been my understanding that in few limited exceptions (minors, etc) that when you died SS payments ceased.

Right, the law was changed in 1939, I think.

Originally posted by Haggis:
I've been paying into SSA since 1965. by the currrent rules when I start drawing SS in six years I will depleted my total "contributions" in less than 10 years. Any payments I draw after that will be coming out of a (then) current worker's salary.

So, I think for those who are younger than me, an overhaul is probably due. The system is almost 70 years old, no other government program has existed that long without some adjustments.

Wah! I wants me dollars back! Wah!

BigJon (Age 40)

<small>[ 01-18-2005, 01:01 AM: Message edited by: BigJon ]</small>

[BigJon]

Originally posted by analog:
Good article in business week , thanks.

What i wanted to ask - is there a link to that article on the "disorganized in thought" ?

You are welcome.

The column is by George Will. I found it at http://www.washingtonpost.com/wp-dyn/articles/A35656-2004Dec29.html but you may need to register.

I'm sorry, I misquoted the article. I must have read "disorganized mind" in one of the many blistering critiques of the column I found on the web, like this one http://www.prometheus6.org/node/8172. Just Google "'George Will' disorganized" to see them all. The real quote is "disorganized life".

Sorry again,
BigJon

[analog]

Thanks - found the article, "Unchanged by welfare reform".

To porpoise's observation:
"...the social security tax has been sufficient to pay all retiree costs and leave the government with a surplus which it has used for whatever it saw fit."

Even if "the sheeple" put their individual accounts in US savings bonds they'd about equal the return on social security. And they'd know it wasnt used for congressional lap dancers.

[barfle]

Hi, porpoise. I'll add my warm welcome to the BBB.

However, your appeal to sympathy for old people (and I'm pretty darn close - I get senior discounts at some of the places I spend my money) isn't really applicable. Lots of people deserve sympathy, and I donate what I feel are reasonable sums to provide them assistance. About fifteen years ago I realized that my chances for retirement depended on my actions a lot more than they did on whether or not I continued breathing for another quarter-century, so I went to a banker, a life insurance agent, a financial planner, bought some books and figured out that I needed to start saving. In the meantime, I've still enjoyed my lifestyle, but I've also made it a point to sock away as much as I could in order to make it possible for me to have a nice long vacation to finish off my life.

If I hadn't done so, would YOU feel that I was deserving of public assistance, simply because I was stupid? What reward do you feel my moderate frugality should entail over someone who spent it all as soon as he got it? Such an attitude seems to support those people who buy a new Cadillac every year, even though they wouldn't know how to spell IRA.

I'm reminded of a cartoon of a guy standing beside the highway with a cardboard sign that read "Won lottery twice. Spent it badly. Please help."

Shos, you make a decent, although arguable point about people pissing away the money they would have available if SS contributions were reduced. First, it is (or at least should be) their money, and they should be able to spend it as they see fit. I piss some away, I save some, I invest some, and I subsist on some. The point is, the division of these is MY choice, not some bureaucrat trying to save me from myself.

[piqaboo]

Marye- hilarious! Thank you for your wit!

BigJon: "sheeple" - love it.

Invest your social security ... in gold, or in dot.com stocks...... or whatever comes along.....

I'd rather not pay SS tax at all, but if I do, then I'd like the funds managed conservatively, with a guarantee on "my" capital. How can it NOT cost money to a) tax us b) transfer the money back to us for investment ?
Does Bush propose to simply cut the SS tax on the hopes we'd invest the difference?

I dream of personal responsibility and good fortune and wise investment decisions for all. I dont think good fortune and wise investment decisions are reality for all (I wont comment on the sense of personal responsibility -too volatile). If they were, we'd not have wanted to implement SS as a safety web in the first place.

[BigJon]

Originally posted by piqaboo:
BigJon: "sheeple" - love it.

Not original with me. The first time I head it was one of the few times I've listened to Rush Dimbulb's radio show, many, many years ago. It works as a label in so many areas of life where I want to feel superior.

BigJon

[OperaTenor]

Of course she likes "sheeple". She invented "shcowp".

Oops, wrong thread....

[shostakovich]

From BigJon: "If anyone thinks that the opening of private SS accounts would be a windfall for Wall Street, they haven't really seen the free enterprise system at work. All it takes is a little education.

I'm working on a chart for my adult financial literacy class that shows the stockbroker's dirty little secret. When you let him manage your money in a full account, he will have more of your money after 25 years that you will. Investment costs matter!"

Hi BigJon. Doesn't your 2nd paragraph suggest a windfall for Wall Street (at least for the brokers)?
----------------------------------------------------

I just came up with the solution to "privatizing" by not privatizing.

1) The theory is that Joe Blow can do better than SS for returns. The fact is that the neediest, assuming they think about investing at all (rather than pissing away, as I predict), will be the least equipped to make good judgement investments.

2) But the government, having much better advisors, can make much better investments. What if the government takes a certain portion of each person's SS tax to invest "intelligently" for him/her? This will alleviate the angst of the needy and eliminate millions of broker fees. It should also make Bushbastard happy (the only part of this I don't like

<small>[ 01-18-2005, 09:57 PM: Message edited by: shostakovich ]</small>

[barfle]

Shos, regarding your point #1, I see you attempting to justify the "nanny" state, where people are not allowed to make their own decisions regarding their own resources. While there will undoubtedly be people who will piss away their working capital (I recall a bumper sticker that said "My other car is up my nose"), it's very difficult for me to feel that there's a valid reason for treating all adults as though they were ten-year-olds, simply because a few of them might act that way.

Regarding point #2, the amount of money the SSA would have to invest would be enormous, and as a result the adminstrators would have a lot of influence over the companies they invested in. That's even MORE government influence in the private sector, which I can't imagine would be good.

[shostakovich]

I don't object to a nanny state. Granted, it would be insulting to those who think they can better invest for themselves. I would rather have the government insult people who can take care of themselves and help those who can't.

It's possible that privatization would actually not cause a big upheaval. Maybe not all that many people would opt to privatize. I tend to glom onto the worst case scenario sometimes, and invariably when it comes to anything Bush wants. So, if Bush wants privatization, it MUST be wrong. THEN, I look for why.
Shos

[BigJon]

Another George Will column on SS http://www.townhall.com/columnists/georgewill/gw20050120.shtml

[haggis]

Here's another reason why SS probably needs some tweaking.

"Today, the average woman in the world bears half as many children as did her counterpart in 1972. No industrialized country still produces enough children to sustain its population over time, or to prevent rapid population aging. Germany could easily lose the equivalent of the current population of what was once East Germany over the next half-century. Russia's population is already contracting by three-quarters of a million a year. Japan's population, meanwhile, is expected to peak as early as 2005, and then to fall by as much as one-third over the next 50 years -- a decline equivalent, the demographer Hideo Ibe has noted, to that experienced in medieval Europe during the plague.

Although many factors are at work, the changing economics of family life is the prime factor in discouraging childbearing. In nations rich and poor, under all forms of government, as more and more of the world's population moves to urban areas in which children offer little or no economic reward to their parents, and as women acquire economic opportunities and reproductive control, the social and financial costs of childbearing continue to rise.

In the United States, the direct cost of raising a middle-class child born this year through age 18, according to the Department of Agriculture, exceeds $200,000 -- not including college. And the cost in forgone wages can easily exceed $1 million, even for families with modest earning power. Meanwhile, although Social Security and private pension plans depend critically on the human capital created by parents, they offer the same benefits, and often more, to those who avoid the burdens of raising a family."

[Selma in Sandy Eggo]

So, Haggis, are we going to get a tax credit for having raised offspring to adult taxpayer status? Or merely the thanks of a grateful nation?

It's true that we haven't gained any advantages, economically, from any of the kids. I never added up what I spent on child care, karate lessons, Little League, scouts, music lessons, softball, gymnastics, band fees, clothing, medical care, food, toys, cars, insurance.... Good Grief! The list goes on forever!

Hey, barfle, no wonder you've got more in retirement investments than I do!