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ORIGINAL: samboct

Hi Mia

Historically, the problem with SS has gone the other way.  For example, some of the railroad unions wanted to be able to opt out of SS and provide their own pension plans to their members.  Teachers unions still do this IIRC- and actually offer much better bang/buck than SS.  However, when the railroad went bellyup and its pension plans vanished, these people screamed they should get SS too, even though they'd never contributed to the system- and they did.  This meant that rates had to be raised on the existing payers- which is what's happened.  Plus, the system was designed so that when people were 65, odds are they were dead in a few years.  Now we've got people collecting SS for over 20 years.

Railroad workers were and are covered under the Railroad Retirement Board, not SS. I don't recall any group of railroad workers that were allowed to opt in without paying for it. Very few teachers still have the ability to opt out.

The people collecting now, especially those in their 80s- likely never contributed the amounts that they're pulling out.  Its no wonder that SS is so popular- everybody always feels that they pay too much in taxes, and views getting their SS check as a tax rebate.  Unfortunately, we the workforce are the ones paying it off.  It wasn't an investment- it's just a system of robbing Peter to pay Paul.

Those in their 80s were contributing since their 30s. Adjusted for inflation and depending on their income and year of retirement they may or may not be "pulling out" more than they contributed, but there are very few retirees left who never paid FICA for most of their careers.



The last time I checked, people in the workforce now would have to live for 40 years past 65 for us to break even compared with a modest rate of return on the same money invested elsewhere.  I kinda doubt I'm living to 105- and what's worse is that SS has been a terrible drag on the economy since the money isn't invested.  This is only true if you disregard the value of disability and spousal benefits. For single/ low wage earners Social Security provides something on the order of 5-6% return. Married high wage earners with non working spouses get a small positive return. Families with two high wage earners have a negative return.

Pension plans are wonderful investors- as is the current teachers unions.  They have large blocks of money- they need good rates of return, but they're not risk averse and they have a long time horizon.  VCs are lousy investors by comparison.  Until the great financial boondoggle- pension plans used to invest in big capital projects- building factories etc.  Maybe they will again- but we need this kind of money in our economy- and SS wiped a big chunk of it out.  SS is one of the big reasons why other countries have much better savings rates than the US, and we have to finance things with debt, rather than savings.

You cant really compare pension fund investing with VC. They have totally different objectives. However the top VC investors crush the returns on pension funds. Most countries have tax supported retirement systems. I dont think there is any negative correlation between having a SS system and savings rates, it is cultural.

I agree with you that whatever we do, would need grandfathered steps- especially to those approaching retirement.  But people under 50 in the workforce should be clamoring for change- they're getting screwed. They are only getting screwed if the system is ignored. Another phased in increase in retirement age is all thats needed.

In terms of your own situation- let's say that you really do come into $50 million.  Do you really want your SS check if it means that a family with two young kids has to be making choices about health insurance and food?  Somehow, I don't see two wrongs making a right here- We've gotten screwed out of our money- but I don't think this entitles us to screw the next generation in return.

This should be a personal decision, not a restructuring of SS to exclude high wealth individuals who have contributed to the system for their entire careers. Individual charity is far more effective than transfer payments in providing support for the indigent.
Cheers,

Sam