# Why Social Security Beats All Rivals



## SeaBreeze (Jul 27, 2015)

...and the case for expanding it, source.


This is the season when we hear calls to cut Social Security. That's because of the annual trustees report on the system's financial condition.

Last week, the trustees reported that Social Security can pay all of its projected obligations through about 2034. To keep faith with today's workers and tomorrow's retirees, Social Security will need additional funds, though the shortfall is entirely manageable if we act in the next few years.

The report prompted the usual rightwing blarney about cutting benefits or privatizing Social Security, as well as familiar bleatings from billionaire deficit-hawks about the need to delay the retirement age for people far less fortunate.

One part of the system, the disability insurance fund, needs additional resources by 2016 -- and of course Republicans are calling for cuts in benefits to some of society's most needy people.

The context for this debate is:



The collapse of traditional private pension plans in favor of totally inadequate 401-k plans. Traditional pensions, which typically paid about 70 percent of your best earnings, once covered about one worker in two. Now they cover just one in about twelve.
The diversion of 401-k savings into the pockets of middlemen and fund-managers.
Unlike Social Security, which has extremely low administrative expenses, private fees can reduce actual retirement savings by about a third. With the trend to have fund managers use exchange-traded finds and mutual funds, retirees pay two or even three layers of fees.
The casualization of work, with the result that on-demand workers in the so-called sharing economy have no retirement savings plans whatever, not even 401-k's. Their dismal earnings are insufficient to live on, much less to sock away savings.
The Republican assault on public employee plans. Public employee pension funds have been one bright spot in a collapsing retirement system. Republicans say they are too good for government employees. In a few states like Illinois, opportunistic governors of both parties have sometimes underfunded them, making their finances someone else's problem. Even so, the problem is concentrated to a relatively small number of states. Most state pension plans are adequately funded -- but under political attack.
Bottom line: the total inadequacy of retirement savings for most Americans. Half of elderly Americans have no retirement plan at all-other than Social Security. The typical worker nearing retirement age with a 401k plan has funds sufficient for only a few years of retirement.

The one part of the system that is reliable and cost-effective is Social Security. The problem is that Social Security pensions are inadequate because of the collapse of the rest of the system.

There was a time during the postwar boom, when America's retirement system was said to be a three-legged stool. One leg was pensions -- but that system is collapsing. 

The second leg was ordinary savings. With wages and salaries rising, workers could afford to save. But earnings are flat or declining for most workers, and households are borrowing rather than saving.

The third leg was Social Security -- it provided (and still provides) only the most basic income. But for most people today, Social Security is all there is.

Two-thirds of elderly people depend on Social Security for more than half of their total income. For one-third Social Security provides at least 90 percent of total income. Benefits are very modest -- averaging just $1,300 a month.

That puts us near the bottom in a comparison with other wealthy countries. The average national pension benefit in 34 OECD countries is about 60 percent of median worker earnings. In the U.S., our national pension system, Social Security, provides just 40 percent. And due to previously legislated cuts, that will gradually fall to just 32 percent.

Social Security needs to be expanded. Though its projected shortfall after the mid-2030s gets a lot of attention and prompts calls for cuts, the 75-year deficit is only about one percent of GDP. That could easily be made up, by raising the cap on income subject to the Social Security tax, or adding new revenues from, say, a tiny tax on financial transactions.

Another way to improve the solvency of the system would be to increase wages, since Social Security is financed by taxes on payrolls. Had earnings kept pace with productivity, as was the case before the Reagan era, Social Security would be solvent indefinitely with no further adjustments.

Ideally, we should move to a partly funded system, as Canada does. The Canadian system is partly pay-as-you-go, like ours. But Canada's national pension system collects sufficient revenues to underwrite an expanding pool of invested capital -- which in turn produces income just like a true pension system. 
Over time, returns on assets, now totaling over $264 billion, provide an increasing share of the system's payouts.

Social Security demonstrates that public systems are often better than their private counterparts -- more transparency, fewer middlemen, less opportunism.

 The problem is that government-managed systems are only as good as their stewards, and one of our two major parties hates government. The only cure is stronger democracy, so that citizens who value good programs vote to elect leaders pledged to defend them.


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## Josiah (Jul 27, 2015)

A good summary of the situation with perhaps the most successful government program in American history which has succeeded in keeping millions of seniors out of poverty....including some of us.


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## QuickSilver (Jul 27, 2015)

Yet again in this election cycle... the battle cry on the Right is for privatization of SS and Medicare...  This should be scaring the bejeesus out of most Seniors.


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## Butterfly (Jul 27, 2015)

Well, it scares the beejesus out of me.  Without social security and medicare, I'd be in a heap of trouble, and would a lot of people I know.  Almost no one I know has a pension anymore, except those who worked for large corporations, the government, the military, or those who retired quite a while ago.  And without medicare I could never have afforded my new hips.  I had privately purchased health insurance, but like most folks' plans, it was 80/20 insurance.  Even at 80/20 I couldn't have afforded to have both hips replaced.


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## Capt Lightning (Jul 27, 2015)

Although we have different names for the various schemes,  we have very much the same problems here in the UK.  State pension could have paid up to about 40% of average UK salary  while final salary schemes could pay up to 66% of the average of the final 3 years.  In this case, employees usually contribute less to the state scheme and so get a smaller state pension.

At least we don't (currently) have to worry about medical costs as they're paid through national insurance and are free at point of delivery


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## Glinda (Jul 27, 2015)

I do not understand why someone who makes less than $118,000 annually is required to have their entire salary SS taxed but those who make over that amount only pay SS tax on the first $118,000.  As if the rich weren't already catered to enough in this country!  Disgusting!


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## QuickSilver (Jul 27, 2015)

Fixing SS is simple... simply raise the cap on SS tax withholding.   BUT... that would be an added tax on the wealthy and we certainly can't have that


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## Josiah (Jul 27, 2015)

Glinda said:


> I do not understand why someone who makes less than $118,000 annually is required to have their entire salary SS taxed but those who make over that amount only pay SS tax on the first $118,000.  As if the rich weren't already catered to enough in this country!  Disgusting!



Let's hope that insuring that the trust fund doesn't bankrupt is done by increasing or eliminating the tax cap...not by raising the eligibility age.


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## imp (Jul 27, 2015)

QuickSilver said:


> Fixing SS is simple... simply raise the cap on SS tax withholding.   BUT... that would be an added tax on the wealthy and we certainly can't have that



I don't feel it's "simple", but surely a good step you suggest. I asked a S/S agent face to face, when my wife was applying for her benefit, whether it was true that currently 10,000 "baby boomers" are hitting the "new claims" roster daily. She confirmed it. Do the math based on some hypothetical monthly payment, say $1,000, that means the "tab" increases by $300 million EACH MONTH, or $3.6 BILLION per year! Almost inconceivable to imagine, this ADDED burden is in addition to that already being paid out! Think  about it!     imp


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## Butterfly (Jul 27, 2015)

They need to raise the cap on wages on which social security taxes should be paid, or remove it entirely.   The $118,000 cap isn't nearly high enough -- there are a lot of people making more than that; of course those making more than that would probably figure a way around it, for instance by calling everything above the cap "dividends" or something.

IMHO the IRS also needs to clamp down on employers trying to get away with calling certain workers "independent contractors" when they are not, thus avoiding having to pay the employer's share of social security taxes.


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## Capt Lightning (Jul 28, 2015)

This prompted me to look at the UK situation. 

Once you earn above a certain amount (about $12k US), you pay National Insurance.  Your employer also contributes a similar amount.  If you are in an occupational pension scheme, you pay a couple of % less.  Between these $12k and $70k pa, you and your employer pay 12% gross salary.  This covers state pensions and all medical expenses.

For any earnings above a fixed amount, about $70k US, you pay a nominal  2% contribution.

The state pension is dependant on the number of years of contributions, NOT necessarily on the actual amount that you contribute.  (This is all changing next year and will be solely on the years of service)

The UK State pension is simply not enough to live on by itself.


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## QuickSilver (Jul 28, 2015)

imp said:


> I don't feel it's "simple", but surely a good step you suggest. I asked a S/S agent face to face, when my wife was applying for her benefit, whether it was true that currently 10,000 "baby boomers" are hitting the "new claims" roster daily. She confirmed it. Do the math based on some hypothetical monthly payment, say $1,000, that means the "tab" increases by $300 million EACH MONTH, or $3.6 BILLION per year! Almost inconceivable to imagine, this ADDED burden is in addition to that already being paid out! Think  about it!     imp



Yes   Raising the cap is simple... and will save SS by making it solvent forever.   Go google...  lol!!

http://www.dailykos.com/story/2013/...-tax-cap-is-the-best-fix-for-Social-Security#


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