Social Security

[JOEBIALEK]

According to the Social Security Act, "the purpose of Social Security is to provide insured persons with payments by way of a retirement benefit, survivors benefit, sickness benefit, and to substitute for compensation under the Workmen's Compensation Ordinance, a system of insurance against injury or death caused by accident arising out of and in the course of employment." In order to finance social security, a Social Security Fund was established, financed by contributions made by the workers and their employers. All benefits, administrative expenses, and capital expenditures are paid out from the Fund.

 

But according to government figures, "while Social Security takes in more than it spends right now, the situation reverses when the baby boom generation (those born between 1946 and 1964) begins to retire in 2010. Unless the system is overhauled, Social Security by 2013 will be spending more than it collects in taxes and will be broke by 2032."

 

I will be 69 years old in 2032. I will have paid a very large percentage of my income into a government plan and will have nothing to show for it. Accordingly, Social Security payroll deductions should end for anyone born in 1965 or later and be shifted to a 401(K) plan so they will reap the rewards of their investment when they retire. Those born in 1964 and before should continue some Social Security payroll deduction along with some government subsidy to cover the difference.

 

With all this talk of tax refunds fueled by a government surplus coupled with the enormous corporate tax breaks given out by our government, I am sure we could find enough money to subsidize a transition plan to save our retirement money.

[whirlwind]

sorry dude that does suck

but f the goverment thats why i don't pay into S.S

[lummox]

i will not dance for the man. ever.

[EWolfe]

There's a reason they call it so-so security.

[willstrickland]

There are lots of interesing takes on the future of SS. I tend to agree with Joe, just let me keep my money - make me put it in an IRA if that's what it takes.

 

There are a few ways that the dilemma can resolve itself. It the US economy grows at 2% above the average, problem solved. This is not likely. A second way, which may very well be the most feasible scenario, is that immigration continues to explode and/or is encouraged. Legislative fixes like Joe suggests could also solve the problem, but in any legislative answer there will be a small contingent of people who get really screwed.

 

The coming SS crisis is just one effect that the age-wave will have on our economy. When the boomers retire, they can't eat their stocks. My generation is too small to absorb what the boomers sell, so an oversupply problem in the market may result, causing stocks to tank for quite a while. The ripple effects of that could be devestating. But again, there are solutions such as foreign investors pouring money into the market.

 

May you live in intersting times!

[thelawgoddess]

when i was young some old lady came up to me and told me to start saving up because there's no way i'd be able to live off of social security when i needed it. kind of freaked me out.

[TBay]

Things will get VERRRYYY interesting in approx. 8-10 years when the first wave of B-Boomers retire.

The first thing they'll want is their hard earned SS.

What ya suppose they'll do when Uncle Sam acts out the 'Dumb and Dumber' scene where LLoyd and Harry open the suitcase of million(s) dollars with of I-O-U's/reciepts?

 

Wirlwind, I'm in the same boat as you, eff SS, i pay into 401K.

(i like the knew rule change allowing one to borrow/take out a loan against oneself for up to half of one's current retirement worth w/o being penalized.)

But i am concerned.

I work with a coupla B-Boomers that plan on cashin' out their 401K after retirement and stuffing it into a savings account ('under the mattress').

They see it like this: retirement at 65, the average US life expectancy is 77, that give 12 years to live it up. They spent 30+ unable to touch any retirement funds, no way in hell they'll let it sit there untouched hoping for further growth. Remember 12 years to live.

 

I'm curious to see the reaction of every 401K participant (let alone the US economy and international) when the US stock market TANKS due to all B-Boomer cashin' out their 401K Stock?

 

Now imagine the compounded reaction of B-Boomers not getting SS, 401K participant losing all retirement, mass unemployement, inflations, etc....doomesday?

 

I predict that a wheelbarrow filled with wheat and a gallon jug of water will become more precious than gold?

[lummox]

seriously. what are the odds that any of you will actually survive til retirement age?

[Peter_Puget]

The rate of return on the forced investment (in SS) was estimated at about a bit under 2% overall. The interesting thing is that for African-Americans the rate of return is actually negative! Think about the implications of that!

[Greg_W]

Just curious, how does one opt out of paying into Social Security?

[lummox]

Just curious, how does one opt out of paying into Social Security?

cash only

[scott_harpell]

well that is great for you prostitutes... but people with real jobs have little recourse...

[murraysovereign]

One mitigating factor that doesn't get a lot of play is that the parents of the Baby-Boomers are dying off right now. In the process, their collected wealth (which is/was considerable) is being passed down to their children - the largest intergenerational transfer of wealth in human history. It changes your retirement outlook dramatically when that inheritance cheque arrives, and there are a lot of those cheques being sent out every day. So an awful lot of Boomers are going to be pretty comfortable in their retirement simply because their parents were able to accumulate so much wealth, and that will allow SS funds to be redirected toward those who don't benefit from such inheritances. It won't eliminate the problem, but it could ease it somewhat.

[wormfighter6]

The fact that Social Security going broke in no new news. This had been talked about for over a decade now. The “fix” is not that difficult, because people are living longer and longer, you need to push back the retirement age. Alan Greenspan has already hinted at it, besides there is already something similar in place. For instance, if you start to collect SS at age 62 you will collect less per month that you would if you waited till you were 65 or 67 those ages will just be continued to be pushed back, 20 years from now it will most likely be 65 will be the earliest you can withdraw dollars from your SS. With full payment not being till 70.

 

Besides SS was NEVER indented to support you once you retire is was indented to keep people from starving. Besides there’re excellent devices out there that allow you to save for your retirement. For example IRA’s 401K’s 403B’s etc if you don’t save for retirement you will have your plan when your 65, work till you die.

[wormfighter6]

Quick question murray why should the people who collected cheques from their parents not be able to collect SS. Not trying to stir the pot just curious?

[murraysovereign]

Sorry, but your "quick" question doesn't really allow for a "quick" answer. It's a contentious issue, to be sure. Up here in Canada we're facing the same demographic choke point as you in the U.S., and our Canada Pension Plan fund is in danger of drying up about the same time as your Social Security. In order to stretch things out as much as possible, Ottawa has institued some income tax measures. Basically, anyone can collect their CPP, but if your taxable income is above a certain level your pension benefits get "clawed" back (seriously, that's what it's called - the Claw-back provision. At least they're honest about what they're doing). My parents, for instance, both collected their pensions but most of it was clawed back through income taxes because their retirement income was high enough to put them over the cut-off point.

In effect, the choice comes down to (a) keeping the program universal, which means everyone gets a cheque so small as to be virtually meaningless, or (b) restricting eligibility to those that have no alternative resources, in order to ensure those people get cheques that might actually be useful or © some intermediate compromise between (a) and (b).

As already stated, Ottawa opted for (b) as a starting point. Washington will have to make some similar decisions in the years to come - some combination of re-financing the program, raising the retirement age, restricting eligibility, or ...

But my point was mainly that reliance on Social Security won't be as big a factor for a great many people because they'll be cushioned by their inheritances. And that fact alone allows for more flexibility in determining the best way to deal with the problem. But it's still a problem, for sure.

[wormfighter6]

Ok, I see what you saying. I’m not saying you are advocating the reduced benefits for people w/ an inheritance. I just have an issue with people being penalized for being fiscally responsible

[Peter_Puget]

Wormfighter,

 

Consider my previous post. Would pushing back the retirement age impact different groups equally? What groups would benefit the most? The least?

[wormfighter6]

Ok, good question point. If Alan Greenspan made an announcement on Monday saying that SS payout would be revised for the following ages

I was under the impression that SS had to be invested in investment grade bonds there fore thier average rate of return is 6%ish. Now if it is 2% then you are actually losing money every year due to inflation. But here is a solution one one shape pr form had been kicked around.

 

55+ no changes

50-54 delayed all tables moved back by 6 months ie 62 ½ vs 62 you are able to start collection SS.

45-49 moved back one year

40-44 moved back 18 months

35-39 2 years

20-34 4 years

<20 5 years.

Now I’m not a satiation but underwriters etc would have info on how much longer we would be expected to live. This sort of solution while not perfect does solve MANY problems.

People <20 FOR THE MOST part have not contributed to SS so they really have no say. We are all living longer there for we either have to a) save more money (because it needs to last longer once we quit working b) work longer therefore allowing more dollars to build up in our accounts for 2 reasons 1) the “magic” of compound interest even at a measly 5% the difference between 300 dollars a month invest for 43yrs vs 48yrs is $582,600 vs $695,1000 that’s $112,500 witch at 5% would create a check every month of $2,427.5 vs $2896.25 now this does not take into account inflation witch historically has be 3 %. 2) working longer will put more dollars into the account.

 

The net result is that people have the same ratio of retire years to working years in the future as they do today.

 

I’m sure all the 49,44,39, 24 year olds will yell foul but no plan is perfect but I think this or something similar does off a viable solution. Additionally people have to learn to save for their own retirement the younger people today have a lot more options than people who are currently retired have.

 

I think a graduated moveing back of the retirment age would benefit everyone just about equal. People need to retire later becasue they are living longer.

[Peter_Puget]

link

 

By groups I didnt mean to suggest age groups but other classes. (Eg income level, race...)

 

For instance if the rate of return is already negative for African Americans rasing the age of benefits would decrease the return even more!

 

I believe that virtually all the the SS "Trust Fund" is invested in government securities. SOme trust fund!

Edited May 1, 2004 by Peter_Puget

[wormfighter6]

Ok,

Here is the lowdown on how SS works. A percentage of your paycheck (7%) goes to SS otherwise known as FICA. In addition to that your employer OUT OF THEIR POCKET will match what dollars go into your SS fund. For instance if your FICA was 100$ your employer also puts in 100$, and no I’m not getting it confused w/ a 401k or a 403B. Then that money then goes into a giant ‘pot’ of money where the Gov’t puts it in T –bills, investment grade bonds etc. Because the amount put in is based upon earned income people who make more put in more. But people like me put in the most, sole proprietors, (small business owners) I pay all of my SS and half of my 2 employees.

 

Now the gov’t then keeps track of how much you contribute. Then over the course of a lifetime of earning wages you would have contributed x amount of dollars. Now regardless of race or sex the dollars in the pot grow at the same rate as everybody else’s. (SS does not care about your ethnicity or sexor income level) Then when you want to start withdrawing monies SS will look at the total dollars you have put in (plus the dollars your employer put in)your age and determine your pay out.

 

There is a cap on how much you can collect on SS. The problem comes from the several problems:

People are living longer but retiring at the same age therefore they end up taking out more then what they put in. The rate of return that SS is getting is simply not enough to grow the money fast enough to generate enough money as the population gets older and more people draw off SS for longer periods of time. Just because you put a lot into SS does not mean you will get any more out. There are limits as to how much SS will pay you per moth REGARDELSS of how much you put in. So people who earn higher income will never reap the dollars they put into it. For example I will get just as much as Bill Gates when he is 65.

 

In short SS pay out is determined by 2 things, how much you put in, and how old you are when you start collecting. Rate of return is the same for everyone in SS regardless of age, race, income etc.

[wormfighter6]

For some reason CC put alot of 31453@#$ into my message please ignor

[scott_harpell]

So people who earn higher income will never reap the dollars they put into it. For example I will get just as much as Bill Gates when he is 65.

 

In short SS pay out is determined by 2 things, how much you put in,

 

[Peter_Puget]

Worm I think you are missing something very important. For example, suppose a certain group called "alphas" all died at age 55 of sudden heart attacks. As a group they will pay in there entire working life and then they die. As a group what is their rate of return? How does it compare to the "betas' who retire from active work at age 55 and live until 120?

 

PP

[wormfighter6]

In short Alphas get screwed; assuming they have no kids at home. If they had children at home SS would pay the living spouce till the kids turned 16.( the amount would be dictated by thier income. Betas would start to collect SS at 62 and collect till the day they died. They got a great deal.