"Entitled Selfishness": Great article on the dismal future of Social Security

[tedhowe]

I am angry to think I have paid all this time for someone else's retirement.I thought the money I put in was for me to collect later!

This is what many (most?) people think, but if you read up on the system, it was never designed to be that way. It is not an investment or pension plan in a traditional sense, but has always been about transferring money from current working people to retirees (or the disabled) who no longer have significant income, so that those who need it aren't subject to abject poverty.

The amount of benefit is somewhat related to the amount of earnings that you had throughout your life, but it's never been the case that there is a specific amount set aside for you.

 

[dvcgirl]

This is what many (most?) people think, but if you read up on the system, it was never designed to be that way. It is not an investment or pension plan in a traditional sense, but has always been about transferring money from current working people to retirees (or the disabled) who no longer have significant income, so that those who need it aren't subject to abject poverty.

The amount of benefit is somewhat related to the amount of earnings that you had throughout your life, but it's never been the case that there is a specific amount set aside for you.

You're correct....SS was never designed to be this way. It was started in 1935 when most male workers didn't make it to age 65. People collected only a few years on average. That was it.

Now, we're living 17 years longer than we did in 1935, and yet people still want to be retired by age 65 (at the latest I might add) *and* they want they want the government to pay them SS until they die...approximately 17 years later. Oh, and they'd like them to pick up their health care too. And, in 1950, we had 7.3 workers per retiree. Fifty seven years later we have only 4.7 workers per retiree, and in 2035 we'll have only *2.7* workers supporting each retiree. It's a house of cards waiting to collapse.

I can see the governments dilemma though. Given the choice, I'd certainly keep the portion of taxes that goes to SS. I'd invest it myself and be just fine. I'm sure most people would make the same choice to keep their portion, but most people wouldn't save and invest the money, they'd spend it. How do we know this....look at the 401K experiment. Twenty five years later and those balances are pitifully low. 25% of all workers don't even sign up. 50% cash out their 401Ks and spend them when moving from one job to another. It would never work.

 

[nyccajun]

I just wanted to bring up a few points I haven't seen mentioned.

Social Security is a social Insurance program and as was mentioned it was never intended to be a full support but only part of a persons retirement planning.

Retirement benefits are calculated on a workers average monthly earnings throughout their working life . Based on their highest 35 years of earnings after adjusting earlier earnings for inflation. Its weighted towards someone with lower lifetime earnings as they would be less likely to have the private pensions or the opportunity to save as much for retirement. This is where the "Social" portion of the program comes into play. Here is the current calculation for those who turn age 62 this year.

a) 90 percent of the first $680 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $680 and through $4,100, plus
(c) 15 percent of his/her average indexed monthly earnings over $4,100.

In addition to the retirement benefits that everyone is talking about and the Medical and Disability there is another very important part of the program

Survivor benefits.......

If something were to happen to you tomorrow ... do you have sufficient insurance to take care of your family ? Benefits are paid to surviving children of a worker until the child is age 18 or even longer if the child is disabled. While hopefully every one has enough life insurance I'm sure there are still many people out there that don't.

While changes in Social Security are needed all the predictions still show that no matter what Social Security will be able to pay out approx 70+ % of what is promised without any changes to the system.

So the real question is what changes are needed to extend the longevity of the system. Whether it is a tax rate increase ( fyi if they had increased the tax rate 1/4 of a percent when this issue was first raised many many years ago we most likely wouldn't have any probem at this point) or a further increase in full retirement age or a reduction in the benefit calculation I don't know , the real problem is no one else seems to either.


just my 2 cents

 

[Julia M]

I assumed that most pensions were based upon years of service -- is that not true? Are some pensions based upon age? At first glance, that doesn't make much sense to me.

My husbands pension is based on "points", age + years of service. So at 55 or so, my dh will have worked about 29 years (again, this is based to the exact month, so it's not perfect when you round years and ages), giving him 85 points. So he could retire.

The problem is, we will be out medical, unless I continue to work (I'm four years younger, so I'd be 51), or we are lucky enough that the government contractor he works for wants to reduce salary costs of senior people, and offers a Golden Handshake.

Of course, when dh is 55, we'll have at least one still in college, so we may have other reasons for him to continue to work.

Julia

 

[Homer Simpson]

My pension won't be based upon my age, but rather my years of service. I can collect a full pension (and health care benefits) after thirty years of service. I may work at something else after I finish my thirty years, but even if I do, I'll have completed that "contract" and will have earned my pension.

I assumed that most pensions were based upon years of service -- is that not true? Are some pensions based upon age? At first glance, that doesn't make much sense to me.

It depends on your pension plan.

Here in New Jersey, the Public Employees Retirement System (teachers and other state workers) is based on years of service AND age.

But some are based just on years of service, with no minimum age to retire. I am in the Police and Fire Retirement System. My state pension is based only on years of service.

I have to finish 25 years of service and I'm eligible to retire with a yearly pension equal to 65% of my final year's salary and medical benefits. I was lucky enough to start in the pension system when I was 22 years old. So I can retire when I'm 47 with a full pension.

No one I work with pays into Social Security. We contribute 8.5% of our salary to the pension system. I also contribute a big percentage of my salary to a 457 Deferred Compensation plan and IRAs to eventually supplement my pension.

Its funny... when I took the job 13 years ago I had no thoughts at all about my retirement. Now at 35, I have 12 years to go and preparing for the future has been a priority since my late twenties.

Looking back, I realize that I lucked out in that I picked a job that I loved to do and got the bonus of a pension. But, its a shame that we as Americans don't educate people enough in high school and college about personal finance. I had no clue about things then, but I was lucky enough to work with people that clued me into other ways to save for retirement and I did a lot of reading on my own. I have the benefit of a pension, but I also save like mad in other ways for retirement and my children's educations. Educating people before they start working about saving on their own would be a great way, in the long run, to reduce the burden on Social Security.

 

[spima3]

This is what many (most?) people think, but if you read up on the system, it was never designed to be that way. It is not an investment or pension plan in a traditional sense, but has always been about transferring money from current working people to retirees (or the disabled) who no longer have significant income, so that those who need it aren't subject to abject poverty.

Yes, this is how I've always understood it to be, which I have no problem with. However, that is exactly why I like means testing for SS.

My husband's aunt has about a million dollars set aside, her husband still works part time for the full health insurance coverage. The health insurance, as many have stated here becomes a big issue, but they could certainly live comfortably on what they have set aside. I don't think SS was ever meant for people who could well afford to provide for themselves as they age.

lori

 

[ducklite]

Yes, this is how I've always understood it to be, which I have no problem with. However, that is exactly why I like means testing for SS.

My husband's aunt has about a million dollars set aside, her husband still works part time for the full health insurance coverage. The health insurance, as many have stated here becomes a big issue, but they could certainly live comfortably on what they have set aside. I don't think SS was ever meant for people who could well afford to provide for themselves as they age.

lori

A million dollars isn't going to comfortably see anybody who is age 65 through to age 85 in this day and age.

What many of us are upset about is being penalized for saving in our earning years rather than being spendthrifts with fancy cars, wide screen plasma tv's, and every available cable pay channel when we haven't got a dime set aside for our retirement. The federal government keeps saying that people haven't saved enough for retirement, yet they want to penalize those who do. What's wrong with this picture?

More and more the thought of setting up a trust to shelter my assets from the government is sounding like a good plan.

Anne

 

[mickeyfan2]

A million dollars isn't going to comfortably see anybody who is age 65 through to age 85 in this day and age.

What many of us are upset about is being penalized for saving in our earning years rather than being spendthrifts with fancy cars, wide screen plasma tv's, and every available cable pay channel when we haven't got a dime set aside for our retirement. The federal government keeps saying that people haven't saved enough for retirement, yet they want to penalize those who do. What's wrong with this picture?

More and more the thought of setting up a trust to shelter my assets from the government is sounding like a good plan.

Anne

ITA

This results in rewarding bad behavior. If I was told I could make X from SS or X from my investments and get no SS why would I want to save X. I will live on the same amount and have more stuff that the money could buy. This would just cause more not to save.

 

[dvcgirl]

Yes, this is how I've always understood it to be, which I have no problem with. However, that is exactly why I like means testing for SS.

My husband's aunt has about a million dollars set aside, her husband still works part time for the full health insurance coverage. The health insurance, as many have stated here becomes a big issue, but they could certainly live comfortably on what they have set aside. I don't think SS was ever meant for people who could well afford to provide for themselves as they age.

lori

This is part of the misconception. People hear "one million dollars" and they think "lottery winner" or something. One million dollars will provide them with $40,000 a year in income. If they pull out more than that....they risk running out of money. Now, they may not starve on that amount, but it isn't exactly living high on the hog either. I'm sure that they could use the extra 15 or 20K a year that they'd get from Social Security.

 

[ducklite]

This is part of the misconception. People hear "one million dollars" and they think "lottery winner" or something. One million dollars will provide them with $40,000 a year in income. If they pull out more than that....they risk running out of money. Now, they may not starve on that amount, but it isn't exactly living high on the hog either. I'm sure that they could use the extra 15 or 20K a year that they'd get from Social Security.

And that's $40K in todays dollars. That means that ten years from now it will be the equivelent of $28K a year, and 20 years from now it will be the equivelent of $16K a year (give or take on both figures.)

Anne

 

[mickeyfan2]

And that's $40K in todays dollars. That means that ten years from now it will be the equivelent of $28K a year, and 20 years from now it will be the equivelent of $16K a year (give or take on both figures.)

Anne

The 4% rule assumes that you will make 4% plus inflation each year. So your 1 million grows with inflation and the 4% draw also grows with inflation. So in 20 years you would still have the equivalent of $40K of buying power when compared to today.

 

[roadtripper]

Mrs Pete--
Did I read you right? You contribute to both your retirement system and Social Security? I am also a teacher, and we don't contribute to SS. That's why I said the govt could have my waitressing SS money-- I earned it a long time ago, and really never expected to get it back. If I had been contributing for all of my teaching years, that would be another story...

There is presently a windfall provision that Congress is getting ready to consider, which would lower the SS stipend of people who also get a pension or funds from other sources. I have no problem with that, but I stopped contributing to SS 10 years ago.

 

[Homer Simpson]

This is part of the misconception. People hear "one million dollars" and they think "lottery winner" or something. One million dollars will provide them with $40,000 a year in income. If they pull out more than that....they risk running out of money. Now, they may not starve on that amount, but it isn't exactly living high on the hog either. I'm sure that they could use the extra 15 or 20K a year that they'd get from Social Security.

I'm wondering why you are critical of people for "living high on the hog" prior to retirement age and not saving more for retirement, but then turn around and are critical of someone who has saved a pretty tidy sum ($1 million) and put them down for not being able to live "high on the hog" in retirement?

 

[dvcgirl]

I'm wondering why you are critical of people for "living high on the hog" prior to retirement age and not saving more for retirement, but then turn around and are critical of someone who has saved a pretty tidy sum ($1 million) and put them down for not being able to live "high on the hog" in retirement?

I wasn't putting anyone down. I'm simply saying that one million dollars will provide $40,000 a year in income. People hear "one milion dollars", adn they think that they are rich. Sure, if you have an *extra* million laying around here or there, but when you expect to use that one million dollars as the primary source of your income for 25 or 30 years....different story.

$40,000 a year is below the median income in this country.....like I said, you certainly aren't going to starve, but there won't be a whole lot of extras in that budget either. That's why I'm saying that a person who has saved up one million will certainly want their cut of Social Security. Trust me, there are a whole lot of people out there earning much, much more than 40K a year who won't end up with a one million dollar nest egg. Most have saved so little, that even if they really ramp up their savings now they won't hit that number, at least not when they hit 65...they'll have to work longer. It will certainly help them if they continue working as long as they can, but you can't make up for lost time in this game.

 

[disneysteve]

A million dollars isn't going to comfortably see anybody who is age 65 through to age 85 in this day and age.

This isn't necessarily true. There are lots of current retirees who don't have anywhere near $1 million in savings and they are doing just fine between SS and whatever they have saved. You have to remember that the current batch of seniors have predominantly known a much simpler lifestyle, and continue to live that simpler lifestyle in retirement. My mom is 76. Her savings are barely a quarter of a million and she doesn't spend all of the income that portfolio generates. My father died 14 years ago. The house was paid for. They had no other debts. Other than buying a new car and traveling occasionally, she really has no significant expenses. And, she moved to a senior apartment building in June which lowered her living expenses even farther. Once her house sells, she'll have over 100K added to her savings but really doesn't need it at all to cover her living costs. $15,000/year or so keeps her very comfortable and lets her do everything she wants to do.

 

[Homer Simpson]

I wasn't putting anyone down. I'm simply saying that one million dollars will provide $40,000 a year in income. People hear "one milion dollars", adn they think that they are rich. Sure, if you have an *extra* million laying around here or there, but when you expect to use that one million dollars as the primary source of your income for 25 or 30 years....different story.

$40,000 a year is below the median income in this country.....like I said, you certainly aren't going to starve, but there won't be a whole lot of extras in that budget either. That's why I'm saying that a person who has saved up one million will certainly want their cut of Social Security. Trust me, there are a whole lot of people out there earning much, much more than 40K a year who won't end up with a one million dollar nest egg. Most have saved so little, that even if they really ramp up their savings now they won't hit that number, at least not when they hit 65...they'll have to work longer. It will certainly help them if they continue working as long as they can, but you can't make up for lost time in this game.

I understand your point, but I still think you are being overly critical of a couple that saved a nice nest egg. $1 million may not be enough to cover your retirement expectations, but I'm betting there is a long line of people who would trade places with them in a flash.

 

[dvcgirl]

This isn't necessarily true. There are lots of current retirees who don't have anywhere near $1 million in savings and they are doing just fine between SS and whatever they have saved. You have to remember that the current batch of seniors have predominantly known a much simpler lifestyle, and continue to live that simpler lifestyle in retirement. My mom is 76. Her savings are barely a quarter of a million and she doesn't spend all of the income that portfolio generates. My father died 14 years ago. The house was paid for. They had no other debts. Other than buying a new car and traveling occasionally, she really has no significant expenses. And, she moved to a senior apartment building in June which lowered her living expenses even farther. Once her house sells, she'll have over 100K added to her savings but really doesn't need it at all to cover her living costs. $15,000/year or so keeps her very comfortable and lets her do everything she wants to do.

Very true Steve, but your Mom is from a different generation....she's a Depression Baby. Same as my in-laws....they are as frugal as frugal gets . I mean, they make each and every dollar scream.

But now, take the Baby Boomers, they haven't picked up their parents' thrifty ways, not when taken as a generation. And they're carrying, much, much more debt at an older age than any group before them. Heck, some people are going into retirement carrying mortgages, simply unheard of in earlier times. That million isn't going to carry them nearly as far.

 

[disneysteve]

Trust me, there are a whole lot of people out there earning much, much more than 40K a year who won't end up with a one million dollar nest egg. Most have saved so little, that even if they really ramp up their savings now they won't hit that number, at least not when they hit 65.

Just to add some perspective to this... Kiplinger's has an article on retirement savings this month (Feb. 07). There is a page showing what you need to save at various ages to accumulate $1 million by age 65. These numbers assume an 8% annual return. This really demonstrates the huge advantage of starting early and taking full advantage of compounding.

Age 25 - You've saved $0 - You need to put away $286/month.
Age 35 - You've saved $0 - You need to put away $671/month.
Age 35 - You've saved $50,000 - You need to put away $304/month.
Age 45 - You've saved $0 - You need to put away $1,698/month.
Age 45 - You've saved $50,000 - You need to put away $1,298/month.
Age 45 - You've saved $100,000 - You need to put away $861/month.
Age 55 - You've saved $0 - You need to put away $5,466/month.
Age 55 - You've saved $50,000 - You need to put away $4,859/month.
Age 55 - You've saved $100,000 - You need to put away $4,253/month.
Age 55 - You've saved $200,000 - You need to put away $3,040/month.

 

[C.Ann]

This isn't necessarily true. There are lots of current retirees who don't have anywhere near $1 million in savings and they are doing just fine between SS and whatever they have saved. You have to remember that the current batch of seniors have predominantly known a much simpler lifestyle, and continue to live that simpler lifestyle in retirement. My mom is 76. Her savings are barely a quarter of a million and she doesn't spend all of the income that portfolio generates. My father died 14 years ago. The house was paid for. They had no other debts. Other than buying a new car and traveling occasionally, she really has no significant expenses. And, she moved to a senior apartment building in June which lowered her living expenses even farther. Once her house sells, she'll have over 100K added to her savings but really doesn't need it at all to cover her living costs. $15,000/year or so keeps her very comfortable and lets her do everything she wants to do.

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This is the part that many of the posters on the DIS don't "get".. It's all about what one considers "comfortable" and makes them "happy".. Not everyone has a desire to travel all over the world; live in a big house; drive a fancy car; eat out every night of the week; go on shopping sprees; or whatever..

What you "need" to retire on - while living in a manner that makes you happy - is not a "one-size-fits-all" number and never will be.. Only the person who is actually doing it - or planning for it - can make that determination..

When I see some of the numbers "suggested" on these threads (or tossed about as a "given") I really have to chuckle.. I could live to be 150 with those numbers and STILL not run out of money..

 

[disneysteve]

Very true Steve, but your Mom is from a different generation....she's a Depression Baby. Same as my in-laws....they are as frugal as frugal gets . I mean, they make each and every dollar scream.

But now, take the Baby Boomers, they haven't picked up their parents' thrifty ways, not when taken as a generation. And they're carrying, much, much more debt at an older age than any group before them. Heck, some people are going into retirement carrying mortgages, simply unheard of in earlier times. That million isn't going to carry them nearly as far.

Absolutely. Therein lies the problem.

Money's Jan. 07 cover story "Are You On Track" showed that between 36 and 39% of folks ages 65-74 have mortgages and up to 36% carry credit card balances. And that data is only for the top 2/5 of income level.