I understand that in its current form, SS can't meet its promises.

You understand wrong.

I understand that private accounts would increase Americans' dismal savings rate.

Boy, I am sure not aware of this argument! Where did this one float down from anyway?

I understand that private accounts mean inheritable wealth, something too few Americans enjoy.

LOL, nope, that would be news to me. Where are these arguments coming from anyway?

And as a libertarian crank, I understand that me having control over more of my money is just plain right.

I guess, but if it rips you off in the process, will you continue to be so dogmatic?

But I'm not some lonely drunk girl; I'm a guy with a serious (and quite personal) interest in the financial health of this nation.

LOL, then don't buy into this plan. It's the fanancial equivalent of a tsunami.

From what we've seen, however, Bush isn't serious enough.

Isn't serious enough? That's like accusing a whore of not being serious enough about her virginity. Or a spendthrift who spends every dime of "not being serious enough about saving" when he doesn't even try.

The article:

In 40 to 50 years, Bush's approach might work.

Whatever is he talking about? Bush even admits that the program will do nothing to prevent SS long-term problems.

But in the next 25 years -- when the real budget problem occurs -- it does little.

Does "little"? Huh? It does the opposite. All it does it suck money out of the program from workers and give it to the government, and only give workers back, maybe, 10% of what they put in, while stealing the other 90%! Great program, Steve! Feed big government, get almost nothing back. Oh yah, lots of libertarians will go for that LOL. Google "clawback".

He wants to appeal to younger voters by offering personal accounts; and he doesn't want to offend older voters (including baby boomers) by cutting their benefits.

Uh huh. "Personal accounts that are a far worse deal for the worker paying into them than the present system. Sounds tempting NOT. And the program DOES radicall cut benefits for both the young and the old, down to about 25% of average now. Great deal, huh? Let's all go sign up now, Steve.

Indeed, because Bush plans to borrow to pay for personal accounts, his plan would probably raise federal spending in 2025.

What the Hell? Bush's program blows a multi-trillian dollar hole in the budget, totally rips off the worker of 75% of his current benefits, and does nothing to keep the program sovlent. Oh yah, Steve, let's race to go sign up LOL.

Robert: Oh, take a valium. It's the current system that rips off workers and you know it. It ripped them off yesterday, it rips them off even worse today, and will rip them off still worse tomorrow. Those who say it isn't so are either liars or (as you appear to be) in denial.

Steve: Bush's plan -- once we see it -- will undoubtedly run up the debt some. It just will. ANY solution to Social Security will do that. Get past that. You know this needs to be done as well as I do: the current system rips off our children and our grandchildren. It's selfish and it's immoral. Those who have the political courage to do the right thing are going to pay a price, but it's still the right thing to do.

Yes, there's going to be dancing around the cost. Maybe you'd feel better if Bush just said outright, "yes, we're going to pay a lot more now in order to fix the system for the future." But really, that's all he's proposing to do.

It's going to be one step in what will probably be a multi-generational process. But if we don't move now, the problem only gets worse over time.

I think the personal accounts are a tempest in a teapot. I don't think many of the working class will actually use them. They will be put off by the paperwork.

For those who make more money, they already have Roth IRA, 401k, so they might be tempted to use the old SS system as a safety net.

What's really key is the benefit cuts or tax increases that will have to happen now matter what.

If you want to increase national savings, it would be easier to:

a. eliminate taxation on bank interest.

b. bump up IRA' levels etc.

However, I think the whole debate has been useful for society. If we could create an Ownership Society it would be good...

All I want is a choice. As it stands right now, I'm paying into a system I will not be able to pull from. Doesn't seem quit right to me, does it to you.

I work for DOD as a civilian and I'm able to invest up to 12% of my income into the Thrift Savings plan and the government matches up to 5%. Pretty good deal. This is what the President is talking about here. Allowing individuals an opportunity to invest their money into a program where they actually have some say in where the funds go and how the funds are divested.

Something needs to be done and to say their is no problem is simply avoiding the issue. I hope the President does something, anything. The current system is being used for everything other than for why it was originally established.

Get a system on the books, then raise the limits has been the pattern for this kind of retirement account in the past; there's reason to believe it's being followed again now. My guess is that $1000/year is just an opening amount, with the expectation that the program will be popular and generate public demand and political momentum for higher limits, a la Roths and 401(k)s.

I sometimes trust him too much, but I trust him on this. Why? Precisely because he's being vague. If he puts out too much that's a starting point for negotiations. He probably knows where he wants to be, like tax cuts, and has already shown himself* to be a good political negotiator.

*I think of him as I did of Reagan. If Bush is an idiot, his handlers are very good political negotiators. And no, I don't think the puppet master is Rove. If he was as brilliant and machiavellian as he is supposed to be we wouldn't even know his name.

It's a done deal. It's not about SS. Its about creating a new boom to get US out of debt trap. Everyone is commenting on the window dressing.

I don't think many of the working class will actually use them

Jeez, such condescension. You'd be surprised how savvy your average working Joe is when it's his money on the line.

I don't really consider the plan problematic because it doesn't exist yet. Sure, Bush has some ideas but there's no bill before Congress, no numbers, and little in the way of specifics.

So why get all bent out of shape about it? Wait to see the plan.

Whatever Bush does, education is going to be a huge part of it. If the public wants SS to be a 10-20 year government subsidized vacation for old people, or guaranteed welfare for the grasshoppers of the world who don't bother to plan for their old age, they had better realize that and be ready to cough up the cash.

In any case, doing *something* with SS revenue would at least be a brake on government spending. Lockbox, devolve it to the states, personal accounts...anything to get it out of the hands of Congress. That's the first step.

The key question is whether a change toward privatization makes sense.
Even if Bush wanted to totally privatize Social Security, even if he could prove it made perfect sense, he couldn't get a big change by Democrats. What he's doing is simply trying to move the issue forward (finally). Maybe not as fast as some would like (me) but as fast as current politics will allow.

The question each individual should ask themselves is this: Am I better off remaining totally dependent on future politicians or am I better off with more control over my retirement finances (even though I have to accept market risks)?
Me? I don't trust any politician to do "the right thing". Sometimes they do, sometimes they don't. Fact is, they've often changed Social Security benefits and eligibility.

Democrats will resist any change because they know privitization will work and will be popular. This is not good for politicians who thrive by convencing voters only they (and a huge government) can "protect" them.

Like paternalism? Keep Social Security a totally socialist program. Oh, and don't worry about the impact on your kids and grandchildren. It is their job to support you in your old age isn't it?

SS is the hoax. Jimmy first told us it was a failed "program" 26 years ago. Bill told us the same several times in the 90's.
W's original proposal was the best idea on SS in decades. His tax hike plan is more coverup like Dole's 83 tax hike. Dole's tax plan did not work and neither will W's new tax.

Gee thanks Robert, I'm already over my "LOL" limit for the day.

I thought Greenspan had a hand in the 83 tax hike.

He's not always the maestro.

2 points for touching the 3rd rail and living.

It's a start.

I found this article interesting. It references Edward Prescott's (2004 Nobel Prize In Economics) analysis of transistion costs. This is the same economist whose analysis determined that the most recent round of US tax cuts were not deep enough.

I discovered your blog last week and it is now one of my regular reads. Thanks!

What annoys me is that with all this yacking about personal accounts, the president and congress are failing to implement a few adjustments that would strengthen the current system. Namely, a) removing the earnings cap on contributions b) reduce the rate just slightly to 12% [6% for employees and 6% for employers.] and c) index social security benefits to adjusted gross income versus gross income.

As for private accounts, rather than cook up a convoluted system that will result in more government bureaucracy, why not make adjustments to the 401k and IRA programs? For example, remove the earnings caps for Roth IRAs and/or better link Roth IRAs with 401ks. How about just making 401ks more portable? (Or just merge all IRAs and 401ks in to a single account and have companies put the money into your IRA, not into a company selected 401k, some of which totally suck.)

For everybody that seems so concerned about the debt that will be shifted (not new debt incurred, think about what will be causing the borrowing for a minute, for Pete's sake) do the math. It doesn't matter one damn bit. It's either a little debt (relatively speaking) or the total collapse of the economy down the road.

If the debt is not incurred now, when we have time to do something about it, it will be incurred as more and more of the baby boom retires and there are fewer people working to cover the cost of SS. Best case SS collapses and everyone that is dependent on it either moves in with their kids, dies or goes back to work. Except those old farts (I'm in this age group BTW) will be no less greedy than today old farts that don't seem to give a rat's patootie about how much their benefits are costing their kids and grandkids. So the old farts will block any attempt to reduce SS benefits, and that only leaves raising taxes. Two workers to support one retiree, not even taking into consideration the rest of the Federal Entitlement Programs out there.

Sheesh, just count the bodies. The question isn't whether we're doomed the question is the degree based on the available choices.

Why can't we just make it voluntary? I've personally got comprehensive, maximum contribution IRA/401k plans, and I don't retire for another 45 years.

I want out. I won't even accept the social security I'm owed. Just let me out, for god's sake.

Maybe I'm just a simple peasant, but I can't see how "privatization" can still involve my money being taken from me.

How about this? I promise to save money for my retirement, on the condition the gov doesn't have to do it for me.

Please. Looking at 45 years of paying taxes into a system that I want nothing out of depresses me.

I too should be an easy convert for anything that involves "privatization." But I can't for the life of me see how this has anything to do with "private".

Whatever the final policy , it should be anathema to lovers of liberty if it is mandatory and coerced, immoral features of the present system. To plea it cannot work voluntarily is concede my point.

Borrowing to fund transition costs simply recognizes an inconvienent fact, this debt already exists, it's the currrent unfunded obligations of the SS system.

Guess what folks, unless some changes are in the offing, future benefits paid to many of the readers and writers of this blog will go down. Retirement ages will go up, absolute benefit payments will go down, means testing (income and assets) will be applied to curb eligibility. This beast is not sustainable.

Let me volunter for private accounts. I want control over my assets and I can do a better job of funding my retirement than burdening the rest of the nation. I don't want my financial future subject to the wims of the current pols.

I'm betting the investable assets created by private accounts will go a long way to accelerating investments in our own economy, improving productivity, boosting economic growth and yes, increasing the tax base and improving the Fed fiscal situation.

SS does not need voluntary accounts, since this is already available to the individual via the IRA, 401(k), 403(b), etc. As I said in my analysis of FDR's original plan, what is needed is what FDR called the "compulsory contributory annuities." Instead of creating the self-supporting system envissioned, Congress just stopped with the first part, paying for current retirees by taxing current workers.

It may be 70 years or so late, but I say let's start over and fully institute the plan as originally put forward. I do, however, tend to agree with Stephen that the real danger lies in Bush not going as far as he needs to out of political necessity. Hell, if he can't get what he needs then follow the advice of Hipocrates and at least do no harm.

Brian they can not do this now. If they had done this to begin with, it would not be that bad. But now every senior needs your money in the pot or there is no pot.

All these people on the left keep talking like there is no problem. Right, just like those people who insist Walmart would not have to raise prices if they gave Insurance to all of their employees. They expect that money to rain down from heaven on high. They have no concept of cost and profit. They see walmart bring in billions of dollars and think it is all profit.

Or maybe they just expect the government to just print more money. After all, crashing the psuedo capitalist economy would just be an extra bonus for em.

Preach it Brother Brian! I agree. I don't retire (for SS standards) for another 40 years and I am working on building my IRA etc (I too aim for the limit every year). I don't like relying on Big Brother to take care of me in my old age. As it is now, SS doesn't pay enough to live on, I shudder to think what it will be like in a few decades!!
I would JUMP on a way to not have to pay into a system that I don't want any part of!! I would sign a waiver or whatever was required!! Just give me the option to do what I want with my retirement funds!!
Essentially loosing hundreds of dollars a year, when I could be INVESTING it suuuucks.

I'm with Dean and Will. Bush is pointing to the only way out of this mess, and if the Dems succeed in dropping boulders in his path, we'll never get out. And complaining that the system should be abolished entirely is making the perfect the enemy of the good.

Also: watch for the bait and switch. Sometimes, the Dems say the returns on private accounts won't be that much better than the current system. Sometimes, they say we can fix the current system's finances with higher payroll taxes and lower benefits.

Don't let them compare the returns on private accounts to the current system if they are proposing changes to that system that will make it an even worse deal. Eliminating the caps and slashing benefits will greatly increase the number of workers for whom Social Security will produce a net negative return on investment.

" all this yacking about personal accounts [prevents] a few adjustments that would strengthen the current system.... a) removing the earnings cap ... and c) index social security benefits to adjusted gross income versus gross income."

Aside from reducing rates, most everybody agrees on (a) and (c). So without disagreement there are no political fireworks, no media frenzy, no news.

On the other hand, if the easily agreed upon changes were implemented first, it'd be like eating dessert before dinner -- spoiling any appetite for real food (and real or serious change). So those facets of reform will be saved as sweeteners and rewards to congresscritters who grit their teeth and eat their asparagus...

The problem with the President's sales job on Social Security is that it omits a lot of hard and uncomfortable truths about the current system, which dictate the shape of the solution. As a result, his pitch raises expectations too high and leaves people confused. Here are a few of the omitted facts:

1. WORKERS FACE ENORMOUS LOSSES FROM SOCIAL SECURITY (NO MATTER WHAT WE DO NOW) BECAUSE OF GENERATIONS OF MISMANAGEMENT. A company is bankrupt when its liabilities exceed its assets. That comparison for Social Security yields an unfunded liability of between $9 trillion and $12 trillion. It is simply wrong (and typical, misleading, retrograde government accounting) to say there's no problem until you don't have enough money to pay benefits.

The President hesitates to say this because he needs people to trust government to produce a solution.

2. THE BIGGEST PART OF REFORM IS ALLOCATING THE LOSS IN THE CURRENT SOCIAL SECURITY SYSTEM. It turns out that personal accounts are pretty straightforward. If the system was in actuarial balance, all you'd have to do is offset benefits by at least as much as the money in the personal accounts would earn for the system.

The problem is that the lost money has to come out of someone's hide. Reaching solvency means you have to allocate that loss to someone (or actually everyone).

3. BECAUSE OF THE PREVIOUS POINTS, PERSONAL ACCOUNTS ARE GOING TO BE A ROTTEN DEAL, BUT BETTER THAN THE ALTERNATIVE. As long as Social Security can recoup some of the increased returns workers will get on their personal accounts, it will be able to reduce the magnitude of the benefit cuts/tax increases/borrowing that will otherwise be necessary. But those benefits from the accounts will be small (at least over the course of our lifetimes) compared to the losses the system has already sustained.

This is why you might want to consider some borrowing to fix this program. The amounts involved are so large that if you insist on paying as you go, you end up imposing all the cost on one or two generations of workers, to the benefit of those who come before and come after. There's a logic to borrowing some money to even out the pain over a larger group of people. BUT, as Greenspan said, if you resort to borrowing, you better have a conservative and foolproof plan for solvency.

4. DELAY WILL MAKE THINGS EVEN WORSE THAN THEY ARE NOW. Social Security is organized as a pyramid scheme, and pyramid schemes have a natural progression. People who get their money in early and get it out early enjoy large returns. But after that, returns decline continuously until they become catastrophic. If you "solve" the Social Security problem by raising taxes or cutting benefits you are only enforcing the declining rate of return. Further, you will find that your "solution" is only an installment before the next round of tax increases and benefit cuts (e.g. the tax increase and benefit cuts enacted in 1983).

The only hope to stop the bleeding is to engineer a transition from the unstable pyramid principle (i.e. each generation pays for the one before) to the personal account principle (i.e. everyone saves for themselves). Unfortunately, the transition is necessarily painful and very slow.

It is a bleak picture, and you can hardly fault the President for trying to accentuate the positive. I wish him well, because the deal will only get worse if he fails.

At my Ins/Financial Services company annual meeting we had a luncheon for Advanced Planners where the co. gov't rep spoke. One of the things he mentioned was that Bush didn't think he would get private accounts on Social Security but that floating the trial balloon would get them a compromised shift... something to that effect...
I forget exactly how it was phrased and explained...
but basically your instinct coincided with what the speaker said, that the admin isn't really serious about this but is trying to shift the playing field over a bit.

Mike

I find myself mostly agreeing with Saletan on the future of SS, which is rather odd. He makes a strong case for raising the retirement age.

As for the notion of Bush trying to shift the field a bit, that's not really a tactic we've seen him use, but it could be sound. It's also possible he just wants it debated. In some regards, he may be showing that it's not really a third rail after all.

Raising or removing the earnings cap would amount to a monumental tax increase. It would make no sense for Bush to have cut taxes in his first term, and then end up raising them again.

Samuelson's essay is flawed in fundamental ways; he starts by placing boomer-retirement-time (he uses 2030 as his example) tax increases or spending cuts off the table. That is, politely speaking, bullshit, as I expand upon below. He also starts by pretending the retirement costs of the boomers are unfunded, which is also bullshit: they are funded by treasury bills bought with moneys essentially prepaid, in large part, by those very boomers.

The essence of the 1983 Greenspan Commission SS compromise was this: the regressive (flat, earned-income-only, and capped) payroll tax was raised to prepay benefits and accumulate savings to be stored in T-bills, which would then be redeemed and paid for at retirement time out of progressively-collected general revenues. It *necessarily* follows that any attempt to deal with SS that rule out either raising general-revenue taxes or cutting general-revenue expenditures is an attempt to welsh on the second part of the compromise. It is essentially arguing for a massive transfer of wealth from the people who paid the bulk of the regressively-collected payroll tax (the poor and middle-to-upper-middle classes) to the people who would have to pay back using progressivly-collected general revenues (primarily the wealthier among us); simply put, class warfare at its finest. Without welshing on the deal, those tax increases/spending cuts are *unavoidable*. Samuelson, by disingenuously pretending that the sole reasonable possibility is a benefit cut, is advocating exactly that.

There is another way in which Samuelson is being disingenuous, and that is by conflating Social Security (which is arguably in reasonably good financial shape) and Medicare (which is not, particularly after the prescription benefit boondoggle). If you want to advocate fixing Medicare, argue about Medicare; if you want to advocate cutting Social Security, argue about Social Security. But to advocate cutting Social Security by lumping it with Medicare in order to make it look in worse shape than it is is blatantly dishonest.

By the way, there was a way to minimize the impact of those unavoidable tax increases or spending cuts in the future, however, and it should've been obvious: run a surplus and pay down the debt. Instead, we got the Bush tax cut.

As one of those supposedly selfish older people who wants to rip off the younger generation, I suppose I should have no say. Nevertheless, I do. First of all, we're not all greedy jerks, and many of us are concerned about future generations. Those of you who are 40 years from retirement don't seem to understand what it takes to build up a nest egg or what the pitfalls are. I've been lucky enough to have more money than the average bear, but you should see how that money rises and falls in value depending on the fate of the stock and bond markets, inflation, interest rates, etc. The mortgage free house is a blessing, but even that could go down in value though it's been the best investment in my 30 years of investing.

Social Security is an insurance policy for those who are never able to save or whose savings don't work out well. It also pays for people who become disabled before they retire and for the dependents of workers who die. Children benefit if they lose a parent. Widows who depended on their husbands' wages often live on Soc. Sec.

The question is not whether we want people to save their own money as surely we do. I'm all for 401K plans, IRA's, etc. and I have them and more.

However, we need a safety net and Social Security can work. They've already raised the retirement age, they can raise the amount of wages taxed, and they can lower increases in benefits.

The alternative is Granny moving in with you, maybe Grandpa too, or welfare for the old and disabled. Either way, the bill has to be paid if you don't want old and sick people starving in the streets. To boot, you don't want to do that yourselves so I wish you'd stop thinking you're being ripped off. You think Social Security can't be there for your generation, but it can be IF you want it. However, you can be sure there'll be nothing there for you if this administration runs the country into such debt, trying to get rid of the present program, among other expenditures, that the whole US economy goes down the tubes.

Funny how some people talk abotu raising the the cap on social security taxes, as if it is some harmless and simple thing to do. Ignoring that those with higher incomes are already paying a higher income tax rates.
Just, simply raising the cap will create a top tax rate of 47%. that is almost half of people's incomes making $90,000 or more. Not including state taxes. I dont know about you, but $90,000 is not rich. Takign 12% from them will have a very negative impact on the economy. That will destroy the whole purpose behind privatization.

BabyBoomer,
You state that "Social Security is an insurance policy for those who are never able to save or whose savings don't work out well." If this were truly the case, SS would not be in nearly the trouble it is today. Instead, it acts as a system of transfer payments from all working people to all retired people.

I believe we could address the key problems with SS/Medicare by the following steps.

1) Divorce SS benefits from contributions and means test all SS and Medicare benefits via a reverse income tax mechanism. This step will preserve the safety net for those who need it, and I propose increasing the minimum payments to an amount that people might actually be able to survive on. Those who have saved enough to retire comfortably don't need SS benefits.

2) Increase the retirement age and eliminate early retirement benefits. Those who save enough can still afford to retire early, but deferring the onset of benefits will help bring the system back into balance. Those who are unable to work will still be eligible for disability benefits.

Cut the payroll tax rates as needed to balance the system.

--they can raise the amount of wages taxed,--

Small business owners and I think Warren Buffet have a way around this.

Lower your salary and take more profit.

How about means-testing all those families who's dad has died???

If the kid is rich, why should same receive SS????

Look at the 9/11 wuidows. Do they need it?

Boomer illustrates a key problem with SS without realizing it. The assertion that "Social Security is an insurance policy for those who are never able to save or whose savings don't work out well" does not logically lead to "It also pays for people who become disabled before they retire and for the dependents of workers who die. Children benefit if they lose a parent. Widows who depended on their husbands' wages often live on Soc. Sec." (emphasis mine)

In typical government wisdom they tried to make a hammer be a screwdriver, flashlight, circular saw, blender and fishing pole all in one. Without saying anything is wrong with all the other stuff (SSI, etc.) tacked on to SS one can still say it was the wrong vehicle with which to do it. Just as it makes sense to separate business and personal expenses, separating moneys intended to accumulate and provide future annuities from contemporary revenue and expenses is basic accounting 101.

In the perfect world step one of SS reform would be to identify all the non-retirement annuity benefits and own up to the fact that these are really welfare and redistribution programs. Only then can we make an informed decission on what to do with each separate component/program on its own.

"Those of you who are 40 years from retirement don't seem to understand what it takes to build up a nest egg or what the pitfalls are. I've been lucky enough to have more money than the average bear, but you should see how that money rises and falls in value depending on the fate of the stock and bond markets, inflation, interest rates, etc. "

Stock investments do indeed rise and fall, but no stock index has ever ended a 40 year period lower than where it started. If you're investing short-term, you can easily lose your shirt. If you're investing for 40 years, you'd have to make a concerted effort to avoid getting a substantial profit.

Not that a "personal account" is a good idea.

What we need are benefit cuts. If we can be sure that future shortfalls will be dealt with via benefit cuts rather than tax hikes, the best answer is to do nothing. Unfortunately, there's no good way to assure that. But the personal accounts won't help one bit. A personal account is exactly like reducing FICA collection by that amount as far as fiscal solvency goes, only it doesn't benefit the individual as much as not having that money collected from him in any fashion would.

The best way to "privatize" would be to reduce FICA and cut benefits.

"The alternative is Granny moving in with you, maybe Grandpa too, or welfare for the old and disabled. Either way, the bill has to be paid if you don't want old and sick people starving in the streets."

And what's so bad about Granny moving in with us? And what exactly is the difference, when you get right down to it, between what we have now and "welfare for the old and disabled"?

And as for the "old and sick people starving in the streets", think about this. If you can't stand the sight of people who failed and are down and out, and you're therefore going to restrict my actions to such a degree that I can't fail and wind up out on the street, and I object to what is essentially parenting after I've long since outgrown the need or tolerance for it, which one of us has the problem? Why should your distaste for seeing people who've failed outweigh other people's desire to be left to manage their own affairs and, yes, assume the risk that they'll indeed fail?

You know, the UN's been agitating about this panepidemic bird flu.

We could make it work to our advantage.

pandemic, pandemic.

Not a word I normally use.

Uhhhh, Robert....

How do you reconcile this:

"I understand that in its current form, SS can't meet its promises.

You understand wrong."

with this:

"In 40 to 50 years, Bush's approach might work.

Whatever is he talking about? Bush even admits that the program will do nothing to prevent SS long-term problems."

Let me get this straight. You say Samuelson is wrong when he says that SS can't meet it's promises. So then, the rational conclusion from that is SS can meet it's promises. Yet at the same time, you state that "Bush even admits the program will do nothing to prevent SS long-term problems." This implies THERE ARE long term problems.

So which is it? Consistency much? Or are you just glib?

Boomer-
I understand market fluctuations. I respect them. It's one of the many reasons why my portfolio is diversified. It's another reason why I pay such close attention to my investments...I don't put my money in a box and expect magic to happen. I grasp interest rates too. I also respect the vagaries of fate (disability, death of the main income earner etc). I still would opt out of SS if given the option.

Social Security was established as a parachute...if you couldn't save enough or didn't have children willing to take you in in your old age etc, then SS was there to keep you off the street. Absolutely. I’m glad that it exists…what I mind is that it has become THE retirement fund for older Americans.

I don’t mind a small allocation to an emergency fund like SS was meant to be…for the poor, widows etc. I mind that a chunk of the money that I earn is going to something that I will NEVER get a benefit from and is going to people who 1) don’t need it, if they saved enough or 2) is encouraging MORE generations to wait for a government hand out instead of taking responsibility for their retirement!!

That said, I think it's criminal that people who don't want anything to do with SS, have to pay so much into it. If I didn't want the parachute of my 401K I wouldn't have to take it. I hate that I don't get anything like that option with my SS contribution.
As a final question, you are a Baby Boomer who paid attention and started saving for your retirement. If you had had an opportunity to privatize some your SS taxes when you were my age, wouldn’t you have wanted to do that?

You understand wrong.

Many of those who say there's nothing wrong with Social Security are gambling on being right for the remainder of their lives. If they turn out to be wrong, then the correction will, of necessity, be retroactive and/or harsh.

Everyone brings something to the table, even if they don't realize it.

Ivan sez:

"He also starts by pretending the retirement costs of the boomers are unfunded, which is also bullshit: they are funded by treasury bills bought with moneys essentially prepaid, in large part, by those very boomers.

The essence of the 1983 Greenspan Commission SS compromise was this: the regressive (flat, earned-income-only, and capped) payroll tax was raised to prepay benefits and accumulate savings to be stored in T-bills, which would then be redeemed and paid for at retirement time out of progressively-collected general revenues."

Of course, the bottom line here is that redeeming those "T-bills" - which are nonmarketable, by the way; they're not like regular T-Bills - means calling in a big IOU that is, guess what, unfunded. The fact that the "Trust Fund" has IOUs from the rest of the budget doesn't fix the fact that the rest of the budget doesn't have assets sitting around to pay the IOUs. Which means that when they come due, we need higher taxes, lower spending and/or to jack up our debt.

Hello

Why not progressivly drop the income tax levels as people pass the age of SS eligibility in voluntary exchange for delaying the collection of benefits?

The advantages would be many. More years of tax contribution albeit at a reduced rate. Reduced number of years of payout. The most experienced and skilled continue in the workforce. An actuarial calculation will allow an increased SS monthly payout without increasing the payout from the system.

What is not to like? Increased choice, decreased taxation, more income for seniors, and a more efficient economy.

Who would oppose tax breaks and SS increases for people who voluntarily continue in their jobs?

Crank writes:

Of course, the bottom line here is that redeeming those "T-bills" - which are nonmarketable, by the way; they're not like regular T-Bills - means calling in a big IOU that is, guess what, unfunded.

They may be a special sort of T-bill, but they are T-bills, backed every bit by the selfsame "full faith and credit of the United States Government" that back the ones in my portfolio, which I don't consider "unfunded" (do you?). This "full faith and credit", by the way, also is what backs the dollar itself; I don't consider the money in my bank account unfunded either. My point was that Samuelson, by assuming from the start the benefits are "unfunded", he is (willfully, it seems to me) avoiding the extra moneys alredy paid down towards those benefits for decades. That point here is that the suggestion that the benefits are unfunded is not only incorrect, but implicitly advocates somehow trying to welsh on that debt.

He then goes on to say:

The fact that the "Trust Fund" has IOUs from the rest of the budget doesn't fix the fact that the rest of the budget doesn't have assets sitting around to pay the IOUs. Which means that when they come due, we need higher taxes, lower spending and/or to jack up our debt.

The budget never has "assets sitting around" to pay back the money it borrows; nonetheless, it gets paid back out of general revenues. And indeed, when debt comes due (as the SS t-bills will), it is necessary to choose between higher taxes, lower spending, or more debt. That was my point: *that* was the bargain struck in 1983: higher regressive taxes back then which would be later covered by funds from progressive taxes. To repeat myself, Samuelson essentially is advocating welshing on it, but he's doing it in a disingenuous manner when he starts by putting taxes and spending off the table.

The need to adjust the budget then in order to pay back those IOUs is not a fact that needs "fixing": it is the very essence of the deal already struck. And, as I said, the way to reduce the pain then is also simple: to run a surplus and pay down the debt.

What is truly disturbing is that privatization advocates, when engaging in any rhetoric that somehow poohpooh the existence of the trust fund (whether placing trust fund in quotes, calling the T-bills it holds IOUs, suggesting it's meaningless or broke or worthless, or suggesting the benefits it's slated to pay for are unfunded) don't seem to realize the pandora's box they are opening by questioning the validity of that debt. What backs that debt is also what backs every T-bill, and in fact what backs American currency itself, and denigrating the debt owed to SS also denigrates all other obligations similarly backed. The good credit of the Federal Government is one of the greatest assets it has, and if the campaign to consider the T-bills in the trust fund worthless, unfunded, or whatnot is successful, the consequences will be disastrous; it is silly to believe that such damage to the credibility of Federal securities can be contained.

Ivan - this argument that something is "funded" because you hope to raise taxes in the future to get the funds is one of the silliest exercises in semantics I think I've ever seen, and I'm embarrassed for the left-wing bloggers who have been pitching it. In my own finances, I consider something "funded" if I can get the money without having to, you know, sell something or go out and earn it. Try telling your bank that you've funded a down payment on a house by having a promise to earn it in the future.

"They may be a special sort of T-bill, but they are T-bills, backed every bit by the selfsame "full faith and credit of the United States Government" that back the ones in my portfolio, which I don't consider "unfunded" (do you?). . . What backs that debt is also what backs every T-bill"

No. First of all, if I have a debt instrument issued by you, that's an asset. If I have a debt instrument issued by me, that's a fiction. The distinction should not be difficult to grasp. The reason T-Bills in the hands of the US government are not worth the same as T-Bills in everyone else's hands is that the US government is on both sides of the deal. This is almost exactly what Enron got in trouble for, structuring off-the-books entities (much like the "Trust Fund") so it could count money it owed itself, or shell companies who owned nothing but Enron stock, as assets.

The debt markets fully understand that what matters to the credibility of our outstanding, issued debt is our promise to repay that debt and our ability to do so. The fact that we restructure the way we repay internal debits owed between arms of the same entity has nothing to do with it.

C'est Moi,

"Social Security was established as a parachute...if you couldn't save enough or didn't have children willing to take you in in your old age etc, then SS was there to keep you off the street. Absolutely. I’m glad that it exists…what I mind is that it has become THE retirement fund for older Americans."

Ah, but here we get to the problem of psychology, how the human mind works especially in the US. People far prefer to contribute to something from which they or those they love might benefit than to "welfare." As another reader stated, s/he doesn't care what happens to those who fail and wants the chance to fail and end up poverty stricken.

As soon as you change SS into a program only for the poor and sick, you've done away with its appeal to the middle and upper classes. As soon as you say you're going to means test it, you have a big problem on your hands. Where is the cutoff between those who receive and those who don't? This problem is exacerbated by the differences in cost of living in various parts of the country.

Perhaps the program should be changed in some ways, but I don't know that it's THE retirement fund for older Americans. Those who make enough money to save and invest do so, knowing perfectly well that SS alone will not be enough to live on, at least not comfortably. This has been true for decades and is not a new realization. My father, who died before ever collecting, was very worried that his pension along with SS would not support him once he stopped working. He had a career setback in middle age which had necessitated his using savings earmarked for retirement.

You asked if I would have wanted to opt out of paying SS taxes when young in order to invest that money on my own. The answer is no as I liked the guarantee of SS. I've been a careful investor, diversified portfolio, no trading for the sake of a quick buck, etc. That hasn't prevented my portfolio from rising and falling in value or in income produced.

I think what it boils down to is those who believe in "rugged individualism" versus those who believe we're all in this together. I'm in the latter category. This outlook isn't based strictly on compassion, though there is that. Before you write me off as a bleeding heart, think of what kind of country we want to have and how well that country will survive. A society in which the weak are ignored and only the strong survive is not economically sound. Our economy depends on consumer spending, a whole lot of it. Our prosperity is based on a thriving middle class. We already tolerate more poverty than most of the wealthy nations. If we decide to increase the number in poverty, this won't be a pleasant place to live. I don't live in a gated community and I don't want to need those gates to keep out the starving hordes, thank you very much.

If someone gets more than they need, I'm not going to complain about my taxes going to the "undeserving." Heck, my taxes go to many things with which I disagree and have been wasted by politicians all of my life. This is the way of bureacracy and no way around it. It's even worse in other wealthy nations, of that you can be sure. In some European countries where there's more socialism, the governments can find even more absurd ways to waste money.

Take a look around the Internet for articles about how well private accounts for retirment have worked in other countries. They've experimented in South American, in Britain, in Sweden, and in Australia. No one is happy with the results as those who invested privately haven't done well. I'm not talking now about investing outside a government program but within those government programs. If you don't trust the government with the present SS setup, why trust it with a new scheme? If you're fortunate, as I hope you'll be, you'll do well with a 401K, IRA, and whatever other ways you choose to invest.

Crank,
re "Try telling your bank that you've funded a down payment on a house by having a promise to earn it in the future." OK. But another part of buying a house on credit is assuring the bank of your ability (and implicitly, willingness) to generate future income sufficient to cover the mortgage. Put another way, our retirement is/will be in the context of a future economy. Non-working [retired, kids, otherwise unemployed] people will suck goods and services out of the economy. Hats off to those retirees who planned to retire completely off the grid and have prepared for their retirement by stockpiling a post-retirement-lifetime's worth of actual consumables like food,water,fuel,spare parts for the generator, medicines, ammunition, etc. This type of retirement is not for me...

The "there is no trust fund, just a surplus from a regressive tax that we use [and have used, especially for the past 20 years] to fund the parts of the goverment that are running big deficits" line should be just as embarrassing to conservatives. I frankly do not understand why conservatives [?] aren't embarrassed by this reasoning. Am I completely uninformed? Has the conservative movement consistently bemoaned the fraudulence of a "trust us" fund built with surpluses from a regressive tax during and since the compromise in the mid 80s, and the rest of the country just never noticed? Didn't this system[/fraud, for the sake of argument] indirectly justify a government bigger than it should have been/is/will be? Would it have been better to buy a basket of foreign government bonds (or stocks, corporate bonds, or gold coins, or whatever) with the social security surplus, and sell "real" T-bills to the Japanese et al to make up the difference? I'm seriously asking here; I have not seen a coherent answer to this framing of the question.

Re the line about social security not being social insurance, being primarily an income restribution system, if you try to put together an equivalent package with private instruments, it does involve risk transfer to the government of at least:
1) Duration of retirement
2) Inflation
3) Messed-up careers, bad [in the financial sense] career choices, and personal financial catastrophy like bankrupcy.

Disregarding the mix-in aspects (survivor benefits, etc), at retirement we get what amounts to a federally guaranteed inflation adjusted life annuity, of a size loosely linked to our lifetime earnings. Insurance?