The Problem With Privatizing Social Security...

[YoungConserv]

I am explaining what privatization is. It is a savings account, just like the ones we already have. I am saying that insurance manages risk. Old-age is a risk - a very expensive one. Insurance makes sense in that case.

There is no way to pay people back. If there were, we wouldn't be talking about SS. Even if there were, you would not change anything, other than the pocket which is picked. You would have a massive debt, and who is suppose to pay for it.

No I don't have a savings acount I have a IOU that can be changed at a moments noticed.

 

[YoungConserv]

Eliminating the SS payroll tax why? That is one of the few "fair" taxes, except for one thing - the income cap. Why not remove the SS "contribution" income cap and see how much that improves the SS financial situation. Why would the amount per retiree drop? How is not paying SS to those that were forced to contribute for more than 30 years but are now "only" 50 years old "fair"?

What would be fair is to make it optional.

 

[ttwtt78640]

What would be fair is to make it optional.

Agreed, but with a solid caveat that even if you become disabled, have your alternate pension's value collapse (think Detroit) then you and your dependents must waive all gov't social "safety net" program assistance. This gamble must have both negative as well as positve consequences for those that would so choose. Far too many will wish to "opt out" in their early years and then face reality, later in life, and want to claim that "unfairness" caused their financial woes, perhaps due to a serious medical condition or accident and will then want to "opt" back in.

This would also create a situation making those that opt out more desirable for employment, since their employer must now match their SS/Medicare "contributions" leading to a gov't created class that lives under different laws, much like those with "public service" jobs now enjoy. Few, but the very young, are likely to opt out; largely the same ones that now gripe about how "unfair" it is to have to repay their student "loans" at the very same terms for which they earlier agreed.

 

[YoungConserv]

Agreed, but with a solid caveat that even if you become disabled, have your alternate pension's value collapse (think Detroit) then you and your dependents must waive all gov't social "safety net" program assistance. This gamble must have both negative as well as positve consequences for those that would so choose. Far too many will wish to "opt out" in their early years and then face reality, later in life, and want to claim that "unfairness" caused their financial woes, perhaps due to a serious medical condition or accident and will then want to "opt" back in.

This would also create a situation making those that opt out more desirable for employment, since their employer must now match their SS/Medicare "contributions" leading to a gov't created class that lives under different laws, much like those with "public service" jobs now enjoy. Few, but the very young, are likely to opt out; largely the same ones that now gripe about how "unfair" it is to have to repay their student "loans" at the very same terms for which they earlier agreed.

where do I sign?

 

[ttwtt78640]

where do I sign?

Detroit, is one such employer now.

 

[jonny5]

Eliminating the SS payroll tax why? That is one of the few "fair" taxes, except for one thing - the income cap. Why not remove the SS "contribution" income cap and see how much that improves the SS financial situation. Why would the amount per retiree drop? How is not paying SS to those that were forced to contribute for more than 30 years but are now "only" 50 years old "fair"?

Taking my money at gun point to give to current retirees, and then taking someone elses money in 40 years to give to me is not 'fair'. Removing the contribution cap would do nothing unless you capped the benefit. Which just turns this into another redistribution program.

And what I suggested was to pay back everything. The amount per retiree would drop over time because you stopped taking in new beneficiaries. So youre paying out 700bn right now to 60 million beneficiaries. At some point people die faster than new people retire, so the payouts decrease until you get to zero.

 

[jmotivator]

My Proposal for replacing Social Security is to phase it out over 20 years on a voluntary basis.

In short: Everyone between 25 and 45 years old can opt to redirect 5% of their Social Security tax to a private 401K account every year for 20 years. So year 1 they could redirect 5%, year 2 they could do 10%, and so on. Upon retirement they would receive Social Security payments at a rate equal to the percentage they were paying in on the year prior to retirement. So if they redirected 100% by retirement then they receive no Social Security.

This would effectively phase out Social Security over the next 20 years for most Americans with only the die hard supporters continuing to pay in.

Furthermore, anyone 18 to 24 years old could opt to accelerate divestment at 10%/year

 

[ttwtt78640]

Taking my money at gun point to give to current retirees, and then taking someone elses money in 40 years to give to me is not 'fair'. Removing the contribution cap would do nothing unless you capped the benefit. Which just turns this into another redistribution program.

And what I suggested was to pay back everything. The amount per retiree would drop over time because you stopped taking in new beneficiaries. So youre paying out 700bn right now to 60 million beneficiaries. At some point people die faster than new people retire, so the payouts decrease until you get to zero.

Where do you think that money will come from? That $1 taken from you 40 years ago (1973) is worth $5.26 now accounting only for inflation. Or, looked the other way, you would get an inflation adjusted return of about $.19 for each SS dollar taken from you in 1973. That also ignores that you were taxed for "earning" that SS contribution paid as well.

Paying out $700 billion to 60 million amounts to $11,666.66 each per year making the situation be that to "break even" you need 1.8 median income workers to support each retiree, or 108 million such workers.

You need not increase the maximum SS retirement benefit simply because you raise (or eliminate) the earnings cap for SS taxation. True that it would be a slightly more progressive tax (thus income redistribution), but few object to 10% of the population now paying 71% of the total federal income tax. Progressive taxation is simply now the "American way".

 

[YoungConserv]

Detroit, is one such employer now.

Yeah I'd rather do literally anything else than live in that he'll hole.

 

[ttwtt78640]

Yeah I'd rather do literally anything else than live in that he'll hole.

Sometimes different is not really better.

 

[jonny5]

Where do you think that money will come from? That $1 taken from you 40 years ago (1973) is worth $5.26 now accounting only for inflation. Or, looked the other way, you would get an inflation adjusted return of about $.19 for each SS dollar taken from you in 1973. That also ignores that you were taxed for "earning" that SS contribution paid as well.

Paying out $700 billion to 60 million amounts to $11,666.66 each per year making the situation be that to "break even" you need 1.8 median income workers to support each retiree, or 108 million such workers.

You need not increase the maximum SS retirement benefit simply because you raise (or eliminate) the earnings cap for SS taxation. True that it would be a slightly more progressive tax (thus income redistribution), but few object to 10% of the population now paying 71% of the total federal income tax. Progressive taxation is simply now the "American way".

I already said where it would come from. General revenue. We eliminate the payroll tax, and pay social security benefits out of general revenue until everyone who paid into the system is paid back as they retire. The only differences with my system from the way it currently is, is you no longer enroll new people, and general revenue takes over funding.

But yes, I don't imagine many people would object to simply making the rich pay for the shortfall.

 

[jaeger19]

Let me make sure we aren't caught up in semantics. Regardless of what you call the accounts under discussion, the reality is that these are retirement accounts, not "safety nets". After all, every one of us will get the exact same results depending on the amount paid in, regardless of our conomic status. So, surely you don't believe that Mitt Romney has a "safety net". In fact, his SS check and my SS check are probably identical. As for " its value is in a safety net if all the above things go belly up or if you become disabled etc, or the economy tanks or goes into hyper inflation. or a myriad of other things that can waylay the best laid plans? well, yes, then nothing will be alright and nothing will matter. You can't base every thought, every concept, every idea on the ending of the world.

Now, lets dispose of a few useless presumptions so we can discuss this in a meaningful way. "the US defaults on its debt. The T bills you have in your account are worthless" . Sur, and if we are destroyed by Aliens from Alpha Centauri all forms of currency will be worthless. If you actually believe the US will default on its debt - that being the US that owns the US dollar - then nothing really matters, does it? As for Congress limiting the financial vehicles, what is the concern? That they will create a fund that transfers your money to the Cayman Islands? Or, more likely, might the investing be limited to a few well rounded global stock/bond/money market funds? If we want to assume the Cayman Islands, yes, sure, that's just awful and why even go on living?

All I've tried to do was postulate an alternative to the current Ponzi-type structure of the current SS system. Something which provides that "safety net" yet allows people some element of control and assures them they can have funds to access when they reach a retirement age. As for me personally, the current system works just fine and I'll cheerfully spend my $2177 that arrives on the 2nd Wednesday of the month that probably you provided some of the funds for.

1. The reality is that this is a safety net.. not a retirement account. Does Romney have a safety net? Sure... unlikely that he will need it.. but its there if he really needed it. The same with me. And we already saw what happens when you don't have a safety net. I. e. the great depression. In fact for a great number of elderly folks.. social security is their main source of income. So its already a safety net for millions of americans.

Its not about "basing every thought and every concept on the ending of the world"... its about common sense. Or did you never consider buying life or health insurance because "the world might end"?

2. As to the "US defaults on its debt the T bills you have in your account are worthless" You make a great diatribe about "nothing really matters"... Well here is the thing...

So why do you want to "keep congress hands off of it?" Because currently, Social security is already in Government Bonds. Called the social security trust fund. So the only way that Congress NOW can "steal" the money is to default on its bonds.

By putting investments into T bills.. you are doing basically the same thing that social security is ALREADY DOING.

Social security is not a Ponzi scheme.. not even close.... its works as insurance.

As far as what would be the problem with Congress limiting financial vehicles? Well, you are assuming that the same folks that you think will "steal the money"... will be fiscally sound when deciding what investments you should be limited too. What if our elected officials want to push investment toward certain lobbying groups... such as certain bank portfolios.

Sorry.. but you don't seem to see the irony of your plan. You want to take money "out of the hands of Congress".. (and its only in their hands because its in government bonds), then you want it put into government bonds and investment vehicles that Congress dictates

 

[specklebang]

1. The reality is that this is a safety net.. not a retirement account. Does Romney have a safety net? Sure... unlikely that he will need it.. but its there if he really needed it. The same with me. And we already saw what happens when you don't have a safety net. I. e. the great depression. In fact for a great number of elderly folks.. social security is their main source of income. So its already a safety net for millions of americans.

Its not about "basing every thought and every concept on the ending of the world"... its about common sense. Or did you never consider buying life or health insurance because "the world might end"?

2. As to the "US defaults on its debt the T bills you have in your account are worthless" You make a great diatribe about "nothing really matters"... Well here is the thing...

So why do you want to "keep congress hands off of it?" Because currently, Social security is already in Government Bonds. Called the social security trust fund. So the only way that Congress NOW can "steal" the money is to default on its bonds.

By putting investments into T bills.. you are doing basically the same thing that social security is ALREADY DOING.

Social security is not a Ponzi scheme.. not even close.... its works as insurance.

As far as what would be the problem with Congress limiting financial vehicles? Well, you are assuming that the same folks that you think will "steal the money"... will be fiscally sound when deciding what investments you should be limited too. What if our elected officials want to push investment toward certain lobbying groups... such as certain bank portfolios.

Sorry.. but you don't seem to see the irony of your plan. You want to take money "out of the hands of Congress".. (and its only in their hands because its in government bonds), then you want it put into government bonds and investment vehicles that Congress dictates

Even though we may not completely agree, I do appreciate your thoughtful (if a bit belated) response. Now, let's go over this together.

1. The reality is that this is a safety net.. not a retirement account. Does Romney have a safety net? Sure... unlikely that he will need it.. but its there if he really needed it. The same with me. And we already saw what happens when you don't have a safety net. I. e. the great depression. In fact for a great number of elderly folks.. social security is their main source of income. So its already a safety net for millions of americans.
•••It's still just semantics. You can call it a safety net and I can call it a retirement account but it will still be whatever it is. It's money you can access when you reach a certain age, nothing more.

Its not about "basing every thought and every concept on the ending of the world"... its about common sense. Or did you never consider buying life or health insurance because "the world might end"?
•••I think you misread the intent of my sentence. I'm saying the same thing you are, I was just being humorous about it.

2. As to the "US defaults on its debt the T bills you have in your account are worthless" You make a great diatribe about "nothing really matters"... Well here is the thing...
•••I thought that in my glorious diatribe the words if we are destroyed by Aliens from Alpha Centauri would clarify that I am saying that its not very likely.

So why do you want to "keep congress hands off of it?" Because currently, Social security is already in Government Bonds. Called the social security trust fund. So the only way that Congress NOW can "steal" the money is to default on its bonds.
••Did I say anything about congress keeping its hands off it? That was the poster I responded to, not me. I said that congress could limit the types of investment vehicles allowee to keep these accounts from going speculative.

By putting investments into T bills.. you are doing basically the same thing that social security is ALREADY DOING.
•••Yes, that's right. So, what's the problem?

Social security is not a Ponzi scheme.. not even close.... its works as insurance.
I used the term Ponzi system, not Ponzi scheme. Meaning that they method depends on new investors to pay the old ones. Am I wrong?

As far as what would be the problem with Congress limiting financial vehicles? Well, you are assuming that the same folks that you think will "steal the money"... will be fiscally sound when deciding what investments you should be limited too. What if our elected officials want to push investment toward certain lobbying groups... such as certain bank portfolios.
•••If everything is presumed to be a scam, nothing can ever be done about anything.

Sorry.. but you don't seem to see the irony of your plan. You want to take money "out of the hands of Congress".. (and its only in their hands because its in government bonds), then you want it put into government bonds and investment vehicles that Congress dictates.
•••No, I don't see the irony. I'm discussing individualization within parameters. Otherwise, we'll have active trading accounts and that doesn't seem appropriate.

 

[yobarnacle]

The notion social security is broke, is a financial trick..Social Security is THE LARGEST holder of our nation debt. More than owed to China. It's 3 trillion dollars owed to SS or a bit more now.

When they talk about SS being broke, they mean paying the benefits to the retired with the contributions from the working, and soon that will be upside down. We need more employment to keep that from happening.

They don't plan to pay back the debt to SS. It gets rolled over and over, only interest is paid. with devalued dollars.

A law requiring the debt to SS to be incremented/adjusted for inflation, so the value of dollars owed are equal to the dollars when paid in, SS would OWN the USA.

 

[JoeTheEconomist]

It IS means tested.
Now.
If you take SS at 62, you can't make more than a little under 14,000 before you start losing benefits. At 66, you don't lose any.

I have to pay FICA on ALL my salary.

The rich only on the first 140,000 or about. After that, no more FICA for them.

But the rich are exempt from means testing, only the middle class gets cut. The poor don't make enough to get hit.

Means-testing was introduced as part of the 1983 Social Security reform. It is applied on the 1040 to people who have 'substantial outside income'. The revenue collected on the 1040 related to Social Security benefits is returned to Social Security not put in the general fund.

I don't believe that what you discribe is really means testing. I don't understand the reasoning behind early-retirement in Social Security. It is old-age insurance, which people decide to take at a younger point in their life. Early retirement was added in 1956. I don't see that as a means test. It seems more like a you-aren't-really-retired-penalty. I don't see the point of that penalty, though. Discouraging working seniors is a wreckless economic policy.

All of these things occurred after Social Security was created.

Calling FICA a tax is very questionable. When you pay your 'tax' you get a promise of future cash in exchange. That may or may not come to fruition, but giving cash for a promise of future payments isn't a tax, it is a loan. The terms of that loan are so poor for the rich that you can say that they pay in part a tax.

 

[JoeTheEconomist]

The notion social security is broke, is a financial trick..Social Security is THE LARGEST holder of our nation debt. More than owed to China. It's 3 trillion dollars owed to SS or a bit more now.

When they talk about SS being broke, they mean paying the benefits to the retired with the contributions from the working, and soon that will be upside down. We need more employment to keep that from happening.

They don't plan to pay back the debt to SS. It gets rolled over and over, only interest is paid. with devalued dollars.

A law requiring the debt to SS to be incremented/adjusted for inflation, so the value of dollars owed are equal to the dollars when paid in, SS would OWN the USA.

Against the 3 trillion, there is 26 trillion in promises for which the system will not generate cash. You can say that there is 2.7 trillion in trust, but it is like saying there is a wad of cash in my left pocket ignoring all of the bills in your right pocket that you have to pay.

What you are writing is largely contridicted by the Trustees of the system. You may not trust them, in which case we have a discussion where we don't agree on facts. There is no evidence that anyone does not intend to pay back the Trust Fund. The problem is that once it has been repaid how will you make good on the other 23 trillion in unfunded promises.

 

[yobarnacle]

Means-testing was introduced as part of the 1983 Social Security reform. It is applied on the 1040 to people who have 'substantial outside income'. The revenue collected on the 1040 related to Social Security benefits is returned to Social Security not put in the general fund.

I don't believe that what you discribe is really means testing. I don't understand the reasoning behind early-retirement in Social Security. It is old-age insurance, which people decide to take at a younger point in their life. Early retirement was added in 1956. I don't see that as a means test. It seems more like a you-aren't-really-retired-penalty. I don't see the point of that penalty, though. Discouraging working seniors is a wreckless economic policy.

All of these things occurred after Social Security was created.

Calling FICA a tax is very questionable. When you pay your 'tax' you get a promise of future cash in exchange. That may or may not come to fruition, but giving cash for a promise of future payments isn't a tax, it is a loan. The terms of that loan are so poor for the rich that you can say that they pay in part a tax.

In 2011 I was making 650$ a day salary. Then the company went out of business due to Obamas moratorium. No jobs available. The whole industry was in desperate straits. So, I took my SS benefits, for 2 years, Beginning of 2013 I finally got another job. I didn't have to worry about paying SS back. I couldn't even file the income tax form. IRS said I had no taxable income! LOL

I imagine most people who elect SS at 62 didn't have much of an option.

 

[JoeTheEconomist]

My Proposal for replacing Social Security is to phase it out over 20 years on a voluntary basis.

In short: Everyone between 25 and 45 years old can opt to redirect 5% of their Social Security tax to a private 401K account every year for 20 years. So year 1 they could redirect 5%, year 2 they could do 10%, and so on. Upon retirement they would receive Social Security payments at a rate equal to the percentage they were paying in on the year prior to retirement. So if they redirected 100% by retirement then they receive no Social Security.

This would effectively phase out Social Security over the next 20 years for most Americans with only the die hard supporters continuing to pay in.

Furthermore, anyone 18 to 24 years old could opt to accelerate divestment at 10%/year

And where would you get the cash for this bonanza? It is unrealistic to suggest that you can make those 64 and older whole. Now you want to give cash to everyone.

 

[AlabamaPaul]

Against the 3 trillion, there is 26 trillion in promises for which the system will not generate cash. You can say that there is 2.7 trillion in trust, but it is like saying there is a wad of cash in my left pocket ignoring all of the bills in your right pocket that you have to pay.

What you are writing is largely contridicted by the Trustees of the system. You may not trust them, in which case we have a discussion where we don't agree on facts. There is no evidence that anyone does not intend to pay back the Trust Fund. The problem is that once it has been repaid how will you make good on the other 23 trillion in unfunded promises.

Would you name a program the government cannot fund should it choose to do so?. The trustees have stated the actions that would need to be taken when the IOUs have run out. When the government switches to accrual accounting, let me know. As long as it operates on a cash accounting basis, all future spending is unfunded...

 

[JoeTheEconomist]

No I don't have a savings acount I have a IOU that can be changed at a moments noticed.

Privatization would change your SS to a savings account. The problem is that it will cost you more than you will get back.

Here is what you are told... We will start putting YOUR payroll taxes into YOUR private savings account - and it will do soooo much better than Social Security Right? Here is the part that you missed. We are going to raise your income taxes so that we can continue to pay the benefits of existing retirees.

You gain nothing. All this does is change the pocket which is picked.

 

[JoeTheEconomist]

Would you name a program the government cannot fund should it choose to do so?. The trustees have stated the actions that would need to be taken when the IOUs have run out. When the government switches to accrual accounting, let me know. As long as it operates on a cash accounting basis, all future spending is unfunded...

This statement might have some point if the government were obligated to pay Social Security benefits. It isn't. That is why we are having a discussion about when benefits will be automatically cut.

 

[AlabamaPaul]

This statement might have some point if the government were obligated to pay Social Security benefits. It isn't. That is why we are having a discussion about when benefits will be automatically cut.

Why did you choose not to directly address the points? Would you let me know of one politician that would run on the platform of ending SS?

 

[JoeTheEconomist]

Eliminating the SS payroll tax why? That is one of the few "fair" taxes, except for one thing - the income cap. Why not remove the SS "contribution" income cap and see how much that improves the SS financial situation. Why would the amount per retiree drop? How is not paying SS to those that were forced to contribute for more than 30 years but are now "only" 50 years old "fair"?

FICA is hardly a tax. As I have pointed out separately, you get a promise of a dedicated revenue stream in exchange for your 'tax'. That isn't a tax. That is a loan.

It is not fair to pay those 50 less. They have contributed vastly more than those currently retired. You would penalize those who have put in the most so that you can subsidize those who have put in the least.

 

[yobarnacle]

Against the 3 trillion, there is 26 trillion in promises for which the system will not generate cash. You can say that there is 2.7 trillion in trust, but it is like saying there is a wad of cash in my left pocket ignoring all of the bills in your right pocket that you have to pay.

What you are writing is largely contridicted by the Trustees of the system. You may not trust them, in which case we have a discussion where we don't agree on facts. There is no evidence that anyone does not intend to pay back the Trust Fund. The problem is that once it has been repaid how will you make good on the other 23 trillion in unfunded promises.

The 26 trillion is for those not retired yet. The system is solvent at present expenditure rate. When the government over spends, prints fiat dollars that rob their value by devaluing money already in circulation, debt should be adjusted to reflect the new dollar value. a 2012 dollar is worth a 1950 nickel. So change that 3 trillion to 60 trillion owed SS. and pay SS interest on 60 trillion. solvency solved!

 

[AlabamaPaul]

FICA is hardly a tax. As I have pointed out separately, you get a promise of a dedicated revenue stream in exchange for your 'tax'. That isn't a tax. That is a loan.

It is not fair to pay those 50 less. They have contributed vastly more than those currently retired. You would penalize those who have put in the most so that you can subsidize those who have put in the least.

It's actually insurance for those that reach the determined retirement age...