How Much is Enough?

[Michael Jones <powderfinger99@yahoo.com>]

There have been some excellent post on this board so far
describing the benefits and justifying the OADI program.
In particular, William E. Spriggs' comments were quite
eloquent.

I did not want to dispute any of their positions, but I
thought a differing viewpoint on the implementation of the
OADI program would be worthy of discussion.

One of the main concerns that reformers typically espouse
centers mainly around how the program accomplishes its goals
rather than what the goals are. Some of the goals have been
eloquently described here at this forum.

The OADI program offers 3 types of benefits: disability 
insurance, retirement benefits and a safety-net. The actuaries
keep the insurance money separate from the money used to
pay retirement benefits. It is know how much each benefit
costs, how much revenue is received, etc.

In the past, the OADI program was a very good deal. It did offer
protection from old age poverty since the tax rates were low,
the benefits were good, and even high income workers got a good
return on their money. These were the good old days, because
nearly everyone did well under the system.

Unfortunately, those days are gone. Going forward it will not
be possible for the program to offer the same level of retirement
benefits as it did in the past.

<<<Anna Rappaport>>>
It should not be a personal savings account.
>>>>

It is a savings account! In the past it was possible for a
worker to contribute perhaps 3% of salary for 20 years and
get a generous benefit throughout retirement. The worker
didn't need to understand the benefit/contribution ratio
because it was always a good deal.

Today, the average worker who lives to retirement and works
an average number of years will contribute 12.4% of lifetime
(capped) payroll. This is quite a bit of money which is "saved"
by the worker for his/her own retirement and insurance benefits! 
The program, therefore, really doesn't offer protection against
old age poverty since the average worker has paid enough money
to fully fund his own retirement. Who needs insurance when
the cost of the insurance can fund the entire benefit?

The question to ask is: how much are you willing to pay for a
system that will offer a guaranteed, inflation adjusted floor
level of income? 12.4% of lifetime salary? How about 18%? This
is the expected cost to maintain the current system in the
future under the current rules.

Are you still willing to pay this much, even if the money would
be worth more if you left it in a FDIC insured bank account, 
earning just 2%?  Are you still willing to pay this much even
if you could never get your contributions back in your lifetime?

How much is enough?

Michael