Social Security

The government should give the money they print to those who need it and stop giving it to greedy pigs who don't.

http://www.iraqvictims.com/

 

No Pointbreak,
You didn't make it more complicated, I think I'm following you. I have a couple of questions still. First you said

So, will we have to pay taxes on this as investment income or earned income or something? And would we get it all at once, or would it come in checks like SS? I mean say when I retire I want to spend all of my money on a fancy boat and sail around the world, working odd jobs. Can I just take all of my money and do that?

And I still don't understand what the government is getting out of it, if anyone wants to explain that one to me. Thanks all

 

I have to actually agree with the President on this one....its a problem that needs fixing. I'd raise the age for benefits....people arent dying at 55 anymore so it makes sense to raise the age. I am just upset with my democratic party who has completely bitched about bush and his answer yet come up with no new ideas

 

Whether your investment income would be taxable would depend on how much you are making. Its the same with social security payments - if you have "too much" income in retirement, either because you have other retirement plans, or your spouse does, whatever, your social security benefits can be taxable. So the same would be true with your 401k income.

You would not get it all at once, partially so you don't by a yacht, but also because you don't know your own lifespan. How many years would you need to spread that income over? Who knows. Of course you'll always have that base $20,000 so even if your supplemental investments all get spent you're still not broke.

So what they would do is make everyone buy an annuity which is a complicated life insurance product which essentially says for $100,000 up front you can have $12,000 a year for as long as you live, i.e. in checks like SS. So you'd take all the money you'd saved up in your account and buy an annuity when you turn 65. BUT what will also probably happen is that if you have saved enough the government will let you take SOME of it as a lump sum up front to buy that boat, and then the rest goes to an annuity.

So what does the government get out of it?

1. A privatised system is fundamentally healthier than the current system because it is backed by actual investments. Many countries have already made the transition, countries a lot poorer than the US.

2. The "ownership society". This is a Republican Party ideology which says that people who own things, i.e. owning a house rather than renting, or owning investments rather than wating for a government retirement check, are more responsible and more into free markets and all that. The more people own stocks, the more sensitive they are to government policies which harm the stock market, e.g. high taxes, regulation, etc., i.e. it should lead for more support for the Republican party's economic policies.

3. Social security is the biggest part of the government budget. By shifting it to the private sector, the size of government is reduced. Remember, a lot of what social security does is not about helping the poor - it is about taxing middle class and wealthy people and then giving them the money back later, which serves no purpose. Privatisation makes social security a much smaller program, which mostly serves those who need it rather than everybody. This fits the Republican anti-big government ideology.

4. Is it cheaper? Actually no, at least not in the short term. In the short term it is more expensive, because of the transition costs. In the long term it should be cheaper, but the generation that is around during the transition will probably be somewhat worse off. That's why it takes political courage.

And more reasons for you to consider it:

1. Economic justice. If you pay into social security your whole life and get hit by a Hummer on your 65th birthday, you lose every cent. If you had a private account instead, the money could have gone into your will.

2. Do you trust the government? Your social security benefits are not guaranteed. The amount you get paid is completely at the discretion of whatever people are in congress in 2045 and whatever condition the budget happens to be in then. With private accounts, even if a lunatic deficit spender like Bush buys so many guns that there are no cash left over for anything else, your retirement money would be completely safe.

 

I've mostly been lurking with this thread. Didn't want to get into it until I had gotten a bit more understanding of the different choices. At least for this uni student there isn't a lot of time and the time you have you don't want to look up news related items.

But now I'm going to make some points that deal with my opinion.

a. Politics are not good at looking at the future, they are normally more concered about the here and now. So when SS runs out it's going to come as a shock.
b. I don't feel like the people who are old should be punished for the fact that things changed. So IMO I think that SS should stop now to go to the privatized but what is in it now is directed to this next batch who would have gotten it anyways.

I guess I'm saying that we need to change it but in a way that doesn't harm our parents or what not. I don't think it's fair for them to lose what had been promised to them because we say it's bad. Let them have what's in SS but stop putting it in SS and go to privatized. That way you actually have to work to get what you deserve.

 

That's basically the plan. Obviously current retirees cannot be switched over, and those near retirement don't have much to gain from switching over either. I'd say you'd have to be at least 10 years from retirement to benefit from switching, and from what I remember that is around where Bush proposed the cut off point. In any case switching may be completely optional.

 

Hmmm it depends on how much I'm making? So, what if I have my 401K from my employer with thier match, my Roth IRA, my future husband's 401K, and both of our SS. Do we get less, or have to pay taxes on what we have? I know a 401K is taxable, and that my Roth IRA is not (upon retirement), I was just wondering if there were going to be more taxes on top of that.

Well what difference does it make if I want to spend it all on a yacht or give it away to a charity, isn't it my money? It just seems to contradict itself unless I am just reading too much into it. I mean it sounds like they are saying handle your own business, but we are only going to give you so much of your own money to handle at a time. But what are they doing with it, while holding on to it. If I were to have all of it I could be making interest off of it even if I weren't spending it.

so you have to get the annuity? Or are there other options. I mean isn't this plan supposed to be about choice. Or just the choice between what they tell you to choose from.

Ok that part makes sense so far.

Ok this is what I was trying to get at. Now I understand what they are getting out of it. Control.

Who exactly are those who need it? Could that also be stated "those who deserve it"? How does it become a smaller program? I don't understand what you mean by that. It seems like everyone would be doing the same thing, just putting the money somewhere else, which would actually get a lot more people (businesses, special interest groups, etc) involved which could lead to corruption somewhere down the line. I dunno, I'm just turning the cogs in my head.

Nope don't trust the government for the most part. But really all of it wouldn't be safe, right? not that base $20,000 you talk about because that would be what the lunatic spent, only what is left in the private accounts would be safe right?

I don't know I still don't like this idea. Don't get me wrong some of these things do make sense, but some just don't sit well with me. Again, PB thanks so much for all of your help and your patience with me playing devil's advocate here.

 

Awesome... my parents will still be getting their retirement then. One's retiring I think in September or Janurary and the other is already 50... if she works till she's past 60 I think I would say she's insane.

 

I'm not really sure. I think there is less likelihood that private accounts will be taxable, but who knows. The fact that social security payments are taxable tells you something though - they tax you, then you retire and they give you social security, but then they tax it back again! Crazy. In any case I doubt that taxes will affect the desirability of private accounts, so hopefully its one complication we can ignore.

"They" are not holding on to it. They are not doing anything with it, any more than "they control your 401k/IRA. It is your account in your name, but with restrictions on how and when you can spend it. You have less than complete control, but it is yours and they can't take away.

This is the age old argument about personal responsibility vs. personal freedom. Yes, people should be allowed to have complete control of their money. But some will blow it in Vegas, and then what happens? They starve, and privatisation advocates get blamed? There would be no need for any social security system at all if we could trust people to act responsibly. But they don't. In the end though, a privatised system has much less government control than a pay-your-taxes-and-hope system, which is what social security is.

That's right, but its still more choice than you had before. Like I said, you may be able to take some or all of it out to buy a boat. It depends how much the government wants to cover their ass against people blowing it vs. letting people have the freedom to do with it what they wish. That's political.

Well, they would say you are the one getting more control. The more reliant you are on your own savings and the less you are reliant on government programs, the less political support you have for big government and higher taxes. Republicans would say government has less control, although the Republican party expects that would make them more popular (which is different than control). Since the fair comparison is with social security as it is now, a system where you have absolutely no control of anything and are entirely at the whim of completely arbitrary government decisions as to how much social security you get, you defnitely have much more control with private accounts.

Who needs/deserves it? That's totally political and arbitrary.

How does it make it smaller? Currently, there is a minimum level of social security. People who earned more pay more taxes now and get more social security later. By allowing people to choose to only contribute enough to get this minimum level, and diverting the rest of their taxes to private accounts, the social security system gets smaller (i.e. the old social security system which was not backed by investments). Even though you are forced to divert this money to a 401k rather than just to your pocket, even though your investment choices are restricted and so on, the point is it is your money in your account invested in stocks and bonds and it never goes through the social security system - it goes straight from your paycheck to your account (even though you don't have complete control of it). So while it may seem that it is still part of the social security system, it completely different than it was before from an economic perspective and from the perspective of social security. Social security is now responsible for a much lower level of benefits in the future since you opted out of them. That makes social security (i.e. the taxes in benefits out / backed by no investments social security system) a smaller system.

The base $20K wouldn't be safe because exactly like existing social security benefits it is totally at the whim of the 2045 congress how much benefits they feel like paying. Good luck.

The other money is definitely at risk, just like your 401k and IRA. The risk depends on how you invest it. If you invest it all in government bonds the risk is zero (interestingly, it is LOWER than the existing system since it is YOUR money in YOUR account and nobody can take it away, unlike current social security benefits which can be raised and lowered by politicians). When you think about stocks and bonds though, sure you could lose money. But losing a lot of money over a long period of time in a diversified portfolio (the only kind you'd be allowed to own)? Pretty much impossible except in the sort of economic disaster scenarios where the government probably would be cutting social security benefits anyway. HOWEVER what is safe is that the money you put your private account cannot be taken out by the government any more than they can raid your bank account or seize your house. It is your property 100%.

 

Well, what I meant by control, was not over our money but over the way in which we vote. I mean you said so yourself.

so forcing everyone to "own" stocks or bonds or mutual funds what have you, the less likely they will be to vote for something that will "harm" their investment, such as taxes or god forbid regulations. That is the part I think is bad. Maybe there should be some other kind of checks and balances put in place not that checks and balances work anyway, but it just seems like if more people are doing this, then the Republican's have guaranteed votes.

 

Since you already have 401k's and IRAs, do you think that influences your views? Does it make you take more notice of things impacting the stock market? Does it make you feel like more of an "owner", even if it represents only small stakes in the companies in these funds?