What Would You Be Willing to Do to Save SS?
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Anonymous
You mean like the norm in much of the world and for most of human history? Families sticking together--what a novel concept. |
Anonymous
All anybody can say is that Trump's right there with the liberals in terms of keeping SS in its present form. So you'd better not vote for him after all. It does seem obvious now that you're a money manager who wants to get your hands on money from privatizing SS. So long as private accounts aren't subject to any restrictions on the fees you charge. In fact, ICI opposes the auto-IRA plans for that reason and some more reasons having, although they never state it outright, to do with limitations on how money managers could handle and charge fees for the accounts. Also, where does the $75T figure come from? The 75-year unfunded liability is $11.5T and the infinite horizon unfunded liability is $35T (2016 Trustees p. 201). But even then--and this is key--you have to put that in the context of an economy that will also grow a lot over the next 75 years. It's not like we have to pay $11.5 trillion tomorrow out of today's economic resources. In fact, SS as a pct of GDP actually falls once the boomers start dying off. Infinite horizon quotes never seem to mention this fairly obvious point. Since you're complaining about the inability of forecasters to get things right, and championing your own stellar financial skills, I'm sure you know how very, very bogus it is to project SS out to infinity. That's like asking the founding fathers to project what SS, the population and the economy (all underlying assumptions) would look like in 2016. Most countries project their pension systems out 10-30 years. Also, if you or someone else got that $75T figure by "forgetting" to discount to PV, as a financial whiz kid you should be ashamed to use it. I'll put my advanced Econ degree from a top university up against your BA in business any day. Sorry about confusing you with the other rude, arrogant conservative. |
Anonymous
Actually she lived with one daughter in Greece most of the year and another daughter in Silver Spring the rest of the time. So, yeah... Her family was down with that. |
Anonymous
The norm for most of history is that the average life expectancy was under 40 and you worked until you dropped. If you were lucky enough to live to old age, then sure you family would take care of you, knowing you probably only had a few years left at most anyway. |
Anonymous
Hi PP, I'm back. Most of the intervening posts since I left were not mine, except for swatting away some rudely presented ignorance just now. People are certainly entitled to their opinions, but they aren't entitled to remain in ignorance. That said, some of the other intervening opinions were quite well informed too, however they're not necessarily the same as my personal opinions. In answer to your questions, 1. I don't work directly on SS. I work on retirement issues writ large, although that obviously includes Social Security. I don't work for the government, and I've certainly never worked for SSA. 2. Paying benefits to people who pay more as a result of raising the cap does in fact raise net income. This is because of the benefit formula. People at the upper end of the benefit formula basically get a 15% rate on their additional earnings dollars. So their increase in total benefits is going to be lower than what they pay in. It's not a completely fair deal for people who earn above the current cap, obviously. But in the spirit of compromise, they do get something more. Just not a whole lot more. 3. Yes, the argument for 90% is often presented as being politically palatable, and lots of people use that argument. 4. You're absolutely correct that lots of people don't save enough for a rainy day, let alone for retirement. That's why some are suggesting mandatory saving through your employer in the form of these state-run auto-IRAs. You're right, that only 2/3 of people work for employers who offered 401(k)s, and not all participate, and very few save enough. People really don't save unless it's taken out of their paychecks. In fact, there's even more economic theory about how to nudge people to save more within their 401(k)s. But worse, for the people who don't get offered 401(k)s by their employers, if you tell them nicely that they should start IRAs, they don't. As you say. So on to solvency. The first thing you need to know, although you may already know, is that SS solvency is presented in terms of "percent of taxable payroll." Taxable payroll is basically Social Security's tax base, i.e. the FICA tax * wages subject to FICA. The 75-year financial shortfall, according to the Trustees' most recent projections, is 2.66% of taxable payroll. So 2.66% of taxable payroll is the gap that needs to be filled. Generally people talk in terms of "what percent of the shortfall" any given proposal or package would fill. So now you're ready. SSA estimates individual provisions and also packages. Here are all the estimates for individual provisions that they've done recently: https://www.ssa.gov/oact/solvency/provisions/index.html. It's a little daunting because they do estimates for a wide range of phase-in dates, combinations involving donuts and alternative payroll tax rates, and so on. Let's take raising the retirement age. If you (a) click on "C. Retirement age" and then (b) on the first item (C1.1), and then (c) you click on "Summary Measures and Graphs", you end up here: https://www.ssa.gov/oact/solvency/provisions/charts/chart_run191.html. What you want are the columns headed "Change from Present Law: long-range actuarial balance" and "Shortfall eliminated: long-range actuarial balance." The "long-range actuarial balance" is simply 2.66, the pct of payroll that represents the 75-year shortfall. The Change from Present Law is 0.36, and that's the . If you prefer to think of this in terms of the percent of the financing gap that's closed, then you can look at the "Shortfall eliminated" column, which reads 13% (i.e. 0.36/2.66). And that's your answer for this provision. Raising the Retirement Age by 1 year, from 67 to 68, closes 13% of the 75-year financing shortfall. Let's look at a version with more impact. I don't know what appeals to you. But how about we take C1.4, raising the retirement age to 69 and then indexing it to changing longevity (that part about raising the retirement age 1 month every 2 years). Click on Summary Measures and Graphs for this provision, and you'll see it closes 40% of the financing shortfall. That's more like it. Also, indexing the retirement age to changing longevity makes intuitive sense and has a lot of political appeal to many people (again, if we can get over the problem of people who can't keep working). If you move on over to the payroll tax options (group E), you'll see that the options for raising the cap have very different impacts depending on whether you want to pay slightly higher benefits to people who pay more taxes, whether you have a donut hole, and whether you apply the same 12.4% tax rate to wages/salaries above the current cap vs. a lower rate. The simplest illustrative comparison seems to be between E2.1 and E2.2, both of which would eliminate the current cap in 2016 and apply the full 12.4% FICA tax to earnings above that level. E2.1 wouldn't pay benefits on new tax payments and closes 88% of the 75-year shortfall. E2.2 would pay benefits on new tax payments and closes 71% of the 75-year shortfall. But as you and I discussed, maybe returning to the historical 90% coverage ratio is more palatable politically. In that case you'd look at E3.1 (return to 90% and pay benefits on the additional taxes), which closes 29% of the shortfall. Or maybe E3.2 (return to 90% but don't pay benefits on the additional taxes), which closes 37% of the shortfall. So you can play with these, and see what variations and phase-ins appeal to you. Another thing to keep in mind is that some of these provisions have interactions with other, which aren't captured by the individual estimates. So if you raise the retirement age so people work longer, AND you lift the cap, you're going to have a group of higher income people who are working longer AND paying more FICA taxes. The individual provision estimates don't capture these interactions. As you can see, this gets really weedy. That's why the American Academy of Actuaries' game, which I linked to last night, is more accessible to many people. But if you're up for going through SSA's projections to find the package you like, then major props to you. Hope that helps. |
Anonymous
But she didn't live with you? Why is that? Well OK, but I think I can hear the shrieks of anguish starting already from other families around the country. I know plenty of people who would gladly pay SS taxes to keep their parents in separate living arrangements. |
Anonymous
Correct. If you were lucky enough to live to 65, then on average you lived another 6 years. |
Anonymous
She didn't live with me because she died while DH (and most of her grandchildren) were still in college. I'm not sure the dorms at Hopkins would accommodate his elderly grandmother living with him. Also, she had 12 children, all of whom would have been happy to have her live with them. She didn't lack any family to care for her and she never went to a nursing home. Her husband died of pancreatic cancer as a relatively young man. My MIL lives with my SIL most of the time and she stays with us during the summer when my son is home and available to help her out. My FIL died in November, rather suddenly. My parents are able-bodied at the moment, but we have an apartment for them set up in our home so they can use it when the time comes. |
Anonymous
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[quote=Anonymous]You guys are way down in the weeds. The thing is insolvent and you're arguing about mowing the lawn while the house is on fire.
Well put. Most people don't realize they are paying into a system that doesn't exist. there is no real set-aside for you anywhere in the federal system. The money you put into FICA doesn't exist. It's all an IOU - one that can be taken away at will by the democrats - just as Frank Underwood did in House of Cards. It is the ultimate in Ponzi schemes |
Anonymous
Well put. Most people don't realize they are paying into a system that doesn't exist. there is no real set-aside for you anywhere in the federal system. The money you put into FICA doesn't exist. It's all an IOU - one that can be taken away at will by the democrats - just as Frank Underwood did in House of Cards. It is the ultimate in Ponzi schemes This was explained earlier, go back and read it. Even Greenspan agrees the trust funds are solid. If you think the dems are going to destroy SS' investments (to do this, they'd have to formally repudiate the debt in question), you live in an alternative universe. Similarly, finding the general revenues to redeem the debt held by SS is the Dems' first priority, way ahead of things like military spending. It seems to be the Reps' first priority too...just look how SS was the catalyst for agreement in several recent debt crises. House of Cards is Hollywood. It's a great show, but his America Works plan was ridiculous. In what universe does a plan consist of the government paying workers $45,000 apiece to work? Like the whole country is on the government payroll. I bet you'd hate that, and I would too. Don't confuse Hillywood with real life. |
Anonymous
Wow. (OP here.) Thanks again for taking the time and trouble to outline all this. It IS a bit weedy, but it does show that we can indeed fix the SS program - or at least significantly close the gap so that concerns of insolvency are pushed very far into the future - with one or two manageable adjustments. The challenge, of course, is getting some type of consensus, which, in the current political climate, seems less likely than ever. But I digress.... The links you provided did not work for me, but I could follow along just based on your descriptions. (I'm prepping for a business trip and can't devote as much attention to this right now, but when I get back I'll see if I can find the pages and play around with the different variables.) I was particularly struck that we could eliminate the cap but still pay benefits on the added contribution, and in doing so close 71% of the 75-year shortfall. (I also understand that the benefit "return," to use lay language, is only 15% at that level, so it becomes even more progressive. The high earners are bound to squalk - or at least a significant percentage of them.) That's why I also like the idea of extending the age of full retirement. I know it's a problem for the "laboring class" (geez....do I sound elitist or what?), but to make the whole thing palatable, I think we need to approach this from a perspective of "shared burden." I see that raising the age one year to 68 closes the gap by 13%. Eliminating the cap makes more of an impact, clearly, but it just seems more equitable to do it this way, and gradually, as you point out. Pushung it up a second year, to 69, of course makes more of an impact, but I wouldn't think that's the way to go. Even more difficult for the blue-collar workers, and just too much of a burden. But maybe one year, maybe..... And the 90% coverage, while politically the easiest to get through, doesn't seem to close the gap enough. But knowing how things work in Washington, perhaps the powers-that-be could compromise on that and at least slow down the pace of approaching insolvency. Again, I will definitely try to locate the pages you linked to (and certainly explore the Actuaries "game" from last evening) when I can do them justice but for now, business priorities beckon. Got to keep contributing to SS, after all! (And I'm self-employed, so I oay both halves.) All that said, I've enjoyed this exchange. My work is far, far removed from economics or statistics, so analysis of SS "adjustments" doesn't play to my strengths, but I think I can muddle through. On a personal note, I've enjoyed talking about policy in a mature manner given some of the childish antics I've seen elsewhere on this forum. It has been a pleasure. Thanks again for all the insights and tools. |
Anonymous
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PP with the SSA solvency estimates here. Glad you found these useful! I'm sorry the links didn't work, I'm not sure why. You can find them yourself if you go do www.ssa.gov, find the SSA Actuaries page, and click on "provisions" in the left hand bar.
I agree that we'd need to add a few more provisions into the mix to close all of the gap. So means testing, changing the COLA, changing the benefit formula... there are quite a few choices and the Provisions page scores many of them. To toss in another wrench, you'd probably want more than 100%. I also agree that if both sides want to find compromise, they will. As you can see from this thread, there are some people who just want the system to go away and don't want any compromises that would keep it working. But look at what happened to the SS disability program last year. It was projected to run out of assets this year and there were all sorts of dire threats and warnings about how compromise was impossible. But in the end... Congress quietly rearranged for full funding for the next few years, with only some token changes to the SSDI program. I'm not saying SS might not need or end up with some more serious changes, but I think political compromise is definitely possible. Lots of people who work on SS like to say that they're glad they do SS and not Medicare, where the financing problems are more intractable. It's also common among researchers on the issue to say that a handful of bipartisan people could hammer out a solution in a few hours in a smoke-filled room. I have people coming over for dinner, got to run! |
Anonymous
| P?S., good luck on your trip! |
Anonymous
Thank you! Maybe I'll come back with a new client or two and will be able to pay even MORE into SS (and taxes in general). 
I'll check the pages when I get back. Thanks for steering me in the right direction. |
Anonymous
This just kicks the down down the road, don't ya think/.? |