Interesting comparison for Social Security

[Long Run]

Want more evidence that Social Security has been badly implemented and managed? 30 years ago, three counties opted out of the federal Social Security to do their own plan. The results: a fully funded plan based on conservative management; a vastly superior life insurance benefit; a vastly superior disability benefit; and a retirement benefit that is almost two times more than SSA at lower income levels and more than two time SSA at middle income and above levels. It is also worth noting that FDR did not want SSA to be a pay as you go system, but instead wanted a system similar to what these counties installed.

by Merrill Matthews

Stock market volatility remains one of the primary objections to switching from the current pay-as-you-go method of funding Social Security benefits to a system of prefunded personal retirement accounts. However, three Texas counties that opted out of Social Security 30 years ago have solved the risk problem.

Galveston County opted out of Social Security in 1981, and Matagorda and Brazoria counties followed suit in 1982. County employees have since seen their retirement savings grow every year, including during the recent recession. Today, county workers retire with more money, and have better supplemental benefits in case of disability or an early death. Moreover, the counties face no long-term unfunded pension liabilities.

* * *

Like Social Security, employees contribute 6.2 percent of their income, with the county matching the contribution (Galveston has chosen to provide a slightly larger share). Once the county makes its contribution, its financial obligation is done. As a result, there are no long-term unfunded liabilities.

* * *

Those institutions guarantee a base interest rate — usually about 3.75 percent — which can increase if the market does well. Over the last decade, the accounts have earned between 3.75 percent and 5.75 percent every year, with an average of around 5 percent. The 1990s often saw even higher interest rates, 6.5 percent to 7 percent. Thus, when the market goes up, employees make more; but when the market goes down, employees still make something, virtually eliminating the problem of workers deciding not to retire because of major drop in the market.

* * * Thus, part of the employer contribution provides a term life insurance policy, which pays four times the employee’s salary tax free, up to a maximum of $215,000. That’s nearly 850 times Social Security’s death benefit of $255.

If a worker participating in Social Security dies before retirement, he loses his contribution (though part of that money might go to surviving minor children or a spouse who never worked). Workers in the Alternate Plan own their account, so the entire account belongs to the estate. There is also a disability benefit that pays immediately upon injury, rather than Social Security’s six month wait, plus other restrictions.

More Retirement Income. Alternate Plan retirees do much better than those who retire under Social Security. According to First Financial’s calculations, based on 40 years of contributions:



* * *

The Alternate Plan could also serve as a model for reforming Social Security. It provides all of the benefits of Social Security while avoiding the unfunded liabilities that are crippling the program — and the economy.

http://www.ncpa.org/pub/ba765?utm_sourc ... ations+%29

[rubato]

Not a very accurate comparison.

"high earners" in this system continue to pay at above the SS limit which distorts the numbers a great deal. It does not have the security of SS if there is an Enron (speaking of Texas) style fraud they all zero out and get nothing.

A more serious problem is how do you manage a federal system like this? The distortion of the financial markets becomes, very quickly, a huge problem. Ask yourself if you want a federal program to be so large that it will make and break markets for all kinds of investment instruments? It is in part a fear that the federal government was going to run a surplus (which has this kind of effect) which led Allan Greenspan to make the catastrophically stupid decision to support tax cuts (and higher deficits) in 2001.


yrs,
rubato

[Econoline]

Eliminate the cap on SS-taxable income, and the funding problem goes away. Simple.

[dgs49]

The solution is a "forced balance," as follows:

Take the total available revenues each year and distribute them to the population receiving benefits. Keep the relative payouts the same, but they "float," according to the revenues.

If revenues go up, monthly checks increase, and vice versa.

If the "Public" thinks that the payouts are insufficient, then they can have their legislators vote to raise the tax rate - and vice versa. No one receiving benefits gets a vote.

[rubato]

Eliminate the cap on SS-taxable income, and the funding problem goes away. Simple.

Eliminating or raising the cap does just about fix the problem. But at the political cost of raising the marginal tax rate on high earners by 6% and with a corresponding raise in taxes for for their employers (although for some the extra 6% tax cut for salaries once the SS limit is reached is just added to their 401k match so it will be a 12% tax increase for those souls).

I think we should look into it but be aware of the downsides.

yrs,
rubato

[Scooter]

The reasons why such a plan appears to work better than SS are pretty obvious:

(1) Being able to start 30 years ago with a clean slate, rather than having to deal with the unfunded liability which existed prior to that time
(2) As others have noted, having no earnings cap
(3) Not having yet come to the point where an entire generation of their workers has retired and is collecting the maximum level of benefits. Let's see how well their funding assumptions hold up when that happens.

[dgs49]

The greatest injustice of the Social Security system is the lack of any benefit for the person who works and pays into the system for an entire working life, then dies before collecting.

Nothing. Nada. Zilch, to show for hundreds of thousands in personal and employer contributions.

And one might mention that this injustice affects a couple of demographics disproportionately, as their life expectancy is shorter.

[Jarlaxle]

The solution is a "forced balance," as follows:

Take the total available revenues each year and distribute them to the population receiving benefits. Keep the relative payouts the same, but they "float," according to the revenues.

If revenues go up, monthly checks increase, and vice versa.

If the "Public" thinks that the payouts are insufficient, then they can have their legislators vote to raise the tax rate - and vice versa. No one receiving benefits gets a vote.

Sounds good to me.

[Scooter]

Sure. So an entire generation can pay into SS their whole lives, then when its their turn to collect benefits, they can be voted out of existence by those who have yet to pay anything, and they don't even get a say.

[Jarlaxle]

Sure. So an entire generation can pay into SS their whole lives, then when its their turn to collect benefits, they can be voted out of existence by those who have yet to pay anything, and they don't even get a say.

You mean like I will? I have paid into that Ponzi scheme since I was 15, and unless I decide "fuck it" and figure a way to go on SSDI (and my tipping point is approaching), I will never see a cent.

Anyone that gets more from the government (in any form) than he or she pays in taxes should be declared a ward of the state and should not be permitted to vote. The only exceptions should be for the pay/benefits of military and emergency (police, fire, EMT) personnel.

[Scooter]

I have paid into that Ponzi scheme since I was 15, and unless I decide "fuck it" and figure a way to go on SSDI (and my tipping point is approaching), I will never see a cent.

Drama queen. Even if absolutely nothing is done, the trust fund will not be exhausted until 2036. After that, non-interest income is projected to maintain benefits at 77% of current levels until 2085, and at 74% thereafter (link). So unless you haven't actually been born yet...

Anyone that gets more from the government (in any form) than he or she pays in taxes should be declared a ward of the state and should not be permitted to vote. The only exceptions should be for the pay/benefits of military and emergency (police, fire, EMT) personnel.

So it's ok for the people you like to suck at the public tit their entire lives, but not anyone else. I guess it didn't occur to you that there are a lot of public employees that give you the opportunity to lead the cushy life you have. Nah, recognizing that would require more brain cells than the average turnip...

[Long Run]

We can wonder about fixing Social Security, but what this program highlights is what a bad buy for the money FICA taxpayers get for their "contributions". The reason is simple: there is no real trust fund where real assets are held to pay future benefits. The reason state and local retirement plans are experiencing problems is that they were not conservatively managed: promised more benefits than could be supported with the dollars going in.

[rubato]

What the program highlights is that the benefits are secure, have been for 70+ years and are known to be for the next 25. No other system can say that.

yrs,
rubato

[dales]

If the USA doesn't go bust.

[rubato]

If the USA doesn't go bust.

And that giant meteor doesn't hit the earth.

And Martians don't invade with super-weapons and make us all their slaves.



yrs,
rubato

[dales]

http://www.sfgate.com/cgi-bin/article.c ... -M2YB4.DTL

Meanwhile, back on planet Earth...

April 23 (Bloomberg) -- The Social Security program will exhaust its trust fund in 2035 and have to start reducing benefits to senior citizens unless Congress intervenes, its trustees said.

That is three years sooner than projected in 2011 for the retirement benefits program, which serves 44 million people, the trustees said in an annual report today. Social Security's disability program, which aids 11 million Americans, will run through its trust fund in 2016, two years earlier than predicted. The report attributed the fiscal stress in part to the weak economy.

The combined Social Security trust funds would be depleted in 2033, three years earlier than projected. After that, incoming revenue will only be enough to cover three-quarters of scheduled benefits.

The main trust fund that supports the Medicare health-care program for the elderly will run dry in 2024, the report said.

<snip>


Read more: http://www.sfgate.com/cgi-bin/article.c ... z1suA3DBNQ

[rubato]

Eliminating the limit for SS contributions, or even raising it somewhat, will eliminate the funding problems for SS for the indefinite future.

Health care will always be a major cost but if we continue to allow Pharma to eliminate price competition by not allowing us to import drugs it will be a problem we cannot solve.

yrs,
rubato

[Scooter]

Something that should be done, since the regulation of drug prices will never happen, is to give Medicare the power to negotiate the price it will pay for drugs, a power that was withheld from it when Part D was enacted as a payoff to the pharma lobby. Since Medicare is the country's largest customer, this would have the added benefit of moderating drug prices for everyone else even in the absence of price regulation.

[rubato]

Something that should be done, since the regulation of drug prices will never happen, is to give Medicare the power to negotiate the price it will pay for drugs, a power that was withheld from it when Part D was enacted as a payoff to the pharma lobby. Since Medicare is the country's largest customer, this would have the added benefit of moderating drug prices for everyone else even in the absence of price regulation.

Republicans are so diligent in protecting us from the evil effects of free enterprise, when it suits their masters. The reason HC is cheaper everywhere else in the G20 is that their health systems negotiate prices.


yrs,
rubato

[Long Run]

Something that should be done, since the regulation of drug prices will never happen, is to give Medicare the power to negotiate the price it will pay for drugs, a power that was withheld from it when Part D was enacted as a payoff to the pharma lobby. Since Medicare is the country's largest customer, this would have the added benefit of moderating drug prices for everyone else even in the absence of price regulation.

It would be nice if Medicare, when it sets a lower rate of payment, could help set the usual and customary charge for drugs and other services. Instead it appears that it in fact increases that par rate because everyone else has to pay more. According to the healthcare consultants I interact with, when Medicare drops reimbursement rates to providers, those providers increase their fees to private plans, and this has been a big part of the medical rate increases for employers over the last few years. On vivid example is with respect to dialysis; Medicare negotiates the price of dialysis at about 15% of what private plans pay (a person under a private plan might pay $10,000 per month, but when the patient moves to Medicare after the waiting period, the amount paid to the dialysis provider is dropped to about $1,500 per month).