How should retirements be funded?

[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?

[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.

[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.

[Indy Texas 🇺🇦🇵🇸]

http://www.economist.com/news/finance-and-economics/21571883-financial-education-has-had-disappointing-results-past-teacher-leave-them

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This is why I do not trust the majority of the people in this country to be responsible for their own retirement funding, paternalism and elitism be damned.

[Indy Texas 🇺🇦🇵🇸]

Let's see how the math would actually work out...

Suppose we have a married couple and they have two dependent children under the age of 18. Let's say their gross income is $53,000 per year, which is roughly the median income.

They pay 6.2% of that in Social Security taxes, or $3,286.
They pay 1.45% of that in Medicare taxes, or $768.50.

Leaving federal withholding out of the equation for now, that means $48,945.50 in take-home pay, or roughly $4,079 a month.

Now let's suppose they live in Texas.

Housing is relatively inexpensive here. Whether they're making a mortgage payment or a rent check, let's suppose 25% of their monthly income is spent on housing ($1,019.75).

Both parents work. They need to be able to drive themselves there and back. Gas and insurance, all adds up to let's say $600 a month. (I'll be optimistic and assume their cars are paid for).

Groceries for a couple with two kids, let's say their food bill clocks in around $700 a month.

Mom works part time so she's able to pick the kids up from school, so she doesn't get health insurance from her job. Dad has health coverage for himself and his kids through his job, but he has to pay for his wife to be on the plan too. $250 a month in premiums for her, and let's say they spent about $100 a month on copays and miscellaneous.

And then let's give them $500 a month for miscellanea - clothing, cell phone bills, fees for the kids' after school activities, whatnot

4,079 gross pay
(338) payroll/FICA taxes
(1,020) housing
(600) transportation
(700) food
(350) healthcare
(500) miscellaneous
===========
That leaves $571 a month. Before taxes. Assuming they've done everything right, are living quite frugally, all the stars have aligned, and nothing goes wrong (i.e. a trip to the ER, a broken refrigerator that needs to be replaced).

So, again, in the best of times, they will have $571 a month left over pretax. They could put that entire $571 into retirement savings. But they wouldn't be saving any money for emergencies. They wouldn't be able to save money for their children to go to college. No family vacation in the summer.

So I'm just not sure what people like Politico expect this family to do. I'm not sure where they expect them to magically get all this money to retire with.

[Indy Texas 🇺🇦🇵🇸]

Opebo.. you might check out the median income figures for both countries. That way, the numbers will not be skewed by the "massive" of wealth of the Tories of this world.

I never claimed it was a median nor a per capita income, Torie, so don't try to put up a straw man.  I observed that it is the income of the toiling masses at the bottom of society - who cannot save.

OK, but your definition, as you try to slither away here, puts the percentage of the "toiling masses" at about 10% of the US population maybe, and that is before they get their income tax credit, and food stamps, and the like. Most people don't use the term "masses" when referring to 10% of the whole.

My dear sir, we must always and ever consider the test case of any program or policy to be the most vulnerable!  It does no good to say 'well it isn't the majority who are starving to death'.

Well in a democracy (as opposed to, say, the Soviet Union), there is a general goal of enacting policies that benefit more people than they harm. I'm not in favor of skewing public policy to disproportionately benefit the 10% or so at the top of society. I'm also not in favor of skewing public policy to disproportionately benefit the 10% or so at the bottom of society. Your "toiling masses" make up the bottom 20% of society at best. Why do you think the other 80% of society matters less than they do?

[Indy Texas 🇺🇦🇵🇸]

Yes, obviously, because my friend those at the bottom are the victims of those above them.  All policy must be an attempt to ameliorate the overriding policy (capitalism), which cannibalizes those at the bottom.  Unless you accept to see them dying in droves as is now the case - in that case there is no problem.

Sometimes I think you're really a Tea Partier posting as a strawman caricature of what they think everyone who has ever voted Democratic is like.