Social Security was not originally conceived as an investment plan by which one could try to beat the market and buy a bigger condo in Boca.
It was there as a safety net.
If your world-changing invention didn’t work; if the factory closed when you were 50; if your husband died of a heart attack at 42 and left you with four kids; if the blight killed your crops; etc., SS was supposed to be there so you wouldn’t be a senior citizen begging on street corners. To use William Bennett’s terminology, it was “the milk money”.
Over the years, we have come to think of SS as another investment vehicle.
IMO, this shift in thinking is the major problem in agreeing on how much risk we consider acceptable with the SS funds.
I applaud Liberal (and John for his honest response) for raising the very touchy issue of people who consciously decide to have kids without thinking about whether they can afford them. I am divided on this issue: one wrinkle in treating this in a libertarian fashion is the trade-off between holding adults responsible for their decisions (which I generally favor) and doing things that will result in the suffering of children who had no choice in the matter.
When I hear the people who run/work in/chair Wall Street talk about why they don’t want Federal Regulators around, I am reminded that the only businessman who doesn’t like to see the cops in his store, is one with a lot to hide.
Hell no, I don’t want the damn investment gig! Stockbrokers are a bunch of stinking crooks! Stay the Hell away from my Social Security!
If a person enters the workforce today, at age 22, and rates don’t change, by the time he retires at age 67 he will have put over 7% of his income for 45 years into the social security trust fund.
That’s more than enough to reasonably expect to be able to live out his retirement years above the poverty level, off of his social security payments. If the government wants higher returns, let the government take the stock market risks.
If this person is like me and wants to travel, see some stuff and spend some money in retirement, he can do his own investments outside of social security.
Most people have their children grown by the time they are in their mid 40’s, and that’s early enough to start other investments.
Worked for me, anyway.
And as someone pointed out above, if young couples waited until they could actually afford children and make optional investments at the same time the birthrate would soon approach zero.
Remember that even the most ambitious plans are only talking about 4% here; thats a lot of money total, but relatively little to any individual person. Moreover, worst come to worst, the US could probably afford it.
The real problem is that people live longer. Checking the actuarial tables for the years when they implemented SS it appears that relatively few people lived that much longer than the benefits age. Certainly people did, but it wasn’t nearly as many. Nowadays, people are living so long that SS payments are enormous. I imagine that when they started it the program was a huge money cash inflow; now it’s far the other way.
sb:Nowadays, people are living so long that SS payments are enormous. I imagine that when they started it the program was a huge money cash inflow; now it’s far the other way.
Not true. SS is now a huge “money cash inflow” because there are so many more workers at present, in the big baby boom generation, than retirees. What is going to put stress on SS finances several decades down the road is the retirement of the baby boomers.
Well, no, there were more workers per retiree before than there are now. What makes the difference is that the current workers pay so much more than originally intended. Didn’t I remember the original tax rate at something like 2% or less?
See this is why individual accounts should not replace Social Security. Most people have really no idea what the hell they are doing when it comes to finances. They don’t understand inflation, NPV/future value of money, the difference between stocks and bonds. Capital gains tax. They don’t know what an index fund is. They don’t know the hows and whys of diversification. They don’t have the wherewithall to know if a financial advisor is incompetant or dishonest.
Maybe if they were a teenage mom. Most people I know don’t even MARRY until they are in their late 20s/early 30s. And nowadays, one can expect their kids to glom off them well into their twenties.
That would strip away the illusion that Social Security is simply “paying back what you put in” and make it a clear welfare program (if you’re successful, you pay for other people and don’t get it back yourself). The latter is closer to the actual truth, but the politics of maintaining the system depends heavily on the Teeming Millions continuing to believe the latter without thinking about it too hard.
pervert: *Well, no, there were more workers per retiree before than there are now. *
Yes, I know. I was just correcting bandit’s erroneous statement that the net cash flow for SS used to be positive but now is “far the other way”. The net SS cash flow is still positive.
pervert:What makes the difference is that the current workers pay so much more than originally intended.
And the fact that the current generation of workers is so big. After all, in another few decades workers will still be paying “so much more than originally intended”, but it will no longer cover the costs of SS benefits, because the big baby-boom generation will be recipients instead of contributors.
SMB:The latter is closer to the actual truth
Got a cite for that? I’ve seen studies that suggest that over workers’ lifetimes, the “progressivity index” of SS (i.e., how redistributive it is from wealthier to poorer workers) is actually pretty close to 1. Namely, the ratio of what you put into SS vs. what you get out of it is not significantly dependent on your income level. I can try to dig that reference up, if you can’t find a cite to the contrary and save me the trouble. In any case, you are quite right that removing the payroll tax cap or means-testing benefits would make SS much more redistributive.
Someone who makes $10,000 a year who retires at 65 will get $546 a month. Someone who makes $90,000 a year who retires at 65 will get $1846 a month. So person B pays in 9x as much personally and via his/her employer and only gets out 3.38x as much in payments.
And the fact that the current generation of workers is so big. After all, in another few decades workers will still be paying “so much more than originally intended”, but it will no longer cover the costs of SS benefits, because the big baby-boom generation will be recipients instead of contributors.
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So how many "few decades " do you think us baby boomers will live?
What you are seeing as an upward spiral will also spiral down.
Well, yes, technically. Back in the Eighties when SS was facing shortfalls, the payroll tax was raised. If the worker to retiree ratio had been lower they would simply have raised the rate more than they did.
I agree with you that SS is currently running a surplus. It has been for years. If we are willing to close our eyes to the fact that SS is simply one more piece of the government funding puzzle, we might come to the conclusion that this surplus means SS is perfectly solvent for the foreseable future.
But the bottom line is that we are going to have to (without significant changes in SS):
Raise taxes or borrow in order to make up for the continually shrinking SS surplus over the next decade or so.
Raise taxes or borrow in order to make up for the SS shortfall over the following decade or two (this is the period when we pay back all the money we borrowed from SS in the 80s and 90s).
Raise taxes or borrow in order to make up for the difference in promises and revenues (when the SS trust fund runs out).
I agree with the argument that this cannot be blamed on SS alone. But neither can it be solved without taking changes in the social security system into consideration.
I was born in 1946. I am among the first of the baby boomers . WWII ended in 45.
I won’t be 65 ,generally considered the beginning of retirement age, for another 7 years. I along with most my age will be paying into SS until at least then.
Where is that shrinking surplus going?
I’m afraid you are using GWBs numbers.
Hell, I don’t know any of these things. But when they signed me up for a retirement plan, I managed to wrap my head around “these are the high-risk/high reward mutual funds, and those are the low-risk/low-reward ones.” It ain’t friggin’ day trading.
No, CBO numbers. You may be among the first, but you are not the first. Additionally, many people take early retirement. Finally, the demographic trend we are talking about (more retirees, fewer workers) is not limited to the Baby Boomers. Its something of a broarder trend.
What I was trying to express is that we will have to make up for spending the social security surplus twice. Firstly over the next few years as the surplus becomes smaller. Then in an ever increasing amount as we pay back the trust fund. Finally we will have to increase spending again when the trust fund runs out.
Now, there is precious little we can do about the first bit. Those people are nearing retirement and it would be unconcionable not to mention a potential failure of SS basic purpose to lower their benifits. The second bit we may be able to even out a bit, but we will have to pay that money back someday no matter what. However, there is a chance that we can fix Social Security beyond this point if we act soon. Otherwise, we will simply be in the same fix we are in now, only we will have already raised taxes, borrowed excessively, cut spending in other areas, or some combination of these.
I don’t understand a lot of that testimony except that it is someones opinion.
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My computer won’t allow me to copy/print the portions I would like to comment on so you’ll have to put up with my paraphrasing.
I especially am surprised that the graphs project the ss problem over 3 generations. How can they do that?
The problem as I see it is my generation has already paid into SS enough benefits to last nearly 50 years. It must be noted that my fathers generation started SS so whatever is in the system wasn’t there when he started working.
Now my 25 year old sons generation is saying "Hey wait a minute you’re going to spend it all."Well, my fathers generation spent it all too. How’d all that money get there? Well when we saw there wasn’t going to be enough we just put more in it.
The statement about SS currently helping the budget is where the problem lies.It is irresponsible to take someones money and not have plans to pay it back. Either that or it is theft.
And the statement that SS will start hurting the budget is unconscionable.
To make the promise that you won’t raise taxes and in order to do that you spend money that was set away for the future of your citizens without a plan to pay it back is not the actions of honest men.
It’s not, that’s right. But I still am wary about the prospect of investing in even a low risk fund. Don’t these go in cycles, but over the long term gain? What if you retire during a downturn in the economy? That sort of inconsistency would stand for maybe one generation before some sort of stabilizing force was legislated.
I think that on the whole, people like predictability, especially when it comes to things like not dying in squalor in your old age.
Well, yes, but someone who has studied this issue extensively.
By making several assumptions. These assumptions are detailed. They are mostly reasonable, IMHO. But if you have information that the demographic trends mentioned will not come to pass please present it.
Well, yes, sort of. But that money was “stored” in the form or U.S. Treasury notes. These notes will have to be paid back with interest from the general fund. That is the second increase I mentioned originally.
Fair enough. You are of the opinion that we should just rais taxes to cover the shortfall. That’s a perfectly valid opinion. Remember, however, that when your father’s generation started, there were 16 workers to each benificiary. Now there are 3 or 4. In a coupld decades there will be more like 2. We have had to increase taxes on those workers for just that reason. As the number of workers to the number of benificiaries decreased each worker had to pay more of his income. Look up, sometime, how much you father’s generation had to pay as a percentage of their income. It was in the 1 to 2 percent range. Now it is in the 14 to 15 percent range. How high, in your opinion, would be too high? 50%? 80%? Just curious.
But there is a perfectly legitimate plan to pay the money back. It will all be paid back with interest (a pretty good interest BTW considering the security of the bonds) from the general fund. No one, I repeat, NO ONE is suggesting that the trust fund not be paid back. As far as I know Maddison settled this issue for America very early in our history.
This is the part I don’t understand. All I said is that SS was going to be a larger and larger portion of the budget. That we are going to have to raise taxes, again and again, and again to pay for what we have promised the next couple generations. And that is on top of raising taxes to pay what we have promised the last few generations. What is unconscionable about noting this rising share of the federal budget?
Again (and only because this is a common and unfounded complaint about conservatives) there is a perfectly legitimate plan to pay back the trust fund bonds. We are going to pay it back from the general revenues. Income taxes and other fees. The only question is how fast to do this, and whether or not we will face the same or worse choices in a few decades.
Is it more honest to say to your children (or if we are brutally honest, others children) “You will simply have to pay more taxes. And then more, and then more.”?
Perhaps it is. I still don’t think it is the best choice, however. YMMV of course.
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And the statement that SS will start hurting the budget is unconscionable.
This is the part I don’t understand. All I said is that SS was going to be a larger and larger portion of the budget. That we are going to have to raise taxes, again and again, and again to pay for what we have promised the next couple generations. And that is on top of raising taxes to pay what we have promised the last few generations. What is unconscionable about noting this rising share of the federal budget?
It was the CBO testimony that said it will start hurting the budget.
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I especially am surpri
sed that the graphs project the ss problem over 3 generations. How can they do that?
By making several assumptions. These assumptions are detailed. They are mostly reasonable, IMHO. But if you have information that the demographic trends mentioned will not come to pass please present it.
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Thats some assumption. SS hasn’t even been in existance as long as the CBO is assuming its future and you admit yourself it has changed dramatically in its history.
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It must be noted that my fathers generation started SS so whatever is in the system wasn’t there when he started working.
Now my 25 year old sons generation is saying "Hey wait a minute you’re going to spend it all."Well, my fathers generation spent it all too. How’d all that money get there? Well when we saw there wasn’t going to be enough we just put more in it.
Fair enough. You are of the opinion that we should just rais taxes to cover the shortfall. That’s a perfectly valid opinion. Remember, however, that when your father’s generation started, there were 16 workers to each benificiary. Now there are 3 or 4. In a coupld decades there will be more like 2. We have had to increase taxes on those workers for just that reason. As the number of workers to the number of benificiaries decreased each worker had to pay more of his income. Look up, sometime, how much you father’s generation had to pay as a percentage of their income. It was in the 1 to 2 percent range. Now it is in the 14 to 15 percent range. How high, in your opinion, would be too high? 50%? 80%? Just curious.
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It must be noted that my fathers generation started SS so whatever is in the system wasn’t there when he started working.
Now my 25 year old sons generation is saying "Hey wait a minute you’re going to spend it all."Well, my fathers generation spent it all too. How’d all that money get there? Well when we saw there wasn’t going to be enough we just put more in it.
Fair enough. You are of the opinion that we should just rais taxes to cover the shortfall. That’s a perfectly valid opinion. Remember, however, that when your father’s generation started, there were 16 workers to each benificiary. Now there are 3 or 4. In a coupld decades there will be more like 2. We have had to increase taxes on those workers for just that reason. As the number of workers to the number of benificiaries decreased each worker had to pay more of his income. Look up, sometime, how much you father’s generation had to pay as a percentage of their income. It was in the 1 to 2 percent range. Now it is in the 14 to 15 percent range. How high, in your opinion, would be too high? 50%? 80%? Just curious.
Now wait a minute.
First you agree that the money will last 50 years if we can find it because .
money borrowed must be paid back because thats the law.
Then you say there is a shortfall?
Where exactly is that shortfall?
If its in the money owed SS then why are you allowing SS money to be used as a pad for the budget?
I’m interested in why you thing the SS contribution will need be so high.
We’ve already decided the current SS is enough to last 50 years.
Assuming ,correctly of course, that I live another 50 years i’ll not be out carrousing much since I’ll be 108. How many of us do you think will last another even 25 years. Our numbers will begin spirilling downward at a faster than I care to think about rate.
That means you won’t need to pay much into our portion of the fund. Just your own and your numbers (population) aren’t as high.
