Saving Social Security, Can it be done?

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This topic is an attempt to reasonably discuss Social Security and its problems, present and future. It is not a place to attack without facts or figures. Opinions are welcome if they contribute to the discussion.

I realize I am setting a lofty goal here that will be quickly thrown from its perch but hey, a guy can dream.

That being said, let me start by trying to lay out what I see SS is and some of its problems.

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first thoughts
One thing is for sure. We will never solve the SS problem if we don't start by defining the real problem.

1. You do NOT have a PRIVATE ACCOUNT in present SS. (What you have is a promise to pay you something in the future. That promise isn't worth what you think of your opposition in this argument. Either party can change it as they see fit at any time in the future.)
Social Security is a pay as you go system. The moneys collected are supposed to go to pay for present retirees, orphans and disabled. Because of the demographics, Reagan and the Dem congress tried to fix the looming problem of more and more retirees. They decided that SS should take in more money and build up a reserve. Then they created a HUGE problem by spending that reserve and not making plans to pay it back.

2. The looming problem is NOT from lack of SS funds.
The fact that SS trust fund is empty means that the fund needs to be paid back from the general fund. That is the real problem. We are presently borrowing money from the SS fund and still don't have enough to cover the general fund. The FIRST problem SS will have is when the general fund, which is running a $600 billion deficit, has to pay back SS, which has a $200 billion surplus at present. Borrowing money from the SS trust fund costs the US govt nothing since they don't have to find buyers for Fed Treasury bills. When we have to start paying back the SS fund, the govt will be forced to auction off MORE treasuries unless we increase funding in the general fund (raise taxes). Auctioning off more and more treasuries will only create worse problems. As we try to sell more and more treasuries the interest rate will go up. (simple supply and demand.) What will happen to SS when 20% of govt expenditures go just to pay interest on the debt? But worse yet, what will happen to the USA as a whole?

3. The ONLY way to fix SS is to make it a seperate system that govt can't touch or borrow from. There are many ways to do this but all will cost the taxpayers either in benefits or taxes. IMO any attempt to fix SS that doesn't address the deficit in the general fund is a horrible plan.

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Means testing
When it comes to SS in the long term. The only way to fix the 50-100 year problems is means testing in one form or another. There are several ways to address this; three that I can think of:

1. Raise the income level at which SS taxes are taken. Downside - the maximum benefit would not go up for those on the high end that have to pay more. Upside - If we paid SS on every dime made, everyone would be able to get benefits for centuries.

2. Means test benefits. Reduce the benefits paid out based on earning of the recipient. Downside- it punishes those people that planned ahead and didn't hit any unexpected problems in life. Upside- If you did plan ahead and then had some unforseen circumstance you would then get benefits.

3. Private accounts - This can take many forms beyond what is presently being floated. Upside - Some people would get more in benefits Downside - some people would get less in benefits. (It has to account for those that would lose most if not all. In any market the majority of investors make less than the avg return.)

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bookmark

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Some ideas.

1. Job-hunting assistance. For those who want a job there should be a government run service to assist them. They could offer training in interview skills, loan or give out items people need to get a job. (for example people can get safety boots from them if they need to start factory work). You can do a lot with this and it helps end the poverty cycle that comes with unemployment (once you have no job it's hard to get a new one).

2. Public medical insurance. The government should provide medical care for free.

I'm sure there are other things, but those two will do me for now. It's getting late and I'm tired.

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Increased education.

Only 30% of Americans reach higher than High School when it comes to education. In many cases, this 30% will be most likely to save their money.

Why? We have no education whatsoever on the benefits of saving money during our High School process here in America. Personally, I was required to take a semester of economics. We didn't discuss savings accounts or strategies once.

It seems to me that better education of our youth would be a major way to encourage personal savings and retirement plans outside of social security.

Cycloptichorn

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My wife and I are both retired and on social security. We invested in funds that paid interest. We found that we made enough money in total that we had to pay income tax on our social security. We also have to pay the government $655 dollars a year for my wifes medicare because she has a state retirement plan which pays her insurance except for $120 per month which is deducted from her state check. She cant get half of my social security because the fed decided that her state retirement was tied in with social security. So she worked for 30 years and cant collect social security while a woman who never worked or paid into social security can get half her husbands benefit. Tell me how this encourages a person to save. When she started working there was one set of rules. In the middle of her working career some politician decided to change the rules. So remember that no matter what bush and the republicans tell you now in the future they can change all the rules. The moral is dont trust any politician. They all lie.

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Cycloptichorn wrote

Quote:

It seems to me that better education of our youth would be a major way to encourage personal savings and retirement plans outside of social security.

Are you on the side of eliminating SS for those that save enough?

Should Social Security become a safety net for those that need it to stay above the poverty line? My understanding is that was a large reason why it was enacted in the first place.
One of the recommendations floated in the SS debate was to put $5000 into a personal account for every person born in US. That account would then not be accessable until they reached retirement. I haven't run the numbers on it but certainly over 65-70 years it would be a tidy sum even after inflation eats away at it.

As for a course in economics, even if we all had a class in investing the majority would still have problem with it. It isn't something that comes easy and too many advisors out there that appear more knowledgable but willing to take advantage of those that need help.

That is one of the problems I have with personal accounts. People don't seem to understand the math of investing. "Average" does not mean that most people will make that or more. Because the upside is unlimited the math means that a lot more than 50% of investors make less than the market and then even less when fees come out as well. Social Security is an insurance pool that guarentees a basic benefit for everyone whether you need it or not. Why do we buy insurance since most of us never need it? Because it would be catastrophic if the unexpected happened. The key to insurance is to spread the cost out over everyone so that we all share the same risk and rewards.

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Quote:

Are you on the side of eliminating SS for those that save enough?

Not really for eliminating anything current; just for educating people about investment, in order to ease the burden on the system.

Cycloptichorn

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Quote:

Not really for eliminating anything current; just for educating people about investment, in order to ease the burden on the system.

Cycloptichorn

That is I meant with my question. If we all save enough, the need for SS is reduced. So do we really need it for everyone?

In an ideal world, there would be no reason for Social Security since anyone that worked would be able to save enough to retire on. We don't live in a perfect world. We live in one that rewards and punishes people based on many things. Merely working hard doesn't guarentee you a retirement of leasure. There are far too many things in life, many of them out of one's personal control that affect how you are able to save.

Does society need to guarentee some basic retirement to those that for one reason or another are unable to do it on their own? Personally I think it does. But what level does that guarentee need to be?

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Quote:

WASHINGTON -- In one of his first addresses since announcing that he's running for governor, New York State Attorney General Eliot Spitzer waded into the national debate about privatizing Social Security, saying the Bush administration has no credibility because it opposed his efforts to clean up corruption on Wall Street.

Sounding more like a candidate for national office than one vying for the governor's mansion in Albany, Spitzer, speaking at the National Press Club, blasted the White House for opposing overhauls designed to curb fraudulent practices by investment bankers, mutual funds, stock analysts and others his office has prosecuted.

"You have an administration that failed to protect investors. Failed to protect them. And yet they are the administration that is saying take the safety net that we have and invest it in a system that was fundamentally broken before others stepped in to try to save it," Spitzer said.

"On the one hand, they are saying the system does not need to be fixed, there was nothing wrong with it, they fought against the changes that we wanted, and then they say, 'Take your savings and put it into that very system.' Where would we be if those who are retiring had had their money in Enron and Worldcom?"

A spokeswoman for the White House declined to comment.

Spitzer said the business community has time and again demonstrated that it is incapable of regulating itself and only an activist government can. Likening his crusade against shady business practices to that of fellow New Yorker Theodore Roosevelt, who served as governor before becoming vice president and president a hundred years ago, Spitzer said while the trust-busting former president was reviled by his peers he has been vindicated by history.

Maurice Carroll, director of the Quinnipiac College Poll, said the public should expect to see Spitzer wade into national affairs now that he's an announced candidate for governor. He said voter approval of Spitzer's activist approach to government regulation of the business world would probably compensate for any backlash from an angry Wall Street.

"Oh, I'm sure they'll throw money at whoever runs against him -- me, you, anybody. But I don't think he needs to worry about money, he'll have plenty of that. Hell, he could pay for it himself," Carroll said, noting that Spitzer's family is wealthy.

http://www.newsday.com/news/nationworld/nation/ny-usspit0201,0,1248931.story

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Saving Social Security, Can it be done?

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