How should retirements be funded?

[DC Al Fine]

I think people and their retirements can be roughly divided into four classes:

1) People unable or unwilling to work (housewives, disabled etc.)
2) People who work but are unable or unwilling to save (working poor, lazy upper middle class etc.)
3) People who work and save
4) The rich

Each of these classes requires different sorts of retirement funding.

1) For people who don't work there should be some minimum amount of "don't starve" money that should be paid out of general revenues. This should be enough to cover food, a bus pass, and rent on a studio apartment etc. (I'm assuming there is a universal healthcare system here)

2) There should also be a pension program funded by invested payroll taxes. Canada Pension Plan is well funded and is able to pay about $1000 per month to most workers on about a 5% payroll tax. I would expand on this program to provide somewhat more funding for those who don't make enough or are unwilling to save by forcing them to save via payroll taxes.

3) For those who are able to save their should be generous tax-deductible and tax free accounts in order to encourage investing for retirement. I would stick with roughly the current Canadian system of being allowed to deduct up to 18% of one's taxable income for a tax sheltered account and put up to $5000 per year in tax free investment accounts. There would be a cap on the 18% to prevent the ultra rich from cutting their income taxes too much.

4) The rich can afford to pay for their own retirement with current capital gains and dividend taxes. No program is needed for them.

[opebo]

Should be equal for everyone, DQ.

[DC Al Fine]

To clarify, I meant that all of these programs should be available for almost everyone. (There would be clawbacks so millionaires won't get subsistence payments, but other than that, it's wide open.)

[TNF]

IRAs, 401Ks and all of the other tax-favored private plans, all of which are ludicrously inefficient should be deincentivized by the tax code and eventually phased out in favor of making Social Security larger and expound more benefits for more people. Everyone should be covered by Social Security, including state and federal workers, and there should be a minimum benefit that precludes anyone having to go back to work when they retire. I.E. you get what you pay in, but if you don't get enough to live on (determined by a standard of living study or something for the area you live in) the program makes up the difference.

The retirement age should also be lowered to 55. This will tighten the labor market substantially and raise wages overall, as well as open up new positions for younger workers. Funding-wise, a truly universal Social Security should be funded as it is today, plus with the addition of general revenues to make up for any shortfalls.

[opebo]

IRAs, 401Ks and all of the other tax-favored private plans, all of which are ludicrously inefficient should be deincentivized by the tax code and eventually phased out in favor of making Social Security larger and expound more benefits for more people. Everyone should be covered by Social Security, including state and federal workers, and there should be a minimum benefit that precludes anyone having to go back to work when they retire. I.E. you get what you pay in, but if you don't get enough to live on (determined by a standard of living study or something for the area you live in) the program makes up the difference.

The retirement age should also be lowered to 55. This will tighten the labor market substantially and raise wages overall, as well as open up new positions for younger workers. Funding-wise, a truly universal Social Security should be funded as it is today, plus with the addition of general revenues to make up for any shortfalls.

Excellent proposals, except for this - the payroll tax should include all income, with no upper limit, and be made progressive, so that rich people are paying maybe 20% of their income or so into SS, thus making payroll tax unnecessary for the lowest-wage earners.

[TNF]

IRAs, 401Ks and all of the other tax-favored private plans, all of which are ludicrously inefficient should be deincentivized by the tax code and eventually phased out in favor of making Social Security larger and expound more benefits for more people. Everyone should be covered by Social Security, including state and federal workers, and there should be a minimum benefit that precludes anyone having to go back to work when they retire. I.E. you get what you pay in, but if you don't get enough to live on (determined by a standard of living study or something for the area you live in) the program makes up the difference.

The retirement age should also be lowered to 55. This will tighten the labor market substantially and raise wages overall, as well as open up new positions for younger workers. Funding-wise, a truly universal Social Security should be funded as it is today, plus with the addition of general revenues to make up for any shortfalls.

Excellent proposals, except for this - the payroll tax should include all income, with no upper limit, and be made progressive, so that rich people are paying maybe 20% of their income or so into SS, thus making payroll tax unnecessary for the lowest-wage earners.

I forgot to add that in, but yes, I'd be in total support of that. Oh, and we should stop taxing income from Social Security payments as if it were regular income.

[Link]

4) The rich can afford to pay for their own retirement with current capital gains and dividend taxes. No program is needed for them.

I don't understand.  People can be rich and poor at various times in their life.  What if someone is riding high in an industry who's days are numbered?  What if they know they are making $250,000 a year but that will plummet to $50,000/ yr ten years from now.  How do you handle that?  What about the people who all of a sudden become poor without warning?  It would be kind of unfair if you didn't give them access to the same tax sheltered accounts as middle class workers while they were riding high.

1) For people who don't work there should be some minimum amount of "don't starve" money that should be paid out of general revenues. This should be enough to cover food, a bus pass, and rent on a studio apartment etc. (I'm assuming there is a universal healthcare system here)

So if a woman is a house wife and raises 6 kids her reward should be a subsistence wage?  And a yuppy that opts for no children should be given every tax break in the book?  What kind of a society are you trying to foster up there?

[DC Al Fine]

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There's no "oh you're too rich, you can't have any tax break" they're just capped at very high levels. For example in Canada, you can deduct 18% up to about $22 000 which works out to be about $120 000. I would expand that so that all but the consistent high earners would be able to take full advantage of the tax break. (With a cap around $250 000 or so)

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C'mon now, you really think a reactionary like me isn't going to subsidize housewives? I'm the guy who wants to restrict divorce, remember? Their husbands would be able to take advantage the tax breaks, and if I were King of the World, there would be all sorts of subsidies and tax breaks and whatnot to encourage women to stay home. What I outlined above is added on top of what the husband would save.

[Mr.Phips]

IRAs, 401Ks and all of the other tax-favored private plans, all of which are ludicrously inefficient should be deincentivized by the tax code and eventually phased out in favor of making Social Security larger and expound more benefits for more people. Everyone should be covered by Social Security, including state and federal workers, and there should be a minimum benefit that precludes anyone having to go back to work when they retire. I.E. you get what you pay in, but if you don't get enough to live on (determined by a standard of living study or something for the area you live in) the program makes up the difference.

The retirement age should also be lowered to 55. This will tighten the labor market substantially and raise wages overall, as well as open up new positions for younger workers. Funding-wise, a truly universal Social Security should be funded as it is today, plus with the addition of general revenues to make up for any shortfalls.

Excellent proposals, except for this - the payroll tax should include all income, with no upper limit, and be made progressive, so that rich people are paying maybe 20% of their income or so into SS, thus making payroll tax unnecessary for the lowest-wage earners.

What I would propose is to allow the payroll tax to phase out after $125,000, but then have it kick back in at a higher rate(around 8.2% for the indiviual and 16.4% total) for those making over $1,000,000 a year and also apply this tax to dividends and capital gains.  Benefits would be limited to the level of someone making $125,000 a year. 

An individual making $1,000,000 or more a year can certainly afford the taxes.  Once you are making $1,000,000 a year, you have more money than you know what to do with, even if you are living in a 5,000 square foot home and drive a Ferrari. 

And the common argument that "these people employee millions of Americans blah, blah, blah" doesnt hold water either as almost nobody who makes this kind of money reports there business income on Schedule C of a 1040.  This money is coming out of corporations(usually C) that do the hiring.  These people personally dont "hire" anybody. 

[Link]

There's no "oh you're too rich, you can't have any tax break" they're just capped at very high levels. For example in Canada, you can deduct 18% up to about $22 000 which works out to be about $120 000. I would expand that so that all but the consistent high earners would be able to take full advantage of the tax break. (With a cap around $250 000 or so)

In the united states numerous deductions are phased out entirely for high wage earners already.

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C'mon now, you really think a reactionary like me isn't going to subsidize housewives? I'm the guy who wants to restrict divorce, remember? Their husbands would be able to take advantage the tax breaks, and if I were King of the World, there would be all sorts of subsidies and tax breaks and whatnot to encourage women to stay home. What I outlined above is added on top of what the husband would save.

Encouraging women to be even more dependent on their husbands money management is exactly the wrong thing to do.  If you read personal finance magazines a very common letter is my husband didn't save any money or my husband sunk all our money into pets.com, etc.

[DC Al Fine]

There's no "oh you're too rich, you can't have any tax break" they're just capped at very high levels. For example in Canada, you can deduct 18% up to about $22 000 which works out to be about $120 000. I would expand that so that all but the consistent high earners would be able to take full advantage of the tax break. (With a cap around $250 000 or so)

In the united states numerous deductions are phased out entirely for high wage earners already.

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C'mon now, you really think a reactionary like me isn't going to subsidize housewives? I'm the guy who wants to restrict divorce, remember? Their husbands would be able to take advantage the tax breaks, and if I were King of the World, there would be all sorts of subsidies and tax breaks and whatnot to encourage women to stay home. What I outlined above is added on top of what the husband would save.

Encouraging women to be even more dependent on their husbands money management is exactly the wrong thing to do.  If you read personal finance magazines a very common letter is my husband didn't save any money or my husband sunk all our money into pets.com, etc.

Tax break for husband =/= husband does 100% of the money management.

[Link]

Tax break for husband =/= husband does 100% of the money management.

No husband's paycheck means vast majority of the time husband does the money management... particularly in more right leaning households.

[Simfan34]

IRAs, 401Ks and all of the other tax-favored private plans, all of which are ludicrously inefficient should be deincentivized by the tax code and eventually phased out in favor of making Social Security larger and expound more benefits for more people. Everyone should be covered by Social Security, including state and federal workers, and there should be a minimum benefit that precludes anyone having to go back to work when they retire. I.E. you get what you pay in, but if you don't get enough to live on (determined by a standard of living study or something for the area you live in) the program makes up the difference.

The retirement age should also be lowered to 55. This will tighten the labor market substantially and raise wages overall, as well as open up new positions for younger workers. Funding-wise, a truly universal Social Security should be funded as it is today, plus with the addition of general revenues to make up for any shortfalls.

Excellent proposals, except for this - the payroll tax should include all income, with no upper limit, and be made progressive, so that rich people are paying maybe 20% of their income or so into SS, thus making payroll tax unnecessary for the lowest-wage earners.

A surprisingly reasonable proposal.

[Indy Texas]

IRAs, 401Ks and all of the other tax-favored private plans, all of which are ludicrously inefficient should be deincentivized by the tax code and eventually phased out in favor of making Social Security larger and expound more benefits for more people. Everyone should be covered by Social Security, including state and federal workers, and there should be a minimum benefit that precludes anyone having to go back to work when they retire. I.E. you get what you pay in, but if you don't get enough to live on (determined by a standard of living study or something for the area you live in) the program makes up the difference.

The retirement age should also be lowered to 55. This will tighten the labor market substantially and raise wages overall, as well as open up new positions for younger workers. Funding-wise, a truly universal Social Security should be funded as it is today, plus with the addition of general revenues to make up for any shortfalls.

What does that mean? If I pay in X amount of money in, do I get back X dollars? Or do I get X dollars adjusted for inflation? Core inflation? Chained CPI inflation? Am I going to get back what I would have gotten just investing it all in Treasuries? Am I going to get back what I would have gotten just investing in an S&P 500 index fund?

[DC Al Fine]

Tax break for husband =/= husband does 100% of the money management.

No husband's paycheck means vast majority of the time husband does the money management... particularly in more right leaning households.

Cite?

[TeePee4Prez]

Lose the cap on Social Security taxes then lower the rate for employees and employers to 4.2%.  A true "job creating" tax cut. VOILA!  More revenues.  More jobs!

[Simfan34]

Seriously, though, Central Provident Fund with a welfare supplement.

[Politico]

Raising the retirement age for SS/Medicare to 70 for those who are under 50 today would do a lot to ensure the solvency of these programs. After all, many people did not live to 65 when these programs were introduced. Medicare Part D probably has areas that could be changed to make the system more efficient, specifically with respect to generic prescriptions. Another consideration is no taxes on capital gains, interest and dividends (a fair compromise is doing this for only those who make under $250,000/year). Of course, we ought to streamline the tax code by broadly lowering income tax rates while offsetting this reduction with the elimination of various deductions. If we cannot even fix the tax code, we will never fix the big fiscal problems.

[Link]

Raising the retirement age for SS/Medicare to 70 for those who are under 50 today would do a lot to ensure the solvency of these programs.

Some guy who has worked in a coal mine since he was 18 should work till they are 70?

After all, many people did not live to 65 when these programs were introduced.

Yeah a lot of them died in childhood and never paid a penny into the system.  Childhood deaths skew those numbers a lot.  Once people made it to 18 and started paying taxes chances were high they would see their 65 birthday.  What didn't happen was they didn't get some crazy $100,000 cardiac cath and quadruple bypass and then a few years later an expensive chemo and multiple oncological surgeries to keep them ticking till 80+ in a nursing home.  Sure some kind of rationing of healthcare would be a common sense practical way to address the true problem but of course it wouldn't be as fun as watching a 70 year old guy dig coal out of a mountain.

Another consideration is no taxes on capital gains, interest and dividends (a fair compromise is doing this for only those who make under $250,000/year).

Yes give a guy making a quarter million a year a huge tax break and send 70 year olds to the coal mines.

[DC Al Fine]

Raising the retirement age for SS/Medicare to 70 for those who are under 50 today would do a lot to ensure the solvency of these programs.

Some guy who has worked in a coal mine since he was 18 should work till they are 70?

I think this is a fair point. I think government pensions should be based on years worked rather than age. People in the softer jobs tend to go to school for much longer than coal miners, fishermen etc.

[MASHED POTATOES. VOTE!]

None. The people should work until they die either from old age or exhaustion, because any government handout is immoral and humiliating.

[Politico]

Raising the retirement age for SS/Medicare to 70 for those who are under 50 today would do a lot to ensure the solvency of these programs.

Some guy who has worked in a coal mine since he was 18 should work till they are 70?]

No, he should spend all of his income each month by living paycheck-to-paycheck until he is no longer able to do his job at some point in his 50s. And then he should blame other people for failing to plan for his own future.

I suspect the percentage of coal miners who make it to 65 is about the same as the percentage of coal miners who would make it to 70: Virtually zero.

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Do you care to share your source?

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So your solution is have a panel of bureaucrats who say to people, "No, you cannot have Medicare treatment after paying into the system for half a century; we need to ration and you need to die in palliative care!"?

Personally, I think it would make more sense to keep the current system solvent by simply raising the retirement age to 69 or 70. Seems a bit more tasteful than bureaucratic death panels, who will ration alright but I am pretty sure some people will get more rationed than others. For example, having the right political connections will get you bumped to the top of a waiting list, and you can forget about having to worry about denial of treatment. That is how government-run anything works: We're all equal, but some of us are more equal than others.

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It is a huge tax break for coal miners, too, unless of course they decide to live paycheck-to-paycheck rather than saving for their retirement. If they chose not to be a part of a union that negotiated a pension that kicks in at a reasonable age, that was their choice. If they wish to not plan for the future, that is their choice. People have to take responsibility for their choices, of course.

Eliminating taxes on capital gains, interest and dividends would provide a powerful incentive to invest more towards retirement. I do not see a problem with providing incentives for people to take the initiative and plan better for their retirement. It strikes me as far more prudent than telling people not to worry because the government will take care of them (that's a scary thought!)

And I will stress that my proposal is only for those who are under 50 today, giving those people time to adjust to the change (the alternative is business-as-usual, and those under 50 today may not end up having SS/Medicare for the whole of their life since the system will likely become insolvent without changes such as an increase in the retirement age). Nobody is saying that we raise the age to 70 for those who are currently nearing their anticipated retirement age of 65.

[Indy Texas]

Raising the retirement age for SS/Medicare to 70 for those who are under 50 today would do a lot to ensure the solvency of these programs. After all, many people did not live to 65 when these programs were introduced. Medicare Part D probably has areas that could be changed to make the system more efficient, specifically with respect to generic prescriptions. Another consideration is no taxes on capital gains, interest and dividends (a fair compromise is doing this for only those who make under $250,000/year). Of course, we ought to streamline the tax code by broadly lowering income tax rates while offsetting this reduction with the elimination of various deductions. If we cannot even fix the tax code, we will never fix the big fiscal problems.

You'd see a raft of Enron-style math on the tax returns of people who made slightly more than $250,000 a year.

And let's be honest: do you think most coal miners can invest their money the way someone making $250K+ a year does? Do they offer classes on portfolio modeling and capital asset pricing at coal mining school? Even if they had enough money to put a significant amount aside for their retirement, they wouldn't have a clue what to do with it beyond sticking it in a low-interest savings account or turning it over to a financial advisor who does not have his best interests at heart.

[Politico]

Raising the retirement age for SS/Medicare to 70 for those who are under 50 today would do a lot to ensure the solvency of these programs. After all, many people did not live to 65 when these programs were introduced. Medicare Part D probably has areas that could be changed to make the system more efficient, specifically with respect to generic prescriptions. Another consideration is no taxes on capital gains, interest and dividends (a fair compromise is doing this for only those who make under $250,000/year). Of course, we ought to streamline the tax code by broadly lowering income tax rates while offsetting this reduction with the elimination of various deductions. If we cannot even fix the tax code, we will never fix the big fiscal problems.

You'd see a raft of Enron-style math on the tax returns of people who made slightly more than $250,000 a year.

I meant to say that a fair compromise would be no taxes on the first $250,000 earned from  capital gains, interest and dividends. It is an arbitrary number at this point. Compromise on the number until you get the number of votes you need to pass the change through Congress.

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The best we can do is provide incentives to everybody to invest for their retirement (and you need to give people, or at least coal miners, more credit). The current system fails to do this, so we ought to change it. I have proposed a simple measure to assist with this objective: No taxes on the first $250,000 earned from capital gains, interest and dividends. This is a huge incentive for the vast majority of Americans. It would make planning for retirement easier, and create an environment where more people are thinking about the future rather than what mindless good/service they can consume today at the expense of tomorrow. We need to change the culture of debt and myopia. This is a simple measure that nudges us in the right direction.

[Indy Texas]

I meant to say that a fair compromise would be no taxes on the first $250,000 earned from  capital gains, interest and dividends. It is an arbitrary number at this point. Compromise on the number until you get the number of votes you need to pass the change through Congress.

Most people are never going to have anywhere close to $250K of non-wage income even under the best of circumstances. Exempting the first $250,000 of capital gains, dividends and interest from taxation isn't an incentive for working people to save so much as it is a huge tax cut for rich people.

People can already get capital gains, interest and dividends without paying taxes on them. They can put up to $5,000 a year in these things called IRAs, deduct that $5,000 from their taxable income, buy stocks, bonds and mutual funds and let the dividends and interest accrue. They don't pay a dime of tax on any of it until they withdraw the money for use as income.

The incentives are there. The money is not there.