Did not know not all pay into SS.
 

Always learning. Went looking on web for informatin on Social Security to understand the whole issue better. I found a site that says that only wage earners pay into the system. People who live off interest from trust funds do not pay into the system. It is entirely conceivable to me that someone whio has lived off a trust fund his entire live may exhaust those funds and become a drain on the society.

So why don't we change the system to have everyone participate?

And the other issue I don not understand is why is there a CAP. When I explained this to my daughter in her 20's she thought that it was unreasonable that there was a cap at all. I tend to agree with her. And yes , I am above the CAP.

Can someone provide a historical perspective via a good website on this subject? thanks

The only basic explaination would be that a working-contributing persons' income can be easily monitored/ taxed by the Gov. Trust funds (and the like) being tax shelters would be much more difficult to monitor. Since there are so many different types of 'trusts' each would have to be treated on a case-by-case basis. Too time/resource consuming.

I think it could be easily done. Afterall, we all list the interest and dividends we get on our 1040 form. They do the same and then pay income taxes. There would just be an additional tax added to them.

Re: Did not know not all pay into SS.
 

Why not change the system so that no one participates? I'm completely serious. SSI is just a Federal safety net for those who could not save adequately for retirement. It is a terribly inefficient tax. Your own elected members of congress do not contribute to SSI. Why should you?

Let the Feds provide a safety net out of the general fund. They should not compel us to participate in the SSI disaster.

Well, it has never been a disaster and is not now.
It is a very efficient sysem. Hardly anything goes into administration.

"for those who could not save adequately" very naive, things happen in life that are beyond your control, SS is an insurance policy for society that enables people to subsist if they should find themselves in unfortunate circumstances.

Congress does pay into SS. see http://www.sscommonsense.org/page30.html

A safety net from general funds would probably be like a sine curve. Now that would be a disaster.

Moses, I respect no one's posts more than yours so I can only imagine you do understand that ".....provide a safety net out of the General Fund" does not mean that it's free. So when you suggest an alternative source of "safety net" payments to individuals, you've probably left an important question out there, which is "Where is the money going to come from?"

I believe that we should strictly segregate welfare transfer payments from retirement savings. Of course we need a safety net for the least fortunate. But pretending that contributors are somehow saving for retirement is an exaggeration.

We need two systems: welfare for old poor people and tax subsidised retirement investment accounts for the rest of us.

True, Steve. Again, I appreciate your comments. Yes, $h!t happens. Unexpectedly. But also, there are people out there whose earnings leave them little practical opportunity to amass a retirement portfolio. And I'm not talking about a Bahama retirement. I'm talking about folks whose earnings are less than my pathetic tax payments. Folks whose jobs pay a number of dollars per hour that is a single digit, and who have kids. And medical expenses but no insurance. It's easy to say "He/She should have saved," but imagine looking at an income that resembles my monthly gasoline bill. Everybody wants to identify with the typical, simple, undeducated, salt-of-the-Earth waitress whose family has been democrat but who voted for Dubya.....but how may folks really do understand what it's like to have two jobs because that's what it takes to both eat and live indoors, and always worrying that a medical problem will happen to one of your kids.

Frankly, I don't expect Sally Waitress to save for retirement, in every instance.

I'm not suggesting that making SSI optional will or should decrease the overall tax burden. Not at all. What I'm getting at is the fact that a significant portion of the population still views SSI as a "retirement fund". As an investment vehicle, it is a train wreck. I would rather encourage private savings and provide Federal support to the poor and disabled who are in need. I disapprove of compulsory "investment" in SSI because it is not really an investment. It is a tax. Let's call it that and move on.

Great article on Slate about SS and retirement age: http://www.slate.com/id/2113883/

Cliffs Notes: the retirement age should be 70, not 65.

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 think we have both now. SS is an insurance policy for poor old people, and people should save as best they can, but some do live off of SS and it really is putting something aside now for your retirement. And we have IRAs, which are tax subsidized right now.

It is there now, we just need to tweek the criteria in SS a tiny bit so that in 2050 SS will still be able to provide 100% benefits.

Finally someone that sees I hope our elected officials see the truth in that.

I would just add that it's not just for the poor. There are many middle class seniors that scrimped and saved all their lives but for one reason or another couldn't manage to put enough aside. The market has not been kind to investors the past 5 yrs either. Imagine having to depend on it if you had just retired in '99, yes, good diversification and planning would ameliorate the damage, but most people seem to have enough trouble balancing a check book let alone planning for retirement.:(

The old 3 legged stool analogy of preparing for retirement was the best, but corporations have decided to shorten or remove one leg and GW(& co) apparantly want to shorten another.

rallyjon
thanks for that web address

Yes I could see moving the age to 70. I am 56 this year and do not feel old. The only drawback is that most companies have economic pressure to get rid of the older, higher paid employee. So raising the age to 70 might mean that people still work until 70 and therby limit job opportunities for new hires. Conversely , if they retire at 65 and can't get SS payments until 70, they may go work at McDonalds, again the young lose out on job opportunities. I think that is why a change in age needs to be done over a long time period.

I also could see eliminating the CAP and aslo apply the SS tax to all income sources besides eaqrned wages.

I wonder why anyone who advocates the privatization of SS never recalls that the market has at time drastic ups and downs. The corporations as a whole can not be trusted with societies welfare because that isn't their job - their job is profit pure and simple granted if they do well their stock should as well but that isn't always the case. Sometimes they lie and when they are caught (Enron) and the stock crashes all of those who had their 401ks and such invested loose. I know I took a heavy beating on my 401k during the dot.com bubble burst.

Social Security is social responsibility. As Americans - United we stand. Things do need to be done to ensure some program exists if not Ss then something with the same goals.

I understand your concern, but I'll bet that if you compare a similar investment in regular FDIC insured passbook savings for any 20 year interval since SSI was created, SSI loses in a big way.

As a vehicle for creating wealth, SSI is a dog. I suspect folks would be better off if the government required them to put their SSI contributions in a mattress.

In answering the original post, no, not everyone does pay into Social Security. I don't - I work for UP, and we pay into railroad retirement, which thanks to a very smart governing board who made some wise investment decisions, is flush with cash.

I agree with what has been said about SS, though. They need to decide whether they want it to be welfare for the elderly or a forced annuity from the government. It should be one or the other, and if they want both, they need to separate them out.

The poorest and most helpless (I said helpless, not damn lazy asses) will be taken care of, regardless of the system we use. We're a compassionate country, and whether it is charity, government social welfare programs, or even *gasp* religious organizations (like the Masons), these people will be taken care of some how.

I would prefer to handle my own money and my own retirement. I don't like the fact that the government doesn't trust me with my own money. There's enough redistribution as it is, SSI is a big fat loser for any ambitious person who wants more for themselves and their future generations.

Why not put Congress on SS instead of their own Gov't subsidized plan.

THEN it would get fixed.

What are you smoking?!

The Social Security administration itself admits it cannot be sustained as it is currently structured -- they've been predicting its collapse for years; its problems are not something new.

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

If anyone tried to set up a group retirement investment plan modeled after SS, they would be arrested for fraud!

SS isn't even about "retirement" anymore; the dead-weight (and growing) part of the scheme involves young people using lawyers who send them to doctors so they can get a "diagnosis" for a qualified "mental disorder" and collect disability payments through SS!

I say: Let me out! I'll plan for my own retirement and deal with risks for real disability on my own.

Re: Did not know not all pay into SS.
 

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

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.

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.

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.

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

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.

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.

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

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.

It should be. It's your retirement money.

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.

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.

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.

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.

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.

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?

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 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.

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.

"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.