Social security and retirement

[LivingAlmostLarge]

Again politics aside, SS is going broke faster than expected. I'm sure this recession and people not paying in is not helping. But 20 years ago GWB proposed privitizing SS. Do you remember that? I thought it a bad idea then. I still think it a bad idea now. But I am absolutely stumped as to what are possible solutions? I'm stuck because I see there are companies not offering 401k. The creator of the 401k regrets it https://www.csmonitor.com/Business/2...etirement-plan

So what do we do? Started in the 80s the 401k has replaced pensions. I would say that it really didn't replace pensions until around 2000 though. So you haven't seen people retiring without pensions at the same rate of prior generations. I believe that people are going to be screed soon enough. That retirement will be incredibly difficult and it's astonishing the number of people just depending on SS.

I still think SS should be there and no privitized. But how to fix it? It's fine for replacing lower income people but those who earn more but don't save?

[Like2Plan]

Again politics aside, SS is going broke faster than expected. I'm sure this recession and people not paying in is not helping. But 20 years ago GWB proposed privitizing SS. Do you remember that? I thought it a bad idea then. I still think it a bad idea now. But I am absolutely stumped as to what are possible solutions? I'm stuck because I see there are companies not offering 401k. The creator of the 401k regrets it https://www.csmonitor.com/Business/2...etirement-plan

So what do we do? Started in the 80s the 401k has replaced pensions. I would say that it really didn't replace pensions until around 2000 though. So you haven't seen people retiring without pensions at the same rate of prior generations. I believe that people are going to be screed soon enough. That retirement will be incredibly difficult and it's astonishing the number of people just depending on SS.

I still think SS should be there and no privitized. But how to fix it? It's fine for replacing lower income people but those who earn more but don't save?

Definitely No to privatizing SS. That is a good question about folks who earn more but do not save. I can't see SS as the answer. SS is weighted towards lower incomes. What do I mean by that? After calculating the indexed 35 year earnings and coming up average earnings, there is a formula then applied (they are called "bend points" https://www.ssa.gov/oact/cola/piaformula.html) -up to the first bend point 90% of the income is replaced. Between the 1st and second bend points only 32% of the income is replaced. Anything above the second bend point (up to the maximum) receives 15%. Those amounts are added up to come up with the primary insurance amount. So, it is a long way of saying I don't think it would be a very efficient way for folks trying to replace their income for anything above the first bend point.

Sad to say--I don't ever see pensions coming back. I think we are stuck with improving ira's and 401Ks

[disneysteve]

I don't think SS will go away. I do think we may see benefits trimmed. I also think they need to eliminate the cap on the SS tax so that higher income earners pay more into the system. Right now, you only pay SS tax on the first $137,700 of income. There are a lot of people who earn more than that, myself included. Keep collecting that tax all year. Don't stop at a certain income level.

[ua_guy]

I don't think it's quite accurate to say tax-deferred savings plans "replaced" pensions. Rather, the burden of saving from retirement was shifted from the employer to the worker, and a tax-deferred savings account was an incentive (along with employer-funded contributions) to create an individualized retirement plan. One of the big perks was portability versus having to stick out a job for 30 years to receive full pension benefits. But you are correct, tax-deferred savings/investments have "replaced" pensions as the more common retirement vehicle for the average worker.

The issue is a pending shortage of funds. It's expected that there will be a 20% shortfall of promised benefits by 2035, just 15 or so years away. One of the more common proposals, which I agree with, is taxing beyond the current $132k annual earning threshold up to unlimited annual earnings. That would start to shore up deficiencies in the near term. I'm not a fan of raising the retirement age, although that would help. I do wish for a better work/life balance and do not believe the point of living is to work and vice versa.

I don't agree with privatization. My overarching statement is that our government and programs cannot be run like businesses because there is no money in doing so. These are greater good programs, safety nets, not businesses.

The two models I like for reshaping the SSA is treating SS like a retirement account where a straight tax is deposited per individual, and the government provides a matching contribution to disabled and those who cannot work or are on unemployment. The second model I like is turning it more into a universal benefit where the floor is raised so SS recipients are all above the federal poverty line, but benefits are reduced for high earners, so that it's a more targeted program.

[Petunia 100]

I don't think it's quite accurate to say tax-deferred savings plans "replaced" pensions. Rather, the burden of saving from retirement was shifted from the employer to the worker, and a tax-deferred savings account was an incentive (along with employer-funded contributions) to create an individualized retirement plan.

I completely agree. The majority of workers never had a pension in the first place.

What should be done? Here's a fun tool to explore the possibilities: https://www.crfb.org/socialsecurityreformer/

[disneysteve]

I completely agree. The majority of workers never had a pension in the first place.

I think the magical history of pensions is often overstated. My father didn't have a pension. Saving for retirement was his responsibility. Many of my other relatives didn't have pensions. They had to save and invest for the future on their own. And they didn't have tax-deferred options for most of that time. The IRA didn't come around until the mid 1970s and the 401k until 1980 and not commonly offered until later. Even today, only about half of employees have access to one.

The point is that saving for retirement yourself isn't a new concept at all. And today, we actually have much better options for doing so. You just have to use them.

I have always saved assuming no SS. I fully expect to collect SS but it will be a bonus to what we've managed to accumulate on our own.

[kork13]

Thorough, effective reforms of SS will have to feature all of these things and more. My thoughts:
- Lower SS payments
- Eliminate the income cap on contributions
- Increase contribution percentage
- Increase the full retirement age
- Allow a healthy portion of the Social Security Trust Fund to be responsibly invested in marketable securities to provide modest growth above inflation. 30-50% seems reasonable to me. Currently, it's held exclusively in US Gov't Treasury Bonds..... and we're all painfully aware of how poorly those perform relative to inflation.
- ..... I don't even know. Many, many ways that it COULD be fixed, but there simply isn't the political will to do so.

I'm not doing any retirement planning that includes SS. If we eventually get something from it, gravy.

[kork13]

What should be done? Here's a fun tool to explore the possibilities: https://www.crfb.org/socialsecurityreformer/

That's kinda cool. I plugged in my ideas, ignoring all the other possibilities, and it says that my plan would close the 75-year shortfall by 170% and it would be solvent well beyond that 75 years. Even just the income cap & investing the SSTF woudl keep it totally solvent. Has Congress seen this thing? Plant the bug, and let it go. lol

[bjl584]

SS won't go away. It will be propped up one way or another.
Privatizing part of it may or may not be a bad idea.
It's no different than relying on a 401K for retirement.

[Fishindude77]

Social security isn't going away anytime soon, it would be political suicide for anyone that tampers with it.

The problem with pensions was, and still is that many allowed people to retire quite young after 20 years of service, possibly only 40+ years old and start drawing a pension for the rest of their lives There are many cases of people drawing pensions for almost double the amount of time they worked, which just isn't sustainable. Most of the private companies finally woke up, did away with pensions and instituted things like 401k's where the employees have to contribute to their retirement savings. Unfortunately, most of the government entities refuse to do away with the pensions and this is why so many states are in dire financial shape. They are paying nearly as many retired people than they are working people in some cases.

I've got a 65 year old buddy that has been retired and drawing a pension since 50 (25 years of service), plus they gave him health coverage until medicare. He spent almost everything they made while working and relies solely on the pension and SS which they get by pretty good on.
Good chance he could be drawing that pension for 35 years or more. They would be in rough shape or he would still be working, if not for that pension.

[james.hendrickson]

Social security has broad support from both parties - its not going anywhere anytime soon.

[LivingAlmostLarge]

Social security isn't going away anytime soon, it would be political suicide for anyone that tampers with it.

The problem with pensions was, and still is that many allowed people to retire quite young after 20 years of service, possibly only 40+ years old and start drawing a pension for the rest of their lives There are many cases of people drawing pensions for almost double the amount of time they worked, which just isn't sustainable. Most of the private companies finally woke up, did away with pensions and instituted things like 401k's where the employees have to contribute to their retirement savings. Unfortunately, most of the government entities refuse to do away with the pensions and this is why so many states are in dire financial shape. They are paying nearly as many retired people than they are working people in some cases.

I've got a 65 year old buddy that has been retired and drawing a pension since 50 (25 years of service), plus they gave him health coverage until medicare. He spent almost everything they made while working and relies solely on the pension and SS which they get by pretty good on.
Good chance he could be drawing that pension for 35 years or more. They would be in rough shape or he would still be working, if not for that pension.

This is why companies like Big 3 auto and others are going BK. The pensions can't be funded. The longevity and actuarial tables didn't account for long life AND 0% Interest rates. The federal pensions will soon go by the way side as well I predict. The 0% interest isn't helping.

I'm not sure that raising SS on all income is the answer. Mostly because it doesn't replace much for people who earn more. We have to figure out how to tax capital gains more.

[Smallsteps]

The reality is you can't please everyone all the time.... period. Social Security was meant to be a supplement not the MAIN support of retirees.
I keep hearing many talk about the good ole days of pensions without remembering the pitfalls.
Pensions were often poorly run or raided and that added to the issue of people living longer and collecting more then they really had contributed same way with SS.

SOME People wanted portability and to pick their own investments and risk level.and 401K seemed like a good idea .....But I think too many people assumed more people would step up to the plate and learn about investing and be hands on.....

We found out the opposite is true. Many simply did not sign up for 401Ks last time I saw it mentioned only about half signed up when employers offered .. I think even less have IRAs .... there are programs out there to work with but many are not saving.
Some did not know what their risk factors were and they do not want to take responsibility for bad investments. With Pensions you can scream it is the pension managers fault.

I had many friends who just picked high risk options because it looked like high reward .....................and lost more then they could afford.
I watched people change jobs and CASH out small amount 401 balances , then pay tax and penalty instead of rolling it over.
I have also seen people leave it in many accounts and watched maintenance fees eat up the balances.

People seem to blame employers as well about not offering....... I have seen various adjectives ( robust / good/ generous/ several options ) 401K plans.

Like anything else in business offering these plans is not free...... but many seem to think all businesses should not only offer plans but offer advice as well.
This would end up as a liability with people not happy about their own choices.
The answer some had was forced sign up @ 2% and you can only opt out..... people will still lose money as they may forget to take their money with them and 2 % is not enough to add up.

Until people take up personal responsibility the 401k is a moot point.

SS should tax higher then the limit that should have been raised every few years, why wasn't it done? ..........

With any government program there are problems there including fraud and waste.
MOST politicians simply do not want to touch it at all................ they have been kicking the can down the road for decades.
This should have been dealt with SS back when this was first brought up ....... but nothing is done. we have heard funny math and it would be broke by this year or that year for decades.

[LivingAlmostLarge]

SS Wasn't supposed to fund retirement but it basically is retirement now. What else can be said? I think as the majority of people start to retire without pensions it'll be interesting to see what people do because they haven't been savings.

[disneysteve]

SS Wasn't supposed to fund retirement but it basically is retirement now.

It is for some. About 21% of married couples and 45% of singles get 90% or more of their income from SS.