Is This New News?

From MSNBC:

Want to keep Social Security from going bankrupt? Make future recipients wait longer for their first benefit check because they probably will live longer anyway, an influential group of actuaries says.

The American Academy of Actuaries, which advises policymakers on risk and financial security issues, wants any potential solution the White House and lawmakers might consider to include raising the retirement age from the current range of 65-to-67-years-old. The group provided The Associated Press with an advance look Thursday of its recommendations.

A major problem, the actuaries say, is that people are living longer. That means they are drawing more money from the program.

Uh, yeah. Don't we all know this?

It's funny how the solution seems rather obvious, but no one wants to take the steps to make it happen.

Comments

[Todd]

An even more obvious solution would be to make the system voluntary (and phase it in over time). That way, those who do not plan for their retirement can fully support the social security system through taxation, while those smart enough to plan for their retirement could opt out and pay zero social security tax. Personal freedom and responsibility would be maximized by such a system.

[cory]

Social Security is not about personal freedom and responsibility. Hence the 'social' part. It is also not a retirement plan, it is an insurance plan.

The reason that nobody is willing to take the steps toward reducing social security benefits or delaying the age at which you are allowed to take them is because that is political suicide. No politicians mess with the elderly because the elderly vote.

[FMF]

Todd --

I wish that was an option, but I'm afraid it won't happen. Also, I can see a big problem as people opt out of the system, spend (not save) what they would have paid, and the rest of us are left holding the bag when they retire.

[Kevin]

SS is just like every other government policy - environment, health care, etc. - the politicians are too worried about getting reelected to do anything substantial about it. Our government is reactionary when it should be proactive about these issues.

[garyatk]

As much as I hate government social programs, the one sure fix that nobody seems to want to look at(if they won't allow us the freedom to keep and invest our own money) is uncapping the income cap and make it so that the "premium" is paid on all income. If the democrats are really for the poor people, why don't they look at that? Because the are actually rich and out for themselves. I hate politicians! Please vote for the third party of your choice this November! Throw the bums out!

[Matt H]

Todd,

Social Security is like a Ponzi scheme, and if people had the chance to opt out, the whole thing would collapse rather abruptly. As much as I dislike Social Security in its present form, I wouldn't want to see that happen.

I think putting the retirement age on a schedule to rise at a rate faster than life expectancy (raise the retirement age by 10 weeks per year in perpetuity, for instance) is the fairest and least painful way to ease ourselves out of the system. Younger people would have more time to plan and save for the change. The elderly, who vote in large numbers, would barely be affected at all. Eventually the old age part of Social Security (as opposed to the far more defensible disability part) would cease to cover any living person.

[cmadler]

Just like a shortfall in a personal budget, there are only two ways this can resolved: spend less and/or take in more. Ultimately, Americans must choose higher taxes (could be higher tax rates, eliminating the cap, etc.), lower spending (could be a higher retirement age, lower benefits to retirees, etc.), or some of both. Personally, I think increasing the retirement age, establishing continued retirement age increases based on demographic changes, decreasing monthly payments particularly at the high end, and possibly decreasing benefits based on retirement-earmarked assets (similar to college need-based financial aid).

As cory pointed out, Social Security is really an insurance plan, a social safety net for people who find themselves destitute in old age. It should be there for anyone who needs it, but it should provide a truly minimal standard of living.

The obvious solution to the social security system is a mandatory retirement tax. Let the accounts be individual so you get what you save, but then make it obligatory for all working individuals to participate. It's done wonders in foreign countries that have taken this type of approach to retirement.

This would fix what is essentially just a giant pyramid scheme for the future. As for shoring up the system for existing retireees and for a true insurance plan for those who truly need assistance, cut overseeas assistance and overseas military spending. Could shore up the plan practically overnight. Unless you think quasi-dictators deserve our tax dollars more than american citizens do...

[James]

Matt H hit the nail on the head. Opting out wouldn't hurt the ones paying in now so much as the ones that have already paid in for 40 years. Why should they get screwd because we now realize the flaws in the system? Like any pyramid scheme, it is the last ones in that get hurt the most.

I also like Matt H's idea of increasing retirement age faster than life expectancy. Although, I think doing so by weeks might be a bit confusing. I like the idea of raising the age a year every couple of years based on birth year. My generation (late 20s) are realizing that in its current state, we are paying in but probably not getting anything back. I don't like this, but I am willing to accept it because I know my parents have worked hard and paid into their whole lives. But I make good money and have never planned on SS benefits as part of my retirement. Because we aren't expecting much from SS, I think increasing the age isn't going to affect us (and later generations) as much. Eventually, the age will be high enough that everything will balance back out (enough coming in to cover what will go out).

I also like the idea of increasing the age limit for smoking and drinking the same way. This doesn't affect anyone who is already old enough to smoke and drink, but increases the wait for those not old enough to do so. Eventually, the age is like 35 or something and people have no desire to start at that age. But I am sure there are some pretty big lobbys in DC that will make sure that never happens.

[J]

garyatk where have you been? That is exactly Obama's plan. It sounds great until you are one of the people that are basically going to pay 12% of your income to fund other people's retirement. It is funny how many people in this country think that as soon as you make a couple hundred grand you must be one of those "rich" people that have more money that you can spend. We are fortunate to do quite well, but we also have considerable student debt (which we can't deduct), and are trying to save for our own future. Sorry, but I feel like I am already paying more than my fair share in taxes, no need to add on this additional burden of saving everyone else from their inability to save properly for retirement. Take a look at the recent WSJ editorial about Obama's tax plans to find out more about how he will turn Social Security into an even bigger welfare scam than it already is now. BTW I am a pretty devout democrat and will probably still vote for Obama, but this whole notion that we need to redistribute wealth is a bunch of bs.

[J]

cmadler, so you want me to pay more money (by reducing the cap) and then also phase out my benefits (based on how much I saved)? Why don't you just take all of my money and give it to other people since you don't seem to think I deserve to keep any of it for myself?

Where is the incentive to save for retirement in your scenario? The more I save the less I get. Yeah I am going to save anyways because I want a better standard of living, but while I understand not much in life is fair your suggestion seems to just be a smack in the face to those that do try to be responsible. Just like most welfare programs, it encourages people to rely on their government for handouts rather than take some personal responsibility in their own life.

[Kevin]

I think Matt H has the best solution so far. I know I certainly don't want to pay more taxes to a program I'll likely never see a dime from (I'm 33 now). And I don't agree with taking money away from retirees that was promised to them, so the only "fair" change is to continue raising the retirement age.

["Mo" Money]

I'm surprised that no one mentioned privatizing SS. Pres Bush brought that up but it didn't fly. Why?

[Matt H]

James: I grant that 10 weeks seems a bit confusing at first. I picked it because two months per year seemed a little too slow, and 3 months seemed a little too fast for folks to digest. I do still like the idea of doing something gradual though . 1 year every 3 years or whatever seems a bit too stop-and-go. If your birth year falls on the wrong end of the interval you'd feel like "Ugh, just missed it!" In fact, ideally, I'd like to see it set up so that if you draw a graph with birthday on one axis and retirement eligibility date on the other, it would be a smooth curve. That's harder to explain to people, but I think it's the most fair way to do it.

There are some advantages to going by weeks though. It's pretty easy to calculate exactly. Months are a little tricky because some are 30 days, some are 31 days, and one is even 28 (sometimes 29) days. So as soon as a schedule is agreed to, everyone can go to a web calculator and figure out the exact date their entitlement begins.

J: If you're against redistribution of wealth, you certainly aren't with the Democratic party line. In fact, it's a pretty central part of the Democrats' world view, and especially of Obama's. I'm sure you have your reasons though. I identify more as a Republican these days (or a recovering Democrat) but I barely agree with them more than half the time.

"Mo" Money: Essentially what I want to do is privatize SS by eliminating it (again, I'm talking only about the old age part of the program). The gradual raising of the retirement age is just an exit strategy. Bush's idea was more complicated. It would still be a government program, but it would invest some of the money instead of transferring it. It seemed like it would create distortions in the capital markets, but I allow the possibility I misunderstood what he was proposing. In any case, real privatization is removing government from retirement altogether.

What people often forget about Social Security is that in its early years, the old age part did not come into play that much. People lucky enough to make it to 65 at all were usually not in good health. It was like being 85 today. What we know today as retirement (quitting work 15-20 years before death, golfing, swimming, moving to Florida, etc.) was a luxury that people only got to enjoy if they saved and invested. It was not something that younger generations were expected to subsidize, much less an inalienable human right as many people seem to think now.

[J]

MattH: Agree that is it hard for someone who wants fiscal responsibility to also be a democrat given the extreme push to the left on redistribution of wealth, but for me the republicans aren't the answer. I disagree with too many of their stances on issues other than taxes. Unfortunately it is once again a choice of the lesser of two evils I think. Obama seemed to offer some promise of change, but I don't buy into the idea that it isn't just politics as usual, and the more he defines his policies related to social programs the scarier it gets. In reality I don't think the changes he will be able to enact will end up as extreme as some of his positions now so for me he is the better choice.

What really bothers me is there seems to be a current running throughout the country that we should just have the "rich" solve all the problems. I can see why Obama's policies appeal to the other 95% of the population, they will pay less and get more. If he was talking about cleaning up all the waste in government maybe I wouldn't feel so bad about turning over more of my hard earned money, but he isn't and neither is McCain for that matter. For example, changing the retirement age seems like a sensible solution that is fair, but why do that when you can just tax the rich and have them pay for it.

[F. Morana]

Social Security is "a pact between generations," and it is an ENTITLEMENT which Americans should not be so ready to relinquish, any more than they would relinquish any of their other entitlements!

Americans need to send a loud & strong message to the ruling political parties, candidates, and incumbents that any decrease in promised benefits, however small, is absolutely UNACCEPTIBLE.

[J]

Then what should be done F. Morana? If you don't decrease benefits, either through reduced or delayed payouts, you have to increase payment into the system. Which when you think about is just paying more to get less, so your benefit is decreased, just in a different way. Let me guess, you are probably about 50 yrs old and haven't saved enough for retirement by yourself? You probably think to yourself, well as long as they don't change my ENTITLEMENT then that is okay, let somebody else deal with it after I am gone!

[James]

I won't go as far as guessing your age Morana, but I do want question your statement about "ENTITLEMENT which Americans should not be so ready to relinquish". Should we really be encouraging the ideals of entitlement? I am all for the benefits we have in this country, but I don't think we need to encourage the dependancy of them or the expectation of them. I don't think we should be proud of the word "entitlement", I think we should be ashamed of it. If people in this country didn't feel entitled to so much, then they would learn to take care of themselves and not rely on the rest of the hard working tax-payers to foot their bills.

[Matt H]

J: Not to lecture you (I think we mostly agree on this stuff anyway), just wanted to add a point or two. The lower 95% of the population may pay less and get more at first, but mugging the rich is not without long-term consequences. When marginal income tax rates and capital gains rates get too high, the rich just decide it's not worth starting a new company or expanding operations or even continuing to run a business already in operation. Jobs that otherwise would be don't get created, and goods and services that otherwise would be offered aren't. Wealth is not merely redistributed, but destroyed in the process.

McCain does talk about cleaning up government waste (particularly earmarks), but I think his approach is much too shallow to be meaningful. Reducing government waste isn't just a matter of tweaking. The waste arises from allocating resources collectively through political processes rather than letting people keep more of the fruits of their own labor and choose the resources they value most for themselves. Government and waste are inseparable. The only way to reduce it is to reduce the size of the political sphere.

The main reason I can't bring myself to support Obama is that despite his earlier vague rhetoric and slogans about "change", it's becoming clear he values equality of outcomes over quality of life. To me, the most shocking thing he said in this campaign was in a debate in response to Charlie Gibson's question about capital gains taxes. He said that even if raising those taxes has historically reduced revenues, he'd favor doing it anyway for the sake of "fairness". He didn't take issue with the premise of the question. So I guess even if it reduces the funds available to pay for social programs, he'd like to stick it to the rich anyway just for spite?

But I'm with you that at the bottom line, it hardly matters. I doubt anybody is making history here. Once again it's just the choice between the lesser of two evils.

[Kevin]

Matt H -

I have to call BS on this statement you made:
When marginal income tax rates and capital gains rates get too high, the rich just decide it's not worth starting a new company or expanding operations or even continuing to run a business already in operation. Jobs that otherwise would be don't get created, and goods and services that otherwise would be offered aren't. Wealth is not merely redistributed, but destroyed in the process.

I'm sorry, but even if I'm rich, if I know I can start a business and make money I'm going to do it no matter if the tax rate is 15% (current cap gains rate) or 50% or 75%. There is still money to be made net of taxes. I know this is probably taught in every economics class but I just think in the real world it is bogus.

[James]

Kevin,

I don't think Matt H meant that people would forgo making money because a higher percentage of the profits would go to taxes (even if that is how it reads). I think the point is that with a higher cap gains rate, there is a higher risk involved. So, people will generally be less likely to expand or start a new business because there is greater risk of the new venture not being profitable because of the increased taxes that must be paid out. The opportunity cost of starting the business may no longer be worth it if you have to pay out 35% in taxes. Just another thought on the subject. Sorry Matt if I am completely off base on your point.

[Lord]

This is far too far into the future to even be concerned about. The models simply aren't that accurate enough to model whether there will even be a problem. That is a measure of just how insignificant a problem this is. I have my doubts any will materialize. Healthcare is a much more pressing problem due to lack of cost controls.

[Lord]

If you want no bull analyses of SS, I suggest http://bruceweb.blogspot.com/

[J]

MattH: I agree there are long term consequences so no need to lecture me :) I think it is a horrible idea, but for different reasons. I agree with Kevin that while theoretically what you say could happen, it isn't likely. The level of taxation required to be a serious disincentive to investment and sustained or increased labor is not likely to be reached. James is likely right that at some point the risk isn't worth it either, but again I don't think anyone is talking about tax rates that would get us to that point. It is far to difficult to figure out if this would really happen because you have to start figuring out the value of people's time and whether it is better spent working under the tax scheme or if they would

My opposition to the idea is based on what I think is fair and hoping that we can don't reach a point where we just take from the rich and give to the poor b/c we don't like the rich people being rich. We are told to work hard in school, get good jobs, and we will be rewarded with the American dream, but now we are made to feel like we are taking advantage of everyone else in America because we did just that. Unfortunately it seems what I consider fair and what Obama thinks fair means are different based his quote from the debate you mentioned.

[garyatk]

J: I have been lobbying for my personal freedom from Socal inSecurity for years! My point was that under the current plan, why are higher compensated people given a tax break? Every other tax the opposite is true. Whether or not the Obamanation supports it has no issue to me. I don't support it or him at all. I would rather live in a free country like the one the founders gave us. Thanks to the two major parties and their supporters, we no longer live in that country. I want my freedom back!

[Jim]

garyatk ,

Higher income people are not getting a tax break. With social security, you put in and then are supposed to get a comparable amount back. The payments at retirement, however are capped. Thus, the amount of income that is taxed under social security is taxed. If Obama raised the limit under which income is taxed, do you think he will also raise the limit in terms of how much is then paid out. Of course not. This is part of wealth redistribution. Why is it fair that someone who earns more should then be paying more? If you and I both go to McDonald for a burger and I make twice as much as you, should I be paying twice as much for my burger?

[Matt H]

J: I don't think that Obama proposes tax levels so high that it would have drastic, devastating effects. I just think increasing taxes on the rich will have negative consequences for the non-rich too. The severity may not be very great, but many people besides the rich will be poorer than they otherwise would be.

At any rate above zero, capital gains taxes will make some risks not worth taking, just like James said. The higher the rate is, the more risk tolerance goes down, because it will not be rewarded. The result is an inverse relationship between the capital gains tax rate and the amount of money people choose to make available for the creation of new enterprises or the expansion of existing ones.

Kevin: There's a similar problem with trying to get more income taxes out of the rich. In that case, we lose out on their time and effort. People, rich or not, won't just do anything for money. If someone is working 80 hour weeks to run their business, and income taxes go up enough that their extra effort no longer gains them enough extra income to send their kids to private school (or whatever they value so much to be making that sacrifice), they'll lay off their employees and find a less stressful 40 hour a week job. Another person who's thinking about going to medical school, and all the loans they would have to take out to make it work, might decide it's too risky with income tax rates too high. And it's not that there's one particular tax rate that would break everyone. At any given tax rate, there will be people who just barely find it worth their while to make the extra effort. Raise the rate, and those people will give up and move to less productive activities.

When investment is lower and the most talented members of society are not being as productive as they possibly could, the result is less employment and fewer goods and services to choose from.

[texashaze]

Wow, this sure has the boards poppin'!

One sure fire way to help fund SS is to change the taxation system. Anyone heard of the Fair Tax? It's basically a sales tax. The good thing is that it captures those who currently aren't paying - illegals, criminal activity, etc. Plus for you soak the rich folks - the more you spend the more you pay. This will raise more revenue more fairly than what we have now.

Also, if you know your history, then you know that SS was to "SUPPLEMENT" your retirement. Too many folks use or plan this as their primary/sole retirement. That approach is wrong wrong wrong. Back to the old wisdom - live below your means and save,save save!

[Jim]

Matt,

I think you actually made my point for me. The taxes proposed WOULD have a dramtic impact on the ecomony. Imagine if these new taxes are imposed on the back of the current economic slowdown. Further, I think that even additional tax increases would need to take place if things such as National Health Care are put in place. Medicare is a good example of what will happen. Medicare is going to require future tax increases just to remain solvent. Cutting hospital/doctor charges will only go so far.

[garyatk]

Jim: If you are looking for fairness in taxation, you are supporting the wrong two political parties. I am amazed that after my two comments on this posting you and J actually thought I supported those ideas. I used them to show how stupid Social inSecurity is. As well as the two major parties that created it and continue to support it are. It is no wonder that we will end up with an Obamanation as president. I can't help but wonder how are founding fathers feel about their sacrifices now.

[garyatk]

The whole idea that Social inSecurity was intended to be a supplement to your own savings is a farce! The amount that they tax us to fund the program is enough to provide a very nice retirement, at a much earlier age. Most people don't have anything left over after taxes and living to save for retirement.

As long as we continue to support the same old parties, with the same old people (and their children to take their places), we will continue to have the same old corrupt, ineffective, and abusive government that is destined to destroy this nation.

Please be a part of the solution. Not a part of the problem. Vote for the third party of your choice this November!