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December 28, 2012

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I don't know that forcing Americans to save for retirement is a viable option. First of all it's politically unlikely to pass as most members of Congress are more concerned with getting re-elected than doing what is right for the country. Second of all there is the problem that many people simply can't afford to save what they should without changes to their lifestyle that they've shown they refuse to make.

Even if it were to pass, the problem then becomes what does this government super savings program do to the economy? It would have a huge, and likely very negative, impact on several levels:

1. As it would result in people having less take home pay, it would reduce consumer spending. For the program to actually save enough for retirement, the drop in take home pay (and thus the drop in the consumers' ability to spend) would by necessity be quite significant - I'd guess at least 10%, and probably lead to a recession in the short term. If it were gradually phased in, this might avoid a recession, but then it would make it much harder for the program to achieve the (supposed) goal of truly making people save enough to retire someday.

2. The other major economic impact is how is that money going to be invested? Knowing our government, it would be wasted in US Treasury notes/bonds. Forced investment into a program that currently pays below the rate of inflation is an extremely bad idea, but Congress probably couldn't stop itself from using this to finance decades of additional deficit spending without having to get their act together (look how they squandered the surpluses in Social Security rather than use it to temporarily help while they balance the budget for the long term.)

3. A corollary to item 2 is that even if the government realises how bad an investment US debt is, taking that huge pile of cash and dumping it into the stock market without any real care (and the government has never shown any real ability to think before it spends) will cause massive distortions in the market. Large cap stocks will likely shoot up to rediculous valuations as the government tries to "invest" trillions annually. More than likely our beloved Congress will find ways to direct the money be invested in specific firms or fields based upon political doctrine or special interest lobbying, rather than a real analysis of value and growth potential (see "Solyndra" for an example of how well our politicians manage to invest money that doesn't belong to them.)

I am admittedly quite a pessimist when it comes to our government, but having worked as a contractor and lived in the DC area and talked to quite a few low to mid-rank government employees about the real way the government makes decisions, letting it get further involved with our economy is one of the last things I would ever want to see. The 537 idiots (435 in the House, 100 in the Senate, and 2 in the White House) that run this country have proven themselves incapable of changing a burned-out lightbulb without it taking 2 years of partisan bickering and then spending $50 Billion on a new federal lightbulb action program vs. the average person taking 30 seconds to replace it with a 50 cent bulb from the grocery store.

This is absolutely stupid. First people want to penalize savings by taxing interest and dividends at the same rate as income (won't even bother to address the double taxation or inflation aspects of that argument - inflation pretty much makes it no brainer to spend today if it is over the interest rate you are earning and taxed on) then they wonder why people won't save and finally they decide government should force people to save. The solution is not another government program (I can see the bailouts now, I was forced to save and I lost everything), the solution is to let people be adults and if they don't save live with the consequences.

There is absolutely no way the Government should require individuals to contribute part of their salary mandatory defined-contribution accounts.

The first reason being that many individuals save for retirement in different ways. Extracting a percentage of someone's paycheck on a mandatory basis takes away the free will of how that individual decides to plan for their retirement. First things first, it forces them into allocating their money over the course of their career rather than them having the option to save at different times. This can be crucial, especially when certain life circumstances happen. Everyone's situation is different and forcing them to save a percentage at all times can put those who are in a paycheck to paycheck situation in a worse situation. Not to mention those who save for retirement in different ways (real estates, commodities, etc). We would be taking away capital which could then be used in these investments.

Secondly, look at the issues with Social Security and 401k plans. Social Security has an abundance of issues thanks to the government "borrowing" funds from it and never returning them. They also mandate that the public place 6.2% (4.2% the last two years) of their salary into the system...which is a larger chunk then a lot of Americans can afford at this period of time. Add in a mandatory contribution to a plan at just 5% and that means over 11% of an employee's paycheck are going towards their retirement without their say (and not just theirs but others). Add this number to all of the other deductions already taken and we are entering dangerous territory. Getting to my point on 401k plans, the issue I have with them is high fees and lack of investment options. My guess is this mandatory plan would be another area for government cronies to spike fees without recourse and force individuals to invest in what they deem "a good investment". We all know where the government's idea of good investments have gotten us today. 401k plans have been crushing people with fee for years and we think this would be any different?

I fully support retirement planning from an early age. I am 25 and contribute 20% of my salary to retirement yearly. However, I do this because I CAN not because someone is forcing me too. Many American's cannot contribute right now and that is OK. The individual has to make the decision when the time is right to contribute and at which rate. Everyone's situation is different and creating a mandatory contribution is a reaction as if everyone in America has the same financial situation and is currently not saving.

The most important issue to bring up here is lack of education. The government controls our public school curriculum, so why not have a mandatory course on personal finance and retirement planning? I took many classes in high school which were required and never once helped me in life. One personal finance and retirement planning course a year during high school would make a world of difference for America moving forward.

The last point I have to make is a question I know will sound cold hearted and controversial. Why in the world are we responsible for the citizens of this country who decided not to save for retirement? If they did not save enough for retirement...they need to keep working. If they are not physically able to work due to their age, they will be taken care of due to Medicare as it is. As a country we have taken the stance as of late that it is OK to not prepare yourself for areas of life we KNOW are coming. This is unacceptable and should not be put on the plate of those who were responsible and saved. Things will happen even to those who have saved (as is life) but a life style change to compensate is not the end of the world. The definition of "on the street" has become linked with "not having an iphone/a newer car". While there are plenty of people on the street...we do have shelters and charitable organization who are ready and willing to help. Social Security is not a large sum of money and it would not be the best life if one had to live off of it. But if you didn't save for retirement...why do you deserve anything more?

There is forced retirement saving in the form of social security. In a normal year 12.4% of my salary is given to the government for my retirement. If I don't save anything else I should only live on what social security provides and if that means I have to sell all of my possessions and move to the lowest cost of living area in the country that is what should happen. I shouldn't have to help others who spent their money enjoying their life earlier subsidize what they think they now deserve in retirement because they spent it all already and didn't save any.

As far as forced.contributions beyond that, I can manage my money much better.than the government ever could.

Great responses above me.

The best point that I had never considered is that most Americans couldn't afford to have another 10% ripped out of their paychecks. They are barely living paycheck to paycheck as it is now. It will be interesting to see how the "fiscal cliff" affects our economy next year.

Being a libertarian, I do think the government needs to stay OUT of our investment decisions. However, I do know that the majority of idiots in our country do not save for retirement.

With that said, what about taking a percentage (3% or 5%) out of incomes and set it aside with 75% of that going to that individuals own retirement (not invested - just money we will get back at retirement) and the other 25% going towards the idiots who are going to wake up one day with nothing saved? That 25% would fund a 'no frills' retirement for the people that didn't think ahead and would only be enough for them to get by in retirement.

I obviously wish everyone thought as those of us who frequent blogs like this but I also know that in the next 20 years there is going to be an epidemic of baby boomers who cannot work and cannot pay for anything because they blew it all during their lives. Please note that my 'no frills' plan would be something along the lines of large retirement homes that use that 25% (of whatever total percentage) to provide the food to get these people by.

Either way, we are going to end up paying for these people when they can't afford to do so, we might as well get something setup now to minimize those costs.

I am a pragmatist. There is the way I would like things to be and the way things really are.

I don't like the idea of government telling me what to do with their money.

I don't like Social Security or Medicare mostly due to both the waste and fraud in the medicare system and the aspects of it where people are using far more than they paid in which is unsustainable. But if you were able to remove those two elements from it, it would be hard not to admit that it has raised many people out of poverty and it has reduced burdens on families who would find it hard to take care of their parents.

I am also aware that while these programs are both underfunded (medicare drastically so), the desire to do more is always there and will always be there. Eventually I am confident that our govt will do more. You only need to look to Europe and Canada to see that is the path that developed nations take. Eventually the people call for more govt assistance and it seems that over time they will slowly get it.

Many people who want the govt to stop "taking" their money say that people should provide for themselves.

So let me work through a progression of thought here.

1. People should provide for themselves.
2. Most people here probably agree that most people do not adequately provide for themselves. That given the choice they will spend money on themselves now and not save for the future.
3. When enough people are in serious need the govt will come to their aid. We already passed, SS in the 30's, Medicare in the 60's. A full Republican President, House, and Senate, 100% "small government" controlled federal govt passed Medicare part D in the early 2000's adding 10's of billions in cost to Medicare and didn't even pass a tax adjustment to pay for it. Obamacare has expanded on the part D program and added assistance for millions more. Every major disaster is accompanied by 10s of billions of dollars of federal aid to help those affected. The U.S. govt always comes to the aid of people who are perceived to be in financial need. I have never seen them fail to do so in my lifetime.
4. When the govt comes to the aid of those who did not or could not provide for themselves all of us will eventually pay. Either the debt will continue to sky rocket which will eventually lead us to something like Greece or some of the grown children in Washington will act like adults and make us pay for our excessive spending. Either way, we or our grandchildren will pay for this.

Given that it would seem preferable to make people pay as they go now rather than to get to a future where they cannot pay which will shift the burden to those who can pay.

And as we have a vast and diverse defined contribution system in place today it would not be hard to do this without the govt getting involved in the process at all which would solve all of the issues I have with SS and Medicare. Rather than forcing people to pay into another govt retirement system, it would be simple enough to force people to contribute a certain percentage to either a 401-k or an IRA equivalent program. You could start with a small percent and work your way up. When you file your taxes you have to file a form detailing your IRA equivalent contributions for the year. If you do not make the contributions you are required to make you face a steep penalty. Perhaps in line with failing to make your RMD's from your IRA which is a 50% penalty.

This way most people who are currently saving for retirement see no change whatsoever. Those who are not will need to start ramping up to do so.

I would support such a system because people have proven to me that they are not responsible and frankly I am a bit tired of having to be responsible for them. I am all for freedom but I don't believe you should have the freedom to kill me nor do I think you should have the freedom to take my money. If you don't save for retirement, likely the govt will take my money for you to provide for you so I am fine with the govt forcing you to save your money instead of taking my money for you.

Sorry to say there are too many people who are nothing more than children with there money and the big nanny government wants to step in to take care of them.

These are the same poeple who instead of purchasing healthcare, they have all there toys of waveunners, ATV's, boats and motorcycles. I know sever families like this. So now we are stuck with a poorly written healthcare law to take care of these irresponsible fools.

Everyone keeps saying "we'll all have to pay for them" and I'm a little confused. Baby boomers are already hitting age 65 and there are a large portion of them that have nothing for retirement. We don't provide anything more than social security and medicare for them and most of them are finding ways to survive, whether by working longer or moving in with family.

Is the problem for the future that social security will be completely gone? We all believe that, but we don't know it for a fact.

Is the problem that people are living longer? Yes, ok, that's fine. Let's just raise social security age to be 70. Everyone should be able to work that extra 5 years if they don't have enough to retire.

If anything does happen, my guess is that the "rich" will be paying for it. As much as I don't like the idea of a govt grab, I doubt I'll ever be making hundreds of thousands or millions per year. This isn't something that I'm going to be up nights worrying about.

@Matt

I doubt the govt will be handing out extra retirement money to anyone with assets. If you own your home that should automatically disqualify you, in addition to cars, boats, and waverunners.

I could be very wrong, but I would like to see how these studies on retirement saving are done and get all of the information to see for myself.

The media loves to tell us the sky is falling. No one would care or read an article titled "Pre-Retirement Workers Have Enough Saved", and those of us who read financial blogs love to feel superior to others in terms of how much smarter we are in how we handle our money (human nature).

I will use my parents and my fiancee's parents as examples.

-My parents have about a $150k combined income 50/50 split between them. They have around $200k saved in retirement accounts. When I first heard this I was really concerned, however, my mom has a pension and they both will get a decent amount from SS. They had the means and opportunity to save more, but they will have plenty for retirement based on the numbers we went through over the holidays.
-My Fiance's parents never made as much as either of my parents, and similarly have a small amount saved for retirement. They both have pensions, SS, and will get a decent amount of inheritance when his mother dies. They are also fine in terms of retirement without having $1m in an account somewhere.

Again, I could be wrong and my experience could be misleading, but I have two examples of folks who are completely prepared for retirement without having large sums in retirement accounts. If these studies are just pulling numbers from 401k, IRA, etc. accounts of those in a certain age range, I can see how it could be misleading and more "newsworthy".

With pensions becoming a thing of the past and SS having some issues, these low savings rates would concern me more in 25 years.

@Werty, I think your examples are not the norm. I would think most people do not have pensions for retirement. Just based on my own experience living in the Detroit area, some of the Union workers do have a pension but most of the other people who work in the area do not.

Maybe someone can provide stats on what % of people actually have pensions these days? It seems to be an area that no one can define correctly.

Also, did you factor in health care costs for your parents and in laws?

We don't need anymore defined mandatory contribution plan. People will survive somehow. Even if they don't have retirement saving, they'll have other resources like children or they can work. If they don't save, then they'll have to deal with the consequences.

I feel very blessed to live in the richest country in the history of the world, in which ordinary people can be rich enough to voluntarily stop working at some point and do whatever they want, and have enough money to not have to move in with family. Back in the day, if you were lucky enough to live long enough that you weren't physically able to work anymore, you'd move in with your kids. I feel lucky to live in America but it annoys me that people now consider retirement a "right" rather than a privilege. I read an article the other day that said the baby boomer generation will be the first generation to not be able to retire or some hogwash like that, when in reality they're one of the first generations that grew up with the idea of retirement at all.

To answer your question, no, I don't think Americans should be forced to save for retirement, and I will be very angry if a means-test in the future will punish savers and reward idiots. I don't have a problem with some assistance that will help those who have never made much money, but if SS or any other program will pay someone more than me when they made the same income as me and just wasted it, I will be absolutely livid.

Social Security is the safety net to keep the elderly out of poverty and it does an adequate job. We don't need to force more savings past that. I think incentives, education and any other way we can guide or help people save more towards retirement is good but I don't think we need to force more retirement savings.

Honestly I'd prefer we go back to having more defined benefit pensions and less 401k/IRAs as I think most people do a poor job handling their own savings when its self managed.

We don't need to force people to save to live the high life in retirement. We just don't want them to be destitute. My parents were never big earners but between the two of them, they are going to get around 50k/year from SS.(They are working longer and therefore getting a larger monthly amount)

OK, they would have like to retire a few years ago but instead will work until around 70. Then, they can take their savings and 50k/year and live a comfortable retirement.

Before SS we had a huge problem with poverty and literal destitution among the elderly. SS was built to fix that and it did.
Before social security back in the 1930's poverty rates for senior citizens was as high as 70% level. Today poverty rates for seniors is under 10%. This is primarily due to social security. Today Social Security keeps 20 million Americans above the poverty line. SS is a government program that works very well.

I don't think the government should have the right to force retirement savings (even though the already do with SS). In my mind, it is no different that forcing me to allocate set amounts to housing, transportation or food.

This is a semantic argument.Until we adopt a policy of sticking impoverished elderly on raft and wishing them good luck, the people who plan responsibly for retirement are going to have to pay some kind of price for the people who don't. Call it enforced retirement saving, or call it increased taxes, it's going to happen.

@Anna

The impoverished elderly have found creative ways of surviving without the need for more than social security up to this point, so assuming social security is around for a bit, why would they require more than that plus medicare?

I think Apex's post was the best and comes closest to my view. I have an ex who I have been helping to support financially in his old age because he never saved. It's easy to say "just let 'em live on the street" etc...until it happens to someone you know personally. My ex was not financially irresponsible...but he also grew up in a financially ignorant family, where he experienced childhood physical and sexual abuse. It's extremely common for people from these kinds of backgrounds to be horrible with money. I grew up in a stable, relatively comfortable middle class family where saving and avoiding debt were emphasized, so it was easier for me to be a saver given that upbringing...yet my sister who had the same upbringing, is 44 and only has about 7K saved for retirement. I HATE it that we have to force people to save for retirement, but I believe it needs to happen. As others have said, we are all going to pay for these folks one way or another.

By the way, I don't think such a plan would have to be that difficult or expensive to implement (although I share others' concerns that politicians would use it as an opportunity to reward their paymasters in the finance industry). It could be modeled after the plan the Federal Government already uses for its employees. You could basically have a very low cost indexed "retirement target date" plan for everyone.

Correction: I meant to say "My ex was not financially responsible".

@Noah,

Because both social security and medicare are underfunded (drastically) so something will have to change.

Politicians repeatedly make comments about seniors having to decide between food and medicine. These comments are intended to be a prelude to getting them more money. The medicine will continue to get more expensive and the support systems will continue to have less money to supply it.

If people don't have something else to fall back on in coming decades, SS and medicare in their current form will not suffice.

Social Security is currently only 73% funded. it will take a 30% increase in taxes or a 27% cut in benefits to make that system work long term.

Medicare is much much worse. The current beneficiaries are drawing out on average 450K per household over their lifetimes having paid in on average 155K per household. How long do you think that math can continue?

People will save more to contribute more to their retirement and medical needs or you and I will contribute to it. I do not see any other mathematical conclusion that can be reached. Unless math doesn't apply, then it can continue as it is forever.

@mysticaltiger,

Why set up another system? Why not just require them to contribute to one of the plethora of 401-k or IRA vehicles that are available now?

@Apex

I totally agree that social security probably won't be around in 30 years.

The dilemma is do you let people manage their own retirement, through some sort of forced IRA or do you let the govt manage it for you? I wouldn't have as much a problem with a separate govt type plan as long as there was a guarantee the money would be there and I could manage it. I don't like paying into a system knowing my money may not be there (social security).

Anyone know why they haven't proposed raising the social security tax cap above $110K? I could see them raising it up to $200K if you make more than $250K/yearly.

I'd be fine with it if the government forced us to save more in retirement savings as long as I received more when I retire. We already pay SS. I would adjust just like I do now and set a budget for what I can take home.

@Noah,

SS will be there. It will never go away. It's just a matter of what it will look like and whether or not we will all still be allowed to draw or if it becomes a means tested program only for the poor.

@ Apex

Currently, Social Security is not underfunded as you said earlier. There has been a revenue gain all along. The problem is that as the baby boomers retire, the FUTURE of Social Security will be eventually go red. Trust funds will keep it going until 2041.

http://www.ssa.gov/OACT/STATS/table4a3.html

I first started work in the USA in 1960 and retired in 1992 at age 58. Prior to that I also worked 5 years in England and 2 years in Canada but received no benefits from either.

My wife also worked in the USA for about 16 years.
We both receive pensions as well as SS checks and would be able to live quite well from those alone if we had to. However the largest contributor to our gross income is the income we make on our investment portfolio. My 401K had rather a mediocre performance while I was working and my investment choices were very limited, the equivalent of being able to split my 401K between 3 ETFs - (Stocks, Bonds and a MMF) and also limited to making changes only every 6 months.

What really turned our investments and subsequent income from mediocre to fantastic only happened after I retired and had total control over our money. This sounds good but it was only good because I hit a great period in the market and also had the education, skills and time required to become a very successful investor that hasn't had a losing year since retiring over 20 years ago.

Another person could easily have been a poor investor and done far worse that just reallocating his money between Stocks, Bonds, and a MMF twice/year.

Thus for my part I would never, ever, want the government managing any of my investments and I believe the great majority of people that contribute to this blog feel the same way I do.

@Apex...I'm not against IRAs and 401ks per se. The problem I see is that many plans, especially those for smaller companies, charge rip off fees. I see this with a friend of mine who's a psychiatrist. He has American Funds (a good fund company) in his plan, but they are the rip off "R2" share class, charging about 1.4% expense ratios, instead of around .65% for the typical "A" share class (They charge even less for their R5 and R6 share classes). And the people he works with never complain about it. He says it himself...doctors/medical people are horrible/clueless about money. The only reason he isn't that way is because he majored in finance in college before he went back to get his medical degree.

Also many small businesses don't offer 401ks at all...so we do need some kind of a default plan for people who either don't have access to them or who have rip off plans.

@Luis...the "trust funds" in Social Security are a joke. They are nothing more than paper IOUs. Basically dipping into the "trust fund" is akin to printing money. Of course, they have to come up with a different name for it, because they don't want people to realize what a joke it all is. Same thing with "quantitative easing". Just another word for printing money....And 20 or 30 years ago we would laugh at 3rd world countries for their money printing. Now we have become a joke and people don't even know or seem to care.

Apex said: "Social Security is currently only 73% funded. it will take a 30% increase in taxes or a 27% cut in benefits to make that system work long term."

SS is 100% funded today and into the future for many years. Eventually it will run out of money such that they guess that it will only have ~70% of the money to pay benefits unless something hanges. Having only 70% of funding decades in the future is not the same as meaning we need to raise taxes 30% today to fix it. They can fix the eventual future shortfall by raising the payroll tax 2% today or about 17% increase.

Of course its all based on guesswork about the economy and various macroeconomic and demographic variables across several decades into the future. Yet we can't assume that will be accurate.

@Mark,

I said 401k or IRA. There are unlimited IRA options.

@Mark,

The trust funds in SS are not a joke. They are actually there. They are loaned to the federal govt general fund and the federal govt pays interest on them. Would you rather have them sitting there in cash earning zero? They are invested as bonds to the federal govt. Every dime that is sitting there will be utilized and the accounts will go negative sometime in the 2030's.

@Apex

If SS exists in 30 years, I can't see the govt saying to a responsible person of average income, "Hey, you have too much money in your retirement so we are giving your $900/month to someone who didn't save a dime when they could." The outrage would be tremendous.

Noah, SS will not go away any time soon. Yes it may need a tax increase to continue current benefits into the future. They raised SS taxes 20 different times since the 1930's, so I think it could happen a 21st time.

@Luis and Jim,

I am aware that current SS funds in the trust fund has the funds to pay 100% of draws for the next couple decades. No it's not 2041 anymore, they have moved it up to about 2033 recently. It will move around but it's somewhere in the 2030's. However that does not make SS currently 100% funded. You judge a pension based system's funding level based on all future obligations on the fund, not based on current obligations.

I will be getting ready to draw just about the time the trust fund is exhausted so it is not 100% funded for me.

IBM has one of the largest pensions in the U.S. with funding levels of almost 100 billion dollars. This is more than enough to pay every person drawing for more than a decade, probably a few decades. Yet in 2010 the IBM plan was considered 89% funded.

Current draws have nothing to do with if a system is fully funded. It's not fully funded unless every current and future drawer can fully draw without the fund running out of money. By every measure social security is not fully funded and Medicare is many times worse than Social Security in it's funding problem.

Something big has to change, I don't know what it will be, but it will happen because our retirement entitlement systems are not just slightly underfunded but drastically so.

@Noah,

You keep saying if it exists. Do you think there is a higher possibility of it going away entirely, of them throwing everyone out on the street, than there is of them telling a small portion of people that at first they will draw a little less, and then a few more people will draw a little less, and then even more people will draw even less?

Are you aware that some prominent republicans in congress have already proposed means testing social security draws as a way to shore up the system without raising taxes?

@Apex...Sorry, I'm not drinking that kool-aid.


If the trust fund "assets" are "loaned" to the federal government for current spending, then they are not there. The chances of them ever being paid back are slim to none, unless done with severely inflated dollars, and probably not even then. No one will convince me it's anything more than a nice way to print money. They come up with different terms to confuse people, but that's all it is.

I agree that saying that SS can pay its current obligations is not the same as saying the system is 100% funded. True. I should have said that SS has 100% of the money it needs today and for many years.

But neither is it correct or compariable to say IBMs pension is 89% and SS's future 72% funding level and call that equivalent.
When you figure how a pension is funded you do consider its ability to pay future obligations for current workers. However the way they calculate private pension funding levels differs greatly from how the trustees figure social security's future funding levels. THe fact that SS will only have enough to pay 72% of its obligations in 2033 is not the same as saying its 72% funded. When they figure that IBM is 89% funded its not the same calculation as when they figure SS future funding. For one SS is figured in a 75 year timeframe which includes people who haven't even been born while private pensions only include current workers and retirees (no unborns added into IBMs 89% figure). Further private pensions get to use some rosy figures for the discount rates while SS calculations use somewhat conservative numbers.

@Mark,

So are your funds in your 401-k there?

If they are invested in bonds they are loaned to someone, same as the trust fund.
If they are invested in stocks they are also invested elsewhere.

But you didn't answer my question about how you would prefer the funds be "there." Should they sit there in cash earning no return? What does being there look like? Because funds never really sit in cash. They get invested somewhere.

The U.S. Federal govt is 16.3 trillion in debt right now but that includes the 3 trillion they owe to the trust fund. Actual bonds issued are only in the 13 trillion range and the money owed to the trust fund is on paper. Would you feel better if the govt had issued 16 trillion in bonds and had 3 trillion sitting in cash somewhere for the trust fund? Would that mean the funds were actually there? How is that any different from an accounting standpoint?

The printing money issue is a separate matter. That's a government borrowing and debt problem. But that doesn't have anything to do with whether they got the money from the trust fund or by selling bonds to China. That's the real issue, govt debt. Not whether they borrowed money from the trust fund or left it sit there in cash.

@Mark,

One further thing you said is that they chances of the funds ever being paid back are close to zero.

The chances of them being paid back is 100%. The last 3 years SS ran a deficit (so to some of the previous points about SS being 100% funded, based on current receipts it is not even 100% funded today). The trust fund still was slightly positive for the year because of the interest paid by the federal govt. But the receipts are now running more negative every year. If the trust funds are not paid back each and every year as we go along there will need to start to be cuts to social security checks that are going out to existing retirees today.

Now that is something I am confident has zero percent chance of happening. And that means that the trust fund money has to be paid back because without it sizeable social security cuts start today, not in 2030, not in 2020, but today!

@Apex

All good information! I have some research to do for this weekend now :)

@Jim,

You are absolutely correct about my use of 73% funded. The way I stated it was not correct. It is underfunded today but as you stated if you started fixing it today it would likely not take a 27% fix but something more like a 17% fix. Thanks for pointing that out. I should have stated that after 2033 it is projected to be only 73% funded.

Unfortunately based on what is going on in Washington today, as we speak, the ability to solve problems before we are at the edge of the cliff seems remote. I fear we will get much closer to the 27% proposition before anyone has the courage to do anything about it.

Apex, yes. It does look like the politicians may kick the can down the road till they can't kick any further. Thats what they did until 1983 when we had the last major reform. It was about to go bust then. The 83 reforms lasted 30 years so far and may last 20 more. Not bad really if a system can last 50 years without changes. Of course "last" in this context means not go bankrupt but thats all it has to do. Not many systems that have lasted 50 years without major changes to their financial model. Not so bad if you look at it from that perspective.

Medicare is pretty screwed up though.

One other minor detail. SS is currently running a deficit if you look at taxes in versus payments to retirees. However if you add in the intrest earned on the trust fund then it is NOT running a deficit. Also by comparison private pensions have been running a similar deficit of payments in less payments out for around 25 years but the private pension gains on investments keep them positive just like SS gains on trust funds are doing now.

@Noah,

As way of details,

In 2011 Senators Rand Paul and Lindsey Graham proposed gradually raising the retirement age for Social Security to age 70 by 2032

AND

reducing benefits by $300-$400 dollars for any senior making over $43,000 in 2032.

The Heritage foundation, a conservative thinktank, put out a proposal that would reduce benefits for both social security and medicare for any seniors making over $55,000 and completely eliminate them for seniors making over $110,000. Make $110,000 and you get zippo. Recall that all of your distributions from IRA's will count as income.

This stuff is not very popular yet, but its out there. The longer we wait to deal with this problem, the more enticing it will be to put the burden on those who have saved up funds and "don't need the money"

pay attention to those 4 words. We have heard them many times already in this debate about raising taxes on the "rich." Those who are perceived to "don't need the money" are an easy target when the choices are difficult.

@Jim,

Yes you are correct that SS is still positive with the interest. Based on current trends that will turn negative even with interest soon and that's when we start the repayment of the funds from the trust fund as we head toward exhaustion of the funds in the 2030's. I want to be clear that I believe the SS problem is very solvable if the politicians just had a little courage to tackle it. Social Security will be preserved for most people and hopefully for all if they can just get their act together.

Medicare is so scary that I don't even have any idea what will happen there. There are no answers I am aware of that can keep Medicare going in anything like its current form without drastic tax increases.

@Apex..

Yes, I would rather the money be sitting there or maybe invested in the bonds of other governments (e.g. similar to a sovereign wealth fund like Norway has or maybe something like Canada Pension Plan).

My point is that this money that's being "borrowed" is NEVER in a million years ever going to be paid back. That means when they start drawing on the "trust fund", they will be printing money.

Mark, Its possible that the money the treasury uses to repay the trust fund will just be more borrowed money. I mean we never paid off the $150B we borrowed to fund WWII. We just kept borrowing different money when the bonds were due until this day. Toddays 16.4 trillion debt may seem trivial in 80 years like the 150B debt from 1945 looks now.

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