Author Topic: Sobering reality!  (Read 23630 times)

Exflyboy

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Sobering reality!
« on: February 21, 2014, 11:53:03 AM »
How these people can sleep at night is beyond me.

This video shows a few sad cases of folks who have nothing to retire on.

http://finance.yahoo.com/video/senior-64-started-realize-im-190204794.html

Frank

Elaine

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Re: Sobering reality!
« Reply #1 on: February 21, 2014, 12:02:34 PM »
This made me nauseated. I feel such a strange combination of things for these (and people like these) people. I feel:

25% Disbelief/Shock- How can you not think about retirement until you're 60? How on earth is it possible that I've already thought of it at the age of 26? Am I a wizard? Are they dumb as dirt? HOW??!?

25% Rage. You put yourself in this situation!!!!!

25% Pity. I want to cry for you because this is so sad and unnecessary- but also I'd like strangle you.

25% Social responsibility urges. Should we MMMers be doing more to get the word out there? What can we do, really? Or should I just chalk this up to survival of the fittest?

It's hard for me to just say "tough shit" when this seems to be only a slight exaggeration of the majority of the population. I feel this internal urge to do something, to try and help, but then I just have no idea what to do. I mean the information is out there, these people could have educated themselves. How do we rectify these feelings?


MissGina

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Re: Sobering reality!
« Reply #2 on: February 21, 2014, 12:18:07 PM »
I think the lady who has decided to go back to school has the right idea! Hope she gets her PHD/MD with that $200k though.

Frankies Girl

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Re: Sobering reality!
« Reply #3 on: February 21, 2014, 12:19:32 PM »
Ugh. Mostly feel like they are all idiots. I feel sorry for them, but the idea that they never thought about the fact that they were going to get old... how is it that they don't figure this out?

This is probably the mindset of the general population - I am not going to worry about tomorrow because I'm concentrating on today. So we get a large portion of folks that are spending as much if not more than they earn thinking that they deserve it or they enjoy it. I think delayed gratification is a concept that has fallen by the wayside for the most part.

The real issue to me is two-fold: people are not taught basic finance in school, and we live in a society that celebrates excess. Buy the newest, the shiniest, the most powerful - whether you need it or even deep down, really want it (gotta keep up with the friends or impress the neighbors) and people no longer question whether it's a smart thing to go into debt. They just want more of everything... whether it is good for them or not.

Oh, that lady that went back to school - she's LIVING OFF HER SCHOOL LOANS. She might just be taking a few classes with no real goal in sight!

Exflyboy

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Re: Sobering reality!
« Reply #4 on: February 21, 2014, 12:22:26 PM »
To Elaine.. I was reading the replies to the video and one of them said something like.. "give people two choices and a lot of them will choose the worse one"... I think we have a choice, its not like these people haven't heard all their live "save for retirement".. Yet most of them choose not to.

Of course they will all play the "victim" card.. Oh but I barely had enough to live on.. Uh huh and people on this site talk about making their own soap!

I have a hard time being sympathetic when I know somehow I'm going to paying for their mistakes one way or the other.

Frank

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Re: Sobering reality!
« Reply #5 on: February 21, 2014, 12:30:26 PM »


This is a little outside the main point but one thing I can never figure out is when the employment stats come out they talk about the number of people who just quit looking for work.  I don't understand this?  Do they have enough to get by without working?  I've heard that some go on disability with the rational that - they can't find suitable work given their ability and education and thus they are disabled (unable) to work in the sector of employment that they are trained for.

nicknageli

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Re: Sobering reality!
« Reply #6 on: February 21, 2014, 12:42:12 PM »
Does going back to school at 60 and going into debt for $200k really make sense?

It sure seems like there needs to be way more personal finance education at a much younger age. 

lb

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Re: Sobering reality!
« Reply #7 on: February 21, 2014, 12:53:16 PM »
I think until recently people had the mindset that the companies they work for would provide them with some form of a pension; that they would retire and the process would somehow just... be taken care of. That's what happened for my mother, stepmother, and father who were teachers or worked for the city and retired in the last 5 years. I feel like they were on the tail end of a generation that was the last one to have retirement as a job benefit that was guaranteed and managed for them.

Now, some government workers and other public employees have to take charge of their own retirement plans because it's not being done for them anymore. Which I think is fine, but there's not enough of people who recognize this difference, which a major problem. That's not even touching all the people who don't have decent jobs or decent benefits. I have relatives that are the same age as my parents who just retired. Their current living situation is provided by serial house-sitting jobs and I assume they have no savings at all (!). I think they assume their daughter will take care of them...? I agree, people aren't learning crucial personal finance skills early enough or at all. I certainly didn't until I taught myself (recently).

Also, I think there is a complacency that comes with jobs that have very decent benefits - I work at a hospital and I have great health care and they even put a good percentage into my 401a. But that amount isn't enough to retire on, and I never would have known that if I hadn't fallen in with this crowd. Hardly anyone I work with puts extra money away, and they make (to me) great money! It is amazing to me that they don't save more of it, but at the same I totally understand - I was in a similar place before I got this job.

Gggirl

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Re: Sobering reality!
« Reply #8 on: February 21, 2014, 01:01:56 PM »
I can't believe the 60 year old is living off student loans.  How will she ever have time to repay it?  Who approved it?  Crazy!


ZMonet

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Re: Sobering reality!
« Reply #9 on: February 21, 2014, 01:11:05 PM »
I think the 60 year old is smart, although arguably immoral, for taking loans she knows she'll never be able to pay off.  Lenders really need to do a better job at looking at the probabilities that a person can actually pay the loan.  They would never do something like that for housing.....erhhhhhh....scratch that.

randymarsh

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Re: Sobering reality!
« Reply #10 on: February 21, 2014, 01:25:06 PM »
I can't believe the 60 year old is living off student loans.  How will she ever have time to repay it?  Who approved it?  Crazy!

The Department of Education will give graduate PLUS loans up to the cost of attendance (including living expenses) as long as you're enrolled at an eligible school and don't have any drug convictions.

warfreak2

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Re: Sobering reality!
« Reply #11 on: February 21, 2014, 01:35:39 PM »
Her subprime student loan will be bundled into a collateralized debt obligation, and sold to traders who sell to traders who sell to pension funds. We know how this plays out...

Eric

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Re: Sobering reality!
« Reply #12 on: February 21, 2014, 01:46:54 PM »
And....this is why we have Social Security.  And also why we must do our best to protect it.

AlexK

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Re: Sobering reality!
« Reply #13 on: February 21, 2014, 02:04:19 PM »
I just thought of a business idea for a "school" which caters to senior citizens and allows them to live "on campus" in luxury for outrageous tuition fees paid for with student loans.

FIPurpose

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Re: Sobering reality!
« Reply #14 on: February 21, 2014, 02:42:54 PM »
I can't believe the 60 year old is living off student loans.  How will she ever have time to repay it?  Who approved it?  Crazy!

The Department of Education will give graduate PLUS loans up to the cost of attendance (including living expenses) as long as you're enrolled at an eligible school and don't have any drug convictions.

This is good to keep in mind if I run out of money at 95.

Thegoblinchief

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Re: Sobering reality!
« Reply #15 on: February 21, 2014, 03:59:34 PM »
What Frankies Girl said is my big pet peeve: there is basically zero personal finance education in school.

And the "advice" provided through most conventional sources is almost as damaging as no education at all.

Kriegsspiel

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Re: Sobering reality!
« Reply #16 on: February 21, 2014, 05:10:30 PM »
Sadly, sober reality is ALL some people experience. The rest of us are drinkers.

Undecided

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Re: Sobering reality!
« Reply #17 on: February 21, 2014, 05:15:57 PM »
Sadly, sober reality is ALL some people experience. The rest of us are drinkers.

You are on a roll today.

jhartt3

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Re: Sobering reality!
« Reply #18 on: February 21, 2014, 06:27:05 PM »
completely sad... i know far too many people just like this.  they live in the NOW... it doesnt take much to think about how and where you're spending you money and what you get from that money spent. 

but say one of these is your family member 40 years from now and you retired at 35 ... you know where they will turn for money.  how do you say no how do you say look i was smart you wasted everything i'm not required to support you... do you remember when you laughed when i said this was doable.  tough spot to be in. 

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Re: Sobering reality!
« Reply #19 on: February 21, 2014, 07:13:29 PM »
I don't think knowledge of personal finance is the problem here.  It's philosophy.  I mean, the advice at the end says to "cut luxuries" and put the money into savings, but the bigger cultural attitude is that none of the things these people could cut are considered luxuries.  I absolutely agree with what frankh says which is that most of these people probably think they barely have enough to live on.

I will point out re: the statistics, though, that there are in fact poor people and they're included.  So if, for example, 20% of people are living in poverty, that's not suddenly going to change when they hit 65.  I mean, I don't think that includes these people in the video, just something to think about when seeing scare statistics.

Am I the only one who thought a lot of these people looked really good for their age?  Maybe not thinking about the future = better health = living longer.  Tres ironic.

Eric

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Re: Sobering reality!
« Reply #20 on: February 21, 2014, 08:09:10 PM »
Am I the only one who thought a lot of these people looked really good for their age?  Maybe not thinking about the future = better health = living longer.  Tres ironic.

Maybe they spent all of their would be retirement savings on a little botox here and a little nip/tuck there.  I mean, they have payment plans!

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Re: Sobering reality!
« Reply #21 on: February 22, 2014, 07:53:16 AM »
Am I the only one who thought a lot of these people looked really good for their age?

The wife and I noted that a couple of times.  (S/He doesn't LOOK 60-whatever!)

I took it as a sign I was getting old.
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horsepoor

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Re: Sobering reality!
« Reply #22 on: February 22, 2014, 09:07:16 AM »
Quote
"My friends and I joke that we'll start having to live communally...

Umm, you're 59 and have no retirement savings... maybe you should seriously consider that rather than joke about it. 

I can envision a college roommate situation for 60 & 70-somethings becoming commonplace.


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Re: Sobering reality!
« Reply #23 on: February 22, 2014, 10:09:46 AM »
And....this is why we have Social Security.  And also why we must do our best to protect it.

Truer words. As sobering a reality as it may be, a forced retirement plan via Social Security is necessary for a significant portion of our population. Unless, however, you are a fan of social Darwinism . . .

soccerluvof4

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Re: Sobering reality!
« Reply #24 on: February 22, 2014, 01:11:31 PM »
I'm glad in our area there starting to teach the kids to be more fiscal responsible but along ways to go. I do think it has to be taught at an early age and what better than in school. I think its scary too that so many people I know openly say and in front of there kids were just going to work till we die. They dont want to give up anything. That scares me the most.

eman resu

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Re: Sobering reality!
« Reply #25 on: February 22, 2014, 02:33:45 PM »
How sad.  It makes me feel grateful to be only 35 and have this internet thingy bringing information and investment options into my living room.  What I might (would) not have known.  I totally could have been a broke 60 yr old wondering what the hell happened. 

I couldn't agree more with those advocating for more (and improved) financial literacy education in schools.  It's a social concern, not just a family matter.   


 
 

steveo

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Re: Sobering reality!
« Reply #26 on: February 22, 2014, 05:34:15 PM »
Mostly feel like they are all idiots.

I reckon this is the reality of the situation.

The real issue to me is two-fold: people are not taught basic finance in school, and we live in a society that celebrates excess.

I agree with this in regards to the society that we live in just seems to be stupid. Its like driving a BMW is important whereas to me its stupid. I think though finance isn't that hard. Myself and my wife (she is now completely on board the path to FIRE) have never been big spenders but we only realised this year that you could become FI and RE prior to turning 65. Its not like we needed this blog or ERE to tell us that we needed enough money saved up to retire at 65 or not to buy a fancy car. We have just stopped spending a little excessively - for instance buying lunches sometimes at work or going out as a family once a week to a restaurant.

steveo

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Re: Sobering reality!
« Reply #27 on: February 22, 2014, 05:45:54 PM »
And....this is why we have Social Security.  And also why we must do our best to protect it.

I disagree with this and I'll give some specific examples to explain why I feel this way.

Firstly I live in Australia and our social security might be different to other countries. My dad is retired however he was a pathologist (i.e. a specialist doctor who looks at slides to diagnose an illness). He retired at 62. My mum is 68 and a nurse and she is still working only because she likes to work for some bizarre reason. My parents have heaps of money and will never need social security. There retirement entails at least one expensive overseas trip per year so they have it good. In saying this they bought a house and lived in it forever that was not in a fancypants area.

One of there friends bought a house and spend every cent they had to live in the fancypants area. Now these people can't afford overseas holidays but there house is worth a fortune (say $2 million) and they are getting social security. To me they are rorting the system and I am paying tax so that they can live where they want too. If you got rid of this safety net they would have to sell their house and they would have to move however they would still have shelter and food to eat with no problems.

Social security is definitely required however people rort the system and people that don't save for retirement shouldn't be given a leg up because they are hopeless with money.


matchewed

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Re: Sobering reality!
« Reply #28 on: February 22, 2014, 06:04:12 PM »
And....this is why we have Social Security.  And also why we must do our best to protect it.

I disagree with this and I'll give some specific examples to explain why I feel this way.

Firstly I live in Australia and our social security might be different to other countries. My dad is retired however he was a pathologist (i.e. a specialist doctor who looks at slides to diagnose an illness). He retired at 62. My mum is 68 and a nurse and she is still working only because she likes to work for some bizarre reason. My parents have heaps of money and will never need social security. There retirement entails at least one expensive overseas trip per year so they have it good. In saying this they bought a house and lived in it forever that was not in a fancypants area.

One of there friends bought a house and spend every cent they had to live in the fancypants area. Now these people can't afford overseas holidays but there house is worth a fortune (say $2 million) and they are getting social security. To me they are rorting the system and I am paying tax so that they can live where they want too. If you got rid of this safety net they would have to sell their house and they would have to move however they would still have shelter and food to eat with no problems.

Social security is definitely required however people rort the system and people that don't save for retirement shouldn't be given a leg up because they are hopeless with money.

Aren't all people over a certain age allowed to accept social security payments in Australia? Isn't also a means tested system?

Honest questions because I'm not familiar with the Australian system. However, how is this an example of rorting the system when these people have paid into the same system you have, don't they deserve the benefits they have paid for and were guaranteed to them under the law? Now I do understand that depending on the answers to my above questions and various other details I could be dead wrong.

All that aside, I'm sure that there will be a portion of people who weren't able to save for reasons out of their control, at the very least SS has to be there to help those people. Since there is no reasonable way to tell who doesn't fall into that categorization our current system of just allowing people who pay in to take the benefits out when they're of age works best. Instead of griping about SS we should be focusing on future generations and encouraging them to take a stronger hand in their financial futures. Let's start with a forum where cool people discuss various topics. ;)

steveo

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Re: Sobering reality!
« Reply #29 on: February 22, 2014, 06:15:18 PM »
Aren't all people over a certain age allowed to accept social security payments in Australia? Isn't also a means tested system?

My parents receive nothing and lots of people don't. It is means tested but not your house. We also have a massively over inflated housing market and whilst this might not be the sole reason for the problem it is a contributing factor.

However, how is this an example of rorting the system when these people have paid into the same system you have, don't they deserve the benefits they have paid for and were guaranteed to them under the law? Now I do understand that depending on the answers to my above questions and various other details I could be dead wrong.

I see you as being dead wrong. They are rorting the system because their house is not considered an asset to be means tested. Yes they live in Australia so you could state they bought into the system but I quite simply will never do what they have done. This to me is an integrity issue and I couldn't do it.

All that aside, I'm sure that there will be a portion of people who weren't able to save for reasons out of their control, at the very least SS has to be there to help those people.

I agree. Some people have it tough and I am all for supporting those people. People however that could easily sell their house and live off that forever and have a great life should not in my opinion be receiving money from the government.
« Last Edit: February 22, 2014, 06:17:21 PM by steveo »

PeteD01

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Re: Sobering reality!
« Reply #30 on: February 22, 2014, 06:37:58 PM »
You do not understand one bit about what Social Security is. It is not welfare and is means tested at the time of contribution.
Australia has a different system providing retirement benefits which may be superior.
Social Security benefits are anything but a government handout.

Peter


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Re: Sobering reality!
« Reply #31 on: February 22, 2014, 06:46:49 PM »
completely sad... i know far too many people just like this.  they live in the NOW... it doesnt take much to think about how and where you're spending you money and what you get from that money spent. 

but say one of these is your family member 40 years from now and you retired at 35 ... you know where they will turn for money.  how do you say no how do you say look i was smart you wasted everything i'm not required to support you... do you remember when you laughed when i said this was doable.  tough spot to be in.

I think you have to grow a thick skin to be honest. My Folks in the UK are still paying on a car they bought some 10 years ago.. Naturally I have been on at them about how to avoid going into debt for over 30 years.

The answer would be a flat no unless it was a true emergency.. Seeling their house to fund debt would not be one of those emergencies.

Frank

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Re: Sobering reality!
« Reply #32 on: February 22, 2014, 10:47:57 PM »
You do not understand one bit about what Social Security is. It is not welfare and is means tested at the time of contribution.
Australia has a different system providing retirement benefits which may be superior.
Social Security benefits are anything but a government handout.

Peter

Maybe that is it. In Australia if you don't have enough to live off you get retirement payments however people rort the system all the time. Rich people get paid money.

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Re: Sobering reality!
« Reply #33 on: February 23, 2014, 04:59:12 AM »
I would be wary of forcing people to sell their house before letting them claim a state pension. Having to move from the house you have always lived in must be very stressful, there are taxes associated with selling it, and the lump sum you get out of it once you've bought the smaller house is probably not enough to provide a significantly higher income than the state pension, even if the house you sold was valued at $2m. If at the end of all of that stress of moving and downsizing, you still only end up with pretty much the same pension income as someone who gets it from the state instead of starting with a $2m house, that sounds like robbery to me. The state can just let them keep living in that $2m home and take its cut with inheritance tax if it wants to.

In the UK, everyone is entitled to the state pension, even if they have millions in savings and their pension pays out 200k/year. I don't think there's anything unfair about that, seeing as they almost certainly paid more than enough National Insurance to cover it. I think it's eminently sensible, and more efficient, to do the adjustment by making the paying-in function a little steeper where it needs to be, rather than an expensive and error-prone means-tested system for the paying-out function.

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Re: Sobering reality!
« Reply #34 on: February 23, 2014, 05:19:39 AM »
completely sad... i know far too many people just like this.  they live in the NOW... it doesnt take much to think about how and where you're spending you money and what you get from that money spent. 

but say one of these is your family member 40 years from now and you retired at 35 ... you know where they will turn for money.  how do you say no how do you say look i was smart you wasted everything i'm not required to support you... do you remember when you laughed when i said this was doable.  tough spot to be in.

I am in this situation.  We have the same amount of education, most anyone had was two kids, the difference was in saving for retirement, cars and their expenses, eating out, and buying clothes and stupid stuff.

One sibling is upside down on his trailer he lives in in a trailer park
One is upside down on their house, little retirement savings, drive an Audi and BMW and are in their late fifties
Sibling three house paid for, some savings but will rely largely on ss when they are eligible
Sib four a little better off than sib three, but not much.

Early on trailer park borrowed $5000 and never paid it back. Next year he asked for ten, I said we could not do it and I was depending on the money I had already lent him to be paid back. He tried to bad mouth me to the other sibs but they agreed with me. It was a very good lesson and I would have no qualms saying no.  To this day trailer park and I have a strained but civil relationship.

steveo

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Re: Sobering reality!
« Reply #35 on: February 24, 2014, 12:54:48 AM »
In the UK, everyone is entitled to the state pension, even if they have millions in savings and their pension pays out 200k/year. I don't think there's anything unfair about that, seeing as they almost certainly paid more than enough National Insurance to cover it. I think it's eminently sensible, and more efficient, to do the adjustment by making the paying-in function a little steeper where it needs to be, rather than an expensive and error-prone means-tested system for the paying-out function.

This might work but I worry about how it will be funded in an on-going basis. In reality what will happen is that current tax-payers will be paying for the pay-out today and at some point the money well will dry up and someone will miss out.

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Re: Sobering reality!
« Reply #36 on: February 24, 2014, 06:05:14 AM »
And....this is why we have Social Security.  And also why we must do our best to protect it.

Actually, this is BECAUSE we have Social Security.  We should switch to the Chilean retirement system ASAP.

Undecided

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Re: Sobering reality!
« Reply #37 on: February 24, 2014, 08:55:16 AM »

Am I the only one who thought a lot of these people looked really good for their age?  Maybe not thinking about the future = better health = living longer.  Tres ironic.

I guess it depends on who you know or where you live---I was surprised at how "old" most of them looked.
« Last Edit: February 24, 2014, 08:56:58 AM by Undecided »

foobar

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Re: Sobering reality!
« Reply #38 on: February 24, 2014, 09:29:34 AM »
Not if the system is funded properly. Unfortunately that is a big if. In the US, the rates should have been raised by 1%(split between worker/employer) about 15 years ago which would have been enough to not have to figure out how to fund the short fall. At this point in time it would need to be a 2% increase and in another 10 years we are looking at over 3%. Or they could have cut benefits back then.....

SS to some extent is means tested today. You make under 40k and you don't pay taxes on it. Make 200k and your paying 31% taxes on 85% of it. You could argue it should be more but the high income person is already getting a raw deal versus the low income person (one person gets .75 on the dollar the other does 1.25).


It would be interesting to know the incomes of these people. People not saving money when making 30k/yr are a lot different than ones making 60k and not saving.

In the UK, everyone is entitled to the state pension, even if they have millions in savings and their pension pays out 200k/year. I don't think there's anything unfair about that, seeing as they almost certainly paid more than enough National Insurance to cover it. I think it's eminently sensible, and more efficient, to do the adjustment by making the paying-in function a little steeper where it needs to be, rather than an expensive and error-prone means-tested system for the paying-out function.

This might work but I worry about how it will be funded in an on-going basis. In reality what will happen is that current tax-payers will be paying for the pay-out today and at some point the money well will dry up and someone will miss out.

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Re: Sobering reality!
« Reply #39 on: February 24, 2014, 10:39:15 AM »
I don't think you understand how social security is taxed. Everyone pays 6.2% of their income below $113,700 for Social Security. This is money that you cannot get back. So even people making under 40k will still pay this tax and it is not up for refund. The only way that you could technically not pay it is if you had a tax rebate that was equal or exceeded your SS and Medicare tax. But it wouldn't be based on how much in SS you paid.

So if anything there is a bonus for high earners, and that is you don't pay SS for earnings over 114k. Though anyone making that kind of money is probably paying way more in than they would ever get out of it anyway.

foobar

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Re: Sobering reality!
« Reply #40 on: February 24, 2014, 11:12:52 AM »
There is no bonus for high income earners. There SS benefit is only calculated based on earnings up to the cap. Unless you count it as a bonus to not have to invest in a poorly performing retirement plan:)  SS is not a normal tax. It is an investment in a annuity whose pay off varies from OK to poor depending on how much you put in and if your SO contributes also or just gets the free money from your working.

I don't think you understand how social security is taxed. Everyone pays 6.2% of their income below $113,700 for Social Security. This is money that you cannot get back. So even people making under 40k will still pay this tax and it is not up for refund. The only way that you could technically not pay it is if you had a tax rebate that was equal or exceeded your SS and Medicare tax. But it wouldn't be based on how much in SS you paid.

So if anything there is a bonus for high earners, and that is you don't pay SS for earnings over 114k. Though anyone making that kind of money is probably paying way more in than they would ever get out of it anyway.

Vjklander

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Re: Sobering reality!
« Reply #41 on: February 24, 2014, 12:26:37 PM »
There is no bonus for high income earners. There SS benefit is only calculated based on earnings up to the cap. Unless you count it as a bonus to not have to invest in a poorly performing retirement plan:)  SS is not a normal tax. It is an investment in a annuity whose pay off varies from OK to poor depending on how much you put in and if your SO contributes also or just gets the free money from your working.

I don't think you understand how social security is taxed. Everyone pays 6.2% of their income below $113,700 for Social Security. This is money that you cannot get back. So even people making under 40k will still pay this tax and it is not up for refund. The only way that you could technically not pay it is if you had a tax rebate that was equal or exceeded your SS and Medicare tax. But it wouldn't be based on how much in SS you paid.

So if anything there is a bonus for high earners, and that is you don't pay SS for earnings over 114k. Though anyone making that kind of money is probably paying way more in than they would ever get out of it anyway.

Basically, a National Ponzi scheme.

Eric

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Re: Sobering reality!
« Reply #42 on: February 24, 2014, 01:42:50 PM »
Basically, a National Ponzi scheme.

I see this all the time.  Have you ever actually thought about it, or is this just the "Government Bad" idea?  Because calling SS a Ponzi scheme makes no sense considering that 1) it's been around for 80 years now, 2) no one is investing in it to get rich and 3) it's perfectly legal and above board.

Are annuities Ponzi schemes as well?  How about bonds?

foobar

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Re: Sobering reality!
« Reply #43 on: February 24, 2014, 02:35:09 PM »
Only to people that don't understand what a ponzi scheme is. 

There is no bonus for high income earners. There SS benefit is only calculated based on earnings up to the cap. Unless you count it as a bonus to not have to invest in a poorly performing retirement plan:)  SS is not a normal tax. It is an investment in a annuity whose pay off varies from OK to poor depending on how much you put in and if your SO contributes also or just gets the free money from your working.

I don't think you understand how social security is taxed. Everyone pays 6.2% of their income below $113,700 for Social Security. This is money that you cannot get back. So even people making under 40k will still pay this tax and it is not up for refund. The only way that you could technically not pay it is if you had a tax rebate that was equal or exceeded your SS and Medicare tax. But it wouldn't be based on how much in SS you paid.

So if anything there is a bonus for high earners, and that is you don't pay SS for earnings over 114k. Though anyone making that kind of money is probably paying way more in than they would ever get out of it anyway.

Basically, a National Ponzi scheme.

CanuckExpat

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Re: Sobering reality!
« Reply #44 on: February 24, 2014, 03:11:05 PM »
Only to people that don't understand what a ponzi scheme is. 

This was a common enough criticism, that the social security website has/had it's own section on that: http://web.archive.org/web/20120315063102/http://www.ssa.gov/history/ponzi.htm
I don't know at what point or why they removed the page.
But Wikipedia also gives succint coverage: http://en.wikipedia.org/wiki/Social_Security_(United_States)#Claim_that_it_is_a_Ponzi_scheme
I like the "quasi pyramid scheme" statement.
For what it's worth, other countries with similar demographics have been able to reform their state retirement plans: http://en.wikipedia.org/wiki/Canada_Pension_Plan#History to make them more sustainable in the future, but it takes political will.

FIPurpose

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Re: Sobering reality!
« Reply #45 on: February 24, 2014, 03:22:42 PM »
There is no bonus for high income earners. There SS benefit is only calculated based on earnings up to the cap. Unless you count it as a bonus to not have to invest in a poorly performing retirement plan:)  SS is not a normal tax. It is an investment in a annuity whose pay off varies from OK to poor depending on how much you put in and if your SO contributes also or just gets the free money from your working.

I don't think you understand how social security is taxed. Everyone pays 6.2% of their income below $113,700 for Social Security. This is money that you cannot get back. So even people making under 40k will still pay this tax and it is not up for refund. The only way that you could technically not pay it is if you had a tax rebate that was equal or exceeded your SS and Medicare tax. But it wouldn't be based on how much in SS you paid.

So if anything there is a bonus for high earners, and that is you don't pay SS for earnings over 114k. Though anyone making that kind of money is probably paying way more in than they would ever get out of it anyway.

Haha yes that is what I was considering the bonus. That you don't have to keep paying into a poor investment.

seattlecyclone

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Re: Sobering reality!
« Reply #46 on: February 24, 2014, 04:30:36 PM »
SS is not a normal tax. It is an investment in a annuity whose pay off varies from OK to poor depending on how much you put in and if your SO contributes also or just gets the free money from your working.

This is a common misconception. There is no annuity account in Washington with your name on it. Benefits are set by law. The amount of these benefits does currently depend on how much tax you paid in previous years, but Congress can change benefit amounts and how they are calculated at any time. The way it actually works is basically as follows:
  • The taxes you pay go directly toward paying the benefits for current retirees. In no sense do they "invest" in any financial instrument that you have any legal claim to.
  • The Social Security Administration takes any extra payroll tax revenue over the amount required to fund current benefits and invests it in Treasury bonds. Paper copies of these are stored in a file cabinet in West Virginia. These bonds form the Social Security "trust fund."
  • In the event that payroll taxes and trust fund interest are not sufficient to fund current benefits, some of the bonds making up the principal of the trust fund are sold to make up the difference.
  • If the principal of the trust fund is exhausted, everyone's benefits will immediately be cut by an equal percentage such that the benefit cost matches the tax revenue. The Social Security administration estimates that this will happen in 2033, at which point they project benefits will need to be cut to about 75% of their normal levels.

All of this is based on current law. Again, Congress can change the program at any time. Very few politicians actually want to see an immediate 25% cut to benefits in 2033 (can you imagine any seniors voting for you if that happens on your watch?), so it's almost certain that they will gradually phase in some small benefit reductions and/or tax increases to bring the trust fund into long-term solvency. The fact that your Social Security benefits depend solely on the whims of Congress underscores the fact that your payroll taxes are not an investment in any meaningful sense of the word.
« Last Edit: February 24, 2014, 04:32:25 PM by seattlecyclone »

foobar

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Re: Sobering reality!
« Reply #47 on: February 24, 2014, 06:39:59 PM »
I forgot to make the  word quasi explicit.  Yes congress can change the law but political risk is part of any investment.  They could devalue the dollar 30%, default on the debt (doesn't seem so silly after the games of last year), put a 30% tax on roth withdrawals, nationalize your industry and so on.

The argument for SS is the video at the top. The argument against it is the crappy returns for a lot of people.


SS is not a normal tax. It is an investment in a annuity whose pay off varies from OK to poor depending on how much you put in and if your SO contributes also or just gets the free money from your working.

This is a common misconception. There is no annuity account in Washington with your name on it. Benefits are set by law. The amount of these benefits does currently depend on how much tax you paid in previous years, but Congress can change benefit amounts and how they are calculated at any time. The way it actually works is basically as follows:
  • The taxes you pay go directly toward paying the benefits for current retirees. In no sense do they "invest" in any financial instrument that you have any legal claim to.
  • The Social Security Administration takes any extra payroll tax revenue over the amount required to fund current benefits and invests it in Treasury bonds. Paper copies of these are stored in a file cabinet in West Virginia. These bonds form the Social Security "trust fund."
  • In the event that payroll taxes and trust fund interest are not sufficient to fund current benefits, some of the bonds making up the principal of the trust fund are sold to make up the difference.
  • If the principal of the trust fund is exhausted, everyone's benefits will immediately be cut by an equal percentage such that the benefit cost matches the tax revenue. The Social Security administration estimates that this will happen in 2033, at which point they project benefits will need to be cut to about 75% of their normal levels.

All of this is based on current law. Again, Congress can change the program at any time. Very few politicians actually want to see an immediate 25% cut to benefits in 2033 (can you imagine any seniors voting for you if that happens on your watch?), so it's almost certain that they will gradually phase in some small benefit reductions and/or tax increases to bring the trust fund into long-term solvency. The fact that your Social Security benefits depend solely on the whims of Congress underscores the fact that your payroll taxes are not an investment in any meaningful sense of the word.

seattlecyclone

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Re: Sobering reality!
« Reply #48 on: February 24, 2014, 08:21:26 PM »
I'm not taking any position "for" or "against" Social Security. I'm just saying that it's 100% wrong to characterize it as an investment. You pay taxes at a rate set by Congress while you're working. When you reach retirement age, you receive benefits at a rate set by Congress and paid by current workers' taxes. That's a textbook welfare program, not an investment. The word "welfare" has been so stigmatized in America that people go through such convoluted mental gymnastics to convince themselves that the label doesn't apply to Social Security, that their taxation is somehow equivalent to an investment in their future. This is simply not the case.

Sorry, this is just a pet peeve of mine.

Redfive20

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Re: Sobering reality!
« Reply #49 on: February 24, 2014, 08:29:11 PM »
We plan to take care of our parents from both sides if they need. Some of them have no savings. Their plan is to let their children to take care of them. All the children have agreed. Personally, I am willing to work harder and work more years to support them if needed. Family is the first.