RE: What "values" created the existing system?

[Michael Jones <powderfinger99@yahoo.com>]

<<<
 I would like to respond to your comments on my comments. I note that 
you have changed and now concede that the question is what changes are wise 
and desirable, not whether the present system should be continued without 
change.
>>>

Not exactly. I am willing to discuss possible changes for the sake
of discussion. 

<<<
At some point, consideration should be given to the 1992 
Clinton proposal to allow deduction of Social Security taxes for income tax 
purposes.
>>>

This is a much needed change.

<<<
A godd part of the increase reflects added 
benefits, including disability and survivor benefits.
>>>

Pretty costly benefits for those extra contributions.

<<<
The current system with wise and prudent changes will pay 100%
benefits indefinitely. That the current system is projected to pay
only 70% beginning in 2034 is relevant only if you assume that no
wise and prudent changes will be made before then.
>>>

For me, 100% benefits ends up being a NEGATIVE (inflation adjusted)
return. My return will get even worse if I chose to continue
to work for higher wages.

<<<
Under a pay-as-you-go system, the question of investment return does 
not exist. 
>>>

So, I should just be happy with whatever the government decides I get?

<<<
Presently, the so-called surplus is scheduled to be used to pay 
the extra cost of the baby boomer generation.
>>>

The surplus has been invested in government bonds. Like other
investments, the expectation is that the receipient receives
interest/gain in addition to principle. What this means is that
the government is lending money to itself in expectation that
it will be able to pay it back with interest. Where is the money
going to come from? Who will be taxed? How does this help
to pay for the BB retirement?

Think about this: all the money in excess contributions in the
past have been spent twice! The SSA gets an IOU and the government
spends the excess on other programs. Why didn't the government
just pay down bonds instead of spending the money? Where's
the accountability? Can you trust your government to use your
contributions properly? Should proper use of YOUR MONEY be first
and foremost before they ask YOU to make concessions on YOUR
benefit?

It has only been this year that Clinton and other law makers
offered to stop doing this. There is at least one bill proposed
which would take the excess contributions and actually pay down
debt.

<<<
The present law calls for increasing the retiremnt age in very
gradual stages, reaching 67 in 2027, not in one year as you falsely
assert.  This only partly addresses the problem of increasing
longevity. A fuller answer is a schem proposed by Robert Myers
which would increase the age to 70 in 2037 and 75 in 2074. Such
schedules can always be modified if anticipated improvements in
mortality do not occur.
>>>

Think out this: if a worker starting working at 20 years old and
contributed to an investment plan until 75, the power of compounding
interest would enable even the lowest income worker (minimum wage)
to generate much more wealth than the Social Security system could
provide.

The difference between 40 years of compounding versus 50 years of
compounding is tremendous (over 100% more benefit).  So, I see the
longevity problem a little differently. In the plan above, longevity
is a tool to reduce benefits. Under an individual retirement account
plan, longevity will provide MORE benefits. It's an opportunity
and not a wedge to reduce benefits.

I encourage you to input numbers into a spreadsheet to see
what I mean. A minimum wage worker who works for 50 years,
3% yearly wage increase, real inflation adjusted return of 5%
will have an annuity of almost $500,000 (this is in 1999 dollars).
When it comes to compounding longevity is a good thing!

Because the Social Security system has no assets which compound
interest, no such benefit is possible.

<<<
I would point out that the Chilean plan includes a minimum guarantee,
less than promised by the prior sytem but large enough so that
low-income workers gain no benefit from taking out personal accounts
and as a result low-income workers have not participated in the
personal accounts in Chile.
>>>

Not exactly. There are requirements for the government pension
benefit just like there are for the Social Security system. Here's
a clip from the plan (
http://www.socialsecurity.org/pubs/articles/jp-03-22-98.html
). One thing to note is that the real rate of return for the
plan has been 12% per year since 1981. This includes the 1997
and 1998 market meltdowns.

###########
The government retains some involvement in the system,via a 
safety net financed from general revenues for those who have 
not accumulated enough. A worker who has contributed for at 
least 20 years but whose pension fund, when he reaches 
retirement age, is below the legally defined "minimum pension,"
receives a pension from the state once his account has been 
depleted. 

###########

In a quick clip, here's how Chile did away with their old system:

###########


In moving to this new system, we set three basic rules. The government
guaranteed people already receiving a pension that it would be
unaffected by the reform. That was important because it would be
unfair to the elderly to change their benefits or expectations.

Every worker already contributing to the pay-as-you-go system was
given the choice of staying in that system or moving to the new
system Those who left the old system were given recognition bonds
that were deposited in their accounts. Those bonds reflected the
rights the workers had already acquired in the pay-as-you-go system.

All new entrants to the labor force were required to enter the new
system. The door was dosed to the pay-as-you-go system because it
was unsustainable. This requirement ensured the complete end of
the old system once the last worker who remained in it reaches
retirement age (from then on, and during a limited period of time,
the government has only to pay pensions to retirees of the old
system). That is important, because the most effective way to reduce
the size of government is to end programs completely, not simply
scale them back so that a new government may revive them at a later
date.
###########

It is possible to continue this system with changes forever. But,
don't you want the best system? Don't you want a system which
will provide more benefits and more options? Currently, the
government decides what the benefits are such as when you can
retire. Wouldn't you like more control?

Another noteworthy point in the Chile plan is that their old
Social Security system required 25% of payroll. 25%! Under their
new plan, the payroll contribution is a 10% minimum (the worker
can contribute more). The difference is that all the contributions
are invested in real wealth generating businesses, as opposed
to government.

In essence reform comes down to this last point. Privatizers
want reform to provide higher returns and higher investment
in business. People who want to keep the current system are
tacitly or actively wanting the money invested in government.
What's best for the long term health of the economy? 

Michael