A Semi-Honest SS Proposal

[dgs49]

The ongoing surge of “Boomer” retirements can be mathematically and certainly projected to bankrupt the United States Treasury within the near to mid-term future. Many oblivious citizens and devious government officials see a mask over this cost tsunami in the form of the fictitious “trust fund” that has theoretically been accumulating for the past several decades, as the employed and self-employed have paid into Social Security an amount that surpassed the amounts paid out in retirement and disability payments. But of course, there is not now, nor has there ever been a “trust fund,” and the overages have been spent immediately upon their collection. Now we are in “shortage” mode, and every dollar of shortfall must be borrowed, with interest.

Ignoring for a moment the stupidity of bringing disability benefits under the SS umbrella, and ignoring the even-worse disaster that appears for MEDICARE, it is both necessary and possible to put the entire SS system on a Pay-Go basis in the relatively near term. It involves requiring some segments of our society to “suck it up,” and absorb an “unfair” burden, but they do that anyway under our perverse graduated-tax system, so who cares?

First, it will be necessary to eliminate the cap on SS earnings subject to the tax, and to bring EVERYONE into the system, including those under various government and quasi-government retirement programs who previously have been outside the system. This will maximize revenues without any undue hardship to anyone.

Second, the monthly payouts will have to be separated into classes, according to current monthly stipend (and the stipend that one would normally be entitled to when one retires under the System). It would be more politic to do the separation according to means (assets, other income, etc.), but in the current climate, such a system would only serve to generate massive fraud, as old farts began cashing in, divesting, giving away, and otherwise hiding their assets to avoid appearing not to need SS payments. So it will be based on monthly payments, as currently calculated, and will ignore other resources.

The first “class” of beneficiaries would be those whose monthly stipend right now is less than $1,000 (see NOTE) for each individual (all consideration of whether you are “married” or cohabiting will be eliminated as irrelevant). Such people will have their benefits calculated as they are now, and they will continue to get a cost of living adjustment every year, until they reach $1,250, at which point their benefit will be frozen. For people whose benefits are now higher than $1,250, their benefits will be scaled and calculated relatively as follows: From the total SS revenue in every fiscal year, the amounts paid out to the first “class” as aforesaid will be paid and deducted. The balance of the revenue will be allocated proportionately to the amount of current entitlement, but scaled back so that the total revenue will be depleted, but will not go negative. It will be a pay-as-you-go system, in perpetuity.

NOTE: Obviously, the $1,000 and $1,250 numbers are arbitrary. The minimum numbers would be established at such a level that, as a minimum, everyone in the higher class of beneficiaries (the “over-$1,250” group) would get at least the higher threshold, i.e., $1,250/month.

In future years, this will result in many peoples’ benefits going down from one year to the next, as the total SS tax revenues stabilize or even decline, while the number of beneficiaries explodes. Tough shit. Deal with it. Mooch off your kids, go on welfare, live under a bridge. I don’t care.

The relevant “social contract” requires only that the money taken in be distributed to those legally eligible. It does not require that it be enough to live on, or to live in any particular level of comfort. The emerging generation is entitled to know that (a) they will not be bankrupted to pay for everyone else’s parents’ retirement, and (b) there will be something there for them when they retire many years hence. This system does that. If it turns out that individual beneficiaries of the System have to resort to other means to support themselves, well, nobody promised you a rose garden.

[oldr_n_wsr]

First, it will be necessary to eliminate the cap on SS earnings subject to the tax, and to bring EVERYONE into the system, including those under various government and quasi-government retirement programs who previously have been outside the system. This will maximize revenues without any undue hardship to anyone.

I never understood this anyway. Make X, pay a percentage of X. Why was it capped at $100K? (or whatever?)

[Big RR]

One reason is because the benefits are capped; if we choose to bring everyone into the system, we will have to have the debate as to where the benefit should be capped, and we will end up with someone paying, say, 13% of $750,000, for the same benefit that someone paying 13% of $150,000, undercutting the argument that the program is mainly a savings one and those paying in "earn" their benefits.

[Econoline]

At the very least the cap should be raised to better reflect the future needs of the SS system and indexed to inflation to prevent constant future political battles. Also, most unearned income (e.g. capital gains) should also be made subject to SS taxes.

[Joe Guy]

The simplest solution, which I've heard discussed often, is to raise the eligible age and lower the amount paid.

[dgs49]

Joseph, the most awful shortcoming of the current system is one that is never mentioned: If you die before you start to collect, you get NOTHING. Zero. Zip. Nada.

All your contributions were for nought.

For this reason, I think raising the retirement age is unfair to those with a genetic predisposition to truncated life. Like myself. At 63 I have already outlived two siblings, my mother, and most of her relatives. Statistically speaking, I am a virtual lock to lose out on this pyramid scheme.

[rubato]

At the very least the cap should be raised to better reflect the future needs of the SS system and indexed to inflation to prevent constant future political battles. Also, most unearned income (e.g. capital gains) should also be made subject to SS taxes.

The cap is effectively already indexed, but I don't think to inflation.:

http://en.wikipedia.org/wiki/Social_Security_Wage_Base

Year …… Wage Base …… Increase
2013 …… $113,700 …… 3.30%
2012 …… $110,100 …… 3.10%
2011 …… $106,800 …… 0.00%
2010 …… $106,800 …… 0.00%
2009 …… $106,800 …… 4.70%
2008 …… $102,000 …… 4.60%
2007 …… $97,500 …… 3.50%
2006 …… $94,200 …… 4.70%
2005 …… $90,000 …… 2.40%
2004 …… $87,900 …… 1.00%
2003 …… $87,000 …… 2.50%
2002 …… $84,900 …… 5.60%
2001 …… $80,400 …… 5.50%

The limit should definitely be raised or eliminated.

yrs,
rubato

[Jarlaxle]

Joseph, the most awful shortcoming of the current system is one that is never mentioned: If you die before you start to collect, you get NOTHING. Zero. Zip. Nada.

All your contributions were for nought.

For this reason, I think raising the retirement age is unfair to those with a genetic predisposition to truncated life. Like myself. At 63 I have already outlived two siblings, my mother, and most of her relatives. Statistically speaking, I am a virtual lock to lose out on this pyramid scheme.

People like us are what kept the Ponzi scheme afloat!

[Joe Guy]

Joseph, the most awful shortcoming of the current system is one that is never mentioned: If you die before you start to collect, you get NOTHING. Zero. Zip. Nada.

All your contributions were for nought.

That's true for any type of retirement plan.

but if you have a surviving spouse and/or children under age 18 when you die they are entitled to your SSA benefit.

Anyway, my thought is that people could still begin receiving SSA at 62 at a lower amount than they would now but would not be able to receive the maximum benefit unless they wait until 68 or older to begin receiving it.

Meanwhile, if the individual contribution is increased now for current workers, funding of the plan will continue much longer than it will under the current system.

[Joe Guy]

Joseph, the most awful shortcoming of the current system is one that is never mentioned: If you die before you start to collect, you get NOTHING. Zero. Zip. Nada.

All your contributions were for nought.

That's true for any type of retirement plan.

but if you have a surviving spouse and/or children under age 18 when you die they are entitled to your SSA benefit.

Anyway, my thought is that people could still begin receiving SSA at 62 at a lower amount than they would now but would not be able to receive the maximum benefit unless they wait until 68 or older to begin receiving it.

Meanwhile, if the individual contribution is increased now for current workers, funding of the plan will continue much longer than it will under the current system.

[Joe Guy]

Did I say that enough times to make my point?

[oldr_n_wsr]

Point made

[rubato]

Joseph, the most awful shortcoming of the current system is one that is never mentioned: If you die before you start to collect, you get NOTHING. Zero. Zip. Nada.

All your contributions were for nought.
... " .

Which is the same for our savings, 401ks, stamp collections, record collections, art, &c.

For this reason, I think raising the retirement age is unfair to those with a genetic predisposition to truncated life. Like myself. At 63 I have already outlived two siblings, my mother, and most of her relatives. Statistically speaking, I am a virtual lock to lose out on this pyramid scheme.

That is an excellent point. Raising the retirement age also selectively disadvantages the economic poor (as well as the genetically unfortunate) who generally have a shorter life expectancy and thus lose more when the age is increased.



yrs,
rubato

[rubato]

"...
Anyway, my thought is that people could still begin receiving SSA at 62 at a lower amount than they would now but would not be able to receive the maximum benefit unless they wait until 68 or older to begin receiving it.
... " .

Which is current law.


yrs,
rubato

[dgs49]

Last time I checked, your 401k account was still intact for your heirs when you die, unlike your mountain of SS contributions.

remember the knee-groes, whose male members have a current life expectancy of less than 65.

[Joe Guy]

"...
Anyway, my thought is that people could still begin receiving SSA at 62 at a lower amount than they would now but would not be able to receive the maximum benefit unless they wait until 68 or older to begin receiving it.
... " .

Which is current law.

No it isn't. Current law is not to receive a lower amount than they do now and to wait longer to receive the maximum benefit.

[Joe Guy]

Last time I checked, your 401k account was still intact for your heirs when you die, unlike your mountain of SS contributions.

remember the knee-groes, whose male members have a current life expectancy of less than 65.

Life expectancy for black men is 70 & 76 for white men.

[oldr_n_wsr]

Doubt if I will make either.

[Long Run]

Under current law, we are going through the transition of the normal retirement age moving from age 65 to age 67. Joe is correct that the most discussed "fix" for the current actuarial deficit (of about $10 trillion) is the same as the one that was used in 1983: (1) raise the normal retirement age again, probably all the way to 70 for people now about age 40; (2) raise the wage base from the current $113,700 (which is indexed to the growth in average wages in the U.S.) but there is little discussion this time about increasing the tax rate from 6.2%/12.4%; (3) adjust the inflation index for benefits to reduce the rate of benefit growth after retirement; and (4) reduce benefits for upper income recipients by making more of the benefit subject to income taxation.

As for the unfairness of the system if the normal retirement age is increased, there are all sorts of inequities in the program, starting with the main problem that the system was never funded -- a worker's "contributions" are directly paid to retirees and are never invested to pay for the worker's own retirement. If there is a surplus (as there was from 1983 to now), the surplus is used to fund other government programs, and again, there are no assets to call on to pay for the worker's retirement when needed.

This is a defined benefit type retirement plan, the old-style pension plan. The design is to pay retirement income as long as the retiree lives, and to continue paying a percentage of that to a surviving spouse. The whole point was to provide a base level of income for retirees so that they would not be burden to their families or society as a whole if they had not saved enough for basic needs. If you don't live past retirement, you don't get retirement benefits, but as noted by Joe and others, your beneficiaries do get survivor benefits, just like most private pension plans. And as noted, if you are still working when you die, why would you need retirement income?

Speaking of inequities, I have done the math before on this or predecessor boards to show that with even modest investment returns (far below the historic 10% S&P return) nearly all of us on this BBS have lost at least $1 million to this system over our lifetimes measured by the difference of what we can expect to get compared to what we would have gotten if we had paid our "contributions" into a professionally managed, conservatively invested, savings type of retirement plan. This math loss holds for any income level, but more so for higher earners who continue to subsidize the system by paying more taxes and receiving less relative benefits.

[rubato]

"...
Anyway, my thought is that people could still begin receiving SSA at 62 at a lower amount than they would now but would not be able to receive the maximum benefit unless they wait until 68 or older to begin receiving it.
... " .

Which is current law.

No it isn't. Current law is not to receive a lower amount than they do now and to wait longer to receive the maximum benefit.

Yes it is. I can (and intend to) retire at 62 and take a lower amount (26.7% less) rather than wait until 66 and 4 months for the full amount.

http://www.socialsecurity.gov/retire2/agereduction.htm

But, if I want to, I can opt to pay it all back at full retirement and take the larger amount if I feel like it. 4 years and 4 months later I would have information not avail. at 62, how healthy am I at 66yr 4Mos? How much are our savings making in income then? Is it a better deal to put the money back in?

yrs,
rubato