Social Security Alternative

[Spiffor]

BTW, I'm astonished so many people here assimilate a tax to theft. I can't believe how short sighted it is.

(If you want to know why I'm very proud to give 40% of my income to welfare, here it's why : welfare paid all my medication since my birth, including heavy expenses which would have been a bane for my family otherwise ; welfare is what allows a friend of mine, single mother and student to live ; welfare paid the completely unaffordable hospitalization of another friend, which saved his life, and costed about 1 million dollars ; welfare helps this kind of people everywhere in France, and I'm extremely proud to help this society which helped me when I needed it).

[Imran Siddiqui]

I don't mind the idea of not paying SS benefits (as they exist in America) to the top 5% of wage earners. Top 15% gets sketchy especially since some of that are people who made $200,000 for like 5 years before they retired, so they don't have a chance to save up. Also don't forget those people that win the lottery (for example) when they are 64 (and then that counts as their last paycheck, and they are in the top 5%) and then they piss it all away. SS is supposed to be a safety net right? What if someone in the top 5% lost all their money on something stupid? I'd only go for if it were a temporary stopgap until a comprehensive plan existed.

The problem is that I don't think it would be temporary. There would be the lack of SS payments to those in the top 5% forever. Once the government initiates a program, it is hard as Hell to get it repealed, no matter how silly it is.

And I, for one, think Sava's ideas are silly. I like banks, banks make our economy go around. They lend money for things such building construction and student loans. To crowd out banks would be a MASSIVE mistake.

[NeOmega]

The people who were stupid enough to be investing in an energy trading company which did not build a single product and yet turned unbelievable profits were just acting irrationally and greedily. If they took the time to study waht Enron was, and asked themselves, "do consumers want this product, is Enron leading in innovation to help make life for the average American easier?" They would find the answer was an obvious NO.

If they asked themselves, "is this company a company built of paper and rules?" they would find an answer of yes, and if they had enough brains to look past the impossibly good reports Enron execs kept feeding investors, they would know it was a house of cards from the beginning, waiting for a breath of wind to collapse.

The stock market is still the best place to invest your money if you do so wisely. It is darwinism applied to a different model, economics, at it's best.

Right now weak companies are about to die off, including those which had been shim shamming their accounting, as well as those which are too top heavy, and believe more loans are the way to diiging themsleves out of debt... (UAL and other large airlines) it is time for younger stonger airlines to take over. The old Alphas are impotent and need to be destroyed.

Social Security takes my money away from me, to invest it in taking from people in the future. It was flawed in it's conception from the beginning and everyoine knew it, but just like Enron, they wanted to ignore the old cliche, "if it sounds too good to be true, it probably is"

I personally would like to see all the money I have invested to SS be turned over to a 401k, or at least have the option to do so. People who have payed SS all their lives of course deserve to collect until they die, as they were promised.

The mortgage idea, I agree with a previous poster, is a bad idea because many people, the ones most in danger from becoming strtanded in old age, do not own their own houses.

BTW, I earn less than 13,000 a year at the moment. I am not rich, but I can not stand people taking money from me to give to a person who makes twice as much as me. It's the prionciple, and I consider it theft.

[Ramo]

For a lot of people (particularly, the poor), SS is a pretty crappy investment given their life expectency. And it really isn't practical at the current level of taxes and benefits.

Social Security ought to be replaced by pensions through trade unions.

[DanS]

Spiffor: Re social security, yes, if you pay triple what we pay, you should be able to afford more stuff. You might be proud of it, but this high of taxation (40% social security, x% income taxes, 20% VAT) would never be acceptable to Americans. Just a different mentality. Personally, I cringe when I add up your tax burden.

That said, much of what you mentioned as benefits would also be given to Americans. However, any non-retirement wealth that has been built up by a person facing a $1 million medical bill would probably go up in smoke--depends a lot on the situation. They would likely still get the care, though.

Edit: Removed incomplete thought.

[Spiffor]

DanS : yep I know there are very different values in Europe and in the US, and that's precisely why I posted why I was very proud of paying so much
When I browse 'Poly, I hear things I'd never here anywhere in the real world (I mean, this side of the Atlantic), and I wanted to share this benefit from our multinational community with you

[The Pioneer]

Well being forced to pay SS here in Germany is a a coercion, theft and crime. Why? Well because the politicians and other gov't officials and civil servants never have to pay a dime for their part of the SS. What makes this even more incredible is the fact that they get much better benefits later on than us the people that pay for it. Just to be able to for the avg. person to get as much as a politician he would have to contribute for 100-150 years

On the other hand we ara paying now 19.1% for people that in their times paid 10% or less. Which means that the older generation that is now enjoying my money paid much less than me. To farther make things worse nobody in my generation believes that it he or she will ever see anything out of that 19,1% .

Now since the system is flawed the concept will have to be reworked. First, of all all civil servants, including our top politicians should be forced (like the rest of us) into paying for the SS. Now the benefits when they go into pension should be more realistic, they should also be alligned with the age requirements of the population (here in Germany I people go onto retirement with 60 for W and 65 for M but t he politicians take it when they are 55). Now another thing that the gov't has to do is put people back to work so they can start paying their share! As it now stands we pay for the pensioned and we pay the SS contributions for the 10% unemployent . Now they should try to discourage any of the avg. person to go on retirement before reaching 65 (believe me there are ways!). Now since this is a social state and not capitalistic there is a clear line between people who need to get the benefits and people who do not need to! It may not be best solution but there are plenty of retirees out there that get pensions that they really do not need and there are retirees out there that really cannot make it! They should at least find some formula and cut down on the benefits for the rich who really do not need to. Now my guess is that on this last measure they will never do that because most politicians fall into that category and since we elect them to represent us but they look after themselves first !

Spiffor, I agree with you that we should have the safety net for cases like the ones you pointed out but there is something fundamentally wrong when for example I, on a normal payroll, have to pay thousands of euros in case I need new teeth or 100s if I need new glasses but somebody that does not work and is on welfare gets all that paid by the State!!!! . So I pay for his/hers and when it comes to me I have to pay for my own! . The motto seems to be "what's yours is mine and what is mine is only mine" and therefore I must say that I feel nothing for these people. I don't think that these people deserve the preffered treatment that they get! Because an avg. man's earnings are not enough for himself and his family in our day and age (where he also has to take care of his children's future and their education that is getting to be very expensive).

Anyway, this has gotten longer than I intended. Finally, it's not that the idea of an SS is wrong. The implementation is wrong. There are just too many people exploiting it and it starts with our "humble" politicians, who in my eyes are stealing us right this moment. If we minimize or eliminate these and the rest stay as is the system will work much better than one may think!

So long...

[Sikander]

Originally posted by Spiffor

I assume everyone understands that interests are not wealth production, merely an allocation of existing wealth. That's why I'm sure the interests coming from banks or stock markets won't last enough in this shape to allow retirees to live from them. The rents will know a dramatic crisis if the demography doesn't raise significantly soon, and whatever the way you allocate the capital won't change this.

Interest is closely related to productivity, in that interest is a large part of what makes capital valuable, and capital is what makes increased productivity possible. For instance, say you are a poor man who wants to buy a taxi in order to provide for yourself and your family. But you don't have enough money to buy a cab. Instead you take the only other job available to you, and earn half as much as you would owning and driving your own cab. How many years of low wages will it take before you have the purchase price of the cab saved up? All those years of half wages could of course be shortened a lot if you were able to get a loan to buy the cab. Though you will pay some interest on the loan, it will be more than paid for by your increased earnings. You will pay the loan in (let's say) 5 years, all the while earning twice the wage you would have had to settle for if no money was available to you.

This scenario plays itself out on many scales every day. I couldn't afford the $200,000 that my house cost all at once, so I saved a down payment, took a loan and purchased the house. Now instead of paying 100% of my housing money to a landlord, I paid 60% to a bank, and the other 40% is mine. Without someone to lend me money, this would have been impossible, and I would have had to save my money for many years in order to purchase my home. Money taken by the government which would have otherwise been invested (let's say in your case 20% of your tax burden) is far more likely to be spent on one time payments like welfare, wages for government workers, payoffs for political cronies, unions etc.) Your economy would be better off (up to a point, there is a diminishing point of return, and there are many valuable services that government can provide for an economy) having more money to invest on smaller scale investments like homes, businesses etc. than on massive government programs which often reward people for the wrong behavior.

[Spiffor]

Originally posted by Sikander


Interest is closely related to productivity, in that interest is a large part of what makes capital valuable, and capital is what makes increased productivity possible. For instance, say you are a poor man who wants to buy a taxi in order to provide for yourself and your family. But you don't have enough money to buy a cab. Instead you take the only other job available to you, and earn half as much as you would owning and driving your own cab. How many years of low wages will it take before you have the purchase price of the cab saved up? All those years of half wages could of course be shortened a lot if you were able to get a loan to buy the cab. Though you will pay some interest on the loan, it will be more than paid for by your increased earnings. You will pay the loan in (let's say) 5 years, all the while earning twice the wage you would have had to settle for if no money was available to you.

This scenario plays itself out on many scales every day. I couldn't afford the $200,000 that my house cost all at once, so I saved a down payment, took a loan and purchased the house. Now instead of paying 100% of my housing money to a landlord, I paid 60% to a bank, and the other 40% is mine. Without someone to lend me money, this would have been impossible, and I would have had to save my money for many years in order to purchase my home. Money taken by the government which would have otherwise been invested (let's say in your case 20% of your tax burden) is far more likely to be spent on one time payments like welfare, wages for government workers, payoffs for political cronies, unions etc.) Your economy would be better off (up to a point, there is a diminishing point of return, and there are many valuable services that government can provide for an economy) having more money to invest on smaller scale investments like homes, businesses etc. than on massive government programs which often reward people for the wrong behavior.

I didn't want to tell banks are useless, they are essential for the capital to be better allocated (I consider banks do this better than stock markets, but it's not the point here). What I meant in this sentence was that the interests do not mean general wealth of a nation, even if there is an indirect connection. Hence, using the banking system won't change fundamentally the problem of retirement.
Let's say the retirees need about 10% of the GNP today. Whatever the way it's ditributed (throuh gov., banks, stocks etc.), the retirees are still taking 10% of the wealth produced by the active population. In the future, retirees needing 20% or 30% of the GNP is not unplausible, and they'll try to take this wealth from the productive economy. Govs won't have enough money to pay, as well as banks or stocks...
Since private sector provides a more cost-efficient (but more inequal) capital allocation, shifting retirment to private sector can postpone the crisis a bit, but not avoid it for eternity.

[Sikander]

Originally posted by Spiffor

I didn't want to tell banks are useless, they are essential for the capital to be better allocated (I consider banks do this better than stock markets, but it's not the point here). What I meant in this sentence was that the interests do not mean general wealth of a nation, even if there is an indirect connection. Hence, using the banking system won't change fundamentally the problem of retirement.
Let's say the retirees need about 10% of the GNP today. Whatever the way it's ditributed (throuh gov., banks, stocks etc.), the retirees are still taking 10% of the wealth produced by the active population. In the future, retirees needing 20% or 30% of the GNP is not unplausible, and they'll try to take this wealth from the productive economy. Govs won't have enough money to pay, as well as banks or stocks...
Since private sector provides a more cost-efficient (but more inequal) capital allocation, shifting retirment to private sector can postpone the crisis a bit, but not avoid it for eternity.

Yes, that is a different matter. Still, I have to prefer using capital as an investment over merely spending it via an ever expanding and (hopefully) contracting tax burden. In years where more money is taken in than needed it is very tempting for politicians to spend the money, and indeed it is very difficult for them to invest it properly assuming that the nation's infrastructure is up to date. By having a system that constantly requires current workers to pay for the care of past workers you are going to have a lot of unwanted side effects, from shortfalls when the population ages, which increases taxation and hurts the competitiveness of the economy, to inflation when there are more workers than recipients and the government spends (and sometimes wastes) the excess money.

It is much better to have each individual invest for their own retirement, however that is structured. You skip many of the problems because there is a fairly constant rate (as a percentage of all the money earned) of accrual. While the state will still experience labor shortages when the population ages, it will nonetheless have a lot of capital to help soothe the blow, capital btw that may well find a better use (and thus return) in other countries which have a younger population (and thus) a greater need for capital. This method thus reduces a good deal of waste, increases the effectiveness (ie rate of return) of monies set aside for retirement, and allows international markets to match up rapidly growing countries which need a lot of capital with slowly growing (or not growing) countries which need places to put their money at a better rate of return.

[Wraith]

--"Hmmm. I wonder why every major advanced industrialized democratic state over the last century has eventually enacted Social Security laws?"

Keyword in your arugment there is "state". They like anything that will increase their powers, of course they're not going to be against something like this.

--"I assume everyone understands that interests are not wealth production,"

Those "bank investments" you mention, however, are. Or are at least expected to be so by the bank (which tend to be rather conservative in their prodictions).

--"BTW, I'm astonished so many people here assimilate a tax to theft."

It has nothing to do with assimilation. It has to do with definitions. Force or the threat of force to take money from someone is theft.

--"Once the government initiates a program, it is hard as Hell to get it repealed, no matter how silly it is."

Social Security is actually a case in point. It was originally intended to be a temporary program, but as you point out, we all know about "temporaray" government programs.

--"Well because the politicians and other gov't officials and civil servants never have to pay a dime for their part of the SS."

In the US, government employees don't pay into SS either. They have their own seperate retirement program. I think this speaks loadly about their opinion of the program.

Wraith
Taxation WITH representation ain't much fun either.

[DanS]

I think Spiffor makes a good point--i.e., that if my retirement grows at a better clip, it will just mean that I will extract a greater amount from the economy when I retire and that the problem of the working:non-working ratio exists no matter who ends up paying (the financial markets or the gov't). That said, a more secure retirement based on choices that are made available to us is a good thing.

Anyway, it does make the safety net more affordable to the economy, considering that the economy should grow at a slightly healthier clip each year.

[JohnT]

When we think about Social Security reform, we need to also comprehend that you are talking about a re-assessment of retirement, and what it means to "retire" nowadays. You're also talking about removing some of the assumptions that millions of people have held about Social Security and its role in their retirement, and in order to get anything passed you have to convince these people that it is worth it in the long run to change their assumptions. Fact is, I do want to privatize Social Security, but I realize that for a project so massive it isn't going to be done any other way than incrementally.

The reforms I would take are follows. The first list is what I give in order to convince people to support this plan:

1. SS tax should not apply on the first $20,000 (or whatever the current poverty rate is) of everybody's salary, regardless of income.

2. You should not be punished for having sound savings and investments, and the government should allow for full SS payments for people with "outside" retirement incomes of up to $75,000, after which it should be phased out completely by $250,000. $75thou might sound like a lot, especially for a lower limit, but not if you have $15,000 of medical expenses per year, per person.

3. I'm glad that the SSA is sending out individually tailored explanation of benefits forms, with your projected benefits shown. These need to be refined, including a comparison against the major indices (S&P, NASDAQ, etc.) Perhaps a summary of the budgetary figures mentioned in #4 should go here as well.

4. Current 401(k), IRA, etc. laws need to be amended as to:

a. Increase total individual contribution limits ($11k for a 401(k) currently) to twice their current levels.

b. Require more detailed reporting re: mutual funds and the like with an emphasis on management and long-term performance. Too often you will find funds that have their management on a revolving door, with new bosses every year or 6 months. I frankly think that mutual fund reports should include every manager for the past five years, their length of service to the company, and their rate of return over their position.

c. Increase participation in the funds by eliminating laws that prohibit certain classes from participating.

d. Double the maximum account size.

5. Eliminate the capital gains tax for seniors (65+) for all capital gain realizations up to $125,000.

6. Index the above limits, caps, percentages, and dollar amounts to the CPI/poverty rate.

7. Make the death tax elimination permament.

You'll have to raise taxes on some people:

1. SS tax should apply on salaries up to $250,000. There must be a cap on it as it is a truly horrible investment, but the cap should be upwardly adjusted.

And some things are going to have to change for the government:

1. It should be on the general budget, with total receipts and disbursements clearly shown.

2. Congress should not be allowed to use SS tax receipts for anything other than SS.

Given all this, SS could be phased out rather easily and less painfully than some expect:

1. Sell the federal land to raise cash for any future SS deficits. But try not to do it in a way that'll either crash the market, or run it up to way over value.

2. Decide which generation and following is not allowed any more Social Security. Some would say today's 18-year olds and younger, some would go higher: 30-40 and younger. Point is, you have to make it clear that there is a specific age and younger that is not going to receive SS. Personally, I vote for 25 and under.

3. When SS starts taking in more than paying out, reduce the SS tax so that it becomes 0 when our 25-and-unders hits retirement age.

[JohnT]

Originally posted by DanS
I think Spiffor makes a good point--i.e., that if my retirement grows at a better clip, it will just mean that I will extract a greater amount from the economy when I retire and that the problem of the working:non-working ratio exists no matter who ends up paying (the financial markets or the gov't). That said, a more secure retirement based on choices that are made available to us is a good thing.

Anyway, it does make the safety net more affordable to the economy, considering that the economy should grow at a slightly healthier clip each year.

Interesting - I never thought of that before. Social Security currently pays out about $325 billion a year to recipients, which implies an extra $5 trillion deposits in the markets.

Here's a scary chart: http://www.cbo.gov/showdoc.cfm?index=3650&sequence=0

[DanS]

Yes. It shows that FICA would have to be roughly doubled, if we were to keep today's rules.

I guess the trick is to encourage people to work longer and to work part time into their old age.