Smaller paychecks in 2013?

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kombat
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Re: Smaller paychecks in 2013?

Postby kombat » Fri Jan 18, 2013 6:02 pm

While I concede that means testing is inherently flawed and easily manipulated, I'm curious about one thing with respect to the whole Social Security issue:

Is Social Security a mandatory savings program, or a welfare program?

Canada has undergone similar introspection with respect to our own public pension system (the Canada Pension Plan, CPP). The CPP is basically a forced savings program. That is, you're forced to contribute to it during your working career, and then when you retire, you're guaranteed benefits.

"Means tests" are only ethically applicable (in my opinion, of course) in welfare circumstances. That is, if a benefit is intended to provide the necessities of life to people who otherwise can't afford it, then it's a welfare program, and it's fair to "means test" it (exclude people who don't truly need it, even if they've paid into it). On the other hand, if something is advertised as a "forced savings program," then one's assets are irrelevant. They've paid into the program, and they're entitled to what they deserve, regardless of how much they've squirreled away on their own.

In Canada, we have an "Old Age Security" program (OAS) which pays you based on age (currently 65, but being raised to 67 over the next couple of decades), and clawed back based on your other income (i.e., if you have too much income from other sources, then your OAS benefit is scaled back).

The CPP is paid out based on how much you've paid in over your career, regardless of your other assets or income. If you're a millionaire, you get the same CPP as a penniless individual, if you've both paid the same amounts into the program over your careers.

So what is Social Security? Is it a forced savings program, or a welfare program? If it's the latter, then I don't think means testing is at all appropriate. It's moving the goal posts at half-time, and that's unfair.

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Re: Smaller paychecks in 2013?

Postby VinTek » Fri Jan 18, 2013 9:40 pm

kombat wrote:So what is Social Security? Is it a forced savings program, or a welfare program?

You tell me.
Andrew Tobias wrote:The very first Social Security check, for $22.54, was paid in 1940 to a Vermont woman who had paid $22 in Social Security taxes. By the time she died, in 1973, aged 100, she had collected $20,944.42. An extreme example, but the truth is that the average person retiring today gets back all the money he or she paid into Social Security, with interest, by his or her early seventies. "After that," Paul Hewitt, a budget expert at the National Taxpayers Union told Time, "you're on welfare."

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Re: Smaller paychecks in 2013?

Postby Bichon Frise » Sat Jan 19, 2013 7:21 am

kombat wrote:While I concede that means testing is inherently flawed and easily manipulated, I'm curious about one thing with respect to the whole Social Security issue:

Is Social Security a mandatory savings program, or a welfare program?

Canada has undergone similar introspection with respect to our own public pension system (the Canada Pension Plan, CPP). The CPP is basically a forced savings program. That is, you're forced to contribute to it during your working career, and then when you retire, you're guaranteed benefits.

"Means tests" are only ethically applicable (in my opinion, of course) in welfare circumstances. That is, if a benefit is intended to provide the necessities of life to people who otherwise can't afford it, then it's a welfare program, and it's fair to "means test" it (exclude people who don't truly need it, even if they've paid into it). On the other hand, if something is advertised as a "forced savings program," then one's assets are irrelevant. They've paid into the program, and they're entitled to what they deserve, regardless of how much they've squirreled away on their own.

In Canada, we have an "Old Age Security" program (OAS) which pays you based on age (currently 65, but being raised to 67 over the next couple of decades), and clawed back based on your other income (i.e., if you have too much income from other sources, then your OAS benefit is scaled back).

The CPP is paid out based on how much you've paid in over your career, regardless of your other assets or income. If you're a millionaire, you get the same CPP as a penniless individual, if you've both paid the same amounts into the program over your careers.

So what is Social Security? Is it a forced savings program, or a welfare program? If it's the latter, then I don't think means testing is at all appropriate. It's moving the goal posts at half-time, and that's unfair.


Yes it's mandatory for 99% of Americans today (or some real small population that doesn't pay into the SS program). And it is both a "welfare" program and a "forced pension." For one, there is more than just the "Retirement" benefit. Granted, you can break your tax up into various buckets, but SS also provides a survivor's benefit if the worker dies and a disability benefit if the worker becomes disabled. It does so for not only the worker/surviving spouse, but also the any [surviving] dependents.

Second, there are cases where people may have "Earned a benefit," but aren't entitled to it. For example, the WEP reduces a person's benefit. These are people (or spouse's of people) who have paid into another system besides SS for either all of, or part of their career. Another weak example of an advantageous benefit SS brings is a spouse is entitled to 50% of the benefit of the worker, even if they have worked their entire career. Many people view this as a "Waste" if the spouse can get a higher benefit without having ever worked. OF course, I view it as you are getting a better benefit than you would have, and you can choose the lesser benefit if your pride dictates. So, that is one way SS is means tested.

Another way is how the benefits are calculated. In summary, you add up your 35 years of highest wages and then the 1st 900 something gets credit for 90 something %. Then there is another bend point for income between 900 something and something else which gets credit for even less. Etc. In essence, it is not a linear payout. And therefore, in my crazy head, it means tested.

In terms of what is "fair," I think there are differing opinions on that. Is it fair that a generation kept taxes artificially low through borrowing from the SS trust fund (which isn't counted in the national debt BTW) and leaves the mess for the following generation? I think cuts to the entire program need to happen, including those that are on it. Since many people on the "clean up crew" probably weren't even born when this mess was being created. Sure, old people won't like it. And unfortunately, young people still have strong backs.
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Re: Smaller paychecks in 2013?

Postby DoingHomework » Sat Jan 19, 2013 8:19 am

Bichon Frise wrote:Second, there are cases where people may have "Earned a benefit," but aren't entitled to it. For example, the WEP reduces a person's benefit. These are people (or spouse's of people) who have paid into another system besides SS for either all of, or part of their career. Another weak example of an advantageous benefit SS brings is a spouse is entitled to 50% of the benefit of the worker, even if they have worked their entire career. Many people view this as a "Waste" if the spouse can get a higher benefit without having ever worked. OF course, I view it as you are getting a better benefit than you would have, and you can choose the lesser benefit if your pride dictates. So, that is one way SS is means tested.

Another way is how the benefits are calculated. In summary, you add up your 35 years of highest wages and then the 1st 900 something gets credit for 90 something %. Then there is another bend point for income between 900 something and something else which gets credit for even less. Etc. In essence, it is not a linear payout. And therefore, in my crazy head, it means tested.

In terms of what is "fair," I think there are differing opinions on that. Is it fair that a generation kept taxes artificially low through borrowing from the SS trust fund (which isn't counted in the national debt BTW) and leaves the mess for the following generation? I think cuts to the entire program need to happen, including those that are on it. Since many people on the "clean up crew" probably weren't even born when this mess was being created. Sure, old people won't like it. And unfortunately, young people still have strong backs.


There are the rubs...

The spousal benefit thing is crazy. It was conceived of when most women stayed home "keeping house." That part of it could rightly be called pure welfare. And it is interesting how many uber-conservative people don't take issue with that part because it protects their traditional way of life. One easy change would be to have each wage earner choose when "he" starts taking SS between a full benefit or a reduced benefit for him and a surviving spouse.

And your point about my generation "benefiting" is perfectly valid. Except that we also suffered from decades of artificial underperformance when SS funds only made <2% return on special government bonds. The government got a cheap lunch and SS got shafted. You are right about what you say but I don't think that dwelling on the mistakes of the past gets us anywhere.

From what I have read, which could be biased, the problem is not as bad as it seems. It is solvable with modest increases in taxes and modest reductions in benefits. But with incompetent politicians who only want to spout off dogmatic statements about their principles we'll never get anywhere. Meanwhile the problem just gets worse and any solution just gets more politically unpalatable.

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Re: Smaller paychecks in 2013?

Postby Cely » Sat Jan 19, 2013 1:36 pm

Boy oh boy did I notice it. :) I hit the SS max in late October, so I haven't been paying that for a few paychecks. I also hit my 401k max so that stopped. Then I upped my medical FSA deduction for 2013 -- all told, my take-home is almost $1000 lower as of January 15th. OUCH.

I just upped my mortgage payments (extra principal) and savings transfer, but didn't realize my paycheck would drop so much. I'm going to bite the bullet and leave everything as is, it just means I'll need to be much more mindful of extraneous spending (which is good, because that had gotten sloppy last year).

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America's CEOs Want You to Work Until You're 70

Postby VinTek » Mon Jan 21, 2013 8:43 am

Interestingly enough, the Business Roundtable, the Washington lobbying powerhouse whose companies together employ 16 million workers, is suggesting raising the age at which people can get Medicare and full Social Security benefits to 70. (The change wouldn’t affect people who are 55 or older today.) The reasoning: Americans are living longer and the costs of Social Security and Medicare benefits are growing faster than the tax revenue that pays for them.

I wouldn't have thought that the business world would have gone for this since it raises their costs. Apparently, they've actually looked at the actuarial numbers and concluded that it's in the best interests of the country have people work longer because they're living a lot longer.

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Re: Smaller paychecks in 2013?

Postby Mario » Mon Jan 21, 2013 12:48 pm

I suppose I'll save a bit less toward the 401k. It was hard not to see this coming of course; the thing about temporary stimulus is that it's temporary
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Re: America's CEOs Want You to Work Until You're 70

Postby N2Deep » Mon Jan 21, 2013 6:04 pm

VinTek wrote:I wouldn't have thought that the business world would have gone for this since it raises their costs. Apparently, they've actually looked at the actuarial numbers and concluded that it's in the best interests of the country have people work longer because they're living a lot longer.


Got bad news for em... I am leaving the workforce early. I plan on enjoying my retirement... not working till I cant move on my own.
I can not dwell over that to which I have no control...

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Re: Smaller paychecks in 2013?

Postby Mario » Mon Jan 21, 2013 6:55 pm

kombat wrote:While I concede that means testing is inherently flawed and easily manipulated, I'm curious about one thing with respect to the whole Social Security issue:

Is Social Security a mandatory savings program, or a welfare program?


I think that this is exactly the conversation that should be had, but I think you're missing one option -- that it could be seen as a social insurance. That is, what you're paying isn't a contribution to a savings program, but rather a premium... And what you get out aren't retirement distributions, but rather the result of a claim against a negative outcome -- in this case, having less than a certain amount of wealth at retirement.
http://debtblag.com

Track my fiscal fitness with $0.5 million in debt: http://getrichslowly.org/forum/viewtopic.php?f=11&t=61052 Latest update: As of April 16, I've paid off $21,400 in credit card debt this year (after starting with $35k)

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Re: America's CEOs Want You to Work Until You're 70

Postby VinTek » Mon Jan 21, 2013 9:13 pm

N2Deep wrote:Got bad news for em... I am leaving the workforce early. I plan on enjoying my retirement... not working till I cant move on my own.

Well don't complain if you don't get much out of SSI if you do retire early. Social Security uses your highest thirty-five years of work history to calculate your social security retirement benefit. The highest thirty-five are calculated after each year of earnings has been indexed, or adjusted, based on inflation. Think of this calculation like an average; if you have a zero as one of the numbers, it will pull the average down. To increase your social security benefits make sure you have a full 35 years of work history.

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Re: America's CEOs Want You to Work Until You're 70

Postby Bichon Frise » Tue Jan 22, 2013 5:51 am

VinTek wrote:
N2Deep wrote:Got bad news for em... I am leaving the workforce early. I plan on enjoying my retirement... not working till I cant move on my own.

Well don't complain if you don't get much out of SSI if you do retire early. Social Security uses your highest thirty-five years of work history to calculate your social security retirement benefit. The highest thirty-five are calculated after each year of earnings has been indexed, or adjusted, based on inflation. Think of this calculation like an average; if you have a zero as one of the numbers, it will pull the average down. To increase your social security benefits make sure you have a full 35 years of work history.


Also don't forget about how the bend points work! A "zero" or 2 or 15 may make little difference. Everytime I look at how an early exit would affect my SS retirement benefit, it is hardly an excuse to keep my nose to the grind stone. I'm working on a blog post for a friend's blog about this exact thing, I'll let you all know when it is "published."
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Re: America's CEOs Want You to Work Until You're 70

Postby DoingHomework » Tue Jan 22, 2013 9:51 am

Bichon Frise wrote:Also don't forget about how the bend points work! A "zero" or 2 or 15 may make little difference. Everytime I look at how an early exit would affect my SS retirement benefit, it is hardly an excuse to keep my nose to the grind stone. I'm working on a blog post for a friend's blog about this exact thing, I'll let you all know when it is "published."


Yeah, I have been playing with the full-blown estimator online. It let's you include zeros and uses you own actual earnings record. If I stop working at 50, which is my plan, then don't start taking SS until age 70, it makes just a couple of hundred dollars difference per month starting at age 70. While that might seem like a lot, it's not. Twenty years of zeros means I get maybe $3600 less per year than the guy who slaved away and continued to pay into the system for another 20 years. That just does not make sense to me. I would expect a much larger "penalty" for stopping work early.

Of course Congress can always make major changes. But the odds of them pulling the rug out from under me after I've stopped working at age 50 based on a written SS estimate seems vanishingly small to me. And since my plan does not actually rely on SS anyway I'm not too worried.

Even the "fixes" they have implemented in the past like raising the retirement age are done so gradually that the impact is usually insignificant. I suppose if you rely on SS as you retirement plan then changes could make a huge difference. But for most of us who have separate retirement savings, the biggest changes to SS that have even been mentioned amount to a single year of lackluster returns.

Now, I do think we need more major reform but need to protect those who only have SS. But I just don't see it happening until the situation becomes truly critical and that is at least a couple of decades off.

As an aside, I traveled in the former Eastern Europe just a couple of years after the fall of the USSR. There was a LOT of money flowing into Hungary, Poland, the Czech Republic and so forth. But there were also a lot of old people begging on the streets who had formerly had good state pensions. I don't think we would ever let that kind of thing happen here. I think it took a few years of hardship but they eventually dealt with the problem there as well. When I was there a few years later you no longer saw old pensioners begging in the streets.

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Re: America's CEOs Want You to Work Until You're 70

Postby Bichon Frise » Tue Jan 22, 2013 10:02 am

DoingHomework wrote:
Bichon Frise wrote:Also don't forget about how the bend points work! A "zero" or 2 or 15 may make little difference. Everytime I look at how an early exit would affect my SS retirement benefit, it is hardly an excuse to keep my nose to the grind stone. I'm working on a blog post for a friend's blog about this exact thing, I'll let you all know when it is "published."


Yeah, I have been playing with the full-blown estimator online. It let's you include zeros and uses you own actual earnings record. If I stop working at 50, which is my plan, then don't start taking SS until age 70, it makes just a couple of hundred dollars difference per month starting at age 70. While that might seem like a lot, it's not. Twenty years of zeros means I get maybe $3600 less per year than the guy who slaved away and continued to pay into the system for another 20 years. That just does not make sense to me. I would expect a much larger "penalty" for stopping work early.

Of course Congress can always make major changes. But the odds of them pulling the rug out from under me after I've stopped working at age 50 based on a written SS estimate seems vanishingly small to me. And since my plan does not actually rely on SS anyway I'm not too worried.

Even the "fixes" they have implemented in the past like raising the retirement age are done so gradually that the impact is usually insignificant. I suppose if you rely on SS as you retirement plan then changes could make a huge difference. But for most of us who have separate retirement savings, the biggest changes to SS that have even been mentioned amount to a single year of lackluster returns.

Now, I do think we need more major reform but need to protect those who only have SS. But I just don't see it happening until the situation becomes truly critical and that is at least a couple of decades off.

As an aside, I traveled in the former Eastern Europe just a couple of years after the fall of the USSR. There was a LOT of money flowing into Hungary, Poland, the Czech Republic and so forth. But there were also a lot of old people begging on the streets who had formerly had good state pensions. I don't think we would ever let that kind of thing happen here. I think it took a few years of hardship but they eventually dealt with the problem there as well. When I was there a few years later you no longer saw old pensioners begging in the streets.


Wait until I rule the world and impose my VAT, with a couple of % going to SS. Means tested. On everyone. Herman Cain was made to look like a cuk, but I did like his tax plan.
Bichon Frise

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Re: Smaller paychecks in 2013?

Postby VinTek » Tue Jan 22, 2013 10:13 am

All very true, gentlemen. But to some (and I'm thinking of N2Deep in particular since he's currently trying to get out of debt), the couple of hundred dollars a month can be very important. While it's also true that, being Federal LE, that he might have a pension to fall back on, he's also young enough that if pension benefits change anytime soon, he probably won't be grandfathered in. Anyway, my point is that if whatever his plan is, he needs to account for everything that is impacted. Unintended consequences are a bitch.

As for myself, when the company I worked for decided to end medical benefits for retirees, I decided that whatever my retirement plan was, it wouldn't automatically presume that the company would take care of me. Likewise, my plan assumes that the government won't be taking care of me either. If I do wind up getting money from a defined pension plan and SSI, it's all gravy.

DoingHomework wrote:But there were also a lot of old people begging on the streets who had formerly had good state pensions. I don't think we would ever let that kind of thing happen here. I think it took a few years of hardship but they eventually dealt with the problem there as well. When I was there a few years later you no longer saw old pensioners begging in the streets.

That may be so, but if you're the one caught out during the transition, life can be very difficult.

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Re: America's CEOs Want You to Work Until You're 70

Postby DoingHomework » Tue Jan 22, 2013 12:16 pm

Bichon Frise wrote:Wait until I rule the world and impose my VAT, with a couple of % going to SS. Means tested. On everyone. Herman Cain was made to look like a cuk, but I did like his tax plan.


I'll show you! I just won't buy anything! Ha! I've already got most of the stuff I need. I'll just catch a few fish, pick a few papayas for breakfast, and maybe buy a bag of rice now and then. But thanks for taxing the young workers who still need to buy stuff and go to work. That's teach them to be born at the wrong time.

Seriously though, I think a VAT makes some sense and that it is inevitable. But it disproportionately taxes younger people who are still "feathering their nest" and lets retirees off the hook to a large extent because their IRA withdrawals are not taxed as highly as they otherwise would need to be. So selfishly I like it. But I don't think it is the best thing for the country.


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