Medicare

The absurd and irresponsible thinking of the left, liberals, progressives … Democrats …. Social Security and Medicare

The simple fact is that both the Social Security and Medicare trusts need an infusion of cash to remain solvent (or a cut in benefits, but who wants to do that?)

Congress; this and past administrations have been ignoring the problem for decades. They just ignore the urging of the Trustees to address the problem while the ultimate solution becomes more burdensome. 

Instead, the left is urging making benefits more generous and they don’t see any conflict in these competing goals. 

Why should we be surprised? It’s that type of short-sighted rationalizing and imprudent financial decisions that get American families in fiscal trouble on a regular basis. It seems to be an affliction common with the baby boomer and following generations. “I just want it. We can have it all … if we can just find some way to defer paying or find someone else to do so.”

The prudent course would be to once and for all permanently fix the trusts and to do so under the concept which was the foundation of the program from the start. If Americans want a government run retirement program, then we better well be willing to pay for it … that’s all Americans by the way, not just the other guy.  

Such projections (the declining solvency of Social Security and Medicare Trust funds) in years past have prompted leaders in both parties at least to broach the idea of benefit cuts or tax increases for entitlement programs.

By contrast, earlier this month, President Obama told an audience in Elkhart, Ind., that Social Security should be made “more generous,” and that “we could start paying for it by asking the wealthiest Americans to contribute a little bit more.”

Treasury Secretary Jacob J. Lew said Wednesday that he saw no contradiction there. The two objectives — ensuring the solvency of Social Security and increasing benefits — are “not at all inconsistent” if they are discussed in the context of “a broader conversation” about taxes and benefits, he said.  Source: New York Times 6-22-16

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11 replies »

  1. I would also note that even without the GPO offset, I (and my spouse who contributed almost nothing during her decades as a public school teacher) will never receive anything close to a total benefit amount, adjusted for inflation/or for earnings, equal to what I caused to be contributed.

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  2. Regarding calculations of how much a person would have to recover in social security benefits to equal what he paid in, disregarding any imputed earnings, you have to convert payments into real dollars to have a meaningful comparison.

    For instance, someone who paid in the maximum individual-(not employer share) social security only for 40 years from 1966 to 2006 would have paid in $104,239.19 in absolute dollars but in real dollars using the Bureau of Labor Statistics CPI deflator, that amount is $189.110.37 in 2015 dollars. If you include the employer share, the absolute amount is $208,478.38 but in real dollars it is $378,220.74.

    In 1966, the maximum taxable base for social security was $6600 at a rate of 3.85% for the individual which comes to $254.10. That $254.10 had the equivalent of $1832.06 in 2015 dollars.

    I would guess that most people recover more than what they contribute but it’s less than what it would appear to be if you use absolute dollars for contributions. Also the time to break even is greater.

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    • Jack B, You can never get the exact amount, because we do not know what the future COLA will be. All the family members I have talked to Mother, Sisters, Aunts and Uncles have all said they have or will get back 3 to 8 times what was paid in. I stopped working 10 years ago, total paid in SS taxes, both halves = $35,000. Because my wife only worked 5 years, our total family benefit counting the 35% spousal benefit, at 62 in 17 months, = $1,124 per month. I will have everything back in 32 months. By age 70 it will equal $107,904, by age 83 (life expectancy) = $283,248, not counting COLA. I do not believe I could of invested the SS taxes and received anywhere close to this kind of return. The best WAG at a 6% return after taxes, I would run out of money at age 73 drawing down the retirement fund at $1,124 per month. This kind of return for the average worker is why I call SS a welfare program for the elderly.

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  3. If Federal Employees would not be eligible for Social security we would have a lot more funding available. Once they retire they take a job with another company that has Social Security, however their entire work history is used when calculating their benefit from what I am aware of, Therefore, they not only get the high retirement of the Federal government, but get Social security as well. This would help

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    • Federal workers have been covered by SS and paid into it since 1984. Before that their earnings are not counted for future SS benefits.

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  4. You state: “The simple fact is that both the Social Security and Medicare trusts need an infusion of cash to remain solvent (or a cut in benefits, but who wants to do that?)”

    If I were 30, instead of 64, I would vote to cut my benefit versus increase my taxes. If I had to do it over again, that would be my vote. Now that I have paid in far in excess of what I will receive in my retirement years (whenever they come), I am loathe to have paid in massive amounts of taxes only to vote for a cut in my benefits. But remember, more than half of all Americans who retire and collect Social Security are expected to have a positive rate of return on their taxes – to receive more in value than they paid in (both employee and employer contributions). But, as the Democrats make clear, the decision is not one of do I want them to raise my taxes or cut my benefits. No, instead, they ask “SHOULD WE RAISE OTHER’S TAXES TO INCREASE YOUR BENEFITS”. That’s a winner in American politics any day of the week.

    I’m reminded of Dire Straights – Money for Nothing:

    Now that ain’t workin’ that’s the way you do it
    You play the guitar on that MTV
    That ain’t workin’ that’s the way you do it
    Money for nothin’ and your chicks for free

    Money for nothin’ and chicks for free
    I want my, I want my, I want my MTV

    I am coming to the realization that Congress doesn’t reflect Americans’ bad fiscal habits. Instead, I am slowly coming around to the belief that those habits are taught by Congress, taught by their actions, taught by others. Watch and learn from your betters, the elites. See Trump, parrot Trump. Borrow, borrow, stiff the investor, stiff the future taxpayer. Did Congress learn that from Trump, or the other way around?

    You state: ” Why should we be surprised? It’s that type of short-sighted rationalizing and imprudent financial decisions that get American families in fiscal trouble on a regular basis. It seems to be an affliction common with the baby boomer and following generations. “I just want it. We can have it all … if we can just find some way to defer paying or find someone else to do so.”

    Boomers didn’t learn that at the knee of the greatest generation. I surely didn’t learn that from my lower middle class (financial status) parents – my father who never earned much more than $10,000 a year as a firefighter prior to his death in 1969.

    Ask this question, where did you, your siblings, your neighbors, your children learn this financial behavior of all for today … on borrowed money to be repaid by others at some future date?

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    • BenefitJack, I like reading your posts and agree with about 90% of what you say. But to say you will never get back what you paid in taxes is just not true. A person retiring at 70 after paying the maximum SS tax of $350,000 (employer / employee total) over their working years would have everything back at age 79. If they live to 88 they would get back $700,000. If they had a spouse who never worked they would get back $525,000 at 79 and $1,050,000 at 88. Many will not live that long, but not very many pay the maximum SS tax. Most people get back everything that was paid in SS taxes back in 6 to 8 years, then get back several times what was paid in taxes, before they die. SS is a government social welfare program for people over the age of 62 and dependents who’s parents die before they reach 18. Or if the parent is retired or disabled. SS is not a retirement system where people have any claim to money in an account. The SCOTUS has ruled that we have no claim to any of the SS tax we have paid. If you reach the required age or other benefit requirements before age 62 you can receive a benefit check. And Congress can change the benefit amount at any time, no matter what was paid in SS taxes. COMING in 2033! The SS tax rate has not been raised since 1990, it is time to raise the tax the same percentage as the COLA each year until it reaches 10% for employee / employer.

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      • I think part of his point is that if you were able to invest that money and received an average return you would have a lot more to live on. In a sense you don’t get back all that it cost you. But of course, on the basis of taxes paid vs benefits you are correct. I calculated I would get back all I put in within 8 years.

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      • If you go back and read prior Social Security posts, you will see that I have calculated my Social Security and Medicare taxes, assumed a 6% rate of return, and concluded that once I commence benefits, likely to occur sometime after I reach age 66 (with a goal of maximizing the payout to myself and my spouse), I will receive much less than I caused to be paid into the system over the past 48 years, with at least five to 10 years to go before I stop earning wages subject to FICA and FICA-Med.

        There is no mistake in my calculation. The reasons why I don’t get back all of my contributions, plus imputed earnings are simple:
        (1) The progressive Social Security benefit formula, with it’s bend points,
        (2) My spouse’s retirement benefit which triggers the Government Pension Offset,
        (3) The removal of the income cap on Medicare Part A – FICA-Med in 1993.

        Similarly, my taxes will more than pay the full cost of Medicare Part B and Part D – in that my income in retirement will likely trigger the surcharges, and because I have been paying a significant portion of my income in taxes to the Federal Government – which they have used to fund most of the cost of Medicare Part B (physician) over the past 50+ years (45 years for me), and most of the cost of Medicare Part D (Rx) since 2006.

        Social Security and Medicare shortfalls will never be resolved so long as politicians can promise/offer more benefits to be paid by others, including future generations. Subject it to a vote of taxpayers and see how they want to resolve this. That is my solution – give everyone a choice every year of how they want to fund the shortfall in how to close the funding gap on Social Security.

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      • Your situation is not the norm. Very few are affected by the GPO, but I do believe it should be limited to people with retirement income above $120,000 or the current maximum income taxed under SS. The SS welfare system works well for the average worker, it is automatic and requires the employer to pay into the system in support of all workers. Many claim that you could do better if you were allowed to op out and invest the taxes instead. But that would only work if the employee was required to invest the 6.2% (10% would be better) and the employer was still required to pay into the employee’s account. Also, the funds in the account could not be touched until age 62. We may need to move to that kind of system in the near future, if the political elite in D.C. will not fix the shortage in the current system. Low income workers who did not grow a very big retirement account would then qualify for government assistance after the retirement account was depleted. So, government taxes of some kind would have to support about 25% (WAG) of retirees at some point. I really think we would be better off to just fix the current system, but I am not sure that will ever happen.

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      • I paid the employer portion too … They reduced my wages accordingly ( I know because I was the benefits weenie at my firm).

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