Counting on Social Security? Your Next Project Better Be Your Retirement Plan
Projects can be personal especially when something like Social Security system failure is looming. This post is part of a blogging “odd couple” duet, hopefully with a lot of engaging conversation to follow, with Mary Emma Allen at www.homebiznotes.com. Her post on the same subject is from a self-employed/home business perspective, mine more from the point of view of an individual. Both are designed to deal with the question:
“At current rates, Social Security payouts will exceed payments made into the system within the next ten years. What should we do about Social Security?”
My preference would be to move the money towards personal investing to get people weaned off of a failing system. I thought I’d poll the web sites of the candidates who I believe will compete in the Presidential election to get an idea whether or not a solution is possible:
Barack Obama- “…he does not think it is necessary or fair to hardworking seniors to raise the retirement age…strongly opposed to privatizing Social Security…look for ways to strengthen [it via] the payroll tax system…increase the maximum amount of earnings covered…”
Mike Huckabee- “…completely eliminate all federal income and payroll taxes..personal, federal, gift, estate, capital gains, alternative minimum, Social Security…..instead we will have the Fair Tax, a simple tax based on wealth….”
Clearly these views are at the ends of the spectrum and are probably both unrealistic. My conclusion is that Social Security will stay about the same. More taxes are unlikely and the Fair Tax “alternative” doesn’t seem to address Social Security at all. Therefore, look for a system that has a high probability of running out- high enough so that you better not count on it.
So- what should WE do about Social Security? Sharpen your pencils and put your retirement plan together!
What do you think?
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23 opinions for Counting on Social Security? Your Next Project Better Be Your Retirement Plan
Mary Emma Allen
Jan 12, 2008 at 9:47 am
Great job, Bob. Social Security is a topic we all probably could learn more about and how it affects us now and in the future. I like the way you found quotes from the candidates regarding their current positions on Social Security. (I say “current” because those might change as they decide what’s most popular with most of the voters!)
Ren Garcia
Jan 12, 2008 at 10:28 am
To be able to respond to the issue of “what should we do about Social Security”, we should first find out why payouts will overtake payments.
I see 3 possible causes.
1 With the improvements in health care and the discoveries in medicine, people are living longer so payouts are stretching farther into the future.
2 Couples are marrying later and having less children, thus –less earners. The payments side of Social Security is contracting.
3 The investment portfolio of the Social Security is not earning enough. Has it been hit by the subprime problem?
Liz Fuller
Jan 12, 2008 at 10:29 am
Hi Bob
Interesting comparison of two candidate’s perspectives on social security. I’m not sure you picked the two final contenders, but you certainly picked two with widely disparat views on taxes.
I think we need to bite the bullet and gradually phase out social security except for extreme cases. It was never intended to be a retirement plan for the nation. It was intended to address a critical need at a time when the average lifespan was 65 or less. So it was set up to be an exception rather than a rule.
With American living longer, it is unreasonable to fund a 30 year retirement through social security. While I think anyone within 15 -20 years of retirement probably couldn’t be expected to compensate completely on their own, the overall benefits could be reduced. I also think it should not be payed out to people who already have sufficient retirement income. (income capped) I think that the younger generation should assume much reduced social security for their retirement.
If they don’t think it is there, perhaps they will change their focus on planning for retirement themselves instead of assuming they will be taken care of.
Bob
Jan 12, 2008 at 10:37 am
Mary Emma- we (meaning the b5 media business channel) should probably do a series on candidates views on this and other topics are affecting us. Then again I’m not, like you, sure of their stability. Maybe we need to take a stand on issues- i.e., “b5 media suggests you take these positions”. Is this too “hot” for us to tackle?
Bob
Jan 12, 2008 at 10:40 am
Ren- your approach seems to hit the key problems (living longer, less earners, portfolio not earning enough) which are in and of themselves reasons to discontinue it. Also, need to look at the original rationale and see if it still applies. I think NOT!
Bob
Jan 12, 2008 at 10:44 am
Liz- I think the race is really up for grabs mainly because the public is so fickle. I was picking candidates who I would prefer to be in the race because I think those two will have the most interesting, and “honest”, debate on the issues. You seem to be on the side of keeping the current system but taking certain people out of the system. What about the problems of how poorly the fund performs in terms of investment? Do you like partial privatization at all?
Liz Fuller
Jan 12, 2008 at 11:25 am
Hi Bob
I think we need a cultural mindshift in this country about social security. I think we have gotten ourselves to a point where we think the government owes us a retirement and have abdicated personal responsibility for investing and saving for our future. So fundamentally I think the focus is wrong - but what politician is going to step up to taking away benefits that people now feel entitled to? Especially as major corporations are reducing pension plans, etc. at the same time.
The lack of return on a major investment like this is ridiculous. We should be able to get a huge return on a portfolio of this size. If we are not - why not?
I think the power should be in investing it collectively - I think it is a big danger to give it over to individuals to invest. There is less opportunity and less flexibility. But how do we ensure that we are collectively getting a high rate of return on the money?
Mary Emma Allen
Jan 12, 2008 at 5:02 pm
Bob, we’ve had some really great input at both our blogs on the Social Security issue. I can see material here for future posts.
Bob
Jan 12, 2008 at 7:12 pm
Liz- lack of personal responsibility and the poor return clearly are key problems. I like the collective investment idea. I used to depend on the party platforms to “speak” for me. But this issue needs an outside group that sets up a platform to measure candidates by. Whether you like their stand on issues or not, the Howard Jarvis Taxpayer’s Association in California is excellent at influencing and holding politician’s feet to the fire. They are very clear on strategies and tactics so anyone who supports them and is guided by them knows what to expect.
Bob
Jan 12, 2008 at 7:15 pm
Mary Emma- the input is good. Hopefully more b5media bloggers will participate especially after we notified everybody yesterday. I’ve been mulling this over quite a bit and feel we, the people, really need an independent organization to put a strategy together and then ask candidates if they support it or not.
Miki
Jan 12, 2008 at 8:11 pm
Bob, you obviously don’t live in California where education tht rated near the top in the country before 1978 now ranks near the bottom nationally thanks to Jarvas-Gann and Proposition 13. But that’s a different argument.
I have only one idea to suggest—one that will never happen. Force retired Congressional and Executive office holders and their senior staff members to live on social security as opposed to the cushy, guaranteed, untouchable pension plan that they currently have. That might, maybe, wake some of them up. If nothing else, I truly agree that those above a certain level of personal wealth (not including their personal home) should be exempt from receiving social security, in spite of having paid into it. I would like nothing more than to be in the position of being excluded.
Bob
Jan 13, 2008 at 12:06 pm
Miki- I do live in California- the university system is excellent and is very difficult to get into because people all over the world want to get in. Are you saying that more money would make better education? I think it’s more of a culture and union problem in non-college education. Besides the “more money” issue is bogus- it’s an allocation issue; property taxes are ridiculous even with Prop 13. Totally agree on making Congressional and Executive retirees live on Social Security.
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Alan Lidstone
Feb 11, 2008 at 12:38 am
Social Insecurity
The Social Security program has been working out very well over the last 70 years and is currently at a point that the accumulated Social Security surplus represented by about $1.8 Trillion Dollars in US Treasury bonds is sufficient to pay Social Security benefits with no reductions in benefits or changes to the FICA tax rates required for approximately forty additional years.
In addition, The Social Security Trust Fund will continue purchasing US Treasury bonds through 2016, meaning that they have been accumulating US Treasury securities since the overhaul of Social Security and Medicare financing in 1983.
Unfortunately, many conservatives are very upset that the Social Security Trust Fund has indicated it anticipates beginning to redeem the US Treasury securities in 2017.
It is somehow un-American to redeem the securities purchased by the FICA contributions of working Americans, including the retirees that still work, when they come due. These concerns don’t apply to the US Treasury securities purchased by Mid-East oil potentates and China when they redeem US Treasury securities.
Many Americans deliberately ignore that the current (working and retired) demographic of the entitlement program of Social Security has paid in $1.844 Trillion Dollars more than has been paid out by Social Security. The excess has been BORROWED AND SPENT by the Federal Government to cover ongoing non-Social Security expenditures since 1986. The US Government has issued US Government Bonds to be held by the Social Security Trust Fund which are no different than those purchased by China and Saudi Arabia in very large amounts).
Regarding Medicare, the current (working and retired demographic) for the entitlement program of Social Security Medicare currently has accumulated $338 Million Dollars more than has been paid out for Medicare B expenses. As above the accumulated surplus of $338 Million Dollars has been BORROWED AND SPENT by the Federal Government to cover ongoing non-Medicare expenditures since 1986.
The “full faith and credit” of the US Treasury securities applies to Saudi Arabia and China, and anyone else who buys US Treasury securities, and they are perfectly free to redeem their US Treasury securities and bonds when they come due.
Unfortunately, far too many people feel that the “full faith and credit” of the U.S. Government does not apply to the US Treasury securities and bonds amounting to $1.844 Trillion Dollars held in Social Security Trust Fund and the $338 Million Dollars held in various Medicare Trust Funds.
Perhaps the politicians complaining how unfair it is for Social Security to redeem bonds don’t realize that the redemption of US Treasury securities by China, Saudi Arabia, and other Mid-East countries is accomplished by selling new bonds that total or exceed the bonds redeemed. In other words, the National Debt goes down by the amount of US Treasury bonds redeemed by Social Security, China, Saudi Arabia, etc. and up by the amount of new bonds sold to cover the redemptions.
Reminder: The US Treasury has not redeemed any of the various US Treasury bonds held by the Social Security Trust Fund since 1983 and is not expected to begin gradually redeeming any of them before 2017 (a 34-year period). In contrast, the bonds held by China, Saudi Arabia and our other overseas lenders are issued for a maximum period of 10 years. To the best of my knowledge, the US Treasury has been successfully processing redemptions of US Treasury securities since the U.S. Government floated the first U.S. Treasury bond.
I don’t understand why it is bad for the US Treasury to pay interest and return the principal on funds borrowed from American worker FICA payroll tax contributions, .i.e. the Social Security Trust Fund and Medicare Trust Fund proceeds, but it is good to pay interest and return principal to countries like Saudi Arabia and China?
Perhaps it has something to do with a combination of Fair Trade, greed, and an abysmal lack of ethics and morality on the part of the political, business, and financial leaders of our country.
I am not surprised since most of the allegedly leaders complaining about the redemption of US Treasury securities held by the Social Security Trust Fund and Medicare Trust Fund are not willing to serve in the Armed Forces to defend our Liberty and they are not willing to pay the taxes to support our defense needs (or any other needs). With that being the case, why would they be willing to pay back money they borrowed from the FICA payroll contributions of working Americans?
Miki
Feb 11, 2008 at 2:09 pm
Alan, Thank you so much for the thoughtful analysis of the situation and for pointing out such little know facts.
I sincerely hope that you will join the discussion on healthcare that I initiated today over at http://www.leadershipturn.com. I believe that you could add substantially to it.
Bob
Feb 11, 2008 at 8:16 pm
Alan- I really appreciate your comment and the time you took to write it. While I don’t pretend to understand all of it- it helped me consider a few issues. What do you think of “privatization” of social security? How do you feel about the governmnent being involved in something like social security? Is your “lack of ethics” statement referring to paying interest and returning principal to Saudi Arabia/China vs. Americans? or are you speaking of the hypocrisy of saying one is right and one is wrong? I hope you continue to visit my blog and others. I see Miki is interested in your expertise and I encourage you to comment on her blog also. Thanks.
Alan Lidstone
Feb 15, 2008 at 10:09 pm
More on Social Security
Bob, I’ll be glad to visit your blog. I’ve provided the following re your comments:
(1) What do you think of “privatization” of social security? – Privatization, as used by the Administration is a way to separate out part of the Social Security contributions currently used to loan money to the Federal Government since they are purchased by the Social Security Trust Fund and isolate them to the contributor for redemption at age 67 (or whatever) and allow them to be passed on in their estates.
This reduces the available Social Security funding and will move in the current (2017) date that the Social Security Trust Fund has to start redeeming US Treasuries and move in the current (2049?) date when all US Treasuries have been redeemed.
The Administration is stating that privatized funds will be returned to the Social Security beneficiary or their estate, but that the rest of the Social Security contributions will be at the whim of the US Government, regardless of what people were told.
It is essentially a deliberate attempt to have the Social Security begin making redemptions of US Treasury securities they hold that will then allow the politicians who dislike the concept and actuality of Social Security to scream that the baby boomers are sucking the Treasury dry and something has to be done.
Their real goal is to turn Social Security into a means-tested charity program for the non-privatized payments and a giant boondoggle for the Financial Services industry and investment banks that want to get control of the privatized retirement funds.
Note: I do not understand why either increasing the total FICA payment from 15.3% to 17.3% or decreasing benefits by 20% (or a combination of both) to keep the Social Security program financially solvent indefinitely is bad, but telling Americans that there is nothing wrong with doubling fuel prices every 3-4 years and increasing health insurance costs by 15% a year (if they will write coverage) is perfectly OK.
The opponents of the Social Security program keep saying it is a “lousy retirement program”, notwithstanding that you know what the payouts will be and that it provides disability and survivor benefits until you reach the eligible age (67 or so). They don’t seem to tell the foreign countries that purchase US Treasury securities that they are making a “lousy investment”.
It is important to remember that the Financial Servicers providers and consultants that want control of ALL retirement funds are many of the players who participated in the Savings and Loan scandals of the 1980’s, the decimation of defined benefit pension plans that started in the late 1990s, and the subprime and undocumentated mortgage scandals that started in 2004 and exploded in 2006 (taking Trillions of Dollars of value out of investments held in mutual funds, and brokerage accounts, and Trillions of Dollars of reduced home values and an esitmated 10,000,00 Americans with negative equity in their homes).
(2) How do you feel about the governmnent being involved in something like Social Security? – The government, including Congress, is authorized by Federal law to determine the amount of benefits, disbursement of benefits, and methods of funding.
Retirement systems are based on accumulating contributions over a for 30 – 50 year period of active work, followed by payouts that could run from 10 – 35 years. The total elapsed time period period for contributions and payouts can easily run from 60 – 70 years.
The question you have to ask, would you rather rely on the full faith and credit of the United States Government or to guarantee retirement programs that can span a 60 – 70 years, or Financial Services industry that has had multiple large scandals affecting the life savings, personal investments, pension plans, retirement benefits, and now home mortgages of millions of Americans.
Basically, they both bear close watching. The difference is that very few Federal officials or politicians have gone to jail for deliberate, large scale malfeasance and no individuals have lost their pensions or health care. The guarantee of Federal plans is the reliance on “Full Faith and Credit” which means the ability to tax. If a program is not financially sustainable, the government can reduce benefits, increase taxes, or an appropriate combination of both.
The guarantee of private financial investment plans and programs is sadly lacking as evidenced by the hundreds of billions of dollars of bonds rated as Triple-A by American financial institutions that border on being worthless. Triple-A must refer to how fast the promoters moved their profits and fees to the Cayman Islands while they went on to the next scam.
It is unfortunate that quite a few state, municipal, and private retirement plans have incurred losses on investments in Triple-A rated subprime mortgage, collateralized bond offerings, and other complex derivative financial instruments.
(3) Is your “lack of ethics” statement referring to paying interest and returning principal to Saudi Arabia/China vs. Americans? or are you speaking of the hypocrisy of saying one is right and one is wrong? – I am speaking of the unmitigated hypocrisy and gall to say that we have an obligation to pay back principal and interest to Saudi Arabia, China, and every other foreign that has accumulated our US Treasury securities but that it is unpatriotic and selfish to pay back principal and interest to US Treasury securities purchased by the Social Security Trust Fund and the Medicare Trust Fund.
It is important to remember that these are only two of the trust funds established by the US Government that are required to place all of their their incoming revenues in US Treasury Contributions.
When the US Congress goes through its periodic circus and complaining about road construction projects or airport construction projects, and more, along with the associated costs, they rarely mention that most of it is paid for with accumulated fees and revenues that are kept in trust funds that have the same US Treasury IOUs issued to Social Security and Medicare. Their real complaint is that the various programs asked to redeem their accumulated fees and revenues now invested in US Treasury securities to use for the authorized programs and services.
Bob
Feb 16, 2008 at 10:13 pm
Alan- fascinating stuff. I wonder if there is a way to simplify this for easier consumption. I’m more interested in the mechanics or the system. Do you have a web site (or publication) where you write about these issues?
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