patrick.net

corntrollio says

JG1 says

It too describes SS as insurance
Yes, why wouldn't it? Compare Social Security to an annuity or a VUL. The latter are clearly insurance right? So why isn't Social Security

Because everyone who reaches a certain age is entitled to it. And those who pay into it more are not disproportionately rewarded (as those who pay more VUL premiums or buy an annuity are), instead it's a social welfare program where not only am I basically maxed out benefitwise at some point despite disproprtionate contributions, but I won't get any "coverage" under this insurance plan because by the time I get to the point where I'd be eligible under the current rules, they will have changed the rules so I am no longer eligible, so my return will be negative whatever I paid in.

OurBroker says

Let's imagine that Smith gets $50,000 from Social Security, invests the money, and then loses it.

You can imagine that, OurBroker, but that was not the proposal, as I stated above. It was to permit a MAXIMUM of a certain relatively low percentage to be self-directed rather than in the "black box".

leoj707 says

You pay into this insurance so that if you ever find yourself elderly, disabled or dead leaving children behind you (or your kids) don't have to eat cat food. If you think that it is OK for American children the elderly and the disabled to --in mass numbers-- live in poverty. It is your prerogative to vote for candidates that want to destroy SS.

I do have funds tied up in SS, because I paid them in - I don't have them - and the current sytems promises me a return upon merely hitting a certain age (unlike real insurance, which promises me a return of my choosing - different policy limits/premiums - upon the occurence of agreed upon events that I am insuring against). If you are telling me this is a sham, and I shouldn't get anything, like you did later in your post, because SS should be means tested you say, then I am really in the hole with this program, especially if you continue to call it insurance instead of welfare. If it's insurance, why can't I get paid out? If it's insurance against disability, hospital bills, poverty, etc. there are private and more effective and custom tailored ways to cover all of those risks.

There is also a way for the people you speak about to avoid living in poverty - save, invest, work harder, spend less, buy disability insurance, etc. For those unforunate cases where disability strikes young and the like, this isn't insurance, it's still welfare, transfers from the rich to support the poor, and that's a real stretch when the entire population is eligible to receive SS upon reaching the designated age.

I do have funds tied up in SS, because I paid them in - I don't have them

that's not how it works. Most of the FICA money you paid in -- 90% or more -- was paid out to retirees immediately.

10% or so was set aside and put it treasuries, but that was largely in response to the demographic challenge of the boomers outnumbering Generation X by a bit.

If it's insurance, why can't I get paid out? If it's insurance against disability, hospital bills, poverty, etc. there are private and more effective and custom tailored ways to cover all of those risks.

Not at just ~10% of your wage income, at least for most people.

SS isn't such a good deal for the upper middle class, no.

But the upper middle class has much more income to invest (after FICA), plus you guys live longer so you'll collect more than the deadbeat no-good loser poor from SS anyway.

transfers from the rich to support the poor, and that's a real stretch when the entire population is eligible to receive SS upon reaching the designated age.

No, it's not a stretch. The top 10% owns 70% of the wealth in this country.

JG1 says

Because everyone who reaches a certain age is entitled to it.

Not true. Absolutely wrong in fact. You have to have paid into the system in order for your or your heirs to receive benefits from it, and your payouts are dependent on what you paid in. You should learn more about the OASDI formulas before you speak about this further, because this is a huge misconception.

JG1 says

he is discounting, i.e., assuming away, the fact that self employed people pay both sides of the tax, and they would have both sides back were they able to opt out, or to the extend they were able to manage part of those funds in a 401k like environment.

No, you misunderstood that. In fact he's doing the exact opposite of what you said. There's no discounting there at all (in fact, you can see that SE people need a lot lower return to match Social Security). All he's saying is that in an employer relationship, the formal way it's done is that employer pays 6.2% and employee pays 6.2%. For self-employed, the employer still pays 6.2% (because the employer portion of payroll tax is deductible) and the employee (same person) pays 6.2% (non-deductible).

The question is whether the employee would always get 6.2% more wages if it weren't for Social Security. For SE, it's clear that the employee would get 6.2% more wages because the employer is the employee. For employees with strong bargaining power, it's likely that the employee would get a portion of the 6.2% back as wages. For employees with low bargaining power, they'd likely never get the extra wages.

I miswrote. Yes, you have to pay into it, and yes, your benefits can vary - a little bit - based on what you paid in. But you max out after only $4,480 in wages per year, so anything paid in on wages after that does not increase your benefits. The optimum earnings for SS purposes, therefore, is $5,000 a year, every year. A good deal for low income workers, a bad deal and a transfer of wealth (social welfare) program for higher income earners.

http://www.ssa.gov/retire2/credits1.htm

Which also means if some of the risks supposedly covered by this insurance before one has earned many credits occurs, the benefit amount may not be enough to support the unfortunate soul.

Like I said, I found that AngryBear article quite confusing, perhaps poorly written, perhaps I'm doing a poor job of following it, perhaps both.

His contention that I should just relax and enjoy because I will at least get my money back is absurb for a couple of reasons. First, we have the possibility I could die without spouse or issue before retiring. Second, and more pressingly, if I'm young enough, chances are the retirement age will keep going up such that I either won't make it to that age, or if I do, I have less years of return, and the larger risk I think is that means testing is implemented, and then I'm deemed to high income or too rich (not the same thing, despite the way all the politicians conflate the two) to get all or perhaps even more likely, ANY return. That's like no insurance policy I've ever heard of. And that's the fatal weakness (or deceit) of the AngryBear article.

On the contrary, when I buy insurance, the more premiums I pay in, the more I am covered for. So if this is disability or retirement income assurance, I'd rather get my own from private sources.

The changing nature of the payout makes SS an insurance program that would be a "can't be trusted, pass" were it not mandatory.

You mean I contributed under X premises, but now you are going to change the premises so I may get no return on these contributions at all? Hmm, funny insurance policy. (Which of course is not really an insurance policy at all, like I said.)

JG1 says

But you max out after only $4,480 in wages per year, so anything paid in on wages after that does not increase your benefits. The optimum earnings for SS purposes, therefore, is $5,000 a year, every year.

Wrong wrong wrong. You didn't keep reading because you read one thing that supported your poor argument. If you kept reading, you'd see:

Your average earnings over your working years determine how much your monthly payment will be.

All the $4480K is talking about is getting credits -- i.e. in order to get Social Security, you need a certain number of credits. Your actual income up to a cap of $106,800 for 2011 (indexed for inflation each year) determines what payout you will get. This year, you pay 6.2% (4.2% this year under the Obama cut in payroll tax) on up to $106,800, and your benefits are based on what you pay in. If you pay in the max every year, you will receive the max on retirement.

JG1 says

perhaps I'm doing a poor job of following it

Ding ding. You don't understand how Social Security works, hence the problem.

JG1 says

The changing nature of the payout makes SS an insurance program that would be a "can't be trusted, pass" were it not mandatory.

You mean I contributed under X premises, but now you are going to change the premises...

Do you have a contract with SS under X premises?

Even with insurance companies where you have a "solid" contract they often will fight payouts that they are contractually obligated to pay.

JG1 says

...I may get no return on these contributions at all? Hmm, funny insurance policy.

Well it is funny to expect a return from an insurance policy. Do you rush out and get into a major car crash before the policy expires to get a "return" on your "investment"?

@ leoj707

Yes, I do expect a return from an insurance policy, under the stated payout parameters (car accident in your example), or why would I pay the premiums? If the payout parameters are uncertain, then it's a lottery, and I don't want to play.

I don't want to have auto insurance, be in a car accident, and then be told, 'we have means tested you, and you make too much to get a payout, because you can afford to buy a new car without this insurance settlement check.'

The fact that there are sometimes issues figuring out what is covered and what is not, and that some insurance companies sometimes act in bad faith (probably to a much smaller degree that their policyholders try to file bogus claims and defraud them, BTW, and this behavior is at least partly what causes insurance companies to scrutinize claims), does not change the analysis. The policyholder has recourse in that case, the courts.

JG1 says

If the payout parameters are uncertain, then it's a lottery, and I don't want to play.

Clearly you have not dealt much with insurance companies, the payout is always uncertain. I hope you never have to learn this first hand.

leoj707 says

JG1 says

If the payout parameters are uncertain, then it's a lottery, and I don't want to play.

Clearly you have not dealt much with insurance companies, the payout is always uncertain. I hope you never have to learn this first hand.

I have dealt with insurance companies my fair share, different ones, too, and have never had a problem getting paid. YMMV.

I had one time where I had an argument about to what degree they should cover my rental car when my car was in the shop for two different claims - I argued the rental coverage applied twice, and should at least cover all of my out of pocket costs, they argued it could only apply once, but we are talking about a difference of less than $100 between the two positions and if I really have wanted to I could taken it to court and duked it out on this one.

To compare that to the possibility the SS "insurance" ends up paying me out zero and I have no recourse, is apples to oranges.

JG1 says

I had one time where I had an argument about to what degree they should cover my rental car when my car was in the shop for two different claims - I argued the rental coverage applied twice, and should at least cover all of my out of pocket costs, they argued it could only apply once, but we are talking about a difference of less than $100 between the two positions and if I really have wanted to I could taken it to court and duked it out on this one.

Ah, so you have had a little taste. It just gets worse the more money that is on the line for them.

JG1 says

'we have means tested you, and you make too much to get a payout

Strawman with respect to Social Security. Social Security pays out based on what you put in.

Hardly a strawman FOR THE FUTURE (you know, when I might actually get a payout), it's already under discussion and more likely than not, I think, to be the case by the time I am retirement age in 30+ years.

I didn't say it was going to apply to anyone now, or retiring soon - in fact I said the contrary in other posts, that that kiind of argument was used to demagogue anyone who proposed any changes to the SS system, 'You're threatening the seniors'. Most of these proposed changes to the extent they threaten anyone, threaten the young.

JG1 says

Hardly a strawman FOR THE FUTURE (you know, when I might actually get a payout), it's already under discussion and more likely than not, I think, to be the case by the time I am retirement age in 30+ years.

Except that most of the claims that Social Security would run out of money are based on uber-long-term projections that could change quite easily. In addition, the fixes are easy -- you could raise payroll taxes, even without cutting benefits. It's only politics that makes everyone think Social Security is so threatened (even if very few people seem to understand how it works, as this thread shows).

leoj707 says

Do you have a contract with SS under X premises?

"We put those payroll contributions in so as to give the contributors a legal, moral, and political right to collect their pension and unemployment benefits with those taxes in there. No damned politician can ever scrap my Social Security Program.”

-FDR

http://www.archives.gov/exhibits/treasures_of_congress/text/page19_text.html

corntrollio says

Except that most of the claims that Social Security would run out of money are based on uber-long-term projections that could change quite easily. In addition, the fixes are easy -- you could raise payroll taxes, even without cutting benefits.

Sure, just raise taxes, great idea, of course - why didn't I think of that!?

JG1 says

leoj707 says

Do you have a contract with SS under X premises?

"We put those payroll contributions in so as to give the contributors a legal, moral, and political right to collect their pension and unemployment benefits with those taxes in there. No damned politician can ever scrap my Social Security Program.”

-FDR

http://www.archives.gov/exhibits/treasures_of_congress/text/page19_text.html

Sounds pretty vague, not unlike most insurance contracts.

JG1 says

Sure, just raise taxes, great idea, of course - why didn't I think of that!?

Actually, it's not a bad idea and Reagan did it, so clearly it's a bipartisan thing. It wouldn't be hard to raise the cap only slightly from $106,800.

Anyway, as I mentioned, it's possible that there will be no issue.