Social Security Discussion

[oldfart]

It's not like a bond at all. You are "forced" to pay into SS, unless you are one of the few lucky folks who are exempted. You don't "own" your SS, you can't sell it, you can't transfer it to your children in your estate. For many people it does not earn interest, in fact for many they loose half the money they put in. Hell for some they loose all of the money they put in. Further for each subsequent generation it has cost them double the amount of income to fund SS than the previous generation paid in by % of income. Thus it's not like a bond at all, from an investor's perspective it's more like a government mandated ponzi scheme. From a social perspective it's nothing but welfare for the masses. From a realist perspective it's just another failed experiment in socialism.

If your main objection is that it is possible for some participants to receive less benefits than they have paid in, private annuities provide an answer. With an investment annuity, you can pay an extra premium and the insurance company contractually guarantees that you will get out at least what you paid in. It's called a refund feature.

So if this is a big objection, why do insurance companies not offer Social Security refund insurance? They would get the extra premium, and would only pay off if the sum of retirement, disability, and survivor benefits paid by Social Security did not match the amount paid in. There is no legal impediment I am aware of that would prevent his type of plan, you have insurable interest, etc.

The obvious answer is that there is no market for it. But if there is a market, I propose that we form the USMB Great Insurance Company to offer the product. You and I, Kimura, Toro, and a few others could get it off the ground, and if there is a market, we should be highly successful.

Alternately we could lobby for a bill to add a refund feature to Social Security. Would you support such an effort?

 

[RKMBrown]

It's not like a bond at all. You are "forced" to pay into SS, unless you are one of the few lucky folks who are exempted. You don't "own" your SS, you can't sell it, you can't transfer it to your children in your estate. For many people it does not earn interest, in fact for many they loose half the money they put in. Hell for some they loose all of the money they put in. Further for each subsequent generation it has cost them double the amount of income to fund SS than the previous generation paid in by % of income. Thus it's not like a bond at all, from an investor's perspective it's more like a government mandated ponzi scheme. From a social perspective it's nothing but welfare for the masses. From a realist perspective it's just another failed experiment in socialism.

If your main objection is that it is possible for some participants to receive less benefits than they have paid in, private annuities provide an answer. With an investment annuity, you can pay an extra premium and the insurance company contractually guarantees that you will get out at least what you paid in. It's called a refund feature.

So if this is a big objection, why do insurance companies not offer Social Security refund insurance? They would get the extra premium, and would only pay off if the sum of retirement, disability, and survivor benefits paid by Social Security did not match the amount paid in. There is no legal impediment I am aware of that would prevent his type of plan, you have insurable interest, etc.

The obvious answer is that there is no market for it. But if there is a market, I propose that we form the USMB Great Insurance Company to offer the product. You and I, Kimura, Toro, and a few others could get it off the ground, and if there is a market, we should be highly successful.

Alternately we could lobby for a bill to add a refund feature to Social Security. Would you support such an effort?

Yes. I would support a bill to add a full refund feature to SS. The current semi-refund feature that forwards your SS to your surviving wife is one of the better features of SS.

As for group life insurance, which is essentially what your USMB GIC plan would have to be, that type of system already exists.

My preference would be 1) an option to opt out of SS if you prove you are placing sufficient funds in a 401k; and 2) a option to receive a cash payout into your 401k from the SS administration refunding you for what you have already put in.

 

[RKMBrown]

More detail:

1) Option to opt out of SS if you prove you are placing sufficient funds in a 401k- The sufficient funds minimum would be the personal and company portion of what is currently being paid, maximum would be around 25% of gross income exempted from tax if routed to a qualifying 401k. Withdrawals from 401k would be restricted by introducing some sort of legal minimum for proving you will be able to cover your own retirement expenses at the level that SS does.

2) Option to receive a cash payout into your 401k from the SS administration refunding you for what you have already put in - similar restrictions set up as above; you do not get interest on what you paid in, that is your penalty for cash payout; funding for this massive amount of money to pay the unfunded liabilities would come from a one time "adjustment" of the governments books. Essentially, instead of saying we are 17trillion in debt, we would admit we are really 57trillion in debt (this assuming everyone opts for the cash buyout).

Early withdrawals up to the legal minimum still allowed with the existing penalties. Borrowing against 401ks also restricted to the excess over the legal minimum.

Translation... convert from a system where you are "forced" to buy into a federally managed retirement plan... to a system where you are forced to pick from the federally managed retirement plan or a self managed retirement plan with federally mandated minimums.

 

[Kimura]

Thanks! We were going nowhere fast, but maybe now is a good time to try to make sense of it again.

The truth is that there is no real way a financial program can transfer real consumption from one generation to another. There is no way that people today can "save" for their retirement. We cannot stockpile food, clothing, medical care, and so forth for the future, we can only invest in the capital, physical and human, to provide those things in future decades. And that is not savings, it is investment.

There is no necessary reason to believe that any financial program, public or private, will lead to the kind of investment today's generation will need in the future. No one has ever explained how putting money into IRAs promotes medical research, builds housing for the elderly, or transit for those who no longer can drive. Theoretically markets with perfect information, perfect competition, perfect foresight, and immortal players could do it, but that's a lot to ask.

So what happens if we do not properly invest? Inflation. People pull money out of their retirement savings, demand increases, and with no increased supply through investment, the additional demand is manifested as price increases instead of production increases.

The purpose of public saving through payroll taxes and private savings through retirement plans is to reduce current demand to make room for public and private real investment to provide those services in the future. There is no necessary reason why the savings will be invested wisely, but there is at least a chance for a society to choose wisely.

For future questions on the role of taxes and saving to reduce current demand and free up resources for investment, I will defer to Kimura, who has a better grasp of this than I.

I always find your posts insightful. I inevitably end up reading some of your more in-depth posts twice.

My biggest problem with FICA is it's just regressive, which inevitably causes me to go off on these diatribes about funding SS out of the general revenue.

However, in its current incarnation, I view SS taxes as the functional equivalent of purchasing a government bond. We give the federal government our $$$$ now and it returns it to us at some later date. The difference between the two being the returns seniors will receive.

It's not like a bond at all. You are "forced" to pay into SS, unless you are one of the few lucky folks who are exempted. You don't "own" your SS, you can't sell it, you can't transfer it to your children in your estate. For many people it does not earn interest, in fact for many they loose half the money they put in. Hell for some they loose all of the money they put in. Further for each subsequent generation it has cost them double the amount of income to fund SS than the previous generation paid in by % of income. Thus it's not like a bond at all, from an investor's perspective it's more like a government mandated ponzi scheme. From a social perspective it's nothing but welfare for the masses. From a realist perspective it's just another failed experiment in socialism.

I'm saying SS is the functional equivalent of purchasing government bonds or putting $$$$ into a savings account. You give the federal government $$$$$ now, the government gives you back $$$$$ with some accrued interest. With the exception of interest rates, they are functionally the same.

Contrary to the nutty propaganda, SS isn't a ponzi scheme. It would be a Ponzi scheme if the government was dependent on borrowing to facilitate payments. Clearly, the government doesn't borrow the fiat it issues.

When Congress spends $$$$$, it basically gives instructions to the Federal Reserve to credit a member bank account. The is entirely independent from the mechanism involved in tax and borrow, so it's not dependent on payroll tax revenue in any capacity.
All SS payments are done by the FED marking up and entering data on computer, which is why all spending is inherently printing $$$$ under the current monetary arrangement. When we pay taxes, it's basically unprinting $$$$.

FDR created the payroll contributions so contributors felt like then had political and moral rights to collect SS payments. They weren't included for economic reasons.

FICA is regressive and should be suspended. This will give the average household an $600 per month, which will help with demand on the macro level. It's not a magic pill, but it's a start.

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

We fund it out of the general revenue and give more $$$$ and spending power to average Americans, the elderly, and disabled.

Win win for everyone....

 

[RKMBrown]

I always find your posts insightful. I inevitably end up reading some of your more in-depth posts twice.

My biggest problem with FICA is it's just regressive, which inevitably causes me to go off on these diatribes about funding SS out of the general revenue.

However, in its current incarnation, I view SS taxes as the functional equivalent of purchasing a government bond. We give the federal government our $$$$ now and it returns it to us at some later date. The difference between the two being the returns seniors will receive.

It's not like a bond at all. You are "forced" to pay into SS, unless you are one of the few lucky folks who are exempted. You don't "own" your SS, you can't sell it, you can't transfer it to your children in your estate. For many people it does not earn interest, in fact for many they loose half the money they put in. Hell for some they loose all of the money they put in. Further for each subsequent generation it has cost them double the amount of income to fund SS than the previous generation paid in by % of income. Thus it's not like a bond at all, from an investor's perspective it's more like a government mandated ponzi scheme. From a social perspective it's nothing but welfare for the masses. From a realist perspective it's just another failed experiment in socialism.

I'm saying SS is the functional equivalent of purchasing government bonds or putting $$$$ into a savings account. You give the federal government $$$$$ now, the government gives you back $$$$$ with some accrued interest. With the exception of interest rates, they are functionally the same.

Contrary to the nutty propaganda, SS isn't a ponzi scheme. It would be a Ponzi scheme if the government was dependent on borrowing to facilitate payments. Clearly, the government doesn't borrow the fiat it issues.

When Congress spends $$$$$, it basically gives instructions to the Federal Reserve to credit a member bank account. The is entirely independent from the mechanism involved in tax and borrow, so it's not dependent on payroll tax revenue in any capacity.
All SS payments are done by the FED marking up and entering data on computer, which is why all spending is inherently printing $$$$ under the current monetary arrangement. When we pay taxes, it's basically unprinting $$$$.

FDR created the payroll contributions so contributors felt like then had political and moral rights to collect SS payments. They weren't included for economic reasons.

FICA is regressive and should be suspended. This will give the average household an $600 per month, which will help with demand on the macro level. It's not a magic pill, but it's a start.

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

We fund it out of the general revenue and give more $$$$ and spending power to average Americans, the elderly, and disabled.

Win win for everyone....

WOW just WOW

IOW you think some people should never have to work for a living, and should live their entire lives off the backs of others. just wow

 

[Toddsterpatriot]

I always find your posts insightful. I inevitably end up reading some of your more in-depth posts twice.

My biggest problem with FICA is it's just regressive, which inevitably causes me to go off on these diatribes about funding SS out of the general revenue.

However, in its current incarnation, I view SS taxes as the functional equivalent of purchasing a government bond. We give the federal government our $$$$ now and it returns it to us at some later date. The difference between the two being the returns seniors will receive.

It's not like a bond at all. You are "forced" to pay into SS, unless you are one of the few lucky folks who are exempted. You don't "own" your SS, you can't sell it, you can't transfer it to your children in your estate. For many people it does not earn interest, in fact for many they loose half the money they put in. Hell for some they loose all of the money they put in. Further for each subsequent generation it has cost them double the amount of income to fund SS than the previous generation paid in by % of income. Thus it's not like a bond at all, from an investor's perspective it's more like a government mandated ponzi scheme. From a social perspective it's nothing but welfare for the masses. From a realist perspective it's just another failed experiment in socialism.

I'm saying SS is the functional equivalent of purchasing government bonds or putting $$$$ into a savings account. You give the federal government $$$$$ now, the government gives you back $$$$$ with some accrued interest. With the exception of interest rates, they are functionally the same.

Contrary to the nutty propaganda, SS isn't a ponzi scheme. It would be a Ponzi scheme if the government was dependent on borrowing to facilitate payments. Clearly, the government doesn't borrow the fiat it issues.

When Congress spends $$$$$, it basically gives instructions to the Federal Reserve to credit a member bank account. The is entirely independent from the mechanism involved in tax and borrow, so it's not dependent on payroll tax revenue in any capacity.
All SS payments are done by the FED marking up and entering data on computer, which is why all spending is inherently printing $$$$ under the current monetary arrangement. When we pay taxes, it's basically unprinting $$$$.

FDR created the payroll contributions so contributors felt like then had political and moral rights to collect SS payments. They weren't included for economic reasons.

FICA is regressive and should be suspended. This will give the average household an $600 per month, which will help with demand on the macro level. It's not a magic pill, but it's a start.

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

We fund it out of the general revenue and give more $$$$ and spending power to average Americans, the elderly, and disabled.

Win win for everyone....

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

Here's how we fix it, for real.
Put all contributions into a private account. Use target date funds with very low fees.
Recipients will get larger benefits when they retire, heirs can inherit the private account and government doesn't get their hands on the money.
Win-Win-Win.

 

[Kimura]

It's not like a bond at all. You are "forced" to pay into SS, unless you are one of the few lucky folks who are exempted. You don't "own" your SS, you can't sell it, you can't transfer it to your children in your estate. For many people it does not earn interest, in fact for many they loose half the money they put in. Hell for some they loose all of the money they put in. Further for each subsequent generation it has cost them double the amount of income to fund SS than the previous generation paid in by % of income. Thus it's not like a bond at all, from an investor's perspective it's more like a government mandated ponzi scheme. From a social perspective it's nothing but welfare for the masses. From a realist perspective it's just another failed experiment in socialism.

I'm saying SS is the functional equivalent of purchasing government bonds or putting $$$$ into a savings account. You give the federal government $$$$$ now, the government gives you back $$$$$ with some accrued interest. With the exception of interest rates, they are functionally the same.

Contrary to the nutty propaganda, SS isn't a ponzi scheme. It would be a Ponzi scheme if the government was dependent on borrowing to facilitate payments. Clearly, the government doesn't borrow the fiat it issues.

When Congress spends $$$$$, it basically gives instructions to the Federal Reserve to credit a member bank account. The is entirely independent from the mechanism involved in tax and borrow, so it's not dependent on payroll tax revenue in any capacity.
All SS payments are done by the FED marking up and entering data on computer, which is why all spending is inherently printing $$$$ under the current monetary arrangement. When we pay taxes, it's basically unprinting $$$$.

FDR created the payroll contributions so contributors felt like then had political and moral rights to collect SS payments. They weren't included for economic reasons.

FICA is regressive and should be suspended. This will give the average household an $600 per month, which will help with demand on the macro level. It's not a magic pill, but it's a start.

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

We fund it out of the general revenue and give more $$$$ and spending power to average Americans, the elderly, and disabled.

Win win for everyone....

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

Here's how we fix it, for real.
Put all contributions into a private account. Use target date funds with very low fees.
Recipients will get larger benefits when they retire, heirs can inherit the private account and government doesn't get their hands on the money.
Win-Win-Win.

This is a privatization proposal. Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market? I think TDFs and Vanguard comes to mind.

 

[Kimura]

It's not like a bond at all. You are "forced" to pay into SS, unless you are one of the few lucky folks who are exempted. You don't "own" your SS, you can't sell it, you can't transfer it to your children in your estate. For many people it does not earn interest, in fact for many they loose half the money they put in. Hell for some they loose all of the money they put in. Further for each subsequent generation it has cost them double the amount of income to fund SS than the previous generation paid in by % of income. Thus it's not like a bond at all, from an investor's perspective it's more like a government mandated ponzi scheme. From a social perspective it's nothing but welfare for the masses. From a realist perspective it's just another failed experiment in socialism.

I'm saying SS is the functional equivalent of purchasing government bonds or putting $$$$ into a savings account. You give the federal government $$$$$ now, the government gives you back $$$$$ with some accrued interest. With the exception of interest rates, they are functionally the same.

Contrary to the nutty propaganda, SS isn't a ponzi scheme. It would be a Ponzi scheme if the government was dependent on borrowing to facilitate payments. Clearly, the government doesn't borrow the fiat it issues.

When Congress spends $$$$$, it basically gives instructions to the Federal Reserve to credit a member bank account. The is entirely independent from the mechanism involved in tax and borrow, so it's not dependent on payroll tax revenue in any capacity.
All SS payments are done by the FED marking up and entering data on computer, which is why all spending is inherently printing $$$$ under the current monetary arrangement. When we pay taxes, it's basically unprinting $$$$.

FDR created the payroll contributions so contributors felt like then had political and moral rights to collect SS payments. They weren't included for economic reasons.

FICA is regressive and should be suspended. This will give the average household an $600 per month, which will help with demand on the macro level. It's not a magic pill, but it's a start.

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

We fund it out of the general revenue and give more $$$$ and spending power to average Americans, the elderly, and disabled.

Win win for everyone....

WOW just WOW

IOW you think some people should never have to work for a living, and should live their entire lives off the backs of others. just wow

Where did I say that? I want to eliminate FICA and fund SS through the general revenue. The money supply doesn't operate like a recycling plant. This is where your confusion comes from. The government doesn't need to receive back tax revenues to fund a thing. It doesn't need get back that which it freely issues.

 

[Kimura]

Repeat after me: the funds used to purchase government securities and pay taxes comes from the very act of government spending itself.

 

[oldfart]

It's not like a bond at all. You are "forced" to pay into SS, unless you are one of the few lucky folks who are exempted. You don't "own" your SS, you can't sell it, you can't transfer it to your children in your estate. For many people it does not earn interest, in fact for many they loose half the money they put in. Hell for some they loose all of the money they put in. Further for each subsequent generation it has cost them double the amount of income to fund SS than the previous generation paid in by % of income. Thus it's not like a bond at all, from an investor's perspective it's more like a government mandated ponzi scheme. From a social perspective it's nothing but welfare for the masses. From a realist perspective it's just another failed experiment in socialism.

If your main objection is that it is possible for some participants to receive less benefits than they have paid in, private annuities provide an answer. With an investment annuity, you can pay an extra premium and the insurance company contractually guarantees that you will get out at least what you paid in. It's called a refund feature.

So if this is a big objection, why do insurance companies not offer Social Security refund insurance? They would get the extra premium, and would only pay off if the sum of retirement, disability, and survivor benefits paid by Social Security did not match the amount paid in. There is no legal impediment I am aware of that would prevent his type of plan, you have insurable interest, etc.

The obvious answer is that there is no market for it. But if there is a market, I propose that we form the USMB Great Insurance Company to offer the product. You and I, Kimura, Toro, and a few others could get it off the ground, and if there is a market, we should be highly successful.

Alternately we could lobby for a bill to add a refund feature to Social Security. Would you support such an effort?

Yes. I would support a bill to add a full refund feature to SS. The current semi-refund feature that forwards your SS to your surviving wife is one of the better features of SS.

As for group life insurance, which is essentially what your USMB GIC plan would have to be, that type of system already exists.

My preference would be 1) an option to opt out of SS if you prove you are placing sufficient funds in a 401k; and 2) a option to receive a cash payout into your 401k from the SS administration refunding you for what you have already put in.

While my proposal was firmly tongue-in-cheek, I must confess that I attended undergraduate school on a $500 scholarship and $202 a month of Social Security survivor benefits. It made me the dorm resident with the most disposable income. That provision was eliminated in 1986, now survivor benefits end at age 18.

Most people discount the life insurance and disability insurance features of Social Security. Most DI policies are sold with a "co-ordination of benefits" clause with Social Security so the premium difference between a standard policy and one without a COB clause is a good measure of the cost of this benefit feature. Somewhere around 1.2--1.5% of payroll ( I'm winging it from memory here, but the numbers are easy to check since the Old Age & Survivors Fund is separate from the Disability Fund) is allocated to non-retirement benefits.

I think we may be on to something here. Suppose that private insurance companies sold "Social Security Supplement" plans just like they sell Medicare Supplement plans (I personally have an "F" plan). It could provide an expanded definition of disability, supplemental disability and survivor benefits, and a refund feature. My guess (I've been trained as a statistician, not an actuary) is the premium would run in the neighborhood of $150 a month or less and might be packaged with a LTC insurance program.

My problem with your two proposals is that as a society I don't think we are going to abandon people who invest unwisely. I would support them if a minimum level of benefit was assured by private fixed annuities which paid PBGC a reinsurance premium. Anything over that would be essentially a combination annuity with a fixed and variable side.

Studies into this kind of thing have shown that only about 15% of workers would use this as a replacement for Social Security. I haven't seen anything on how the public would react to a refund feature. I would trust the public to generally make reasonable choices as long as the incentives were not perverse, encouraging people into risky investments knowing that some minimum level of government benefits would remain available.

Overall, I would vote to give this kind of plan including your two features a try. I know that progressives would have objections, especially that allowing some people to privatize Social Security accounts would adversely impact the redistributional effect of the inflection points built into the PIA formula. I would defend the plan against these objections on the grounds that they are second order effects and can be dealt with.

Personally I favor making the unemployment scheme part of Social Security as well; making it more uniform among states, funding half from employers and half from employees as opposed to the current all-employer system, and making sure that self-employeds are covered as well.

After that I think we would be ready to resolve the deficit, world peace, and global warming!

 

[Toddsterpatriot]

I'm saying SS is the functional equivalent of purchasing government bonds or putting $$$$ into a savings account. You give the federal government $$$$$ now, the government gives you back $$$$$ with some accrued interest. With the exception of interest rates, they are functionally the same.

Contrary to the nutty propaganda, SS isn't a ponzi scheme. It would be a Ponzi scheme if the government was dependent on borrowing to facilitate payments. Clearly, the government doesn't borrow the fiat it issues.

When Congress spends $$$$$, it basically gives instructions to the Federal Reserve to credit a member bank account. The is entirely independent from the mechanism involved in tax and borrow, so it's not dependent on payroll tax revenue in any capacity.
All SS payments are done by the FED marking up and entering data on computer, which is why all spending is inherently printing $$$$ under the current monetary arrangement. When we pay taxes, it's basically unprinting $$$$.

FDR created the payroll contributions so contributors felt like then had political and moral rights to collect SS payments. They weren't included for economic reasons.

FICA is regressive and should be suspended. This will give the average household an $600 per month, which will help with demand on the macro level. It's not a magic pill, but it's a start.

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

We fund it out of the general revenue and give more $$$$ and spending power to average Americans, the elderly, and disabled.

Win win for everyone....

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

Here's how we fix it, for real.
Put all contributions into a private account. Use target date funds with very low fees.
Recipients will get larger benefits when they retire, heirs can inherit the private account and government doesn't get their hands on the money.
Win-Win-Win.

This is a privatization proposal. Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market? I think TDFs and Vanguard comes to mind.

Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market?

No new entrants into Soc Security.
All new "contributions" into private accounts.
Current benefits payments continue.
Upcoming retirees payments reduced based on payments into private accounts.

 

[Kimura]

s

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

Here's how we fix it, for real.
Put all contributions into a private account. Use target date funds with very low fees.
Recipients will get larger benefits when they retire, heirs can inherit the private account and government doesn't get their hands on the money.
Win-Win-Win.

This is a privatization proposal. Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market? I think TDFs and Vanguard comes to mind.

Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stohe US Treasury would have to issue and sell additional securities to cover the reduced revenues."ck market?

No new entrants into Soc Security.
All new "contributions" into private accounts.
Current benefits payments continue.
Upcoming retirees payments reduced based on payments into private accounts.

Right. We'd be decreasing SS payments over time.

The US Treasury would still have to issue and sell securities to cover the decreased revenues under the current monetary arrangement.

The employees purchasing TDFs and/or stocks would purchase them elsewhere, as opposed to the federal government, so all that occurs is that the stocks/investments simply change hands. There is no new $$$$ entering the economy.

The individuals who sold these investments to retirees would have the $$$$ from these sales which is the same $$$$ that purchases government bonds.

In a nutshell, at the end of the day, your privatization proposal prevents people from buying into SS, which again, is the functional equivalent of purchasing a government bond. They purchased TDFs, stocks, or whatever. And others sold their stocks and purchased new issue Treasuries. If we analyze this from a purely macroeconomic perspective, all that's occurred is some stock and bonds have changed hands so to speak. Total net outstanding bonds and stocks, and if we consider SS a bond, are still roughly the same. This has no beneficial effects for total net savings except for generating commissions and transactional costs.

I like my plan better, so would 99.99% of Americans.

 

[Toddsterpatriot]

s

This is a privatization proposal. Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market? I think TDFs and Vanguard comes to mind.

Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stohe US Treasury would have to issue and sell additional securities to cover the reduced revenues."ck market?

No new entrants into Soc Security.
All new "contributions" into private accounts.
Current benefits payments continue.
Upcoming retirees payments reduced based on payments into private accounts.

Right. We'd be decreasing SS payments over time.

The US Treasury would still have to issue and sell securities to cover the decreased revenues under the current monetary arrangement.

The employees purchasing TDFs and/or stocks would purchase them elsewhere, as opposed to the federal government, so all that occurs is that the stocks/investments simply change hands. There is no new $$$$ entering the economy.

The individuals who sold these investments to retirees would have the $$$$ from these sales which is the same $$$$ that purchases government bonds.

In a nutshell, at the end of the day, your privatization proposal prevents people from buying into SS, which again, is the functional equivalent of purchasing a government bond. They purchased TDFs, stocks, or whatever. And others sold their stocks and purchased new issue Treasuries. If we analyze this from a purely macroeconomic perspective, all that's occurred is some stock and bonds have changed hands so to speak. Total net outstanding bonds and stocks, and if we consider SS a bond, are still roughly the same. This has no beneficial effects for total net savings except for generating commissions and transactional costs.

I like my plan better, so would 99.99% of Americans.

The employees purchasing TDFs and/or stocks would purchase them elsewhere, as opposed to the federal government, so all that occurs is that the stocks/investments simply change hands. There is no new $$$$ entering the economy.

More money buying stocks, less money buying US Treasuries.
More money in the control of the people, less money in control of the government.
More people with higher returns, returns not dependent on government promises.

I like my plan better,

My plan doesn't lead to more government control of the economy.
I like my plan better.

so would 99.99% of Americans.

Just the ones who are bad at math. Not 99.99% of Americans. Maybe 99.99% of liberals?

 

[oldfart]

Here's how we fix SS:

1) Increase the minimum SS payments to $2000 per month
2) Suspend FICA taxes

Here's how we fix it, for real.
Put all contributions into a private account. Use target date funds with very low fees.
Recipients will get larger benefits when they retire, heirs can inherit the private account and government doesn't get their hands on the money.
Win-Win-Win.

This is a privatization proposal. Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market? I think TDFs and Vanguard comes to mind.

Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market?

No new entrants into Soc Security.
All new "contributions" into private accounts.
Current benefits payments continue.
Upcoming retirees payments reduced based on payments into private accounts.

Bad idea. Wall Street would love it. Everyone saving for retirement would have to pay investment fees, probably at least 2% OFF THE TOP EVERY YEAR. It's also a bad idea to force all new money to go to Wall Street. The 85% who would choose to stay with Social Security should not be forced to switch.

 

[Toddsterpatriot]

This is a privatization proposal. Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market? I think TDFs and Vanguard comes to mind.

Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market?

No new entrants into Soc Security.
All new "contributions" into private accounts.
Current benefits payments continue.
Upcoming retirees payments reduced based on payments into private accounts.

Bad idea. Wall Street would love it. Everyone saving for retirement would have to pay investment fees, probably at least 2% OFF THE TOP EVERY YEAR. It's also a bad idea to force all new money to go to Wall Street. The 85% who would choose to stay with Social Security should not be forced to switch.

Everyone saving for retirement would have to pay investment fees, probably at least 2% OFF THE TOP EVERY YEAR.

Nope. You could do it for much, much less, and have much higher returns.

The 85% who would choose to stay with Social Security should not be forced to switch.

Poor returns and it's still underfunded. Why should we keep this lose-lose system going?

 

[Toro]

This is a privatization proposal. Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market? I think TDFs and Vanguard comes to mind.

Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stock market?

No new entrants into Soc Security.
All new "contributions" into private accounts.
Current benefits payments continue.
Upcoming retirees payments reduced based on payments into private accounts.

Bad idea. Wall Street would love it. Everyone saving for retirement would have to pay investment fees, probably at least 2% OFF THE TOP EVERY YEAR. It's also a bad idea to force all new money to go to Wall Street. The 85% who would choose to stay with Social Security should not be forced to switch.

Passive options in defined contribution plans go for less than 10 basis points. Active options typically range from 50 to 85 basis points. At least from what I've seen. Typically, the more the assets, the lower the fees. Large active products go for 20-30 bps. I am in a DC plan. I am in the passive Russell 3000 product and I pay 2 basis points.

I would give people the option. They could stay in SS or do it on their own. The default option would be to stay in SS, because the truth is, people generally don't know what they're doing. But if they want the option, they should have it. And SS would be run like a real pension plan that invested across many different asset classes, like the Canada Pension Plan, Canada's equivalent to SS.

 

[RKMBrown]

If your main objection is that it is possible for some participants to receive less benefits than they have paid in, private annuities provide an answer. With an investment annuity, you can pay an extra premium and the insurance company contractually guarantees that you will get out at least what you paid in. It's called a refund feature.

So if this is a big objection, why do insurance companies not offer Social Security refund insurance? They would get the extra premium, and would only pay off if the sum of retirement, disability, and survivor benefits paid by Social Security did not match the amount paid in. There is no legal impediment I am aware of that would prevent his type of plan, you have insurable interest, etc.

The obvious answer is that there is no market for it. But if there is a market, I propose that we form the USMB Great Insurance Company to offer the product. You and I, Kimura, Toro, and a few others could get it off the ground, and if there is a market, we should be highly successful.

Alternately we could lobby for a bill to add a refund feature to Social Security. Would you support such an effort?

Yes. I would support a bill to add a full refund feature to SS. The current semi-refund feature that forwards your SS to your surviving wife is one of the better features of SS.

As for group life insurance, which is essentially what your USMB GIC plan would have to be, that type of system already exists.

My preference would be 1) an option to opt out of SS if you prove you are placing sufficient funds in a 401k; and 2) a option to receive a cash payout into your 401k from the SS administration refunding you for what you have already put in.

While my proposal was firmly tongue-in-cheek, I must confess that I attended undergraduate school on a $500 scholarship and $202 a month of Social Security survivor benefits. It made me the dorm resident with the most disposable income. That provision was eliminated in 1986, now survivor benefits end at age 18.

Most people discount the life insurance and disability insurance features of Social Security. Most DI policies are sold with a "co-ordination of benefits" clause with Social Security so the premium difference between a standard policy and one without a COB clause is a good measure of the cost of this benefit feature. Somewhere around 1.2--1.5% of payroll ( I'm winging it from memory here, but the numbers are easy to check since the Old Age & Survivors Fund is separate from the Disability Fund) is allocated to non-retirement benefits.

I think we may be on to something here. Suppose that private insurance companies sold "Social Security Supplement" plans just like they sell Medicare Supplement plans (I personally have an "F" plan). It could provide an expanded definition of disability, supplemental disability and survivor benefits, and a refund feature. My guess (I've been trained as a statistician, not an actuary) is the premium would run in the neighborhood of $150 a month or less and might be packaged with a LTC insurance program.

My problem with your two proposals is that as a society I don't think we are going to abandon people who invest unwisely. I would support them if a minimum level of benefit was assured by private fixed annuities which paid PBGC a reinsurance premium. Anything over that would be essentially a combination annuity with a fixed and variable side.

Studies into this kind of thing have shown that only about 15% of workers would use this as a replacement for Social Security. I haven't seen anything on how the public would react to a refund feature. I would trust the public to generally make reasonable choices as long as the incentives were not perverse, encouraging people into risky investments knowing that some minimum level of government benefits would remain available.

Overall, I would vote to give this kind of plan including your two features a try. I know that progressives would have objections, especially that allowing some people to privatize Social Security accounts would adversely impact the redistributional effect of the inflection points built into the PIA formula. I would defend the plan against these objections on the grounds that they are second order effects and can be dealt with.

Personally I favor making the unemployment scheme part of Social Security as well; making it more uniform among states, funding half from employers and half from employees as opposed to the current all-employer system, and making sure that self-employeds are covered as well.

After that I think we would be ready to resolve the deficit, world peace, and global warming!

Most of your tenants are... reasonable. As for resolving the deficit, fix the voting system or the deficit will never be resolved. As for world peace, you can't force people to be peaceful. As for global warming, get with the program warming fixed itself we are now pushing the issue as catastrophic climate change... and what is the issue? Funding for scientists and wealth re-distribution, the problem being some folks want more of your money.

 

[oldfart]

Bad idea. Wall Street would love it. Everyone saving for retirement would have to pay investment fees, probably at least 2% OFF THE TOP EVERY YEAR. It's also a bad idea to force all new money to go to Wall Street. The 85% who would choose to stay with Social Security should not be forced to switch.

Passive options in defined contribution plans go for less than 10 basis points. Active options typically range from 50 to 85 basis points. At least from what I've seen. Typically, the more the assets, the lower the fees. Large active products go for 20-30 bps. I am in a DC plan. I am in the passive Russell 3000 product and I pay 2 basis points.

I have a little experience on the retail end of the investment business. You are correct that fees are lower on larger amounts under management. Most folks don't have the savvy you do. They go to an investment advisory rep to get a managed portfolio and pay a fee that averages about 2% of the value of the portfolio per year. Or they go to mutual funds where the 12(b)-1 fees are 1% or more, not counting front loads or the expenses RIC get to deduct before computing net investment income.

FYI when I retired in 2006, I got all my clients except one substantially out of equities. I was pushing TIPS, even though there is no commission on it. I could see the bust coming, I just didn't see how big until fall of 2008 and I was incredibly lucky on the timing.

I would give people the option. They could stay in SS or do it on their own. The default option would be to stay in SS, because the truth is, people generally don't know what they're doing. But if they want the option, they should have it. And SS would be run like a real pension plan that invested across many different asset classes, like the Canada Pension Plan, Canada's equivalent to SS.

The surveys done indicate that about 85% of workers would stay with Social Security as opposed to private accounts. I would rather see a hybrid where a core Social Security program would remain like it is now and a carved out supplemental amount (which would still be mandatory) could be credited toward either traditional SSA or privatized accounts.

 

[Kimura]

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Question: would the federal government decrease SS payments, and give employees the option to put the $$$$ into stohe US Treasury would have to issue and sell additional securities to cover the reduced revenues."ck market?

No new entrants into Soc Security.
All new "contributions" into private accounts.
Current benefits payments continue.
Upcoming retirees payments reduced based on payments into private accounts.

Right. We'd be decreasing SS payments over time.

The US Treasury would still have to issue and sell securities to cover the decreased revenues under the current monetary arrangement.

The employees purchasing TDFs and/or stocks would purchase them elsewhere, as opposed to the federal government, so all that occurs is that the stocks/investments simply change hands. There is no new $$$$ entering the economy.

The individuals who sold these investments to retirees would have the $$$$ from these sales which is the same $$$$ that purchases government bonds.

In a nutshell, at the end of the day, your privatization proposal prevents people from buying into SS, which again, is the functional equivalent of purchasing a government bond. They purchased TDFs, stocks, or whatever. And others sold their stocks and purchased new issue Treasuries. If we analyze this from a purely macroeconomic perspective, all that's occurred is some stock and bonds have changed hands so to speak. Total net outstanding bonds and stocks, and if we consider SS a bond, are still roughly the same. This has no beneficial effects for total net savings except for generating commissions and transactional costs.

I like my plan better, so would 99.99% of Americans.

The employees purchasing TDFs and/or stocks would purchase them elsewhere, as opposed to the federal government, so all that occurs is that the stocks/investments simply change hands. There is no new $$$$ entering the economy.

More money buying stocks, less money buying US Treasuries.
More money in the control of the people, less money in control of the government.
More people with higher returns, returns not dependent on government promises.

I like my plan better,

My plan doesn't lead to more government control of the economy.
I like my plan better.

so would 99.99% of Americans.

Just the ones who are bad at math. Not 99.99% of Americans. Maybe 99.99% of liberals?

Privatization in no way, shape, or form alters the compositional amount of total shares of stock, which people would hold for investment. Again, if we look at this through a macroeconomic lense, it's not a case of the American public being able to invest better than government.

You seem driven more by an ideological bias than anything else. You seem intent on promoting this nonsense and it's not even economically efficient.

Over the long-term, bonds and stocks do indeed measure the growth of the economy. The problem with private ownership of these instruments is that they don't grow in a linear fashion.

If one group of people retire, they may do very good compared to the normal rate of return, but another group may not be so lucky. Either way, the government sector will have to spend $$$$ on social welfare at the federal, state, and local levels. If it got really bad, the government would have literally prevent widespread poverty through extraordinary measures.

Privatization of SS is horrible idea. The people pushing it remind of the geniuses who swore up and down housing prices would increase indefinitely. That worked out really well.

As Oldfart and myself have repeated pointed out, the only thing left in this scenario are transactional costs, which are a subsidy for the financial factor.

My plan takes economic efficiency into account. We eliminate FICA and make SS payments $2,000 per month (starting minimum, funded right out of the general revenue) with COLA increases. This will give people more spending power, which translates into demand for more real goods and services. This increases aggregate demand, thus putting more $$$$ into the economy.

Lastly, as opposed to some of the self-proclaimed economic geniuses on this message board, I can assure I understand math better than all of them combined. Whether it's basic doubly-entry bookkeeping, national accounting identities, or stochastic differential equations, I'm fully capable of explaining things in a coherent and logical fashion for the layperson.

 

[Kimura]

Yes. I would support a bill to add a full refund feature to SS. The current semi-refund feature that forwards your SS to your surviving wife is one of the better features of SS.

As for group life insurance, which is essentially what your USMB GIC plan would have to be, that type of system already exists.

My preference would be 1) an option to opt out of SS if you prove you are placing sufficient funds in a 401k; and 2) a option to receive a cash payout into your 401k from the SS administration refunding you for what you have already put in.

While my proposal was firmly tongue-in-cheek, I must confess that I attended undergraduate school on a $500 scholarship and $202 a month of Social Security survivor benefits. It made me the dorm resident with the most disposable income. That provision was eliminated in 1986, now survivor benefits end at age 18.

Most people discount the life insurance and disability insurance features of Social Security. Most DI policies are sold with a "co-ordination of benefits" clause with Social Security so the premium difference between a standard policy and one without a COB clause is a good measure of the cost of this benefit feature. Somewhere around 1.2--1.5% of payroll ( I'm winging it from memory here, but the numbers are easy to check since the Old Age & Survivors Fund is separate from the Disability Fund) is allocated to non-retirement benefits.

I think we may be on to something here. Suppose that private insurance companies sold "Social Security Supplement" plans just like they sell Medicare Supplement plans (I personally have an "F" plan). It could provide an expanded definition of disability, supplemental disability and survivor benefits, and a refund feature. My guess (I've been trained as a statistician, not an actuary) is the premium would run in the neighborhood of $150 a month or less and might be packaged with a LTC insurance program.

My problem with your two proposals is that as a society I don't think we are going to abandon people who invest unwisely. I would support them if a minimum level of benefit was assured by private fixed annuities which paid PBGC a reinsurance premium. Anything over that would be essentially a combination annuity with a fixed and variable side.

Studies into this kind of thing have shown that only about 15% of workers would use this as a replacement for Social Security. I haven't seen anything on how the public would react to a refund feature. I would trust the public to generally make reasonable choices as long as the incentives were not perverse, encouraging people into risky investments knowing that some minimum level of government benefits would remain available.

Overall, I would vote to give this kind of plan including your two features a try. I know that progressives would have objections, especially that allowing some people to privatize Social Security accounts would adversely impact the redistributional effect of the inflection points built into the PIA formula. I would defend the plan against these objections on the grounds that they are second order effects and can be dealt with.

Personally I favor making the unemployment scheme part of Social Security as well; making it more uniform among states, funding half from employers and half from employees as opposed to the current all-employer system, and making sure that self-employeds are covered as well.

After that I think we would be ready to resolve the deficit, world peace, and global warming!

Most of your tenants are... reasonable. As for resolving the deficit, fix the voting system or the deficit will never be resolved. As for world peace, you can't force people to be peaceful. As for global warming, get with the program warming fixed itself we are now pushing the issue as catastrophic climate change... and what is the issue? Funding for scientists and wealth re-distribution, the problem being some folks want more of your money.

There isn't deficit problem that needs to be fixed at this point in time. We don't need to fix the voting system. The public and political class need to be educated about basic monetary operations. Many people are simply out of paradigm about fiat vs convertible currency. It's really that simple.