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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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When it looks like it's about to crash, something will be done to save it. Seniors, after all, vote.

Yeah. We'll cut benefits and raise taxes, "saving" the program by making it worse :(

Seniors get a vote. So does mathematical reality. If you write a check for more than is in your account, it's going to bounce, no matter how much you stamp your feet and demand that it not.
 

Dittohead not!

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Yeah. We'll cut benefits and raise taxes, "saving" the program by making it worse :(

Seniors get a vote. So does mathematical reality. If you write a check for more than is in your account, it's going to bounce, no matter how much you stamp your feet and demand that it not.

Raising taxes always fixes the problem, doesn't it?

Anyway, lots of politicians seem to think so.
 

cpwill

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Raising taxes always fixes the problem, doesn't it?

Anyway, lots of politicians seem to think so.

And making a new bureaucracy to control the decisions of the citizenry. Oh, and a fact-finding panel to provide additional income-streams for retired Pols.
 

Visbek

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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.
Social Security is pay-as-you-go, and already doesn't produce enough revenue to cover current benefits. Plus, 10% of payroll taxes go to Medicare.

If we put everyone on this plan right away, you're talking about cutting revenues by 65% or around $600 billion dollars per year. That will increase the gap of SS revenues and benefits by 350%.

In that scenario, it'll take 20 years or more -- and put the federal government in the red for $6 trillion in current USD -- before the private benefits offsets the loss of revenue. And of course, the state doesn't keep any theoretical surpluses produced by the privatized system, except whatever it can get back as capital gains taxes.

We can phase it in, which reduces the hit. However, that also delays the advantages; and still doesn't change the fact that every dollar diverted from the current plan accelerates the date at which Social Security will be "insolvent" (payroll taxes insufficient to cover benefits and Trust Fund gone).


To ensure solvency in the adjustment period (and to make it politically palatable); lift the cap.
You just punched a 65% hole in revenues, and increased the gap by 350%. Eliminating the cap claws back 75% of the gap. So that's 275% to go. :D


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)....
Uh huh

Vanguard Retirement Calculator. $50k income, age 30, retiring 65, saving 10% of income, living on 75% of current income, maxing calc out at 10% = income of $2354, which is a $770/mo shortfall. Joe needs to save 14% of his income to break even. Not impossible, but methinks someone is being a tad optimistic.


The scheme might work... if the program basically forces the investor into a no-fee index fund or ETF, and balances automatically to move into bonds as they get older, and prevents the investor from touching anything until retirement, and people don't freak out when the market (and thus their retirement) inevitably drops, and we see decent returns.

Why do we need such strict requirements?

Investors routinely balance their portfolios heavier towards bonds as they draw closer to retirement; less risk, less return.

The average investor pretty much sucks, typically netting a 2% return. This is in no small part because people panic-sell when the market drops, and/or that people need the money due to the same conditions that cause the market drop (e.g. recession).

Funds typically levy fees. E.g. in Australia, fees of 2% or more on "Super" accounts are common.

We already know that roughly 25% of 410(k) holders withdraw early (as in, before age 50!) for non-retirement purposes. (IRAs are not quite as bad.)

We also know from Australia that if you grant Joe unrestricted access to $1 million on retirement, he's going to blow it on a Maserati and a yacht. If we have a backup defined benefit program for retirees who have blown it all, then we are doubling Joe's incentives to have a huge blowout at age 65. Heck, there will be websites dedicated to telling you how to game the system, much as they do right now with telling people how to get the maximum out of SS.


BUT WAIT!!! WHAT IF THE MARKET TANKS!!! Markets recover.
Sure. It just takes a few years.

One of the major problems with a 401(k) compared to a defined benefit pension is that if the market goes down, and you need to withdraw, you're depleting your investment faster.

It also means that if the markets drop, so will senior spending, as their income that year will go down. Needless to say, if that market drop is connected to a recession, that's going to compound the economic downturn. Alternately, because seniors lose their collective minds when their benefits drop, they might force the government to do a supplementary payment. Who pays for that?

And again, if you run through your funds, then what? You're back on a defined benefit, and it'll have to be a fraction of what we currently pay, since we are collecting far less in payroll taxes.


So, can it work? Perhaps, but there are serious problems implementing it. In the long term, Joe is likely to make out OK, leave more money for his kids, and cost the state less for his retirement. Namely:

• Getting there will be incredibly expensive.
• It will make the "insolvency" problem worse, for years and years, before it gets better.
• We'd need extremely strict controls in place.
• Undefined benefits mean that in a given year, millions of seniors could have a lower income all at the same time, causing lots of issues.
• Keeping any sort of guaranteed income in place creates harmful incentives.
 

cpwill

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In that scenario, it'll take 20 years or more -- and put the federal government in the red for $6 trillion in current USD --

I laid out those figures. We would be running a surplus in 13 years, and pay off the additional debt in 27 years. As opposed to the current plan, which has us running deficits forever.

$50k income, age 30, retiring 65, saving 10% of income, living on 75% of current income, maxing calc out at 10% = income of $2354

Sure, it's easy to change the results when you change the inputs. :)

People generally begin working when they are 19 or 22. A few go on from undergrad to get graduate degrees, but they also have higher incomes, which rather allows them to catch up.

Starting at age 22, applying a held-steady average household income ($51K) over a working life, a 7.98% inflation-adjusted return, and retiring at 67 (which is the retirement age for those born after the boomers) gets you a monthly income of $8,835. Making half of average household income, you retire with a monthly check of $4,417. With Social (in)Security, with that income would get you $1176.

Heck, if you start at 19 and make Minimum Wage your entire life, you get $3,292.

The scheme might work... if the program basically forces the investor into a no-fee index fund or ETF, and balances automatically to move into bonds as they get older, and prevents the investor from touching anything until retirement

I concur. We could use the current TSP as a model, and treat it like any other retirement account - no pre-retirement withdrawals, except in the case of death, when the funds pass to the heir(s).

The average investor pretty much sucks, typically netting a 2% return. This is in no small part because people panic-sell

The effect of this program is to force people into dollar cost averaging.

if you grant Joe unrestricted access to $1 million on retirement, he's going to blow it on a Maserati and a yacht.

Yup. This program gives you 5% a year, broken down into monthly allotments.

It also means that if the markets drop, so will senior spending, as their income that year will go down. Needless to say, if that market drop is connected to a recession, that's going to compound the economic downturn. Alternately, because seniors lose their collective minds when their benefits drop, they might force the government to do a supplementary payment. Who pays for that?

:shrug: the "well what happens if the US electorate does something idiotic?!" argument can be equally applied to all policy proposals.

And again, if you run through your funds, then what?

This doesn't happen, as you only draw out 5% a year. Your funds could get smaller if we go through a prolonged market crash followed by slow market growth, but will never drop to zero. If, however, your monthly annuity drops below what you would have made from traditional SS, then the difference is made up by the guaranteed minimum benefit.

But it's a good question. If someone makes $25,500 a year their entire working life, earns a CAGR 7.5% inflation-adjusted return, and the market experiences a 50% crash in their last working year, followed by no recovery and 2% growth for the next couple of decades... then by the time that person hits the age of 81, the government will be on the hook for... $17.40 a month.

So yes. I suppose there is that to consider.

You're back on a defined benefit, and... we are collecting far less in payroll taxes.

Which aren't allocated against anything once we get through the first wave or so. Once we get past the 13 year mark, as you'll recall, every bit of that is surplus to the system.

• Getting there will be incredibly expensive.

Yes. It will cost, over the full 27-year adjustment period, an estimated $3.7 Trillion, all of which will be front-loaded into the first 13 years, for an average cost of $284 Billion / Year.

It will make the "insolvency" problem worse, for years and years, before it gets better.

Sort of. It provides an immediate spike to the "insolvency problem", which reduces every year after that, as individual accounts begin to come online and lift the burden to the state.

• We'd need extremely strict controls in place.

Described and agreed.

Undefined benefits mean that in a given year, millions of seniors could have a lower income all at the same time

...but would still have larger incomes than they would otherwise, leaving us still better off in terms of consumption.

Keeping any sort of guaranteed income in place creates harmful incentives.

Which is solved by disbursing the benefit by 5% of the account/yr in monthly allotments.
 
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cpwill

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I have since gone through and done the math on integrating this proposal with my Negative Income Perfectly Progressive Flat Tax Proposal. Worth noting is that, by pulling SSDI costs out of Social Security, this greatly reduces the programs' insolvency issue.

Joe.jpgRoger.jpg
 

markjs

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Against because we can't trust private bankers. Biggest reason is the government's total unwillingness to prosecute them. They will tank the market, get slapped with a fine and the people lose, the bankers stay in business and dream up a different way to scam. It's an endless cycle and SSA is far too important to trust them if we aren't willing to hold them accountable. I have seen almost nobody who is, save for perhaps Elizabeth Warren.
 

markjs

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I further have to ask, when we have shown an absolute commitment to NOT holding Wall Street accountable, how can you feel safe putting this in their hands?

There's no incentive not to play the line and be fraudulent. Sure we slap them with a fine, but even so they make more on their scams than they get fined, so the incentive is to continue the fraud.
 

Rogue Valley

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You seem to have forgotten a large voting segment.

Independent and against.
 

markjs

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You can't fix a Ponzi scheme.

You're right, Wall Street can't be fixed, least not till they are held accountable. We were talking about Social Security though.

"Ponzi" doesn't mean what you think it does. You do know your erroneous and irrelevant conservative talking points though. The alt-right programming is working!
 

cpwill

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You're right, Wall Street can't be fixed, least not till they are held accountable. We were talking about Social Security though.

"Ponzi" doesn't mean what you think it does. You do know your erroneous and irrelevant conservative talking points though. The alt-right programming is working!
You are confused. The Alt-Right are motivated not least by a refusal to acknowledge or deal with Social Security's structural problems. The Classic Conservatives are the ones trying to find a way to fix this system.

Meanwhile, the current structure of our old age entitlements do indeed match the Ponzi scheme structure - new sockets are constantly required to pay out the old ones.

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Patrickt

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You're right, Wall Street can't be fixed, least not till they are held accountable. We were talking about Social Security though.

"Ponzi" doesn't mean what you think it does. You do know your erroneous and irrelevant conservative talking points though. The alt-right programming is working!

Nice try. We all know what we're talking about. Lying, thieving liberals who can't discuss SS so they want to go to Wall Street. You've passed your class in distraction, change the subject. Now, suck up the the elites and see what it gets you.

I'm sorry. I just realized as a devout liberal, MarkJS never learned what a Ponzi scheme is.
 

markjs

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Nice try. We all know what we're talking about. Lying, thieving liberals who can't discuss SS so they want to go to Wall Street. You've passed your class in distraction, change the subject. Now, suck up the the elites and see what it gets you.

I'm sorry. I just realized as a devout liberal, MarkJS never learned what a Ponzi scheme is.

Only programmed conservatives call it that, because anything that benefits anyone but you is suspect. Selfishness is at the very core of conservatism. Take all that you can, give NOTHING. Regard for the environment, or damaging the welfare of others is weakness.

Yep a ponzi scheme, in your mind, but that's quite divorced from reality, clearly.

Surely a complete waste of time on one so thoroughly programmed as you, but maybe other readers will appreciate:

Mitchell Zuckoff, a Boston University journalism professor who has written a book on Ponzi, noted three critical dissimilarities between Social Security and a Ponzi scheme. We will summarize Zuckoff’s comments from an earlier fact-check:

• "First, in the case of Social Security, no one is being misled," Zuckoff wrote in a January 2009 article in Fortune. "Social Security is exactly what it claims to be: A mandatory transfer payment system under which current workers are taxed on their incomes to pay benefits, with no promises of huge returns."

• Second, he wrote, "A Ponzi scheme is unsustainable because the number of potential investors is eventually exhausted." While Social Security faces a huge burden due to retiring Baby Boomers, it can be and has been tweaked, and "the government could change benefit formulas or take other steps, like increasing taxes, to keep the system from failing."

• Third, Zuckoff wrote, "Social Security is morally the polar opposite of a Ponzi scheme. ... At the height of the Great Depression, our society (see 'Social') resolved to create a safety net (see 'Security') in the form of a social insurance policy that would pay modest benefits to retirees, the disabled and the survivors of deceased workers. By design, that means a certain amount of wealth transfer, with richer workers subsidizing poorer ones. That might rankle, but it's not fraud."

You argument was invalid and ludicrous on it's face. Epic fail.
 

cpwill

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Only programmed conservatives call it that, because anything that benefits anyone but you is suspect. Selfishness is at the very core of conservatism. Take all that you can, give NOTHING. Regard for the environment, or damaging the welfare of others is weakness.

Yep a ponzi scheme, in your mind, but that's quite divorced from reality, clearly.

Surely a complete waste of time on one so thoroughly programmed as you, but maybe other readers will appreciate:



You argument was invalid and ludicrous on it's face. Epic fail.
Of Zucks three points, the first two are incorrect, and the third boils down to "I like one, but not the other". Just pointing out.

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cpwill

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I further have to ask, when we have shown an absolute commitment to NOT holding Wall Street accountable, how can you feel safe putting this in their hands?

There's no incentive not to play the line and be fraudulent. Sure we slap them with a fine, but even so they make more on their scams than they get fined, so the incentive is to continue the fraud.
As I demonstrated exhaustively, this is fearmongering and historical illiteracy that can be (and has been) repeatedly destroyed by fairly simple math, and basic reading comprehension. Come back and make this complaint when any numbers back you up, and when you have actually bothered to read the proposal you are responding to.

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Neomalthusian

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Yes, we do have the option of not screwing people who have already reached retirement age. Anything else, as I already called it out -- is confiscatory crap! That's exactly the kind of nonsense that wrecked Crusader Rick Santorum's campaign in 2012, and it has already contributed quite a bit to the death-spiral that both Jeb Bush and Butter-tub Christie have experienced in the Republican race this cycle.

Then what's needed is for politicians like them to outright lie to you, say exactly what you want to hear, and then fundamentally betray you. Because what's politically expedient to win the vote of entitled seniors is not what will ever fix Social Security.
 

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Could not vote since I am an Independent, but I am against the suggestion. Just put back what was Borrowed.
 

cpwill

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Could not vote since I am an Independent, but I am against the suggestion. Just put back what was Borrowed.

Too Late. The Boomers Spent it already, and now costs are spiraling out of sustainability.
 

Casper

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Too Late. The Boomers Spent it already, and now costs are spiraling out of sustainability.
There are ways to get the money back, it will just take a little pain.
 

cpwill

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There are ways to get the money back, it will just take a little pain.

:shrug: Social Security is already running an annual deficit because of it, and is scheduled to do so as far as the eye can see. The current projections that have everybody who retires today currently scheduled to outlive their benefits are built on the assumption that it is all paid back. So that money that you are hoping to save the system is A) already built into the projections (and it isn't enough) and B) not coming.
 

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:shrug: Social Security is already running an annual deficit because of it, and is scheduled to do so as far as the eye can see. The current projections that have everybody who retires today currently scheduled to outlive their benefits are built on the assumption that it is all paid back. So that money that you are hoping to save the system is A) already built into the projections (and it isn't enough) and B) not coming.

The reason people outlive their benefits is because we were busting our asses at <$2.00/Hr.

Inflate that amount to today's money and most won't live that long. A nickel is now more than a dollar. By far.
 

cpwill

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The reason people outlive their benefits is because we were busting our asses at <$2.00/Hr.

Inflate that amount to today's money and most won't live that long. A nickel is now more than a dollar. By far.

No. A) SS runs a multiplier for its benefit formula that runs ahead of inflation, and B) the reason current retirees will outlive their benefits is because we don't have the money to cash all the checks the Boomers wrote to themselves.

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