Would you forego Social Security if you could invest in own account instead?

[Paul der Krake]

In yesterday's presidential debate on CNN, Ted Cruz floated the idea of allowing young workers to set aside part of their FICA taxes to an individual retirement account.

Now let's look at the basics of Social Security as it stands today: an early retiree who works for 10 years, the minimum to be eligible for retirement benefits, earning a an arbitrary wage of $75,000 a year for 10 years, can expect monthly social security benefits of about 12k/year, give or take a few thousands, when he or she reaches normal retirement age. For more information on this, refer to RootOfGood's deliciously thorough explanation of SS calculations for early retirees.

Now I couldn't find Cruz's exact proposal of what "a portion of their tax payments" would actually look like, so let's make the bold assumption that one could disregard the need for paying current retirees' benefits, and assume such a plan would allow us to keep all of SS tax in 401(k) clone with even more stringent early withdrawal rules. Recall that SS tax is in fact 12.4% of one's wages, except half of it is completely hidden from view and paid by the employer. Let's also ignore medicare for simplicity. Given the additional $9,300 a year that you are now free to invest any way you like, are you confident that you could beat the government's guaranteed $12k/year annuity?

I think I could. Assuming a 7% return over 35 years on $93,000 (assume no investment in the working years for simplicity), I would be looking at a nest egg of over $900,000. Assuming a more conservative 5% return, it's still almost $500,000. The astute reader will recognize that I have waived away concerns such as inflation, world wars, labor relations, choosing instead to use today's dollar in all my back-of-the-napkin calculations. Even I get to live to 100 years, it still beats the SS annuity.

As much as it would benefit people like us, it would have disastrous social consequences. Average and sub-average Joes, already incapable of managing their 401(k)s, would riot as they enter their sixties without a pot to piss in after decades of mismanagement, predatory advisors taking away their earnings, etc.

[Telecaster]

As much as it would benefit people like us, it would have disastrous social consequences. Average and sub-average Joes, already incapable of managing their 401(k)s, would riot as they enter their sixties without a pot to piss in after decades of mismanagement, predatory advisors taking away their earnings, etc.

Exactly.  I would have loved to have invested my own money (and still would actually), but I don't see how it works as a social program.   Also, don't forget SS comes with the disability benefit, so to make the comparison equal you would have buy that separately, presumably from a private insurance company.   

[themagicman]

In yesterday's presidential debate on CNN, Ted Cruz floated the idea of allowing young workers to set aside part of their FICA taxes to an individual retirement account.

Now let's look at the basics of Social Security as it stands today: an early retiree who works for 10 years, the minimum to be eligible for retirement benefits, earning a an arbitrary wage of $75,000 a year for 10 years, can expect monthly social security benefits of about 12k/year, give or take a few thousands, when he or she reaches normal retirement age. For more information on this, refer to RootOfGood's deliciously thorough explanation of SS calculations for early retirees.

Now I couldn't find Cruz's exact proposal of what "a portion of their tax payments" would actually look like, so let's make the bold assumption that one could disregard the need for paying current retirees' benefits, and assume such a plan would allow us to keep all of SS tax in 401(k) clone with even more stringent early withdrawal rules. Recall that SS tax is in fact 12.4% of one's wages, except half of it is completely hidden from view and paid by the employer. Let's also ignore medicare for simplicity. Given the additional $9,300 a year that you are now free to invest any way you like, are you confident that you could beat the government's guaranteed $12k/year annuity?

I think I could. Assuming a 7% return over 35 years on $93,000 (assume no investment in the working years for simplicity), I would be looking at a nest egg of over $900,000. Assuming a more conservative 5% return, it's still almost $500,000. The astute reader will recognize that I have waived away concerns such as inflation, world wars, labor relations, choosing instead to use today's dollar in all my back-of-the-napkin calculations. Even I get to live to 100 years, it still beats the SS annuity.

As much as it would benefit people like us, it would have disastrous social consequences. Average and sub-average Joes, already incapable of managing their 401(k)s, would riot as they enter their sixties without a pot to piss in after decades of mismanagement, predatory advisors taking away their earnings, etc.

One thing that would benefit me with Social security is that my wife (who is going to be a SAHM) is able to collect half of my benefits. So we will receive 1.5x what was earned. I think depending on how long that we live, we will probably come out ahead with social security. With that being said, I would still rather have it in a private account even if I wouldn't come out ahead. I think I would feel better about it being in my own account with my own investment choices and could more accurately plan for the future if it was in my own account.

[Paul der Krake]

Exactly.  I would have loved to have invested my own money (and still would actually), but I don't see how it works as a social program.   Also, don't forget SS comes with the disability benefit, so to make the comparison equal you would have buy that separately, presumably from a private insurance company.

Excellent point. Some state employees (arebelspy if you read this), some religious workers, and foreign diplomats do not pay into SS, so I would love to hear how they factor that into their plans.

Having the option to opt out might also create a huge adversary selection problem, wherein only low-income workers choose to stay in SS as it's the better deal for them. That would increase the solvency strain on the program.

[AZDude]

First, I think this is bad policy because inevitably someone will not save or lose their money somehow and then demand some kind of government assistance(and they will get it).

Second, I would personally not do it because SS is such a small amount taken out, for a guaranteed income in normal retirement age. Its a failsafe that makes early retirement that much easier to justify. If you know at age 65 you will be getting enough to live on, then the fear of running out of money prior to death is severely lessened. If I retire at age 40, that is only 25 years where I absolutely *must* have money to live on, versus the 45+ years I would otherwise need to budget.

[Dee18]

The great thing about social security is that it is automatic...so I started contributing when I was 16 and had my first job as a waitress in a department store.  If I had put all my SSncontributions into index funds, I would be better off....but I'm sure 16 year old me, and probably even 27 year old me, would not have been thinking about retirement. 

[slappy]

Having the option to opt out might also create a huge adversary selection problem, wherein only low-income workers choose to stay in SS as it's the better deal for them. That would increase the solvency strain on the program.
[/quote]

I would be afraid it would go the other way. Low income workers desperate for every dollar of their paycheck to cover living expenses would opt out, and then they would end up worse off for not having the safety net of SS. 

[Jack]

From an individual perspective, I would love to have direct control over the money I've been forced to contribute to Social Security, because I think I can get a better return on it managing it myself.

From a public policy perspective, on the other hand, it's a terrible idea because people like me are idiots.

What Cruz's idea really is, is a handout to the financial services industry, especially the companies and "advisers" who push inappropriate/high-cost/shitty investments like variable annuities and other insurance-based products. The fact that Social Security is out of the control of the individual is a feature, and if people were forced to manage it themselves they'd often seek help and, in their ignorance, fall victim to predators and scammers.

[msilenus]

SS is really favorable for FIREers for two basic reasons:
1) FIRE folks don't hit the 30 years of working cap, so they use the program efficiently.  If you work a 31st year, your lowest earning year gets evicted and doesn't count toward your benefit computation.  Lots of folks subsidize the system this way, but FIRE folks won't.
2) The payout structure is progressive in the sense of lifetime SS-taxed earnings, NOT yearly earnings.  So the amount you get out relative to the amount you put in is ridiculously favorable in the first year, even if you have a very high income.  It gets progressively less good at two subsequent "bend points."  Much of the FIRE crowd probably never gets to the third phase.  The first two phases are very good deals.  (I haven't rigorously analyzed the third.  I suspect it's favorable if you're paying those taxes close to retirement and unfavorable if you're young and won't collect benefits for a long time.)

EDIT: I just realized I never answered the question.  I'm against privatizing SS (which is what the poster is talking about) because SS works extremely well for everyone, and private retirement savings works extremely well only for people who don't fuck up.  It works extremely poorly for lots of other folks.  I'm going to wind up on the hook for those "other folks" in one way or another.  For example: our in-laws raided their 401(k)s to start a hobby-business, and ate all their retirement savings in their 50s.  SS is going to save our asses there.  And if it didn't, it would be section 8 + food stamps picking up some of their slack.

But on a purely selfish level: I'd contribute to SS through the first two bend points, then switch to a private retirement account for the third.  (Which perhaps illustrates another reason why this is a bad idea: it weakens SS even more than it probably seems at first glance.)

[Northwestie]

I think that a fair amount of savvy investors - a disproportionate number are present here - likely could do better.  But for the bulk of Americans - no way.  Given how they run their credit cards it's a good thing the government does this for them.

[Gin1984]

No, I like multiple steams of income because they act as a safety net.  Also as you age, you can become less aware so having an extra safety net helps the elderly in that respect.

[nereo]

As many have pointed out, such a proposal could have disasterous social consequences.

what hasn't been mentioned is that we essentially have a system in place that allows you to forgo taxes in exchange for investing in your retirement - namely the IRAs, 401(k), HSA, 457 etc.

[zephyr911]

What I would do personally, and what I think makes for good policy, are almost wholly unrelated.

[Yaeger]

I think it would create an incentive to save, which is always a good thing. Similar to this it would enable more the opportunity to transfer their wealth to their heirs. Imagine the impact this would have on poor families if their poor children actually received an inheritance. I would give them savings to draw upon for all kinds of emergencies. It would be a huge step forward towards increasing inter-generational wealth for the poor. If dad and mom die before 62, 12.4% of their lifetime earnings aren't flushed down the toilet.

I'd also disagree with those here that say our current Social Security taxes aren't unduly burdensome. Realistically we need to find a middle ground, the CBO has been saying for years that entitlements, and the increasing debt to pay for them, are increasing at a rate unsustainable in the long term. Even raising taxes to support it would be detrimental towards long-term economic growth. Also, a 12.4% tax (and historically increasing by 1% every 7 years) is an ever-increasing burden on working families, today more than ever.

It's more important than ever that we find some way to take the risk off the taxpayers and place them on the people making the decisions.

[BFGirl]

As much as it would benefit people like us, it would have disastrous social consequences. Average and sub-average Joes, already incapable of managing their 401(k)s, would riot as they enter their sixties without a pot to piss in after decades of mismanagement, predatory advisors taking away their earnings, etc.

Exactly.  I would have loved to have invested my own money (and still would actually), but I don't see how it works as a social program.   Also, don't forget SS comes with the disability benefit, so to make the comparison equal you would have buy that separately, presumably from a private insurance company.

There are also survivor's benefits as well as SSI (Supplemental Security Income) funded from the Social Security pool (I think)

[nereo]

I think it would create an incentive to save, which is always a good thing. Similar to this it would enable more the opportunity to transfer their wealth to their heirs. Imagine the impact this would have on poor families if their poor children actually received an inheritance. I would give them savings to draw upon for all kinds of emergencies. It would be a huge step forward towards increasing inter-generational wealth for the poor. If dad and mom die before 62, 12.4% of their lifetime earnings aren't flushed down the toilet.

We already give plenty incentives to save, including the tax-advantaged accounts, the saver credit and favorable treatment towards qualified capital gains.  We exempt millions$ from tax on inheretance. The underlying problem in our society is that people still don't take advantage of these.  Regardless of their income level, the majority of people spend almost all of their paycheck.

It's more important than ever that we find some way to take the risk off the taxpayers and place them on the people making the decisions.

You realize that these are the same people, right? 

[Yaeger]

I think it would create an incentive to save, which is always a good thing. Similar to this it would enable more the opportunity to transfer their wealth to their heirs. Imagine the impact this would have on poor families if their poor children actually received an inheritance. I would give them savings to draw upon for all kinds of emergencies. It would be a huge step forward towards increasing inter-generational wealth for the poor. If dad and mom die before 62, 12.4% of their lifetime earnings aren't flushed down the toilet.

We already give plenty incentives to save, including the tax-advantaged accounts, the saver credit and favorable treatment towards qualified capital gains.  We exempt millions$ from tax on inheretance. The underlying problem in our society is that people still don't take advantage of these.  Regardless of their income level, the majority of people spend almost all of their paycheck.

Yet we're continuing to provide more incentives and programs to save because we realize we HAVE to get people to save. We need people to save. The US cannot support the majority of the populace with our rate of entitlement growth and slow economic growth. Keep sweetening the deal until people change their behaviors.

It's more important than ever that we find some way to take the risk off the taxpayers and place them on the people making the decisions.

You realize that these are the same people, right?

They're not. People don't pay proportional taxes to the benefits they use from the government. We have a progressive tax system that creates perverse incentives by shifting the majority tax burden to someone else.

[Paul der Krake]

I would be afraid it would go the other way. Low income workers desperate for every dollar of their paycheck to cover living expenses would opt out, and then they would end up worse off for not having the safety net of SS.

Not if there is no way to get the funds out of it early. In other words, you everyone still contributes 12.4%, the only choice being who gets to manage the funds. No hardship clause or loans like 401(k)s.

[Jack]

I think it would create an incentive to save, which is always a good thing. Similar to this it would enable more the opportunity to transfer their wealth to their heirs. Imagine the impact this would have on poor families if their poor children actually received an inheritance. I would give them savings to draw upon for all kinds of emergencies. It would be a huge step forward towards increasing inter-generational wealth for the poor. If dad and mom die before 62, 12.4% of their lifetime earnings aren't flushed down the toilet.

I completely disagree. First of all, even if it did create an incentive to save, I highly doubt it would be enough of one to get people to actually follow through, on average (in exactly the same way they fail to follow through on the 401k or IRAs now). Second, even if they did increase their savings rate, I highly doubt that they'd save enough to leave money to their heirs -- even if the median savings tripled compared to what people have in 401ks and IRAs today, they'd still be highly likely to outlive their money and die destitute.

[Yaeger]

I think it would create an incentive to save, which is always a good thing. Similar to this it would enable more the opportunity to transfer their wealth to their heirs. Imagine the impact this would have on poor families if their poor children actually received an inheritance. I would give them savings to draw upon for all kinds of emergencies. It would be a huge step forward towards increasing inter-generational wealth for the poor. If dad and mom die before 62, 12.4% of their lifetime earnings aren't flushed down the toilet.

I completely disagree. First of all, even if it did create an incentive to save, I highly doubt it would be enough of one to get people to actually follow through, on average (in exactly the same way they fail to follow through on the 401k or IRAs now). Second, even if they did increase their savings rate, I highly doubt that they'd save enough to leave money to their heirs -- even if the median savings tripled compared to what people have in 401ks and IRAs today, they'd still be highly likely to outlive their money and die destitute.

I agree, there would be an increase in risk. But there would also be a greater increase in reward. If there wasn't a greater increase in reward, what would be the point? I suggest finding a way to incentivize people to shoulder this risk, to not punish everyone to benefit the few. The way we're doing things is not working.

I think the drop in inter-generational wealth for the poor is a large factor leading to our high wealth/income inequality. Rising taxes payroll (specifically FICA) taxes have attributed to pushing savings down to historically low levels. Even if the retirees that live long enough to deplete their savings, there would be scores that didn't and could pass something to their heirs. Something that could be used to provide a boost to upward socioeconomic mobility for the very bottom of our society.

Shrink the safety net and allow more people to escape poverty because of it.

[Cassie]

People need to be protected from themselves. It is a bad idea. Also we pay people that are disabled out of it, low income poor can collect a small amount. WE would still need to pay for these types of things.

[Proud Foot]

I would be afraid it would go the other way. Low income workers desperate for every dollar of their paycheck to cover living expenses would opt out, and then they would end up worse off for not having the safety net of SS.

Not if there is no way to get the funds out of it early. In other words, you everyone still contributes 12.4%, the only choice being who gets to manage the funds. No hardship clause or loans like 401(k)s.

I would definitely agree with this.  Make it so you only chose who manages the funds.  I might even go so far as to put constraints on investment options/asset allocation.  And then have specifics set for distributions.  Make it something like a 4% distribution rate and have a set age of when you can begin to receive distributions.

This would probably gut the SS program as most high wage earners would opt out and the low wage earners would stay with the traditional SS.  To fix this I would put a cap on the wages for the opt out and then have a second cap for the traditional SS.(ie 0-100k subject to opt out then 100k-200k traditional SS, or 0-200k traditional SS)

[Jack]

I agree, there would be an increase in risk. But there would also be a greater increase in reward.

We're already talking about the last line of defense before destitution, and the group which can least afford risk. Increasing risk is exactly the wrong thing to do! If you want to be risky, be risky with things above and beyond social security (like your 401k, or a taxable account).

I think the drop in inter-generational wealth for the poor is a large factor leading to our high wealth/income inequality.

What drop in inter-generational wealth for the poor? Did the poor ever have significant amounts of inter-generational wealth to begin with? I don't have time to research it completely, but at least this PDF suggests that the overall rate of inheritance has been going up, not down.

Moreover, inheritance is a cause of inequality, not a preventer of it!

[MsPeacock]

From an individual perspective, I would love to have direct control over the money I've been forced to contribute to Social Security, because I think I can get a better return on it managing it myself.

From a public policy perspective, on the other hand, it's a terrible idea because people like me are idiots.

What Cruz's idea really is, is a handout to the financial services industry, especially the companies and "advisers" who push inappropriate/high-cost/shitty investments like variable annuities and other insurance-based products. The fact that Social Security is out of the control of the individual is a feature, and if people were forced to manage it themselves they'd often seek help and, in their ignorance, fall victim to predators and scammers.

This!

I think the "people" who stand to benefit the most from such a program are banks that will charge service fees and sell shitty products to the uninformed. And then what? A bunch of destitute 70+ year olds with no income and too old or ill to work. No thanks.

[MilesTeg]

What Cruz's idea really is, is a handout to the financial services industry, especially the companies and "advisers" who push inappropriate/high-cost/shitty investments like variable annuities and other insurance-based products. The fact that Social Security is out of the control of the individual is a feature, and if people were forced to manage it themselves they'd often seek help and, in their ignorance, fall victim to predators and scammers.

^^ This. The 401k and other defined contribution retirement plans have all been primarily a handout to the legions of middlemen bankers, fund managers and other useless folks. A giant, multi-billion dollar a year gift to wall street in the form of a massive and easily skimmed bundle of capital to roll the dice with.

[Yaeger]

I agree, there would be an increase in risk. But there would also be a greater increase in reward.

We're already talking about the last line of defense before destitution, and the group which can least afford risk. Increasing risk is exactly the wrong thing to do! If you want to be risky, be risky with things above and beyond social security (like your 401k, or a taxable account).

Social Security taxation leads to poverty. The more we tax, the more people are left with zero options. Unfortunately, as we continue to raise taxes to supply an ever-increasing social safety net we're forcing more people into the safety net.

Also, increasing Social Security taxation also has effects throughout the economy. It's a transfer scheme from current workers and employers to the elderly. However, there's a economic loss called deadweight loss that this transfer creates. Meaning, the more we take, the less investment capital the economy has to grow. The bigger the safety net, the less jobs/wages/benefits are out there. Not only do higher taxes push more into poverty, but these higher taxes are causing job loss, wage loss, and long term effects in the economy. Good intentions do not trump bad results.

I think the drop in inter-generational wealth for the poor is a large factor leading to our high wealth/income inequality.

What drop in inter-generational wealth for the poor? Did the poor ever have significant amounts of inter-generational wealth to begin with? I don't have time to research it completely, but at least this PDF suggests that the overall rate of inheritance has been going up, not down.

Moreover, inheritance is a cause of inequality, not a preventer of it!

I think that document supports my observation. "By comparison, for the majority of Americans, the value of median inheritance is actually smaller today - roughly $29,200 - than it was two decades ago." I do think it's a cause of inequality, if the rich maintain high rates of inheritance and the poor and middle class show shrinking amounts of inheritance, it will create a wealth divide. I don't think the problem is with the rich, I think it's with the decline in inheritance for the poor and middle class, in part due to the increased impact of harmful social programs like SS.

[One Noisy Cat]

20 years ago I would have said yes but now at age 61 I say no, I would not have. I did savings on my own and I have a pension so I like having another source of income available soon.   Don't put all your eggs in one basket.

[CheapScholar]

Hell no, and I'm a republican.  SS offers disability payments and payments to my survivors should I pass away.  The bottom line is many people can't be trusted to save for retirement or catastrophic circumstances.  If you gave people the option to opt out they'd spend the money on stupid shit and turn 65 without a dime.   

Although, I'm now 35 and I worry about means testing for SS by the time I hit retirement age.  I'm putting 27K per year into my 401K right now (includes company match) and I could imagine them reducing payments and penalizing savers.

[ender]

I've thought about this a lot before and basically the only circumstances it makes any sense are the "opt out" option is somehow means/knowledge tested. Someone with $500k in a 401k who contributed the maximum to it last year is in a considerably better position to do this than someone with $0 in savings. Any plan like this frankly has to have some sort of "are you actually saving otherwise" means check.

If there was a stipulation such as that (perhaps you can opt out of SS for the current year, up to 50% of your previous year IRA/401k contributions? Or you receive an optional refundable tax credit for the prior year SS tax when filing, based on these? Or maybe allowing you to reduce your current year's SS tax by 1% of your total retirement account value - ie $100k in 401k/IRA/TSP lets you opt out of $1k SS taxes and associated income that year, etc) then I would support it.

But the problem is that the majority of people who would do this are going to have no money and no plan when they are 65. And that the people who have the most to gain from reducing SS payments also probably have the lowest "return" on it, meaning they are the payers -- not the receivers.

[Yaeger]

But the problem is that the majority of people who would do this are going to have no money and no plan when they are 65.

That's hard to say, but I have a little bit more faith in people. There are people, people I've talked to, that believe they don't have to save for retirement because Social Security will be there for them. It's a powerful disincentive that promotes government waste if a program encourages people to forego saving. It places a substantial burden on the taxpayer and it punishes the ones that did save, pushing incentives to save even lower.

I completely agree with opting out of Social Security, the benefits will far outweigh the negatives. Social Security is not meant to be another program where the poor milk the rich with regressive benefit calculations or taxable benefits based on income, it's not another wealth redistribution program, it's a retirement insurance program of last resort. LAST RESORT. Do not expect it. State and local charities should be sought after before you choose Social Security.

[Paul der Krake]

Exactly.  I would have loved to have invested my own money (and still would actually), but I don't see how it works as a social program.   Also, don't forget SS comes with the disability benefit, so to make the comparison equal you would have buy that separately, presumably from a private insurance company.

Excellent point. Some state employees (arebelspy if you read this), some religious workers, and foreign diplomats do not pay into SS, so I would love to hear how they factor that into their plans.

I am someone in this position. I was in a defined benefit plan but have chosen to opt in to a defined contribution plan (8% from me, 11% from employer). I can if I so desire opt in to social security. My line of thinking was that the benefit of a pension + SS(minus WEP's reduction) had a lower value than putting 19% of salary into a DC plan. Maybe that was a good idea, maybe not, but t least I know the distributions from my DC plan wouldn't lower any potential SS benefits should I choose to opt in.

I'm not sure how to value if I should opt in to SS or continue adding that 6% of my salary into my 457. Any thoughts?

You should post a case study! Very interesting question, but impossible to answer without knowing your expected retirement date, earnings, and specifics of your plan.

[steviesterno]

i would much rather have the chance to use it now. My honest opinion is that SS isn't going to exist by the time I'm old enough to get it. so i'm pretty sure I will be paying for a bunch of other people to retire, and none of that money will be mine.

My plan is to come up with all the money myself, and not factor in any chance at anything from anybody else. anything that comes down the pike otherwise can be a bonus or speed up my goals, depending where I am.

[ender]

But the problem is that the majority of people who would do this are going to have no money and no plan when they are 65.

That's hard to say, but I have a little bit more faith in people. There are people, people I've talked to, that believe they don't have to save for retirement because Social Security will be there for them. It's a powerful disincentive that promotes government waste if a program encourages people to forego saving. It places a substantial burden on the taxpayer and it punishes the ones that did save, pushing incentives to save even lower.

I completely agree with opting out of Social Security, the benefits will far outweigh the negatives. Social Security is not meant to be another program where the poor milk the rich with regressive benefit calculations or taxable benefits based on income, it's not another wealth redistribution program, it's a retirement insurance program of last resort. LAST RESORT. Do not expect it. State and local charities should be sought after before you choose Social Security.

Considering that nearly 50% of people who participate in 401ks cash them out when changing jobs I am more than comfortable saying that most people will make poor decisions regarding opting out of social security. People on the whole already demonstrate statistical stupidity when it comes to retirement decisions (seriously just Google anything related to '401k cash out' as there are many articles and none of them support the ideal that people would be wise about SS either).


That is why I think a means-based opt out that applies only on a yearly basis is ideal. It makes sense to allow people who have shown they are capable of saving for retirement to opt out of a portion of SS proportional to how well they are saving for retirement.

[jrhampt]

Second, I would personally not do it because SS is such a small amount taken out, for a guaranteed income in normal retirement age. Its a failsafe that makes early retirement that much easier to justify. If you know at age 65 you will be getting enough to live on, then the fear of running out of money prior to death is severely lessened.

Same here.  What I end up getting out of my 401k/investments is variable.  I like having a backstop of defined income stream.

[human]

I haven't read all of the comments so not sure if this has been brought up. I think if we got rid of social security (cpp) in Canada you would just find more destitute older people who decided not to pay in, you would need to prove you were really investing that money when opting out. Otherwise some other guaranteed income benefit would take its place and of course who would be left paying for that.

My 38 year old self says that keeping the money to invest elsewhere is a good idea not sure what my 25 year old version would say.  .

[Bucksandreds]

Absolute sociopathic nonsense by Ted Cruz, Paul Ryan and any other joker who supports it.  Having little to no protections for our most vulnerable age group is nothing but an attempt by the rich to pay lower taxes. There is no other realistic rationalization. The real solution to social security is to go the opposite direction. Subject 100% of income including capital gains to 6.2% employee portion of social security. Medicare rate needs to go up as well as it is just as/more underfunded than SS.

[Tabaxus]

Absolute sociopathic nonsense by Ted Cruz, Paul Ryan and any other joker who supports it.  Having little to no protections for our most vulnerable age group is nothing but an attempt by the rich to pay lower taxes. There is no other realistic rationalization. The real solution to social security is to go the opposite direction. Subject 100% of income including capital gains to 6.2% employee portion of social security. Medicare rate needs to go up as well as it is just as/more underfunded than SS.

Yeah, increase everyone's taxes by 6.2% over the current income limit (for presumably no benefit to those people, because I imagine you subscribe to the view that the benefits should not go up to account for the higher contributions in), and subject all capital gains to a 6.2% tax, plus yet another 1-2-maybe more% for medicare!  Raise the higher marginal rates too!  Screw people who work hard, many of whom had many, many years of education (and a ton of student loan debt to pay off) to make those salaries; having a marginal federal tax rate well in excess of 50% is totally fine and wouldn't disincentivize high-income earners at all!  I certainly know that I would put in the elbow grease if the federal government was taking 50-60 cents from every marginal dollar I earned (plus, of course, state taxes).  After all, insane marginal rates worked in the mid-1900s, when the world economy was totally indistinguishable from what it is now, so it would totally work today!

That being said, I don't support privatizing social security, mainly because most people are stupid.  Setting aside the fact that privatization doesn't work as a policy matter, though, would I personally want to take my SS and have control of it?  Yes, absolutely.  Mostly because the writing is on the wall, and I see basically 0% chance that people who were responsible (and able) in their working lives and saved a lot will have access to those SS funds in the future because means testing seems inevitable.  Bernie-nomics is probably the future. 

[desertadapted]

100 times no.  I've recently taken a job where I'm exempt from social security taxes and it's uncool.  Yes, it's nice to have the extra 6.2% in income, but I'm trading a generously funded defined benefit plan (SS) for the hope of doing as well or better in the stock market.  Based on how my index funds have been doing for the past 15 years, I don't see it penciling out, particularly if luck strikes and I live a long healthy life.  From an early retirement perspective it's even worse, because we had previously planned on gradually spending down in retirement (e.g., not relying on the 4% rule exclusively) -- spending about 20 years FIRE'd and then starting SS withdrawals to take pressure off of the stash.  Based on my calculation, the combined effect of reduced social security, and the windfall elimination provision, my projected SS payout will be down about 60% from what it would otherwise be, even in early retirement.  I'm going to have to be both lucky and good in my investments to meet, much less beat, SS.  So, short answer: much rather have social security.  Not sure I would have thought in those terms in my 20's, but I certainly do now. 

[Bucksandreds]

Absolute sociopathic nonsense by Ted Cruz, Paul Ryan and any other joker who supports it.  Having little to no protections for our most vulnerable age group is nothing but an attempt by the rich to pay lower taxes. There is no other realistic rationalization. The real solution to social security is to go the opposite direction. Subject 100% of income including capital gains to 6.2% employee portion of social security. Medicare rate needs to go up as well as it is just as/more underfunded than SS.

Yeah, increase everyone's taxes by 6.2% over the current income limit (for presumably no benefit to those people, because I imagine you subscribe to the view that the benefits should not go up to account for the higher contributions in), and subject all capital gains to a 6.2% tax, plus yet another 1-2-maybe more% for medicare!  Raise the higher marginal rates too!  Screw people who work hard, many of whom had many, many years of education (and a ton of student loan debt to pay off) to make those salaries; having a marginal federal tax rate well in excess of 50% is totally fine and wouldn't disincentivize high-income earners at all!  I certainly know that I would put in the elbow grease if the federal government was taking 50-60 cents from every marginal dollar I earned (plus, of course, state taxes).  After all, insane marginal rates worked in the mid-1900s, when the world economy was totally indistinguishable from what it is now, so it would totally work today!

That being said, I don't support privatizing social security, mainly because most people are stupid.  Setting aside the fact that privatization doesn't work as a policy matter, though, would I personally want to take my SS and have control of it?  Yes, absolutely.  Mostly because the writing is on the wall, and I see basically 0% chance that people who were responsible (and able) in their working lives and saved a lot will have access to those SS funds in the future because means testing seems inevitable.  Bernie-nomics is probably the future.

Heaven forbid higher taxes on those who have the most. Heaven forbid doing something (higher taxes to pay for social expenditure) which is actually shown to grow an economy. https://www.ucl.ac.uk/economics/undergraduate/module-list/furukawa.pdf
Your opinion, which you've decided is fact, seems much more credible than science.

PS raising the income limit would raise my taxes as well. Doesn't make it the wrong thing.

[Yaeger]

Heaven forbid higher taxes on those who have the most. Heaven forbid doing something (higher taxes to pay for social expenditure) which is actually shown to grow an economy. https://www.ucl.ac.uk/economics/undergraduate/module-list/furukawa.pdf
Your opinion, which you've decided is fact, seems much more credible than science.

PS raising the income limit would raise my taxes as well. Doesn't make it the wrong thing.

Using fancy looking data that doesn't support your point doesn't really prove that the rich need to pay more or that higher taxes grow an economy.

"To my knowledge no study has examined an impact of income tax on economic growth when income inequality is considered." The entire paper is a weak argument at best and only looks at incentives for the 'lower ability' people and not the reverse incentives for the high income earners.

http://www.brookings.edu/~/media/research/files/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwick/09_effects_income_tax_changes_economic_growth_gale_samwick.pdf
http://taxfoundation.org/article/what-evidence-taxes-and-growth

Most economists, I use that term loosely, tend to support the idea that lower taxes helps growth. But when you look at taxes you need to look at effective taxation. The rates for the top 10% are lower today than the marginal rates were 40 years ago, but the effective tax rate is about the same. Things like the ACA (2013), medicare tax increases (1994), Social Security becoming taxable (1993) are just examples of additional taxes added under the radar, but do add to the effective tax rate. Combine that with the historic increases in state and local taxes and the rich are paying the same in taxes as they were under Carter. Whether you believe in the Laffer Curve or not, there is historical evidence that points to the fact that people respond to tax increases (look at the reason France lowered its top tax rate). People have choices and raising taxes does not always raise revenue.

Nothing is stopping you from donating your money to the government if you feel like you're not doing enough for social expenditures. Don't push your belief onto others though.

[BudgetSlasher]

Exactly.  I would have loved to have invested my own money (and still would actually), but I don't see how it works as a social program.   Also, don't forget SS comes with the disability benefit, so to make the comparison equal you would have buy that separately, presumably from a private insurance company.

Excellent point. Some state employees (arebelspy if you read this), some religious workers, and foreign diplomats do not pay into SS, so I would love to hear how they factor that into their plans.

Having the option to opt out might also create a huge adversary selection problem, wherein only low-income workers choose to stay in SS as it's the better deal for them. That would increase the solvency strain on the program.

Those "some state employees . . . [who] do not pay into SS, are likely covered by a state pension plan (I presume on the assumption that it stands in for SS). Which then varies by state. For example in Maine (which will form the basis of pretty much everything I discuss here) there are at least 2 level of employee contribution (~1 and ~7 percent) to the pension system with the rest paid by the state and there are employees covered under at least 4 different retirement ages (60, 62, and 65 being the normal ages depending on when you started and 55 for hazardous jobs). That pension is roughly calculated based on your number of years of service times you highest earning years times a percentage (roughly 2 percent per year) and then if you being to draw before your normal age a penalty is incurred (year times percentage again).

And when you being to draw you pension you have to elect how to treat your spouse if you die first (same amount, a lesser payment, or nothing) which in turn impacts the size of your check while you are alive.

And don't forget that if you have payed into SS in the private sector you are subject to a penalty/offset (which I think is roughly a dedication of 2/3 of your pension payment). Of course some programs allow you to withdraw your contribution, but not the state's amount (plus some amount of interest) rather than draw the actual pension; in which case you could in draw a full SS check either from your private sector work or one that is half that of your spouse's.

On the flip government employees often have the option to participate in a 457(b) and in rarer cases a roth 457(b), which allows you to begin drawing a check from at the termination of employment with the government without penalty regardless of age.

[Bucksandreds]

Heaven forbid higher taxes on those who have the most. Heaven forbid doing something (higher taxes to pay for social expenditure) which is actually shown to grow an economy. https://www.ucl.ac.uk/economics/undergraduate/module-list/furukawa.pdf
Your opinion, which you've decided is fact, seems much more credible than science.

PS raising the income limit would raise my taxes as well. Doesn't make it the wrong thing.

Using fancy looking data that doesn't support your point doesn't really prove that the rich need to pay more or that higher taxes grow an economy.

"To my knowledge no study has examined an impact of income tax on economic growth when income inequality is considered." The entire paper is a weak argument at best and only looks at incentives for the 'lower ability' people and not the reverse incentives for the high income earners.

http://www.brookings.edu/~/media/research/files/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwick/09_effects_income_tax_changes_economic_growth_gale_samwick.pdf
http://taxfoundation.org/article/what-evidence-taxes-and-growth

Most economists, I use that term loosely, tend to support the idea that lower taxes helps growth. But when you look at taxes you need to look at effective taxation. The rates for the top 10% are lower today than the marginal rates were 40 years ago, but the effective tax rate is about the same. Things like the ACA (2013), medicare tax increases (1994), Social Security becoming taxable (1993) are just examples of additional taxes added under the radar, but do add to the effective tax rate. Combine that with the historic increases in state and local taxes and the rich are paying the same in taxes as they were under Carter. Whether you believe in the Laffer Curve or not, there is historical evidence that points to the fact that people respond to tax increases (look at the reason France lowered its top tax rate). People have choices and raising taxes does not always raise revenue

Nothing is stopping you from donating your money to the government if you feel like you're not doing enough for social expenditures. Don't push your belief onto others though.

So it's ok for you to push your beliefs (lower taxes) but not ok for me to push mine? You have another thing against you. Soon demographics will change the political landscape where the right is going to have to budge much closer to the center.  I can't wait until the day when the debate isn't between a Clinton v Trump/Cruz type but a Sanders v Clinto type. Over the years Repubs will have to come very close to the kind of things Clinton advocates if they want any chance at winning a national election.

[Yaeger]

So it's ok for you to push your beliefs (lower taxes) but not ok for me to push mine? You have another thing against you. Soon demographics will change the political landscape where the right is going to have to budge much closer to the center.  I can't wait until the day when the debate isn't between a Clinton v Trump/Cruz type but a Sanders v Clinto type. Over the years Repubs will have to come very close to the kind of things Clinton advocates if they want any chance at winning a national election.

Yes, lower taxes doesn't prevent you from giving more, giving as much as you're comfortable with. You don't need government telling you to help the poor, protect the weak, etc. I don't see how you, or anyone, could say that it's the same as using force to take people's money and spend it contrary to their wishes. There's a huge fundamental difference.

I hope the day never comes that we give up everything that made our country great, that grew us into the world's largest economy, created the standard by which the middle class is defined. It'll be a sad day for a Constitutional government that claims to champion liberty, individual freedom, and equality above all else.

[2buttons]

Yes! God yes! Social security is such a scam. Also Ted Cruz isn't the first person to suggest individual accounts. W was all over this, but demsin congress filibustered his push for it. The line was Republicans want to gamble your social security in the stock market. #fearmongering.

Not only would I love this, I would be willing to forgo 2% of my contribution to be able to do it, and to cover the dummies, not that I have to cover the dummies, but just saying I would give anything to claw back my ill invested dollars.

I also cannot sit idly by when anyone says that the govt should protect people from themselves. That is the kind of thinking that allows people to tax a stash for the irresponsible.

Nothing enrages me more than that thinking.

[Bucksandreds]

So it's ok for you to push your beliefs (lower taxes) but not ok for me to push mine? You have another thing against you. Soon demographics will change the political landscape where the right is going to have to budge much closer to the center.  I can't wait until the day when the debate isn't between a Clinton v Trump/Cruz type but a Sanders v Clinto type. Over the years Repubs will have to come very close to the kind of things Clinton advocates if they want any chance at winning a national election.

Yes, lower taxes doesn't prevent you from giving more, giving as much as you're comfortable with. You don't need government telling you to help the poor, protect the weak, etc. I don't see how you, or anyone, could say that it's the same as using force to take people's money and spend it contrary to their wishes. There's a huge fundamental difference.

I hope the day never comes that we give up everything that made our country great, that grew us into the world's largest economy, created the standard by which the middle class is defined. It'll be a sad day for a Constitutional government that claims to champion liberty, individual freedom, and equality above all else.

Funny how every time they rank countries by overall quality of life, countries with high taxes end up on top. The majority of Americans and the vast majority of the countries where people are healthiest and happiest disagree with you. Last I saw somewhere in the seventy something percent of Americans support higher taxes for the rich.  The vast majority of Americans want a system where everyone who's willing to participate share in our prosperity. Not just those who were born in to privlege or those who figured out how to game the system.  You realize you're on the losing side, right. Better get over it. Your ideas are past their time. It will inevitably be taken too far in the direction that I support and then your ideas will be back in vogue in 20-30 years time.  You're in for some unhappy years ahead, however.

[2buttons]

Nordic states? Good call. Homogenous cultures, with a high tax rate and limited social mobilty. What else did Rachel Maddow teach you this week. I would rather grow up poor in the US, than live there.

Ask Denmark how their safety net is working in 5 years after the refugee crisis. I dare you.

I haven't read more baloney in a long time.

[Yaeger]

Funny how every time they rank countries by overall quality of life, countries with high taxes end up on top. The majority of Americans and the vast majority of the countries where people are healthiest and happiest disagree with you. Last I saw somewhere in the seventy something percent of Americans support higher taxes for the rich.  The vast majority of Americans want a system where everyone who's willing to participate share in our prosperity. Not just those who were born in to privlege or those who figured out how to game the system.  You realize you're on the losing side, right. Better get over it. Your ideas are past their time. It will inevitably be taken too far in the direction that I support and then your ideas will be back in vogue in 20-30 years time.  You're in for some unhappy years ahead, however.

If you like those places, go live there. Honestly, it's a doomed proposition to attempt to chase after what you think is 'better' based on loose statistics. People do share in prosperity, that's been the amazing strength of Capitalism turning the US from a backwoods colony into a world power in less than 100 years. JFK said "a rising tide lifts all boats", he's right. Prosperity, economic growth, is the only historically proven method to mitigate poverty. Inequality and growth are linked. Your plan is to reduce growth in favor of a more 'fair' system but bringing down the rich cannot and does not bring up the poor.

Ever wonder why we have the exact same percentage of the populace in poverty today than we had prior to 1965 and the start of LBJ's War on Poverty? After 50 years of effort and over $22 trillion spent we have the exact same amount of people in poverty today as we did 50 years ago when a fraction of the government's budget was spent combating poverty. Combating poverty through redistribution does not work. Maybe when people stop taking the easy road and avoid the political process to vote for more 'free' stuff at the expense of their fellow citizens they'll understand that. Our founding fathers designed the Constitution to intentionally avoid that. Madison was quoted as saying "No man is allowed to be a judge in his own cause, because his interest would certainly bias his judgment, and, not improbably, corrupt his integrity." They were concerned with the federal government corrupting the political process by 'trading votes for food'.

Anyone that has looked a little at our history, and the history of the 20th century, should be concerned with people like Sanders whoring out the government for votes.

[doggyfizzle]

Yaeger is it the exact same percentage of people or is it the same number of people?  Your post is equivocal about it.

Census Bureau data show overall poverty rates have fallen from 19% in 1965 to 15% in 2012 of the population, which would obviosuly result in a much larger absolute number of people in poverty due to the large increase in US population over the past 50 years.  Old-age poverty has declined from nearly 40% in 1960 to less than 10% presently, mainly due to Social Security and Medicare.  These programs aren't "free;" they are funded through payroll taxes and have been able to meet ongoing insurance costs for decades, and many more with some minor tax adjustments to reflect the longer lifespans and insurance draw times of future generations.

As far as poverty reduction for non 65+, I think the single best measure of poverty reduction is the EITC, and an expanded EITC (maybe paid quarterly) could do wonders for younger working age people who choose not to work because of relative ease of receiving welfare benefits over a long period of time.  One things that always irks me when people bring up the Nordic safety-net is that there is little (official published welfare use duration data in Sweden, Denmark, Norway) abuse of the safety nets by the working age population.  If people lose their jobs, they don't perpetually stay on the public dole, unlike what ends up happening in too many instances in the US.

I guess in short, I don't entirely disagree with you, although I do think that one of the benefits of living in a capitalist country like the USA should be a decent (but not overly generous) medical and income insurance stopgap offered by the government to encourage work and risk-taking amongst the working age population.

[Trimatty471]

I have been working over 20 years.  If they give me the money that they garnished from my check, I would consider it.

[starguru]

I'm surprised no-one has brought Australia's superannuation system and its results.  From what I recall, the average inheritance in Australia is over 500k at this point.  If that is true, it seems at least superficially that forced savings is beneficial for society as a whole, even if there can be problems with such a system.

I don't know if I support Cruz's exact proposal, but I do support the idea of forced savings.  It could be done in such a way so as to prevent savvy financial professionals from taking advantage of the less financially literate.  Hell, couldn't they let these forced savings accounts participate in the federal TSP funds, which are excellent?  If worse came to worse, the government could bail out people's retirement accounts just as they do businesses when it gets bad enough. 

I don't think forced savings can reasonably replace SS, but I do believe it could certainly augment the existing system.