That's not entirely true. Yes there is a dichotomy between increasing tax revenue versus reducing the growth of benefits, but it's not like the left is for the former and the right is for the latter.The Commission is divided ideologically between two very opposite proposals that have the other side digging in their heels
1- the conservative/Republican members want to concentrate on making cuts in the SS program over the long haul
2- the progressive/Democratic members want to increase the monies coming into SS as soon as possible by adjusting or popping the cap
Please be aware that this is NOT the final report. For any Commission report to come before Congress for action it must first garner at least 14 votes from members of the Commission. The fact that these co-chairs released it on their own should tip off the nation that they will NOT get the 14 votes necessary. The Commission is divided ideologically between two very opposite proposals that have the other side digging in their heels
1- the conservative/Republican members want to concentrate on making cuts in the SS program over the long haul
2- the progressive/Democratic members want to increase the monies coming into SS as soon as possible by adjusting or popping the cap
Neither side will consider the viability of the other until their position is first adopted. Some even go as far as to say that if their position was adopted, it eliminates the necessity of the other side being adopted at all.
Social Security would be completely sustainable were it not for fraud and actuarial mismanagement.
One's Social Security benefit can be viewed, compared to products in private enterprise, as either a disability policy or a lifetime annuity. Insurance companies have built monolithic buildings and bonused their top executives billions using fair actuarial numbers. The benefits are not fair actuarial numbers.
Tom and his employers have paid $117,000 into the Social Security system on his behalf. He is eligible to receive $1910/month starting next October. He works part-time now, so contributions between now and then will be negligible. His life expectancy is 16.28 years from age 66. If he handed that $117,000 to a private company, his annuitized monthly payment (figuring 4% interest) would be $826 -- as compared to the $1910 he'll receive.
If Tom wanted to generate $1910/month for his lifetime with a private annuity, he would have to invest $328,000 as compared to the $117,000 he's invested with Social Security.
Does anyone wonder why SS is unsustainable?
now THIS is interesting.
The debt panel advising President Obama is set to recommend in a draft that Social Security and Medicare be cut as a way of lowering the deficit.
The panel also calls for the retirement age to be raised by one month every two years after it reaches 67, "meaning the normal retirement age would reach 68 in about 2050 and 69 in about 2075."
More points in the plan: "Strengthen Social Security for the long haul by returning the system to sustainable solvency. ... Prevent the 22% across the board benefit cut projected to occur in 2037. ... Reduce elderly poverty by putting into place a new, effective special minimum benefit."
1. this is hardly enough and
2. at least this gets the discussion going and the ball rolling.
That's not even half of what they recommended.
*Closing tax loopholes.
*No more earmarks.
my solution:
allow workers to opt into a partially privatized system, where of their 7.65% FICA expenditures, 5% goes into a private TSP-style account; and the Employers match follow the same. the remaining 2.65% (or, when you count the match, 5.3%) will go straight into SS, but it will be revenue for which SS will never see a liability. the cost for opting out is that part of your pay continues to go to pay for others, but the upside is that you get a combined total of 10% of your annual income going into a retirement account that belongs to you, and grows tax-free. Social Securities' revenues will instantly drop, but nowhere near as severely as their liabilities. To ensure solvency in the adjustment period (and to make it politically palatable); lift the cap. Higher paid workers will see more of their money leave in the form of taxes, but they will get back even more in the form of ownership of personalized accounts, and so they will be willing to make the trade. Poorer workers can either spend their lifetime building far more wealth than they ever would have seen under Social Security if they are younger, or keep the guaranteed program benefits if they are older.
ta-da! the American people and the Government are left better off.
Because I am a nerd, and I like doing this sort of thing, I ran the numbers.
Joe graduates High School and goes to work, making 25,000 a year. Not anyone's idea of incredible pay, but there you are. Joe gets' a 2% raise every year to account for his increasing talent, experience, etc. the 10% of his income goes into a mix of funds that matches the S&P 500 average since 1982: 7.98%, after you account for inflation. If Joe retires nice and early at 62; his retirement fund will be worth $1,030,110, and if placed into an annuity / conservative account that generates a 5% annual return, his monthly benefit will be $4,292. That would be slighly less than his last monthly paycheck of $4,979; but still quite livable. If Joe works until he's 65, his monthly benefit will climb above his monthly income to $5,473; and if he decides (as most of us probably will) to delay retirement to 68, he's looking at a monthly retirement check of $6,966.
And remember, Joe isn't exactly one of society's higher paid workers.
But he also had the advantage of time. Let's say instead Joe went to two years of college, and got an associates before entering the workforce to earn that 25,000; and let's say that instead of 2%, Joe turns out not to learn new skills that well, and his annual raise above inflation is actually 0.5%. We're stacking the deck a little against ole Joe, but he still seems to come out okay; his monthly benfit at age 62 is $3,050; at age 65 it's $3,875; and at age 68 it's $4,915. It's worth noting that under this model, the most Joe ever made was $31,672 in a given year; and that his monthly retirement benefits at age 65 represents a $1,200 monthly pay increase over his monthly income. Even if Joe retires early at 62 he will have more in income off of his account than he would from working; and the longer he chooses to keep working, the greater, obviously, his return is.
AND ALL THIS WITHOUT COSTING OLE JOE A SINGLE RED CENT. since the money was cash he was losing to taxes in the first place, his take-home pay wasn't reduced one iota; but because we partially privatized social security, Low Income Worker Joe can retire a millionare.
OR, if he didn't want the 'risk' of the marketplace, he could have chosen to stay with regular social (in)security. average monthly payout: about $1,100 dollars. or, roughly 1/3rd of what Joe made in our worse case scenario at age 65.
BUT WAIT!!! WHAT IF THE MARKET TANKS!!!
Markets recover. If the market tanks right as Joe was planning on retiring, he can work for an extra year while it rights itself, or simply choose to draw less from the account in order to leave more in there to ride the recovery. OR, if Joe makes the worst decision possible, at the worst time possible and withdraws all of his money while the market is at the low point on the trough (say, a 40% drop, similar to what we just saw), to purchase a 5% annuity, then his monthly income in our worse-case scenario at age 65 will still be more than twice what he could have expected from Social Security.
:thinking perhaps that's the real problem with privatization of social security; it gives poor people freedom from dependence upon government spending?
my solution:
allow workers to opt into a partially privatized system, where of their 7.65% FICA expenditures, 5% goes into a private TSP-style account; . . . .
Your plan does not address the long term deficit, only S.Sec.aaand again no replies to my plan.
that makes me suspect few can argue with it; maybe i'll make it a poll.
my solution:
allow workers to opt into a partially privatized system, where of their 7.65% FICA expenditures, 5% goes into a private TSP-style account; and the Employers match follow the same. the remaining 2.65% (or, when you count the match, 5.3%) will go straight into SS, but it will be revenue for which SS will never see a liability. the cost for opting out is that part of your pay continues to go to pay for others, but the upside is that you get a combined total of 10% of your annual income going into a retirement account that belongs to you, and grows tax-free. Social Securities' revenues will instantly drop, but nowhere near as severely as their liabilities. To ensure solvency in the adjustment period (and to make it politically palatable); lift the cap. Higher paid workers will see more of their money leave in the form of taxes, but they will get back even more in the form of ownership of personalized accounts, and so they will be willing to make the trade. Poorer workers can either spend their lifetime building far more wealth than they ever would have seen under Social Security if they are younger, or keep the guaranteed program benefits if they are older.
ta-da! the American people and the Government are left better off.
Because I am a nerd, and I like doing this sort of thing, I ran the numbers.
Joe graduates High School and goes to work, making 25,000 a year. Not anyone's idea of incredible pay, but there you are. Joe gets' a 2% raise every year to account for his increasing talent, experience, etc. the 10% of his income goes into a mix of funds that matches the S&P 500 average since 1982: 7.98%, after you account for inflation. If Joe retires nice and early at 62; his retirement fund will be worth $1,030,110, and if placed into an annuity / conservative account that generates a 5% annual return, his monthly benefit will be $4,292. That would be slighly less than his last monthly paycheck of $4,979; but still quite livable. If Joe works until he's 65, his monthly benefit will climb above his monthly income to $5,473; and if he decides (as most of us probably will) to delay retirement to 68, he's looking at a monthly retirement check of $6,966.
And remember, Joe isn't exactly one of society's higher paid workers.
But he also had the advantage of time. Let's say instead Joe went to two years of college, and got an associates before entering the workforce to earn that 25,000; and let's say that instead of 2%, Joe turns out not to learn new skills that well, and his annual raise above inflation is actually 0.5%. We're stacking the deck a little against ole Joe, but he still seems to come out okay; his monthly benfit at age 62 is $3,050; at age 65 it's $3,875; and at age 68 it's $4,915. It's worth noting that under this model, the most Joe ever made was $31,672 in a given year; and that his monthly retirement benefits at age 65 represents a $1,200 monthly pay increase over his monthly income. Even if Joe retires early at 62 he will have more in income off of his account than he would from working; and the longer he chooses to keep working, the greater, obviously, his return is.
AND ALL THIS WITHOUT COSTING OLE JOE A SINGLE RED CENT. since the money was cash he was losing to taxes in the first place, his take-home pay wasn't reduced one iota; but because we partially privatized social security, Low Income Worker Joe can retire a millionare.
OR, if he didn't want the 'risk' of the marketplace, he could have chosen to stay with regular social (in)security. average monthly payout: about $1,100 dollars. or, roughly 1/3rd of what Joe made in our worse case scenario at age 65.
BUT WAIT!!! WHAT IF THE MARKET TANKS!!!
Markets recover. If the market tanks right as Joe was planning on retiring, he can work for an extra year while it rights itself, or simply choose to draw less from the account in order to leave more in there to ride the recovery. OR, if Joe makes the worst decision possible, at the worst time possible and withdraws all of his money while the market is at the low point on the trough (say, a 40% drop, similar to what we just saw), to purchase a 5% annuity, then his monthly income in our worse-case scenario at age 65 will still be more than twice what he could have expected from Social Security.
:thinking perhaps that's the real problem with privatization of social security; it gives poor people freedom from dependence upon government spending?
I had time to look at some analysis of this thing and I think we can do better.
I largely agree with the cuts to SS and Medicare, however I strongly disagree with the changes in taxation, many of those deductions exist to encourage healthy behavior and should stay there.
Otherwise, its pretty good.
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