Social security if a ripoff.

Great Debates
1

Social security is a ripoff. It drains our economy and keeps the average person from getting his or her head above water. The poor are the most screwed.

You get under 3 percent on your after-tax money. Meantime the feds are paying bondholders over 5 percent.

Plus, they tax your money when you get it.

Lots of luck to people in famililies who die fairly young. They build up no equity but spend all their working lives contributing to others.

I am in a state of Ohio retirement system. We have opted out of social security. Our benefits are far better and, guess what, we can withdraw equity upon retirement.

2

Well, golly, we could have just put it in a Magical Lockbox, which would have solved ALL our ills. And, guess what, the lockbox can turn a potato into French Fries in ten seconds!

3

Yep, Social Security has always been a crock of shit.

There is no reason for it and it only gives people false expectations.

FDR came up with it didn’t he? Why it lasted I have no clue but anyone who can put 2 and 2 together knows that they don’t equal 3.

This country of ours is full of idiots. Why else has this not been seriously challenged in the last 60+ years?

4

Folks, since this is Great Debates it would be nice to see, well, facts. So far we have to fact-free rants and one tongue in cheek response.

Let me request the following:
(a) A historically based analysis of social security
(b) Description of the historical and modern goals of the program
© a full description of the program (noting that it does not cover retirement alone, its not a huge IRA program.)

On this we can base some reasoned analysis.

5

I’ll provide as much history and stuff as you desire (can stand) as soon as I get some of this work off my desk.

The OP and mx-6’s comments seem to criticize SS as tho it were a retirement investment program. Which I believe is an incorrect perception. In 1998, only approximately 61% of SS beneficiaries were retired workers. The remainder were disabled, spouses or dependents of beneficiaries, or widows, widowers, or children of deceased workers.

IMO, a significant factor contributing to the negative perception some hold of SS is not acknowledging that it is a tax with, among its goals, the redistribution of wealth.

I think another basis for the criticism is that SS was originally set up to pay benefits immediately to folk who had never paid in.

6

I think Dinsdale’s right in pointing out that most people’s indignation with SS stems from overlooking the fact that it’s not actually a pension plan, but a social insurance plan. That is, it’s not a question of putting in X amount of money and therefore automatically being entitled to take Y amount of money out (though the size of your benefits is indexed to the size of your contributions). It’s more like any other form of insurance. Your payroll taxes act as premiums and are used to pay for benefits for those who have become eligible for them—via retirement, disability, or the other things SS covers. And when you become eligible for benefits, they are paid out of other people’s “premiums”. If you die before eligibility (as my father did), then you’ve lost the chance of benefits; but the system isn’t cheating you out of “your” money, any more than the accident insurance company is cheating you if you pay the premiums all your life but never have an accident.

I think Dinsdale may be less accurate in saying that this incorrect perception is mostly the SSA’s fault. At least in recent years, they seem to have been quite emphatic about describing themselves as a social insurance program. The problem may be that many people in favor of privatizing Social Security, who tend to portray it as a sort of huge public IRA in order to compare it unfavorably to actual IRA’s, have been more aggressive and successful in spreading their message. It’s easier to notice and remember a statement in an ad or an editorial remarking that “more twentysomethings believe in extraterrestrial aliens than believe that they will get SS benefits when they retire” or “SS benefits give you less than a 3% rate of return on your investment” than it is to dig up a big ol’ government report on what SSA does and go into the whole question in detail.

For those who like to go into questions in detail, of course, the SDMB is here to serve! :slight_smile: Dinsdale may have some other sources that are more comprehensive than mine, but I recommend starting with this Economic Policy Institute Social Security Facts at a Glance or the SSA’s own Fast Facts and Figures about Social Security. The SSA also provides an on-line Summary of the 2000 Annual Reports on the Status of the Social Security and Medicare Programs, as well as a heap of working papers and other documents. Enjoy, Collounsbury!

Where I think the OP is flawed is in falling into the common error of evaluating SS in comparison to retirement savings options. Sure, for the average middle-class individual saving for retirement, there’s little doubt that the same amount of money taken out of his/her paychecks but privately invested could yield much more money at the end of the same period (although it certainly would not do so for every such investor). But that ignores the larger question, how would this affect the status of the elderly and disabled as a group? In contrast to the OP’s somewhat surprising (and unsupported) claim that SS “drains our economy”, the reports I cite above indicate that SS has been hugely beneficial in reducing poverty among the elderly. I’m all in favor of everybody making their own prudent and responsible preparations for retirement rather than heedlessly trusting the government to take care of everything, but I think there’s little question that providing some basic support for the elderly, the disabled, widows, and orphans, most of whom have worked all their lives and helped to support other people, makes ours a better and healthier society for everyone.

7

I’m more than slightly disappointed with EPIC. Their analyses of global trade are… unworthy of economics. I think I understand where you are getting your global trade position from. However, I poked around a bit on my own --let me recommend the about.com economics guide for a nice resource-- to add this link which appears at first glance fairly thorough:
http://economics.about.com/money/economics/library/weekly/aa041398.htm?rnk=r2&terms=economics+social+security

Some of the links seem to be dated.

I also stumbled upon:
http://www.socsec.org/facts/index.htm

Thanks, SS links look good. Now I hope that we can insert facts into whatever debate emerges. (altough I supsect the original posters will disappear, but perhaps we can have meatier participation…)

Rather my feeling.

Indeed. Again, I believe the program is concieved of as an insurance program of sorts, as you said. Somewhat changes the framework of analysis.

That struck me as pure rhetoric.

8

Folks, our work here is done.

Good post and links, kimstu. I am in the unenviable position of knowing far more about certain elements of SS than any person should have to. But the easily available on-line sources you link to have all the info any person with a shred of sanity should need or desire. I’ll do my best to help out with any specific questions. But I suspect the OP and his/her sycophant (who has apparently since been banned) were simply engaging in a drive by.

Extremely minor quibble, I didn’t intend to assign anyone responsibility for creating an inaccurate peception.

9

An addition, let me recommend:
http://www.economist.com/displayStory.cfm?Story_ID=173079 (free access article)
and for those of you who subscribe, a search of the Economist would be generally quite useful.

10

Collounsbury: I’m more than slightly disappointed with EPIC. Their analyses of global trade are… unworthy of economics. I think I understand where you are getting your global trade position from.

Ooopsie. Well, I’m not opposed in principle to global trade, although I do think many aspects of it as it’s done now appear to be counterproductive in many ways. Still, I’m not an economist and need to be careful about getting my information from trustworthy sources. I’ll put a question mark next to the EPI sources in future. What’s your opinion of the Center for Economic and Policy Research?

Anyways, I guess global trade’s another thread. The Economist article you linked to was an interesting read, and brought up one point in particular about SS that I’ve wondered about, namely, why do we still use a standard retirement age of 65 as the point to begin paying benefits? Life expectancies have gone up, as has the average 65-year-old’s level of health and functionality, and I don’t see why we shouldn’t bump that number up a few years—to 68, say—and get more contributions out of workers to make up for the increased benefits that longer life expectancy is providing. We could still have “early retirement” options—at present, you can start drawing benefits at 62 but they’ll be 20% less than what you’d otherwise get, and we could work out a similar arrangement for “early” retirement at 65.

I suppose this would have to be coordinated with changes in existing mandatory retirement age provisions, where they would conflict: no good denying somebody benefits until 68 if they’re going to be booted out of their jobs at 65. Still, though modifying the system is likely to be a whole lot of work, I think it’s definitely preferable to killing it.

(P.S. Sorry Dins if I misunderstood you there.)

11

Dinsdale,

I’m not trying to argue with you, but I was wondering if you could clarify this statement:

IMO, a significant factor contributing to the negative perception some hold of SS is not acknowledging that it is a tax with, among its goals, the redistribution of wealth. (emphasis mine)

It seems that SS is a rotten mechanism for the redistribution of wealth, and I was sort of curious what you mean by it.

Kimstu - my full benefits retirement age is 67, not 65, and I get even more benefits if I keep working until 72, at least according to the statement the SS admin sent me in the mail. It is further my understanding that the AARP is strongly opposed to raising the retirement age.

12

Actually, bashere, I don’t speak for Dinsdale, but it seems to me that SS is a pretty good mechanism for redistributing not much wealth—that is, for taking slightly more away from those who can better afford it (although not a lot, since the payroll-taxable amount tops out at $76K or so, I think) and providing somewhat more resources to those who can afford less.

Thanks for the info on the increased benefit age: I’m sorry if it’s messing up your retirement plans, :slight_smile: but I can’t help feeling that it’s a wise modification for the system as a whole! Not surprised that the AARP feels otherwise, but I’m not sure they’re being entirely prudent here.

13

Fact one: If you invest $1000 in government bonds,you get back 5-6 percent. But if the government takes $1000 from you and your employer, the return is only 2-3&

The State of Ohio retirement system has replaced SS for its teachers (The State Teachers Retirement System). I put my money in at about the same rate as social security and get back better retirment PLUS medical insurance PLUS equity if I choose to drop out.

14

Kimstu:

I have my differences with both sites analysis of world trade, but let me withdraw my earlier pissy comment re EPIC. It was too strong --it was late you know-- although I do believe their analysis is flawed. But that is another debate.

Berdollos:

Would you care to address the observation that your comparision is fundamentally flawed bec. you’re comparing apples (retirement investments) to oranges (a sort of insurance program)? Or do you plan to ignore that?

In any case, the links made so far have a number of substantive comparisions. While it is certain that a revamping of the SS program is in order, simplistic comparisions with bond yields seem to miss the point.

15

“The” return? Whose return? Not the return that the government earns, since it is in effect investing that money in government bonds (yes this does make sense - do a search for my posts in previous threads on this topic to see why). This means that “the return” the government is earning is whatever the prevailing bond yields are.

But I suspect you mean your return - and this is where you are making the fundamental error. Once the government has taken it, it is no longer your money. It isn’t being put aside somewhere, earmarked for your retirement. The SS pension operates on a Pay As You Go basis - that is, the money being taken in now is being used to pay for benefits due now. So it is nonsensical to talk of “the return” in the context of your benefits.

Remember - social insurance plan not retirement plan. This is a point that has been amply pointed out to you already. Are you going to at least acknowledge it?

pan

16

Heck, Kimstu, maybe you should talk for me in the future - you do it so well! Thanks.

Another “truth” about SS is that it is forced savings, implying that the average wage earner is too irresponsible or ignorant to adequately plan for his/her retirement. Viwed strictly as an investment, the rate of return may not be close to what you might get elsewhere, but the risk is tough to beat. So if you are someone who is rsponsibly planning for your future and investing wisely and regularly, just consider SS one element in your diversified portfolio.

17

Kimstu,

It is the cap on the earnings that make me think it is a bad way to redistribute wealth. It takes a lot of money from people earning low amounts, while taking a lower percentage from people earning high amounts. The one reform I’d like to see made to SS is for the cap to dissappear. Now, to be fair, the cap moves up a lot each year (it is over 80k this year; 76k is last years cap). Oh, and it isn’t messing up my retirement; like a lot of GenXers, I was taught from about 8th grade on that SS would be bankrupt by the time I got to retirement age, so I save a ludicrious per centage of my income. If the SS fund isn’t bankrupt, I plan on being pleasantly suprised :slight_smile:

Dinsdale; I would add “or might get really unlucky” to your list of reasons SS is good for the average wage earner. SS is fairly cheap insurance, all things considered.

18

Fair nuff, bashere.
And you do know, of course, that there is no way SS will be bankrupt, unles Congress decides to do away with it entirely.

19

Unfortunately if one considers the aggregate US savings rate (which sometimes goes negative in recent years) this charge is not unfounded, emperically speaking.

20

berdollos: The State of Ohio retirement system has replaced SS for its teachers (The State Teachers Retirement System). I put my money in at about the same rate as social security and get back better retirment PLUS medical insurance PLUS equity if I choose to drop out.

Okay, berdollos, let’s take a look at what’s actually going on here that helps make your system (compared solely as a pension/benefits plan, as you insist on comparing it) better value than Social Security. (I’m getting my information on your system from the STRS Ohio website.)

First: I see that you people pay 9.3% of your gross earnings into the system as individual employees (with no earnings cap), while employers pay 14% of their total employee payroll. For SS payroll taxes, both employee and employer pay 6.2%, with employee’s taxable earnings capped at something over $80,000 (thanks bashere!). You may call this “about the same rate” as Social Security, and perhaps for you individually it works out to a pretty small absolute dollar difference, but there is in fact a much larger percentage of combined earnings and payroll going into your system.

By the way, who are the “employers” of most schoolteachers and university/college educators in the state of Ohio? Why, the state and municipalities of Ohio, of course! And how do the state and municipalities of Ohio make most of their income? Why, from taxes, of course! So your hefty chunk of “employer” contributions in STRS is actually coming largely out of the pockets of taxpayers (including yourself).

Second: The people who are eligible for membership in STRS Ohio are school/university/college teachers. Now I know from personal experience that there’s not a whole lot of money in teaching, but you guys ain’t scraping along on or near minimum wage either, as many SS contributors are. In addition, we teachers tend to be a highly-educated, law-abiding, non-slum-dwelling, relatively low-risk bunch of folks, so we are less likely to have lots of expensive bad stuff happening to us. (And I gather from some of your on-line forms that you guys have to get physicals too, right?) In other words, the excellent performance of your pension plan is partly due to classic “cherrypicking” techniques: enroll only comparatively high-value, low-risk members and watch your assets fatten. Social Security, being a universal social insurance plan, doesn’t have that luxury.

Third: In addition to having healthy contributions, boy, do you folks have fat assets! I see that investment income has been your system’s single largest source of income since 1977 and that it currently (1999-2000) totals almost 75% of your income, with the amount of net assets currently available for benefits being $54.6 billion. Now that says a lot in favor of the good sense of your investment advisors, and I congratulate you on having accumulated such a nice chunk of capital to take care of most of your funding. But this capital is something that you’ve been growing for many decades under the guidance of professional investment planners. Social Security, on the other hand, has always been a pay-as-you-go plan; though it does have the “boomer trust fund” that was set up in 1983, any attempts to do serious asset creation for the future would require taking money away from current benefit payments (not very popular), or else imposing new taxes (really not popular). To have a comparable distribution of funding sources to what STRS Ohio can boast, we’d have to get 75% of our SS income from asset interest—in 1999, that’s 75% of $526.6 billion. Actually, we only spent about $400 billion in 1999 (the rest kicked into the boomer trust fund), so let’s use that as the figure we want to cover 75% of with interest income, which would require yearly interest of $300 billion. Assume we could get a 10% rate of return on our capital, because I’m bad at non-round percentages, and ignore all the issues of compounding and stuff that I’m sure Collounsbury or Dinsdale will correct me on if necessary…let’s see, that would require an asset chunk on the order of $3 trillion, right? Yikes! Do you have that kind of change lying around? Me neither. SSA neither.

So to sum up: what makes your state pension plan such a sweet deal compared to what you call the “ripoff” of Social Security is that it’s paying benefits to a comparatively small number of high-value “cherrypicked” members, and derives its funding mostly from interest on very long-term capital accumulation and taxation of a much larger population base. So tell us, berdollos ol’ buddy: what scheme do you suggest to make those same conditions apply to a universal, tax-funded social insurance plan for all the long-time workers and their dependents in this nation, so Social Security won’t be a “ripoff” anymore? Hmmm?