The “Silver Tsunami” Begins
As the first official “baby Boomer” prepares to receive her first Social Security retirement check, government officials brace for what they call the “Silver Tsunami,” a gigantic wave of retirees knocking on the vault door in search of the retirement benefits they were promised throughout the working lives, and indeed paid for. Conservatives like to deride the social security program as an “entitlement” program, as if being entitled to receive something you paid for is some kind of crime. Funny how you don’t hear any of them crying about the tax cuts for the richest Americans as a bad thing, even though that was a gift that was neither paid for or promised to anyone.
We all know that Social Security has serious funding problems, thanks in large part to decades of malfeasance by the federal government as they raided this “dedicated fund” to pay for all sorts of non-retirement, non-disability kinds of things with that money.
And we all know that most politicians are not eager to “fix” the problem for a variety of reasons, chief among them is that they want an available slush fund handy. But they are also mostly unconcerned with the plight of average Americans since they have quite nice federal retirement packages apart from the Social Security system.
I’ve written extensively about how Social Security can be reformed and possibly saved for today’s and future generations. Rather than rehash all that here, I’ll offer links to the original posts.
Post 1- Defining Social Security
Post 2- Crafting A National Pension Plan
Post 3- The National Whole Life Pension Plan
Post 4- Salvaging Social Security’s Retirement Benefits
This series looks at the benefits of having a national retirement system, provides a plan for funding benefits for future generations and talks about how to salvage the most from the current system.
Read the posts, then we can discuss the issue…
October 16th, 2007 at 11:33 am
If we legallized the “illegals” this wouldn’t be such a terrible problem.
JMJ
October 16th, 2007 at 12:10 pm
I will read the series, but I wanted to note the following:
First off, those tax cuts were for everybody. It was more obvious the rich would pay a lot less than the rest of us, but that’s because they pay a lot more in taxes than the rest of us.
Second, a tax cut is not a “gift”. It’s money the government never got; it didn’t have to be given back through some entitlement like Social Security.
In my opinion, the chief reason for politicians not fixing Social Security is political cowardice. Republicans don’t want to touch it because they don’t want to portray an appearance of looking like they’d be for cutting off entitlements. Even Bush’s reform plan a couple of years ago may have done much to save Social Security, but too many Republicans couldn’t take the heat of the criticism. Democrats, way more cowardly than Republicans, will only resort to raising taxes in order to keep Social Security funded, but they won’t do it without Republican help (not possible at this time) because they don’t want the deserved blame for doing so.
But, this is an accurate statement:
I will read Ken’s series when I get a chance, then comment on them.
October 16th, 2007 at 3:49 pm
Yeah, I remember reading these. One of the fallacies of these proposals is the idea that Congress can be punished for stealing from it. It can’t happen, thanks to Article I, Section 6.
Second, the idea that 401(k) plans don’t have ability to achieve compound growth? Where in the world did you pull that one out? Compared to pensions and Social Security, 401(k)s offer the greatest amount of savings growth over the long term. Social Security offers nothing in regards to savings since payouts are not made from savings.
Jersey said:
Jersey brings up an interesting point. Right now, there are various numbers of illegal immigrants, some of whom are already paying into Social Security (and who will not get any benefits as things exist today). Legalizing the illegals will would allow for the rest to begin paying into Social Security as they would be paid in the same manner as other Americans (at least the ones that wouldn’t be laid off as a result of the huge rise in payroll companies would have to pay out). The new payroll taxes would help in alleviating some of the problems Social Security will face, and could do so without raising the payroll tax rate, or without raising the payroll ceiling that currently in place, or without raising the age of retirement. Of course, as with the last amnesty in 1986, a new amnesty will just encourage further illegal immigration into this country. So, this really does nothing to solve Social Security.
One of the interesting parts in these pieces is how Social Security is explained as a way we can express appreciation (my version of what was written by Ken) of those who worked before us, whether they be family members or non-related citizens. But, the plan presented is just another government program funded like Social Security is now (except that employers supposedly only put into the plan), with a few new wrinkles that will pretty much destroy the idea of personal investment. An influx of immigrants, especially the droves that would come here illegally, will help fund these plans, but that isn’t a productive method, and will only work while we don’t secure the border. Add to it that these new programs wouldn’t provide taxpayers any choice on how to get the best bang for the buck since it only invests in government bonds (robbing Peter to pay Paul) and not in capital. Yeah, the plan allows for individual retirement costs, but who would have the money left to provide for these private plans? Answer: nobody. And nobody will want to provide for it while the government is pulling the strings as the sole retirement provider.
Again, the idea that this is a way to handle retirement for the whole of society is kind of pointless since the only way new money can be put into the system is with a huge influx of immigrants, legal or not.
However, there is one thing missing from these pieces that would allow funding of Social Security now, or some kind of program in the future: a large influx of citizen taxpayers. Illegal immigrants don’t seem to have a problem with this as they have babies born in this country that, thanks to the 14th Amendment, are automatic citizens. Yet, there are still nearly a million abortions by American citizens that occur in this country every year, and have gone on since Roe v. Wade nearly 35 years ago. Social Security probably wouldn’t be as big a problem over the next generation or so if so many elective abortions (used as a false form of birth control) hadn’t been done since Roe, and even outlawing abortion as a form of birth control would allow for a steady increase in future taxpayers to continue to fund Social Security. As I mentioned, many people who have immigrated here illegally have done so with the express purpose of giving birth to automatic U.S. citizens, even the poorest of illegal immigrants. Abortion would be counter-productive to staying here.
If funding retirement is a societal problem that needs to be addressed, and this problem extends beyond the “civil rights” of one gender, then other alternatives to creating a non-sustainable government program (which would not stop any raiding from Congress) must be noted. Immigration amnesties are unreliable at best. The only other valid alternative is to make sure potential taxpayers aren’t killed (murdered) before they are born because a member of society finds it “inconvenient” to be a parent. Remember, this is for the good of the society. Otherwise, a replacement for Social Security which is funded like Social Security is nothing more than smoke and mirrors.
October 16th, 2007 at 5:50 pm
The “illegals” would just take the SSI and run back to Mexico Jersey… Spending the money there and not here.
Ken,
My 401k compounds quite nicely.
October 16th, 2007 at 5:58 pm
Thanks for reading the posts SteveIL. We don’t seem to agree on the preface for a national retirement program, but that may be beside the point. We have one in place. It is failing. We need to fix it.
Of course my proposed solution is “just another government program” but government programs in and of themselves are not inherently bad- it is the stewardship of those in charge that warps programs into bad policy.
You say that under my proposal, individual supplementary accounts would be impossible for individuals to fund- perhaps you didn’t read carefully enough- individuals, under the “new” plan, wouldn’t be funding the social security program out of their payroll earnings, and as such could indeed save on their own. In fact, it might be easier than it is today where incomes are often quite strapped. And to assume that individuals would simply not choose to supplement their retirement on their own is quite an assumption, especially as the National Whole Life Pension Plan I propose would offer a minimum standard and not an oppulent one for retirees. Certainly some would choose not to supplement their retirement, but I doubt that en masse people would neglect that if they had the option, just as people do today.
I must take exception though with your view that abortion is at the heart of our Social Security fiscal imbalance. I find that to be a ludicrous concept. Sure, if abortion were illegal we’d have more people overall, but how many of those folks would be earning at the upper end of the scale, and thus contributing a larger percentage into the SSA accounts? Your assumption that more people would mean more money is technically correct, but would their smaller contributions into the system make the program more solvent? And if so, for how long? I don’t think that abortion is at the heart of the problem with SSA, but rather the self-serving politicians are at the heart of the problem.
The biggest problem I saw with the Bush plan was that the bulk of retirement funds would be turned into the hands of individuals (not necessarily bad for all) who would then be forced into working with retirement planners who charge high fees and don’t have a great deal of accountability when they make bad calls. For those brokers, the Bush plan was a simple transfer of wealth away from retirees and into the hands of money handlers. Not exactly a way to increase retirement funds for individuals. Also, the general lack of financial knowledge and responsibility plays into the reason why we have a government fund to begin with. Retirement shouldn’t have to be a lifelong gamble, and retirees shouldn’t have to work until they die. The NWLPP provides a secure retirement account with little risk of loss of the invested amount. Everyone would be guaranteed a minimum and it couldn’t be stolen by rotten politicians.
Similarly I don’t think that simply legalizing all illegal immigrants will solve the imbalance either. As you may remember, my plan allows a way for new, legal immigrants to participate in the program as well. But, as with the assumption about aborted fetuses being enough to replace the current shortfall, illegal immigrants aren’t exactly making the high wages that could help put the fund back on track. Would their legal status help? Sure, but how much and for how long. And further, I’m not a proponent of rewarding illegal actions out of hand, as an amnesty would seek to do.
No, outlawing abortion and/or granting amnesty to illegal immigrants are not viable or realistic solutions to what is a serious and looming problem.
My proposals may well need some fleshing out- most ideas do- but they address the current problem and offer solutions without changing the fabric of our nation or laws to an incredible degree. And when it comes to change, isn’t that a key ingredient?
October 16th, 2007 at 6:19 pm
I’ll go back and reread my own posts, but I don’t think I would have said that 401k accounts don’t compound- I agree that they do- however the difference between private accoutns like 401k’s and an account that performed on simple compounding is the investment side- 401k’s are subject to the swings of the market while the NWLPP would not be market dependent. Perhaps this point is where the confusion is occuring.
As for the question about “punishing Congress for stealing from the fund” I understand that the constitution protects acts of congress from criminal retribution for the most part. What I was proposing is that retirement accounts and funds be placed off limits by law, which congress has the power to do, in effect blocking themselves from actions like the ones that have led to the current imbalance. If such a law were enacted, any attempts to raid the funds could be stopped with the power of the law.
October 16th, 2007 at 9:57 pm
I’m going to skip around a little, but it all kind of gets tied together.
Ken said:
Unfortunately, it is the stewardship that has always been, and always will be, the problem. The evidence of history has shown this to be the case.
You are correct; but, where one Congress could put in law block themselves from raiding funds like this, another could put in law to allow it again. I do understand where you are going with this, but it will first take a constitutional amendment to put any teeth into this. Congress will not do anything to limit their own power, so it will have to take an Article V Ratification Convention (which goes outside of Congress) to get this done. Per the link, the only time this happened occurred when the 18th Amendment was repealed with the 21st Amendment. My point is that this is unlikely. As was shown with the overturning of the Line Item Veto Act of 1996 (due to the ruling in Clinton v. City of New York), it was determined that Congress could not statutorily override what is in the Constitution.
Yes, I see your point. But one of the problems inherent with your plan is the same one that comes with Social Security (ignoring the ability Congress has to raid it for the moment): I can get a better return handling my money myself than letting some bureaucrat(s) do it for me. In your second comment, you warn about the swing of the market when investing in stock funds through a 401(k). However, investing in stocks as a whole has a much greater return historically, even when factoring in the down years of the stock market. Also consider that people have become smarter when it comes to investing, even through employer-provided retirement funds. One thing that could be modified is to take the company-matching part out and provide it to the employee to invest on their own through their own plan. The same problem of choice with a government program is also a problem in a company-matching program in that I must go through the company’s choice of investment services instead of going out on my own. Maybe some kind of combination arrangement can be codified. (One of the other problems I have with company-provided plans is that the company-matching part isn’t always in cash to an employees account; sometimes it is in company stock. This is what killed it for Enron employees, and almost did the same at a company I used to work for. As smart financial people will tell the public, the employee should never invest heavily in the company the employee works for. The company-matching part is also determined by the company, not the employee).
But see, this is where Congress’s constitutional power to regulate commerce comes into play. Congress’s job isn’t only oversight of the administration, which, in effect, is turning over Congress’s job to the Executive Branch, but also to do the regulation through hearings and depositions and whatnot. If there are disparaging differences, it is the job of Congress to create the legislation to make the necessary corrections. And everything still remains in the hands of private entities, individuals and brokers.
Some other things about that Bush plan: 1) it was voluntary; 2) only 4% of the payroll tax would be available for the new individual accounts; and, 3) the outlays for the public Social Security part was to be based on a newer, progressive pay scheme that put an emphasis on making sure the public money was doled out equitably, more equitable than now.
I still think banning abortions that are being done as a substitute for birth control (that is, when the life of the mother is not at stake, or the female is a victim of rape or incest) would do much to keep Social Security solvent in its current form, which would allow for a phaseout to permanent and individual retirement options.
I will say this. I think it will take a small bit of Keynesian economics (federal spending) to get the ball rolling and to make sure people who are now depending on Social Security to continue getting payments. And, as you’ve seen (which is the point of all these posts), the system is unsustainable as it exists today without drastic changes. My option takes as much of the bureaucracy out of it, especially in light of how well 401(k) plans are doing as a whole.
October 17th, 2007 at 6:17 am
One other thing. Much of these posts have to do with the idea that paying into Social Security is a way for Americans to show appreciation for those Americans who worked before and were now retired, backed up by a financial guarantee. But how did Americans show this appreciation prior to Social Security? Answer: parents moved in with their adult kids. Extended families were the norm, not the exception. This wasn’t just due to the financial burdens retired persons without a job faced; it was a way for their adult children to show they were appreciated and loved enough to have space available made to the parents.
Sometime after the 1960s (someone will have to check on this), the advent of nursing homes for infirmed retired persons requiring a lot of medical care morphed into a dumping ground for kids to place their retired parents. Not only that, it was left to the parents to pay for it, not the children. Obviously people on a fixed income were going to have trouble paying for this, so the government ended up getting into the long-term care business with Medicare. Now the government provided individuals with a place to put their elderly parents without having to burden themselves other than to pay into Medicare. All this new pension plan will do is throw more money at the government instead of encouraging Americans to return to the values our ancestors previously exhibited not so many generations ago.
One thing that could easily be done is to restructure the tax system equitably to allow for people to take care of their parents in their own homes. Not with subsidies, but with healthy tax breaks. In this way, it is not incumbent on the government to fund, through taxation, for the long-term well-being of our elderly parents. But it will provide their children with the discretionary income to do this themselves.
To go along with that, even the long-term health care of infirmed retired parents can be covered by allowing for company-provided health care plans to include coverage for live-in parents (the company I work for provides this for an additional cost; I’d have to find out what this is). Again, this can be handled by having the government provide tax breaks for individuals. The government will also have to make it tax-friendly for those insurance carriers who provide this in order for those carriers to remain profitable (hey, it’s still a business).
Anyway, that’s my two cents.