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Social Security Fix

Your Identity and For/Against this SS Reform model


  • Total voters
    75
:) according to the Social Security Administrations' Calculators, Low Income Joe's monthly benefit would be around $950 a month.

Here is your statement. "monthly benefit at age 62 is $3,050; at age 65 it's $3,875; and at age 68 it's $4,915." I am curious when Joe started work and what his starting pay was. I assume that you are talking about someone who retires in 2012 or someone born in 1947. He hit 18 in 1965, when the $25,000 of 2012 was comparable to about $3,400. You are saying he is going to have almost $4,000 a month at 65 in 2010. Is this the guy you are talking about? How much was saved and what is the rate of return you are expecting on the retirement account.

We did a comparable figure for someone making 2/3rds median income (about 38K in 2012). They had roughly $600,000 of lost savings, on which they could expect to draw 5% or 30,000 per year. That was invested in the actual S&P, dividends included, net fees. Just about what they are making today. But that is actual SS taxes rather than 10% flat.
 
We are deeper into numbers than I normally get. The role our group plays is about keeping the debate honest. In your presentation you said that Joe will not lose a cent. You are aware that EITC is designed to compensate lower-wage workers for payroll taxes. If you do away with payroll taxes, you will do away with the EITC. He is likely to lose a lot of money. SS is quite a good deal for the low-wage worker, and without massive subsidies you are unlikely to match it.
 
Here is your statement. "monthly benefit at age 62 is $3,050; at age 65 it's $3,875; and at age 68 it's $4,915." I am curious when Joe started work and what his starting pay was.

... I explained that all in my post. do you read what you are responding to?

Middle Income Joe starts working at age 18 and makes 25K a year, growing to a little over 63K a year by the time he retires if he does so at 65.
Low Income Joe starts working at 20, makes 25K a year, which grows to a little under 32K a year by the time he retires if he does so at 65.

Both Joe's see a superior return under all circumstances with the cpwill plan than they do with traditional Social Security. The closest we have come is Low Income Joe seeing back-to-back 2008 style market crashes in the two years before he retires, leaving him withdrawing in the middle of the second trough, and gave him a benefit that was only a couple of hundred dollars higher than he would have gotten from Social (in)Security.
 
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We are deeper into numbers than I normally get. The role our group plays is about keeping the debate honest. In your presentation you said that Joe will not lose a cent.

that is correct - since Joe's money was already being lost, his take-home pay remains the same

You are aware that EITC is designed to compensate lower-wage workers for payroll taxes. If you do away with payroll taxes, you will do away with the EITC. He is likely to lose a lot of money. SS is quite a good deal for the low-wage worker, and without massive subsidies you are unlikely to match it.

I don't do away with payroll taxes. I redirect a portion of them. No one has called for altering the EITC (at least, certainly not in this thread). And SS is a crappy deal for low-wage workers, who are overly dependent upon it, despite the fact that it gives them less benefit than those who in turn need it less. Low Income Joe never makes even as much as $32,000 a year - how much do you think he has saved privately for retirement? yet his monthly check is $950? that's what he has to survive on?

Irrespective of what "your groups purpose" is, if you're going to throw around claims about the superior returns that SS gives our lower income workers to privatized accounts, you'd better be ready to back up that claim with numbers. I'd be fine with including a Chilean-style guarantee into the program. Because the odds of the government having to pay out are extremely low - Chile has had it's system for three decades and has yet to have a single instance where the return generated by a privatized account was lower than it would have been under their previous traditional SS-style system.
 
... I explained that all in my post. do you read what you are responding to?

I do. I may misunderstand. "and his annual raise above inflation is actually 0.5%" When you adjust for inflation, the starting wage has to be closer to $3,500 rather than $25,000. In 2012, 31, 000 is at the lower end of the wage scale. In 1965, $25,000 would have put you in the top earner categories rather than a low-wage worker. The person that you have describe isn't lower earner. If he starts with $25,000 in 1965, .5% above inflation would be close to $200,000 per year.
 
Irrespective of what "your groups purpose" is, if you're going to throw around claims about the superior returns that SS gives our lower income workers to privatized accounts, you'd better be ready to back up that claim with numbers.

These aren't my numbers. I take what SSA produces. If you want to look at their reports, I am happy to point you that way. I am not saying you are wrong, but it is either your numbers or those of SSA. According to SSA, Social Security is a very good investment for lower-income workers particularly those married with kids.

EITC was created to reimburse lower-wage workers for high burden of payroll taxes. That is when taxes were taken and given to someone else. You are planning to keep the EITC despite the fact that these workers would be paying themselves.

You are telling me that your plan helps low-wage workers. I can show you reports from SSA that will tell you that is almost impossible. Maybe their reports are wrong. Mind you, SS is insurance. SSA's reports factor in the idea that some of these workers get nothing. The return that of low-wage workers who actually reach retirement is even higher. Maybe SSA is lying.
 
I do. I may misunderstand. "and his annual raise above inflation is actually 0.5%" When you adjust for inflation, the starting wage has to be closer to $3,500 rather than $25,000. In 2012, 31, 000 is at the lower end of the wage scale. In 1965, $25,000 would have put you in the top earner categories rather than a low-wage worker. The person that you have describe isn't lower earner. If he starts with $25,000 in 1965, .5% above inflation would be close to $200,000 per year.

no - I kept all numbers constant.
 
These aren't my numbers. I take what SSA produces.

if you will note, I linked what SSA produces, on the SSA's own site using their own calculator. It does not back up your claim that it is a superior return for low-income workers.
 
if you will note, I linked what SSA produces, on the SSA's own site using their own calculator. It does not back up your claim that it is a superior return for low-income workers.

Your link is not an economic return it is a monthly projection. To get economic returns you have to add factors like birth date and whether someone is married. What you need to see is what would an inflation protected annuity of $950 cost when someone turns 65. You ought to take a look at the actual formula because my guess is that the link you gave uses assumptions that are completely inconsistent with the worker you have described.

Here are the money's worth ratios from SSA. They tell you what the present value is of future benefits. These reports show SS in a favorable light in terms of discount rate. Like you I don't argue with the rates I just ask for sources.
 
Your link is not an economic return it is a monthly projection. To get economic returns you have to add factors like birth date and whether someone is married

that was the previous page. I used SS's calculator, gave them Low Income Joe's income numbers, birthdate, etc, and asked what his benefit would be. They came back with $948 a month if he retired at age 65.

Here are the money's worth ratios from SSA. They tell you what the present value is of future benefits. These reports show SS in a favorable light in terms of discount rate. Like you I don't argue with the rates I just ask for sources.

well it would seem to me that supporting source-material is something you are a bit shy on right now.
 
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no - I kept all numbers constant.

If you visit our site, you will find that I do not defend the system. It's economic returns are terrible, and getting worse. The problem that I have with privatization plans is the overstatement of what they can do. This claim : a low wage worker will do better in the private market even at the lowest rate of return even cashing out at a market bottom is off the charts.

In you case, you are using 10% which is more than what is withheld for SS today (8.6%). Your worker is not poor - on an inflation adjusted basis he looks more like a high-wage worker who took-up a low-paying hobby. This person's results will be the worst possible for SS. The economic returns that you use are almost the highest in the last 100 years. They are in fact higher than my sources say occurred in the 20th century - Crestmont takes out transactions fees. Mind you we aren't even touching the idea that wage-weighted investment will materially underperform the market averages. We aren't looking at the possibility that the low wage worker is a bad investor - well other than cashing out at a market bottom. We are ignoring the EITC which repaid Joe for much of his contribution.

To your claim: we will say 10% withheld for a workers whose wage rose from $25,000(2012 dollars) to 34,670 in 2012. Assuming a 4.92 rate of return before a crash of 40% (the trough was actually 60% fall). Assuming 6% unemployment. At the end of 2012, he would have about $153,000. Assuming the crash occurred, at that point, he would have about $90,000 or a monthly payment of $225 a month at 5% interest. All of this ignores the fact that there is a cap on wages and the fact that you worker would have to buy life insurance that comes free with SS. This doesn't mean that SS was a good deal. You need to look at what the value of a $1,000 annuity inflation protected with survivor benefits was worth at the age of 65. It may well not be $90,000. Given that the life expectancy of a retiree is about 17 years my guess is that it is more than 90K.

I could very well question any number of your claims. Your figures increase SS portion of payroll taxes by 2.4% - entirely to fund a personal account. Without payroll taxes, existing benefits would exhaust the Trust Fund in about three years. So Joe will be worse off to the extent that the Federal Government has to increase debt to fund benefits to existing people. Joe will have to pay that debt over his lifetime. In a worst case example, the Joe's portion of the increased debt is more than his entire Personal account.

This doesn't say that SS is better than a privatized system. If the results today aren't superior for every case, they will be at some point. The economic returns of Social Security have fallen every year since its creation. The man who ran the system in 1944 told Congress, if you do not raise taxes now, the hidden costs of Social Security will force future generations to increase payroll taxes to a rate at which they would be able to get comparable insurance at a lower price from a private business. His testimony is an interesting read.
 
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I would like to have the option to take out all I put in and play the market with the caveat that if I lose it all I'am not entitled to any government assistance on any level.
 
Back when payroll taxes were generating more revenue than was being paid out in SS, the partial privatization of SS would have worked except for one thing: The feds wouldn't have been willing to give up a source of cash.

Now that the balance is shifting the other way, we're starting to hear about at least partial privatization, but the big elephant everyone likes to ignore is the fact that money would have to be added to the system in the short term in order to pay current retirees.

So, the time to have implemented a cpwill, or similar plan would have been a couple of decades ago, when the idea was politically unpopular as it would have eliminated a federal cash cow "needed" to fund everything from wars to welfare.

There is no doubt at all that the vast majority of retirees would be far better off to have put 16% or so of their earnings into a diversified portfolio of stocks and bonds rather than into SS.
 
Now that the balance is shifting the other way, we're starting to hear about at least partial privatization, but the big elephant everyone likes to ignore is the fact that money would have to be added to the system in the short term in order to pay current retirees.

So, the time to have implemented a cpwill, or similar plan would have been a couple of decades ago, when the idea was politically unpopular as it would have eliminated a federal cash cow "needed" to fund everything from wars to welfare.

the cpwill plan includes popping the cap, raising the retirement age, and indexing COLA hikes to inflation rather than wages in order to cover that gap you identify. I wouldn't be averse to some means-testing, or averaging of the benefit, either.
 
the cpwill plan includes popping the cap, raising the retirement age, and indexing COLA hikes to inflation rather than wages in order to cover that gap you identify. I wouldn't be averse to some means-testing, or averaging of the benefit, either.

which would work in the real world. In the parallel universe that is partisan politics, how likely would it be that such measures could actually pass, I wonder.
 
One of the beautiful things about the real world is that you can only ignore it for so long. The Boomers are going to crash the entitlement systems, and when they do, formerly politically implausible solutions will suddenly be on the table as everyone desperately seeks to save what we can. And there is more popular support for privatized accounts than you might think.
 
One of the beautiful things about the real world is that you can only ignore it for so long. The Boomers are going to crash the entitlement systems, and when they do, formerly politically implausible solutions will suddenly be on the table as everyone desperately seeks to save what we can. And there is more popular support for privatized accounts than you might think.

There may be some support for privatized accounts now. Of course, when Bush proposed the idea, the Democrats shot him down, just as the Republicans will if a Democrat president proposes it. Maybe the real world will invade the realms of partisan politics, but only when the crisis has been reached and there is no other alternative. Where there may be even less support is the idea of popping the cap, raising the retirement age, and indexing COLA hikes to inflation, which would have to be an essential part of the fix.
 
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?

I have to laugh at your logic. Why is it the right wingers see employees as drains on their profits that only exist because they are generous enough to pay them a salary? Is that how you marginalize workers as a commodity or is it because you really don't understand that employees MAKE your money for you. If you lay off workers you will LOSE money not save.
 
There may be some support for privatized accounts now. Of course, when Bush proposed the idea, the Democrats shot him down, just as the Republicans will if a Democrat president proposes it

nah, I would think that Republicans would need a different reason than that (for example, if the D President would only allow privatized funds to be invested in government bonds).

as for popularity:

"As you may know, a proposal has been made that would allow workers to invest part of their Social Security taxes in the stock market or in bonds, while the rest of those taxes would remain in the Social Security system. Do you favor or oppose this proposal?"

9/23-25/11:
Favor: 52%
Oppose: 46%
Unsure: 2%


"Please tell me which of the following statements comes closest to your opinion about the Social Security program. The Social Security program has no serious problems, certainly none that require changing the current system. Social Security has minor problems that can be fixed with minor changes to the current system. Social Security's problems are serious and can be fixed only with major changes to the current system. Social Security's problems are so bad that the system should be replaced."

Doesn't Need Change: 4%
Needs Minor Change: 28%
Needs Major Change: 55%
Should Be Replaced: 12%
Unsure: 1%

Maybe the real world will invade the realms of partisan politics, but only when the crisis has been reached and there is no other alternative. Where there may be even less support is the idea of popping the cap, raising the retirement age, and indexing COLA hikes to inflation, which would have to be an essential part of the fix.

:shrug: when it comes down to get a smaller benefit / means test the benefit, or get no benefit....
 
"that was the previous page. I used SS's calculator, gave them Low Income Joe's income numbers, birthdate, etc, and asked what his benefit would be. They came back with $948 a month if he retired at age 65."

well it would seem to me that supporting source-material is something you are a bit shy on right now.

A) are you going to share any of this information or is this a Trust Me site. If someone's wage was $25,000 in 1965, ie someone turning 65 in 2012, that person was not a low wage person.

B) sorry I thought I had provided the link in the last comment, Moneys Worth Ratios
 
I have to laugh at your logic. Why is it the right wingers see employees as drains on their profits that only exist because they are generous enough to pay them a salary? Is that how you marginalize workers as a commodity or is it because you really don't understand that employees MAKE your money for you. If you lay off workers you will LOSE money not save.

No reasonable people see the employment world as a competitive market place. What Liberals in general fail to see is the consequences of stupidity. It isn't that they fire everyone making $110,000 or more. It is that 1 company decides that the costs are simply cheaper overseas. We lose not just the $110,000 job but everyone who reports to him. "If you lay off workers you will LOSE money not save." In that case, they don't lose anything they make more.
 
A) are you going to share any of this information or is this a Trust Me site. If someone's wage was $25,000 in 1965, ie someone turning 65 in 2012, that person was not a low wage person.

as I told you before, all numbers as presented in the post were adjusted for inflation.
 
the cpwill plan includes popping the cap, raising the retirement age, and indexing COLA hikes to inflation rather than wages in order to cover that gap you identify. I wouldn't be averse to some means-testing, or averaging of the benefit, either.

Is there any data that suggests this will pay for the transition? You are diverting more to private accounts than is actually being collected for SS today.

What happens to the 54 year-old, who is stuck in a system that can't deliver any benefits. Let's look at a guy who has a $50,000 a year job - not poor Joe. This guy has probably lost $800,000 to $1 million in savings to the system. Your plan will leave him with $113,000 at the age of 67. That assumes no unemployment.
 
No answer I could check so I will say I am for it and the retirement age to draw it should be moved to 70...........
 
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