Centerfield

At age 55 Social Security is a big issue for me. I hardly know where to start.

I'm a big believer in personal responsibility, and I knew 30 years ago that SS was a ponzi scheme (lock box my ass), so I've tried to save enough that I wouldn't have to rely on SS. I'm still woefully short of where I want to be though. (insert excuses and hard luck stories here). And I'm death against passing the bill onto my children.

To me it seems raising the eligibility age, I mean really raising it, is the solution with the least pain and dislocation involved. Coupled with a small mandatory savings plan it makes a good long term band-aid. I can't see a voluntary savings plan doing much good. That already exists. Incentivizing retirement savings helps, but how about the working poor? Means testing is a possiblility, but do we want old age welfare? Why save if I will be covered anyway?

With the coming revolution in genetics and nanotechnology we are going to live a _lot_ longer than anyone is planning for.

SS has become nore than a safety net, it has become an entitlement. I'll live to see the problems if we don't solve them soon. But I see no real solution that doesn't involve a lot of pain and self-sacrifice. And the American psyche shows no sign of willingness to self-sacrifice. I feel stuck in the middle between my parents and my children.

Let alone Medicare.

Posted by: Dennis at December 1, 2005 02:06 AM

It's really discouraging how much popular resistance there is to the flow of simple enlightenment about the nature of the problem, which is demographic: more people living longer. The bottom line is that it's going to cost each 21st century individual a lot more money to live out their remaining years than it cost 20th century individuals. A lot more...more like a multiple than like a fractional increase.

Sooner or later a whole host of things will either get placed on the table by political consent (the sooner path), or get dragged onto the table (the later path) due to financial crisis: raising eligibility age; lowering benefits; mean-testing; increasing payroll taxes; integrating investment. I'm too tird right now to go through each of these in detail, but quickly:

raising eligibility age,lowering benefits these are the options least likely to garner widespread political support any time soon

mean-testing May come in some form but includes the catch-22 Dennis mentions above: unless you have substantial surplus income, it's unlikely you can save enough to make a big difference come retirement, so why bother, if prudence may well get punished and profligacy rewarded

increasing payroll taxes This is the most straightforward and understandable way to re-balance the current equation, which means many people may support it at a glance. But payroll taxes are already substantial. How much higher can they get without strangling future generations, decimating economies, and growing intergenerational antipathy?

integrating investment This means converting SS from a pay-go system (taking payroll tax revenue from current workers to pay for SS benefits of current retirees) to one where some of the money is invested so that in the future, there's a larger pool of money to draw upon to pay future benefits. The biggest problem with this is that it creates a serious revenue shortfall. We are quickly appraoching a point where payroll tax revenue collected will no longer be greater than SS benefits paid out. So where does the extra money come from that will allow meeting current obligations while also setting aside money to be invested? No one has a very good answer to this. If the government borrows the money, that means they are borrowing money in order to invest, and that's risky. The question becomes this : if the government borrows extra to allow money to be set aside for investment: do we actually see real growth when interest payments and inflation are accounted for? How much? Is there much agreement here?

I'm not going to make any recommendations about which of these things should happen, beyond noting that as each days passes, it's likely we'll have little choice but to do virtually all of them.

IMO, the first thing we should do is make balancing the federal budget a top priority.

Posted by: bk at December 1, 2005 09:24 AM

There's also this article in the UK Telegraph on the problem, and for some tangential illumination there's this article in the Washington Post on the urban housing problem.

Something that deserves major consideration here: As company-sponsored private pensions vanish and retirement ages rise, what one sector still offers early retirements with full benefits, and fairly generous ones at that?

Government. This is a disparity that can't last forever, as the taxpayers who pay the bill for government pensions WILL object to working to age 70 so that a 55-yr-old government employee with 30 years service can take full retirement.

Congress can talk about tax preferences for savings plans and such all they like, but the unescapable fact is that longer lives and lower birth rates will squeeze the hell out of the system.

Posted by: Tully at December 1, 2005 10:49 AM

"Government. This is a disparity that can't last forever, as the taxpayers who pay the bill for government pensions WILL object to working to age 70 so that a 55-yr-old government employee with 30 years service can take full retirement."

If you are referring to taxpayers paying the salaries for these employees then you are correct... but these employees pay into their retirement fund which is then invested immediately.

The difference with SS is that every dollar that we pay into the system is spent paying the current retirees, anything leftover is put in the general fund and spent as Congress sees fit. That is the biggest problem that I have with it. That is why I really want to see a percentage of the SS money that we pay in, actually be 'ours' and invested to earn us money instead of being spent to buy politicians their votes. Then if they have to reduce the amount of SS payouts in the future, we would at least have the additional money that was invested in our own names.

Another problem that I have with SS is the fact that if you and your spouse work until you are 67, you both retire, buy a used RV and decide to travel. The kids are all grown and you both are in reasonably good health... you get in a car accident and both are killed.... everything that they have paid into the system for the 40+ years of their working lives is lost... the children will get a death benefit of $255 per parent... all of this money that was taken from their family while they were young and they won't see a penny of it. That is just wrong!!!! Especially for the working poor and the lower middle income families... they have paid alot of their 'net worth' into a system that won't even allow them to pass any of it onto their children. This money could have been invested by these two, and then if they died it would go to their heirs... instead the Government keeps it with a 'Too Bad, So Sad' note.

Posted by: debsay at December 1, 2005 01:45 PM

Another thing that really gets my goat is that these arrogant government politicians get to have complete control of our 'Social Security' even though they don't have to pay into it or live under it's rules!!! They get to choose investments plans with their retirement money.... but then don't want to allow us to do the same???? WTF???

Does this piss anybody else off here????

If they want to have complete control over SS they should have to share the same retirement plan, I bet they would find a way to make some fixes pretty quick.

I'm not counting on SS at all, as a matter of fact if they would allow me to I would opt out of the program if they would leave my earnings alone and allow me to invest it. I'm at the tail end of the baby boomers and I know it will be broke or worthless by the time I retire.

We need to get a motion on the ballot of every state that makes it illegal for them to vote in pay raises for themselves without it passing a general vote from the citizens of this country. We should also put a motion on the ballot to force elected politicians to pay into and draw from Social Security instead of the Federal Retirement plan that they refuse to consider allowing SS to pattern itself after.

Posted by: debsay at December 1, 2005 01:52 PM

(NOTE: Federal employees and Congresscritters DO pay into Social Security, just like the rest of us. They also have a mandatory pension plan (FERS), and an optional 401(k) type plan (TSP).)

Posted by: Tully at December 1, 2005 02:04 PM

It's only us state employees who don't pay into Social Security. I've been working in one form or another since 1985, and I have only about 18 or 19 quarters (if that many) in Social Security. I've mostly worked for state government, which can and does exempt itself. Our pension plan is actually very close to being actuarially sound (after years of neglect, the legislature finally got serious), with real investments and everything, not just government IOUs. So when I retire, the next few generations down will not be subsidizing my continued existence. The trick is for the retirement fund to have real investments, not IOUs from another arm of your company or government.

Posted by: PatHMV at December 1, 2005 02:16 PM

Some municipalities are also exempt, Pat. At least in home rule states. Wichita has its own pension plan, which is in great shape. (No, I'm not in the local plan, I pay into SS like everyone else.)

Posted by: Tully at December 1, 2005 02:23 PM

From Tully's link tothe Telegraph.

Private pension provision was in "serious and probably irreversible decline". The state would have to step in to help fill the gap while the age at which people could collect their state pension should be increased gradually.

Hmmm Whereas we were looking to use private pensions to fix our governmental system that was in "serious decline"

Posted by: c3 at December 1, 2005 03:21 PM

They're talking about different things, though we have the same problem. They're speaking of business-provided private pensions, which are rapidly vanishing in America as well. We haven't heard any big cry to rely more on business-provided pensions. Nor will we.

That's not at all the same as contributor-owned individual retirement accounts. But Britain's had their own stumbles with their "privatized" portions, and we should look and learn there.

Posted by: Tully at December 1, 2005 03:31 PM

I see raising the normal retirement age as being the best solution. We could still offer early retirement but use a sliding scale instead of just the two options we have now. Adding in the ability to work part time and still recieve some benefits would help the working poor, who are most hurt by raising the NRA. If the age was raised high enough (if you're 35 plan on working until age 72 to qualify for full benefits) there wouldn't be any cuts necessary.

I don't see the present models accounting for the longevity we can expect from the likely medical breakthroughs we are going to see in the next couple of decades. The system is going to break sooner than anyone expects.

Posted by: Dennis at December 2, 2005 10:42 AM

What about if we cut funding for anti-smoking, anti-obesity, and other health programs? How many 80 year old fat smokers do you know? :-)

I have some doubts about future health breakthroughs, at least as far as these things adding substantial stress to SS. Healthcare is another matter. But IMO it's reasonable to expect that we'll find an upper bound on life expectancy, unless for some reason this particular progress curve doesn't flatten out like most other such ones eventually seem to do over time.

I know that this growth has been fairly stable over the past century, but sooner or later, every additional year of life expentancy is bound to come slower and at higher cost, isn't it? Maybe some huge breakthrough could result in a quantum leap, but is that what we've been seeing? Should something like that occur, isn't that bridge we can cross if and when we reach it?

72 sounds awful high right now. I can see it if life expectancy heads towards the mid 80s, but I think most people who reach retirement are still dying in their 70s...

Posted by: bk at December 2, 2005 11:24 AM

sooner or later, every additional year of life expentancy is bound to come slower and at higher cost, isn't it?

It already does. One of the prime drivers of health care costs is end-of-life care, and elderly care is another big chunk--where they're not the same thing. Even if we go to a universal health care single-payer system we are going to have some massive generational-payment issues.

Maybe Chris could help me out with the stat, but I seem to recall that something like a third of ALL healthcare costs are accrued in the last six months of life. The trick for analysis is seperating that fraction out into the predictably futile versus the potentially productive. How do you cost/benefit it? Who gets to tell Granny that her 10% chance of buying a bedridden year at 95 won't be funded and it's time for hospice, so that a 50 year old with cancer can get a 20% shot at another few decades?

Posted by: Tully at December 2, 2005 03:34 PM

Sure, one way to fix it would be to increase the death rate, but that might not play well :)

The graphs support your view that if trendlines are followed we shouldn't expect huge increases in life expectancy. Rates of increase are dropping. And a large portion of the gains over the past century have come from the fact that child mortality has been greatly lowered. But my personal opinion is we are going to see a spike due GNR revolution which is just now begining. If we are caught with our pants down it would bankrupt the system. (Which is going bankrupt anyway).

Perhaps we could find a way to tie the retirement age to the life expectancy index that would keep SS solvent. I know a flexible number is not going to be popular for a lot of valid reasons, but if changes were gradual and at known future dates it might be doable. Considering the only other viable options I see are cuts to benefits, and phasing out the program, raising the NRA seems pretty painless.

How about: You have 10 years that the government will pay benefits once you are "vested". Pick which ones you want and hope you don't live beyond them? (Just trying to make raising the NRA seem like middle ground;)

Posted by: Dennis at December 2, 2005 03:44 PM

Factoids on mortality:

Life expectancy at brith in America today is about 77, which counts all deaths along the way. If you live to 65, your life expectancy is about 18 more years. If you live to 85, it's about 6 more years.

These are obviously statistical averages that don't apply to specific individuals. If you smoke two packs a day, drink like a fish, ride a motorcycle without a helmet, never exercise, flip off gang-bangers in traffic, and are thirty or more pounds overweight, the rest of us thank for your SS contributions.

Posted by: Tully at December 2, 2005 03:46 PM

So maybe we should give out a portion of SS benefits in mcdonalds gift certificates and coupons for free cigarettes, and place a big tax on health clubs!

Posted by: bk at December 2, 2005 03:57 PM

"(NOTE: Federal employees and Congresscritters DO pay into Social Security, just like the rest of us. They also have a mandatory pension plan (FERS), and an optional 401(k) type plan (TSP).)

Posted by Tully at December 1, 2005 02:04 PM"

My bad, I didn't word that properly... I want them to only have SS as a retirement, and have to live by the same rules that they put on it. They should have to work until they are the 67 or 68 (what ever the age is) instead they are eligble to retire at age 50 if they have 20 years of service in.... they can be any age if they have 25 years of service in. Yet we hear them talking about raising our age to 70 or even higher, even if we have been working for 50 years.... doesn't seem right to me.

Their average retirement payment was $3,909 a month. This was for 21 years of service.... yet they want us to be happy with between $1000 and $2000 a month after 50 years of service....

Posted by: debsay at December 2, 2005 04:45 PM

Federal retirement benefits are based on a combination of peak salary and years of service. Unlike most private pensions, they include COLA's. The SS portion of federal retirement is under the same rules as everyone else's, what follows relates only to the FERS benefits.

Your info is not quite accurate, Deb. You can find the federal retirement information here. Be warned--it's written in bureaucratese. The eligibility requirements are here. The Minimum Retirement Age is partially dependent on both year of birth and length of service. MRA in general is between 55 and 57. To be able to retire at the absolute MRA of 50 after 20 years service with your full benefits, you'd have to fall under the early retirement rules (be downsized out, usually) or be disabled. Even if you meet the MRA you have to have 30 years service to get your full benefits if you retire under age 60. If you make it to 60, you can retire with your full benefit with a mere 20 years service. Retire with less than 30 years and under age 60 and your benefits are reduced.

There's a CBO comparison of fed benefits with private pensions here, but I haven't had a chance to run the numbers. There's no doubt at all that FERS benefits are better than private pensions. The question is how much the fed employee has to contribute out-of-pocket, and the obvious is that so many private employers don't offer much in the way of pension plans OR job stability anymore at all, whereas once you're employed by the feds, it's very tough to get fired. Sit tight and do your time, and let the retirement account subsidies multiply.

Looks pretty good from here--if you're a long-term federal employee. There's also a massive subsidy for fed retiree health insurance. Fed retirees can stay in the fed health plan at the regular premiums (70% paid for by the government!) which makes it a very nice subsidy indeed compared to private plans.

Being self-employed I plan to retire when I'm no longer able to work, since I enjoy doing about everything I get paid to do. All that will change when I'm older is my scheduling and the amount and type of work I do.

The big myth is that SS is a retirement plan. It's not. It's a supplement. If you need more than SS to live on, start saving. I have. I know the numbers on SS.

Posted by: Tully at December 2, 2005 06:28 PM

The big myth is that SS is a retirement plan.

I think most people know what their numbers are. SS sends the figures. The older you get the closer attention you pay attention to them. But you're right that too many people are going to be relying too heavily on SS.

It's hard to seperate SS from healthcare in in the final analysis. Even with medi-health, which is broken worse than SS, I figure my overall healthcare costs for the wife and I are going to be near the same as the SS benefits I'll be getting. From my perspective good universal healthcare would be as good as SS. But if you have to chose between meds and eating the cash would take first priority.

I'm self-employed also, and pretty much of the same mind about working as long as possible having seen my parents bored out of their skulls after retirement. I think a lot of people are planning on working past 65 for finacial or quality of life reasons, which is why I think raising the NRA several years in quick order wouldn't be such a bad thing

Posted by: Dennis at December 3, 2005 12:40 AM

Dennis;

It's hard to seperate SS from healthcare in in the final analysis. Even with medi-health, which is broken worse than SS, I figure my overall healthcare costs for the wife and I are going to be near the same as the SS benefits I'll be getting

You'd be in sync with Alan Greenspan (recent speech to Fed Bank of Philly Policy Forum). Full text here regarding the federal budget, Social Security and Medicare/Medicaid.

In fiscal year 2005, federal outlays for Social Security, Medicare, and Medicaid totaled about 8 percent of gross domestic product. The long-run projections from the Office of Management and Budget suggest that the share will rise to 9-1/2 percent by 2015 and to about 13 percent by 2030. So long as health-care costs continue to grow faster than the economy as a whole, they will exert budget pressures that seem increasingly likely to make current fiscal policy unsustainable.

and

Our current, largely pay-as-you-go social insurance system worked well given the demographics of the second half of the twentieth century. But as I have argued previously, the system is ill-suited to address the unprecedented shift of population from the workforce to retirement that will start in 2008. Much attention has been focused on the forecasted exhaustion of the Social Security trust fund in 2041. But solving that problem will do little in itself to meet the imperative to boost our national saving. Raising national saving is an essential step if we are to build a capital stock that by, say, 2030 will be sufficiently large to produce goods and services adequate to meet the needs of retirees without unduly curbing the standard of living of our working-age population..

I can faintly hear those deep, ominous tones of the "Jaws" theme.

Posted by: c3 at December 3, 2005 05:48 PM

Sounds like everyone is on the same side of the coin. It's a major problem. There are solutions available. It's not likely we are going to implement them anytime soon. If you think the grey lobby is powerful now just wait a decade.

Since I'm near the leading edge of the baby boom, the longer it's avoided the better off I will be personally. I guess the rest of you will just have to work harder when I retire.

:)

Posted by: Dennis at December 3, 2005 11:31 PM

And if you want to hear real cries of pain, us self-employed will lead the charge. SS and Medicare isn't 7+% to us. It's 15+% off the top. We pay both sides, the real cost, not just the visible "employee" half. And we pay it off the top before we pay a dime of income tax. A self-employed person usually understands "regressive" taxes like SS/Medicare all too well.

If you get paychecks, you never even see your 7+% SS "contribution" except as numbers on your pay stubs or W-2's. If you're self-employed, you not only see it at the complete "doubled" rate, you have to collect it and accumulate it and hold it until every quarter you do your taxes and send it in along with your income taxes. We don't do taxes once a year. We do them four times a year, and we do them on more than just a 1040. The IRS "eats" at least two or three full weeks a year out of my life in paperwork.

Posted by: Tully at December 4, 2005 12:07 PM

Tully,
99% of employees have no clue about employer contributions until I tell them. (Usually when they ask for an unwarranted raise).

Off topic, but an IRS story I like to relate.

When I first started in business my quarterlies were always off by a few cents or dollars. The bookeeper swore that our numbers were right and I couldn't find any errors. One quarter we were off by one cent. After triple checking the figures I decided to make my stand.
To shorten the story, about a year later I paid the penalties and interest due on the penny. $69.73. Throw in the $1K+ I spent on the paperwork. I've never butted heads with the IRS since.

Posted by: Dennis at December 4, 2005 02:16 PM