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Sunday, September 13, 2009

Social Security Alternative

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Not quite two years ago, I wrote about Social Security funding. I concluded that:

The simple solution:

  • Increase the early eligibility age from 62 to 66 and the full retirement benefits age from the current 67 to 70.
  • Make mandatory retirement illegal before age 72 to ensure no one is forced to leave a job before retirement benefits are available
  • Require legal residence/citizenship for eligibility
The reasons this would work:
  • The funding problem is an actuarial issue, not a cash input one
  • Eligibility has been expanded beyond manageable limits or reasonable limits
This would place any hardship on the aging population as opposed to those who receive benefits from ancillary programs attached to Social Security. Those could and should be reviewed separately.
Just one other thought: delaying the time that social security benefits are available would serve as an incentive to 1) delay starting a working career to 2) become skilled/educated in something that they really want to do for a long time or 3) move to a country that offers nationalized everything like Britain (where you are granted all kinds of benefits, but you have to pull your own teeth to get them).
UPDATED SECTION: There is another way to address Social Security funding. By law, we all have to pay 6.2% [12.4% if self-employed] of gross income, up to a varying amount each year, into Social Security plus 2.9% of an unlimited amount into Medicare. Then, whether you need it or not, you start getting it beginning as early as 62-years old. But over 40 or 45 years of paying into the system, the government has gotten quite a chunk of change from you.
For example, for someone earning the $106,800 in 2009 -- $106,800 x 12.4% which is $13,243.20 plus 2.9% of $106,800 which is $3,079.80 ... a grand total of $16,320.00... exclusive of income tax. For someone earning $2 million a year, they contribute $58,000 PER YEAR just toward Medicare.

At the current rate and current maximum [which won't stay the same, by the way] a person earning $106,800+ would pay $529,728 just toward the Social Security amount in 40 years... not counting the investment value of that amount which would take the total to well into 7 figures! [at just 4% annual compounding over 40 years that would be $1,372,360]
Change the tax code so that you can elect to forego receiving social security payments... but in return the federal government will forego taxes on all pension and investment income received after the age of 67. This tax relief would also apply to spouses and heirs if they receive any part of your pension and investments upon your death.

In essence, you get nothing from the government from all of the payments made by you and your employer... and you give nothing to the government once you have achieve the age of full Social Security benefits.

Fair is fair.
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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates

FEDERAL RESERVE & HOUSING

SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006 Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
November 28, 2007 FED VICE CHAIRMAN DONALD KOHN
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."
http://www.reuters.com/

December 11, 2007 Somehow the Fed misses the obvious.
fed_rate_moves_425_small.gif
[Image from: CNNMoney.com]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's Economy.com. "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.”
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)