[kjb]

This was mentioned in another thread, and I'm interested in everyone's opinion.

quote:
Originally posted by spacefreak:
Bush wants to push for personal Social Security accounts - where we individualy would manage our own Social Security. I think it's a good idea, and we need to get this in front of the nation to get the debate going. I really hope the debate doesn't get political, but I've wished that before on other issues.



I'd be really interested to hear everyone's opinions on how to solve this. I'm under thirty, and my wife and I aren't planning on drawing any social security. If we do get some, I'm guessing the age for no-penalty withdrawals will be over 70.

Do you think they cut off all of us under, say, 40 or something, and flat out tell us there just isn't going to be any for us?? Then what? Do they come up with a tax credit or deduction for X% of your salary (up to $XX,XXX like they do with FICA now) that you put into a retirement savings account?

I do think this is something we all should be talking about. Not just the political geeks here at MacNN, but America, as a whole.

Kevin

[spacefreak]

In 2001, Bush established the President's Commision to Strengthen Social Security

Their findings and proposed models are included in a PDF that you can grab from the site. There are also many charts also. The report is quite long at 256 pages, but it makes for an interesting read.

Here are the synopsis of the 3 reform models...

Reform Model 1 establishes a voluntary personal account option but does not specify other changes in Social Security’s benefit and revenue structure to achieve full longterm sustainability.
• Workers can voluntarily invest 2 percent of their taxable wages in a personal account.
• In exchange, traditional Social Security benefits are offset by the worker’s personal account contributions compounded at an interest rate of 3.5 percent above inflation.
• No other changes are made to traditional Social Security.
• Expected benefits to retirees rise while the annual cash deficit of Social Security falls by the end of the valuation period.
• Workers, retirees, and taxpayers continue to face uncertainty because a large financing gap remains requiring future benefit changes or substantial new revenues.
• Additional revenues are needed to keep the trust fund solvent starting in the 2030s.

Reform Model 2 enables future retirees to receive Social Security benefits that are at least as great as today’s retirees, even after adjusting for inflation, and increases Social Security benefits paid to low-income workers. Model 2 establishes a voluntary personal account without raising taxes or requiring additional worker contributions. It achieves solvency and balances Social Security revenues and costs.
• Workers can voluntarily redirect 4 percent of their payroll taxes up to $1000 annually to a personal account (the maximum contribution is indexed annually to wage growth). No additional contribution from the worker would be required.
• In exchange for the account, traditional Social Security benefits are offset by the worker’s personal account contributions compounded at an interest rate of 2 percent above inflation.
• Workers opting for personal accounts can reasonably expect combined benefits greater than those paid to current retirees; greater than those paid to workers without accounts; and greater than the future benefits payable under the current system should it not be reformed.
• The plan makes Social Security more progressive by establishing a minimum benefit payable to 30-year minimum wage workers of 120 percent of the poverty line. Additional protections against poverty are provided for survivors as well.
• Benefits under the traditional component of Social Security would be price indexed, beginning in 2009.
• Expected benefits payable to a medium earner choosing a personal account and retiring in 2052 would be 59 percent above benefits currently paid to today’s retirees. At the end of the 75-year valuation period, the personal account system would hold $12.3 trillion (in today’s dollars; $1.3 trillion in present value), much of which would be new saving. This accomplishment would need neither increased taxes nor increased worker contributions over the long term.
• Temporary transfers from general revenue would be needed to keep the Trust Fund solvent between 2025 and 2054.
• This model achieves a positive system cash flow at the end of the 75-year valuation period under all participation rates.

Reform Model 3 establishes a voluntary personal account option that generally enables workers to reach or exceed current-law scheduled benefits and wage replacement ratios. It achieves solvency by adding revenues and by slowing benefit growth less than price indexing.
• Personal accounts are created by a match of part of the payroll tax – 2.5 percent up to $1000 annually (indexed annually for wage growth) – for any worker who contributes an additional 1 percent of wages subject to Social Security payroll taxes.
• The add-on contribution is partially subsidized for workers in a progressive manner by a refundable tax credit.
• In exchange, traditional Social Security benefits are offset by the worker’s personal account contributions compounded at an interest rate of 2.5 percent above inflation.
• The plan makes the traditional Social Security system more progressive by establishing a minimum benefit payable to 30-year minimum wage workers of 100 percent of the poverty line (111 percent for a 40-year worker). This minimum benefit would be indexed to wage growth.

Additional protections against poverty are provided for survivors as well.
• Benefits under the traditional component of Social Security would be modified by:
• adjusting the growth rate in benefits for actual future changes in life expectancy,
• increasing work incentives by decreasing the benefits for early retirement and increasing the benefits for late retirement, and
• flattening out the benefit formula (reducing the third bend point factor from 15 to 10 percent).
• Benefits payable to workers who opt for personal accounts would be expected to exceed scheduled benefit levels and current replacement rates.
• Benefits payable to workers who do not opt for personal accounts would be over 50 percent higher than those currently paid to today’s retirees.
• New sources of dedicated revenue are added in the equivalent amount of 0.6 percent of payroll over the 75-year period, and continuing thereafter.
• Additional temporary transfers from general revenues would be needed to keep the Trust Fund solvent between 2034 and 2063.

[Spoogepieces]

Here's how it should be done:

Starting tomorrow, those who want to opt out should be allowed to opt out. The government still takes a percentage of your paycheck, but, the money is in your account and your account only. If you need to take some out of that account for an emergency you should be able to.

If someone chooses not to opt out then let them pay higher and higher taxes into the pool as people retire, live longer, and collect far more than they pay into it.

Or....

Just stop the program completely, refund to each person who has paid into SS every penny they were forced to pay into it (plus interest) then let each person decide how to invest or save that money for their retirement without the government forcing it down our throats.

This business of collecting from some to redistribute to others has got to stop.

[spacefreak]

Originally posted by Spoogepieces:
Here's how it should be done:

Starting tomorrow, those who want to opt out should be allowed to opt out. The government still takes a percentage of your paycheck, but, the money is in your account and your account only. If you need to take some out of that account for an emergency you should be able to.

If someone chooses not to opt out then let them pay higher and higher taxes into the pool as people retire, live longer, and collect far more than they pay into it.

Or....

Just stop the program completely, refund to each person who has paid into SS every penny they were forced to pay into it (plus interest) then let each person decide how to invest or save that money for their retirement without the government forcing it down our throats.

This business of collecting from some to redistribute to others has got to stop.

I like your thinking, but we are in way too deep to do either. Option 1 is a recipe for disaster. Option 2 just can't happen.

If everyone were to opt out, the elderly would suffer. And SocSec can't even think about refunding everyone's contributions (plus interest) - it just doesn't have the money. Both of these problems are due to the nature of SocSec - that contributions made by workers get redirected to pay those collecting benefits.

[Spoogepieces]

Originally posted by spacefreak:
If everyone were to opt out, the elderly would suffer.

Not if they paid into the system. Not if we stopped being selfish and locking up the elderly in retirement homes. I believe the elderly problem is a social one that cannot be solved by continuing to pour money into a bottomless government sinkhole.

And SocSec can't even think about refunding everyone's contributions (plus interest) - it just doesn't have the money.

Well, better to get something back then nothing at all. Way it's going I'll be paying in for another 30-35 years and might not get anything back. Where's the fairness in that?

Both of these problems are due to the nature of SocSec - that contributions made by workers get redirected to pay those collecting benefits.

Sooner or later the choice has to be made to get rid of the current scheme. Better now when it affects fewer people than in the future when more are affected.

[AKcrab]

Am I reading the models right? Model 2 and 3 are capped at $1000 annually? That's just not enough.

I'm not sure I have a solution to offer, but I am a bit ticked that I'm putting money into a system that probably won't benefit me at all.

[spacefreak]

Originally posted by Spoogepieces:
Not if they paid into the system. Not if we stopped being selfish and locking up the elderly in retirement homes. I believe the elderly problem is a social one that cannot be solved by continuing to pour money into a bottomless government sinkhole.

The overwhelming majority of retirees are not "locked up" in homes. Regardless, we cannot even think about refunding their lifetimes worth of contributions w/ interest because the money is not there.

Well, better to get something back then nothing at all. Way it's going I'll be paying in for another 30-35 years and might not get anything back. Where's the fairness in that? Sooner or later the choice has to be made to get rid of the current scheme. Better now when it affects fewer people than in the future when more are affected.

That's why we're discussing reform.

[spacefreak]

Originally posted by AKcrab:
Am I reading the models right? Model 2 and 3 are capped at $1000 annually? That's just not enough.

That's more than enough compared to what SocSec benefits are. Are you aware of the check sizes retirees receive. It's not much at all. SocSec was meant to prevent the elderly from starving, not to provide lucrative and luxurious retirements.

Furthermore, you are always encouraged to do some saving of your own. Heck, people have been pouring the maximum ontribution of $2000 annually into personal Roth IRAs (maximum is now $3K annually) and building some nice nest eggs.

I'm not sure I have a solution to offer, but I am a bit ticked that I'm putting money into a system that probably won't benefit me at all.

It's unlikely that any solution you propose would be anywhere near as comprehensive as the ones put together already. Some of the world's most knowledgeable and experienced minds spent a good deal of time, energy, and resources putting together the President's report. I suggest that everyone who is truly concerned and willing to engage in the debate read it.

The President directed the Commission to propose Social Security reform plans that will strengthen Social Security and improve its fiscal sustainability, while meeting several principles:
• Modernization must not change Social Security benefits for retirees or near-retirees.
• The entire Social Security surplus must be dedicated to Social Security only.
• Social Security payroll taxes must not be increased.
• Government must not invest Social Security funds in the stock market.
• Modernization must preserve Social Security’s disability and survivors components.
• Modernization must include individually controlled, voluntary personal retirement accounts, which will augment the Social Security safety net.

[AKcrab]

I must not be understanding something basic.
I have paid $2140 ytd for social security. How can it be that $1000 annually will cut it?
(I'm not trying to be obtuse, I'm seriously confused.)

[chalk_outline]

Originally posted by AKcrab:
I must not be understanding something basic.
I have paid $2140 ytd for social security. How can it be that $1000 annually will cut it?
(I'm not trying to be obtuse, I'm seriously confused.)

They must be thinking monthly. My father was murdered when I was 13 and I got a unknown amount monthly for many years. But, when I was 16 I got the entire check to myself and I got $927 per/month. The last few years of high school were a blast. I did have to pay for my own rent and utilities and food.

Keep in mind my dad pulled in 100K+ his last year alive. And I guess they base the benefits off of the last year you pay in. And I think it tops off at around 68K per year. That number is maybe a decade old.

But, the system is ****ered and I can't think of a fair way to fix it. This is a discussion that should be had. Hopefully the government follows suite.

[edit: nevermind, I was basing my numbers from the high end of the spectrum. Maybe the low end only gets $90 per/month. I always assumed the average was around 500-600 per month. This should be a easy number to dig up though.]

[spacefreak]

Originally posted by AKcrab:
I must not be understanding something basic.
I have paid $2140 ytd for social security. How can it be that $1000 annually will cut it?
(I'm not trying to be obtuse, I'm seriously confused.)

It's not $1000. Read Reforms #2 and #3 again.

Like with #2: You're redirecting up to $1000 of your payroll taxes (4%) into a personal account. Now, I don't know what your total payroll taxes are, but maybe try to imagine that instead of $2140 going to SocSec, it would be $1140 to SocSec and $1000 into a personal, interest generating account.

It's definitely complex. We need a financial guru to come into this thread and contribute to the discussion. I'm sure we all could learn a lot.

[Spoogepieces]

Why can't I simply opt out completely and take all that's going into SS now and put it into a higher yielding account of my choice?

[chalk_outline]

From:

http://www.ssa.gov/pressoffice/colapress2001.htm

Monthly Social Security and Supplemental Security Income (SSI) benefits to more than 50 million Americans will increase 2.6 percent in 2002, Larry G. Massanari, Acting Commissioner of Social Security announced today.

"Today's news tells us that inflation continues to be low which is certainly good news for the elderly and disabled," said Acting Commissioner Massanari. "Inflation is one of the biggest challenges for people living on a fixed income."

The 2.6 percent increase will begin with benefits that 45 million Social Security beneficiaries receive in January 2002. Increased payments to more than 6 million SSI beneficiaries will begin on December 31.

For Social Security beneficiaries, the average monthly benefit amount for all retired workers will rise from $852 to $874. The maximum federal SSI monthly payment to an individual will rise from $531 to $545. For a couple, the maximum federal SSI payment will rise from $796 to $817.

"The annual Cost-of-Living Adjustment (COLA) is one of the most critically important features of the Social Security program," stated Acting Commissioner Massanari. "For the elderly, it guarantees that their foundation of retirement income will remain strong for as long as they live."


---I think 1K per year would be a major cut---

[chalk_outline]

Originally posted by Spoogepieces:
Why can't I simply opt out completely and take all that's going into SS now and put it into a higher yielding account of my choice?

I think you should be able to. But what about my mom that has been paying in for 35 years? Dealing with her is the real problem. I guess we could have a massive tax increase and cut her a check.

[djohnson]

Want to know something really funny? If you are a government employee, at least in Texas, you do not pay into SS. They take out 6.9% after you have worked there for 3 months and put it into their retirement system. I dont know about federal employees, but I am sure it is similiar. Of course this means that they cannot draw from SS either, unless you paid into it before you becamse a government employee.

[spacefreak]

Originally posted by Spoogepieces:
Why can't I simply opt out completely and take all that's going into SS now and put it into a higher yielding account of my choice?

If we all opt out, current and near-retirees will be left without a dime in benefits. Sure, it works for you, but there is an entire nation to consider.

[Spoogepieces]

Originally posted by spacefreak:
If we all opt out, current and near-retirees will be left without a dime in benefits. Sure, it works for you, but there is an entire nation to consider.

Is that really my fault that they created a system that would break eventually?

[chalk_outline]

Originally posted by Spoogepieces:
Is that really my fault that they created a system that would break eventually?

It is not your fault they did that. But it is our duty to come up with a solution. This is going to be ugly. It is time to pull together and find a fair solution. The system is broken. Maybe we should look into how to fix it.

[Spoogepieces]

Of course it needs to be fixed. But as more and more people realize that they aren't going to get back what they paid into the system there becomes more of a possibility of anger and resentment towards those who are getting out much more then they paid in.

It is going to be a much more severe social problem in this country if classes of people are pitted against each other if this issue isn't resolved soon.

I personally feel that it's too late to fix the system and we'd be better off grandfathering those in who have paid and simply allow those from now on to either choose the option to opt out or continue to pay in. I believe that a person should have the right to choose that option and it should be a lifetime option (meaning if a person chooses to opt out then that person cannot choose to opt in later on).