Disagreements over increasing the retirement age: New Thread

Intended for constructive conversations. Exhibits of polarizing tribalism will be deleted.
Surio
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Post by Surio »

@Alex/Forum,

In retrospect, I felt I should have tried to engage your thoughts and placed mine to contrast.
So, I have decided to collect my thoughts on the subject into a single, more coherent narrative.
See what you all make of the points raised. The post is not complete. I stopped since it grew to over 2500 words.

This time though, I welcome everyone's thoughts comments and questions. You may please leave the comments at the blog, or over here. It will help the post mature and grow with points/counterpoints.


AlexOliver
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Post by AlexOliver »

My basic opinion is the government shouldn't pay for anyone's retirement, and one should save for it.
But since we (USA) already have a system that is being used as one's *only* retirement income, instead of saving for it themselves, we've created a huge dependency. The SS Trust Fund was raided to pay for other parts of the budget, so it will begin to run at a deficit soon and will be completely bankrupt by 2037/2041 (I've seen different years for this, but as they're the government's own numbers, I assume it will be bankrupt before this). Basically the government's made promises it can't come through on. This is the situation as I understand it, others may have more accurate information and are encouraged to correct me.
From your blog, in response to my comment on the other post: "Don’t you sense the PWE sentiment that drives this kind of thought process?"
No. If you want to retire before then, save for it yourself! Like you should be doing anyway. But if you want *us* the taxpayers to take care of you, it will only be when you're too old and feeble to do it for yourself, which is a much later age than it was when SS/Medicare was introduced.
"It would be cruel for someone who was really loking forward to put their feet up, to be told today that it is not 6o, but maybe 72 or 75"
They should already be saving for their retirement. If they're not, screw em, in my opinion.
Basically I disagree that one should forgo personal responsibility and *expect* the government to take care of them. They should do it themselves.


jacob
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Post by jacob »

The current condition:
1) Savings rate is based on old mortality and old retirement age.

2) Medical technology has raised longevity. It would not be unusual for someone to work only half their life, e.g. for 20-60 but not 0-20 and 60-80.
Solution:
Increase savings rate OR increase working age (or both).
Increasing working age may be difficult since while people die later, they're not exactly in a better condition to work given the same age.
In retrospect it was really really stupid to base retirement on a pay-as-you-go scheme which effectively turns into a Ponzi scheme, when the dynamics isn't stable [but maybe increasing lifespan were not foreseen].


DividendGuy
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Post by DividendGuy »

I wish they'd privatize it. Keep the tax, but route the funds into a 401(k) type investment plan. I understand the need to *make* people pay for their retirement to be less of a strain on society, but I'd like the management in my own hands. I wouldn't have to worry about shady government entities raiding my account whenever they feel like it. Make the rules stringent, make early withdrawals non-existent. Take all the money I've paid in and give me 75 cents on the dollar in the new account. Consider the other 25 cents transfer fees and some kind of baby boomer tax. I don't care. I just want the money somewhere I can see it and know that it's going to be there when I'm older. If you want to raise the age to the upper 60's I'm cool with that too. My ERE plan is what I'm going to plan on living on anyway.


HSpencer
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Post by HSpencer »

Really only two things wrong with Social Security. (1) Government management of the fund, and (2) The heavy amount of freeloaders that ride the train.

I personally see nothing wrong with contributing to a fund that provides a monthly benefit in one's later years. Yes, it is better if one did it themselves. The reason this won't work is the same reason the National Savings Rate hit a negative figure pre-2008. Folks in general just won't set themselves up a retirement payout resembling SS. Something taken out from earnings by employer and matched is the way it had to be done.

I am not saying Social Security is great, I am saying a whole lot of people would be living off the government anyway, if not for it. Some people making the most money off SS are "SS disability claims lawyers". These sharks can take a scribble from one's doctor and get disability for anyone. Everyone knows both people who are honestly disabled, and know some who are "disabled". While disability pays small change, it works well for someone who just wants to "draw" some funds each month.

"I am horrified of other people and therefore not emotionally stable enough to work". Yeah, me too. I have seen my fair share of those.

If people would take the initiative to invest their money, I would say let SS go away. They won't, so it won't, and one day it will be higher taxes or less benefits. It won't be changed in administrative management because of it being such a hot potato in political circles. All previous administrations and congresses have been afraid to touch it seriously with litigation.

When I say if people would take the initiative, I am talking about the majority of citizens, not the forward thinking people you find on forums like this one. Until that happens:

You can draw at age 62(recommended)

you can draw off a divorced spouse (it's done a lot)

You can draw if your actually disabled (you would deserve to)

You can draw if your "disabled minded" (see above)

You can draw if your a surviving child (not sure of those laws)
Know the difference between "Social Security" and "SSI". SSI is the catch-all. It works well with Medicaid.

Don't forget people are pretty quick to figure out a cushy deal.
I don't expect SS to go anywhere, anytime soon.

@Dividend Guy

I like that term "boomer tax"--


dragoncar
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Post by dragoncar »

Privatization is like letting your 5 year old run his college fund. The whole point is to provide for those who cannot provide for themselves. Because these people are, by definition, those that cannot provide for themselves, how do you expect them to wisely manage a retirement account?
Sure, some liken SS to a messed up savings account, but we all know it's really a tax that goes towards the welfare of the elderly.


HSpencer
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Post by HSpencer »

@Dragoncar
"The whole point is to provide for those who cannot provide for themselves. Because these people are, by definition, those that cannot provide for themselves, how do you expect them to wisely manage a retirement account?"
Could your above paragraph also read:

"Cannot and/or will not"?

To me, the added term of "will not" seems more encompassing.


Surio
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Post by Surio »

@HSpencer, Thanks for leaving a comment.
@all

If anyone of you notice some narrative fallacies in my writing please point it in the blog, so others who read might understand the flip side to the coin (E.g., I had not held the workforce accountable in my writing, and Spence did that a little in the comments. Thanks, @HS)
@Jacob, agree with your sentiment [in retrospect...]. I recall reading Peter Schiff, who also takes that same line. That is why I took the time to add that stretched boat+tide analogy.
@firefighterjeff, I am not even an American/British/European, but it more than bothers me Social Security surplus money was squandered for other purposes. I mentioned it in my blog post too!
@all (here's a culled reply to another commentor in my blog),
1. Hindsight is always 20/20 (6/6), and this idea of taking charge of your own retirement is a relatively new trend, no? As others also allude, What do we do with those others who had trusted the system (what else could they do, anyway?) in the past and gone with the prevailing trend of putting into a pension contribution? Too late to ask them to start saving now, isn’t it? As one comment in the blog said perhaps Logan’s Run (or “The Running man”, for modern audiences) sounds like it then. (I'm joking of course. Only Jacob (and a few others) might be able to outrun the pressgangs)
3. To a large extent I agree most people live high on the hog and need to be disciplined in their life, but can we really blame them? Most of the workforce of today don’t know when a job might move away and leave them worse off than they were yesterday with social upheaveals. In such a case, would you constantly keep re-training just to remain still, or would you simply say, “Sod this ‘retraining’ business, I’m off to the pub now”? Yes I know it is a stupid line to take, but then again I don’t hold too many candles to humankind’s intelligence anyway.
P.S: I am playing devil’s advocate to point the other side. I agree with the sentiments. There’s far too many benefit frauds out there than there are genuine cases. The so called, “Chavs”,


m741
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Post by m741 »

I agree with Dragoncar here. If we as a society refuse to let the elderly starve on the streets (and quite rightly, we do), then we have to provide for them some way. If we privatize social security, then those who gamble it on the stock market and lose the majority of it will still need to be supported. It's the same sort of moral hazard argument as "too big to fail."
As far as supporting social security, well, the age needs to be bumped up a few years. I don't see any way around that, and it makes sense... life expectancies have risen, so should the legal minimum retirement age.


Surio
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Post by Surio »

@m741,

As far as supporting social security, well, the age needs to be bumped up a few years. I don't see any way around that, and it makes sense... life expectancies have risen, so should the legal minimum retirement age.

No, sorry. I disagree. That's the wrong way to approach the argument. That remark was one of the reasons for my magnum opus! Hope you read the post I wrote?


m741
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Post by m741 »

I'll confess I didn't read your post. Skimming over it, I don't really see an alternative proposal. I agree that raising the age is not humane, and it's not something that should be done 'just because'.
Just about everyone agrees that SS will run out at some point, though people disagree how soon. Consequently, compromises will need to be made somewhere. What are the other alternatives to raising the retirement age?


photoguy
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Post by photoguy »

Anybody know what's the breakeven point for SS. For example, if you make 50k/year and contribute for 30years, are the SS payments greater or less than value of your contributions (and what are the relevant thresholds for income, discount rate, etc.)


Surio
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Post by Surio »

@m741,

Thanks for replying. I must confess I too would hate to be in the hot-seat for making such a decision, but please tell me, why is it that the easiest solution that does not inconvenience us, but others is adopted all the time?
MAJOR EDIT:
I moved my thoughts and some possible (radical)solutions back to the blog for continuity.


Surio
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Post by Surio »

@m741, I also wrote:

“the task of the philosopher is not to act as the Big Other who tells us about the world but rather to challenge our own ideological presuppositions.”

In other words, the post goes on and on and on to point that increasing the age is not the intelligent way forward.


m741
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Post by m741 »

I understand that the US government can cut its armed forces - there's certainly plenty of opportunity there, and it can raise taxes on the wealthy. Defense cuts don't happen because half the country opposes any and all reductions. Raising taxes on the wealthy is an option that's, incredibly, in the same basket.
As far as cutting health care costs and reducing litigation - most people would welcome them if they were presented honestly, but I don't see any true reform happening, in the US at least, given the political climate. Particularly reducing health care costs, since it's too easy to present those as "death panels," as we've seen. And I'm not sure what your position on that reform would be, since reducing health care costs would entail reducing end-of-life costs - a huge part of expenses, and this hurts the most vulnerable.
Without any numbers attached to these suggestions, it's difficult to see how much longer they would extend SS's lifetime by. And I don't see anything beyond superficial changes happening in these areas in the future.


jacob
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Post by jacob »

@photoguy - If you look at SS as a saving for retirement (eh, duh :) ), a 15% savings rate would entail working for 30-40 years to break even. This is seems to be the case and the tax is likely set for this to be the case.
@all - No one in favor of raising SS taxes instead of increasing the age? A point, which I think is valid, is that just because people live longer it doesn't mean they're actually capable of working longer.


Surio
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Post by Surio »

@m741,

Ahh numbers. :-) I know what you mean, that holy grail. I don't have the time to look at NZ's air-force re-allocation, but that's another discussion for another day, or in other words "We'll cross that bridge when we actually come to it". At this moment, they are mere suggestions.


Surio
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Post by Surio »

@Jacob,

I am totally in favour of that... but now we are talking policy matter, and we know for sure re-election is a "Tax" thing. Ask the Labour party in UK in 1992!
Like I pointed before:

" why is it that the easiest solution that does not inconvenience us, but others is adopted all the time? "
No offence to anyone in particular, but it's human nature.
" people live longer it doesn't mean they're actually capable of working longer"

And I've been bleating that precisely since yesterday: with all those bread-loaves stacking, prescription medicine, brainwashing analogies spiel!


dragoncar
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Post by dragoncar »

The SS calculations are thus:
AIME =~ your inflation adjusted monthly earnings averaged over the 35 best years
In 2005, you got 90% of AIME up to an AIME of $627, 32% up to $3,779, and 15% of any AIME above that.
Lets say you started working at 18 and retire at 65. You earn a salary of 1 and contribute 12.4% to savings. Lets assume inflation completely evens out. After 47 years, you would have 5.828 times your annual salary saved.
Your life expectancy is 78 years, so you withdraw for 13 years. Thus, you get about a 45% income replacement Compare that to what SS provides (above).
Another way to look at it would be a 4% SWR, which would provide about 23% of your income.
Another way to look at it is to see what kind of interest rate the government is giving you. If you save 12.4% for 78 years, you'd need an interest rate of around 2.75% over inflation to replace 90% of your income for 13 years. So that's the effective rate the government is giving you on your "savings." It only goes downhill the more you make/replace.
To replace 90% of your income at a 4% SWR, you'd need an interest rate of around 5% over inflation.
Honestly, I'm not sure which of the above numbers are important. But on the surface, it looks like the benefits are decent for low-earners and horrible for high-earners. Which is what I'd expect.


AlexOliver
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Post by AlexOliver »

"this idea of taking charge of your own retirement is a relatively new trend, no?"
No. Well, kind of. Before they provided their own retirements, they relied on their children/family/friends to take care of them.
"but can we really blame them?"
Yes.
"That's the wrong way to approach the argument. That remark was one of the reasons for my magnum opus! Hope you read the post I wrote?"
I feel your post didn't really respond to it. Or if it did, I must have missed it.
"I've been bleating that precisely since yesterday"
I don't find your counterarguments convincing. People today *are* living longer, healthier lives than they were when SS was instituted. I don't see how longer lives *aren't* a cause to raise the withdrawal age.


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