posted on July 24, 2004 08:51:06 AM new
Last week, Rep. Paul Ryan (R-Wisc.) and Sen. John Sununu (R-N.H.) introduced a dramatic and sweeping Social Security reform proposal. The legislation would allow workers the option of having personal retirement accounts, rather than relying on a Social Security system that is financially unsustainable.
Currently, the Social Security payroll tax takes 12.4%--split between the employer and employee--of workers' incomes.
Under the Ryan-Sununu bill, workers would be able to devote, on average, 6.4 percentage points, just over half the total tax, to their personal accounts. Thus the legislation would create the largest accounts ever proposed in Congress; and it is turning out to be the most popular Social Security reform bill on Capitol Hill.
Of course, there would be no change in Social Security of any sort for today's retirees. Indeed, there are no benefit cuts in the bill of any sort for anyone at any point.
The proposal has already been scored by the chief actuary of Social Security as achieving permanent solvency for the program, without cutting benefits or raising taxes. In addition, because of the much higher returns paid on market investments, the accounts would provide higher benefits than Social Security.
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"One thing is for sure: the extremists have faith in our weakness. And the weaker we are, the more they will come after us." --Tony Blair
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"The War on Terror will not be won until America is united. And as long as Democrats target the Bush administration -- not the terrorists -- as the enemy, we are in trouble." --Oliver North
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Those are only two reasons why we need to:
Re-elect President Bush!!
[ edited by Linda_K on Jul 24, 2004 08:53 AM ]
posted on July 24, 2004 09:03:50 AM new
Obviously you did not read the link....that issue is addressed.
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"One thing is for sure: the extremists have faith in our weakness. And the weaker we are, the more they will come after us." --Tony Blair
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"The War on Terror will not be won until America is united. And as long as Democrats target the Bush administration -- not the terrorists -- as the enemy, we are in trouble." --Oliver North
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
posted on July 24, 2004 10:20:05 AM new
Nice idea, but I would feel much better if I invested and planned for my own retirement instead of allowing the government to invest the social security.
Let's have a BBQ, Texas style, ROAST BUSH
------------------------------
All Things Just Keep Getting Better
------------------------------
We the people, in order to form a more perfect Union....
.....one Nation indivisible, With Liberty and Justice for ALL.
posted on July 24, 2004 10:45:58 AM new
HEY! Look at me! I can cut and paste!Enron Employees Join Senators to Underscore
Dangers of Bush Social Security Privatization Plan
What happened in Houston could happen to retirees across America
if Social Security is left at the mercy of the market
WASHINGTON -- The devastating human impact of the Enron scandal is a hint of the harm that could come from President Bush's plan to privatize Social Security, two former Enron employees and several leading Senators warned today.
At a Capitol Hill press conference Wednesday, the Enron employees - Louis Allen and Deborah Perrotta - described how the company's collapse wiped out their retirement savings, leaving them barely able to make ends meet and deeply worried about their family's economic security. They said that millions of other Americans who depend on Social Security could face the same serious risks and cruel results if their benefits are subject to the ups and downs of the stock market and the volatility of companies like Enron.
Allen, a parking and transportation supervisor, said, "I am a single father of an 11-year-old daughter. I have provided for my daughter since she was born. Now I can't even afford my rent and have had to move in with my mother. I can't afford health insurance for myself or my daughter and can't imagine how I'm going to afford to send my daughter to college.
"Seeing my hard earned money disappear in the blink of an eye, I am shocked that some in Congress are considering privatizing Social Security. This would put other families, just like mine, at the mercy of fluctuations in the market. If I've learned anything from this horrible experience, it's just how important a reliable safety net is."
Perrotta, a senior administrative assistant who lost $40,000 out of her retirement plan, added, "Given my experience at Enron, I have come to appreciate Social Security -- which is guaranteed by the Federal Government -- even more. If I were to retire today, that is all the money I would have to live on.
"During the last year, I have heard and read about efforts to privatize Social Security. I confess, I hadn't given it much thought. But given what I've been through in the last few months, I am here today to tell you that those proposals are a big huge mistake. Just like Enron, there is no telling what could happen to Social Security benefits if they were dependent on the ups and downs of the market."
Joining the Enron employees at the press conference were Senate Governmental Affairs Committee Chairman Joe Lieberman (D-CT), who is leading an investigation into the collapse of Enron, and Senators Barbara Boxer (D-CA), Jon Corzine (D-NJ), and Debbie Stabenow (D-MI).
Lieberman said the Enron employees were uniquely positioned to highlight the connection between "Enron's privations and Social Security privatization, and the harm that could be done by replacing the rock-solid certainty of Social Security today with the instability of the stock market tomorrow."
Lieberman argued that the major flaw in the privatization plans that President Bush is considering is that they would turn Social Security from an insurance program into an investment program, where benefits would vary greatly depending on the individual's investment skills, ability to contribute, and plain luck.
"Privatization plans, including the proposals put forward by the President's Social Security reform commission, would take away the safety from the safety net, and turn the idea of a rainy day fund into a sink or swim proposition," Lieberman said. "If you don't choose wisely, you lose badly. And the government's response to bad luck would be to say, 'tough luck.' "
Statement of Senator Joe Lieberman on Enron Insecurity and Social Security
posted on July 24, 2004 10:51:15 AM new
logansdad - You CAN invest for your own retirement. That's not what this is about.
As it stands now you have absolutely NO control on the money that you pay into the SS system. This gives you control over your own funds....at least to a limited degree. Which isn't an available choice for you under the current system.
From my link:
At the same time, it provides an enormous increase in the private, personal prosperity of working people. Each worker would personally and directly own the account, just like their own bank accounts, IRAs and 401ks.
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"One thing is for sure: the extremists have faith in our weakness. And the weaker we are, the more they will come after us." --Tony Blair
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"The War on Terror will not be won until America is united. And as long as Democrats target the Bush administration -- not the terrorists -- as the enemy, we are in trouble." --Oliver North
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
posted on July 24, 2004 10:55:37 AM new
I'm beginning to see clearly why the dems here are voting for kerry.
They can't even read correctly. 3 responses and not one has read the link.
Privatization plans, including the proposals put forward by the President's Social Security reform commission, would take away the safety from the safety net, and turn the idea of a rainy day fund into a sink or swim proposition," Lieberman said.
Just *WHEN* did he say that? A year ago? Not in regard to THIS proposal for sure.
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"One thing is for sure: the extremists have faith in our weakness. And the weaker we are, the more they will come after us." --Tony Blair
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"The War on Terror will not be won until America is united. And as long as Democrats target the Bush administration -- not the terrorists -- as the enemy, we are in trouble." --Oliver North
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
posted on July 24, 2004 11:40:51 AM new
Well.. I have read it.. and if it is as written then I can't find a problem with this plan.
If I read correctly.. the safety net provides at least the same amount that SS pays now.. so unless I am missing something.. it looks like a good plan to me.
I am not convinced that the stock market will always provide higher returns.. but what is the risk.. if as stated we are guaranteed at least what we are offered now.
Please correct me if I am wrong.. big business will still get richer.. but at the same time so will our retirement funds, a benefit to all
Maggie
posted on July 24, 2004 12:13:33 PM new
Maggie - That's how I saw it too. And was hoping if anyone else found they still had concerns, they would voice them.
After the many discussions we've had about this issue....I thought this latest version addressed the concerns that have been brought up in the past...ie: the safely net. They were valid concerns and I think this does a great job of addressing them.
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"One thing is for sure: the extremists have faith in our weakness. And the weaker we are, the more they will come after us." --Tony Blair
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
"The War on Terror will not be won until America is united. And as long as Democrats target the Bush administration -- not the terrorists -- as the enemy, we are in trouble." --Oliver North
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
posted on July 24, 2004 01:06:03 PM new
You're in good hands with Social Security
But privatization proposals would unravel its ability to insure against loss of income, disability, and death
by Christian E. Weller and Michelle Bragg
President Bush's Commission to Strengthen Social Security, having apparently discovered that it can't rely on sound economics to defend partial privatization, has instead chosen to falsely discredit the existing program by suggesting it is a bad deal for African Americans and women. "[F]ailure to restructure Social Security poses a disproportionate threat to the overall retirement security of women," the commission stated in its July report, adding, "African Americans are disproportionately threatened by the financing shortfalls facing the current system." But the commission's tactic is transparently belied by facts: for the past 66 years, Social Security has offered a safety net for workers and their families in the event the primary source of family income is lost due to retirement, disability, or death. In these situations, women, children, low-wage workers, and African Americans benefit greatly from Social Security.
Social Security is a three-pronged insurance program: it insures against loss of income due to retirement, death, or disability. About two-thirds of Social Security's expenditures pay for retirement benefits. The average elderly household receives 58% of its income from Social Security, and without these benefits an additional 39% of the elderly would fall into poverty. Moreover, Social Security's retirement benefit program offers insurance both against low lifetime earnings, since lower lifetime earners receive relatively higher benefits than do higher lifetime earners, and against old-age poverty, since it pays guaranteed, inflation-proof benefits regardless of life expectancy. Low-wage workers and women (who tend to live longer than men and have lower lifetime earnings than men) benefit especially from these retirement insurance features.
Social Security is also a large disability and life insurance program -about a third of expenditures pay for survivorship and disability benefits-and African Americans, women, and children are the major beneficiaries. While African Americans make up just 12% of the population, they constitute 18% of disability beneficiaries; women, who make up 52% of the population, constitute 72.3% of survivorship beneficiaries; and children under the age of 18-just 6% of the population-constitute 26.9% of survivorship beneficiaries and 22.1% of disability beneficiaries.
These insurance features make Social Security a good deal for the average worker in general and for low-wage workers and women in particular. The average rate of return from Social Security for workers born between 1956 and 1964 is 2.7%, substantially higher than the 2% that could be expected from a privatized system. For women the average rate of return is 3.7%, and for low-wage men it's 4.7%.
Partial privatization will likely result in cuts to all benefits
Social Security privatization would be a bad deal for women, children, African Americans, and low-wage workers, since it would significantly weaken Social Security's insurance function. Diverting a portion of Social Security revenue into individual accounts will result in less income for Social Security itself, meaning that retirement, disability, and survivorship benefits will have to be cut. 1 It has been estimated that a diversion of 2 percentage points of payroll (out of a total of 12.4%) will require a cut in retirement, disability, and survivorship benefits of 41% for anybody who is younger than 55 next year (Aaron et al. 2000).
Indeed, past proposals for partial privatization generally included cuts in all three types of benefits. For example:
One of three options put forth by the 1994-96 Advisory Council on Social Security (the personal security accounts (PSA) option) would have let workers divert 5 percentage points of payroll tax (or 40% of Social Security revenue) into individual accounts.2 Cuts in retirement, survivorship, and disability benefits were proposed to offset the loss in revenue.
In 1998, then-Senator Patrick Moynihan proposed a 2-percentage-point cut in payroll taxes, the savings from which workers could use to establish individual retirement accounts. Aaron and Reischauer (1998) estimated that the loss of income to Social Security would require a 20% across-the-board cut in retirement, disability, and survivorship benefits.
Senators John Breaux and Judd Gregg also suggested partial privatization in which 2 percentage points of payroll would be allocated to individual accounts. To cover the income shortfall, retirement and disability benefits were to be cut substantially, by about 30% to 40% for high- and moderate-income workers (Aaron and Reischauer 2001).
Individual account savings will not compensate for benefit cuts
The cuts to Social Security could be offset to some degree by savings in individual accounts. But these accumulated savings will on average cover only one-third to one-half of the loss in benefits (Aaron et al. 2000; Baker 2000).
The share of lost benefits a worker will be able to recover with the accumulated savings depends on several factors, the most important of which is the rate of return. Future real rates of return, though, are likely to be lower than in the past. Real rates of return on stock markets depend on economic growth, and Social Security's trustees assume that economic growth over the next 75 years will equal only half that of the past 75 years, 1.6% compared to 3%. Hence, real rates of return should be equally lower, meaning that we can expect an average rate of return of 3.6% for the next 75 years (Baker 1997).
Another factor cutting into rates of return on private accounts will be the administrative charges on individual accounts and premiums for private insurance to pay for survivorship and disability benefits. In addition, Social Security will be expected to honor promises made to workers who already paid into the system, therefore requiring current workers to pay twice, once into their own accounts and once for the benefits already promised. Consequently, the effective rate of return from stock market investments will be around 2% (Baker 1998), applicable to every worker regardless of demographic or economic background.
Moreover, even if rates of return for the next 75 years equal those of the past 75, some workers will, on average, be more likely to experience a substantial loss in benefits than others. For instance, low-wage workers and workers with long average life expectancies will have an even harder time than their higher-earning but shorter-lived counterparts in recovering their loss in retirement benefits through savings in individual accounts (Aaron et al. 2000; Baker 2000).
Currently, Social Security redistributes funds toward low-wage earners, yielding them a higher rate of return on their contributions. While the average worker born between 1956 and 1964 can expect a rate of return of 2.7%, men with low earnings can expect a 4.7% real rate of return and women can expect a 6.8% return (Cohen, Steuerle, and Carasso 2001). Also, as Social Security pays benefits based on lifetime earnings without adjustments for life expectancies, workers who can expect to live longer, particularly women, receive higher lifetime benefits than others. Women born between 1956 and 1964 can expect a real rate of return of 3.7%, compared to 1.7% for men (Cohen, Steuerle, and Carasso 2001).
With individual accounts workers will be on their own, though. It will be harder for lower-wage workers and for workers with longer life expectancies to recover across-the-board benefit cuts with savings in individual accounts. Aaron et al. (2000) estimate that, while a single worker with average earnings who retires in 2037 can recover 63% of the benefit cut with the savings in his or her individual account, a single low-wage worker can recover only 46%.3
Because Social Security offers spousal benefits to married couples with only one income earner, while individual accounts do not, married one-earner couples will recover a substantially smaller share of lost benefits than will single workers. Aaron et al. (2000) estimate that a married average-wage worker retiring in 2037 could expect to recover about 39% of the loss in benefits, whereas a married low-wage worker could expect to recover only 30%. Assuming different rates of return on individual accounts, Baker (2000) estimates that a married average-wage worker could recover 28%, and a married low-wage worker 20%, of lost benefits.
The calculations for average-wage workers mask differences between demographic groups. Two factors are of particular importance-life expectancy and earnings. Women, for instance, have a higher rate of return under Social Security than do men because they live longer, thus getting more out of Social Security's guaranteed, inflation proof, lifetime benefit, and they earn less, thus taking advantage of the more-generous benefits to lower lifetime earners. In other words, in order to receive the same benefits as under Social Security, women would have to have accumulated more relative to their earnings than men to compensate for the fact that they tend to live longer and earn less over their lifetimes.
Moreover, survivorship and disability beneficiaries are likely to recover less in terms of lost benefits than others. If a worker becomes disabled before reaching retirement age, disability benefits are converted to retirement benefits when the disabled worker reaches retirement age. Under a privatized system, workers with a complete working life would have a chance to build up savings to compensate partly for the loss in Social Security retirement benefits. But disabled workers have to rely on the accumulated savings from much shorter working lives. Consequently, disability beneficiaries would experience an above-average benefit cut.
Similarly, if a worker dies, Social Security operates like life insurance and provides benefits to surviving spouses and children. If a worker dies well before retirement age, accumulated individual account balances will be less than they would have been after a full working life, therefore leaving survivors with fewer funds to cover the reduction in benefits.
Women, children, and African Americans depend on disability and survivorship benefits
To cover the shortfall in income that results from partial privatization, all Social Security benefits-retirement, survivorship, and disability-will likely be cut, and individual account balances are likely to cover only a small portion of the lost benefits. Low-wage workers and women will be particularly hurt by cuts in retirement benefits, but who will be hurt by cuts to survivorship and disability benefits?
Since 1980, disability and survivorship benefits have made up more than 30% of Social Security's expenditures. In 2000, 19% of Social Security's expenditures paid for survivorship benefits to 7 million beneficiaries, while 13% for disability expenditures was allocated to 6.7 million beneficiaries (Table 1).
Average disability and survivorship benefits are of about the same amount as average retirement benefits. The average monthly disability benefit was $787 in 2000, about 93% of the average monthly retirement benefit. The average monthly survivorship benefit was $810, or 96% of retirement benefits (Table 2).
Women are disproportionately dependent on survivorship benefits because of longer life expectancies and lower lifetime earnings. As noted above, while women constitute 52% of the American population, they constitute 72.3% of survivorship beneficiaries (Table 3). For black women, the average monthly survivorship benefit is almost identical (98%) to their average monthly retirement benefit; for white women, the survivorship benefit is about 12% higher than the retirement benefit (Table 2).
African Americans rely more on disability benefits than do whites. While African Americans are 12% of the population, they constitute 18.0% of disability insurance beneficiaries. Moreover, the average monthly disability benefits for African American men and women are almost identical to their retirement benefits.
Finally, the fact that Social Security is a social insurance program designed to help the families of American workers is highlighted by the fact that more than one-fifth of survivorship and more than one-fourth of disability beneficiaries are children. Though just 6% of the U.S. population is under the age of 18, this age group constitutes 22.1% of disability beneficiaries and 26.9% of survivorship beneficiaries. Fifteen percent of the under-18 population is African American, yet they constitute 22.6% of all young survivorship beneficiaries and 20.8% of young disability beneficiaries (from Table 3).
What the commission may bring
The president's Commission to Strengthen Social Security wants to privatize part of Social Security. Such a radical shift in the program would lower benefit levels and ultimately hurt working people by substantially weakening the insurance protection for low-wage workers, women, children, and African Americans.
The commission's scorched-earth attempt to discredit the nation's immensely successful-and for the most part financially secure-social insurance system is an intellectually dishonest endeavor at best and a raid on public pension funds at worst, since the only sure beneficiaries of a private-account scheme would be the financial firms that collect the fees. Keeping Social Security in the black over the 75-year planning horizon can be achieved through much less radical policy changes, such as raising the income cap for payroll taxes. The Social Security program, not to mention its beneficiaries, is already in good hands. We shouldn't let this commission touch it.
Endnotes
1. Unless, of course, payroll taxes are increased in order to raise revenue. But one of the president's principles for strengthening Social Security that underlies the work of the commission is that "Social Security payroll taxes must not be increased."
2. Five members of the 13-member Advisory Council supported the PSA option. Two of them, Fidel Vargas and Caroline Weaver, were named to President Bush's commission (Weaver has since resigned.)
3. This calculation assumes a phased-in benefit cut, rather than an immediate benefit cut of 41% (Aaron et al. 2000). The underlying calculations assume that average rate of return on equities mirrors those of the period 1946-95. Baker (1997) argues that historic rates of return are inconsistent with the low growth projections of the Social Security trustees. Using consistent rates of return would lower the accumulation of savings significantly. Consequently, a single average wage earner retiring in 2037 could expect to recover 41% of lost benefits, whereas a single low-wage earner could recover only 30% (Baker 2000).
References
Aaron, H., Blinder, A., Munnell, A., and Orszag, P. 2000. "Governor Bush's Individual Account Proposal: Implications for Retirement Benefits." The Social Security Network. Issue Brief No. 11. New York, N.Y.: The Century Fund.
Aaron, Henry, and Reischauer, Robert. 1998. Countdown to Reform: The Great Social Security Debate. New York, N.Y.: The Century Foundation Press.
Aaron, Henry, and Reischauer, Robert. 2001. Countdown to Reform: The Great Social Security Debate. Revised and Updated for 2001. New York, N.Y.: The Century Foundation Press.
Advisory Council on Social Security. 1997. Report of the 1994-1996 Advisory Council on Social Security, Volume I: Findings and Recommendations. Washington, D.C.: Advisory Council on Social Security.
Baker, Dean. 2000. Governor Bush's Individual Account Proposal: A Reassessment Using Realistic Stock Return Projections. CEPR Report. Washington, D.C.: Center for Economic and Policy Research.
Baker, Dean. 1998. The Full Returns from Social Security. New York, N.Y.: The Century Foundation.
Baker, Dean. 1997. Saving Social Security With Stocks: The Promises Don't Add Up. New York, N.Y.: Twentieth Century Fund.
Cohen, Lee, Steuerle, Gene, and Carasso, Adam. 2001. "Social Security Redistribution by Education, Race and Income: How Much and Why." Paper presented at the Third Annual Conference of the Retirement Research Consortium, "Making Hard Choices About Retirement," Washington, D.C., May 17-18.
Social Security Administration (SSA). 2001. Annual Statistical Supplement, 2001. Washington, D.C.: Social Security Administration.
Social Security Administration (SSA). 2001. Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. Washington, D.C.: Social Security Administration.
Social Security Administration (SSA). 2000. Income of the Population 55 and Older. Washington, D.C.: Social Security Administration.
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posted on July 24, 2004 01:21:13 PM new
You're in good hands with Social Security
But privatization proposals would unravel its ability to insure against loss of income, disability, and death
by Christian E. Weller and Michelle Bragg
President Bush's Commission to Strengthen Social Security, having apparently discovered that it can't rely on sound economics to defend partial privatization, has instead chosen to falsely discredit the existing program by suggesting it is a bad deal for African Americans and women. "[F]ailure to restructure Social Security poses a disproportionate threat to the overall retirement security of women," the commission stated in its July report, adding, "African Americans are disproportionately threatened by the financing shortfalls facing the current system." But the commission's tactic is transparently belied by facts: for the past 66 years, Social Security has offered a safety net for workers and their families in the event the primary source of family income is lost due to retirement, disability, or death. In these situations, women, children, low-wage workers, and African Americans benefit greatly from Social Security.
Social Security is a three-pronged insurance program: it insures against loss of income due to retirement, death, or disability. About two-thirds of Social Security's expenditures pay for retirement benefits. The average elderly household receives 58% of its income from Social Security, and without these benefits an additional 39% of the elderly would fall into poverty. Moreover, Social Security's retirement benefit program offers insurance both against low lifetime earnings, since lower lifetime earners receive relatively higher benefits than do higher lifetime earners, and against old-age poverty, since it pays guaranteed, inflation-proof benefits regardless of life expectancy. Low-wage workers and women (who tend to live longer than men and have lower lifetime earnings than men) benefit especially from these retirement insurance features.
Social Security is also a large disability and life insurance program -about a third of expenditures pay for survivorship and disability benefits-and African Americans, women, and children are the major beneficiaries. While African Americans make up just 12% of the population, they constitute 18% of disability beneficiaries; women, who make up 52% of the population, constitute 72.3% of survivorship beneficiaries; and children under the age of 18-just 6% of the population-constitute 26.9% of survivorship beneficiaries and 22.1% of disability beneficiaries.
These insurance features make Social Security a good deal for the average worker in general and for low-wage workers and women in particular. The average rate of return from Social Security for workers born between 1956 and 1964 is 2.7%, substantially higher than the 2% that could be expected from a privatized system. For women the average rate of return is 3.7%, and for low-wage men it's 4.7%.
Partial privatization will likely result in cuts to all benefits
Social Security privatization would be a bad deal for women, children, African Americans, and low-wage workers, since it would significantly weaken Social Security's insurance function. Diverting a portion of Social Security revenue into individual accounts will result in less income for Social Security itself, meaning that retirement, disability, and survivorship benefits will have to be cut. 1 It has been estimated that a diversion of 2 percentage points of payroll (out of a total of 12.4%) will require a cut in retirement, disability, and survivorship benefits of 41% for anybody who is younger than 55 next year (Aaron et al. 2000).
Indeed, past proposals for partial privatization generally included cuts in all three types of benefits. For example:
One of three options put forth by the 1994-96 Advisory Council on Social Security (the personal security accounts (PSA) option) would have let workers divert 5 percentage points of payroll tax (or 40% of Social Security revenue) into individual accounts.2 Cuts in retirement, survivorship, and disability benefits were proposed to offset the loss in revenue.
In 1998, then-Senator Patrick Moynihan proposed a 2-percentage-point cut in payroll taxes, the savings from which workers could use to establish individual retirement accounts. Aaron and Reischauer (1998) estimated that the loss of income to Social Security would require a 20% across-the-board cut in retirement, disability, and survivorship benefits.
Senators John Breaux and Judd Gregg also suggested partial privatization in which 2 percentage points of payroll would be allocated to individual accounts. To cover the income shortfall, retirement and disability benefits were to be cut substantially, by about 30% to 40% for high- and moderate-income workers (Aaron and Reischauer 2001).
Individual account savings will not compensate for benefit cuts
The cuts to Social Security could be offset to some degree by savings in individual accounts. But these accumulated savings will on average cover only one-third to one-half of the loss in benefits (Aaron et al. 2000; Baker 2000).
The share of lost benefits a worker will be able to recover with the accumulated savings depends on several factors, the most important of which is the rate of return. Future real rates of return, though, are likely to be lower than in the past. Real rates of return on stock markets depend on economic growth, and Social Security's trustees assume that economic growth over the next 75 years will equal only half that of the past 75 years, 1.6% compared to 3%. Hence, real rates of return should be equally lower, meaning that we can expect an average rate of return of 3.6% for the next 75 years (Baker 1997).
Another factor cutting into rates of return on private accounts will be the administrative charges on individual accounts and premiums for private insurance to pay for survivorship and disability benefits. In addition, Social Security will be expected to honor promises made to workers who already paid into the system, therefore requiring current workers to pay twice, once into their own accounts and once for the benefits already promised. Consequently, the effective rate of return from stock market investments will be around 2% (Baker 1998), applicable to every worker regardless of demographic or economic background.
Moreover, even if rates of return for the next 75 years equal those of the past 75, some workers will, on average, be more likely to experience a substantial loss in benefits than others. For instance, low-wage workers and workers with long average life expectancies will have an even harder time than their higher-earning but shorter-lived counterparts in recovering their loss in retirement benefits through savings in individual accounts (Aaron et al. 2000; Baker 2000).
Currently, Social Security redistributes funds toward low-wage earners, yielding them a higher rate of return on their contributions. While the average worker born between 1956 and 1964 can expect a rate of return of 2.7%, men with low earnings can expect a 4.7% real rate of return and women can expect a 6.8% return (Cohen, Steuerle, and Carasso 2001). Also, as Social Security pays benefits based on lifetime earnings without adjustments for life expectancies, workers who can expect to live longer, particularly women, receive higher lifetime benefits than others. Women born between 1956 and 1964 can expect a real rate of return of 3.7%, compared to 1.7% for men (Cohen, Steuerle, and Carasso 2001).
With individual accounts workers will be on their own, though. It will be harder for lower-wage workers and for workers with longer life expectancies to recover across-the-board benefit cuts with savings in individual accounts. Aaron et al. (2000) estimate that, while a single worker with average earnings who retires in 2037 can recover 63% of the benefit cut with the savings in his or her individual account, a single low-wage worker can recover only 46%.3
Because Social Security offers spousal benefits to married couples with only one income earner, while individual accounts do not, married one-earner couples will recover a substantially smaller share of lost benefits than will single workers. Aaron et al. (2000) estimate that a married average-wage worker retiring in 2037 could expect to recover about 39% of the loss in benefits, whereas a married low-wage worker could expect to recover only 30%. Assuming different rates of return on individual accounts, Baker (2000) estimates that a married average-wage worker could recover 28%, and a married low-wage worker 20%, of lost benefits.
The calculations for average-wage workers mask differences between demographic groups. Two factors are of particular importance-life expectancy and earnings. Women, for instance, have a higher rate of return under Social Security than do men because they live longer, thus getting more out of Social Security's guaranteed, inflation proof, lifetime benefit, and they earn less, thus taking advantage of the more-generous benefits to lower lifetime earners. In other words, in order to receive the same benefits as under Social Security, women would have to have accumulated more relative to their earnings than men to compensate for the fact that they tend to live longer and earn less over their lifetimes.
Moreover, survivorship and disability beneficiaries are likely to recover less in terms of lost benefits than others. If a worker becomes disabled before reaching retirement age, disability benefits are converted to retirement benefits when the disabled worker reaches retirement age. Under a privatized system, workers with a complete working life would have a chance to build up savings to compensate partly for the loss in Social Security retirement benefits. But disabled workers have to rely on the accumulated savings from much shorter working lives. Consequently, disability beneficiaries would experience an above-average benefit cut.
Similarly, if a worker dies, Social Security operates like life insurance and provides benefits to surviving spouses and children. If a worker dies well before retirement age, accumulated individual account balances will be less than they would have been after a full working life, therefore leaving survivors with fewer funds to cover the reduction in benefits.
Women, children, and African Americans depend on disability and survivorship benefits
To cover the shortfall in income that results from partial privatization, all Social Security benefits-retirement, survivorship, and disability-will likely be cut, and individual account balances are likely to cover only a small portion of the lost benefits. Low-wage workers and women will be particularly hurt by cuts in retirement benefits, but who will be hurt by cuts to survivorship and disability benefits?
Since 1980, disability and survivorship benefits have made up more than 30% of Social Security's expenditures. In 2000, 19% of Social Security's expenditures paid for survivorship benefits to 7 million beneficiaries, while 13% for disability expenditures was allocated to 6.7 million beneficiaries (Table 1).
Average disability and survivorship benefits are of about the same amount as average retirement benefits. The average monthly disability benefit was $787 in 2000, about 93% of the average monthly retirement benefit. The average monthly survivorship benefit was $810, or 96% of retirement benefits (Table 2).
Women are disproportionately dependent on survivorship benefits because of longer life expectancies and lower lifetime earnings. As noted above, while women constitute 52% of the American population, they constitute 72.3% of survivorship beneficiaries (Table 3). For black women, the average monthly survivorship benefit is almost identical (98%) to their average monthly retirement benefit; for white women, the survivorship benefit is about 12% higher than the retirement benefit (Table 2).
African Americans rely more on disability benefits than do whites. While African Americans are 12% of the population, they constitute 18.0% of disability insurance beneficiaries. Moreover, the average monthly disability benefits for African American men and women are almost identical to their retirement benefits.
Finally, the fact that Social Security is a social insurance program designed to help the families of American workers is highlighted by the fact that more than one-fifth of survivorship and more than one-fourth of disability beneficiaries are children. Though just 6% of the U.S. population is under the age of 18, this age group constitutes 22.1% of disability beneficiaries and 26.9% of survivorship beneficiaries. Fifteen percent of the under-18 population is African American, yet they constitute 22.6% of all young survivorship beneficiaries and 20.8% of young disability beneficiaries (from Table 3).
What the commission may bring
The president's Commission to Strengthen Social Security wants to privatize part of Social Security. Such a radical shift in the program would lower benefit levels and ultimately hurt working people by substantially weakening the insurance protection for low-wage workers, women, children, and African Americans.
The commission's scorched-earth attempt to discredit the nation's immensely successful-and for the most part financially secure-social insurance system is an intellectually dishonest endeavor at best and a raid on public pension funds at worst, since the only sure beneficiaries of a private-account scheme would be the financial firms that collect the fees. Keeping Social Security in the black over the 75-year planning horizon can be achieved through much less radical policy changes, such as raising the income cap for payroll taxes. The Social Security program, not to mention its beneficiaries, is already in good hands. We shouldn't let this commission touch it.
Endnotes
1. Unless, of course, payroll taxes are increased in order to raise revenue. But one of the president's principles for strengthening Social Security that underlies the work of the commission is that "Social Security payroll taxes must not be increased."
2. Five members of the 13-member Advisory Council supported the PSA option. Two of them, Fidel Vargas and Caroline Weaver, were named to President Bush's commission (Weaver has since resigned.)
3. This calculation assumes a phased-in benefit cut, rather than an immediate benefit cut of 41% (Aaron et al. 2000). The underlying calculations assume that average rate of return on equities mirrors those of the period 1946-95. Baker (1997) argues that historic rates of return are inconsistent with the low growth projections of the Social Security trustees. Using consistent rates of return would lower the accumulation of savings significantly. Consequently, a single average wage earner retiring in 2037 could expect to recover 41% of lost benefits, whereas a single low-wage earner could recover only 30% (Baker 2000).
References
Aaron, H., Blinder, A., Munnell, A., and Orszag, P. 2000. "Governor Bush's Individual Account Proposal: Implications for Retirement Benefits." The Social Security Network. Issue Brief No. 11. New York, N.Y.: The Century Fund.
Aaron, Henry, and Reischauer, Robert. 1998. Countdown to Reform: The Great Social Security Debate. New York, N.Y.: The Century Foundation Press.
Aaron, Henry, and Reischauer, Robert. 2001. Countdown to Reform: The Great Social Security Debate. Revised and Updated for 2001. New York, N.Y.: The Century Foundation Press.
Advisory Council on Social Security. 1997. Report of the 1994-1996 Advisory Council on Social Security, Volume I: Findings and Recommendations. Washington, D.C.: Advisory Council on Social Security.
Baker, Dean. 2000. Governor Bush's Individual Account Proposal: A Reassessment Using Realistic Stock Return Projections. CEPR Report. Washington, D.C.: Center for Economic and Policy Research.
Baker, Dean. 1998. The Full Returns from Social Security. New York, N.Y.: The Century Foundation.
Baker, Dean. 1997. Saving Social Security With Stocks: The Promises Don't Add Up. New York, N.Y.: Twentieth Century Fund.
Cohen, Lee, Steuerle, Gene, and Carasso, Adam. 2001. "Social Security Redistribution by Education, Race and Income: How Much and Why." Paper presented at the Third Annual Conference of the Retirement Research Consortium, "Making Hard Choices About Retirement," Washington, D.C., May 17-18.
Social Security Administration (SSA). 2001. Annual Statistical Supplement, 2001. Washington, D.C.: Social Security Administration.
Social Security Administration (SSA). 2001. Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. Washington, D.C.: Social Security Administration.
Social Security Administration (SSA). 2000. Income of the Population 55 and Older. Washington, D.C.: Social Security Administration.
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posted on July 24, 2004 01:21:37 PM new
oh great.........now she's posting links from July 2001.
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"One thing is for sure: the extremists have faith in our weakness. And the weaker we are, the more they will come after us." --Tony Blair
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"The War on Terror will not be won until America is united. And as long as Democrats target the Bush administration -- not the terrorists -- as the enemy, we are in trouble." --Oliver North
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posted on July 24, 2004 04:11:29 PM new
crowfarm, interesting reading, although it's not to relevant to the latest proposal. In any event, how about giving us a break and taking one of them out? I'll shorten this one when you do.
posted on July 24, 2004 04:14:23 PM new
SS was there during WWII, during all the recessions in the 1950s, 1960s, 1970s, 1980s, and 1990s.
Moving these funds onto Wall Street will benefit one group of people and that is the brokerage firms.
Not only will\ they reap huge commissions, they will also reap huge gains by selling the shares they hold when the government SS funds come onto the markeet.
BTW, the next shoe is about to drop on Wall Street. Mutual funds have been cheating investors for quite a while.
The troubles with Wall Street are exactly why SS was created.
posted on July 24, 2004 04:17:07 PM new
"The next shoe is about to drop"...Care to elaborate reamond?
___________________________________
Beware the man of one book.
- Thomas Aquinas
posted on July 24, 2004 04:20:35 PM new
Reamond, I thought that shoe HAD dropped.....many many in trouble over mismanagement of Mutual Funds???????????
posted on July 24, 2004 09:13:53 PM new
Personally, I like the idea--it would certainly help a lot not to have politicians licking lips as they try to figure out ways to "borrow" Social Security money every few years...
However, I can see one BIG problem with the idea. While many people are concientious about saving for the future, many others--especially young people in their teens & twenties--are not, these days. A huge percentage would not invest the money at all. Then, down the road we'll be faced with people never invested and who have little or no other income. Talk about a drain on society.
That is the reason that employers do not hand pension monies over to people to invest themselves....
____________________
We are not afraid to entrust the American people with unpleasant facts, foreign ideas, alien philosophies, and competitive values. For a nation that is afraid to let its people judge the truth and falsehood in an open market is a nation that is afraid of its people. -- John F. Kennedy
posted on July 25, 2004 05:19:53 AM new
Privatization? Social Security's finances are more secure than ever. The fund is solid through the year 2042, without any changes whatsoever. It is the only guaranteed income for old age and disability. Placing a bet, and that's what you would be doing, that this country would NEVER face another depression is a bet I'm personally not willing to take. It's placing a bet that everyone who will be handling your money is forthright and honest and only wants what is best for you. No matter what you might read, it is dependent upon the market if you choose stocks and a companies stability if you choose bonds. If the market took a drastic nose dive, they're going to protect your money while letting the money invested by corporate executives become lost? I'm sorry, but I'm not so trusting. If a company went belly up, you'll get your money back? Do LTV Steel and Enron ring a bell?
Sophisticated private sector fund managers then choose the particular stocks and bonds for the funds.
Huh? Well. IMO, this is relying on someone appointed by the government to make the ultimate decision as to where your money is really going to go.
Second, long-term market returns are so much higher than the returns Social Security now pays that there is just no way that a lifetime of investments in the markets would generate less than Social Security would pay. The long-term real return on stocks is 7 to 7.5%; the long-term real return on corporate bonds is 3 to 3.5%. For most workers today, even if Social Security could somehow pay all of its promised benefits, the real return from the program would be 1 to 1.5%, or less.
Proponents of the scheme to invest Social Security funds in the stock market wrongly assume that the stocks will earn a 7% annual rate of return over the next 75 years. Social Security trustees are predicting the growth of the economy will slow to around 1.45% per year over that period, making it impossible to get a 7% rate of return on stocks.
"Wall Street advocates of privatization look at Social Security's accumulated surplus as a source of revenue to fuel an erratic market. The present Administration has created a commission that stands for privatization, even in the face of collapsing markets."
"The proposed privatization of Social Security challenges us once again to consciously choose between the claims of the community and the claims of commerce, between the requirement for economic justice and the imperative for profit, between the public interest and private interest."
If the stock market dives just when a worker retires, the worker would already have a large accumulation of funds from the decades he was working. And his account would begin to grow again when the market inevitably comes back.
What this is saying is that if the stock market loses money, oh well. That's okay because you already have some money in there. So what if you lose money. By the time the account would grow to at least match the money lost, my bet is that you will be 6 feet under already.
The money from the personal accounts used to buy stocks and bonds goes to the corporations that sell those stocks and bonds.
Oh, ya. I'll hand them over my money today. Just tell me where to send it.
Every worker would consequently become a major owner in America's business and industry.
Oh, that's a comforting thought. Yes, owning America's businesses which are not only going belly up at a record pace, but who are leaving this country and taking jobs with them is something I want to do.
". . the nation watched enormous corporate bankruptcies unfold at Enron and Global Crossing, and the people of my district watched NAFTA Chapter 11 proceedings at LTV Steel, we saw the plot thicken around one major theme -- there are two sets of rules: Executives get one set of rules, and their employees have to play by a different set of rules.
Corporate executives get special treatment, including more investment choices, no lock down restrictions, generous deferred compensation plans that aren't required to be disclosed, guaranteed rates of return on pension investments, and a golden parachute of retention bonuses and other benefits when a company goes under.
Employees, on the other hand, have barriers to information, fewer options, more restrictions on investment, and no guaranteed returns. The most egregious disparity is that during a bankruptcy, executive pension plans are totally protected from creditors. Executives can count on cashing in their entire package. On the other hand, employee pensions are not protected from creditors. Employees stand at the end of the line and must wait behind other creditors to claim what rightfully belongs to them for compensation that is already earned."
These are, in essence, the same type of people you want to hand your money over to. Go right ahead. I prefer not to, thank you very much.
This plan is betting that most Americans know how to invest their money. It's betting that they will make the right choices. My 401(k) was less than what I put into it when I left one company that offered the benefit. To me, it was no benefit. Even if invested in funds that are considered secure, it's enough of a risk that I don't want to take.
If it were made optional, if you had a choice between tradition SS and this new plan, it might be a different story. Then those of you who want to rely on the stability of American businesses could do so while the rest of us sit back without worry. Might be fine if you are 20 years old and just entering the workforce. I'm almost 50 and it's not fine for me.
Cheryl
. . .if you still try to defend the infamies and horrors perpetrated by that Antichrist- I really believe he is Antichrist- I will have nothing more to do with you and you are no longer my friend.. . - War and Peace, Tolstoy
[ edited by CBlev65252 on Jul 25, 2004 05:21 AM ]
posted on July 25, 2004 07:55:17 AM newGee, Profe, thanks for the smartasp post....
You're welcome. And thank you for spoiling virtually every thread on this board with personal attacks. By the time I get to read a new thread, most times you've already drug it down with your personal bile and there isn't any reason left to offer an opinion.
___________________________________
Beware the man of one book.
- Thomas Aquinas
posted on July 25, 2004 08:31:05 AM new
[i]Nice idea, but I would feel much better if I invested and planned for my own retirement instead of allowing the government to invest the social security. [i]
Logansdad
Who do you think is going to appoint the trustees for these accounts? Or, the people to manage them? You aren't going to be able to go to your personal financial advisor.
Cheryl
. . .if you still try to defend the infamies and horrors perpetrated by that Antichrist- I really believe he is Antichrist- I will have nothing more to do with you and you are no longer my friend.. . - War and Peace, Tolstoy
posted on July 25, 2004 08:56:47 AM new
Profe, you say to crowfarm, You're welcome. And thank you for spoiling virtually every thread on this board with personal attacks. By the time I get to read a new thread, most times you've already drug it down with your personal bile and there isn't any reason left to offer an opinion.
I suspect that crowfarm is just trying to respond to twelvepole. I've been there - done that too and in the process threads were disrupted. So, I feel that your statement to crowfarm applies to me also since I've been similarly embroiled with Linda and twelvepole along with a few others. It's a tough problem to ignore such comments. But finally, I decided that maybe the best response to twelvepole's silly insults and Linda's nasty insinuations is generally no response.
I noticed that Twelvepole made a few attempts to attack you not too long ago and you were able to end it with remarkable success. How to best deal with posters like twelvepole who seem to have a need to add a personal insult to every remark...insults that have no bearing on the topic or any semblance of truth is a tough problem. And some insinuations are so nasty that it's tough letting them stand without rebuttal as I did recently.
posted on July 25, 2004 09:15:55 AM newWho do you think is going to appoint the trustees for these accounts? Or, the people to manage them? You aren't going to be able to go to your personal financial advisor.
Cheryl, my whole take on social security is that it will not be around when I finally retire. I do not want to depend on it for my retirement, therefore today I need to make sure I am planning, investing and managing for my own retirement. In my opinion, the government has not done a good job managaging social security, what makes them think they can manage individual retirement accounts for the nation?
Let's have a BBQ, Texas style, ROAST BUSH
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All Things Just Keep Getting Better
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We the people, in order to form a more perfect Union....
.....one Nation indivisible, With Liberty and Justice for ALL.
posted on July 25, 2004 09:39:58 AM new
Linda_K, is trying to say this republican government that is SOOOOOO very much for the rich, is trying to make a better retirement for the middle and working class people? If you guys and gals believe that I have a bridge in Brooklyn to sell. Watch out for the middle of the night amendments.
posted on July 25, 2004 10:19:21 AM new
Profe, you say to crowfarm, You're welcome. And thank you for spoiling virtually every thread on this board with personal attacks. By the time I get to read a new thread, most times you've already drug it down with your personal bile and there isn't any reason left to offer an opinion.
I suspect that crowfarm is just trying to respond to twelvepole. I've been there - done that too and in the process threads were disrupted. So, I feel that your statement to crowfarm applies to me also since I've been similarly embroiled with Linda and twelvepole along with a few others. It's a tough problem to ignore such comments. But finally, I decided that maybe the best response to twelvepole's silly insults and Linda's nasty insinuations is generally no response.
I noticed that Twelvepole made a few attempts to attack you not too long ago and you were able to end it with remarkable success. How to best deal with posters like twelvepole who seem to have a need to add a personal insult to every remark...insults that have no bearing on the topic or any semblance of truth is a tough problem. And some insinuations are so nasty that it's tough letting them stand without rebuttal as I did recently.
Any suggestions would be very welcome.
Helen
WTH are you talking about Helen, have you even read my post on this thread?
You're realy starting to get deranged, you should think about taking some time off from the boards...
get some rest and come back...
Crowfart has drug every thread EVERY Thread down it posts in... Also look in the mirror, your attacks on Linda are very evident for all to see...
AIN'T LIFE GRAND...
Homosexuality is a choice that can be corrected...
posted on July 25, 2004 10:38:11 AM new
There was no intent to confine my remark to this thread alone, twelvepole. Check out an entire week, for example.
I'll add that to some of the others that you have delivered, dumber than dirt, deranged, anti-American traitor who should be shot.
Now, I'll bet you will be good for a little while.
posted on July 25, 2004 06:30:57 PM new
I understand what you're saying Helen. Funny, I'll admit here that I can deal with the nasty stuff much more easily when it's coming from someone with whom I rarely agree. When it comes from someone whose opinions generally coincide with my own, I find it really distasteful. I feel like those of us on the same "side" are all dirtied by the rudeness of one.
Your bouts with Linda, though pretty ugly some times, are sort of self contained, and IMO don't usually spoil an entire thread. For that reason, I wasn't referring to you. Crowfarm's MO it seems is to immediately descend to the depths of insult, particularly if responding to 12 or Linda. I'll try to apply similar restraint towards Crowfarm that I have towards 12, we'll see how it goes!
___________________________________
Beware the man of one book.
- Thomas Aquinas
