Three-quarters of our fellow Americans have just said in a survey that they think everyone should have a pension plan with a fixed benefit (or ‘final salary’).
Phooey.
Talking is cheap.
How many of them are actually willing to fight for the final salary pension plan we already have?
I’m talking about social security. And the answer is: probably not much, based on how everyone speaks, acts and votes.
Some 242 million American workers and retirees today are dependent on social security or will continue to do so in the future. But as regular readers know, the program is now $ 16.8 billion dollars in the hole. Without a drastic solution, it will have to cut about 20% of the benefits in about a decade.
Yet you would hardly know of the last fourteen U.S. elections.
If we get to the point where social security actually needs to be cut, it will be interesting to look back at the headline headlines during the last five or six US presidential elections.
According to the IRS, there are 154 million tax-paying households in the country to put the social security funding gap in context. To fill the gap in social security would involve an annual increase of on average … $ 110,000 per household.
In the words of Alec Baldwin in Glengarry Glen Ross, “Oh, did I get your attention now?”
(Maybe we all need a moment on social security to put down your coffee.)
President Biden’s proposals include paying an extra 12.4% tax on those earning more than $ 400,000. (By the way, this would increase the effective highest marginal rate of federal income tax to nearly 50%.) He also wants to increase the benefits for those at the bottom of the scale.
As MarketWatch’s own Alicia Munnell says, in an interview with Think Advisor, the tax increases are not enough and the added benefits make the hole bigger, not smaller. Wharton says this plan will reduce less than half of the long-term funding gap.
As a nation, we have incurred an extra debt of $ 17 + trillion since 2000 and pay for wars, rescue packages, tax cuts and bean doggles (choose your order). So, at a time when we have to lay down $ 17 trillion for the country’s most important pension fund, we find that we have managed to borrow $ 17 trillion … and spend it on anything but the most important pension fund in the country. .
Nicely done.
How ironic that President Clinton 21 years ago, when the federal budget was balanced, said that the top priority in the budget should be to ‘save social security first’. If only it were that way.
Meanwhile, one workable plan to celebrate the circle, by investing social security funds in stocks like any other pension fund, is not even on the agenda.
Why not? I hate it to sound cynical, but: a lot of people who set the rules don’t really trust social security. Are they really going to sweat bullets to find ways to save it?
Back in 2005, then-President George W. Bush came out with a half-baked, or possibly quarter-baked, plan to “privatize” social security. Most of his plan was unworkable or worse. But therein lay a good principle: that some (or even all) of our money for social security should be invested in stocks.
There was and is no reason why the trust fund would not be able to do so through legislation.
But this idea is so out of the “Overton Window” of acceptable solutions that people will not even discuss it.
If this’s so crazy, why invest in any other pension fund?
If that is impossible, how can even the Norwegians do it with their massive state pension fund?
Based on a basic math and with a tip for Michael Kitces at Buckingham Wealth Partners, although I have updated the figures, we can calculate that social security today has a capital value of about $ 320,000 for the average man living on 67-year-old retires. and $ 380,000 for the average woman.
This is how much you will have to pay to buy an equivalent inflation-adjusted life annuity from a private insurer.
A 20% cut would therefore make the average man $ 64,000 poorer and the average woman $ 76,000.
Meanwhile, the new poll shows that 77% of people support ‘pensions for all’ less than they seem. It is published by the National Institute for Retirement Research, a full-fledged think tank. But the original creators were the National Association of State Retirement Administrators and the National Council on Teacher Retirement. And the survey appears as part of a document claiming widespread public support for state and local retirement plans.
In a previous version of this column, the net worth of households was incorrect. This has been fixed.