Social Security: How to Maintain Solvency?

How should the federal government go about maintaining solvency of the entitlement Social Security? From my perspective, the easiest and most effective action we can take is including all transactions and functions of the program as "on-budget." This increases the funding capacity of the program by hundreds of billions of dollars, and also encourages fiscal discipline.

 

I'm not following. What do you mean?

 

1 - tie full benefit age to life expectancy. Originally the benefit payout was set to kick in when someone reached life expectancy. That payout age should change as life expectancy changes.

2 - select a reasonable tax rate - perhaps a total of about 10% (5% each from the worker and the employer) and make the total payout equal a share of the money coming in, rather than setting a fixed benefit. This way no matter how much or how little the program takes in it will stay solvent.

 

Take SS payments and don't touch them, put them in a bank until the people can open the accounts when they retire at a certain age.

There's no way to make them work unless people start having babies at a higher rate. The younger generations aren't populous enough to afford it any more and people aren't being born as much.

 

You would need to be more specific if you are to distinguish your suggestion from what is currently done. WHAT "bank"? Invested in what? -savings account? stocks? bonds?

Are you suggesting accounts with recipients' names on them?

Details please.

 

Easy.

Raise the retirement age for everyone 55-59 by one year.

Everyone from 50-54 by two years.

Everyone from 45-49 by three years.

Everyone from 40-44 by four years.

Everyone under 40 by five years.

In 30 years begin raising the age by 1 year every decade.

The Social Security system was never intended to provide from someone to retire at 65 and then be paid for another two decades.

 

Get rid of the Trust Fund all together and just make it on-budget. You can still pay people an amount adjusted for inflation which is kind of all they do now. That would alleviate any threats of solvency.

 

I think he was talking about personal savings accounts. If so, that would be an effective method of balancing the system.

The best proposal I've seen for this would be to take the original tax amount - 2% each from the employer and worker - and apply that to a disability insurance program similar to the SSI disability we have now.

The rest of the current contribution (5.65% from each the employer and worker) would go into a personal retirement account similar to a 401k or the government's TSP. That money would be the worker's. They could withdraw from the account at retirement and could pass any unused money to their heirs.

There are various versions of the program but the general concepts are about the same.

 

Oh excellent. And when those now age 40 and under reach age 65, who is going to hire them to keep them earning until retirement?

 

Why not just keep the jobs they have?

Most people actually have jobs for most of their lives you know.

 

They can either find a way to earn money or they can take a little personal responsibility and save some retirement money to live off of. Many people retire much younger than the current Social Security payout age. There is no reason that a person can't continue to do so.

Social Security shouldn't be anyone's primary retirement plan.

 

So mandatory "contributions" (via tax I assume, like the payroll tax), and logged into an account with the worker's name/SSN on it. Would that just be an entry in a book, or would it be actual assets invested somehow? Invested how? In what?

 

Probably exactly like the TSP - they would be invested into whatever types of funds the worker prefers - or if they don't want to decide it can go into a lifecycle fund that adjusts investment risk based on age.

 

Be realistic. We all know companies routinely hire and lay off with the business cycle. When a company lays off a worker age 60, 63, 65, where does that worker get another job? He doesn't. Businesses prefer to hire younger workers who will start out with a smaller paycheck to do the same, plus they get more enthusiasm and more current education.

The plan only increases elderly poverty by providing less when it is needed.

 

Social Security isn't a retirement plan. But it prevents abject poverty while providing a slightly-better poverty-level income. So mose people save something, if little. Everyone knows this and realizes savings is needed for retirement. And yet, savings is minimal because real income has declined and is inadequate.

"only 3 percent to 5 percent of Americans contribute the maximum allowable amount to their individual retirement accounts (IRAs)" http://www.dlc.org/print.cfm?contentid=251789

"only 5 percent of wage earners contribute the maximum to their IRAs and 8 percent contribute the maximum to their 401(k)s." http://www.agenceglobal.com/article.asp?id=447

The average 401(k) participant contributes 6.8 percent of salary to his or her retirement account"
http://hr.blr.com/HR-news/Benefits-Leave/Retirement-Savings-401k/Average-401k-Contribution-6.8/ (That's about $200-$400/month)

"In 2010, the vast majority (70%) calculated that they need over $250,000 saved for retirement"
"Amount of Savings Workers Calculated They Need For Retirement..." 61% said they need less than $1 million. (To reliably generate $40,000 per year in income in today's dollars for life, it takes $1 million in principle amount.)

"In 2000, the median net worth for housholders aged 70-74 was $120,000" If we look at those aged 65 and older, the median net worth is

$108,885. For all households in which the householder is age 65-69, the median net worth excluding home equity in 2000 was $27,588,

whlie that of the 5th quintile was $272,681. The highest net worth excluding home equity was found among those age 55 to 64, and that

median was $32,304. http://www.census.gov/prod/2003pubs/p70-88.pdf


According to a 2011 U.S. Census Bureau report, the median net worth for family heads between the ages of 65 and 74 is $239,400.
http://www.ehow.com/info_8412423_average-net-worth-retirement.html#ixzz1lXMyOtuQ

"The Congressional Research Service reported in 2007 that the median value of all accounts for those age 65 or older was $60,800 (not including home equity). In 2009, the Employee Benefit Research Institute updated that number to include that the average retirement savings was $56,212 for those aged 65 to 75." - http://www.ehow.com/info_8387008_much-worth-retirement-average-person.html


Therefore, making retirement income less available in any way will increase poverty. Instead, a way of strengthening the system we have is needed. And right now, it is not needed badly since the Trust Fund is solvent for the next 25 or more years.

 

Worker-managed investment?? We see how well THAT worked in the recent and on-going crash! How about investing retirement funds in the most stable, safest investment we can find? Wouldn't that be better?

 

Just increase taxation to the maximum possible leaving the under 40 age group with just enough purchasing power to buy a tent to live in and a bit of rice every day, then maybe you could save it in its current form. You could also say that the first 50 hours of work per week goes to the government, that way people would be forced to work 80-90 hour work weeks and thereby increase production per working slave (sorry I mean citizen).

 

That is an option - even in the TSP. But it would be nice to increase the payout a little past the 2% average that Social Security offers now - plus the added ability to pass benefits to heirs would be nice too. As it is if you die before you hit collection age you take a 100% loss.

 

Don't invest the money in anything. Just put it on-budget and act as if it is a pay as you go system.

This whole Trust Fund crap is what is confusing the heck out of the system. The Trust Fund is nothing but an allowance, it isn't real investments.

 

SS is not a savings plan. You are saying it should be a savings plan.

Personally managed investment is not a viable solution. Most people lose money in the stock market in terms of real value. And I'd like to know how they get an IRR of 2%. I logged all my payroll tax payments plus my employers' matching payments into a spreadsheet and to get the retirement income flow I am now getting, it required an IRR of 4.8% which isn't bad.

But SS is not a savings plan. It is more like term life insurance. And it is a safety net that has worked VERY well for many years and should be preserved to help prevent elderly poverty, which immediately fell from 50% to about 10% when it was first introduced.

 

First, what the heck does "on-budget" mean? Just budget it out of the general fund? If so, BAD idea!

And secondly, if you don't understand the Trust Fund, look into it and find out. You're wrong about "it's nothing but an allowance, it isn't real investments". Treasury securities are "real investments"! T-bills are sold every day to willing investors.

 

No they aren't. It is a made up investment by the Treasury with a made up interest rate adjusted for inflation. It is not a real investment at all. That would be like your right hand giving your left hand $20 in return for a piece of paper saying you owe yourself $20 + "x" amount of interest back.

In accounting terms the Trust Fund is nothing but an allowance... it is not an actual investment. And accounting wise the way we do it is out of the general fund. We just go through an intermediary. Get rid of the intermediary and just have it a pay as you go system.

And the T-Bills the Govt gives themselves for intragovernmental debt are non-marketable securities. No one can own intragovernmental debt other than the Govt.

 

I talk about it like a savings plan because that is how most people treat it. People who call the benefit age a "retirement age" make it clear that they believe it to be a retirement plan.

I believe the 2% return includes the people who die before collecting. Regardless, the expected return reduces based on your birth age. The first few recipients received hundreds of times their initial pay in. People who paid based on earlier contribution percentages see a much larger return than today's workers will. That is due to the fact that people have to pay more money for the exact say pay out.

For instance, people who are retired now paid at the 3% each rate for part of their working life, so they will see a better return than the people who will have paid the 7.65% each rate for most of their working lives. Returns are also better for people who earned less, since they still receive the same payout regardless of contribution.

Originally Social Security was insurance against disability or outliving life expectancy. That is why benefits were set to begin paying when a person hit life expectancy. However, life expectancy increased and benefit age stayed the same so now it is effectively a retirement program.

 

Here's an idea...quit sending checks to druggies that make a claim based on the fact that they're so f***ed up by drugs that they can't work. Quit sending checks to those unwed mothers that produce a new batch of kids to be supported every nine months. Make SS payments only to those that are fully vested...(at least 40 quarters of employment) Means test those with pension incomes, especially those that double dip or triple dip. (I know a guy that gets SS, plus a military pension, plus a pension from the State of California and most recently a pension from some teachers union.) His entire life has been devoted to gaming the system.

 

Yes, budget it out of the general fund. You have less of a deficit, more funding capacity. Fiscal irresponsibility is more transparent, and it is a easier to implement reforms.

By the way, the following is a thorough analysis of the difference between "off budget" and "on budget":

http://www.ssa.gov/history/BudgetTreatment.html