BuzzH
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That's awesome...
Fixing social security
- Thread starter Marshian
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406dn
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I think most of us agree that free markets provide a very efficient method for the exchange of goods and services. However, there has never been in the history of man, anything that is perfect.
To the extent possible, the governments, federal, state, and local, should keep their thumbs off the scale. That just does not happen. States compete with each other with tax policy, labor law, regulations, yada, yada, all of the time. Each is putting their thumb on the scale, trying to gain an advantage. I do not see that ever changing.
So, we should realize that markets aren't as purely free as the driven snow. You will just never stop humans from trying to gain an edge.
If you look at societies from the dawn of time, a middle class is quite rare. I think without conscious effort, societies end up resembling a feudal system. Almost everyone at the bottom, a few vassals, princes and kingpins at the top.
The rise of our middle class really blossomed after World WarII. It has been slowly eroding for decades. I do not know if the decline can be reversed.
To the extent possible, the governments, federal, state, and local, should keep their thumbs off the scale. That just does not happen. States compete with each other with tax policy, labor law, regulations, yada, yada, all of the time. Each is putting their thumb on the scale, trying to gain an advantage. I do not see that ever changing.
So, we should realize that markets aren't as purely free as the driven snow. You will just never stop humans from trying to gain an edge.
If you look at societies from the dawn of time, a middle class is quite rare. I think without conscious effort, societies end up resembling a feudal system. Almost everyone at the bottom, a few vassals, princes and kingpins at the top.
The rise of our middle class really blossomed after World WarII. It has been slowly eroding for decades. I do not know if the decline can be reversed.
SAJ-99
Well-known member
It might help to point out that the 1983 SS reform targeted the max income cap so that 90% of all income would be eligible. We are currently down to about 81% last I saw. So a lot of income of the bottom and middle didn’t keep up with the income of the top. Bumping up the cap seems like an easy thing to do, even if it doesn’t entirely fix SS.
So, here's what is totally wrong with your simplistic analysis.
1. Your analysis assumes that the bulk of the money is in stocks for a 40 yr period. 1. Stocks don't EVER grow in a straight line. Stocks have have been know to not do shit for 16 years then surge. Returns have been incredible boosted by a highly stimulative fiscal and meenetarypolicy that makes returns look attractive. Are you that certain that stocks will grow 8% over the next 40 years???? Wow, Ive got 35 years working experience running major institutional portfolios. That is fantasy.
2. in retirement you have withdrawals that are infrequent, small & large, very spotty and hard to predict. I dealt with those as an institutional portfolio manager. I gotta tell ya, this can help, or they can kill ya. This is an asset liability management and cashflow needs problem; my specialty. That for one, makes your return expectations highly inflated. And this risk is huge. You gotta beat me on returns! Im a professional manager with 35 yrs experience. Remember Clint Eastwood? In speeches I used to quote him. Remember what he said? A man had to know his limitations!!! I know what you're thinking' was that 5 bullets or 6. To tell ya the truth, I lost track myself. So the watch word is modesty regarding your abilities to truly generate a n 8% rate of return, despite the bullshit ya hear and read on the internet. You only hear about the winners. That is called "dropout risk".
3. Social Security takes out inflation risk and mortality risk. Mortality risk, I'm sure you know, is the risk that you outlive your assets. Mortality risk is HUGE. You are totally naive if you minimize this. And we will have Biden and the Congress for a long time, and we are gradually pulling away from cheap chinese crap. So, the risk of inflation continuing is a given.
4. As I said, Social security is a huge handout, including Medicare to the middle class. You get out 2-3 times what you, your employer, and risk-free interest would have accumulated over a 40-year period would have put in. There are various studies by actuaries on social security and its value. I used to have friends that were pension actuaries, and I'm a retired CFA from a major institutional investment advisory.
5. The public has numerous misconceptions, like somehow the rich ar getting something more from social security that they didn't earn and their ss taxes are capped. Their benefits are capped and drastically cut back.
I could probably write 20 pages on this problem of asset/liabilitymanagement and pension management.
The numbers were based on buying index funds. The SP has averaged over 9% since its inception, so 8% is conservative.
Being a professional fund manager, I can see how it’s a touchy subject to you that many of your peers and perhaps yourself, struggle to consistently beat the market index while charging so much for your services.
BuzzH
Well-known member
Correct, every single money/fund manager is chasing the S&P...and about 99% fall short. They're worse than a used car salesman.
406dn
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I'm not certain why the need to start your post with an insult.
Even when markets are "flat" a person can still make money in the market. Many stocks pay some sort of dividend. If you reinvest the dividends, you gain more shares of stock. So during a 16 year time frame, if you are saving for retirement, you just keep putting money to work in the market and reinvesting the dividends. If you stay the course, at some point, you don't know when, the value of stocks is highly likely to appreciate.
In my retirement, withdrawals have been consistently planned and largely uniform in amount. It is not that hard to have enough liquidity to keep from selling stocks, when you would prefer not to. In my case, assuming future dividends are paid out, I am several years away from "needing" to sell a position. Now, I might at some point sell something, if I think it's the right thing to do.
EVERYONE's benefits are capped, by their lifetime earnings, and when they decide to take their benefit. The wealthy are not unique in that regard. I do understand that as you move up the income scale, the benefits rise more slowly than the income. So, those at the top get a less generous benefit, compared to their income, than do wage earners toward to bottom. I don't have a problem with this. I also think that the higher wage earners deserve to have a SS benefit. It is profoundly unfair to tax someone for 40+ years, and tell them, you don't get a benefit.
I don't see why the upper cap can't be adjusted. For most workers, all of their income is subject to the tax. My fix would be to to raise or eliminate the cap, raise the tax for everyone and the company match...by say 0.5% or some modest amount. Everyone should have to help solve the problem. And oh, if needed, modest cuts in benefits, have to be considered.
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npaden
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Lots and lots of rhetoric and very little actual progress on what would need to be done.
Ripping the cap off like with Medicaid just isn't going to happen. Huge difference in 2.9% extra tax on high earners and 12.4% extra tax on them.
The extra 2.9% caused some complaining and whining (of which I was one doing the complaining and whining) but it didn't cause people to actually do anything about it.
An extra 12.4% would create a boom for corporate attorneys and tax planners. Small business owners and partnerships would restructure to get the minimum amount of earnings categorized as earned income that would be subject to that extra 12.4% (and the 2.9% as well - we're talking 15.3% total).
The alternative would be to increase the cap up to a reasonable number, something that seems reasonable would be to match the cap on SS match up with the cap on compensation for 401k contributions.
The max compensation for 401k is $345k for 2024. The 2024 SS earnings cap is $168,600 as mentioned several times already. Going to the max compensation for 401k's would more than double the cap on SS. That would have to go a long way toward actually helping it out.
It would cost me some $ but probably not enough to make me change up the way our company is setup for tax purposes.
Of course that actually makes a little sense and would require compromise on both sides so probably not a chance of it happening.
Ripping the cap off like with Medicaid just isn't going to happen. Huge difference in 2.9% extra tax on high earners and 12.4% extra tax on them.
The extra 2.9% caused some complaining and whining (of which I was one doing the complaining and whining) but it didn't cause people to actually do anything about it.
An extra 12.4% would create a boom for corporate attorneys and tax planners. Small business owners and partnerships would restructure to get the minimum amount of earnings categorized as earned income that would be subject to that extra 12.4% (and the 2.9% as well - we're talking 15.3% total).
The alternative would be to increase the cap up to a reasonable number, something that seems reasonable would be to match the cap on SS match up with the cap on compensation for 401k contributions.
The max compensation for 401k is $345k for 2024. The 2024 SS earnings cap is $168,600 as mentioned several times already. Going to the max compensation for 401k's would more than double the cap on SS. That would have to go a long way toward actually helping it out.
It would cost me some $ but probably not enough to make me change up the way our company is setup for tax purposes.
Of course that actually makes a little sense and would require compromise on both sides so probably not a chance of it happening.
Pucky Freak
Well-known member
SS cannot decide if it is a safety net for the elderly, or some kind of pay-in pay-out scheme. Therefore, I present…Old Age Basic Income.
How it works: All income is taxed at X%, no cap. X is adjusted annually to account for projected costs in the upcoming year, but cannot increase more that 0.4% in any given year.
The money is directly paid out to all US citizens age 65 and older at a flat monthly rate, e.g. $2000. All other earned income starting at age 65 displaces what OABI the individual would collect, to begin being paid out at a later date at a rate adjusted upward based on actuarial tables.
Example 1: Billy has never worked a day in his life. He’s spent the majority of his life as a panhandler. If he’s still alive at 65, he collects a $2000 monthly check every month until he dies. He still panhandles, and the government opts not to go after him for OABI fraud.
Example 2: Susie has enjoyed a prosperous career as an investment banker. She saved for retirement, and retires at age 60. She withdraws $10k a month from personal savings until she dies at age 80. She never collects one penny of OABI.
Example 3: Peter is an auto mechanic. He was intending to work through age 65, but the wear and tear on his body forced him to switch to a less-demanding job beginning at age 55, which did not pay nearly as much. At age 65 his retirement savings are just $100k. He elects to work for another 5 years and collects no OABI. At age 70 he retires for good. He now has $200k saved. He withdraw $750 a month from savings, $150 of which is taxable income, reducing his OABI by that amount. However, since he collected no OABI between the ages of 65 and 70, his actuarially-adjusted monthly payment increased to $2500, minus the $150 = $2350.
Gradually phase the new system in for the old one over 30 years.
Before everyone jumps in and says “it won’t work b/c, etc, etc” I know it is vastly oversimplified and would need to be modified to actually work.
TLDR: transition the current system to a simple safety net for the elderly.
How it works: All income is taxed at X%, no cap. X is adjusted annually to account for projected costs in the upcoming year, but cannot increase more that 0.4% in any given year.
The money is directly paid out to all US citizens age 65 and older at a flat monthly rate, e.g. $2000. All other earned income starting at age 65 displaces what OABI the individual would collect, to begin being paid out at a later date at a rate adjusted upward based on actuarial tables.
Example 1: Billy has never worked a day in his life. He’s spent the majority of his life as a panhandler. If he’s still alive at 65, he collects a $2000 monthly check every month until he dies. He still panhandles, and the government opts not to go after him for OABI fraud.
Example 2: Susie has enjoyed a prosperous career as an investment banker. She saved for retirement, and retires at age 60. She withdraws $10k a month from personal savings until she dies at age 80. She never collects one penny of OABI.
Example 3: Peter is an auto mechanic. He was intending to work through age 65, but the wear and tear on his body forced him to switch to a less-demanding job beginning at age 55, which did not pay nearly as much. At age 65 his retirement savings are just $100k. He elects to work for another 5 years and collects no OABI. At age 70 he retires for good. He now has $200k saved. He withdraw $750 a month from savings, $150 of which is taxable income, reducing his OABI by that amount. However, since he collected no OABI between the ages of 65 and 70, his actuarially-adjusted monthly payment increased to $2500, minus the $150 = $2350.
Gradually phase the new system in for the old one over 30 years.
Before everyone jumps in and says “it won’t work b/c, etc, etc” I know it is vastly oversimplified and would need to be modified to actually work.
TLDR: transition the current system to a simple safety net for the elderly.
VikingsGuy
Well-known member
Not being snarky, real questions/comments.
Inflation adjusted? If so, price inflation or income inflation basis? Also, if so, collections will need to raise faster than the 0.4% you provide for.
What about shifting demographics, more 75yo and fewer 30yo - how does the increase cap work then? Or would you do what we have been doing, set initial rate higher than it needs to be and then build up theoretical "reserve" for future?
If OABI doesn't rise with inflation, in 15 years it will be worth very little. If it does, that and demographics will cause real challenges to funding model. Which is exactly what we have now.
If you adjust for inflation and demographics this isn't much of a change except the removal of the max income taxable cap and removal of requirement to pay in through lifetime employment. The "needs" scenario pretty much happens now as much of SS value to Susie gets taken back via state & fed taxes and Billy gets via other programs.
Pucky Freak
Well-known member
Benefit is inflation-adjusted by CPI. Let’s say inflation that year was 5%. Payout goes to $2100. If the income tax to fund the program is currently 1.83%, it goes up to 1.92%. That’s an increase of 0.09%, far less than the 0.4% max annual tax increase.
Demographics shift older - fewer people working and many persons over 65 y.o. Raise the tax to meet the need. Forecasting 1 year in advance is reasonably predictable.
Perhaps use a treasury bond reserve fund with the goal of working towards having 6 months of payments saved up. I put the possibility of congress ever funding 6 months of reserve at 0%. We haven’t saved $1 in generations. We only know how to finance our spending and stick future generations with the interest.
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Why not raise the age to meet the funding?
Pucky Freak
Well-known member
People are living longer lives, but that does not necessarily mean their capable working years are extended to the same degree. Of workers age 60 who plan on working for 10 more years, a full half are forced out by health issues before they make 70.
Let’s say that we raise the eligibility age to 70. There are a ton of folks who are going to run out of health before then, and end up on the disability payrolls. The taxpayer foots the bill either way.
Most white collar work, 70 is a reasonable retirement age for most folks. Physically punishing blue collar careers, few bodies can endure 40 years of it. Heck, I work public safety where career shelf life is about 20 years, and I start year 15 this August. I’m 40 y.o. and to think I could still be doing this at 60 is a pipe dream.
So some people can work a long time, and some cannot. Depends on the individual and the career field. With SS full eligibility now at 67, IMO we are flirting with the upper limit already.
Career changes may be necessary, but I actually believe it does. Especially so nowadays. We cannot and should not just keep passing this down to the next generation.
Where are you getting the data to support some of what are putting forward? For instance, the “20 year shelf life” thing- if you’re in some sort of public safety career, it is well known that much of the career longevity data in that field is shaky at best (extremely inaccurate would perhaps be a better way to put it).
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Forkyfinder
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I also dont get this logic.
No one owes anyone anything special because some careers are shorter. If you are in a career that you cant work in - its your responsibility to figure that out and make changes.
Many of these gigs pay higher wages for that reason. Because its simply something you cant do forever.
Exactly. And many have pensions that kick in way earlier than 67, so not sure how relevant that even is.
SS is a safety net. Not a portfolio.
Y
IMO you don’t want 60-65ish old police and fireman running around.
I plan to retire at 50 from the public safety field and pursue a different career path for a bit. I will be able to draw my KP&F money and take a less demanding, stressful, and at times physical job.
I am in public safety as well. In Kansas you can retire at 50 if you have 25 under KP&F. KPER’s is 85 points, years of service plus age.
IMO you don’t want 60-65ish old police and fireman running around.
I plan to retire at 50 from the public safety field and pursue a different career path for a bit. I will be able to draw my KP&F money and take a less demanding, stressful, and at times physical job.
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BuzzH
Well-known member
Law enforcement are mostly 20 year retirements/careers.
Easy to say just get another job when you get old, tougher to do when you're old, tougher when you're in a physically hard job.
Might be on board if there was an aggressive and free retraining program for the second half and equal or better pay in the second career.
I guarantee you that these govt loving on here won't cough up 1 extra red cent come tax time.
How about this unique answer: you save the extra pay and put it aside for retirement? always trying to put the burden on somebody else.
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