Yesterday I found this article from Bloomberg about Michelle Bachmann. I only know a little about her and her politics but she is apparently willing to have an honest dialog on at least one point which is social security and medicare benefits. Today's post is not about her or her politics. I am not an idiot for thinking she should be president nor am I an idiot for thinking she should not be president, I have no opinion on her--heh, maybe I am an idiot for having no opinion yet but it is still early.
Back to social security and medicare, the pie simply isn't big enough for everyone to get what they think they are getting. It seems that no plan by anyone involves reducing benefits for anyone already receiving them. Between various ideas being talked about or the Ryan plan there will be varying thoughts about how to cut benefits, for whom to cut benefits and how much to cut benefits.
I doubt a couple making $50,000 combined (in 2011 dollars) will be at much risk of losing benefits unless the entire program implodes somehow. But there is some level of income where people should be setting something considerable aside and while the dollar figure might be subjective the concept might not be.
In the article Bachmann makes it seem that altering benefits is the obvious choice and while I agree with that it will catch many people off guard and create some other problem. Not that something doesn't have to give with benefits, it does, just that there are plenty of people who should have something set aside who don't.
One dynamic of this debate is the idea of punishing people who have done all the right things. This popped up with mortgages because seemingly only people who took on too much mortgage or were otherwise irresponsible got help. My take is that this attitude overlooks the huge psychic value of not having had to fret over their financial situation and this can apply to losing some portion of the expected entitlement as well. As a sign of how much trouble social security might be in, I read somewhere that they have stopped mailing out that annual statement with information of expected benefit. If that is true it sound rather desperate.
To repeat my idea, give people the option of contributing an unlimited amount to their retirement plan and getting the deduction with the tradeoff being they continue paying in their same FICA withholding while phasing out the benefit. Only a small portion of the population would be able to take advantage of such an idea but just about everyone who did would otherwise be getting the maximum benefit.
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22 comments:
A real Gordian's knot and the devil will be in the details. For example how do you measure income or wealth...so now we would have tax planning and SS planning advisors to hire..will it vary each year and based upon where we live..etc.? The only real answer is to force it all back into welfare and chairty organizations.
If SSA has stopped sending annual statements, it's been only recently. My wife and I have our 2010 statements; mine comes in August, so we'll see if I get one.
Personally, I wish they would stop; it just feeds the 75-year-old lie that Social Security is some sort of pension fund.
Ric if they did stop the mailing as I read (sorry no link) then it just happened
http://lifeinc.today.com/_news/2011/04/05/6411927-social-security-stops-mailing-annual-statements
says move may not be permanent.
M2 and MZM
QE3 but afraid to say it?
link emailed to me by my older brother says they have stopped sending statements.
consistent with one or two other comments
http://www.ssa.gov/mystatement/
you may be ok with being lied to, taxed for SS for 4 to 5 decades and then being denied benefits, but many are not. Bernie Madoff investors did much better than many people paying SS will ever do.
Yes SS is a Ponzi scheme
if we concede your point entirely then what? can whatever emotion this triggers in you solve the problem?
As a matter of personal philosophy I don't get worked up about things beyond my control. If the country is broke I can't fix that. Within our control is the effort we put into how much we save and the extent we live within out means.
Taking off from the thoughts of Anon 7:41. Having paid into SS for all my working years, I do not consider it a "benefit." I, and many, consider it a contract with the gov't, similar to an annuity type contract that may have been made with an insurance company. If you start means testing and denying payments to those who paid in the most, you have turned SS into welfare. Is that what we as a nation want?
Politicians are going to have to grow some backbone and start eliminating things that are so far beyond the 10th Amendment that it is not funny, anymore. Things like the subsidy to Harry Reid's Cowboy Poetry have got to go (one small example admittedly, but there are no doubt thousands of these small examples). Back to the Constitution would be a good strategy; and it would have to be done over a 10-20 year period, but it is time to start.
Final thought. Punishing success and right living, and rewarding failure and wrong living, is something the gov't has to stop doing.
Roger,
With all due respect (and I do respect you)
Your advice sounds a kin to a man recommending that a woman who is being raped should just lie back and enjoy it.
I find both points of view reprehensible.
Your idea is interesting, why not submit it to the deficit reduction panel? Who knows, maybe you will end up saving the system and become famous for it :)
She is a sharp tax attorney that ran for office out of complete frustration with political system.
Like her or not, the Lady is a breath of fresh air.
And, like it or not, she is much more qualified to serve than the present man-child screwing up everything he touches.
The thing that really annoys me about anyone's SS plan is that no one wants to do the simplest thing: remove the stupid cap on taxed salary. I really don't know thy the cap is there; it isn't like people who make more than $108k don't get SS benefits.
anon 8:54 I don't equate being raped with getting less money from the government.
SD, actually I think changing the cap would crush people in more expensive places making between $108k and $150k or so. Above there it would crush some smaller number.
A couple in Chicago making a combined $150,000 would need to pay another $3300 per year if they are W2 people. I could see that being very difficult.
Umm...I could be wrong here...but...I believe the cap is on a per-person basis..not joint. So...if you had a couple making a joint $150k, but split at $75k each, they would both be below the cap and paying SS tax on 100% of the earnings. They would only pay less if one was above the cap.
And for what little it's worth...I do think the cap should be eliminated.
rr
couple filing jointly?
No, taxing ALL income with a SS tax will not devastate those that are not presently paying the entire tax. Reasons for not paying are not valid. True Americans will want all Americans to prosper in their retirment years and be willing as a prosperous American.
Also, a small SS tax is needed on dividends and all other revenue sources for the "rich" that don't have income per se.
There needs to be means testing of SS payments. My brother-in-law is very wealthy and still receives SS in his retirement. This is flat outrageous and ridiculous in these dire economic times.
Finally, SS funds should definitely not be part of general revenue and should be kept separate immediatley.
Perhaps a tax credit against income tax in lieu of a SS payment would make sense for those who are above some means test level.
odd comment
Let's face it. Worrying about what some "experts" are saying the shape of the Social Fund Fund will be 29 years from now is beyond stupid. In 2000 "The Maestro" said that the budget surplus in 2010 would be $500 billion and the Congressional Budget Office said the national debt would be E2.4 trillion. How well did that work out?
As they say, we have economists to give respectability to weather forecasters and fortune tellers.
Social Security and Medicare are 2 separate problems. Right now Social Security receipts and payments are almost even. We could adjust the cap and include investment income as taxable and we would be OK for quite a while.
Medicare is a different deal. 2.9% of wages will never come close to paying the bills when medical is about 17% of GDP.
Dan
I started working and paying FICA taxes in 1965. From 1973 through 1978, I was in school and didn’t have much income, so I paid very little FICA. I worked for the city of Billings, MT from 1983 through much of 1985. At that time, municipalities could opt out of Social Security and they did, so I paid no FICA during that period. Thus, I’ve paid FICA for about 38 years.
The statement says my various employers and I have contributed a total of $224,094 to my Social Security account. That’s an average contribution of $5,897 each year. The government says they are putting my money into the safest possible investment, US Treasury Notes and Bonds.
Now, what if I had been able to invest that money in those same Treasury obligations each year myself? Looking at a chart of long-term Treasury yields, I’d say an average yield of about 7% is a reasonable estimate for the period 1965 through 2011, my working career.
If I had I been able to take that $5,897 each year and invest it in Treasury Bonds at an average yield of 7%, I would now have $1,017,592 to do with as I please. Boy, would I like to have that money now!
So if I retired today, what could I expect to earn on that pile of cash? Long term Treasury bonds aren’t yielding anywhere near my 7%average any more. When I wrote this, the yield was only 3.77%. But if I just put the whole thing in those safe, low-yielding US Treasuries, I would earn $38,363 per year for the next 30 years.
I just turned 62, so I can retire on Social Security today. If I did that, the statement says my annual benefit would be $18,504. Now it’s true my wife can collect my Social Security payments for the rest of her life, if I crap out. But if something then happened to her, nobody would get another penny from Social Security.
On the other hand, if I had been allowed to fund my own retirement plan and passed away, not only would she get that $38,363 interest income for thirty years, she or whoever she designated as her beneficiary would then get the entire $1,017,592 principal back!
So even after paying me less than half of what I could have earned on my own, with no guaranteed return of principal, Social Security and Medicare are going broke. Elected officials on both sides of the aisle are talking about reducing benefits, raising the retirement age, and a “needs test” to see if I am eligible to get any of my own money back!
Social Security is a bigger Ponzi scheme than Bernie Madoff ever imagined.
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