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Iriemon said:Still don't understand what is legacy debt. If you mean future benefits owed to current SS participants, it is *far* more than $4 trillion.
If you mean current debt, there is no current debt SS owes. In fact, it is supposed to have a $2 trillion surplus of funds.
Diamond and Orzag explain it better than I do. Yes, SS has a surplus now, but it has an unfunded liability of $4 billion due to its scheduled payments.
There is no "agreement" to pay you interest in SS. The benefit is currently defined based upon a benefit level that is indexed to wage increases (something I agree with Bush should be modified to inflation).
There is an agreement to pay a certain amount in the future, considering that you can calculate your expected future benefit. That promise cannot be met past 2041 in our system.
Why couldn't you just lower the benefit to meet expected tax receitps or alternatively increase tax receipts?
Nobody wants to lower the benefit, and I think that having 12.4% of your income be taxed as it is for a program that originally took only 1% is quite enough. And you still have the problem of a paygo system.
The idea is that you take everyone in the current SS system, put them in a private plan where 5/6th of their contributions go into the new private plan, and 1/6th is used to pay the "legacy debt."
1. Again, you have to define "legacy debt". What is it and how do you figure it is $4 trillion. Is it the amount of benefits owing to current SS beneficiaries only?
Legacy debt is that which is scheduled to be paid to people which is not covered by receipts. That total, SS's unfunded liability, is $4 billion.
2. If I am 64 year's old right now, do I get SS? If not this sucks, I don't have the time to build up substitute savings.
Yes. Any proposed plan would have a transition period of a decade or more where those over 55 would get their scheduled benefits and those above a certain age but below 55 would have a phased transition.
Depending upon how it is administered.
They're currently handling $150 billion and keeping costs at 0.06%. That's pretty darn good.
The expected SS benefit 48 years from now is projected to be $13,000 per year? No way.
You are taking an investment in the stock market at current investment amounts, projecting that over 48 years, and comparing the annuity of that figure with what SS pays today. You cannot compare a future value with a present value, especially over 48 years.
I misspoke, but the point remains. I'm using today's dollars for both of them. In today's dollars, the benefits in the privatized plan as specified would be $41k. In today's dollars, the benefits under current SS would be $13k.
SS is not indexed to COLA but wages, I believe.
SS has its own COLAs, which yea, is indexed to the CPI.
But the amount of periodic payment is fixed.
Yea, but it still allows for that significantly higher payment as per above, with your money continuing to earn 5-7% even after you retire.
If I die, my family gets about $2k a month until the kids reach majority, and then my wife gets 1/2 that. It's not nothing. If I died in the first 10 years of my savings, the portfolio would be maybe $60k, not enough to cover even a portion of that. I'll prefer SS in that case.
I'm not sure how old you are/how much you've contributed, but I would venture to guess that you've been in the workforce for some time to build up that type of benefit.
And as a side point, is that what SS is supposed to be doing? I doubt that if the creators of the plan travelled 70 years into the future that they'd even recognize it now.
The 2.9% is not funding SS but medicare. If you use the 2.9% to cover SS disability and death benefits, what funds medicare?
If you take the 2.9% out, you are left with 0.4%, which is supposed to fund disability, death benefits, and cover all the folks who outlive their savings?
I'm sorry, I haven't looked at most of this stuff in almost a year so I'm flipping through old papers to brush up on it and consequently making a lot of mistakes.
No, the funding for disability/death would come out of the 2.4% difference between the 10% that goes into investment funds and the 12.4% that is taxed. For the first 10 years, it would be supplemented by a raising of the wage cap to $350,000.
Is that based on current SS plan or assuming changes to the plan? Source for this data?
This is based on the current plan.
General Accounting Office: Issues in Comparing Rates of Return with Market Investments. Washington, D.C: U.S. GPO, August, 1999. http://www.gao.gov/archive/1999/he99110.pdf
President’s Commission to Strengthen Social Security: Report of the President’s Commission. Washington, D.C: U.S. GPO, December 12, 2001. http://www.csss.gov/reports/Final_report.pdf
And how can you calculate a "return" on SS insurance? If I am permanently disabled after working three years my "return" is fabulous. If I live to 110 my return is great also, I come out way ahead of what I put in. If I live to 68 and die, my return sucks, it will be well in the negative.
SS is not an investment, it is insurance. It is like trying to calculate a return on a life insurance policy.
Yea, but it's become much more than insurance. The original plan was to make it so senior citizens wouldn't starve to death. Nowadays, the plan has to cover healthcare, provide disability, and ensure a "standard of living" for all people. Not to mention that it was originally voluntary. If it was only about "insurance," then why would millionaires be forced to participate? Because it's become just another tax and spend system, albeit one with a social insurance tilt.
That is another issue. Many folks are terrified of the stock market and wouldn't invest their own funds in it. Are you going to force them to invest in the stock market? If they invest in save Govt securities their returns are maybe 3-4%, now not much better than what you are saying it is for SS.
As I said in a previous post, no, there's the option to just keep it in a gov security that is guaranteed the same interest as the current plan.