In Canada, we do a crazy thing, where we rely on actuarial analysis and policy experts to tell the politicians what the best thing to do if they want to keep the pension systems solvent.
And then the politicians actually listen to the math nerds and the policy nerds, and make changes to the pension system to keep it solvent.
I know, it’s a crazy, whacky thing to do, but Canadians are just strange that way.
It’s kind of like how experts told the politicians that the country would save lots of money by eliminating the penny, and by switching the dollar bill to a coin. So we just did that. And have been saving money ever since. Even though some reactionary old farts didn’t like it.
May I suggest putting them afloat on ice floes? It would get rid of those pesky selfish boomers and make things so much nicer for the other generous and morally righteous generations. s/
Raising the income gap makes sense to me. The wealthy get ss so they should pay in the same percentage we all did/do.
And your second sentence is exactly what SS does now and has always done. Everyone pays in exactly the same percentage of their wages whether they’re a low-earning janitor or a high-earning executive. Admittedly the execs get goodies like stock or paid medical insurance that increases their effective economic income without being wages, but they don’t pay SS taxes on that stuff. Neither do they pay SS taxes on wages over (in 2023) $162,000. 162K (which also adjusts for inflation every year) is the so-called SS wage maximum.
But everybody gets a different amount back from SS. Lifetime low earners will get an SS payment equal to about 90% of their lifetime average wages corrected for inflation. And inflation-adjusted every year they’re in retirement.
Whereas somebody who earned exactly the SS wage maximum every year of their life would get payments equal to about 25% of their lifetime average wages. Somebody who earned e.g. double the SS max every year of their working life would pay taxes only on the SS max amount. And would receive benefits of ~25% of that amount. So about 12% of their actual average lifetime earnings.
And for folks in the middle incomes, they get an SS payment somewhere between 25% worst-case and 90% best-case based their own lifetime average earnings. All indexed for inflation.
But whether low- or high- wage, everybody pays the same percentage of their wages as SS tax to fund the system.
This isn’t correct. Once a high earner hits the cap, they contribute zero percent of their wages. Up to $160k in 2023, a wage earner contributes 6.2% (the employer contributes the same). After that? Zero. So someone who makes, say, $250k contributes the same as someone who makes nearly 100k less.
I like the idea of Social Security as a safety net for unforeseen issues that can affect anyone’s life. As a retirement plan, not so much because retirement isn’t unforeseen, though quite a few people seem to act like it is and fail to prepare.The common way to prepare now is to save in a 401k, or an IRA. Not everyone has access to a 401k, and these people are left with IRAs as a saving vehicle. Which is fine, but the contribution limits for IRAs are ridiculously low to the point that they really can’t compare to a 401k. The limits should be at least equal to the limits for a 401k. Now, this doesn’t fix the issue of people who don’t prepare for retirement, but it at least puts folks on a level field.
I have both an IRA and a 401k, and if I had the rely on the IRA alone, it would be tough, and the main difference is that I was able to put far more money in the 401k, despite making maximum contributions to the IRA every year.
A Canadian quarter today is worth a little less than a Canadian penny in 1914 (oldest year I can find Canadian inflation data from). If you really were as little controlled by monetary reactionaries as your great-great-grandparents were, wouldn’t your nickel and dime be gone as well? By the same standard, you should probably be using a $5 coin.
We are working on it. I love how the only argument is that Canada is not perfect in this regard, when the US is in the toilet. At least we are doing something positive
I’m not sure if this means that your SS payout is very low or your expected retirement income is very high. My SS is a much bigger chunk of my retirement income than that, but the secret is that your retirement income is only what you need to live on. I have a lot more in investment earnings from dividends and such than I take out to live on. The biggest thing I learned about retirement is that how you think about your finances is nothing like how I thought of them before.
Another question is whether you intend to spend down the principal of your investments, as opposed to living off their interest. I know several people who receive SS, whose overall wealth is increasing in their retirement. Have more than a couple million $ and don’t live extravagantly, and that is not to difficult. So I personally (and apparently alone) am not a huge fan of giving folk SS bens so that they can leave even more money to their heirs.
Hey, maybe that would be just as popular as means testing SS - increase estate taxes!
I didn’t say otherwise. Getting rid of pennies, nickels and dimes would hardly generate the savings needed to fully fund our social security, much less the bigger hole in old age health care (our Medicare).
Greatly reducing the cost of crime (and punishment) by getting rid of the proverbial root of all evil, money, (or at least cash) might also not be enough to save Medicare, but should at least take care of the social security expense:
We’re saying the same thing using different words. You skipped the part earlier in that same post where I talked about the SS wage maximum.
You and both make more than the SS wage maximum, this year $162K. You and I and the low-wage janitor all pay the 6.2% on everything he earns and everything we both earn up to $162K. And his benefit is calculated on on his wages and ours is calculated as if we made only $162K and not a dollar more.
Whether one of you and I earns $200K while the other earns $300K doesn’t affect our SS taxes or our SS benefits.
I see that as me being fully taxed at the same rate as the janitor on all the wages that are relevant to getting SS benefits. You might choose to see that as you paying a lower average rate on your overall >$162K income.
But IMO if you (any you) are going to say, well, I’m only paying about 3% SS tax on my e.g. $330K (2 x $162k example) wages, then you also need to make the same adjustment to your benefit thinking.
IOW, right now somebody who earned exactly the SS max their entire wage-earning career will receive a basic benefit of ~25% of those wages. So skipping over the details of inflation correction and assuming they reach FRA this year, their benefit will be ~$40K.
But for somebody who earned e.g. double the SS max every year, so $330K in 2023 and who retires this year, they’re still capped at ~25% of the $162K cap so a $40K benefit.
Someone in that situation can choose to look at that as a 25% payout on the 162K cap on which they paid 6.2% SS tax, or a 12.5% payout on their $330K earnings on which they paid 3% SS tax. The math is the same; what differs is only in how someone frames the situation.
Likewise, SS totally ignores interest, dividend, and investment income. In 2024 my wife and I will have $zero in wages, pay $0 in SS tax, and still have an income above the SS max entirely from sources SS completely ignores and has completely ignored throughout our working and investing lifetimes.
My own take is that the cleanest way to view SS taxation and benefits is to put on blinkers and say that:
Every worker in US participates in SS
SS considers wages only, ignoring all other forms of income or wealth.
SS considers wages only up to $162K (in 2023) and ignores any wages over that.
Benefits are based on a percentage of those lifetime SS-relevant wages.
The payout percentage is strongly progressive, with lifetime low-earners getting a high ~90 percentage, lifetime high earners getting a low ~25 percentage, and folks in the middle getting a percentage in the middle.
IMO any other framing just muddies the water. YMMV of course.
This is my parents, to a T. Except they aren’t really estate building, they are saving against a extended (and expensive) decline. If the worst happens, if they both say, developed dementia and needed very attentitive care, they want that care to be high quality and they don’t want to put us kids in the position where we have to impoverish ourselves by quitting or retireing early to care for them full time. A couple million is not an excessive safety net.
So an estate tax would make more sense. There are practical reasons for people to want a big pile of money in life.
As mentioned from Manda Jo, there’s a history of Alzheimer’s in my wife’s family, and an expectation of the medical expenses that come from that. While our nest-egg is reasonably well developed, there’s that anxiety of the unknown that comes into play with retirement….what’s it going to cost? How long are we going to live? Will there be anything left to give to our children.
Personal philosophy: My Mom’s estate is hers, to be used as she needs, to live out her life. If she uses every last penny, I’m perfectly okay with that. THAT SAID, there’s nothing wrong with me being able to wealth transfer the remainder of our estate to our kids, and manufacturing an economic mechanism to take that money in taxes really kind of pisses me off. With Real Estate doing what it’s doing these days, it may be the only chance my kids have to own a house. (There’s a whole nother theory that there are way too many MBAs in our society to be healthy, but I’m not going to derail this thread.)
At any rate, if it’s 20% or 80%, I’ve paid into Social Security and I should be able to benefit from it, and I’m not entirely sure that’s going to be the case…either for me…or maybe my kids…at whatever point it becomes unsustainable due to there being more people drawing SS than there are paying into it.
Absent some amazing insurance, people would ideally plan to have enough money to be able to spend down their nest-egg via a very expensive last decade of terminal decline times two people. After having lived off the returns on that nest-egg 30 plus years after their last wage-earning year.
The problem is that couples legitimately want a high degree of surety that they can handle worst case longevity times worst case expensive decline times two people times worst case investment returns over 3 decades.
And given the absence (other than SS) of any insurance program that would spread this risk across a broader populace, each couple (or individual) needs to provide for this worst case scenario wholly on their own via savings.
Which leads to those who cannot save enough crashing out financially somewhere through their retirement then decline unless they have the good luck to die early. While the large majority of other folks end up grossly over-saving versus their actual experience of better-than-worst case longevity times better-than-worst case expensive decline times less-than-two people for at least part of those years times better-than-worst case investment returns over however many decades.
My late MIL was richest at the market peak a few months before her death at age 96. She had by then ridiculously too much money for somebody who had worked modest jobs, lived humbly, and saved diligently for her first 60+ years. And who remained in good health until the day she dropped dead. But just 15 years prior when the stock market was last in the shitter and her longevity and long-term health was very much an open question she was legitimately worried about whether I’d be paying for her last few years after she’d exhausted her savings and her modest SS and modest pension would not meet a healthy person’s expenses, much less a chronically ill or disabled person’s expenses.
Mom was but one person. However there are many tens of millions of Americans traveling the same journey in the same boat. They differ mostly in how far along the path they are, not in the path they are taking.
Our society could create a program that lets all of us pool these risks so Mom would not have needed to scrimp and save so much, but would still have total confidence that she would not live her final years in penury and misery.
SS is a baby step in that direction. Thank goodness it was created ~90 years ago, because something like that could never be created now; too many of our current citizens and politicians are too wedded to the cause of thoughtless reactionary selfishness to consider such anathema. Even though nearly everyone would be better off with such a program in place.
Yeah - I’m sure I’m out of step with the VAST majority of folk in that I will not pay for expensive care over my last few years. I absolutely guarantee neither I nor my wife will not be in a memory care unit. And I feel the amount of money spent on our oldest folk is obscene. But, like I said - I acknowledge my views are the exception.
So - is there no age/wealth at which you feel an individual ought not need to worry/need SS? Age 80 w/ $5 million invested? 70 w/ $20 million? 85 w/ $10 million?
Speaking for myself, I’d rather be dead than e.g. in a memory care unit. But our woefully primitive society denies me the right to make that decision and act on that decision. So I need to plan for that eventuality.
I certainly see your logic that there does come a point where, strictly economically speaking, continuing to send SS checks to the very elderly rather wealthy is unnecessary to that individuals’ care and well-being. And therefore represents a mis-allocation of taxpayer dollars that could achieve more total social benefit if spent elsewhere elsewise.
The entire problem I have is that any alteration of the basic SS deal has, IMO, a far larger likelihood of ripping the conceptual underpinnings out from under it, and letting the people who want to gut SS for everyone succeed in their plan. Once it is relabeled “socialist welfare” it is doomed.
A bit like calling a US Constitutional convention, once you open that door then every idea, both good and bad, will get an equal airing. And in an era of such baleful politics as we now have, I’m far more concerned about losing everything we have that’s good than I am about missing the opportunity to gain what might be incrementally better.
