Three-quarters of our American colleagues just said in a poll that I think everyone should have a defined benefit pension plan (or “final salary”).
Phooey.
Speaking 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 many, based on the way everyone speaks, acts and votes.
About 242 million workers and retirees in the United States either depend on social security today or will do so in the future. But, as regular readers know, the program now has $ 16.8 trillion in the hole. Without a drastic solution, within about a decade you will have to reduce your overall benefits by about 20%.
However, you will hardly know from the last eighteen US elections.
If we get to the point where social security actually needs to be reduced, it will be interesting to go back and look at the major newspaper headlines from the last five or six US presidential elections.
To put the social security funding gap in context, there are 154 million taxpayers in this country, according to the IRS. So, filling the social security gap would mean a one-year increase on average … $ 110,000 per household.
In the words of Alec Baldwin of Glengarry Glen Ross, “Oh, did I get your attention now?”
(Maybe at Social Security we all need a moment to relax.)
President Biden’s proposals include paying an additional 12.4% fee for those earning more than $ 400,000. (In fact, this would increase the effective marginal rate of federal income tax to almost 50%.) He also wants to extend the benefits to those at the lower end of the scale.
According to Alicia Munnell, her own MarketWatch, in an interview with Think Advisor, the tax increases are not enough and the additional benefits make the hole bigger, not smaller. Wharton says the plan would reduce less than half of the long-term funding gap.
As a nation, we have accumulated an additional national debt of over $ 17 trillion since 2000, paying for wars, rescues, rescue packages, tax cuts and glasses (choose your order). So, at a time when we have to get $ 17 trillion for the country’s main pension fund, we find that we have managed to borrow $ 17 trillion … and spend it on any other major pension fund. of the country.
Good job.
How ironic that 21 years ago, when the federal budget was balanced, President Clinton said budget priority number one should be “saving social security first.” Only if.
Meanwhile, an achievable plan to keep the circle, by investing social security funds in shares like any other pension fund, is not even on the agenda.
Why not? I hate to sound cynical, but: Many of the people who adopt the rules don’t even rely on social security. So will they really sweat bullets finding ways to save him?
In 2005, then-President George W. Bush came out with a half- or possibly quarter-baked plan to “privatize” social security. Most of his plan was ineffective or worse. But buried in it was a solid principle: that part (or even all) of our social security money should be invested in stocks.
There has not been and is no reason why the trust fund should not be empowered by law to do so.
But this idea is so outside the “Overton window” of acceptable solutions that people will not even discuss it.
If he’s so crazy, why do all the other pension funds invest in stocks?
If impossible, how can even Norwegians do this with their massive pension fund?
Based on some basic math – and with some advice for Michael Kitces at Buckingham Wealth Partners, although we’ve updated the figures – we can calculate that social security today has a capital value of about $ 320,000 for the 67-year-old retired man , and $ 380,000 for the average woman.
This is how much you would have to pay to buy an inflation-adjusted equivalent annuity from a private insurer.
So a 20% discount would make the average man $ 64,000 poorer and the average woman $ 76,000.
Meanwhile, the new poll suggests that 77% of people claim “pensions for all” turn out to be less than it seems. It is published by the National Institute for Research on Retirement, a perfectly reputable think tank. But its original creators included the National Association of State Administrators for Retirees and the National Council for Retirement of Teachers. And the survey appears as part of a document that states broad public support for state and local retirement plans.
An earlier version of this column misrepresented the net worth of the household. Was corrected.