Social security if a ripoff.

Well, that’s obviously true. However, it takes a long time to type “runs at a deficit that requires congress to significantly raise taxes and/or drastically cut benefit payments, or causes congress to run a significant deficit that may cause inflation that devalues the value of the SS benefits”. “bankrupt” is the wrong word, but it was the best I could come up with.

Since I’ve got so many knowledgeable types reading my posts, I’ve got a question about SS that’s bothered me for a long time. Right now, we are running an SS surplus. The SS Admin is using the excess money to buy US Treasuries, giving the low “return” and high safety that have been discussed.

But rumor has it that we may one day pay off the national debt. Maybe. If there is no debt, then there will be an extremely limited pool of US Treasury bonds to buy. What will the SS admin do with the excess in the (admittedly unlikely) event that this comes to pass?

I dunno, bashere. Some people have addressed this issue more generally by asking what all investors would do if the US didn’t sell T-bonds because it had no debt to finance. It’s been suggested that stable corporate bonds or national bonds from other countries would be the preferred substitute, but also that this could weaken the value of the dollar. Maybe somebody with more econ knowledge has more information.

However, in looking around for information on that question, I came to the realization that I’m going to have to backpedal on my enthusiasm for raising the retirement age. I still think that pushing it up to 67 or 68 wouldn’t be bad, but I see from this report that some current suggestions are pushing it up into the mid-seventies for those now in their mid-thirties. Also, I overlooked the fact that life expectancy at age 65 hasn’t increased as much as life expectancy at birth: that is, more people are making it to retirement but they’re not living much longer after that point (an increase of about 3 years in the past 30, I think). So merrily shoving up the retirement age to pay for future shortfalls or current privatization costs is not, it seems, a very fair or viable solution beyond a small extent, and I withdraw my implied association with those who think it is.

The USSCT, in upholding the constitutionality of the Social Security Act, held that it is not insurance. :smiley: I say this tongue in cheek, since we all know it is. For example, in order to get many of its benefits, you have to pay in certain sums of money (i.e., be insured).

That aside, SSA was enacted as a fail safe mechanism, not as the sole means for savings. Actually, married people with large families make out quite well inasmuch as not only the wage earner, but his spouse (if over 60) and his minor children all collect benefits on his (or her) earnings record. As a single person, I’m one who is not going to do that well.

Other than retirement benefits, as noted in prior postings, SSA also pays disability benefits, if one is “disabled” as defined in the Act and regulations.

Don’t forget Medicare. In order to get Medicare, you have to reach full retirement age (now 65) plus be “fully insured,” which normally means just 40 quarters of coverage. Now, you can collect SS benefits if you still work (with no limitations on earnings) if you are age 65 or over. Prior to that recent amendment, you still could get Medicare even if your earnings precluded SS benefits. You are also entitled to Medicare if you are “disabled” for at least two years. So, Medicare is predicated upon SS.

SS also takes care of the indigent. Even if a person never worked and never paid into the system, if he or she reaches age 65 (currently) or is “disabled” and meets certain poverty criteria, he or she can get Supplement Security Income, which also enables benefits from Medicare.

The Act also provides for state benefits (with contributions from the fed gvt) for the indigent who otherwise meets the disability criteria.

So you see, SS is a lot more than retirement benefits. There’s a lot to be said, however, not in eliminating SS, but to allow people to invest a certain percentage in a portfolio. If I were allowed to do that when I started working, I’d be much better off. ** MUCH ** better off. Nonetheless, it was meant to be a fail safe mechanism. Allowing people to invest would negate that aspect.

SS should definitely NOT be eliminated. Perhaps, just perhaps, people should be allowed to invest the funds in a portfolio. That would be a topic of another debate, or a subsidiary debate in this topic. I’m equivocal about that.

I am really impressed by the thoughtfulness and quality of the responses. Many who posted items are more knowledgeable and expert than I am on the subject. Thanks also for the information on the Ohio system.

I agree that social security is not only a retirement system, but neither is the Ohio plan. It has a health insurance piece and a disability piece. It also pays spousal benefits after death as an option. One can now also choose to opt out (new employees) altogether.

I agree in part with the “cherry-picking” idea, but also the state teachers probably live longer on the average than do people in general, so more will be collecting their benefits. This factor cuts into the “cherry-picking” effect.

I guess one feature of social security that should be remedied is the taxing of benefits or using taxable income for the individual’s contribution. This would be expensive, but much fairer.

Individuals who elect to work before 65 should be able to collect their (reduced) social security without a loss of income for working.

Perhaps we can come up with some other useful ideas.

SS is an insurance program. It’s insurance for your family & your kids, too, as it provides for them if you can’t. It’s just like car insurance for you & your family; but better.

berdollos: *I agree in part with the “cherry-picking” idea, but also the state teachers probably live longer on the average than do people in general, so more will be collecting their benefits. This factor cuts into the “cherry-picking” effect. *

Yup, probably true.

*I guess one feature of social security that should be remedied is the taxing of benefits or using taxable income for the individual’s contribution. This would be expensive, but much fairer. *

I’m not quite sure, though, why taxing the benefits should be considered unfair. Aren’t other kinds of insurance benefits taxable? Are other kinds of insurance premiums deductible from taxable income? Is there a tax accountant in the house?

There’s also the basic practical question of how we will get the money to make up for what we lose in tax revenues from SS benefits or payments. I’m not sure that it will be politically feasible to make this “fairer”, as you call it.

I’m also not sure that the overall goal of “fairness”, i.e., making sure everybody can get as good a deal from SS as Ohio teachers do from their alternative system, is worth the effort. I’ve already noted some of the aspects of the Ohio system that simply won’t convert very well to a universal mandatory social insurance system. I also think that there may be a few advantages to providing such exceptionally rewarding systems to people like teachers and other state employees, whose jobs are very unlikely ever to make them rich. Since their jobs don’t have the enticement of the possibility of individual wealth on the scale enjoyed by many lawyers and doctors and businesspeople, say, but since we still want to entice high-quality people into teaching, maybe it’s helpful to be able to offer them “special deals” that most people can’t get as alternatives to SS. (Disclaimer: although I am a college teacher/researcher by trade, I am not a participant in any formal pension plan other than SS and perhaps never will be, so I’m not just defending my own comfy turf here! :)) It may never be realistic to expect to be able to offer all the nation’s workers such a good deal: as others have already pointed out, the wise worker today will treat SS as just one part of diversified retirement planning.

*Individuals who elect to work before 65 should be able to collect their (reduced) social security without a loss of income for working. *

Ya lost me. Do you mean “work after 65” (which as bashere pointed out, should now be “67”)? And if so, again, that sounds very appealing, but how are we to make up the revenue shortfall that will result?

Those who work after 65 (it is still 65 for all those born on or before 1937) can work without limits on earnings. This is something new enacted last year. The idea for SS was that someone will have something after they retire. It was for retirement. Thus, you could not withdraw from it before you retire, and full retirement age is still 65 (will increase in increments depending upon your birthdate). You could retire as early as 62, but with 5/9 of your benefits reduced each month. (5/9 X 36 = 20%)

Handy, you know and I know that it is an insurance plan. That doesn’t mean the USSCT knows it. When I have time, I’ll try to find the case for you. The USSCT could not hold it is an insurance plan and find it constitutional.

Another provision of the SSA is that even if you have children who are adults, if they were “disabled” while a child, they can still collect on your earnings. Most people of retirement age don’t have minor children, but disabled people may, and retirees may have disabled children who can also collect.

As far as I know, my private insurance costs come out of after-tax money, but the proceeds, if I get them, are tax-free. For example, if I am in the hospital and get $200 dollars a day from an insurance policy, I do not pay tax on that - same with other types of insurance.

Social security payments come out of after-tax money, but the proceeds are taxable and there is a penalty for earned income if you are collecting at the age of 62, 63 or 64, which now has been eliminated if you are 65.

(incidentally, during the presidential campaign, a proposal surfaced to make long-term care insurance payments tax deductible.)

Well, it should come from general tax revenue.
Remember, in effect the government is borrowing social security money all the time. And it benefits other programs. More money should be returned to ss than currently to compensate for the fact that such a little amount is given to beneficiaries.

The gvt does borrow from the SS Trust Fund, it is true, altho they are not supposed to. However, so little is paid out? I don’t think so. Don’t forget about Medicare. There is much discussion on how to amend Medicare. SS is solvent for another 25-30 years, but Medicare payments are bankrupting the gvt. Medicare payments must come out of the SS Trust Fund, as that is where they are paid in.

I don’t know if this has been debated before, but what are the posters’ thoughts on investing FICA in stocks? As I said, I’m ambivalent about this. SS is supposed to be there when you retire, as a fail safe. But how much better we’d be if we could invest it. (If, and this is the big IF, there is no crash.)

In his speech last night, Bush agreed with my point, that social security provides the equivalent of a very very low rate of return (actually below inflation).

His plan to privatize part of it is a way out (and people will have their own equity)

Sounds like he labors under the same misapprehensions then.

This report from a link provided earlier by Collounsbury assesses the Bush plan (as outlined during his candidacy, which is fundamentally the same as what he seems to be proposing now) for providing private investment accounts as part of SS funds:

In other words, Bush’s plan to take advantage of the higher yields available through privatized investment would actually result in less money for future benefits for today’s workers.

The October 2000 issue of Consumer Reports posted this link: http://www.actuary.org/socialsecurity, as a site that allows you to do a what-if on various scenarios for fixing Social Security. The easiest solutions, to my mind, were the following two:

Eliminate earnings cap entirely (on the amount of earnings subject to the SS tax): covers 77% of projected shortfall in Social Security.

Raise payroll tax by 1.9% to 14.3% of gross: eliminates 100% of projected shortfall.

It should be noted that Medicare is facing even more severe problems than Social Security, by the way, and there the tax already covers 100% of a worker’s earnings. So it seems to me that some fairly imaginative things are going to have to be done to keep the payroll tax from spiraling up to an unreasonable level in order to continue to pay the benefits from these two programs.

BTW, according to Consumer Reports, they got these results for partially privatizing SS, the scenario closest to the Bush plan:

Invest 40% of the Trust Fund in stocks: covers 48% of the shortfall.