Comments on: Serious Leadership, Real Entitlement Reform

By: JLM

JLM — Wed, 02 Jan 2013 23:33:00 +0000

In reply to mburke73.

Bit of the fire hose, so I cannot reply on everything. Thanks for the long comment.

First, thank you for 27 years of military service. I served 6 and in some ways I regret having gotten out. I had a damn good run.

The original plan for SS was to prevent abject poverty not to provide a comfortable retirement. We often let things get out of control and allow them to morph into something they were never intended to be.

As an example, the estate tax was originally intended to fund wars — a temporary tax. They forgot to repeal it after WWI.

As to how you fund things, currently the SS payroll tax is transparent. The employee and employer pay equal amounts and it accumulates unseen. This transparent approach is going to have to be utilized to get folks to participate.

Business owners and leaders are going to have to act “in loco parentis” and school their employees. When I had 500 employees and a full package of benefits, I had to provide annual training on our benefits (health/dental/vision/life insurance, 401K, IRA, ESPP (employee stock purchase plan), cafeteria 125 plan, health savings accounts, Tx Tommorrow Savings, etc). There is no easy way.

The single greatest retirement asset most folks own is their home. That is why home ownership is so important from a sense of personal accomplishment, from a shelter perspective, from a savings perspective and from a retirement perspective. It is terrible that Medicare attacks home ownership as a negative means test.

There is no subdivision of economic growth and job creation that can prosper while the balance of the economy suffers. All boats must be floated free. This is why the recent kabuki theatre of tax rates is so silly — it does NOTHING to grow the economy or to create jobs. Nothing!

I am very confident in the long run and very pessimistic in the short term.

We shall see.

Regards, Mike.

Jeff
.

By: mburke73

mburke73 — Wed, 02 Jan 2013 18:50:00 +0000

almost forgot–nice picture–I don’t remember my prom date looking anything like that! Should have tried New Jersey!

By: mburke73

mburke73 — Wed, 02 Jan 2013 18:49:00 +0000

Jeff-thanks for the clarification–I missed that. A couple of things–first, the when of retirement is predictable for some people but not for others–what if you’d had to retire due to age or disability at the end of, say, 2009? What would your rate of return been then? or during any of the other recessions we’ve had over the past, say, 40 years? Though the average return may well have been the number you use as an example, we all know the real world return of a retirement portfolio is much less. Second, what sort of retirement would the 5.5% or so you suggest as a contribution really mean? And what would the investment costs be? Even if you choose index funds through Vanguard, say, there’s a fee, low though it is, relatively speaking, so you’d have to deduct the cost of investing itself. The vast majority of people (about 2/3) in the US have no other retirement plan than SS–in part because they work jobs that do not pay enough for them to live day to day and save for retirement–much of this is not their fault, either, though of course some is–and SS is of course not much to retire on anyway.
One of the most interesting aspects of retirement is that most people will not save for it unless forced to (and you likely do not fall into that category–you’re much smarter than the average American). Numerous studies have pointed this out with 401 (k) and other kinds of retirement accounts–the money has to be pretty much left untouched in order to grow to an amount that will make a difference in people’s retirement. I used to be stunned when i did income taxes at how little retirement funds the vast majority of my clients had–not just the 25K adjusted gross guys but the 100K+ guys, too–and how worried they were about saving for their kids’college–I used to advise them to think more about their own retirement than about their kids’ educations–they can borrow for college/join the Army (like we did)/get scholarships/attend community college (where I teach now). But none of those options are available for retirement.
The fact of the matter is that SS forces people to save for the future, and at low cost/input from them. And this is something government really does do better than the private sector–it makes people do something they would not do otherwise. I agree that the funds in SS could llikely be better invested (I am in the state teachers’ retirement system in Missouri, which costs me and the college 15% each of my total salary–we do not pay into SS and do not earn SS credits–though I will get it based on 27 years in the Army–and the state pension system invests its money pretty well–though it lost a great deal a few years ago during the crash and our contributions had to go up).
I can understand the philosophical position you take, and would agree with it, were it not for the fact that most people would end up truly poor–SS is one of the most effective anti-poverty programs the government has. Now, if the private sector would generate more good-paying jobs, your recommendations would have a great deal of merit. But since our tax system is skewed in favor of financial dealings over real investment (carried interest, for example), I doubt that the private sector can do so. In the current recession, employment in the private sector has rebounded nicely,but wages are low; productivity gains made by workers have not really been distributed to them.
Some are now concerned over public sector jobs (teachers, cops, firefighters, state and local bureacrats) that have not recovered because states and localities have to balance their budgets and tax cutting legislatures cannot or will not fund the positions lost during the recession. These public-sector jobs place demands on the private sector–they buy houses.cars/food/TVs, etc.–and without them, the private sector will not make a full recovery.
It’s a complex business, to be sure. Thanks for stimulating my thinking–Mike

By: JLM

JLM — Wed, 02 Jan 2013 17:12:00 +0000

In reply to mburke73.

.
Mike, see #3 above. The employer contribution continues. In this manner, the coverage increases and hopefully the rolls of those in line to receive SS thin just a bit.

If this had been available to me personally, I would have opted out at age 12. I have paid in to SS for 49 years and truly expect to see nothing.

If I could have that money back and have made the average return of the stock market over that period of time — 12% — I would be a very happy camper.

Thanks for writing. Hope you are well.

Jeff

By: mburke73

mburke73 — Wed, 02 Jan 2013 16:28:00 +0000

Though I have variety of comments on this issue, having studied Social Security (I am no expert) as part of my job working with the military retirement system when I worked in the Pentagon some years ago, I just have one question so far: what happens to the employer contribution in this construct? It goes away?