But Wall Street will be promising dreams of fortune, backed up by the President who is trying to sell this as a good thing. The suckers will get fleeced as usual.
You won’t bleedin’ care then, will you? More to the point, what happens if you pay homeowner’s insurance and never have a claim? You have the security (it got named Social Security for a reason) of not having to worry about it.
What happens if the Russians invade? If we get hit by an asteroid? If borrowing trillions more cause the world to lose confidence in us and leads to a depression? Why don’t you give us a scenario where this could happen, and stop crying WMD.
And please give a cite showing any time in the future where the number of people over 65 (or an increased retirement age) will exceed the working population of 20 - 65 or so. I’d guess that the average life span would have to be about 110 for this to happen.
This is a point that I haven’t really heard much info about. Currently, if I die 2 years after I start collecting SS, my heirs do not get any kind of payout. Any difference between what I have paid into the system over the years, and what was paid out to me goes back into the fund and covers others.
From what I can tell about Bush’s idea, if I die before the total value of my “personal” fund is paid out, then my heirs get a nice little check. Isn’t this going to create a drain on the system as a whole?
Looks like when you retire, you have to use the personal account money to get an annuity through the govt that will fund you up to the poverty level, if you have enough to fund it that high. And the rest of the money’s yours as you please? I didn’t see whether you can just yank it out after buying that annuity.
So why should anyone opt for putting their money into something that 1) is already guarenteed to give me something once I retire, regardless of how my other (non-social security) investments turn out? 2) and even if I do opt for this plan, what is the government going to do if I lose my money? Nothing?
Again, I restate this - what happens if I lose my money? If you say - you are SOL -then I think you will have your answer on how popular this proposal will be to many Americans. In other words, next to zero popularity.
Why should the gov do anything? You made a choice to divert.
Can you name one person who has lost money in any conservative mutual funds over the course of, say, fiteen or twenty years? Nothing aggressive mind you, maybe something with an average rate of return of 5%.
I don’t see what all the squak is about…everyone seems content enough to place pooploads of money into 401k’s, mutual funds, IRA’s, Bonds, CDs and other similar retirement plans. What is going to be different about how this money is managed? Why the scare tactics??
And further, if SS isn’t in for it in the next half century then why did Gore and Bush beat the hell out of each other in 2000 about who better to fix it?
I still haven’t heard an arguement against allowing those who may want to take that risk and divert some of the money into a PIA from letting them do so.
Shit, if it were up to me (and probably most of you here) I’d opt out of the program entirely and invest all of the deductions into a private account.
If the gov lets me opt out now, they wont have to bother paying me my SS monies at inflated 2030 levels. Or, worse, having to borrow to pay me.
The plan hasn’t been set in stone because it’s still in its early stages. Bush has called for continued discussion, and hopefully some “combination” of reforms.
Moreover, the plan isn’t simply to have people pay into individual accounts. It’s a bit more complicated than that. But not much more complicated.
Right now, Social Security benefits are growing faster than the money brought in to pay those benefits. Obviously, that means that if the current rates of increase continue, we’re going to end up having a lot of trouble paying those benefits in the future. The problem is big enough that between 2018 (when Social Security is expected to begin paying out more in benefits than it brings in through taxes) and 2042 (the date that the President described Social Security as going “bankrupt”), total benefits paid out are expected to exceed taxes brought in by an estimated $10 trillion. In 2042, Social Security benefits paid out are expected to exceed Social Security taxes brought in by nearly $400 billion in that one year. In 2042, some people claim that Social Security will go “bankrupt.” I don’t necessarily agree with this phrasing, but it seems clear that in approximately 2042, Social Security benefits will probably have to be cut 20-30%, or else the government will have to raise taxes or cut other programs substantially to make up for the difference.
So Bush is suggesting that we slow the rate that the benefits increase. Right now, the benefits are tied to wages. Former Democratic Congressman Tim Penny (Minn.) proposed that we tie Social Security benefits to inflation instead of wages. This will achieve two things: first, it will slow the growth of Social Security benefits; second, it will ensure that future retirees will receive roughly the same buying power from their benefits as current retirees.
(By way of example, if the average American worker who has always earned the average American salary retired today, she’d get $14,854 in Social Security benefits this year. In the year 2050, she’d get $23,811 in Social Security benefits after we adjust for inflation. If we tied Social Security benefits to inflation instead of wages, the average wage earning retiree in the year 2050 would get $14,854 in inflation adjusted dollars.)
However, because this is politics, even a decrease in the rate of growth over and above inflation is sold as a cut. So politicians of course have to find some way to sell their program as ensuring that benefits will continue to increase forever ad infinitum.
So the Bush administration has proposed to allow individuals to invest a small portion of their payroll taxes in private accounts. The amount which will be allowed to be invested in private accounts will likely be about 15% of total Social Security payroll taxes. These private accounts will on average earn higher returns than the government. This will allow future retirees to make up the smaller rate of increase in their Social Security benefits by getting a higher rate of return on their non-government benefits.
So to reiterate: 1) Social Security will eventually be paying out more than it brings in by a substantial margin; 2) In order to deal with that, we either need to cut benefits or increase taxes; 3) Bush’s plan cuts the rate by which benefits will increase; 4) in order to allow younger people to make up for the difference in the rate by which their Social Security benefits will increase, Bush wants to allow people to take out some small portion of their Social Security taxes and place them in areas in which they can earn a higher rate of return.
A couple of points worth mentioning:
Not many people seem to think that investing 15% of your Social Security taxes in the private market will actually increase benefits enough to make up for the diminished rate of increase in benefits. In other words, most people don’t believe that under Bush’s plan, the average retiree in 2050 will get an inflation adjusted $23,000. They do think the average retiree will get more than the $14.8K that would come from simply tying SS benefits to inflation.
There does appear to be a chance that some people could get stung if their private investments tank. Some politicians have been making noise about the government guaranteeing such investments. I think it’s a bad idea to have the government guaranteeing stock market performance, but I doubt it will stop politicians from trying to approve it. Instead, I think individuals should be able to make their own informed decisions about how they would like their retirement money invested and whether they’re willing to accept the risks of private investment. If they think the stock market is too risky, then no one is going to force them to have private accounts.
For an informed opposing viewpoint, I’d suggest reading jshore’s posts in some of the prior threads.
This is totally false. “Bankrupt” means that there are insufficient assetts to meet current debts. It typically involves an individual or entity that can meet some of its debts, but not all of them. Creditors in bankrupty usually are paid some portion of their claims; they’re just not paid 100 cents on the dollar. Occasionally, there are “no asset” bankruptcies, but those are pretty rare, and having no assets is not a prerequisite to filing for bankruptcy.
ToC:From what I can tell about Bush’s idea, if I die before the total value of my “personal” fund is paid out, then my heirs get a nice little check. Isn’t this going to create a drain on the system as a whole?
As far as I can tell, that’s not quite the way it works. The amount you put into your “personal account”, plus 3% interest, is essentially treated like a loan from the government. When you retire, you are forced to “annuitize” a certain amount of your personal account, enough to provide a benefit payment that will keep you above poverty level when combined with your traditional SS benefits. However, your traditional SS benefits will be cut by an amount equal to what you put in your personal account, plus 3% interest (that’s how they get “repaid” on their “loan”).
So essentially, when you retire, you are not living on the “savings” of your personal account. Rather, you are obligated to take at least some—perhaps all, depending on your income level—of that savings and buy an annuity from the government. (That’s a loose way of describing it, but I think that’s more or less the idea.) Simultaneously, your traditional benefits get cut by the total amount of your savings plus 3%.
When you die, that annuity reverts to the gummint, even if you haven’t yet drawn many (or any) annuity payments. That money’s gone. AFAICT, the only money that is actually “yours”, to leave to your heirs or do whatever else you want with, is whatever’s left over that the government didn’t make you annuitize.
The plan was not presented very clearly in the briefing transcript that I linked to, so I may have some misinterpretations here, but that seems to be the way it works. The central fact is that no, your personal savings account doesn’t really become “your money” when you retire, and you certainly can’t bequeath all of it—in some cases, not any of it—to your heirs.
AQA:However, because this is politics, even a decrease in the rate of growth over and above inflation is sold as a cut.
Well, to be fair, in a very real sense it is a cut. The current system is scheduled to pay a certain amount of benefits to future retirees; the proposed modifications would have the system paying less than two-thirds of that amount.
Heck, even if we just let the system go “bankrupt”, i.e., run into the predicted funding shortfall in the 2040’s without any corrective action, as you point out, the current system would still be paying about three-quarters of the scheduled benefit.
In other words, if we sat on our butts and did nothing to fix Social Security, even after it hits the predicted funding shortfall, the system as currently set up would still be paying more in benefits than it would under the proposed Bush plan. In other words, the proposed Bush plan cuts benefits when compared to the current plan—even when compared to the current plan after bankruptcy. I think that’s a perfectly reasonable application of the term “cut”.
And note that, as I said above, those reduced benefits are calculated including what’s in people’s personal accounts—up to the amount of total contribution plus 3% interest. So the only money you’ve got to try to “make up the difference” between the currently-scheduled benefits and the reduced Bush-plan benefits is whatever’s left over in your private account after you take out the total-contrib-plus-3%.
AQA:The amount which will be allowed to be invested in private accounts will likely be about 15% of total Social Security payroll taxes.
The source I linked to says “4% of wages”. Considering that current payroll taxes are about 12.4% of wages in all, 4% of wages is about 1/3 of total payroll taxes, not 15%. I don’t know where this discrepancy comes from—have I got a math error?
I am just highly skeptical. Someone on minimum wage would not have much income to play with here. Somewhere here on Straight Dope, a member did a cut and paste quoting Bush on this subject, and even he could not explain it. That does not give me the warm fuzzies.
Steve: * Somewhere here on Straight Dope, a member did a cut and paste quoting Bush on this subject, and even he could not explain it.*
That was Hentor the Barbarian over on this thread:
What I think the President is desperately groping for there is what AQA explained above: you can cut the currently scheduled benefits by changing the formula you use to calculate them. Specifically, price-indexing instead of wage-indexing. When you cut back on the benefits you have to pay out, you save money, and if you do enough of it then you don’t have a funding shortfall any more.
Hey, I think I just explained that better and more concisely than Bush did. Maybe I should be President!
Nope, the error is all mine. I realize now that I pulled the 15% figure from a 1999 White House proposal. Bush obviously wasn’t in the White House in 1999. I apologize for my sloppiness.
I’ll try to respond to your post later; for now, work calls.
I don’t know anyone personally, but I can bet that there were people who, during the previous recession, were substantially affected just as they retired. One may average a 5% increase on one’s invest over a 15-20 year period. It’s the 10 or 15 decline in that investment in one year at the time of one’s retirement that can be problematic.
As other have noted, even if nothing is done to SSA the benefits that are paid out of the system to retirees is better than the current proposal set for the the Bush administration. Why would one be willing to give up one system for a worse one?
Are you allowed to opt out in getting car insurance? Sure, you could; but answer this - what are the implications for those who opt not to carry car insurance versus those of us who do? There’s a reason for why everyone who owns and operates a car has to get insurance (at least in my state you do; don’t know whether this is a requirement throughout the US).
The plan as it stands will be in trouble somewhere between 2042 and 2052. If X amount of people are allowed to remove 30% of their contributions from the plan it will fail sooner than it would if it were just left alone.
Thats why his plan will not work and why it will eventually kill SS.
As far as where the money is it might be already spent but it must be paid back. No matter what. Why is that hard to understand? The only question is where it is going to come from. Obviously it must come from raising taxes or diverting it from other programs. Sorry big government. You took it. You pay it back.
No one will benefit if the aged are dying in the streets because they do not have enough money for the basics.
Everyone will benefit if the aged remain consumers.
IMHO the cap must be removed.
Then enough time needs to be spent analyzing the effect.
If Bush’s plan was such a great ravin’ miracle, he wouldn’t have to lie about it – or about the real status of Social Security – to “sell” it to a trusting populace.
You’re absolutely right. That is a cut if you consider future retirees are entitled to receive benefits in line with the current trajectory.
And there are fairness considerations underlying your argument, too. Social Security is currently tied to wages by a complex formula that analyzes wages over the preceding 35 years. SS benefits are tied to wages because of the idea that people should get more benefits out of Social Security if they paid more taxes in. By severing the tie between the wages paid and the benefits derived, we’re essentially forcing a generation of workers to pay more money into SS but not allowing them to pull more out.
But the libertarian in me has a couple of objections to this. First, I don’t think that anyone is entitled to receive benefits in line with the current trajectories. Social Security is not a right; it’s a public benefit. The government can cut them at any time.
But more importantly, the current trajectories are just too high. Right now, Social Security and Medicare constitute 7% of GDP. If the current trajectory keeps going, in 2040, they will constitute 12% of GDP; and in 2070, they will constitute 15% of GDP. Meanwhile, revenues to pay for those programs are expected to stay steady at 7% of GDP. (cite)
The only way to maintain those benefit trajectories is to increase taxes dramatically or slash other government programs substantially. And since the trust fund reservoirs will (probably) be emptied by then, and the benefits will continue to rise at a greater rate than inflation and tax revenues, the government will have to raise taxes and/or cut other government programs again the next year, and then next, and on until either the worker:retiree ratio comes back in line or we re-index benefits.
If we don’t re-index benefits, we’ll run the risk of turning the government into a one-trick pony. A huge portion of our tax revenue will be forced to go to Social Security, and that would cripple the government’s ability to fund and operate other programs, like educaton and the military and HUD. Total discretionary, non-military spending in the US in 2005 is $519 billion. Naturally, that budget will increase as we head toward 2042, but even then, cutting $400 billion out of the total non-military discretionary budget won’t leave much for education and roads and HUD, etc.
Nor do I think the public would support significantly higher taxes to fund the Social Security deficit. I think that if given the choice between investing in Social Security through the government (returning at a nearly guaranteed rate of 3%) or investing it themselves (returning whatever rate people can get), people trust themselves more than they trust the government. (Of course, I don’t have any polls on that. It’s just a gut feeling, so I could be wrong.) And the thought of increasing taxes an additional 8% of GDP is just about enough to make my head explode. I don’t want that much money coming out of my pocket.
Again, that’s absolutely right. In fact, from what I understand, you’ve been charitable with your figures. The current system would indeed pay out about 25-30% of benefits in the year 2042; but Bush’s program would only pay out about 37% of benefits on the current trajectory.
But as I said above, I think those benefits are just too high.
Also, I think it’s much more equitable to fix the system so that it doesn’t arbitrarily cut people off so drastically. If we re-index benefits to inflation, people will have a better idea of what they’re getting and can plan accordingly, and they won’t feel gyped by the fact that they were born in 1977 instead of 1976. Plus, we’d be better off by fixing the drag on the budget from Social Security’s revenue shortcomings.
Sure, we’d be getting less money out of Social Security in the end. But we’re going to have to do that anyway. And it will free us up to pursue other programs: military, education, HUD, FDA, or if we deem necessary, even increasing the funding to retired people.
Phew. And I thought the stuff from college was confusing - physics, electromagnetics, quantum mechanics, hyperbolic geometry, defense against the dark arts etc. Those were kiddy stuff compared to this.
Keep an eye out whenever conservatives drag Medicare into the discussion, just like AQA just did. They do this to muddy the waters. If you want to talk about Social Security, do so. If you want to talk about Medicare, let’s do that. But don’t lump them together.
By the way, did you hear today that Bush’s Medicare plan is going to cost a lot more than he told you it would?
