Posted on 05/12/2009 12:43:03 PM PDT by justlurking
The financial health of Social Security and Medicare, the government's two biggest benefit programs, have worsened because of the severe recession, and Medicare is now paying out more than it receives.
Trustees of the programs said Tuesday that Social Security will start paying out more in benefits than it collects in taxes in 2016, one year sooner than projected last year, and the giant trust fund will be depleted by 2037, four years sooner.
Medicare is in even worse shape. The trustees said the program for hospital expenses will pay out more in benefits than it collects this year and will be insolvent by 2017, two years earlier than the date projected in last year's report.
(Excerpt) Read more at news.yahoo.com ...
BTW -
how does an opt-out solution solve anything? That’s similar to what Bush proposed. It is NOT a bad idea... but it doesn’t close the funding gap one bit.
It may be too late for any solution. Retirees will not willingly accept reductions in benefits. Current workers will not willingly accept large tax increases. Even if current workers accept the tax increases, the impact on the economy will be devasting. Financing the benefits may sink the dollar. Even simple ideas such as changing the benefit growth formula have been politized. No other pension has its benefits tied to the average wage index. The politicians like this index because it is a way to increase payroll taxes without voting for a tax increase.
Privitization (opting out) would replace the long term financing problem with a short term financing problem. Privitization could be accompanied by means testing of existing high income seniors and work incentives for seniors. Seniors who work would not be subject to FICA payroll tax. Overtime, partial privitization would alleviate the long term unfunded liabilities. However, the time may have run out. The baby boom generation has already started retiring.
I’m sure means testing is coming.
Why not have only one person draw on a given account. Often money is just wasted on their dependents and ex-spouses (the nasty rich, so to speak) - if a dependent really needs extra help then there are other ‘programs’. It may not be politically correct, but it’s not Social Security that’s failing but all the welfare attached to it.
I agree for spousal benefits. However both people in marriages have contributed in many cases. Are you proposing to take away one person’s benefits even though they both paid in?
You seem focused on reducing benefits and increasing taxes. I want to empower individuals to voluntarily leave the system. Their payroll taxes will decline in exchange for not claiming benefits. Instead of means testing, I prefer to provide incentives for seniors to return to work in exchange for no payroll taxes.
==Are you proposing to take away one person’s benefits even though they both paid in?==
No, everyone that pays in draws on his/her own account.
Voluntarily leaving the system is a great idea - that was the way it was with my first job (government) and I collected a nice check when I quit, of course that was way back in the dark ages. I don’t know how the math works out on your plan, but sure wish we had all the money we paid into the system. The problem that I see is that some of the people would just spend the money and wind up on welfare.
I’d sure like to know how much goes to those that have never paid in. My husband’s retirement benefits make sense: he had a choice when he retired to take 100% of the monthly payments and if he died, I would get nothing. He opted to take a fraction of the benefits, and I would continue getting those reduced benefits. I actually believe that if this type of system could be set up, it might work. Single people really get the short end of the stick, while a guy with a wife, 3 or 4 x-wives, a bunch of kids and adopted grandkids really cleans up. (This is not as far fetched as it sounds.)
Don’t know if any of this would get past the dems, with their ‘the more that depend on us the better” attitude. They would rather stick it to those responsible people that worked hard and saved some money. We’ll be lucky if they don’t steal our savings and distribute it to their supporters to make it ‘fair’
I agree that it would make more sense to inflation index rather than wage index benefits. If you did that, you might only need to increase the retirement age by 2 years.
As for opting out, though, you are right - you move debt load from future liabilities to current liabilities. How does that help? You owe just as much, but you don’t have the cash to cover, so you borrow. Who is going to buy trillions of dollars in bonds?
There hasn’t been a single analysis I’ve seen that shows that privatization helps the government’s debt load. I’m not saying its a bad thing, but no proposal I have seen actually helps solve the funding/liability problem. It just moves it from future to current expenses.
As for means testing, I personally view that as a FAR worse option than increasing taxes by from 12.4 to 13.4% to solve the problem. Why? Because unless you means test based on the person’s entire earnings history, biased towards their EARLY years rather than late years (which is NEVER done), instead of their current assets, you are only providing a disincentive to save and take responsibility for your own future. That’s part of what got us in this mess to begin with - people erroneously believe that social security is their retirement plan....
The problem with Bush’s proposal was that it solved nothing. It allowed people to have a partial privatization, but it didn’t reduce promised benefits by enough to actually close any long term funding gap - the debt problem was every bit as big as it was going to be without his proposal - it just moved intragovernmental debt to debt held by the public.
That doesn’t help at all...
I’ll agree on spousal benefits, too, for situations where only one person paid in
For many, this is already the case.
My spouse is outside of Social Security as a teacher. She will not be able to pull much of anything from my future SS benefits (if there ARE any) because of windfall provisions.
Never mind that the “state” pension is significantly less generous than most 401ks. Its equivalent to an average corporate 401k with 3% match and a guaranteed rate of return equal to municipal bonds where the employee is forced to contribute 10% of their salary..... oh, and if you die young, you lose ALL your benefits - none of your contributions or account go to any heirs.
Lets face it. The only “fix” for SS is to kill it.
Dead.
(oh yeah, ALL federal pensions outside the military get the same treatment. Fed employees, Congress etc.)
Then, admit it was just Senior Welfare, pay welfare benefits to those who need it, and the rest are just SOL. That will of course include me. But I’d rather not collect one penny, then have to try and continue funding this Ponzi scheme.
.
Wasn't there a fella who proposed some plan where 'the family' would retain some benefits in a retirement plan??? He went by some initial towards the end of the alphabet I think...Oh Yeh ! W..........
“providing a disincentive to save and take responsibility for your own future”
In my view, that’s the plan of these commies.
Social Security has become a politically correct welfare system, not because it pays to those who contributed, but because it also pays to those that didn’t contribute a dime just to keep the irresponsible out of the welfare lines.
‘Entitlements’ is the most annoying word that lumps unearned benefits with the earned ones. We have paid a gazillion dollars into the SS system that was promised to provide a small payment at retirement. What have the recipients of welfare and medicaid done to make them entitled to anything? For crying out loud, why do they have to be so politically correct? The only people guaranteed not to lose their income are the freeloaders.
Yes, I’m aggravated about welfare - and for good reason. In the late fifties after working hard putting myself through 4 years of college, I got a great job in California only to find that had I spent the previous 4 years having illegitimate kids, I would have been making 50% more. And a retired guy we know with a bunch of money married a doctor making big bucks with 5 kids. Guess what, those five kids all get social security. Plus all the ‘well-to-do’ women with big bucks that never worked a day in their lives collecting benefits on their husband’s SS account and when their husbands die, they will get his entire social security payment. I had never heard of wife’s benefits until I went to apply for my SS - my benefits were a whopping $5 more than they would have been if I had never paid in the tens of thousands of dollars. (And, owning our own business, we paid in twice as much as an individual.)
I seriously believe, after a little research, that the only people who know about all these extra benefits are the ones that are getting them.
They need to clean up SS by putting the welfare cases back on welfare and paying only one person for one SS account. But, the hidden agenda is to make the country under the dems welfare plans look good. Their giveaways are keeping welfare down only because they are hiding it in the rest of the economy. Why are the health costs so high - welfare cases that use the emergency rooms for primary care. Did you notice that even on your telephone bill there is a charge for welfare?
It helps dramatically. The transition costs are just movement of some future liabilities to the present time. Much future liabilities will be avoided. In addition, the movement of Social Security taxes to private investment will spur the economy during the present time. The Bush administration had a good plan to reduce the huge future liabilities by incurring some additional current liabilities.
Your wife is in the minority. Most state and local government plans are far better than Social Security. Here is a link to a report I have done for pensions of Colorado K-12 retirees.
http://www.i2i.org/files/pdf/IP_9_2008.pdf
Colorado’s pension plans are comparable to other top tier state plans. I have looked through lots of other state and local government pension plans. The plans with lower benefits typically provide Social Security coverage. For example, Florida’s benefit rate is 1% (compared to 2.5% in Colorado). However, Florida teachers also contribute to Social Security.
I would gladly prefer to be outside of Social Security. I would rather invest my 6.2% than have the rats steal it. I am curious about the details of your wife’s plan. Rather than complaining about your wife’s inability to get Social Security, you should be happy that she was able to privately save the 6.2%.
Ignore the gadflies. You are correct. That Social Security is on a demographic course to disaster has been an open secret for decades. The rats have opposed meaningful reform at every turn and our country will pay dearly for it. Gosh, how I despise the democrat party which has/will continue to lead our republic to ruin.
Bush’s Social Security plan did nothing to help close the funding gap, though. That was the problem - not the privatization side of things. The problem was that the reduction in benefits you agreed to take in order to put some money in a private account was not great enough to actually reduce the debt in the system.
“It helps dramatically. “
It helps **IF** you reduce future benefits enough to more than offset the loss in tax revenues. Bush’s privatization plan didn’t do this. I have yet to see any politician come out with a plan that DID...
Bush’s original push included inflation indexing for all instead of wage indexing. That was a good idea in itself, but that is a separate issue from the benefits opt out had.
Here are the details of our state plan:
* No benefits for under 5 years served.
* 5-30 years of service: 2.2% of final 3 years average salary
* 30-40 years of service: variable amount, peaking at 91% at 40 years.
* Teachers must contribute 10% of their salary (pre-tax)
* Teachers must (naturally) have certification (Masters degree required)
* benefits are fixed (do not adjust for inflation)
* reduced benefits if eligible for more than one pension plan (ie, no working for 20 years, quitting, then getting another public pension)
Now historically, teachers here see raises of around 3% each year until they have 25 years of service, when raises drop to around 1% per year.
If instead of the pension plan, they contributed that 10% to a 401(k) and had the average corporate match of 3% of their salary (average corporate is a $.30 match on the dollar for the first 10% of your income you contribute), then at the end of the same 40 years, they would have enough with a 7.5% rate of return to give the same benefit for the rest of their life. Our local municipal bonds are currently paying 6.75%-8% yields.
Is it nice not to pay social security? It might seem so. But keep in mind if she weren’t working, she would have survivor benefits under SS. Since she *is* she gets next to nothing. Currently that is equal to a HUGE percentage of that pension. That comes down to the logic of SS and survivor benefits.
But just looking at the “generosity” of the pension plan, it really is no better than an average corporate 401(k). Heck, it isn’t even CLOSE to my 401(k), where I currently get a $.60 match on every $1 I invest, up to the full $16,500 limit. And survivors get that cash under my plan...
Thanks for sending the information to me. Your analysis understates the benefits of the pension plan and overstates the benefits of 401K plans. This plan is unusual in not having some inflation indexing. The contribution rate is higher than other plans. In addition, many retirement plans have subsidized early retiree medical care and some even have supplemental medical care.
The key point in your wife’s plan and most other plans is early retirement. Early retirement is heavily subsidized in most plans that I have studied. Early retirement is subsidized in this plan although probably not so much as other plans because of the higher contribution rate and lack of inflation indexing. For long term employees, this plan still offers a large advantage over a 401K plan:
- Benefits are guaranteed. Guaranteed returns are very low now.
- You can only match the returns of this plan with substantial risk. Your local muni bonds have plenty of risk if paying 6.75% to 8%. The muni bond market has lots of risks now especially for longer term bonds.
- If you buy lifetime income in the private sector, you can expect 4.5% to 5.5% for your investment. Most states annuitize benefits at 8%+, a practice unheard in the private sector.
- The cost of lifetime income in the private sector would factor gender. Public employee plans do not pay lower benefit rates for women, a bit of reverse discrimination.
I would not complain about your wife’s retirement plan. Most individuals have suffered substantial losses in their 401K plans. Companies impose high asset charges on plan administration, typically 0.5% on top fund expenses. Most higher paid professionals would be better off outside of social security. A big advantage of social security is spousal benefits for non working spouses. Social security will have major changes in the near future. I would like to get out if I could.
I don’t think I overstated the benefits at all. There is no early retiree medical benefit.
- The returns are guaranteed. However, as I pointed out, you can get those rates of guaranteed returns needed from investing in municipal bonds right now. A search at Zions Bank found 207 municipal offerings currently available that offer 7.5% or higher yields. You may consider these higher risk, however I do not (with the exception of California bonds). The local ones are insured and A rated or higher. The odds of a state government defaulting on its debt (outside of California) are very low, IMO.
- The calculations I did to determine the needed rate of return assume that you could pull 4% of your balance at retirement each year. I’m sorry, I realize that I didn’t make that clearer... So that’s an annuitization of 4%, which is below the 4.5-5.5% range you quote. Some states may certainly offer higher rates, but that is why each of these plans must be analyzed individually.
Anyway, you may not think I should complain. Quite honestly, I’m fine with her pension plan - however, I believe those who complain it is too generous need to realize that it is actually no more generous than an average 401(k). Obviously, some pensions are more generous than others.
Were she to have a 401(k), we’d probably choose lower risk and more guaranteed rates of return like she is getting anyway. But I get tired of hearing how generous it is, when it doesn’t even compare to the generosity of my 401(k). Yes, my 401(k) has had substantial losses. But I’m in a higher risk portfolio because I am a long way from retirement. Those losing large chunks of their 401k near retirement have no one to blame but themselves for poor asset allocation.
(BTW, my 401k has no charges on assets - the only fees we pay are for the individual funds. Right now those expense ratios are:
0.12%, 0.11%, 0.04%, 0.09%, 0.13%, 0.10%, 0.10%, 0.45%, 0.27%.
Needless to say, I’m happy with those. :)
FWIW, It’s been a pleasure chatting - we may not agree completely, but at least its a rational, intelligent debate. :)
From the parameters you indicated, I think your wife’s plan is the Ohio Teacher plan. As I understand, this plan has a 3% simple COLA so there is some limited inflation protection.
The muni bond market has taken a beating in the last year. Yields are up but prices have taken a beating. If you were continuously invested in longer term muni bonds, your portfolio would have taken a sizable loss in the last year. If high grade munis have that yield, there must not be much demand or a lot of perceived risk. The corporate bond market has taken a big hit in the last year also.
Here is a link to my recent study of teacher pensions in Colorado. I am trying to extend this study to plans in other states.
http://www.i2i.org/files/pdf/IP_9_2008.pdf
Your assertion about your wife’s pension is comparable to 401K plans is incorrect. Just from the employer’s contribution alone, there is a large gap. In Colorado, the employer contributes about 12% now. In Ohio, I think the contribution rate is even higher. The average employer contribution rate for 401K plans is about 4.5%. Many employers have stopped contributing since the recession.
Beyond the employer contribution rate, 401K investing has been difficult for the typical employee. Most companies have large administrative fees and restrictions on fund choices and money movement. These problems are due to bad provisions of the ERISA law that affects private employers but not government employers.
Many public employee pensions provide heavily subsidized early retirement. The average retirement age of Colorado government employees is about 57. In Colorado and many other states, you can retire after 30 years as early as age 50 or 55 without any reductions in pension benefits. This practice heavily subsidizes early retirement. Without the subsidies, a penalty of 4% to 9% is assessed per year for retirement before the normal retirement age. Government employees think it is their birthright for this highly subsidized early retirement.
I appreciate the rational dialogue on this subject. I have been demonized and ridiculed by public employee groups for my studies. I am strongly in favor of elimination of early retirement subsidies. Defined benefit plans are mostly smoke and errors for the taxpayer. I favor elimination of DB plans. If the plans cannot be eliminated, the early retirement subsidies should be eliminated.
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