"Tick, tick tick goes the clock. We have sixteen short years until things in the Social Security fund get real bad, real fast."
How is the biggest Ponzi scheme in the world going right now? Oh, you must mean Social Security. The program, NONE of us had the choice to get into or not. Then for our entire working lives, we (if we worked for someone) and our employers kicked in 12.4% of our wages up to a limit of $118,500. This flow of money would sustain us in a rich and relaxing retirement. Except this is not true. This was a false narrative.
This year the fund is paying out more than it is taking in. That trend is expected to continue. If Congress does nothing on this issue (and they have been very good at that for decades), the fund will run out of money by 2034. Totally broke? No - but broke enough to cause a cut in benefits.
So, what do we do? What can Congress do? First off, Congress can do plenty, if they have the courage. First off, be truthful. This wonderful program created by FDR is flawed. It always has been. If we had a ton more workers kicking in to the fund than receiving benefits, we would not have a problem. But we now have a ton more receiving benefits than kicking in. The fund is like Lake Meade in the middle of this historic drought. Every year, the lake level gets a bit lower.
The next thing I would do is take the cap off of earnings. While working, you continue to pay in no matter how much you make. I know, I know. That is not fair. It gets worse, and here comes the tough part. If you are under age 40, rather than you and your employer kicking in 12.4%, that amount should go up .1% every year until that amount hits 15%. Since 3 out of 5 Americans get most of their retirement money from Social Security, that increase should be an adequate amount to keep the fund alive for a few more decades.
The Baby Boomers will luck out and be at the end of their run before the fund shrinks into trouble. That is if Congress continues to do nothing. Young people take notice. You are the ones who really need to be climbing all over your Congressmen or women when they are in their home districts. Ask them what the plan is right now. Demand action be taken. Trust me - they all know what the current status is. But as we all know, there is a big difference between knowing and doing.
Tick, tick tick goes the clock. We have sixteen short years until things in the Social Security fund get real bad, real fast. Right now, Congress is concerned more with Russia and our elections than it is maintaining Social Security. They need to walk and chew gum at the same time.
One financial expert I heard a few years ago had a dire warning for us all (if I may paraphrase a bit) - "There will be pain in the fix. Every year we wait to start the fix, the pain will get worse. But if we do nothing, the pain will be unbearable."
That paraphrased quote was from the Simpson - Bowles Debt Commission in 2012. Right now it is 2018. We are six years deeper in painful resolution to our Social Security problem. Get the picture? Next year in 2019, the pain will be even worse. Just saying. Talk to your congressional representatives. And sooner, rather than later.
The correct answer for what you should do when you're digging yourself into a [financial] hole is, of course, to stop digging! All of these solutions of raising taxes or the retirement age or lifting the income Limits, simply allow the Ponzi scheme to continue and increase the size of the inevitable failure. The solution always was and needs to be to allow the gradual diversion of FICA taxes into private accounts, so that those at or near retirement will receive everything that was promised to them, whereas younger workers will have a much larger retirement account at the time they retire, in exchange for a much reduced Social Security benefit. As current recipients "fall off" as beneficiaries, new retirees will receive far less, thus Phasing outthe program Over the next 40 or 50 years.
ReplyDeleteAll of the new jobs being created should be adequate to save the system. If you believe the numbers presented by the Administration.
ReplyDeleteAlso, many illegal immigrants pay into the system and never collect.
4.4 million undocumented workers paid taxes for benefits they can’t even use, like Social Security and Medicare. They also aren’t eligible for benefits like the earned income tax credit. But the IRS still expects unauthorized immigrants to file their taxes, and many of them do so.
Should we be encouraging more illegals to support our economy?
The actuaries at SSA take all these things into account, including that anybody that dies short of retirement age gets essentially ZERO in the retirement benefits they "paid for." And what keeps getting overlooked is that, for several years now, the Trust Fund has been being depleted and the General Fund has been used to pay benefits. The Trust Fund is a fiction. People should be allowed to create a real asset, in private accounts. Much better for the economy.
ReplyDeleteA two-earner couple receiving an average wage — $44,600 per spouse in 2012 dollars — and turning 65 in 2010 would have paid $722,000 into Social Security and Medicare and can be expected to take out $966,000 in benefits. So, this couple will be paid about one-third more in benefits than they paid in taxes.
DeletePrivate accounts may earn more than the inflation plus 2% than in the above example, but not without significant risks, like our periodic recessions and poorly regulated financial institutions.
They are also covered by disability and survivors insurance during their working lives. These would have to be paid for by the individual under your plan.
And health insurance coverage for a newly retired person would bankrupt them without universal plans similar to ACA.
I agree with your premise/plan but fear the risks.
The "insurance" aspects of FICA would need to be replaced by private insurance, if the retirement aspects were diverted to private accounts. Medicare could be replaced by private HSA accounts on the same basis, or as a spinoff of the private SS account.
ReplyDeleteYour example demonstrates clearly that the outgo promised exceeds the taxes collected to pay for it, if folks live long enough and many do. But that is why it should be private, so that those who die short of full "return on investment" can pass on that asset to their heirs. And those that outlive their investment don't get to reap extra from those who did not or from the taxpayers in general.
Your concern for the risks is misplaced, I think. So long as we do this gradually, the chances of that "recession" over the 40 years or so it will take to fully implement, are essentially nil. Not only that, the fact that all of these funds will be invested in our capital markets instead of squirreled away in a vault full of government IOUs, should be a great boon to the economy. One suggestion would be that we simply start the process (were we going "cold turkey") by simply doling out, on a pro rata basis, those trust fund bonds, which suddenly would become a real asset!
I like your thoughts overall, but putting money into private equity funds is still too risky. People tend to panic or use their access to funds unwisely when they should be untouched to sustain growth.
DeleteWhen the economy is running at full speed as it is today, with little slack in the labor markets and with confidence levels at or near all-time highs and valuations stretched across equity sectors, shocks that may have had little impact on the economy during the early years can derail the whole thing now.
A major correction (recession) is coming soon, acerbated
and triggered by the trade wars and the resultant trade agreements between other countries leaving us out in the cold. Thankfully it won't affect my SS or Medicare benefits. But it will hit my stock portfolio and future dividend opportunities.
I will not outlive my retirement funds. I have no idea how my kids will manage to do anything for their future but stay healthy and work til they die. SAD
I'm sorry, but I keep being influenced by my experiences in Chile. They had been at a SS scheme like ours but for fewer years, so they went "cold turkey." They parceled out the trust fund bonds pro rata, required that people continue to put in the same percentage but into APPROVED (i.e. relatively safe) private investment funds, permitted additional contributions (up to 20%), and essentially ditched mandatory retirement. Their economy promptly started a sustained 9% growth, public revenues soared (they paved the street and put in water and power in Pachica, for example), and people began retiring earlier and wealthier. And if you had been saving your SS payments for the last 30+ years, a small recession would only affect your payouts for the couple of years it takes to recover (unless Obama runs it). And if that still worries you, simply buy an annuity with your retirement account and be guaranteed an income. The ONLY reason to keep the current system is that we are all such idiots that government has to require us to do what is in our own best interest.
ReplyDeleteHas any congressman introduced ANY legislation to fix this OR is there no will to do so, or too much political risk. Sounds like a campaign promise to FIX this mess would garner the youth vote without risking the senior vote.. I'll have to read the Chile experience, thanks!
DeleteActually, MN Senator Rod Grams had an actuarially sound program written into legislation back in 1999. The numbers have gotten somewhat worse since then, of course, but the total "transition cost" COULD remain the same-- the money that would come from the General Fund (supposedly 'through' the Trust Fund) to pay current retirees while younger workers opt out. (but either the transition would now need to be quicker or the expenditure higher; we should have done it 20 years ago.
ReplyDeleteWhere are the fiscal conservatives now? Ducking reporters and worrying about November instead of doing their job, which is easier when you have the majority. If they retain the House and Senate (which I think they will) and still feel to address this issue, the system is failing and your party of patriots is failing.
DeleteAre you serious? Let any Republican even "breathe" the words "Social Security" and the commercials showing Grandma going over the cliff in her wheelchair will play 24/7. The only way this financially sound and necessary proposal comes to light is after the whole furshlugginer mess comes crashing down and SENSIBLE policy becomes impossible. Can-kicking taken to high art by deniers of reality.
ReplyDeleteBy the way, as for the "risk" of "equity funds," it could easily be a requirement that [a basic part of ] the investment be in "government approved, safe" investments in which the principal (or principal and return) are guaranteed. Such as government bonds, which would STILL be better than SS. It's a bogus argument.
ReplyDeleteI see in Chile they only have 20% in risky instruments, all the rest are govt. or municipal issues.
DeleteI didn't know that, but it makes all kinds of sense. First of all, since this was a recent change, most of the population would have been at or near retirement and looking for a safe investment. And government approval for their investment accounts would certainly and reasonably concentrate on the safest of investments. And because of the mandatory investment requirement, there would be upward pressure on government issued bond interest rates and a higher return. There would be a tremendous capital investment pool available to the government (Pachica being one small example) that would in turn build the economy, while those "riskier investments" would fuel business expansion. Younger workers, who would have time to wait through recessions and such, would naturally gravitate towards riskier investments, as with those who could afford them on top of their basic, safe funds.
ReplyDeleteThe real hidden secret here is that this simple change converted a "tax-and-spend" program into one of public and private investments with real returns.
If only we had the will.
DeleteLet's end this thread with the knowledge that it will take a catastrophic failure of a nearly 100 year old SS plan and the 60 year old Medicare system for any action to be taken.
Similar to "climate change", eh?
Why end the thread when we are having a robust disagreement? :-)
ReplyDeleteYes, as a matter of practical politics (or more correctly STUPID politics) nobody wants to step on the grenade and actually solve the problem. If we had a way to end the stupidity in DC other than with an immediate, REAL crisis, it would help my emotional well-being, a lot.
I disagree strongly with analogizing the situation with "climate change." There the crisis is entirely manufactured, too much "will" (and money) have already been poured into "solving it," and the fact is that it cannot be solved at all, by Congress or by anybody else.
Tell your "manufactured" ideas to Norfolk, Charleston and Miami who are going to be moving inland (during your lifetime) due to rising sea levels as little as 1 inch, which is now flooding them over 50 days per year.
DeleteOr New York City, which will be installing pumps in their below ground infrastructure to drain the water.
Or the entire country of Bangladesh and numerous islands in the Pacific, who will have to be relocated.
This change is not CO2 related, but a normal cyclical change which mankind has never witnessed and will last thousands of years.
I agree it can't be solved but it will have to be endured.
Congratulations! You are the first person I've met who recognizes the fundamental deceit underlying the whole Global Warming hoax. That is, the distinction between "global warming" and "MANMADE global warming." If it is entirely natural, which it is, then why are we spending billions and billions of dollars trying to prevent it, dollars that would be better spent adapting to it?
ReplyDeleteEven crazier, when you ask these "Warmists" how much their marvelous "renewable energy" or "carbon tax" schemes will actually reduce global temperatures, they respond with numbers between 1/100 and 1/4 of a degree, 100 years from now! So even if they are right in their warming predictions (which they are not), their costly "solutions" are worthless!