Social Security and payout
 

When listening to NPR an bit ago they made a statement about the average person will receive roughly 3 times the amount they pay in back on benefits.

At first blush on would think this is an unfair system of payout. But it dawned on me that there must be a higher percentage of people who never live long enough to claim the first dollar. The retirement plan was never a savings account but old age insurance policy.

So one hopes they will be able to live long enough to make it eligibility but if not that is part of the gamble.


Barney

We also have more people living beyond the life expectancy that existed in 1935. I believe it was 62-63 years, but now people live well into their 80s on average. That beings said, this really isn't the biggest problem anyhow. The biggest problem is keeping the pols from using it for peripheral purposes.

From what I've read addressing the Social Security solvency issue is not that complicated. Take the following steps and we're there:
1) Remove the cap on SS taxable earnings (curently $110,100); and
2) Raise the full retirement age by one year over the current age (67 if born after 1960); or
3) Increase FICA on employee and employer by 1/8 of 1%.

The only thing standing in the way of a legit fix for SS is political posturing.

There's also the intense desire on Wall Street's part to get their mitts :D on all that money. Of course, that's what a lot of the posturing is about.

John

I agree with points one and three, but raising the age of eligibility seems to also raised the applicants and awards for disability. When this happens they will receive the top payout. Seems that a few people can't do the manual labor jobs in their sixties or have underlining health problems to deal with.

Also SS should be means tested for benefits. Those with ample finances should receive a percentage based on actual needs. Pay in when earning because something might happen over the years. One who was once flush is now in the poor house due to health, divorce or any number of reasons.

Barney

Right there you see the effect of the Right Wing meme of Social Security being an "entitlement".

Means testing is the "thin edge of the wedge" for the Right Wing to gradually lower the threshold of eligibility for full benefits (or benefits at all) rather than insuring that all who pay in get a pay out commensurate with their contribution.

Social Security benefits are calculated on the basis of what one has paid in over their working life. It would basically be robbery to tell someone that they won't get full benefits because the government has determined that they don't need it.

John

I see SS as Old Age insurance. To be paid out to those who are lucky enough to have made it to old age. It is not a personal savings account and should never be. But for those who through luck of the draw or hard work and succeeded it is hard for me to see them as in need of SS like those who are not. They should not be left out just adjusted on payout. Raise the cap to 250K might be just the solution and no means testing but without a cap then means test.



Barney

Too late. Congress beat them to it. Can you say "special issue securities"?

Well, let's take life insurance. I take out a million dollar policy and your monthly premium is $1,000. (I have NO idea whether that's what it would be but bear with me.) Ten years later I'm dead. I've paid in $120,000 and my heirs get their million.

But let's say instead that I live for twenty years instead of ten. Now, I've paid in $240,000 in premiums. What's the pay-out to my heirs? Is it TWO million now? Of course not. My "deal" with the insurance company was for a million. That's all I'm entitled to.

Now, let's take Social Security. My "deal" with SSA is that my monthly payout will be based on what I paid in over the length of my working life, regardless of how long I worked or how much I made (up to $110K/yr).

With life insurance, the gamble is the amount of premium dollars paid by the insured. I have no more control over that than I do over how long I'll live. With Social Security the gamble's on the other end. It's about how long the government will have to pay out my benefits. They have no control over that.

Means testing would break the deal. It would allow the government to screw around with the payout for reasons outside the bargain between me and them. They shouldn't be allowed to do that any more than I should be allowed to renegotiate a higher monthly payout because I expect to be dead sooner than the actuarial tables say I will.

John

I was gonna say, what money? :)

Pete