Article on Social Security

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Moraen's picture
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Joined: 2009-01-22

Ok folks.  I've been asked by financial publication to write an article on the current state of Social Security and possible fixes.The article is due February 22nd.  Since I don't have all of the answers, I was hoping some of you guys could contribute.  I've got it pretty much written, since the bulk of the article focuses on the state of Social Security, but I'd like a little input on possible fixes.Ideas currently:  raising the retirement age, possibly with a provision that it increases every so often as life expectancy gets longer (my personal favorite); getting rid of it all together with the exception of people with disabilities (another favorite); private accounts; progressive related to income.Any help is appreciated.

rankstocks's picture
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Joined: 2005-02-10

-What about reducing fraud, including illegals receiving benefits, and if you want to include SSI, the amount of perfectly able adults receiveing disability benefits (how much of that 30 billion dollar annual pool could actually work, even a desk job....a lot).
-Just like many local municipalities, make private accounts an option.  Chile has privatized with great success as well.
 
-The problem with social security is that it is a giant ponzi scheme.  It started out as a 1% tax on income and has ballooned to 12.6%.  Go read about the first person that started receiving benefits, put something like $25 bucks in and took tens of thousands out over the rest of her life.  The lock box doesn't exist, and current surplus dollars simply go to the general budget.  One of three things have to happen.  Raise taxes, lower benefits, or raise age of eligibility.  My suggestion....allow private accounts, lower taxes, lower benefits, raise age of eligibility.

Moraen's picture
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Joined: 2009-01-22

ice and rank - thanks.Good stuff - I will say after writing this that SS is not quite a ponzi scheme, and there are tons of things wrong with it.

joelv72's picture
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Joined: 2008-11-28

The problem is the political side.  Many workable fixes can be devised in theory, but would not be passed through into law.  What we need is a perfect storm, a lame duck congress/president that has nothing to lose in the next election AND the wherewithal to pull off serious and fair reform.  We may have the former right now, but I seriously doubt the latter.

Spaceman Spiff's picture
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Joined: 2006-08-08

Moraen wrote:ice and rank - thanks.Good stuff - I will say after writing this that SS is not quite a ponzi scheme, and there are tons of things wrong with it.
 
Of course it's not a ponzi scheme.  The purpose of a ponzi scheme is to make people think they're actually making money and everything is OK.  The SS folks print right on their publications every year that they are going to run out of money.  They even give a specific year!  So either A) it's not a ponzi scheme, just a poorly run government program or B) it is a ponzi scheme, they're just the worst theives in the world. 

Squash1's picture
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Joined: 2008-11-19

iceco1d wrote:-If you have other income over a certain amount, you're not entitled to a SS benefit that tax year. Disagree... Just because some people saved, doesn't mean they should be penalized, they paid in too-Increase the SS tax, OR increase the maximum income the SS tax applies to.Disagree on both fronts here. Once all the baby boomers die off, there will be tons of extra in the "pool" because people are having less kids now.-Include rental income, muni interest, and roth ira withdrawals when you decide what % of SS is taxable. Agreed-Apply the SS tax to rental income, sub s withdrawals, etc. Agreed.-Institute some type of "benefit clawback" in the estate tax.  Figure out how much each person has paid in, credit those amounts with a set rate of interest, and then figure out how much total benefit that should provide.  As you "outlive" the benefit you actually PAID for, you begin to accrue a SS liability balance.  The balance will be taken out of the proceeds of your estate upon settlement.  Interesting but too many working parts for a real law, and due to the current deficits highly unlikely.

Squash1's picture
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Joined: 2008-11-19

rankstocks wrote:
-What about reducing fraud, including illegals receiving benefits, and if you want to include SSI, the amount of perfectly able adults receiveing disability benefits (how much of that 30 billion dollar annual pool could actually work, even a desk job....a lot).
-Just like many local municipalities, make private accounts an option.  Chile has privatized with great success as well. Seriously did you just say "Chile"... A country that does little else(no armed forces to speak of, constantly getting aid from larger countries, etc)
 
-The problem with social security is that it is a giant ponzi scheme.  It started out as a 1% tax on income and has ballooned to 12.6%.  Go read about the first person that started receiving benefits, put something like $25 bucks in and took tens of thousands out over the rest of her life.  The lock box doesn't exist, and current surplus dollars simply go to the general budget.  One of three things have to happen.  Raise taxes, lower benefits, or raise age of eligibility.  My suggestion....allow private accounts, lower taxes, lower benefits, raise age of eligibility. I think raising the age makes the most sense... If you do private account you end up with the same problem, idiots... Not sure how lowering taxes has to do with it(are you talking % of ssn or taxes in general)... Lowering benefits could work but anyone who is on strictly ssn is probably pretty close to poverty level...
The idea of SSN itself was meant to be a stop-gap for a certain period of time, but we as americans got lazy and didn't save, so it ended up be our retirement fund. And it worked "ok" until you have a massive flood of workers retiring(baby boomers, who are perhaps the dumbest people ever), I think over time this SSN deficit will get ironed out because as baby boomers die off, and people today have less kids, the numbers will start to work out again, but you probably have at least a 20 year gap for that to happen.

Squash1's picture
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Joined: 2008-11-19

joelv72 wrote:The problem is the political side.  Many workable fixes can be devised in theory, but would not be passed through into law.  What we need is a perfect storm, a lame duck congress/president that has nothing to lose in the next election AND the wherewithal to pull off serious and fair reform.  We may have the former right now, but I seriously doubt the latter. Agreed that it is a political problem and very unpopular with people who recieve it. Even in the example you propose half the senators and reps wouldn't be re-elected because the people they represent would vote them out of office.

Squash1's picture
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Joined: 2008-11-19

I think the only way to fix the problem is rapidly increase the age and decrease the benefits or just don't increase them.
 
It is my belief that everyone should get the same amount, so if you put it in the equivalent of $15K you get $20k, if you put in the equivalent of $25K you get $20K...
 
Or stop investing in health care at let people die off, natural selection....much less humane but more realistic..

Incredible Hulk's picture
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Joined: 2006-03-24

I read an article in Fortune sometime last year that Geoff Colvin wrote. He gives his ideas on fixes as well as how someone about to retire with a substantial pension and savings feels about potentially having the Social Security benefits they paid for their entire life reduced or eliminated.

I'd suggest finding the article and reading it, not necessarily to poach his ideas, but to see how he structured the article. You are the financial professional, but he is the professional writer. Good luck either way.

Incredible Hulk's picture
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Joined: 2006-03-24

I googled it and I was mistaken. It was Allan Sloan and here is the link to the article as well as a video of him discussing his thoughts.

http://money.cnn.com/2009/07/29/news/economy/fixing_social_security.fortune/index.htm

NOVA's picture
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Joined: 2005-01-11

There are a few tricks - claim and suspend is one.  Another is collecting a spousal benefit as well as your own earnings benefit.  Do away with them while only a few people know about them.  Check these guys out  ->  http://crr.bc.edu/

army13A's picture
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Joined: 2009-03-21

Have a private option where younger people can bail out of the govt
plan but yet still pay a small percentage to support the old fogies on
SS now (2% for example instead of 7.65%).  The people who do bail out
don't get anything from SS in the future.  I would love for this to
happen but I highly doubt it. 

Increasing the SS tax is probably the stupidest thing we can do b/c we
had a SS surplus before and BOTH parties squandered all the money we
had on other BS, making it a big IOU pot.  If we increase taxes,
Congress will find another project to spend that money on.  

army13A's picture
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Joined: 2009-03-21

rankstocks wrote: It started out as a 1% tax on income and has ballooned to 12.6%.  It actually is 7.65% of income for W2 employees and 15.3% for self-employed.  The extra 7.65% is the beautiful "self-employment" tax that our wonderful government instituted a long time ago to "help" business owners. 

LA Broker's picture
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Joined: 2008-12-03

How about investing a portion of the social security fund in the market.  It would probably produce a better return and it would help the market at the same time. 

army13A's picture
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Joined: 2009-03-21

iceco1d wrote:
army13A wrote:
rankstocks wrote: It started out as a 1% tax on income and has ballooned to 12.6%.  It actually is 7.65% of income for W2 employees and 15.3% for self-employed.  The extra 7.65% is the beautiful "self-employment" tax that our wonderful government instituted a long time ago to "help" business owners.  Actually, you're both kind of right, and kind of wrong. Of the 7.65%, 6.2% is for Social Security and 1.45% is for Medicare.  As you mentioned Army, if you are self-employed, you have to pay the employEE and employER share, for a total of 15.3%.  However, only 12.4% is for Social Security; the remaining 2.9% is for Medicare.Another difference between those "pieces" - the Social Security piece is only applied to the first $107,000 in taxable income (that number is round, I could be off a few hundred bucks, and am too lazy to look it up).  The Medicare piece is paid on 100% of your taxable income, whether it's $10,000 or $10,000,000 (or more).  I totally messed that up; honestly, I actually knew that and talked about it to clients in depth hundreds of times but totally slipped my mind.  Good call ice. 

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