Privitizing SS and Medicare

[MakeAStash]

This is true as a generalization. The problem is it isn't true on a person by person basis. There are plenty of people who, for legitimate reasons, can't work until they're 70. What are those folks supposed to do if they can no longer start collecting SS at 62?

SS remains a relatively new invention. Before that people relied on their savings, as well as help from family and charities.

[cornfieldj]

This is true as a generalization. The problem is it isn't true on a person by person basis. There are plenty of people who, for legitimate reasons, can't work until they're 70. What are those folks supposed to do if they can no longer start collecting SS at 62?

That's why there will be massive efforts to support Social Security as a poverty-ending program for senior citizens. It's a very popular program, and it does a pretty good job of helping senior citizens avoid poverty. I agree with you that many people are unable to keep working. And it's also true that a great number of people start collecting at age 62.

[LivingAlmostLarge]

There already has been a raising of the age of SS. 62 is early and 65-67 is normal depending on the year you were born. I agree steve that it's hard to say people can still work until 70. It may come down to making it means tested but then in which case people who were responsible will lose out.

cornfield I hear that a lot that both Dems and Repubs are afraid of mentioning or touching SS and Medicare. It seems people want to keep their social programs for the elderly.

But this is arguing only about SS benefits but medicare i hear is the real cost problem. it keeps sucking money faster as boomers retire. And ACA caused the costs to slow down the rate of increase. But it's still going up.

How do you take away promised socialized medicine? Call it that and tell people that by refusing to do away with Medicare you are supporting a socialized system?

[cornfieldj]

I'm having a talk with a policy expert soon, and another at 2pm. Let me know if you have questions you'd like answered : )

[disneysteve]

SS remains a relatively new invention. Before that people relied on their savings, as well as help from family and charities.

True, but people also didn't live nearly as long. The average life expectancy when 65 was established as "retirement age" for SS was 61.7. The idea was that most people would never live long enough to collect benefits but for those who did, SS would keep them from dying in poverty.

The world is a different place today. Average life expectancy is now 78.74, so 17 years longer than when SS started.

[Petunia 100]

Without privitization these systems are projected to run out of funds. Privitization sounds less costly than another taxpayer bailout.

Running out of funds does not mean benefits will no longer be paid. We will simply have to match benefits paid with payroll taxes collected. Whether that means benefits go down, payroll taxes go up, or some combination of both.

[Petunia 100]

Remember, I'm not recommending or advocating for any of these changes. My job is reporting on retirement and trying to help people make good decisions. For a policy thing like this, I talk to policy experts - I try to talk to both liberal and conservative policy experts - and tell my readers what is being talked about.

A conservative policy pro said the system is paying out way too many benefits. People are living longer, she said, and jobs are less physically demanding. They'll have to work longer, is her recommendation. (And some trims to the system.)

I like what another person I spoke with said, that a good fix would not make any one group feel that they were being singled out for more of a cut or more of a sacrifice than any other. In other words, the pain is going to have to be shared as equally as possible.

It's considered a third rail in politics - very dangerous to touch. It'll be interesting to see what Trump comes up with.

Policy guy just told me privatization has a .01 percent chance of happening. But that's just one opinion.

Not everyone has the same mental capacity at 70 that they did at 50. It's just not realistic to expect no one will have trouble hanging on to their job into their 70s.

[cornfieldj]

Not everyone has the same mental capacity at 70 that they did at 50. It's just not realistic to expect no one will have trouble hanging on to their job into their 70s.

Most policy people and elected officials recognize cognitive and physical dips as people age. Some are just a little harsher than others.

The age is creeping up, though. My younger son, born in 2000, won't collect full Social Security till age 67. There's definitely a limit, and there will (I think) always be an early-claiming-option for a lowered benefit.

[Petunia 100]

Most policy people and elected officials recognize cognitive and physical dips as people age. Some are just a little harsher than others.

The age is creeping up, though. My younger son, born in 2000, won't collect full Social Security till age 67. There's definitely a limit, and there will (I think) always be an early-claiming-option for a lowered benefit.

My full retirement age is 67 too, and I am quite a bit older than your son.

You make a good point; the reduced benefits at a younger age (62) continues to be an option. Perhaps we should re-think earning limits for those who do take early SS. Suppose you are aged 62 or older and no longer able to do the same sort of work. Taking early SS while continuing to work in a different job (for likely lower pay) is a good solution, but the penalties if you earn "too much" are stiff.

[MakeAStash]

As the average lifespan has increased, the average workspan has increased too. Since there is not an infinite supply of money or resources, entitlement limits of some kind are needed. When SS began benefits were paid for only a few years on average. We need not return to that short a duration, but the average duration now is too long IMO.

Imagine tomorrow someone invents a single-dose pill that adds 80 years to the average lifespan. Would we continue to handle SS the same as now, with early benefits starting at age 62? Clearly that would not be sustainable, and that benefits age would need adjustment. Well, such a single-dose pill has not been invented, but medical care has added close to 20 years to the average lifespan since SS began.

[cornfieldj]

My full retirement age is 67 too, and I am quite a bit older than your son.

You make a good point; the reduced benefits at a younger age (62) continues to be an option. Perhaps we should re-think earning limits for those who do take early SS. Suppose you are aged 62 or older and no longer able to do the same sort of work. Taking early SS while continuing to work in a different job (for likely lower pay) is a good solution, but the penalties if you earn "too much" are stiff.

I think tinkering with all the moving parts of Social Security is probably what will happen. As you said, rethinking earning limits... possibly trimming the benefit for those who claim at 62... raising the taxable cap (or doing away with it)... I hope I'm not being too optimistic but I really think it will be fixed or addressed in some way.

Definitely I think the message of "everyone has to take responsibility personally and save more, save as much as possible" is going to get louder.

[disneysteve]

I really think it will be fixed or addressed in some way.

Definitely. Nobody in either party is going to let SS implode. That would be disastrous.

[FLA]

You make a good point; the reduced benefits at a younger age (62) continues to be an option. Perhaps we should re-think earning limits for those who do take early SS. Suppose you are aged 62 or older and no longer able to do the same sort of work. Taking early SS while continuing to work in a different job (for likely lower pay) is a good solution, but the penalties if you earn "too much" are stiff.

I think this is a great idea

[sv2007]

A step further than privatization --> make it optional. This way you can invest that money or you may not want medicare if you have retirement health benefits or prefer to buy your own. Max flexibility, min. government.

Some may think there's the national debt issue and health exchange issue; but the national debt shouldn't be financed thru SS anyway (take that away and gov. may actually become more careful with spending); and roll the medicare (whatever's remaining) into gov employee heath plan.

[kork13]

I've actually put some thought into this question, so I apologize in advance for this being so lengthy... But here's my grand idea for what a "mostly" individualized/privatized SS system would look like:

0) Raise SS taxes slightly, to 7.5% (from 6.2%) for both workers and employers, and remove the contribution caps. So total contributions of 15% of earners' income.

1) Immediately authorize the SSA to invest the SS fund under the management of the Thrift Savings Board -- the same folks that handle the federal TSP. Overall they do a great job, and maintain incredibly low expenses while they're at it. Obviously it would still need to be a conservative mix... For example, they could use the programmed allocation set by the L-Fund just above L-Income -- currently, L-2020. By altering the SS fund's investment strategy to allow for investments beyond exclusively US Treasuries (as is currently the case), the SSA could likely double the SS fund's earnings while maintaining relatively safe, moderate growth.

2) My next step after implementing 'Item 1' would be to separate MOST individuals from the central SS fund. At an arbitrary point in time (say, 2030), start opening an individual TSP-like account (still owned/controlled by the SSA, so let's call it "TSP-SS") for new workers. An individual's SS taxes would then be deposited into their individual TSP-SS account over the course of their lifetimes. The central SS fund would remain, as outlined in 'Item 6'.

2a) Possibly consider an option to allow workers to elect a HIGHER contribution rate? Alternately, if the desired intent TRULY IS to provide for retirees' income needs completely, mandate a higher worker contribution rate, such as 12.5%, for a total combined contribution of 20% of income.

3) At age 60, transition those TSP-SS accounts to the L-Income fund to provide even greater investment safety/security during the individual's actual period of retirement. **Exception: See Item 4.

4) Allow individuals to have the option of assuming limited management control over their TSP-SS account. This would allow individuals to modify the investment strategy of their TSP-SS between the different TSP Lifecycle funds, with reasonable restrictions, such as only allowing certain L-Funds to be selected based on their age (to prevent a 55-year-old from being invested in the most aggressive L-Fund, for example), and limiting currently-retired individuals to funds no more aggressive than the central SS fund's L-Fund allocation (see Item 6).

5) Individuals would receive distributions from their TSP-SS accounts (with accumulated growth) when they either left the workforce, or at age 67 (whichever occurs later). This distribution would be based on current life expectancy, adjusted annually, with benefits scheduled for the TSP-SS account to be fully disbursed 15 years after the individual's "full life expectancy age". So if the life expectancy for a man is 80, distributions would be programmed to fully disburse by his 95th birthday. This should provide sufficient income for most basic retirement expenses, but would ensure the funds last long enough (in most cases) to cover his basic needs for life.

5a) There would probably need to be a "early retirement" option similar to today's SS, where you can get a reduced benefit at age 62. But I would probably try to limit that to only individuals who have already left the workforce.

6) When an individual dies (at any age, whether at age 40 or age 80), the balance of their TSP-SS account would revert to a central SS fund, which would still managed by the Thrift Savings Board, and still be invested in the L-Fund next up from L-Income (so L-2020 right now). Most people won't live to be 90-95+ years old to fully exhaust their TSP-SS accounts, so their excess funds (likely hundreds of thousands of dollars per worker) will be used to provide for poverty-prevention efforts. These funds would be used to:

• Cover benefits for individuals who live exceptionally longer than anticipated (such as for someone who lives to be 100)
• Provide a partial survivor's benefit to non-retired, surviving spouses and/or surviving children up to age 18, for up to a maximum number of years (10? 15? I dunno)
• Supplement benefits for individuals whose individual TSP-SS accounts cannot provide for a minimum standard of living (let's say 150% of the poverty line).

Does that seem alot like a mandatory 401k program? Well golly-gee-willikers, I guess it does! It's basically a hybrid of that, combined with a moderate poverty prevention program. The idea is to give individuals buy-in & transparency regarding their own retirement, while maintaining a familiar structure. This is probably by no means perfect, but I think it would go a long way toward removing individuals' retirement from federal budget while still providing a meaningful support to our nation's elderly population. I think the biggest two sticking points would be the increased SS taxes, and the idea that the SSA would "confiscate" excess TSP-SS funds at a person's death (but not really, since the accounts always remain under SSA ownership/control--it's merely a re-allocation of the funds for other uses).

I ran a few quick, rough numbers...
Assuming: a person earns a $50k individual income that grows according to annual inflation, pre-retirement returns of 3% above inflation, and post-retirement returns 2% above inflation (roughly the 10-year returns of L-2020 & L-Income)....
- A person could work for 45 years (from age 22 to age 67) and receive 60% of their pre-retirement income (~$30k/yr in 2016 dollars) in TSP-SS distributions for 30 years in retirement (until age 92).
- A person who only worked for 30 years (say, age 18-28, then left the workforce to raise a family, and returned to work from 47-67, they could receive 40% of their pre-retirement income (~$20k/yr, 2016 dollars) for the same 30 years.