tag:blogger.com,1999:blog-2104140133666157951.post22014668161858030..comments2013-12-05T03:51:26.062+09:00Comments on Sustainable State Society: Social Security SustainabilityOgemaniachttp://www.blogger.com/profile/02396797613368443908noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2104140133666157951.post-46161624149167343122013-02-09T21:48:59.611+09:002013-02-09T21:48:59.611+09:00There are actually two ways you could cut benefits...There are actually two ways you could cut benefits for high earners. One is means testing, which itself could mean several things. The other is to move the bend points lower (bend points are basically tax brackets in reverse). "Means testing" could either mean cutting benefits based on income, which would effectively increase marginal taxes on the elderly and discourage them from working, or reducing benefits based on wealth, which would require the government to set up a new bureaucracy to measure and would discourage saving. Of the three, moving the bend points is least bad, as it cuts benefits on high earners without affecting incentives much and without requiring the overhead of measuring wealth.<br /><br />Personally, I would avoid benefit cuts entirely. We can stabilize SS indefintely with a mix of an across-the-board tax increase, say 0.5% phased in over ten years (for a typical American, that would be an extra $25 dollars this year, and extra $50 next year, etc, up to an extra $250), combined with moving the cap up and/or applying a surtax on all income above the cap. <br /><br />I do not like chained-CPI, for two reasons. One, the CPI has little to do with the actual inflation faced by retirees, which is much higher. Second, chained-CPI leaves benefits for early retirees untouched but slams older retirees, who finally feel the accumulation of years of sub-par COLAs. If anything, we need to do the reverse, and lower initial benefits in order to discourage early retirements, and raise benefits for the very elderly, who are most likely to have run out of money.<br /><br />You should, however, count on the dimes you are going to get. The worst case for SS is that Republicans just refuse to fix it, and around the time you and I retire, we have to eat about a 25% across-the-board benefit cut. Given your job, your current promised benefit must be around $2500/month (in today's dollars). Even in the worst case, you will get something like $1800/month. That's not Richie-Rich but it will be enough to keep the lights on and your belly fed, which is SS's core purpose.<br /><br />I actually think you are better to plan assuming that 75% SS benefit. Think of your SS money as a bond fund, as it probably has a similar risk profile. In this case, SS allows you to overweight your non-SS portolio towards stocks and bring in a higher return. That ~$$1800/month benefit would be equivalent to something like $600,000 in upfront cash (2013 dollars) with which you could buy an inflation-protected annuity similar to your SS benefit.<br /><br />Guys like us don't win with SS. We pretty much just get our money back with an inflation adjustment. But I am glad it is there, because with it, I don't have to worry about my many family members who could not or for whatever reason did not save enough on their own. If earning no interest on a third of my retirement porfolio is the price I have to pay in order to be sure that my little old grandmothers will be able to pay their bills not matter what, I consider the sacrifice well worth it.<br /><br />Thanks for being my first commenter. I bequeath you one free beer next time I pass your way.<br /><br />Ogemaniachttps://www.blogger.com/profile/02396797613368443908noreply@blogger.comtag:blogger.com,1999:blog-2104140133666157951.post-28904787427389917002013-02-09T21:16:24.322+09:002013-02-09T21:16:24.322+09:00I agree with everything you're saying. I thin...I agree with everything you're saying. I think that removing the cap on high-earners, and increasing the retirement age are both going to happen. The one that kind of bugs me is "changing the payout formulas in order to reduce benefits to higher income workers," a.k.a. means-testing. This is the one that's going to get me. Look, I understand how fortunate I am to have a well-paying job that allows me to save for my future. But I can't help but think that I'm also going to be punished for being frugal and responsible in saving my money. Meanwhile, people who made just as much (or more!) than I did will get their full social security benefit, just because they didn't save for retirement. This just seems wrong, but I guess I'll just have to look at it this way--I'm paying for my parent's retirement. Any money I get from social security will just be a bonus. I'm not actually counting on getting a single dime back of all that I'm paying in.Pete Magnusonhttps://www.blogger.com/profile/12593882498500131171noreply@blogger.com