FYI: How can you get your money’s worth out of all that you pay into Social Security?
There are things you can do to increase your benefits somewhat, such as defer them. But the big levers are in the structure of our society, not in machinations we can do with advisers who offer help. We can see this in a regular exercise done by actuaries in Social Security’s Office of the Chief Actuary.
Regards,
Ted
http://assetbuilder.com/scott_burns/your_social_security_moneys_worth
Comments
He writes that "One thing the actuaries are at pains to point out is that Social Security isn’t like a pension plan. The program skews benefits higher for people with lower incomes."
That's a reference to the two "bend points" in the Primary Insurance Amount (PIA) formula. As you can see from the graph on the linked-to SSA page, these are minor adjustments to what is substantially a proportional payment curve - the more you pay in, the more you get out. It seems to me a reasonable compromise between the competing objectives of precise proportionality and providing a safety net (per capita).
That formula is not the only way to meet these objectives. For example, SS emphasizes the safety net aspect more heavily when it comes to non-working dependents. They get significant coverage (though they have not paid in); still, it is roughly proportional to the amount paid in by the working individual.
That's why an individual with a non-working spouse has a significantly higher payout ratio - it's really the dependent who is getting the money. (The individual doesn't claim it.) Likewise, the child of an individual may receive benefits. SSA, in the paper cited by Burns, acknowledges omitting child benefits for individuals, and that if included, the real benefits for individuals would be significantly higher. (Child benefits are included for couples.)
Mr. Burns writes that someone born in 1920 did much better with SS than someone born a generation later. He omits the fact that those born between 1917 and 1921 did worse than those of the same generation born before or after them - this is the notch baby cohort. (It was a Congressional error that gave the others higher benefits.)
While benefits did decline as date of birth went from 1920 to 1943, payout ratios for those born since have generally been rising, a fact Mr. Burns only grudgingly acknowledges. I say grudgingly because his bold paragraph heading reads: "The best time to be born or retire was long ago." Well yes, but not if we limit our focus to being born within the past 70 years.
The SSA paper says: "[There were] substantial decreases in the money's worth ratios from the first to the fourth year-of-birth cohorts (1920, 1930, 1937, and 1943). However, increasing life expectancies, the start of disability benefits in 1957, and generally increasing disability rates since then, contribute toward higher money's worth ratios after the 1943 birth cohort."
Here's another way to look at the data - a graph of monthly checks for an average wage earner vs. year of birth. In it, you can see the notch babies, and you can also see payouts almost steadily increasing post 1920. These are in constant (inflation-adjusted) dollars. The SSA paper where the graph came from.
I don't disagree with the data Mr. Burns has presented. But there's a saying - a little knowledge is a dangerous thing. Mr. Burns has provided a little knowledge and seems to be trying to light a fuse. I acknowledge providing just a little more information. Better that one read up before being driven in one direction or another - whether that is by Mr. Burns, my post here, or any other filtered data source.
I am sure there have been numerous studies, papers and discussions regarding this fact; but a lot money rolls into the economy every money from this program.
My inflation adjusted 2 cents worth.
Catch
Would you please consider condensing and posting your thoughts to him
[email protected]
(same column is at
http://www.dallasnews.com/business/columnists/scott-burns/20150718-burns-getting-our-social-security-moneys-worth.ece
with his email at the end)
If you would rather not, would you mind if I did something along those lines?
Also, only partly related, I have been curious about the grand rivers and small tributaries of US cashflow in the arguments about inequality. What are your thoughts about the fact that generally the overpaid (however defined) for the most part rotate a significant part of their money back into the economy? It may be private jets and tickets and mansions are built that would not be built otherwise, or do not need to be by any stretch, and of course some of the overpay does go into investing or perma-saving or to heirs without much or anything taken out (cheers from some here). But Oracle and Vertex and Gaga and NBA salaries, the vast moneys therein and therefrom, are largely flowing in multiple streams in some wack redistributive senses. Are you enough of an economist to think on this in useful ways, or have you read anything about it ? It is not as though overpay is somehow lost to society, in other words.
Here I was reading your post thinking it was going to say: could you please consider condensing and posting your thoughts for us
I'm no economist (though I do from time to time think about going back to school to study economics among other possibilities). So for now I've just got a couple of thoughts off the top of my head:
- Any spending, even on private jets, does help the economy. But I can't help thinking that like military spending being one of the least productive ways to stimulate the economy, this ultra luxury spending isn't all that helpful. What's better economically - building a mansion or ten affordable homes? Same construction jobs generated, but ...
Deep in the recesses of my mind is something that says military spending isn't all that great a stimulus because it doesn't produce things that help the economy - it generates jobs but the product isn't especially useful (economically). Your private jet example prompted that thought. Could be decades old memory.
- There's also a related argument that not all spending is created equal - some spending is better than others in its multiplier effect. A quick search turned up various papers, but nothing I could skim quickly. I need to find data and explanations about this.
- You already pointed out one obvious problem - not all of the "overpay" gets spent.
Sorry, just some fleeting thoughts on a Sunday evening.
I do not mind your long posts at all. MJG, repetitive and belaboring (which I do sometimes), is a different story.
Starting Now: It's No Longer The Third Rail of Politics
Also, his co-author participation in Laurence J. Kotlikoff's book that would appear to want to create a generational war between boomers and their
decedentsdescendants:The Coming Generational Storm
and the more recent:
The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy
Spend Til the End: The Revolutionary Guide to Raising Your Living Standard Today and When You Retire
little5bee, not sure what your point is; no one said Ellison did not build a company. Gaga and the NBA actually create a ton of employment too, maybe not like Oracle. But I guess you do not know the history or the disproportions involved with the guy? http://fortune.com/2014/06/13/oracles-larry-ellison-is-due-for-a-pay-cut-say-shareholders/
Smaller private companies can be plunder sources for their owners too, but the issue there is more purely moral, not economic and public so much. Amar Bose (to an extent) and Edward Johnson III always pointed to their companies' charitable works.
At least those three do not going around ranting that they did so build it alone.
Incidentally, you mentioned Amar Bose and Edward Johnson III...who was the third person? Did I miss something again?
Income redistribution happens in all countries. It is just a matter of degree. A properly aligned pay scale will be sorted out by our Capitalistic system over time.
How much redistribution is “best” is an unresolved question that is likely never to be fully resolved, regardless of anyone’s economic qualifications. Economists have opinions, some very strongly expressed and documented, yet the debate rages. That’s likely caused by definition disparities (what defines the poor category?), and complex economic interactions that are dynamic in scope and time.
Ill understood tradeoffs exists between equality (how to divide the pie) and efficiency (the size of the pie). Human incentives are an integral part of these tradeoffs. Most folks believe that individual efforts will be impacted by the tax schedule, and could reduce GDP growth. Current economic modeling is immature and in a constant revision and update process. That will always be the prevailing condition. In this sense, we amateurs are fortunate, and can blame “real” economists for their sorry state of misunderstanding.
Economists use something called the Lorenz Curve to measure income and wealth distribution fairness. It is a graphic display of how much income distribution deviates from a one-to-one linear relationship. Here is a Link that defines the Lorenz Curve and the Gini Coefficient (Index) that is derived from it:
http://demonstrations.wolfram.com/LorenzCurvesAndTheGiniCoefficient/
The website allows for some user interactions. Enjoy. The Gini Coefficient is the ratio of the area contained between the actual distribution and the benchmark linear distribution divided by the total possible area under the benchmark. It takes a value between 0 and 1.
In the last decade or so, the USA value has increased from a roughly 0.3 level to a higher level. That means, on a relative basis, the rich have been getting richer. It does not necessarily mean that the poor are getting poorer.
This is an expected outcome from the Cowboy Capitalism that is the USA. Other Capitalistic societies, like those in the EU, have practiced a softer form that might be termed Comfortable Capitalism. The end results are clear. Here is a Link to a site that summarizes the outcomes for many Nations in terms of a GDP per capita measure as a function of Gini Index:
http://visualizingeconomics.com/blog/2006/01/04/gdp-per-capital-vs-gini-index
The USA point is highlighted in Red. Its outlier character is obvious. But no single plot tells the whole story. The complex and interactive nature of all economies can’t be so easily described, measured, or compared. It is a multidimensional problem. The plot does provide some starting input for thoughts on this matter.
If I haven’t exceeded your endurance yet, here is a Link to another Visualizing Economics presentation that maps GDP per capita to Gini Index historically and also projects to 2050.
http://visualizingeconomics.com/blog/372
The China and India upward thrusts in the relative standings are impressive. The later time upward movement that is projected for Brazil just might offer some investment opportunities if you trust the GDP per capita-Gini Index linkage, and the Visualizing Economics long-term forecasts. That’s a ton of trust.
Good luck to all. I believe we have all earned our rewards. Envy is not one of my traits. I wish everyone great success.
Best Regards.
Doubtless mostly true here, but you must not know any plutocrats
More broadly, we are fortunate. I certainly am, by birth and education opps and all else, including marriage. So it is hard for me to say that I 'earned my rewards', all of them, although I worked extremely diligently for decades. Not only hard to say but also not altogether true.
little5bee, the third was Ellison.
I am glad your risk paid off, and I am sure you are rightly proud. The 'build it alone' comment is almost invariably taken out of context still; it had to do with society, social capital, support, infrastructure, lending, money policies, guarantees, FDIC, public works, transportation, and all else similar. It also is willfully misunderstood, because spoken by Warren and Obama types, whom some despite no matter what.
I think one thing is missed - if we persistently need to argue about whether we need to reduce elderly SS benefits which are, on average, barely adequate, something IS wrong in Peoria, especially if, indeed, the rewards overall have increased significantly. The scuttle is not that the poor are getting poor, it is that the proportion of the population that is entering the ranks of the poor is increasing. That is why the stress on the middleclass maintaining their status is becoming a popular subject.
http://www.nytimes.com/2014/08/08/opinion/paul-krugman-inequality-is-a-drag.html
Also, talking about taxes in the abstract as bad for GDP is incomplete without talking about what kind of tax and on whom. For instance, I find it hard to believe that a significant increase in the estate tax on those with estates greater than $10 million would reduce GDP growth. In fact, I think it would either be neutral or actually incentivize growth. The wealthy would be encouraged to spend their money while alive, thus stimulating the economy. Meanwhile, their heirs would be encouraged to go to school, work and become productive members of society instead of the idle rich. In a world with a high estate tax the Paris Hiltons of the world would cease to exist. Meanwhile, I think high sales taxes are a disincentive to GDP growth as people buy less. It is also a regressive tax that most affects the poor as a greater percentage of their income is spent buying necessities. So a lot depends on the kind of tax analyzed.
You wrote: "In the last decade or so, the USA [Gini coefficient] value has increased from a roughly 0.3 level to a higher level. That means, on a relative basis, the rich have been getting richer. It does not necessarily mean that the poor are getting poorer."
You weren't clear whether you were talking about the coefficient measuring wealth inequality or income inequality. The wording above sounds like you're talking about wealth ("getting richer"), while the graph you linked to is one of income, not wealth. I'm going to assume income.
For income, in the last decade or so, the poor (and middle class) have indeed gotten poorer (declining income in real dollars). See Figures 3 and 4 in this EPI paper: Wage Stagnation in Nine Charts.
These graphs go up to 2013. By mousing over, you can get data for each preceding year. So we can get a decade's worth of data (2003 - 2013).
Figure 3 shows that the real income of the bottom 90% declined 1% between 2003 and 2013. Figure 4 shows the real income of the middle wage (50th percentile) worker declined 4%, and the real income of the low wage (10th percentile) worker declined 5% - winding up below even what that worker earned in real terms in 1979! And this doesn't include the decline in benefits (e.g. health care) documented elsewhere in the paper.
One can bury some of this in relative Gini coefficients. That's because those numbers represent ratios, not absolute differences. For example, if min wages were to be raised in one year from $10 to $15, while CEOs' wages went up, say, from $5M to $6M, the Gini coefficient would decrease (less inequality). That's because the low wage earner's wages went up 50% (rising $10K), while the CEOs' wages went up only 20% (rising $1M).
That may seem less unequal to some (the CEO/bottom rung ratio decreased); to others, seeing the CEO pull ahead by another $1M doesn't seem like the inequality is decreasing. Here's a page going into this fun with numbers.
Thank you for your comments and your references. I am familiar with some, but definitely not, all of them.
I completely agree with your observation that the Gini Coefficient has shortcomings. No single Index can capture all the nuances of our complex economic system. The Gini is simply one imperfect measure. But professional economists do use it. It's something like characterizing a baseball hitter only with his batting average and not his RBIs and home runs and on-base percentage. The data scatter in the first Visualizing Economics curve that I referenced clearly illustrates the shortfall of the Gini Index to model the GDP per capita on an International scale.
The 80/20 rule is certainly functioning on this exchange. Twenty percent of the posts contribute to eighty percent of the value added.
My overarching view on this matter is that the poverty level in the USA has been mostly static since President Johnson's War on Poverty in the mid-1960s. Yes there are ups and downs, but it's mostly at the noise level. The political solutions have mostly failed. The economy health is the main contributor.
That's just my assessment. I have no horses and no influence in this race. Based on some of your earlier comments, I suspect that is not your situation, and that you favor a political approach.
Best Wishes.
You noted: "The 80/20 rule is certainly functioning on this exchange. Twenty percent of the posts contribute to eighty percent of the value added."
I probably should ask about the above, but will not. Others will choose their own takeaway.....
My initial reaction to the original post was to ignore it. However, subsequent postings seemed to get very ad hoc with undocumented and unnecessary comments.
These later negative additions motivated me to post. I was attempting to get the exchanges back on the subject. Some of the submittals did not add insights to the subject matter. My list likely does not correlate with your list. That's OK, but not all postings are of equal value.
Best Wishes.