Candidates' Social Security Plans - Whose is Better?

[Anonymous]

Personally I don't think either got into enough specifics about what they'd do to fix the social security system, although given what a politically sensitive issue it is, I suppose I should just be happy both are talking about it. Do you think it's better to tinker with the benefits provided (increasing retirement age, reducing scheduled increases in benefits for some) in SS a la McCain's proposal, or to put more money into the system a la Obama's suggestion to apply some SS taxes to incomes over $250,000. (For reference, the current SS taxation limit is a little over $100,000 now. Income between that and $250,000 wouldn't be subject to any new SS tax increase under Obama's plan.) Or do we need both?

I lean towards reductions in benefits - particularly increasing the retirement age and reducing increases in benefits for more well-off retirees that are now in the workforce. I think Obama already has enough plans for increasing taxes on the wealthy with his other proposals (some of which may be merited) - but even the wealthy shouldn't be taxed endlessly.

[Anonymous]

Anonymous wrote:
I lean towards reductions in benefits - particularly increasing the retirement age and reducing increases in benefits for more well-off retirees that are now in the workforce. I think Obama already has enough plans for increasing taxes on the wealthy with his other proposals (some of which may be merited) - but even the wealthy shouldn't be taxed endlessly.

See, this is the thing I have issues with.

Let's say we have two people - Jane and Joan. Jane has always been fiscally conservative and played by the rules her entire life. She started maxing out a Roth IRA and her 401(k) when she got her first job. She has been a saver her entire adult life. When it comes to retirement, Jane has amassed a nice little nest egg and could be considered one of the well-off retirees.

Joan, on the other hand, never saved. She really enjoyed her twenties and racked up a lot of debt. Then she turned thirty and kids came - all her money went to the kids and she wasn't able to save much for her retirement. She was living a Keeping Up With The Jones's Lifestyle still.

At 40, she started to wise up and started saving, but she wasn't able to put much away and frankly, she didn't have enough time to build a good nest egg for her retirement.

What I grapple with - why should Jane be essentially penalized by getting a reduction of benefits when she did everything right and Joan not be penalized even though her handling of finances wasn't the best?

There are lots of people like Joan out there. I am not sure if we should penalize the Janes of the world becauses of the Joans. KWIM? So I would need to know more what exactly a reduction of benefits would entail and who it would really affect.

[jsteele]

I think McCain may want to go further than simply reducing benefits. Many Republicans, and Bush in particular, want to replace today's Social Security System with private accounts, or what amounts to IRAs. In such case, workers will invest money and then earn benefits based on the growth of that investment. Social Security has always worked based on pay as you go in which the money today's workers pay in is used to pay benefits of today's retirees. Watch this video clip of McCain calling today's system "an absolute disgrace".

If today's system is indeed a disgrace (and I personally couldn't disagree more that it is), I'm not sure the solution is simply lowering benefits. Rather, it sounds like McCain's position has morphed into Bush's position in support of private accounts.

[Anonymous]

I can't stand Obama's plan.

[Anonymous]

I know McCain's talking about private accounts too. That just seemed to have gotten so shut down when Bush proposed it though that I didn't see it as all that likely. While maybe that's better for the long term, private accounts don't address the existing shortfall in the system - they only require more money sooner since you'd need to be investing those funds rather than simply making transfer payments to retirees.

[Anonymous]

Raising payroll taxes does not improve the future solvency of SS UNLESS that money is actually put aside to pay future benefits. Today the government collects more SS payroll taxes than it pays in benefits and the difference goes into the "trust fund" -- which means it gets recorded as special Treasury IOUs and then is promptly spent on other government programs. So if Obama increases the amount being collected today, he is merely increasing the IOUs and the amount of money available for spending on other things. This leaves us with the other set of options -- cutting benefits by either raising the eligibility age or changing the benefit formula. Or perhaps we should all do our part by taking up heavy smoking.

[Anonymous]

Good point, PP, re: extra taxes going to pay for other programs vs. benefit reductions are inherently SS-oriented.