Wow! An actual serious policy discussion on JCList! Alert the presses!

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Oh, wait, nevermind. . . .

LOL, we actually managed thirteen straight serious posts on a topic. That's got to be some sort of record.

EDIT: Yes, niceguyeddie, the problem with the Treasury bonds is that they are part of the national debt, but as said before that is a Treasury problem, not a Social Security problem. The Social Security program did not create the problem, the program was the victim of it, so to speak.

Greater fiscal sanity in Washington would make me sleep much better, too.

And yes, a Democrat that adds a sane plan for preserving Social Security would get my vote.

Bobblehead, you're right, I didn't explain myself well. I know those pieces of paper in Virginia are Treasury securities. Of course the feds will pay them off, because there really isn't any other choice. However, when they do this, they will either have to raise taxes, print money or borrow money again from the public. These are the same choices they had if there never was a trust fun, since they used this money in the general budget. A true trust fund would have kept the money in escrow until it was needed. Regan and Greenspan didn't anticipate Congress raiding the trust fund to pay the budget.

I'm not for privatization, and I think SS should remain an insurance system to pay for the basic neceisities of life in old age. All I want to see is a Dem who's willing to make reform of any kind part of their political platform.

Hey what would be wrong with the government letting everyone take their social security money and just buy Lotto tickets?

Bobblehead actually is quite technically correct when it comes to pension system terminology.

The term often used to describe defined benefit plans such as social security is a "pay as you go" or PAYGO. The real problem is that social security has had so many other defined benefits added to it over the years (unrelated directly to retirement), it's bleeding the system.

As for terminology see more below..................

Terms Behind Pensions Discussion

There are several ways to create and manage pensions plans. Here's the basic breakdown.

Multi-pillar Pension System

There are five components or pillars:

0 Pillar: Social assistance schemes, where money is taken from the general revenue to help ensure that the neediest of the elderly don't fall into poverty.

1st Pillar: Earnings-related. These plans tend to be defined benefit, unfunded schemes, such as pay-as-you-go plans.

2nd Pillar: Mandatory savings. These plans are usually fully funded, defined contribution plans.

3rd Pillar: Occupational plans, where the company sets up a saving plan, usually a funded, defined contribution scheme, for its employees.

4th Pillar: Personal, voluntary plans where an individual sets up a private savings account to put aside additional money. There may be tax benefits associated with it.

5th Pillar: Family plan, where a pension is paid to surviving non-working family members.


=====================================


Defined benefit versus defined contribution

1. Defined benefit: the promise the government gives a worker of how much his or her pension will be, usually determined as a percentage of the last wage.

2. Defined contribution: the percentage of each paycheck that a worker is required to put aside in a pension plan, which is usually mandated by the government. The worker's money is put in an account where it accrues interest until the worker retires.

Financing methods

1. Unfunded or partially funded plans: accumulated assets do not cover liabilities. Defined benefit plans tend to be unfunded. Pay-as-you-go plans (PAYG) fall in this category. In PAYG plans, today's pensions are covered by the wages of the current workforce.

2. Fully funded plans: accumulated assets are equal to liabilities. Defined contribution plans tend to be fully funded. Private mandatory savings fall in this category.

Pension Fund Management

1. The government can manage pension funds directly.

2. The government can contract out the management to private companies.

There is a lot of variation within. For example, In some Latin American countries, the government mandates the amount of money to be saved, but the worker is left to select a pension fund on his own.

Most of the pension plans in the world tend to be government pension plans (partially funded or unfunded defined benefit schemes.) Since Chile introduced a fully funded, privately managed defined contribution scheme in 1981, some two dozens countries have converted a portion of their pension system to this arrangement.

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I'VE twisted it? The program pays for itself as it goes along. How is that twisted? That is the original meaning of the phrase. The part of the program that is NOT pay as you go are the trust funds--those were built up to pay for the boomers future retirement.

Projections show solvency until 2040:
http://www.ssa.gov/OACT/TRSUM/trsummary.html

Projections often prove to be inaccurate, and the "rainy day" is often pushed back:
http://www.epinet.org/content.cfm/issuebriefs_ib152

And your friend is right--it never was meant to be a retirement fund, it was meant to guarantee that old people wouldn't have to eat cat food to get by. And it's done very well in lifting retirees out of poverty.

And of course, you certainly are right that we need to take steps NOW to make sure that the original intention of this program is preserved--it is a social insurance program to keep the elderly out of poverty, NOT a retirement program to allow folks to play golf and tennis when they don't feel like working anymore. The payout age is being stepped up gradually, and if you read the brief I highlighted earlier (by Bob Ball), there are ways to tweak the program back to close actuarial balance, none of them that painful.

A more appropriate analogy for Social Security is that it is akin to an insurance program. Like with insurance, the premiums that you pay are not the same funds that will pay your benefits. Rather, insurance companies have to make actuarial decisions to determine what risks they can cover and what premiums they can charge.

For a reasonable premium, Social Security has created a system of retirement income, disability insurance, and widow/survivor benefits. I am not going to get into arguments over precisely when it will start paying out more than it is taking in, or how long the "trust fund" will last. But these are problems that can be rectified in numerous ways. Overall, the system has worked well, and has reduced elderly poverty significantly.

I think the real problem is not a "trust fund" problem but a general debt problem. As others have pointed out, the trust fund goes into government bonds, which the government will have to pay back to meet the shortfall.

The government runs up debt to pay for a lot of things. Overall, as far as debtors go, the U.S. is a pretty stable one. If there is a problem, it is one with general fiscal irresponsibility, particularly from this "conservative" administration.

Joshua

I love how you've twisted "pay as you go" to mean "pay for them as they go." Very creative.
Nevertheless, projections show the "trust fund" being empty in 20 years and with only two payers for every recipient, we can all look forward to even higher taxes to pay for a generation that has milked this country for everything it could get. Best to increase the payout age now (70) and start looking for ways to increase appreciation and lower the amount being doled out.
As a friend who's a big supporter of SS says, "Social Security was never meant to be a retirement fund. Just a supplement." It's about time we started treating it as just that.

"Pay as you go" means that the system pays for itself as it goes along. That means that the money taken out of our checks goes to pay the elderly TODAY, it isn't put into a piggy bank with your name on it. That IS how the system works. It's not a personal savings plan, as you seem to interpret it, it's a social insurance plan. Nowhere is "pay as you go" defined as money that you've paid in that will be paid back to you with appreciation.

And niceguyeddie, if you are worried about chicken little warnings about the trust fund IOUs in Virginia, those IOUs are U.S. Treasury bonds--if those are no good, then this nation will have a lot bigger problems than grandma eating cat food. What will we tell all those U.S. and foreign investors that also hold U.S. Treasury bonds? Oh, these are no good, they're only U.S. Treasury bonds. That would be a Treasury problem, not a Social Security problem.

Even if the Social Securities trustee's worst case scenario comes true, and the economy grows at 1.8 percent per year or less, and the trust funds get exhausted in thirty or thirty-five years, the Social Security program--being a PAY AS YOU GO program--will be able to meet about 70-75% of its obligations, because in 2040, when the system is supposed to "go broke," there will still be workers earning money and paying their SS taxes, which will go directly to the retirees in 2040. That is how a pay-as-you-go program works. If their intermediate projection holds true, there will need to be some small tweaks to bring it into close actuarial balance. And, if the trustees more optimistic 75-year projections are more accurate, the system never will go broke, and the trust funds will skyrocket.

And to make a point, the trust funds didn't always exist, Social Security ran for many years without them. They were created by Ronald Reagan and Alan Greenspan in 1983 to sock money away for the retirement of the baby boomers. Currently, the trust funds are expected to last beyond 2040, at which point the youngest baby boomers will be 80 years old or so--in other words, most of them will be dead. So, they functioned pretty well.

"pay as you go" implies that you're somehow paying for yourself. That the money you put in today will be returned to you with appreciation.

pay-as-you-go? [pey-uhz-yoo-goh]
?noun
1. the principle or practice of paying for goods and services at the time of purchase, rather than relying on credit.

That is not how the system works. To learn for yourself, go to the social security faq. Here are a few quotes.

"Social Security Benefits are Paid as a Legal Right and not According to Need

The Social Security program is not and was never intended to be a program to provide benefits based on need. Rather, it is a system of social insurance under which workers (and their employers) contribute a part of their earnings in order to provide protection for themselves and their families if certain events occur. Since each worker pays Social Security taxes, each worker earns the right to receive Social Security benefits without regard to need. This is one of the basic principles of the Social Security program and is largely responsible for its widespread public acceptance and support.

The fact that Social Security benefits go to some people who have high incomes has been a source of criticism. However, these persons pay into the program and play an important role in its financial base. Moreover, benefits of higher earners are subject to the income tax as a result of the 1983 Social Security amendments."

"Social Security Benefits are Weighted

The method of figuring benefits is weighted in favor of workers with low average lifetime earnings and those with families. This is because the program attempts to achieve social adequacy as well as individual equity. The goal of social adequacy assures that individuals receive a level of benefits that reflects their lesser ability to prepare for the risk. The goal of individual equity means that a person receives a reasonable return on his/her investment in Social Security.

Thus, while it is true that higher earners receive higher benefits, lower-paid workers receive higher benefits in relation to their earnings in employment covered by Social Security than do higher-paid workers. (Earnings replacement rates are about 60 percent for minimum wage earners, 42 percent for average wage earners, and 26 percent for high earners.)"

you may also want to check out howstuffworks.com

"In almost every financial situation that we deal with on a regular basis, there is the idea of an "account". For example, when you put money into a bank, it is understood to be "your money" and it goes into an account with your name on it. The same thing happens when you contribute to your 401(k) plan at work -- you have an account with your money in it, and if you change employers the money in the account is yours. You also have accounts for your credit card, mortgage, car loan, and so on. In any of these accounts, you add money to the account and take money out of it, and whomever holds the account keeps track of how much you have or you owe.
The Social Security system is nothing like that. In the Social Security system, the money you pay into the system gets immediately paid back out to the people who are currently getting Social Security checks. This arrangement came into being because of the way the system started. In 1935, when Roosevelt signed the Social Security Act into law, there were a lot of people who needed benefits (because of the Great Depression), but there was no money to pay those benefits with. The idea at the time was that people currently working would pay into the system, and their money would immediately go back out in the form of benefit checks. Each generation of retiring workers would get paid by the people currently working, and therefore the system would fund itself forever despite the fact that the system had no money to start with.

This clever idea worked great in 1935 (and for many years after that), but it is going to have a problem in the future for two reasons:

In 1935, there were many more people paying into the system than those receiving benefits. The ratio of workers to retirees meant that workers did not have to pay much into the system in 1935 to support the retirees (this table shows that up through 1950, only 2% of income (1% employee, 1% employer) was withheld for Social Security, compared to 15.30% (7.65% employee, 7.65% employer) today). In the future, the retirement of millions of baby boomers will hurt the ratio -- there will be so many retired people that the working people will not be able to support them. If the population had grown steadily this would not have been a problem, but there is no good way for the design of the Social Security System to handle a population spike like the baby boomers.
Many people have become so used to the idea of a 401(k) plan (where your money belongs to you and grows to a large sum over time through investment compounding), that the idea behind the Social Security system becomes hard to swallow. Currently a worker pays 7.65% of his or her gross income into the Social Security system (with a cap at a gross income of around $70,000), and the employer pays another 7.65% for the worker as well. If you could take that 15.30% of gross income and invest it in a 401(k) plan for the same period of time, it would generate an immense sum of money based on historical returns -- far more than a person with average income (or greater) would get from Social Security. A retiree's Social Security benefit is calculated using a complex formula rather than an account balance, because there is no "account" in the traditional sense.
You might have heard that the Social Security system currently takes in more money than it pays out in order to try to handle the baby boomer problem. What happens with the excess money the system collects? The Social Security system buys U.S. Treasury bonds with the surplus. Essentially, the government (in the form of the Social Security Administration) loans the surplus to itself.
In future decades, when it comes time to start drawing on the collected surplus, the government will pay itself back through tax revenue (or additional borrowing). The Social Security system will start cashing in the bonds, and the government will have to make good on them with tax revenue. That sounds weird because it is weird -- Whether or not it will work is a source of significant debate right now. The effect it will have is that it will shift the payment of Social Security benefits over to the government as a whole. The government as a whole, rather than the Social Security system, will have to repay the treasury bonds that the Social Security system will be cashing in. It will certainly be interesting to see what happens!"

of course, if you read this ladies site, you may have a different definition of "pay as you go" than I do. One where you are not paying for yourself, but for someone else. However, she immediately concedes that this is all just a welfare PONZI scheme.

Social Security Benefits Program
From Sharon O'Brien,
Your Guide to Senior Living.
FREE Newsletter. Sign Up Now!
How Does the Social Security Benefits Program Actually Work?
Although many people believe that the Social Security taxes they pay are held in interest-bearing accounts and earmarked for their own retirement, in reality Social Security is a pay-as-you-go retirement system.
Today?s Workers Fund Today?s Retirees
In other words, the Social Security taxes paid by today's workers and their employers are used to pay the benefits for people who are currently retired, and for other beneficiaries such as workers who become disabled or the families of workers who die.

Today, there are 3.3 workers paying into Social Security for every person who receives benefits, for a ratio of 3.3 to 1.

By 2030, that ratio will be 2 to 1.
Part of the reason for the steep decline is that the oldest of the 79 million baby boomers will begin retiring in 2008.

At the same time, birth rates are declining.
For now, Social Security is still taking in more money than it pays out in benefits. Any money that?s left over goes into the Trust Funds.

Currently, the Trust Funds have large reserves, but by 2018 those surpluses will start turning into deficits.
The benefits owed will be more than the taxes collected, and Social Security will have to dip into the Trust Funds to pay benefits.

In about 30 years, there will be nearly twice as many older Americans as there are today. Those changing demographics put Social Security benefits in jeopardy.

Happy reading.

Thanks Bobblehead, I hadn't seen that. Nevertheless, these ideas haven't been promoted by our elected officials, and that's where the rallying cry has to come from.

I strongly disagree that SS isn't goin broke. If you wade through the funny accounting the government uses, and the fact that SS has no assets under management, you have 20-30 years before expenditures outweigh income. The longer we wait to fix it, the more painful the fix will be. Tax and financial planning can't take effect overnight. The first step should be to stop the feds from spending SS earning on budgetary items, and start investing that money in gov't bonds. The so called "trust fund" is filing cabinet in Virginia full of IOU's. When social security was enacted, you didn't receive benefits until you were 72, yet the average life expectancy was 65. You also had 16 contributers for every beneficiary. Now you have 3.3 contributers per beneficiary. Explain to me how this isn't a broke system in every sense of the word.

Hmm. I'm paying into Social Security and not currently taking anything out of it.

Retirees are not putting anything into it and are taking out from it (by the way the average retiree receives back the ENTIRE amount they put into the system in about 7 years).

So essentially I should just drive down to the retirement home on payday, and cut out the middleman.

That is NOT "pay as you go".

This issue makes me mad.

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Explain how Social Security is not "pay as you go"?

Social Security, as we know it, is unsustainable. And it is certainly not "pay as you go."

Niceguyeddie, Social Security is not going to "go broke" (it can't, it's pay as you go), it's just facing a modest shortfall because of baby boomers, and that might not even mean any shortfall, depending on how the economy performs.

And there are simple, thoughtful plans out there that don't involve gutting the entire system and turning it into private accounts. Bob Ball, former commissioner of Social Security, has some easy measures that will address the problem, but it's hard to get any attention during such partisan times:

http://www.socsec.org/publications.asp?pubid=531

But I find it funny that Kean is disavowing support for Bush's plan, yet Healy and Menendez are attacking him for it. Ahh, politics. . . . .

Bush's plan for privatization has been politically dead for a year now. Why a whole speaking tour to fight it? What a bunch of empty bluster. How about a tour to fight Bush's war? You know, something that's going on right now.

And Niceguyeddie, social security isn't really in jeopardy. Like WMDs in Iraq, the threat was greatly exaggerated. Or invented, you could say.

Sigh, when is a member of the Democratic party going to actually propose an idea to fix Social Security instead of just bashing everyone else's. I'm not a Republican, and not talking like one here, I truly want to see some ideas to solve this problem, otherwise it's just going to end up being a big tax hike.

I'm not an economist, but I am a gamble, and I know what a Ponzi Scheme is. To quote the WSJ:
"As economist Paul Samuelson, an original New Deal supporter, enthused back in 1967 "the beauty of social insurance is that it is actuarially unsound. . . . Always there are more youths than old folks in a growing population" (emphasis his). He concluded that "a growing nation is the greatest Ponzi game ever contrived. And that is a fact, not a paradox."

The problem is that the Ponzi we call Social Security has run into reality. I've never seen a Ponzi succeed, and this one won't either. At least the Repubs have the stones to try something.

To quote an FDR at Ogolethorpe University:
"this country needs . . . bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something."

C'mon dems, try something.

tell them to worry about our own backyard and stop acting like a bunch of school kids picking on each other for hanging out w/ the kid w/ the boogers on his upper lip.

Politicians are worthless.

Healy rips candidate on So Sec
Wednesday, August 23, 2006
By GREG HANLON
JOURNAL STAFF WRITER

Jersey City Mayor Jerramiah Healy railed against President Bush's plans to privatize Social Security at a town hall meeting yesterday at the Maureen Collier Senior Center.

The meeting was sponsored by U.S. Sen. Robert Menendez as part of his "Stop Privatization" tour. Menendez, a Democrat whose roots are in Hudson County, is locked in a tight battle with state Sen. Thomas Kean Jr. for the U.S. Senate seat.

"George W. Bush and his administration are going with a message of fear and panic, saying that Social Security funds will run out shortly unless the system is changed," Healy said. "And Tom Kean Jr. has bought into the 'Bush push' to privatize Social Security."

But Kean campaign spokeswoman Jill Hazelbaker said yesterday that Kean doesn't support Bush's call to privatize Social Security and called the attack "bunk."

The Menendez campaign countered, saying that Kean expressed support for Social Security privatization in 2000 while running for Congress and voted against a state resolution that called upon Bush to stop his push for privatization.

Isaac Shipp, a retired Jersey City resident who attended yesterday's session, sees no reason to alter the status quo.

"I think it (the Social Security system) should stay as it is," Shipp said. "And I wouldn't put someone into office who would get rid of it."