Social Security--still the best retirement deal around

[eridani]

http://washingtonpolicywatch.org/2012/08/06/for-young-workers-social-security-is-still-the-best-deal-around/

Social Security isn’t just a good deal – it’s a great deal. Unfortunately, articles like this have misled many in my generation into thinking Social Security will not be there for us. But the reality is, there’s only one way that will happen - if we allow it to.

Social Security has been around for 77 years, and unlike any 401K – it’s guaranteed. So when the retirement savings and home values of my parents and millions of other Americans plummeted in 2008, Social Security never missed a payment or cut benefits. Social Security is the safest investment in the world.
.

With a recession occurring nearly every decade since the early 1900s, our Social Security system recognizes the contributions of American workers who have worked hard and played by the rules. For American workers of every age, Social Security provides freedom, security and independence – and I’m happy to support it.

[DCKit]

1. Forget that! I'll take Mitt Romney's IRA any day - $100mil and counting. nt

[eridani]

2. I meant for normal people n/t

[LuvNewcastle]

3. I'm glad it was there for me.

I don't know where I'd be without it. Yes I do.....on the street.

[RebelOne]

35. Me too. I was working full-time until 2010 and was laid off.

Fortunately, I was already collecting social security at the time. But I am ntw without that paycheck. So social security is a life saver. Otherwise, I would be homeless.

[boomerbust]

4. I've heard numerous Genxers

Including a couple that I have raised, say they will never see SS payments when they retire. And old Dad has to remind them that I would be living with them if it were'nt for SS.

[Not Me]

6. You may want to remind your gen x'ers

that whether it is there for them in 40 years is UP TO THEM.
Repeat the Rethug meme enough times and you begin to believe it.

It doesn't have to be that way.

[myrna minx]

8. Ever since the 80's we GenXers have been conditioned to believe it won't be there for us.

You're right, it is up to us to fight for it, but that seed was planted 25 years ago - the Republicans were very successful in that regard - because the cynical fear is prevalent. It's strange though, because many of us haven't been able to sock too much away for retirement (our supposed rise to big earning years took place during GWB), so we still *hope* it'll be there, but are most dubious. If the Dems were smart, they'd try to smash those fears. That would capture GenX's attention to be sure.

[hughee99]

19. I've heard the same.

I know many GenXers that believe they will pay into SS their whole life and will be "means-tested" out of the benefits by the time they retire somewhere somewhere around age 75 (which they guess will be the SS retirement age by then). On the upside, it has pushed them to plan for their own retirement without relying on it.

[Kolesar]

5. SS is an inflation-adjusted annuity, and that is an excellent annuity for retirees

I am planning for retirement right now and became aware of how sweet inflation adjustment is. If you buy inflation adjustment with one of the equities-based annuities, you will pay a lot of money to fees and lose gains because those annuities will cap your gains.

[customerserviceguy]

7. Yes, and things were going really well for Bernie Madoff's investors

Right until December, 2008. They could have made similar claims. Of course, it's not a fair comparison, Madoff was running a Ponzi scheme, where investors don't know that their "returns" are coming from new investors' money. SS is more of a pyramid scheme, where everybody knows that new contributions fund the benefits that those who have been in the system awhile get.

No one has convinced me that the twin pincers of a permanently damaged economy without good paying jobs combined with the waves of baby boomers finally hitting the rolls won't crush the system as we know it, and way ahead of the Social Security Trustees' rosy predictions, that have lately been revised downwards for the last couple of years.

That's why younger Americans feel mighty pessimistic about it, and that's why Romney-Ryan will go after them with partial privatization. For the last two years, we've seen a payroll tax "holiday" that in effect tells people, "Hey, here's some of your money back, save it for a rainy day." That's what I did with my FICA tax cut, I added it to the money going into my 401K, which is invested solely in money market funds.

[eridani]

12. The FICA tax increase in 1983 was intended to prepay boomer retirement

Which is why there is a surplus at all, ferchrissakes! Gen X can get by with pay as you go, and then there will need to be another surplus to handle the demographic lump of Gen Y.

[customerserviceguy]

14. Yes, I remember that intention

Back in 1983, those in charge figured that good paying jobs would come back after the recession ended, and they were right. The new normal is lower paying service jobs with crappy benefits. If the Great Recession hadn't come, or hadn't lasted so long, maybe Social Security's finances would be in better shape. But I don't ever see the day coming when FICA tax inflows will ever exceed outflows again, and if it comes, it will be after I'm dead, or there is a radical restructuring of the whole thing.

The other side is going to tell us continually from now until Election Day that they have a plan. Our President is going to have to come up with his detailed plan, and why it will work better, be fairer, and be more effective than anything else he's tried so far. We can't win this election with, "Just hope for the best, ignore that Simpson-Bowles commission I appointed."

[eridani]

15. Given the redistribution of income upward, Scrap the Cap is a big part of the solution n/t

[customerserviceguy]

24. I've yet to see how the numbers work on that

Also, unless you create another tier of benefits for the additional income being taxed, all you're doing is raising the maximum benefit for those at the top, depleting the value of their "contributions".

Yes, I'd like to see CEO pay taxed all the way, especially from the employer's side of it, but are there really enough jobs out there paying over the present cap to make anything more than a nearly insignificant difference?

[eridani]

26. High earners now get less out than they put in

And there is an upper limit on benefits. That will continue even with the highest earners contributing more. Limiting what they get is acceptable--telling them they get nothing is not. For number crunching, see below.


http://www.ncpssm.org/socialsecurity/

http://www.cepr.net/

[exboyfil]

27. The contributions of the earners between approx. $50K-$115K

have the benefits formula applied at 15%. The simple solution is the remove the cap and make all income above $115K subject to a lower withholding rate (say 2% less than the current rate for all workers). Right now the system is structured for those making $50K-$105K to carry the burden of the lower earners on their backs. This change would spread some of that burden to the higher earners. I would also argue that the rates for everyone be adjusted to a pay as you go with drawdown of the Trust Fund over the next 10-20 years or so. Going forward their will be no such thing as trust fund, and withholding rates should be pegged forever to some maximum rate (say 7.5%/7.5%). In case in the future the withholdings do not meet the payouts, then benefits should be reduced over the first $10,000 by the shortfall.

Few people understand how benefits are calculated. That should be the first step in any education program regarding S.S. It should be taught in every high school in the nation.

[eridani]

28. There was a trust fund surplus to prepay boomer retirement because of the demographic lump

Eventually there will have to be another one to prepay for the baby boom echo demographic lump

[exboyfil]

31. The Trust Fund without fiscal restraint in the federal government

is a joke, and we are seeing it played out now. I am hoping the removal of the cap will cover most if not all of a shortfall related to pay as you go.

I stand adamantly for every dollar of Trust Fund money going back into payments, but you can already see the rumbles because S.S. has flipped to drawing down that Trust Fund. The chorus of changing that will continue to go stronger as additional revenue/spending cuts are requested from the general fund to pay back that borrowed money. I don't want to see a repeat performance in the future. I think the powers that be view a default on S.S. held securities as a less severe situation than a default on market based treasuries. The S.S. held treasuries are going to be the first thrown overboard (it will be done in some slick fashion with legislative tricks).

[eridani]

34. Fiscal restraint has jackshit to do with SocSec

It is a separate program, period. If you don't belive that, take a look at your W-2 and wxplain why FICA is listed separately from your other tax withheld.

[customerserviceguy]

37. Sorry if I feel that's just an accounting fiction

I used to be a tax accountant, there are a thousand ways to lie with numbers. People think that accounting is mathematics, a science, when it's really an art.

[eridani]

38. Not so. Social Security is separate BY LAW, period

In no way, shape or form is it part of general revenue.

[customerserviceguy]

39. Then why were they able to borrow from it, at will

when it ran a surplus? That's what screwed the system over, and they didn't even have to give it negotiable Treasury bonds or notes, just specialized securities that even Bernie Sanders once referred to as IOU's.

[eridani]

41. That the trust fund buys T-bills does not constitute "borrowing"

What the hell is the government supposed to do with a couple of trillion dollars--stuff it in a mattress?

[customerserviceguy]

43. Those are not ordinary T-bills

They're not negotiable, or tradeable on the open market,

[eridani]

45. So? So much the better n/t

[exboyfil]

40. How do laws get changed?

By a majority in the two Houses of Congress and the President's signature. Pieces of S.S. have changed all the time (some changes limiting benefits such as moving the retirement age, taxing a portion of S.S., and eliminating S.S. payments for college students).

General revenues are needed to retire the bonds held by S.S. As I said before many view a default on S.S. securities as a less severe signal than defaulting on general debt obligations. It all comes down to the political will to ensure that this default does not happen. S.S. is not in a vacuum - $2.6T are held by S.S. of the $16T. If you decide to stiff the public holders of debt, then lots of bad things happen - far worse (as perceived by the powerful) than a S.S. default (especially one disguished by legislative tricks) against S.S.

Obama has not helped this situation when he reduced withholdings and made up the difference with general revenues. That was an awful precedent to set.

I feel every dime should be paid back to S.S. (ie every Treasury submitted for payment to pay benefits should be honored, but stay tuned). I don't have the stomach for a repeat performance in the future.

$16T debt is a truly staggering number. It does not exist because of S.S., but it impacts the ability of general revenues to satisfy S.S. bonds.

[Downwinder]

9. Especially when it is the only one.

[raouldukelives]

10. So glad Bush & his cronies never got SS in the market.

You can see now why they wanted it included. All that extra money might have kept the scam running at full strength another couple years and could have been lifted from our pockets just like the marketeers experienced.
I'm just glad to still have a retirement option that doesn't involve giving my full support to Citizens United, destroying our oceans and forests and pushing climate change into overdrive.

[joeglow3]

11. Problem is, it is NOT a retirement program

It is an insurance program and should me treated as such. It needs to be means tested and NOT thought of as a replacement for retirement planning.

[eridani]

13. No, it does NOT need to be means tested any more than it already is

Initial benefits calculations favor lower income retirees now, and that's fine. But you can't tell higher income workers that they have to pay in but will not get anything out. There is no better way of destroying political support for Social Security.

[joeglow3]

18. Why can't you tell high earners that?

it is no different than any other tax. The guy with a $2,000,000 house pays a lot more in property taxes to the local school district, but he has no kids and gets no use from it. Using your logic, that is unfair and he should expect a refund.

[SickOfTheOnePct]

20. It's completely different

Someone with a $2 million house and no kids has no expectation that he will be utilizing the school system. High earners, on the other hand, have been told forever that they will receive SS benefits.

My older brother and his wife both have military retirements, pensions from jobs they worked after the military and income from 401(k) and IRAs. Should they be denied the SS that they paid into for years just because they don't have to have the money to survive?

If you want to see SS disappear for everyone, start means testing it so that it can be called a welfare program. Support will disappear overnight.

[hughee99]

21. The school is likely one of the reasons why the guy's house is worth $2 million.

And if the "guys with $2 million dollar houses" are influential in local politics (as they often are, especially at national levels), then someone will likely do something about this unless it's a whole community of guys with $2 million dollar houses.

The day you start looking at what someone saved up for retirement and making a decision based on that number whether they get benefits or not will mark the beginning of the end of SS.

[joeglow3]

22. I am someone who would likely not get it and I am fine with that

At 35 years old, my wife and I have $80,000 in equity in our house, 170,000 in taxable accounts, 200,000 in retirement accounts and about $50,000 saved up for education costs. We do this by living way below our means and saving for our future (with great, in demand jobs - RN & CPA). I have no problem paying in to support those that need it and am fine without collecting any so long as our financial plan continues.

[hughee99]

23. Do you think most people will feel the same.

when they start to hear the "welfare queen" type stories about some guy who just decided to upgrade to a bigger fishing boat, bought himself a classic car, or just got back from a crazy week in Vegas, but hasn't put aside a dime for retirement at age 40.

Those will be the stories they run as an example of the type of person we are going to be funding the retirement of.

[eridani]

25. "as long as our financial plan continues"

Indeed--lots of things can upset financial plans, like a major illness or accident, or the value of your house being decimated by factors beyond your control. That's what Social Security is for, and lots of people who got creamed in 2007 really appreciate it.

[joeglow3]

32. That is my point.

[Major Nikon]

30. I think it should be means tested more than it already is

All it would take is an adjustment to the bend points. This wouldn't end the benefit for high income earners but would just pay them less. I'd be all for this so long as the money was used to benefit those at the lower end and raise more people out of poverty. I pay the max into SS and have for decades.

[exboyfil]

33. The benefit formula for the "high" earners is

already 15% versus 90% for the base amount (about $9-$10k). Also half of S.S. over a certain income level is already taxed.

Lets say you want to structure S.S. this way. Everyone gets a guaranteed $15K but 50% of every dollar of income over $15 is taken for taxes. What many individuals would do (me included) is quit working at 56 and draw down my 401(k) until I started collecting S.S. at 65/67. Already any years worked beyond 56 contribute little to the S.S. formula because of the 35 year max look back window. I am probably still making 60% more inflation adjusted than when I was at 21, but all that extra delta income will go into 15% formula.

I am not sure it is a good idea to build in further disincentives to save for retirement. A better solution would be to withhold from the higher earners at a lower percentage rate for that income over $105K.

[HiPointDem]

17. it's *not* thought of as a replacement for retirement planning. but before SS, old people

were the poorest segment of society and we had poor farms.

no doubt the poor farms were the "replacement for retirement planning" then.

[HiPointDem]

16. k/r

[longship]

29. Yes, it is great.

Given that I would be dead without it. One cannot live on the streets in MI through the Winter. I know many do, but not without shelter.

In the meantime, $1,000 a month isn't enough. I struggle all the time. My house is paid for, but I am in arrears on my property tax. My car sucks and it's 15 miles to the nearest grocers. My roof leaks. I have a broken window which I cannot afford to replace. My garage door is broken so I just leave open all the time. My septic tank is 100 years old and the septic field doesn't work. My fridge is broken, so no fresh food either.

But without Soc. Sec. I'd probably be dead by now. But life being broke is no fun.

I am saving money but I just do not know where to start. The little I save won't make a dent. I guess the car comes first, but damn, the fridge is important. And that roof leak isn't going to get better. I had better get the septic pumped before winter sets in; I'd hate to have a full septic backing up then.

Whatta ya gonna do?

[LWolf]

36. I've been happy to pay into it for almost 40 years,

and hope it will be there when I need it.

[TruthAnalyzed]

42. Honestly, if I want to invest in a personal account...

I'll invest in a personal account!

Oh wait, I already do... Whoops.

Just change the income limit and distribution to wealthier citizens and keep it going.

[meaculpa2011]

44. Personally, for me...

Social Security is a bad deal.

I've been paying into the system since 1963. I've been self employed since 1981, so my SS rate has been around 15% for more than thirty years. If I just took that money and put it in a mattress I would have accumulated more than $600,000 by now. If I die tomorrow, my wife and kids would get the money.

I'll be eligible for SS next year and I haven't looked up what my benefit might be, but I suspect that it won't be as much as I could earn from my savings. If I die before I start collecting, what does my family get?

My Dad paid very little into the system and he's been collecting for nearly thirty years. Hopefully he'll collect for many more. My grandfather paid into the system for twenty years, collected three checks and died at age 65 plus three months. My grandmother had to go to work at age 63. She continued working into her 80s. She was good at it and she enjoyed it, but many do not.

Social Security is a great deal, but for some it may not be the best deal. It's main benefits are safety and certainty and that's what needs to be hammered home relentlessly.

[eridani]

46. Bingo. Safety and certainty

If you die before collecting, your family gets survivors' benefits.