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Social Security Fix

Your Identity and For/Against this SS Reform model


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cpwill

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Here is my proposal:

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. We can lift the cap on only the worker (and not the employer) if we want to encourage job-creation; or lift it on both if we need the revenue to ensure solvency, or if that's the only way to get the thing passed; here is room for compromise wiggling. Higher paid workers will see more of their money leave in the form of taxes, but those making less than $604,000 will get back even more in the form of ownership of personalized accounts (assuming the employer cap isn't lifted, and that's not figuring for the added benefit of those accounts growing tax-free), and so they will be willing to make the trade. Perhaps another compromise point would be to raise the cap to $604K. 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.

how much better off?

welllll, let's do a quick example:

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 Combined Annualized Growth 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 slightly 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 benefit 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 millionaire.

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 upswing. 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.





I am particularly interested in liberal critiques of this plan. Conservative ones (it leaves Social Security, which is unConstitutional, still in place, so on and so forth) I already know, but tend to discount them as beyond the politically palatable. It strikes me that this offers a little something for both sides of the economic aisle: for you Keynesians, the existence of a retirement fund growing tax-free will spur people to consume more and save less; for you Austrians, the existence of a steady flow of capital into the market irrespective of what it is doing will smooth out the business cycle, and create a massive interest group against easy money (people like few things less than watching their nest eggs dwindle thanks to inflation).
 
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cpwill

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pbrauer, why against? modification folks; what are they?
 

pbrauer

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pbrauer, why against? modification folks; what are they?
Social Security is not broken. Also SS is not a retirement plan, it's insurance against poverty either in old age or if you become incapacitated when your young enough to work. I can't confirm this, but I've heard as much as 30% of current recipient are young enough to work, but can't.
 

Whovian

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Social Security is not broken. Also SS is not was not supposed to turn into a retirement plan, it's insurance it was supposed to be insurance against poverty either in old age or if you become incapacitated when your young enough to work. I can't confirm this, but I've heard as much as 30% of current recipient are young enough to work, but can't.
corrected.
 

Kal'Stang

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SS is not broke. It is over drawn due to politicians using it for things that it was never designed to be used for to begin with. It was designed to be used only for retirement. That's it. Instead our politicians saw it as a free dipping money jar and started "borrowing" from it in order to pay for damn near anything that they couldn't get money for legitimately.

Want to fix SS? Make the politicians pay back all the money they "borrowed" from SS.
 

earthworm

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Must social security be "Constitutional"?
I am leery of the idea of having something that is social/government participating in the world of business.
Not that what you propose is without merit, this does require some very careful study..
And with the 401K, et al, we have a partial version of this..
How to save social sercuity.....
Since when did it require saving?
If more income is needed, simply extend the "cut off".....
The rich will not go for this....we have too many conservatives in government, representing the wealthy.
No vote, as usual, I am independent.
 

RightinNYC

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SS is not broke. It is over drawn due to politicians using it for things that it was never designed to be used for to begin with. It was designed to be used only for retirement. That's it. Instead our politicians saw it as a free dipping money jar and started "borrowing" from it in order to pay for damn near anything that they couldn't get money for legitimately.

Want to fix SS? Make the politicians pay back all the money they "borrowed" from SS.
Even that wouldn't come close to fixing SS. The trust fund deficit is $2t, while the unfunded liabilities are $17t.
 

haymarket

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Just pop the $106K cap for FICA tax for heavens sake. Then freeze benefits plus a modest inflation allowance. Problem solved.
 

RightinNYC

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Just pop the $106K cap for FICA tax for heavens sake. Then freeze benefits plus a modest inflation allowance. Problem solved.
"Just impose a 12.6% tax on everyone earning over $106k. That's a great idea and nobody would ever have a problem with it!"
 

haymarket

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Two-thirds of American favor it. I don't care if a small minority have a problem with it.
I
don't
care.

If 93% of people who earn money can pay the tax on ALL their earnings then the other 7% can also.
 

RightinNYC

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Two-thirds of American favor it. I don't care if a small minority have a problem with it.
I
don't
care.

If 93% of people who earn money can pay the tax on ALL their earnings then the other 7% can also.
And like I said, let me know when that happens.
 
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cpwill

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Social Security is not broken.
Social Security wasn't supposed to start spending more than it took in until the 2020's; it started running in the red last year. It's not bankrupting us (yet), but it is insolvent.

Also SS is not a retirement plan, it's insurance against poverty either in old age or if you become incapacitated when your young enough to work
okay, but that doesn't explain why are you against increasing the payout to poorer workers?

I can't confirm this, but I've heard as much as 30% of current recipient are young enough to work, but can't.
hmmm, so a modification that either allows people who are injured to dip into their account early; or trade it back in to get back on the traditional program.
 

cpwill

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Two-thirds of American favor it. I don't care if a small minority have a problem with it.
it's not a political problem, it's an economic one; because of the employer match, you are also increasing taxes on employers, which means they will seek to reduce their payroll.



and I'm still waiting to see why the "SS isn't broken" crowd is against financial independence for poor people.
 

haymarket

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it's not a political problem, it's an economic one; because of the employer match, you are also increasing taxes on employers, which means they will seek to reduce their payroll.



and I'm still waiting to see why the "SS isn't broken" crowd is against financial independence for poor people.
Are you honestly telling me that an employer would be willing to pay somebody a million dollars a year and that is fine with them but an additional 6% is suddenly the straw which breaks the camels back? That stretches believability. And if it actually would do that,the employer simply adjusts the salary to take into consideration that extra 6%. That is done every day of the week with tens of millions of people who make less than $106K per year.
 

ender1

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My idea is to stop letting the government take the surplus and spend it. That would insure that those who have put money into the system get it returned. Lets call it a "Lock Box". . . Wait.
 

Aunt Spiker

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It's not 'broken' - as in: 'it was working fine one day but now it's not working well anymore.' - It is fundamentally flawed - and it is coming to the foreseen end that everyone KNEW would happen but they chose to usher it around, anyway.

I think the main reasons why it's not a good idea is that it #1) Puts a future burden on the government to pay back your input + interest which is non-negotiable. #2) People depend on it - expect it to supplement income in the situation of retirement (which leads to . . . ) #3) People are living longer in their retirement years.

Overall - I think we need to slowly abandon it, since it's fundamentally flawed. And encourage individuals that, if they want to have the possibility of a comfy retirement in the future, they need to play a more intricate part in covering the costs of it.
 

cpwill

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Are you honestly telling me that an employer would be willing to pay somebody a million dollars a year and that is fine with them but an additional 6% is suddenly the straw which breaks the camels back?
1. it's 7.65% and
2. it's a marginal decision. so no, everyone making (say) $110,000 won't get fired. their employers will just see the costs of creating such positions go up, and will thus make fewer of them.

what is it about the supply/demand curve that liberals Just Don't Get?
 

cpwill

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My idea is to stop letting the government take the surplus and spend it. That would insure that those who have put money into the system get it returned. Lets call it a "Lock Box". . . Wait.
too late; SS is already running in the red. you should have sold this decades ago.
 

RightinNYC

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Are you honestly telling me that an employer would be willing to pay somebody a million dollars a year and that is fine with them but an additional 6% is suddenly the straw which breaks the camels back? That stretches believability. And if it actually would do that,the employer simply adjusts the salary to take into consideration that extra 6%. That is done every day of the week with tens of millions of people who make less than $106K per year.
He said that the employers would seek to reduce their payroll.

You respond by noting that the employers would just reduce their payroll.

Not sure how you're disputing what he said.
 

Aunt Spiker

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too late; SS is already running in the red. you should have sold this decades ago.
The problem is that actions are always supported to be take *after things fall apart* - never pre-emptive in a *before* mode.

Tragically - *before* mode is the only way in which to actually avoid problems.
 

TacticalEvilDan

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I'm essentially for the reform described in the OP (my caveat being that small technical functional adjustments or disagreements should be possible without hashing them out, for the purpose of this poll).

My modification is just that I don't fit any of the political labels.

My thinking is that just about anything is better than the legalized theft that SS currently is.
 

haymarket

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1. it's 7.65% and
2. it's a marginal decision. so no, everyone making (say) $110,000 won't get fired. their employers will just see the costs of creating such positions go up, and will thus make fewer of them.

what is it about the supply/demand curve that liberals Just Don't Get?
In asking your question you make a gross error. I get your point. I simply and utterly reject it as not being valid.

6%...7% ...whatever it may be ... the employer will just figure that in as a cost of employee compensation and adjust accordingly. What do you think that they already do and have been doing for seventy years with everyone else?
 

drz-400

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I believe this would be more expensive than meets the eye since it would require SS be a fully funded system to begin with.

edit: Let me expand.

I believe if you want to encourage personal savings for retirement a better proposal would be to increase tax credits going towards 401k type plans and to make employee participation in 401k type plans more automatic (ie. opt out instead of opt in).

So instead I would propose a combination of increasing SS payroll tax as it is now the required 1.84% (done gradually overtime), and increasing the retirement age, and increasing tax credits/tax breaks for things like 401k's. This would require more funding for the retirement credits as well, which should come from somewhere in the general fund. I will propose we get this money by eliminating farm subsidies:2razz:.
 
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