## Fiscal cliff - could be worse

 Quote by russ_watters I have several problems with that: 1. Calling it a "welfare" program when for 90+% of people it is not means-tested doesn't seem accurate to me.
We could means-test it.

 2. Having the program work differently for 5-10%% of population doesn't seem fair to me.
If it's supposed to be a "receive what you paid in" type of program, then no it wouldn't be fair, that is why the amount of income that is subject to the payrol tax is capped. Raising the cap and capping the benefits isn't so much to make it "fair," just to make it where we have a form of old-age social insurance program if you will, that provides people who need it with a minimum form of income in old age. I am all for private retirement accounts, however sometimes those can have a blowup, for example people who saved and invested prudently for years, then lost it all in the crash, or fell for one of the Bernie Madoffs of the world, and so forth.

 3. I don't think there is enough money to be gotten that way to "fix" the program under the typical goal of maintaining the current benefit structure.
Yes, I don't myself know how much revenue raising the cap would bring in.

 4. People tend to view maintaining the benefits output as "fixing" the program, but I look at the input to output ratio and view the program as already badly broken. If the ratio for me is going to be something like 1/5 what it was for people who retired a generation ago, or what a reasonable private retirement account could achieve, then my standard of living today is being lowered by this program.
When you say "ratio," do you mean the amount of people paying into it for each beneficiary today versus decades ago?

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 Quote by Jimmy Snyder I don't think a cut in benefits is on the table. What I heard was that for those 54 and younger, the age at which they can take benefits would rise. In my opinion, SS faces a demographic problem and only a demographic solution will work.
This is true. 65 was a pretty high age to retire during the era when Social Security started. You retired because you were too old to work.

But the idea of retirement has also changed as people's lives get longer. Retiring while you're still in good enough condition to enjoy it seems pretty attractive - hence the resistance to raising retirement age for Social Security.

Nobody's owed an early retirement, though, which is what retirement at 65 has become.

If a person wants to quit working even though they're perfectly capable of working, then let them pay for their life of leisure themselves.

 Quote by BobG This is true. 65 was a pretty high age to retire during the era when Social Security started. You retired because you were too old to work. But the idea of retirement has also changed as people's lives get longer. Retiring while you're still in good enough condition to enjoy it seems pretty attractive - hence the resistance to raising retirement age for Social Security. Nobody's owed an early retirement, though, which is what retirement at 65 has become. If a person wants to quit working even though they're perfectly capable of working, then let them pay for their life of leisure themselves.
The age was raised decades ago. I get nothing until age 67.

I think the "resistance" is that I was forced to pay into it on that basis. They spent all the SS surplus, and don't want to pay it back.

Many companies force retirement at age 65.

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ImaLooser said:
 Many companies force retirement at age 65.
Really?

In the US, so my HR people tell me, there are very stringent legal requirements around forcing people to retire after a certain age. Can you please cite a source for this?

What is often done is to enforce some medical examination requirements starting from day one of employment. But the employee knows he/she cannot develop some medical conditions and still be a licensed commerical airline pilot, for example. That does not seem to be what you implied.
 Recognitions: Gold Member Homework Help Science Advisor Many is an ambiguous term. If there's many, many, many companies, then what does many companies mean? Until 1978, the minimum mandatory retirement age was 65, per federal law (with many exceptions for occupations such as firefighter, law enforcement, etc). In 1978, the minimum mandatory retirement age was raised to 70 (with many exceptions for occupations). In 1986, minimum mandatory retirement ages were abolished completely (with many exceptions for occupations). Because of the exceptions, many occupations do have mandatory retirement ages and many are lower than 65. For example, air traffic controllers have to retire at age 56. FIFA referees have to retire at 45 (at least from FIFA level competitions, such as the World Cup, and the highest professional leagues - they can still referee lower levels, so it's more a mandatory demotion age). Culturally, many people do still envision 65 being the retirement age (regardless of the fact that SSA has already raised the minimum age to receive full benefits - a person can still receive reduced benefits earlier).

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 Quote by CAC1001 We could means-test it.
How far would you go with that? That's a vastly different concept than what we have now. For a lot of people, it would mean paying them a lot more than they are otherwise due under the current structure and for a lot of people, paying them a lot less. It is a complete change in the nature of the program.
 If it's supposed to be a "receive what you paid in" type of program...
It is supposed to be a "receive 5x what you paid in"(roughly) type of program -- like a 401k.
 ....that is why the amount of income that is subject to the payrol tax is capped.
Not really -- it would be just as easy to not cap either the tax or the benefits. The only logic I can think of for the cap is at the cap, it provides a pretty decent retirement lifestyle. Anything above that doesn't really require government to force you to save for.
 Raising the cap and capping the benefits isn't so much to make it "fair," just to make it where we have a form of old-age social insurance program if you will, that provides people who need it with a minimum form of income in old age.
Well, fine, but I think that because most people thought that they were saving through this program for their entire lives for an income in retirement that was well above sustenance, it would be a huge shaft to suddenly slash their benefits like that. I strongly disagree with cutting people off at the knee like that.
 I am all for private retirement accounts, however sometimes those can have a blowup, for example people who saved and invested prudently for years, then lost it all in the crash... [emphasis added]
That statement is self-contradictory. It isn't possible to "lose it all" if you are investing prudently. The most popular moderately safe growth investment is the S&P 500 Index Fund, which if all of your money was invested in (not prudent), would have lost half its value in the recent crash. This, of course, was temporary, recovering all but about 12% of it in two years. That's as bad as it ever gets and if you broaden your time horizon, you'll see that since 1995, investors have realized gains of 310%, even if we include the crash. So unless someone did something really, really stupid, the typical investment has paid off like a gold mine.
 ..or fell for one of the Bernie Madoffs of the world, and so forth.
Most of the investors of Madoff:
1. Started off rich.
2. Should have known better.

So that is not a typical situation.
 When you say "ratio," do you mean the amount of people paying into it for each beneficiary today versus decades ago?
No, I mean the amount of money I'm going to get from Social Security versus the amount of money I paid in. Right now, even if the program survives unchanged, I won't get back what I paid in. That represents an 80% loss when compared to a moderately successful private retirement account. That's an enormous failure.

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 Quote by russ_watters It isn't possible to "lose it all" if you are investing prudently. The most popular moderately safe growth investment is the S&P 500 Index Fund, which if all of your money was invested in (not prudent), would have lost half its value. This, of course, was temporary, recovering all but about 12% of it in two years. That's as bad as it ever gets and if you broaden your time horizon, you'll see that since 1995, investors have realized gains of 310%, even if we include the crash. So unless someone did something really, really stupid, the typical investment has paid off like a gold mine.
Just one caveat. As long as you haven't retired yet and are still investing money instead of pulling it out, then what you say is true (in fact, the crash is great because, for a period of time, the new money you were putting in was sure to get a fantastic return).

If you're already retired, the crash is devestating, since your living expenses don't go down temporarily. You're pulling out the same amount of money, but it's now a bigger percentage of your total investment.

Of course, if your life expetancy means you'll be relying on your investments for a long period of time, you ought to expect that stocks will be down during at least a portion of that time - but it'd be hard to plan for a few years where your investments lost half their value.

That's called risk. With a capital R.

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 Quote by BobG Just one caveat. As long as you haven't retired yet and are still investing money instead of pulling it out, then what you say is true (in fact, the crash is great because, for a period of time, the new money you were putting in was sure to get a fantastic return). If you're already retired, the crash is devestating, since your living expenses don't go down temporarily. You're pulling out the same amount of money, but it's now a bigger percentage of your total investment.
"Devistating" is awfully strong: we're talking about two years of double the drawdown on a 30 year expected lifespan. Even if there is no accompanying excessive growth (and there was, of course) and the person took all of their money out at once, at the worst possible time, that would only cause a 7% drop in retirement income if the loss was spread over the whole retirement.

Heck, the effect of taking the money out and missing out on the next 30 years of gains would be much worse than the crash itself!
 Of course, if your life expetancy means you'll be relying on your investments for a long period of time, you ought to expect that stocks will be down during at least a portion of that time - but it'd be hard to plan for a few years where your investments lost half their value.
What? No its not! if you're investing for 30 years, the best way to plan for the time your investment loses half of its value is via a pre-determined stock to fixed income ratio and completely ignoring the movement of the market. Over that much time, the crash will fix itself if you don't do anything to make it worse. That's like rule #2 of investing: Ride it out, don't touch it; you'll just make it worse if you try to outsmart the market.

Or, more realistically: before the crash, as long as you didn't start buying extra Corvettes because your nest-egg was double what you expected it to be, the crash just brought it back down to where you expected it to be.

 Quote by russ_watters How far would you go with that? That's a vastly different concept than what we have now. For a lot of people, it would mean paying them a lot more than they are otherwise due under the current structure and for a lot of people, paying them a lot less. It is a complete change in the nature of the program.
Well not all of a sudden, but we could implement it gradually. Or, gradually fade out regular social Security, then replace it with something new that functions in the way I described.

 It is supposed to be a "receive 5x what you paid in"(roughly) type of program -- like a 401k.
My understanding was that it is supposed to be a program where you get paid out what you paid in.

 Not really -- it would be just as easy to not cap either the tax or the benefits. The only logic I can think of for the cap is at the cap, it provides a pretty decent retirement lifestyle. Anything above that doesn't really require government to force you to save for.
Well functionally, having no cap on the tax or benefits would work fine, but then you'd get rich people getting massive payouts made to them, which wouldn't go over too well with many of the lower earners in the population who don't understand how the program is supposed to work.

 Well, fine, but I think that because most people thought that they were saving through this program for their entire lives for an income in retirement that was well above sustenance, it would be a huge shaft to suddenly slash their benefits like that. I strongly disagree with cutting people off at the knee like that.
Yes, I understand that. That's why I'd be for implementing it gradually. Also, maybe there could be a way to shore it up but make it where it provides more than enough for just basic sustenance for most people?

 That statement is self-contradictory. It isn't possible to "lose it all" if you are investing prudently. The most popular moderately safe growth investment is the S&P 500 Index Fund, which if all of your money was invested in (not prudent), would have lost half its value in the recent crash. This, of course, was temporary, recovering all but about 12% of it in two years. That's as bad as it ever gets and if you broaden your time horizon, you'll see that since 1995, investors have realized gains of 310%, even if we include the crash. So unless someone did something really, really stupid, the typical investment has paid off like a gold mine. Most of the investors of Madoff: 1. Started off rich. 2. Should have known better. So that is not a typical situation.
True, but unfortunately, a lot of people don't know all of this. The average person is pretty clueless regarding the subject of investing.
 Admin Here's an interesting perspective: 5 reasons to let the U.S. ride over the fiscal cliff http://theweek.com/article/index/236...e-fiscal-cliff What's a viable alternative?

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 Quote by CAC1001 My understanding was that it is supposed to be a program where you get paid out what you paid in.
Why would anyone ever support a retirement savings program that returned them nothing more than they could have gotten by stuffing their cash under a mattress?

No, throughout its history, it has paid people vastly more than they paid-in: which is as any retirement investment plan is supposed to work. But it doesn't anymore. http://www.urban.org/UploadedPDF/412...a-Lifetime.pdf

-If you retired in 1960 it paid you 6.3x what you paid-in.
-If you retired in 1980 it paid you 2.1x what you paid-in.
-If you retired in 2010 it is estimated that it will pay you 0.9x what you paid in.

(for single male earners, adjusted for inflation)

That is a travesty. We've been screwed-over by older generations and most people don't even know it.
 True, but unfortunately, a lot of people don't know all of this. The average person is pretty clueless regarding the subject of investing.
Ok....but that fact doesn't make what you said before true. It may be true that people think it is common for people to "lose it all", but it isn't. Much less if they are investing "prudently".

It takes spectacular stupidity or bad luck to permanently lose a large fraction of your retirement savings due to a stock market crash. And if you are investing "prudently", it is all but impossible.

"Prudent" investing really is easy:

First, a certain fraction of your investments will be in insured, fixed-income securities. Those are basically a guaranteed return and near zero chance of losing your principal (barring an asteroid strike or nuclear war).

Next, just put all of your non-fixed income investments into an S&P500 Index Fund (it is the most popular fund there is). Never in its history has it been a losing proposition over a timeframe of more than 15 years. It is so good that 'getting back what you paid in' would be considered a significant failure. The baseline for determining success/failure would be somewhere around a 4:1 return.

Some history on social security and Medicare:

http://www.ssa.gov/history/hfaq.html
http://www.ssa.gov/history/briefhistory3.html
http://www.ssa.gov/history/

 Quote by ssa.gov From 1937 until 1940, Social Security paid benefits in the form of a single, lump-sum payment. The purpose of these one-time payments was to provide some "payback" to those people who contributed to the program but would not participate long enough to be vested for monthly benefits. Under the 1935 law, monthly benefits were to begin in 1942, with the period 1937-1942 used both to build up the Trust Funds and to provide a minimum period for participation in order to qualify for monthly benefits.
http://www.ssa.gov/history/briefhist...tml#firstcheck

 Quote by ssa.gov "Long before the economic blight of the depression descended on the Nation, millions of our people were living in wastelands of want and fear. Men and women too old and infirm to work either depended on those who had but little to share, or spent their remaining years within the walls of a poorhouse . . .The Social Security Act offers to all our citizens a workable and working method of meeting urgent present needs and of forestalling future need . . . One word of warning, however. In our efforts to provide security for all of the American people, let us not allow ourselves to be misled by those who advocate short cuts to Utopia or fantastic financial schemes. We have come a long way. But we still have a long way to go. There is still today a frontier that remains unconquered--an America unclaimed. This is the great, the nationwide frontier of insecurity, of human want and fear. This is the frontier--the America--we have set ourselves to reclaim." -- President Franklin Roosevelt August 14, 1938, Radio address on the third anniversary of the Social Security Act
Nice idea back then, and the US still had room to grow. Hawaii and Alaska were not yet states.

 Quote by ssa.gov Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was$22.54. During her lifetime she collected a total of \$22,888.92 in Social Security benefits.
http://www.ssa.gov/history/briefhistory3.html#idamay

Fuller would be an extreme case, since most folk don't live to 100. Nevertheless, many of the first recipients paid in a lot less than they received.

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 Quote by Astronuc Here's an interesting perspective: 5 reasons to let the U.S. ride over the fiscal cliff http://theweek.com/article/index/236...e-fiscal-cliff What's a viable alternative?
About the only thing I disagree with is the possibility of the fiscal cliff causing credit angencies to downgrade the US. Doing nothing will cause them to downgrade the US. Cutting the budget deficit (however it's done) will improve confidence with credit agencies.

Plus, the article omits the impact on unemployment completely. I think sending unemployment rates right back up (which will increase government expenditures for unemployment, etc) would be the biggest negative of hitting the fiscal cliff.

And, personally, I wouldn't like to see such drastic cuts in defense spending.

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 Quote by russ_watters That is a travesty. We've been screwed-over by older generations and most people don't even know it.
To be fair, the health-care benefits being received more than make up for the SSI losses.

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 Quote by russ_watters Why would anyone ever support a retirement savings program that returned them nothing more than they could have gotten by stuffing their cash under a mattress? No, throughout its history, it has paid people vastly more than they paid-in: which is as any retirement investment plan is supposed to work. But it doesn't anymore. http://www.urban.org/UploadedPDF/412...a-Lifetime.pdf -If you retired in 1960 it paid you 6.3x what you paid-in. -If you retired in 1980 it paid you 2.1x what you paid-in. -If you retired in 2010 it is estimated that it will pay you 0.9x what you paid in. (for single male earners, adjusted for inflation) That is a travesty. We've been screwed-over by older generations and most people don't even know it. Ok....but that fact doesn't make what you said before true. It may be true that people think it is common for people to "lose it all", but it isn't. Much less if they are investing "prudently". It takes spectacular stupidity or bad luck to permanently lose a large fraction of your retirement savings due to a stock market crash. And if you are investing "prudently", it is all but impossible. "Prudent" investing really is easy: First, a certain fraction of your investments will be in insured, fixed-income securities. Those are basically a guaranteed return and near zero chance of losing your principal (barring an asteroid strike or nuclear war). Next, just put all of your non-fixed income investments into an S&P500 Index Fund (it is the most popular fund there is). Never in its history has it been a losing proposition over a timeframe of more than 15 years. It is so good that 'getting back what you paid in' would be considered a significant failure. The baseline for determining success/failure would be somewhere around a 4:1 return.
One of the goals was to protect people's money from inflation. So if you paid in 10 dollars in 1960, you should get that money back in terms of 2012 dollars. Hence why SSI is adjusted by the CPI. Now, there are problems with the CPI. Perhaps the largest problem is overestimation of inflation. Due to over-estimation, people could make a profit in terms of real dollars.So it should come at no surprise to anyone that putting government stuff on the chained CPI is probably going to happen sooner rather than later. But it also goes a long way to fixing the growth rates on these programs.

Social security isn't a bad program, and it can be fixed with modest adjustments. As I've said all along, the real challenge is health-care and military spending. And health-care is probably the most challenging of the two.

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 Quote by SixNein To be fair, the health-care benefits being received more than make up for the SSI losses.

Regardless, I'm not a hypocrite: Having a steeper trajectory of unfunded promises is not something that makes me happy. It will just be even worse when that blows up in our faces. We're just making that charade last longer.

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 Quote by russ_watters Received by who? I'm 36. Regardless, I'm not a hypocrite: Having a steeper trajectory of unfunded promises is not something that makes me happy. It will just be even worse when that blows up in our faces. We're just making that charade last longer.
A bit off topic

I just crunched some numbers on various retirement calculators. They all seem to presume that there will be either a company pension or Social Security at retirement age. For younger people that just isn't realistic. Anyone under forty is younger people to me.

http://cgi.money.cnn.com/tools/retir...entplanner.jsp