A Forum for Grinches and Ho-Ho-Hoes

[Sidd Finch]

Originally posted by sgtclub
That is a reasonable objection. Would you also support increasing the 401(k) and IRA limits?

Yes.

The retirement system was supposed to stand on three legs -- private savings, employer pensions, and the social security safety net.

I think we should increase the IRA limits to encourage more of the private savings leg. The truth is, though, that there are many other avenues towards tax-advantaged private savings -- I'm embarassed to say how much I put away tax-free for retirement last year, and how much more I put in tax-advantaged accounts (529s are really for education but it leaves me more money for retirement, so six of one....). Most of these accounts are only available to people who have a certain level of income -- but people below that level generally don't take full advantage of the 401(k) and IRA options already available to them (a fact that gives me some reason to doubt that notion that PRAs will really benefit a lot of people).

Employer pensions are rapidly becoming ancient history, though that is somewhat offset by employer contributions to 401(k)s. As you've said, the government invests in the market -- but it does it as part of this "leg".

SS is the one "guaranteed" portion. We shouldn't open that portion up to market risk. Period. Raise the retirement age, impose a means-test on benefits if need be. But don't cut holes in the safety net, and for god's sake don't take on huge new debt in order to allow people who have other avenues to private savings to have a little more.

[sgtclub]

Originally posted by Greedy,Greedy,Greedy
Ah, the conservative wish-think. Let's just pretend the risks aren't real.

I'm not a conservative.

But, clubby, risk and reward correlate, don't they? If they didn't, wouldn't we all move to nothing but the high reward investments?

The risk of someone being on the streets because X% of their retirement was invested in a worthless stock, assuming X is a very small portion of their total retirement pool, is essentially non-existent. That is the risk you were talking about. You are right that the reward is incremental return on investment, but that tends to add up over 30 years to a significant amount.

[sgtclub]

Originally posted by Tyrone Slothrop
Maybe. How do you propose to make up the lost revenues?

Other than cuts, I guess you could have some sort of offset to SS payouts, but that would only work in the future.

[Tyrone Slothrop]

Originally posted by sgtclub
Other than cuts, I guess you could have some sort of offset to SS payouts, but that would only work in the future.

Or you could tax something else, although I understand that that's anathema to you folks. The lure of something for nothing is strong indeed. Let's just get rid of the income tax entirely, and fund the government by borrowing. That would spur savings.

[taxwonk]

Originally posted by Mmmm, Burger (C.J.)
Does a rise in the cap alone solve the problem? I thought benefits were tied to how much you put in, up to the capped level. So if you raise the cap, don't you raise the liabilities as well? Or is there not a 1:1 ratio--i.e., stick it to the rich some more?

You don'tnecessarily have to tie a rise in the cap to a rise in benefits. And it isn't really a stick it to the rich situation. The system was never intended to allow more than a modest benefit. It was supposed to provide a basic livable benefit level originally. Of course, under current payouts, it doesn't provide that, but without means testing and/or a sliding scale phasing benefits out as other income rises, we can't begin to afford to provide one.

[taxwonk]

Originally posted by sgtclub
I'm not sure if anyone has proposed this, but it seems like the math should work - even though math is hard.

X% of your SS tax goes into a private account, 100%-X% goes into the current system. When you hit the retirement age, you're benefits from the current system are reduced by the amount that your X% would have earned in the system (or even a greater percentage), but did not because it's in the private account. Assuming the private account appeciates at a higher rate than it would have under the current system, you get the benefit of the difference or the benefit of a part of the difference.

Not sure what the transition costs would be.

The transition costs derive from the fact that curent benefit payments come from current contributions. If contributions go down (through diversion into private accounts), then the amount available to pay current benefits is less. The shortfall has to be made up soemwhere.

[Greedy,Greedy,Greedy]

Originally posted by sgtclub
The risk of someone being on the streets because X% of their retirement was invested in a worthless stock, assuming X is a very small portion of their total retirement pool, is essentially non-existent. That is the risk you were talking about. You are right that the reward is incremental return on investment, but that tends to add up over 30 years to a significant amount.

You're looking at this from the perspective of someone who doesn't actually rely on social security for their retirement.

Talk to the person who cleans your office, who won't get employer benefits and probably doesn't have much in the way of private savings now. Assume social security will pay him less than it will cost him to live on, and he'll be scratching around trying to find the rest somewhere.

ANY reduction in his benefit means he has to cut from his budget for basic food and shelter.

Yeh, not a big deal if you or I don't have a spare few hundred a month in retirement. But that few hundred a month counts if we're living off $12,000 a year.

[sgtclub]

Originally posted by Greedy,Greedy,Greedy
You're looking at this from the perspective of someone who doesn't actually rely on social security for their retirement.

Talk to the person who cleans your office, who won't get employer benefits and probably doesn't have much in the way of private savings now. Assume social security will pay him less than it will cost him to live on, and he'll be scratching around trying to find the rest somewhere.

ANY reduction in his benefit means he has to cut from his budget for basic food and shelter.

Yeh, not a big deal if you or I don't have a spare few hundred a month in retirement. But that few hundred a month counts if we're living off $12,000 a year.

If I was in that situation, I would be willing to take the chance, and I am risk adverse by nature. In other words, this is not your side's best argument.

[sgtclub]

Originally posted by Tyrone Slothrop
Or you could tax something else, although I understand that that's anathema to you folks. The lure of something for nothing is strong indeed. Let's just get rid of the income tax entirely, and fund the government by borrowing. That would spur savings.

It's not something for nothing. It's a restoration of what should be mine in the first place. But that's just something on which we'll never agree.

[Tyrone Slothrop]

Originally posted by sgtclub
It's not something for nothing.

I'll agree with you when you move to your island and stop enjoying the benefits of federal spending.

[sgtclub]

Originally posted by Tyrone Slothrop
I'll agree with you when you move to your island and stop enjoying the benefits of federal spending.

I'm willing to pay for the ones I enjoy.

[Tyrone Slothrop]

Originally posted by sgtclub
I'm willing to pay for the ones I enjoy.

It's not a buffet table, it's a government.

[Mmmm, Burger (C.J.)]

Originally posted by Tyrone Slothrop
Maybe. How do you propose to make up the lost revenues?

They get taxed on withdrawal, so it's just a time shift.

But you could also remove the limits on Roth conversions, and take the immediate gains from the revenues paid on taxes resulting from conversions.

[Mmmm, Burger (C.J.)]

Originally posted by sgtclub
I'm not a conservative.



The risk of someone being on the streets because X% of their retirement was invested in a worthless stock, assuming X is a very small portion of their total retirement pool, is essentially non-existent. That is the risk you were talking about. You are right that the reward is incremental return on investment, but that tends to add up over 30 years to a significant amount.

Here's the problem with that argument--by keeping the percentage in private accounts low, you lose most of their purported benefits. If they're the real cheese, why not go all in?

And, btw, go do a compouding calculator and see the difference between a 2% and 4% return over 40 years. It's a pretty big nut by the time you're done.

[Mmmm, Burger (C.J.)]

Originally posted by sgtclub
If I was in that situation, I would be willing to take the chance, and I am risk adverse by nature. In other words, this is not your side's best argument.

If you were in that situation, I would not be willing to take the chance that you invest wisely. Why do you think we give food stamps instead of cash money to the poor?