Friday, January 9, 2009

Entitlements Part 1- Social Security

Yesterday I talked about simple solutions to Americas problems. Hermit shrewdly noted that my ideas were fine and good but did not address the complicated issue of entitlements. Entitlements are such a bit part of our nations financial problems that they can not be left as they are. At the same time there is a reason entitlements are referred to as the third rail of politics. If you life on a farm in Idaho and have never left it that would be the middle rail which is electrified and gives the trains power. To put it simply, if a politician touches it they are dead.

Today I will talk about Social Security. I talked about SS in the past when in a fairly heartless and extreme mood. This time I am taking a more thoughtful and realistic approach. Maybe the ideas I have will not completely solve the problem but they surely would not make it worse. Unfortunately nothing worthwhile in life is free.

I think the best course of action is to look at our SS problems from both sides. Simply put we need to figure out how to make SS take in more money and give out less. We are not trying to make a profit as a business would but if the incoming money doesn't equal the outgoing money the system will not work long term.

As for getting SS to take more money in I can only see one answer. The amount of money deducted from most of our paychecks is going to have to be increased. If anyone has another idea for the program to bring more money in I would be very interested in hearing it. This increase would need to be enough to be useful but not so much that young people flee wholesale to the underground economy or rioting. Maybe some wackos start burning down old folks homes to lower the SS burden.

The best way to sell this to my generation is to convince us that this will make SS solvent. Knowing I will actually get some of the money I put into SS back later on will make me a little bit less pissed off.

When it comes to money going out that is probably more touchy. It would take a whole lot for young people to start rioting over increases in their SS garnishment (I refuse to call it a contribution since it is forcibly taken from us). People old enough to be collecting SS are much more politically active and they have lots of time on their hands. They have the time to do more to support or hurt political candidates then any other group. If I was a politician I would rather have a leaked tape of me kicking a puppy to death then piss off the AARP. That was half a joke. If the old folks saw their checks go down 10 dollars a month they would call their Congressmen 5 times a day and their Senators several times each. They would write letters to the editor and raise all sorts of hell. We might even see the slowest most lethargic riots ever. The good news is that the riots would be over by 4:00 so they could get the senior special at their favorite restaurant and be home for Wheel of Fortune. Also note that those who are within sight of retirement are also a key voting block. They are young enough that some of them could actually do some damage in a riot. On a tangent if (though very unlikely) radical changes in SS payouts are going to happen I am going to go get a few gallons of Whiskey and a few gallons of Vodka because rumor is liquor stores in the deep south might start getting burned down.

I can see a couple ways to decrease the amount of money we give out for Social Security. We could make people wait another year or two to receive benefits. We could decrease the dollar amount of payouts. We could set a maximum income and asset level at which people are not eligible to drawing SS. I suggest that we do all three of these things.

Selling any sort of reduction in benefits to seniors would be tricky. If convinced the SS system is fundamentally flawed and doomed to immanent failure getting 15% less each month might sound reasonable when the alternative is getting nothing or serious inflation. These folks are old enough to know what high inflation does because they have seen it in the past.

IMHO the darkest and most likely scenario is to do neither of these things and just print more money. The old folks will keep getting checks for the same dollar amount but it will be worth less, like always there will be a significant difference between real inflation and official inflation which their COLA is based upon. Serious inflation would of course hit those on fixed incomes the hardest. This is the worst scenario because it would hurt EVERYONE hard not just those relying on SS.

Of course not letting congress raid SS funds ever for any reason would probably help also.

I think the best conclusion is that we all grin and bear it a little instead of completely screwing the young or the old.

18 comments:

Anonymous said...

all entitlements should be re-structured, so that they are not hard and fast entitlements. instead, the budgets for current entitlement programs should have to be approved every year. if there's less money, that part of the system gets less like all other parts of the system.
raising taxes is a non-starter.

reinkefj said...

The Social Security Ponzi scheme is a hard nut. BUT, we have an example of how to unwind it. Chile privitized their SS in the 70's. It has been written about extensively By the Cato Institute. Basically, for those under 40, they are forced out to private savings / investment banks. Over 60 (I think) continued as is. In the middle, you got a government bond for the cash flow when you turned 65 and were then in the private system.

In a country with 95% illiteracy, the guy sold it and made it work. We're too smart here. For our own good. This was proposed in the late 70's but rejected as "too risky".

To stupid for our own good.

Bottom line the SS has to go.Will go. Like all "solutions" based on force, they fail eventually.

imho

An Unsheltered Life said...

There's no easy answer - at least as far as I've found. Eventually, we're going to have to do something, and it's going to suck for at least one group of people.

My plan, being 27 and having a long working life ahead of me, includes private retirement planning. Oh, sure, I have to pay into Social Security, but I don't expect to see a single penny of that. The system can't last forever, can it? I don't think so, seeing as it's a giant Ponzi scheme.

theotherryan said...

6:37, Telling Older people that they will get to find out how much of their money they can get back on Jan 1 each year is probably less realistic then raising taxes. Interesting idea but IMHO not realistic.

Reinkefj, Very interesting and I would love to hear more about it, any links would be appreciated. I will try and look into that myself next week. The issue I see is that SS is a Ponzi scheme. When people at the bottom stop paying in people at the top stop getting paid. So if people my age (20's) start having our cash go into private accounts then it can not go to my Grandparents generation.

An Unsheltered Life. That is more or less my plan.

Anonymous said...

You overlooked a few MAJOR point's in your comment.We have raised the retirement age,at least to recieve full benefit's,to 67 from 65.Second,you stop paying SS withholding tax at 99,000 dollar's a yr income.Rather than raising the rate of withholding,why not raise the ceiling to 200k or so?If you make less than 99k a year,it will have no effect on you.It will increase cash flow into SS,at least til it may need readjusted for inflation.

Anonymous said...

Hmmmm, just love the age bashing; Jewish and afro's next?-- but I can take it.
I'm old enough to collect and got the qt requirement done a looooong time ago; but I'm still working and still paying at the full rate. As I have at every job I've had outside the teaching profession since I was 14.
My SS benefits will be reduced because I am entitled to another pension system that I and my employer were required to pay into.
HUH?
If I croak first my wife's death benefits from my teacher's retirement will reduce HER SS benefits dollar for dollar. HUH?--Nice touch that...reduce mine and hers.
Aliens can qualify for SS on a shorter qt. requirement-why? People that never contribute qualify-why?
Cause they said so...
Hey 27yo-- I put my "surplus" into other stuff as well,
result: 401; after absorbing 30% of pre tax income for the year----the current value is less than Jan 1 last year. Small independent stock and fund acc'ts are down a similar amt.
So Be real smart about it; whatever that means to/for you.

Hmmm, real estate value down

yeah-- keep ripping at that age thing.
...and you possibly want to increase the rip off?
Weelll this old fart will turn on, tune in and drop out, bump da man....jus keepin da brother down.

HermitJim said...

Being a recipient of the aforementioned SS check, I have a little suggestion. We could pick up a little extra for the kitty by reducing the lifetime pensions of the big boys like Senators and such. Cut them in half...and then start to work on the high dollar perks of office!

Just a thought.

reinkefj said...

http://www.cato.org/pub_display.php?pub_id=5981

Chile's Social Security Lesson For The U.S.

by José Piñera

José Piñera is Chile's former secretary of labor and social security and is co-chairman of the Cato Institute's Project on Social Security Privatization.

Added to cato.org on December 17, 1997

America's Social Security system will go bust in 2010. As political leaders scramble to save it, they've overlooked an obvious free-market solution that works. They need only look at Chile.

Anonymous said...

Yea most of these things and more were done in 1983 and here we are again a decade and half later thinking that doing the same thing a second time might have different results. All it does is kick the can down the road a bit further and screw the participants out of a little bit more money.

Incidentlly, has anyone actually ever done the math on their contributions vs what those little green benefits statements say you'll get out?

I did and found that SS as it stands today and assuming I never have a rate increase nor a benefit reduction and also assuming I live 20 years on retirement will result in roughly a 70% loss on my investment.

I think the 40% loss many are suffering in the 401k market today would be perferrable.

G3Ken said...

8:18. The SS tax ceiling for 2008 that just ended was $ 102,000. They raise it far over COLA every year, making it hard to hit. I look forward o the years that I hit the SS max (usually mid-December) so I get a few extra bucks in my check.

I'll bet you say "raise the max" because it doesn't affect you. I don't have a problem with raising the max provided that when I retire, Uncle Sam raises MY max in terms of benefits. As a Libertarian, I would prefer to dissolve SS and I'll provide for my own retirement. I'm the one who earned it, so I should be the one who keeps it.

I didn't grow up with money, my parents barely scraped by. I served in the military, went to college on my own dime and work as much overtime as I can. I pay more than my share and I don't feel I owe anyone any more than I already pay. If that strikes anyone as "hard-hearted", so be it. I gladly give a nice percentage of my income to charity, but I choose where it goes and who gets it. Uncle Sam is bleeding us dry and I'm fed up with it.

Anonymous said...

I can bitch and complain all day, its not going to change a thing. They take my money, what can I do about it...nothing! All I have heard in the past is save for your retirement, IRAs, IRA-ROTHs, 401Ks, 403Bs, SEP-IRAs...well folks, those who did have seen their accounts lose 40-50% this year! As I wrote in a post a few days ago, thats it, I am taking my $15k this year and buying gold coins and silver rounds. The pain has only just begun with this market. You cant print 1.2 trillion, have bailout after bailout, and an unemployment rate at 7.3% (reported) or 15+% (unreported) and not see the pain coming. Hold on tight folk, take care of yourselves. The worst is yet to come! I am only a realist (survivalist)!

The Hermit said...

I knew you were going to set off a fire storm with social security, TOR. It's one of those things that there isn't any fix for. The government rips off social security funds now for other "entitlements." If social security deductions from paychecks are increased, they'll just loot that too. I am 56, so I won't get any for another six year but then I WANT IT, while there still is some. At the same time, taking more money out for my social security from younger peoples checks is not right, I'm willing to acknowledge that. I don't think there is a fix.
Hey, I don't think looking at social security is necessarily an attack on older people. It doesn't fuss me any. But who ever said the politicians can't touch that one is right, the AARP is powerful and the "gray panthers" sure do get out and vote, and a lot of them give contributions.
That's one reason I wanted my kids to become Canadians, until the Canadians booted them out as hateful "Americans."

PKS said...

Meh, I've heard the argument that old age pensions won't be there when people who are young right now get to retirement age for a while, and I think it's BS.

25 years ago, elderly people were essential to getting elected. Same with 50 years ago. Same with now. This doesn't seem likely to change.

Also, if you wanna talk SS, most of the increases in recent years (and in projected increases in costs to SS) are actually from medicare.

If the US did what every other non-third-world-country in the world did, and had some sort of universal healthcare, this would be much less of a problem.

Like many economic problems of the last decade or two, medical care should be discussed.

reinkefj said...

We have "universal healthcare". There's just probles in funding it. And, that ignores the realities of economics. Healthcare is the classic example of an inelastic demand care. Demand far exceeds supply. Without a cost feedback loop, the positive demand curve destroys it. What we need is some common sense. You pay for what you get. Across the board. Yes, it's a form of rationing. But, it happens now without recognition. inho

The Dudleys - Craig & Lane said...

the social security system was set up and funded in its original form to escape this "funding" problem. the situation we are now in started with lbj when he started using social security funds to pay for his plans. all successive presidents and congresses have continued to use what should have been money in the bank for us. one way the congressional criminals and presidents continue this fraud is by lowering payments using crooked inflation numbers and by helping us ignore their thefts by using our money for their wasteful excess.
these aren't unearned entitlements and there isn't a funding crisis. there is a spending and information crisis.

Anonymous said...

RE: buying silver/gold as retirement??
With the current market fluctuation's,investing in gold and silver would have lost ALMOST as much as a 401k plan,if you had bought at recent high's.I have no clue as to why,but it should be thru the roof now! I feel somehow, someone, is holding the PM market flat or down.. no clue

reinkefj said...

Probably the European bullion banks trading in futures. It's a casino to SOME extent. Leverage allows manipulation. International makes it impossible to regulate. Can only hold it down SO long. imho

Anonymous said...

I'm back after being busy for a few days... 1. I'm apologetic re: my bark about making fun of da old senile grumps for things like driving 50 miles to use a 50 cent discount coupon for the early buffet. [ no, you didn't say that-- I did...] I didn't really mean much by it and when I lose my real sense of humor just shoot me.
That said, I have noticed a few; "we should just eat the boomers; it's all their fault anyway" types elsewhere. It's that divisive blame hunt that actually gets on my nerves a bit.
I don't care so much who caused the grand muck ups as I am about making it thru with as little pain aa possible for myself and others. If that requires an ID of the individuals concerned so be it. but broad brush strokes " greedy boomers-greedy bankers-callow lazy youth-welfare leeches" seem to muddy the picture to me. I also get peturbed at the wrinkled geezers that bemoan the "youth" of today.
Sorry if I caused you any self recrimination...ya didn't deseve that; and anyway it's your place; if I didn't value what you put up I wouldn't read you. Mea Culpa c57

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