Did not know not all pay into SS.

[kach22i]

Originally posted by stevepaa
Can someone provide a historical perspective via a good website on this subject? thanks

I'm guessing "old money " wrote this one.

[Moses]

From Nation Center for Policy Analysis;

Investment performance is measured by the "rate of return" -- that is, the average annual percentage increase in the value of the investment.1 For comparisons, economists have calculated two benchmarks; the long-term rate of return on a portfolio of U.S. government bonds, which is 3%, and the long-term rate of return on a broad U.S. stock fund, which is 7%.

Social Security taxes are like a retirement "investment," and thus rates of return can be calculated based on each individual or couple's expected lifetime Social Security benefits, versus the taxes they paid into the system. In the case of Social Security the rate of return varies among individuals not by the performance of specific investments, but rather by the year the individual was born, and his or her lifetime earnings, marital status and length of retirement.

For many Americans, particularly those born after 1960, Social Security offers a very low rate of return, making it a bad "investment."

For example, for an average income family of four with a single breadwinner born in 1950 Social Security's rate of return is 3.28%. If the breadwinner was born in 1960 the rate of return is just 2.85% and if the breadwinner was born in 1970, the couple can expect a rate of return of only 2.71%

Furthermore, if the families in these examples have two earners instead of one, then the rates of return are even lower - 1.88% for the first couple, 1.39% for the second and 1.20% for the third.

In all but the first example, the couples would be better off if they could instead invest their Social Security taxes in ultra-safe government bonds, and all of them would more than double the rate of return on their retirement savings if they instead invested their Social Security taxes in broad stock index funds.

[stevepaa]

I'm guessing "old money " wrote this one.

Oops. sorry wrong. I'm 56 and will probably work until I'm at least 65 to pay get all my kids through college and pay off the Plus loans.

[stevepaa]

Moses
Thanks for this information.
So do we need to alter SS to provide a even rate of return to Treasuries? I would not go above that.

[bryanthompson]

Originally posted by competentone
Social Security is a Ponzi scheme; the money from new "investors" is used to pay the "benefits" to the earlier contributors.

For those who suffered through the public school system, you can read about what a Ponzi Scheme is here: http://en.wikipedia.org/wiki/Ponzi_scheme

[stevepaa]

2040 or 2050 to start a rduction of benefits to 75% is not a collapse by any defintion.

Yeah, it's nice to say you'll stand on your own.
So this begs the question. If you are single, should you have to pay taxes in support of local schools.

[stevepaa]

bryan
thanks for the web address. but sometimes one needs to read what one posts
"State pension systems, though they involve the taxes paid in by workers being redistributed to pensioners, lack a number of basic features that define Ponzi schemes, and so are somewhat different:"
so no they are not Ponzi shemes.

[mikester]

SS isn't about creating wealth. I don't know why you would even consider it that.

[Moses]

Originally posted by Moses
From Nation Center for Policy Analysis;

Because Social Security's benefit formula is designed to replace a larger share of pre-retirement income for lower-income workers than for middle- and upper-income workers, it would seem to help poorer Americans.

However, many younger low-income workers would have even more retirement income if they were instead able to invest their Social Security taxes in safe government bonds or broad stock index funds. Furthermore, Social Security's high tax rates (10.6% of wages) prevent low-income workers from accumulating private savings.

This "crowding out" of private savings by Social Security taxes also makes it much more difficult for the poor to improve their lot, such as by purchasing a home, starting a business or investing in bonds, stocks or real estate.

Perhaps most importantly, the Social Security System hinders the ability of low-income workers to pass on wealth to the next generation.

Because Social Security is a "defined benefit" pension program, the payments end when the beneficiary dies. For those who die at a ripe old age, it can be a fairly good deal. But for those who die before, or soon after, retirement the benefits are much less than the taxes paid. However, unlike privately held investments, the difference can't be passed on to heirs.

This means that the children of the poor have a higher probability of remaining poor than they otherwise would if their parents had been able to invest their Social Security taxes. For example, today the children of parents with less than $99,000 of bequeathable wealth at retirement have a 40% probability of themselves reaching retirement with less than $99,000 of bequeathable wealth. In contrast, if Social Security didn't exist (or were privatized) those children would have only a 16% chance of retiring in the poorest group of their generation and, conversely, an 84% chance of retiring better off than their parents.

[Moses]

Originally posted by mikester
SS isn't about creating wealth. I don't know why you would even consider it that.

It should be. It's your retirement money.

[stevepaa]

Moses,

More good info. thanks
But I think the tax rate is only 6.4 %, just a nit.
Also I do not think that the SS tax is the culprit in the poor not being able to save. Heck, I find it hard to save. Our national philosphy is to consume, it is what capitalism is all about. If we really started saving, we would go into a recession

So maybe we should alter SS to be a govermentally admistered retirement fund. No need to privatize, that just adds adminsitratvie burden/costs.

[bryanthompson]

Originally posted by stevepaa
bryan
thanks for the web address. but sometimes one needs to read what one posts
"State pension systems, though they involve the taxes paid in by workers being redistributed to pensioners, lack a number of basic features that define Ponzi schemes, and so are somewhat different:"
so no they are not Ponzi shemes.

If you read the definition of it, and the schemes that are provided as examples, it's closer to a Ponzi Scheme than it isn't. There are few exceptions, as my link points out.

The reality of the scheme is that the "return" to the initial investors is being paid out of the new, incoming investment money, not out of profits.
...
One reason that the scheme works so well is that early investors – those who actually got paid the large returns – quite commonly keep their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme don't actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have made by keeping the money in what looks like a great place to earn a high return.
...
The catch is that at some point one of three things will happen: (a) the promoters will vanish, taking all the investment money (less payouts) with them; (b) the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads); or (c) the scheme is exposed, because much of the "assets" that are on the accounting records of the so-called enterprise do not (cannot) really exist.

[stevepaa]

thanks bryan
but the sumamry opinion from that address is that it is not a Ponzi scheme, so using that term denigrates the discussion. Ponzi schemes depend upon quick high rate, sometimes ten fold, rate of returns. I got invited to some of these in the 70's.

SS will not collapse of its own weight. Those like the adminstration who use terms as disaster, bankruptcy, etc are playing on people's fears. Maybe we need to alter it, as was done 20 years ago, but I would never consider privatization as a valid answer. I have lost more mney through the stock market and highly regarded mutual funds than I care to remember. I trust Treasuries and so I would push in that direction.

[bryanthompson]

Do you agree that current workers and people currently paying into the system are paying for the retirement of others?

Take a look at this:
http://www.ssa.gov/pressoffice/basicfact.htm

There are currently 3.3 workers for each Social Security beneficiary. By 2031, there will be 2.1 workers for each beneficiary.

In 1935, the life expectancy of a 65-year-old was 12½ years, today it’s 17½ years.

By 2031, there will be almost twice as many older Americans as today – from 37 million today to 71 million

In 1950 there were 16 workers for every beneficiary.

These are indisputable facts, it is what's called reality. Sorry if using reality is a scare tactic... I suppose we could paint it pink and make it fuzzy so you'll all feel better about it, but it's not going to fix the problem.

[Moses]

Originally posted by stevepaa

But I think the tax rate is only 6.4 %, just a nit.

Also remember your employers contribution. That doubles the savings.

I would like to see mandatory investment with employer matching in AAA rated investment vehicles. I make a good living, so the fact that I will not inherit my fathers SSI account is not a big deal. It is a big deal for most of blue-collar America.

Also, the tremendous amount of investment capital put into the system makes commercial lending rates favorable for new businesses and the tax base grows as a result.

I am not trying to hedge our responsibility to the poor and disabled. I just think the Feds should not be managing our financial lives after retirement.

[stevepaa]

Bryan,
yes, it needs adjusting, but disaster, bankruptcy are not reality.
In 2050 you would get only 75% of proscribed benefits. Hardly bankruptcy.

So yes, let's fix it. We did it in 83. We will do it again.

Those are certainly numbers to be concerned about.

So what do you think about
1) raising the CAP, maybe elimaitaing it?
2) applying SS tax to all income, even beyon earned. Why should trust fund kids not pay into SS?
3) converting SS to government run retirement system based on Treasuries?

[mikester]

Moses, I don't disagree with you on principal but I do disagree with you in practice. Yes - SS is a poor system in it's current form but should it go away? No. Frankly there are a lot of Americans out there who can't be trusted to fend for themselves especially considering unforseen circumstances. In these cases where private retirement was the option then they will still be a drain no society.

I believe that we as a society need to meet both of these objectives. We need to provide a way to build more wealth for retirement and we need to provide for our social responsibilities as a society and take care of those elderly that helped us get where we are now.

How we meet those needs is up for debate of course but anyone who wants to be elected will not be able to touch SS for fear of loosing votes. The vast majority of americans don't even understand how the system works or why it won't be working when it's time for them to collect. They don't understand that the money the pay into it now is being spent now and that when they go to collect they will be depending on someone elses work.

[Superman]

Originally posted by Moses
Then why not have compulsory savings? Require worker to set aside the money they now pay SSI in an investment of their choice? Lots of private investment means stable, low interest rates and enhances government revenue.

I agree with you, Moses. SS is more of a tax than investment.

I'm not as sure about the notion that flooding the private markets with capital enhances government revenue, but perhaps. It certainly enhances private access to the investment monies that would otherwise be 'poor' SS investment monies. And perhaps the gubmint loses access to bond money but we're certainly not in a mode to worry about gubmint.

And as we divert, and create two strategies (one, investment; one, welfare), we know where the investment money is coming from and we sure know where it will be going and that seems to be the only important thing right now and I'm sorry to have to be the one to bring this up but where are we going to find the money for the welfare component?

I'm not asking for anyone to cop some concern for terrible, wasteful, inefficient, who-needs-'em gubmint, but in fact government is still not "them." It is "us." And if we're going to divert SS monies so that capital is cheaper for private industry (and yeah, I know the popular way to sell this is "more control of your retirement investments), and also provide a safety net that is 'welfare,' then where is the money for that going to come from.

I guess one option is the ever-popular "unfunded mandate" where gubmint is set up to fail and so we can bash them some more in the future. As though it is someone else. When really, it is the one organization to which we are all stockholders. I mean, stakeholders.

[Moses]

Originally posted by mikester
Moses, I don't disagree with you on principal but I do disagree with you in practice. Yes - SS is a poor system in it's current form but should it go away? No. Frankly there are a lot of Americans out there who can't be trusted to fend for themselves especially considering unforseen circumstances. In these cases where private retirement was the option then they will still be a drain no society.

I believe that we as a society need to meet both of these objectives. We need to provide a way to build more wealth for retirement and we need to provide for our social responsibilities as a society and take care of those elderly that helped us get where we are now.

How we meet those needs is up for debate of course but anyone who wants to be elected will not be able to touch SS for fear of loosing votes. The vast majority of americans don't even understand how the system works or why it won't be working when it's time for them to collect. They don't understand that the money the pay into it now is being spent now and that when they go to collect they will be depending on someone elses work.

I agree we can't just toss SS out. I think we need to phase it out. During the phaseout, there would likely be a financial shortcoming that would need to be funded. I also agree that any new retirement plan must be mandatory. In my view, the payroll deduction and employer contribution would remain the same, but the taxpayer could direct the investment.

[stevepaa]

"They don't understand that the money the pay into it now is being spent now and that when they go to collect they will be depending on someone elses work."

No, I think all older people like me know this. We bought into it.

So now as Bryan points out, we have diminshing support. So we need to make some adjsutments, some might say sacrifices.

Maybe raise the CAP, I am above it.
Maybe raise the age gradually for benefits. That would affect me also.
Maybe apply SS tax to non earned income. That would affect me also.


Maybe do away with the latest tax cuts for the top 1% nOW THAT WOULD NOT AFFECT ME.