Centerfield

I'm going to have to do some digging to answer your question with any level of specificity.

From memory, though, I can tell you that purchasing annuities is usually the mechanism for providing benefits from these accounts. I saw a reference, recently, to the account holder having the ability to do whatever he/she wants with any amounts over the amount it takes to purchase an annuity with benefits equal to 175% of poverty.

In other words, if your account is really big, and you cover what's needed for your own lifetime benefits, you can do what you want with the remainder. That would seem pretty reasonable to me.

Posted by: William Swann at January 30, 2005 01:43 PM

Here you go. From the CBO analysis of the Kolbe-Stenholm proposal:

Distributions from the accounts would generally commence when the accountholders begin drawing Social Security retirement benefits. However, if, by that time, an account were to grow sufficiently large to permit the accountholder to purchase an indexed annuity that would equal or exceed (in combination with the recipient's Social Security benefit) 185 percent of the poverty line, the worker could withdraw those excess funds for any purpose.

In other words, the amount in the account necessary to cover benefits gets used for the accountholder's benefits. If there's an excess of over 185% of poverty, however, the money could be inherited (or spend by the accountholder, for that matter).

Posted by: William Swann at January 30, 2005 01:50 PM

Now if only Kolbe-Stenholm were actually on the table! Seriously, until something is actually proposed we can't do much analysis on it. Details are everything, and sniping at what never shows up is shooting in the dark. A waste of ammo.

Most people's retirement accounts are informally annuitized. That is, they figure their maximum life expectancy and schedule withdrawals accordingly. A "cushion" factor is usually included.

Posted by: Tully at January 30, 2005 02:06 PM

An interesting commentary on this week's Sound Money (from Minnesota public radio). They had a segment on SS and one commentator took the position that treasury obligations should be considered an asset, because he argued a treasury obligation is as safe as it can get. In addition, he compared SS to putting your money in the bank or S&L. They don't keep your money, they loan it out to someone else or invest it somewhere, as does a life insurance company that takes your money for an annuity.

Here's the link:

http://soundmoney.publicradio.org/

Posted by: tim at January 31, 2005 04:43 PM

Yeah, I've heard that argument. Repeatedly. Economically and financially and realistically speaking, the official label for it is "steer manure." Well, close enough. I like to keep it clean.

If you owe it to yourself, it's not an asset. You had it. You spent it. You gave yourself an IOU for it. If you don't have to pay yourself back, it's a wash. If you do, it's a liability. It's one of the most basic rules of finance.

The government owns the debt, the government issued the debt, the government spent the money, the government must tax us to repay itself the money it already taxed us and spent, so that it can pay us. Round and round we go....

This is akin to borrowing money from your 401(k) and leaving IOU's in its place. I mean, it's a safe investment, right? You're good for it, aren't you?

If I put my money in a bank, I own the money. I can withdraw it. If I die, my kids will get it.

If I put money in SS (and I do, at the doubled-up self-employment tax rate of 15.4% of every dollar earned before deductions and/or other income taxes) I can't withdraw it. I don't own it. My kids have no rights to it. It's the government's money. If I live long enough and they don't change the rules I might get some of it back. If I die before I get all of it back (quite likely, given family history and other factors), too bad. If I die before I get any of it back, too bad. If they decide to change the rules, too bad.

The other day the Wasington Times had a surprisingly cogent overview of the reform research process during the Clinton years. Surprisingly cogent for the WashTimes, that is.

Posted by: Tully at January 31, 2005 05:40 PM

Tully;
Read the Washington Times report. Two questions:
1) Am I reading this right, that Bill's committee was coming to some of the same conclusions/options that GW is? (Or put another way, even during the economically "good times" of the late 90's there was a sense in the White House that SS inevitable problems needed to be addressed.)

2) The opportunity to "start" while we had a budget surplus was squandered away because of a stain on a blue dress? (Boy that IS like the Butterfly effect.)

Posted by: Chris at January 31, 2005 06:42 PM

Chris, the Clinton-era study group came to the conclusion that partial privatization with a TSP-type forced savings program was the cheapest and safest way to save the program. The options farther out in either direction (do nothing and bury the taxpayers with the "gap," or looser and larger privatization) were worse. There's a cost/risk "trough" in the options range that is the most sensible place to go. Either way out from the trough is uphill (more expensive and/or more risky and/or less benefits).

Whether or not that's what is proposed--got me. It's what I have argued for, simply on the facts--but we know facts may not rule the debate, as they haven't so far. One side wants to do nothing and bury the taxpayers. The other side wants privatization, but hasn't offered any solid details.

Squandered? Who knows? But I doubt it. Clinton would have faced the same far-left big-government opposition within his own party that Bush is facing. He would have had the support of some of the more centrist Democrat members, but he would also have had the determined opposition of much of the Republican far right. Simply because he was a Democrat, and because he was Clinton. Sound familiar?

Posted by: Tully at February 1, 2005 10:37 AM

So Tully, am I interpreting your point of view correctly, that "ownership" is the primary reason you support SS reform?

Would you not support reform that took your personal account balance and forced you to purchase an immediate annuity that paid you a lifetime income but wasn't transferable to an heir?

To me, SS is "old age insurance", which doesn't represent a transferrable asset. I would support privatization if the end result is to make the system more solvent. But I still firmly believe it is good public policy to provide a safety net for old people.

But it seems to me your view is ideological, i.e. it's a government "taking" of your money that you can better manage yourself, rather than mere opposition to SS because it has been fiscally mismanaged. If that's the case, and I'm sure you will correct me if I'm wrong, that leads me to conclude you are probably in that group of people who just don't believe SS should exist, period, because it amounts to theft. And I have been criticized on this forum for stating that is the real motivation of those in the GOP who want to "reform" the system.

Posted by: tim at February 1, 2005 10:50 AM

That's a whole lot of soup out of a few bad assumptions, Tim. Please permit me to elucidate.

So Tully, am I interpreting your point of view correctly, that "ownership" is the primary reason you support SS reform?

Wrong. I support SS reform because the SS system is fundamentally flawed, somewhat dishonest, and could be done better. I don't think the solution lies at either end of the "trough," I think it lies in the middle. If you can improve a program and make it more transparent, effective, and efficient without causing more social damage than you cure, you should.

Would you not support reform that took your personal account balance and forced you to purchase an immediate annuity that paid you a lifetime income but wasn't transferable to an heir?

Hmmm. That sounds suspiciously like the current setup, which guarantees I'll pay higher taxes in the future to keep the government checks rolling out. So show me the numbers! If it makes sense, yes. If it's just another way to piss on me and tell me it's life-giving rain, then no. The "forcing" was done when the money was taken from me in the first place. The ripoff comes when I don't get it back and I'm lied to about it. Should I be forced to pay $100K for an annuity only worth $50K to me? So the government can spend the extra sending checks to Warren Buffet and Bill Gates?

To me, SS is "old age insurance", which doesn't represent a transferrable asset. I would support privatization if the end result is to make the system more solvent. But I still firmly believe it is good public policy to provide a safety net for old people.

In order: [1]Insurance plans are normally financially sound. SS is not. (Insurance plans often involve transferable and inheritable cash balances, even.) If SS were an insurance plan it'd be offered by Colonial Penn on late night TV--that's the kind of deal it is. [2] The government could easily make SS "financially solvent" by taking ALL of our money--would you support that? OK, there's a bit of snark in there. Show me a way to make it more fiscally solvent in a real sense, and we'll talk. And [3] I think it's great public policy to have a safety net, and I'm willing to pay my share, and I demonstrate that daily in my taxes, my charitable donations, and my volunteer work. But where does the safety net turn into a feather bed? Warren Buffet is eligible for SS. His investment income does not count against his checks. Some safety net! Should I volunteer time to wax Buffet's limo as a public service?

But it seems to me your view is ideological, i.e. it's a government "taking" of your money that you can better manage yourself, rather than mere opposition to SS because it has been fiscally mismanaged

It's both. I know I can manage my own money better than SS does, I've been managing mine and others AND large amounts of public funds for years. My track record is enormously better than SS's. I'm bonded to handle and manage huge sums, and often do. (No, we're not rich, or even close. Most of that fiduciary work is in low-paid or no-paid public service.) And yes, it's ideological in the sense that I'm not a socialist or communist. I do NOT think that it's the government's business to take ever-growing amounts of our assets until we have none, leaving us dependent on the largesse of government, all in the name of "helping" us. I do just fine at helping myself while also helping many others, thank you, without hurting anyone.

If that's the case, and I'm sure you will correct me if I'm wrong, that leads me to conclude you are probably in that group of people who just don't believe SS should exist, period, because it amounts to theft.

That is the case, so let me correct you! Your conclusion is utterly and totally wrong. You're apparently picturing me as some kind of ideological anti-tax libertarian purist with no sense of either reality or social responsibility. Please think again.

I want the SS system fiscally solvent in a real sense, not a "we'll tax your children into ruin to make sure you get your checks" sense. (And yes, I have children.) I don't think that can be accomplished without some major systemic reforms. I'm wide open to any reforms that make sense and add up--and I am capable of doing the math. I think that the people at the bottom of the ladder need to be solidly protected. I think the people at the very top of the ladder need to quit putting their hand out. I think those in the middle can do a pretty fair job of taking care of themselves (especially with a good mixed system)but need that safety net handy if the bottom falls out. And I think that if we can improve the system and raise the general level of public good in the process, we should damn well do so, and screw the effin' ideologues and partisans.

Is that detailed enough to clear up any misunderstandings? I'm not trying to be contentious, but I don't want to be misunderstood.

Posted by: Tully at February 2, 2005 12:29 AM

Tully:

I don't want to be misunderstood either, nor do I wish to be contentious. If I want to be treated shabbily (which I am not implying you have done), I can go to one of the left-wing sites where questioning the status quo is not tolerated. I also had no image of you as an anti-tax libertarian purist, just someone less undecided than me on this issue.

It's just hard to reconcile statements like:
"The "forcing" was done when the money was taken from me in the first place. The ripoff comes when I don't get it back and I'm lied to about it." with the fact that it(the second part) hasn't happened, and while it may happen, it also may not.

I don't manage money for a living, but have done a pretty good job of managing my own, to the point where I fully expect no financial problems in later life, barring some unforeseen tragedy. I will restate my bad assumption and substitute the words "philosophical differences" for ideology. While you seem willing to look at reasonable compromises, you also seem to view SS as an investment program; I contend it isn't. To that end I think it makes more sense to keep investment and insurance separate.

I'm sure there is some common ground in there somewhere. At least I recognize the reality of past overspending, future budget problems and demographics. That's better than most democrats. I'm just concerned they'll throw out the baby with the bath water.

And one final point, SS pays about 40% of retirees living expenses. It was never meant to be anything more than supplemental. I think you overstate by concluding we're going to be (or have been) made dependent upon the largess of the government.

Posted by: tim at February 2, 2005 02:12 PM

While you seem willing to look at reasonable compromises, you also seem to view SS as an investment program; I contend it isn't. To that end I think it makes more sense to keep investment and insurance separate.

Yep and Nope. It most certainly isn't an investment program. Nor do I view it as an insurance program, though it has some aspects of insurance. So do those "You can't be turned down!" Colonial Penn late-night insurance commercials--but it's not insurance you really want to buy. SS as it is now structured is an entitlement program originally begun to fill a social insurance purpose. And we should be asking how to keep it useful and workable for that "safety net" purpose, while destroying the notion of it as an "investment" vehicle, or an assured entitlement for those who don't even need it. Taking money from Joe the Carwasher to keep Warren Buffet in limo-wash money doesn't make much sense--unless you're the middleman with control of the distribution, and get to keep a cut.

Investment and savings programs, even if "forced" savings under the auspices of government, should be just that.

I'm just concerned they'll throw out the baby with the bath water.

Me too. I also don't want to see the baby drown by inches under a rising tide of federal taxes.

I think you overstate by concluding we're going to be (or have been) made dependent upon the largess of the government.

If we're not, then we don't need SS, right? :-) Seriously, if the program requires massive amounts of new taxes to keep afloat, and the "payoff" for current payees keeps shrinking, I'm not exactly missing the mark. As taxpayers, we're paying more and getting less, when that additional money, if left in our own hands, can produce more than we expect now. Anytime "fixing" a govenment program involves taking more money to produce less net benefit for everyone involved, it's a scam. It's not even a zero-sum game at that point, it's a reducing-sum game. And a pointless one if we can produce an equal or greater benefit in all ranges for less money.

The "Do Nothings" would have us keep drowning that baby by inches. The "Eliminators" would have us throw some out with the bathwater. I think there's some excellent solution space in the middle that doesn't involve major sacrifice of either variety if we can get past the demogoguery of the ideologues and partisans.

Posted by: Tully at February 2, 2005 02:50 PM

Well, I certainly agree there is a middle ground in there somewhere and hopefully we will reach it.

I think about this issue alot, primarily because it isn't baseball season and there aren't any midwestern teams in the Super Bowl. One thing I think everyone should consider when the argument is made that we are destined to get a shrinking payback from our SS taxes is the government has been proactive about other tax-advantaged retirement options; first the tax-deferred IRA and later the Roth-IRA as well as the 401k and 403b. Most middle income earners can contribute to those programs. My wife and I do and it's stunning how the balance has grown. Heck, even the most wealthy can buy 15k per year in US savings bonds and defer the interest for 30 years. These are true personal accounts with complete control in the hands of the individual. So there are options.

Perhaps one compromise would be to significantly increase the cap on income subject to FICA in exchange for a significant increase in the caps for IRA contributions. The government gets more revenue in the short term in exchange for the probability the wealthiest will be means tested out of some or all of their benefits in the future.

Posted by: tim at February 3, 2005 01:27 PM