Discussion in 'Debate and Discussion' started by Jason McCullough, Feb 12, 2013.
Pretty much this.
That was the point that kicked off the whole derail:
Well, I'd like to think that too but people seem to be arguing pretty forcefully that it is one, so I guess that's not a safe presumption.
I'd disagree. Whenever there's a lot of dishonest rhetoric surrounding a topic like this it behooves reasonable person discussing in good faith to avoid recycling those terms or phrases or framing in their own statements. If they must address an argument in those terms then at least disclaim any allegiance to the perpetrators or goal of that dishonest rhetoric.
I mean I get the fact that I'm paying for the previous generation right now, but barring any accidents such as I'm getting deport for making bad games, or dying or alien abduction or turn into an immortal cyborg(it's on my to do list) I like to think that when I retire and I'm getting that $1200 or $1000, those are the money I paid into myself.
You'll get that much a month, but the fact that that's how you have to phrase it should tip you off that it's not the same as a savings account. If you were paying into a 401(k) and it got up to $200,000 by the time you retired, $200,000 is how much you'd have. If you retire and collect $1,000 a month (for simplicity's sake, let's assume this is a stable amount even though it actually wouldn't be) from Social Security though... you don't know how much you have coming to you. If you die a year after you retired, you would have collected $12,000 from Social Security. If you lived another fifty years it would be $600,000. It's a big difference.
Survivors benefits further complicate those figures.
Yeah, and also tons of other things. TIL that the way SS benefits are calculated is incredibly complicated.
I guess I'm culturally brainwashed to think social security as a form of retirement saving since it's very similar to Asian's "raise a kid so they will take care of you when you are older" mindset, one is government backed while other is socially backed.
Though I think it's actually a law in China that you have to take care of your parents, they can sue you for neglect.
What shift6 said about investment options. Unless you have a really bad interest rate or something its best to think about mortgage debt as buying bonds, though.
Because that's not how Social Security works, and no one is shilling it as a replacement retirement system where rich people make even more money?
Technically, it's a must-contribute-to-qualify minimum guarenteed income program.
Functionality, the social security taxation and benefit system, combined, is basically a program for rolling over bonds from generation to generation. It was started up by effectively issuing a bunch of bonds to pay for the first generation's retirement, and those bonds are bought by the next generation and resold, ad infinitum. It's not particularly different than buying bonds in a very long lived corporation.
What's the difference you're thinking of?
If you die before spending all the money you don't exactly get to come back from the dead to spend the remaining, either.
I think they've been pretty well covered. The thing you quoted is one, for instance.
There's such a thing as an estate, though. But more importantly (because again, I'm a fan of Social Security), you can burn through your savings if you don't happen to die shortly after retiring--that's the whole problem with these low 401(k) balances you posted. In contrast, that minimum guaranteed income (as you rightly describe it) is more or less reliable independent of longevity. I think that that's a very substantive difference.
A difference that makes SS look better! For most people a reasonable defined benefit frees them from the risk exposure.
Well yeah. Like I said, I'm a big fan. I'd love it if SS benefits were just increased, but given that half of the government wants to keep it the way it is and the other half wants to torpedo it, that's not realistic right now. People can't really decide for themselves that they're going to get a higher level of guaranteed income out of SS, but they* can decide for themselves that they're going to save more money and improve their retirement situation that way.
*They meaning most middle-class people. People who are already poor are as usual presented with far fewer and worse options.
The Singapore system is good, but draconian. Basically, you have to save 20% of your income to an individual trust fund. You can then use that money for a limited number of things (house downpayment, medical treatment, some education, returement)
Look, SocSec is pretty good for what it does. But there is little legal, fiscal, technical, or economic similarity between it and a savings account beyond the most superficial "give someone money now, he gives you money later." My nerd rage was largely because the people calling SocSec a retirement savings account lately are largely mindless drones who share idiotic political images containing Tea Party captions on Bookface; and Jason is smarter than that.
As a savings method for retirement, there's no difference; it's practically a government-mandated annuity. As an investment at a macro level there arguably is, but no one said that.
One more time, but this time with a touch more precise discussion instead of me just tearing out my nerd hair. There are in my mind three big reasons why SocSec is nothing like a retirement savings account.
SocSec is paid for by taxes. The money that a person "pays in" to SocSec is not pre-tax income or post-tax income, it is a tax itself. This leads to all the applicable economic connotations, ranging from dead weight loss (micro) to where it falls in the GDP equation Y=C+I+G+NX (macro). The economic impact and meaning and fiscal flow on SocSec funds is wholly different from any form of savings account. Furthermore, it is even different from other taxes in that it cannot be deferred or reduced. Whereas other income taxes can be delayed until April 15 by means of claiming more deductions on one's W2 or reduced by means of having many deductions to AGI, SocSec is a mandatory at-the-time tax payment (similar to unemployment).
You are not "saving" anything. You do not have any SocSec asset on your personal balance sheet even after 30 years of "paying in". You have no receivable claim against someone else's liability. Your net worth does not increase over time. SocSec is not even an asset when you become eligible; it does not become an asset until the day you actually begin receiving it. From that time forward it has only the most trivial similarities to an annuity though it is really like a zero-principal govt bond (annuities have an underlying balance that this does not) but before that time it never resembles you saving something.
Related to #2 above, you do not have any kind of "account". There is no bucket of funds somewhere that has your name on it. There is no account balance that can be referenced, managed, shifted, or even depleted. The money "paid in" today does not go to you or to your name or to your credit; it goes to someone else. You have no account until you begin receiving benefits, and those benefits are not coming from an account but rather from wholly new money being "paid in" by younger workers.
In conclusion, stop saying it's a retirement savings account. It is a tax-funded, fiscal-pay-it-forward social safety net.
Also we should be a little less cavalier that SocSec can never go away. Our previous president and many Congressional members of his party were pretty hot on the idea. It wouldn't be easy for them but the conversation has already begun and we know how the GOP works with a long-term view. This isn't Ron Paul and a couple nutters trying to abolish the Fed, this is a much more severe risk.
1) Again, only a macro effect on investment.
2) Congress can increase taxes on investment income just as much as they can repeal social security. Both are fungible.
So you get nothing back if it's repealed before you start receiving benefits.
Nothing has given me so much pleasure over the years as spending a goodly amount of time writing a thoughtful response on an interesting topic, and you replying back with a couple one-liners that repeat what you already said.
One-liner reply: so SocSec isn't like a retirement savings account.
It was a thoughtful response, but what am I supposed to do? My statements stand.
I don't know where people get these ideas, but the private sector assets are not special in terms of exposure to the government changing its mind; 401k accounts are no more immune to the whims of Congress than Social Security is. Congress can tax both 401k returns and the underlying initial contributions at any rate they want, just like Social Security taxes and benefits can be changed in any way they want.
The only significant differences are macro.
I find it hard to buy the idea that there's no appreciable difference between a 401k and Social Security. I agree that they can both be modified/taxed/screwed by the government, but it seems to me that there is a fairly significant difference between owning something and relying on a historical policy regime.
The government could seize all 401k assets tomorrow but they would have massive lawsuits on their hands immediately because such a seizure would break all kinds of laws.
The government could also cancel social security tomorrow. They would have massive lawsuits on their hands but the outcome of those would be far more in doubt because there is no ownership right to Social Security benefits.
Having said that, I think Social Security is potentially more reliable than the 401k assets that you "own" because in some ways the government is far more predictable than the financial market and its corporate overlords.
Where did you get this impression? What laws would those be? I see no reason a wealth tax would be unconstitutional. Definitely not at the state level, as it's the same concept as a property tax.
But of course they do.
When I say seize I mean seize. And a 100% tax would be a de facto seizure and I think would cause the same legal trouble. I never suggested that a reasonable increase in tax would be unconstitutional.
What I'm responding to is your assertion that a 401k plan is "no more immune" to government action that SS.
If we do a reductio ad absurdum on that it would be the difference between a complete cessation of SS vs a 100% tax (a seizure) of 401k assets. One of those is probably legal and the other certainly isn't.
A 401k is much more susceptible to market forces while SS is far more susceptible to government policy. Pick your poison.
I really am not joking, they're less different than you think. The government can just as easily increase capital gains taxes by 10% an impose a 1% wealth tax as they can cut Social Security benefits by 10%. When you get into extreme scenarios:
1. A 100% capital gains tax wouldn't be constitutionally problematic at all. The top income tax rate in WW2 was 93%. There isn't a "reasonable" standard anywhere.
2. A wealth tax has never been tried in the US, to my knowledge, but the state level should have no problems with doing it. They already tax real estate as a flat percentage of worth. The feds probably could too, but I'm not up on what the relevant legalities would be.
If you want to argue it's easier to mess with SS, sure. I disagree but I can see how it could work out that way.
.....I don't understand what this has to do with "it's not retirement savings at all." Yes, it differs in mechanism and macro impact from private sector investment, but so what? What about "paying money now to get money after you retire" is so wildly different that it's misleading to call it "retirement savings?"
Flipping back through the thread you point out a lot of ways the mechanics differ, but I don' understand what definition you're using that it doesn't qualify.
You're defining retirement savings as being anything within the category of "paying money now to get money after you retire". I think that's a bit disingenuous; savings means something, it's not just a random word.
I am going to go change my vote re: merging D&D and Santorum in the hope that, one day, I can give this excruciatingly pointless semantic debate the epithets it truly deserves.
I have a retirement savings plan that I would like to offer you. If you give me your money now, I will pay it back to you in 40 years if I'm still around.
Unless you change your mind, of course.
Surely it's possible to point out the simple fundamental difference then? It's not "Congress might change it", because as pointed out Congress might change your private sector assets.
With savings the concept of ownership applies. There are all sorts of legal recourses available if that money goes missing, the money can be accessed in an emergency and diverted away from its retirement purpose, and heirs are entitled to the full amount upon the death of the owner. None of those statements apply to a public pension system like SS. Hence it's not savings. Which isn't a bad thing, I think we need less emphasis on savings and more on public pensions, but I do think there's a very valuable distinction to be made when discussing how we as a society want to provide for those who can't work anymore due to age or infirmity.
It's been pointed out repeatedly upthread, Jason. I don't know if you're being willfully dense or what, but savings implies that you retain the nominal value of the assets, which has significant implications (tax-wise, ability to take out loans, ability to monetize it in other ways). Social Security is a hell of a lot more like buying an annuity than it is like a savings program.
I feel like you already agreed with me on the most important difference.
This is the first time in the thread someone's explained a concrete difference in terms of the retiree in relation to the term. That's why I kept asking!
That's the core of why I don't think it's so wildly different you should call it a savings program. An annuity is a perfectly valid method of retirement, and don't see why you wouldn't call it a savings program. An annuity is roughly equivalent to a company pension, which is roughly equivalent to Social Security.
Because annnuities are not savings, that's why you don't call it a savings program. And it's certainly not the first time in the thread someone's explained that, because I've posted it myself before in this very thread!
Why do I keep clicking on this thread? Why can't I stop hitting myself?
Yep. Reach 68, with pension fund of 500,000 USD. That's your savings. Buy an annuity with it, receive 20,000 USD a year. But you now have no savings. In the UK there are all sorts of rules on how much on a pension fund must be converted to annuity, and how much you can keep as savings (its 75% minimum to annuity, but you have flexibility in whether to buy inflation protected/ survivor annuity etc)
SS - reach 68, receive 10,000 USD a year, there were no savings in the first place. There are still no savings. Yes, for retirement planning purposes is it as if you had 250,000 savings that were converted into an annuity, and any retirement plan would take account of SS, but it ain't savings.
All academic for me - if I retire in HK, and I am (very) poor, the government will give me 4,000 USD a year. So I save.
Other things that are not savings - interest payments on a mortgage. Only the principle repayment is.
I have an unhealthy interest in pensions, so much so that during a boring period in my career I looked at becoming an actuary. The screw ups of pensions is fascinating. E,g, British Airways fund got blown up by, among other things, viagra. They gave generous inflation linked survivor pensions, and were finding a significant portion of middle/ older age staff (esp pilots) marrying women 20-30 years younger. As women live longer than men anyway, they were now looking at paying pensions for 40-50 years, when the staff had only worked for them 25-30 years.
Pretty much the same in Australia, except the rate is now 12% (just jumped up from 9%). There is pretty broad agreement it needs to get to more like 15% to actually provide comprehensive retirement support, but the politics to get there is complicated. It gets called Compulsory Superannuation. Money in Superannuation gets some OK tax breaks as well - to the extent that most wealthy people have "put more cash into superannuation" as the default part of their strategy.
The stuff you can spend superannuation on (especially before actual retirement) is even more limited though, definitely can't do house down payment or medical treatment. Medical treatment being unnecessary of course due to the universal healthcare.
Basically the government that went through all the political pain to setup compulsory superannuation so more citizens could support themselves in old age (instead of drawing a pension) was not going to let people siphon the cash out the back door and defeat the whole purpose.
It also mostly solved the looming demographic challenge of not enough new workers and too many baby boomers heading for retirement age (ie. not enough tax payers to support all the new pensioners). The other way to solve this issue of course being lots of immigration.
One thing the system does do is create a pool of local superannuation savings measuring in the trillions that the local finance industry can feast upon. er I mean "invest wisely".
We also have old age pensions, but I have no idea how much they are, except "not much".
I am not even going to touch the "social security is an investment / payment you make" because here it is quite clear that old age pension = government social welfare and Superannuation = your personal property.
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