If America had a solvent Social Security program that wasn’t promising rich couples $100,000 per year, the trade deficit would be dramatically smaller.
Very interesting - was just wondering about the Social Security equivalent in other countries. One typo - regarding low income individuals, you have “ they increase their savings very much”. I think you’re missing a “don’t” as low income individuals savings are not responsive to changes in benefits, unlike the well off who (in theory) will save more.
I added a chart showing maximum benefits in other Anglo countries. I'm thinking of starting a research project looking at the treatment of high earners in developed countries in general. I suspect that the maximum Social Security benefit will still be at or among the very highest in the world, One reason is that we base taxes and benefits on a very high wage base, up to $176,000 per year. Most other countries use a much lower base of earnings on which they calculate benefits. So this just tends to limit how much they can pay out. Which makes sense -- high income people can save on their own.
The max a couple can get in Social Security payments is indeed just over $ 10,000 a month, if both have a right to the max amount, and they wait with applying till they are 70 years of age. The average life span for a US male is currently 73.
So, how many of these super-earners who waited to get the max amount are currently found in the Soc. Sec. system ?
I also found this: "A single person who made the average wage (about $66,100 in 2023 dollars) and retired in 2020 would have paid about $367,000 into Social Security and would then receive about $383,000 in lifetime benefits." That difference seems a fixable problem.
Are you sure the problem is Soc. Sec. and not the US need for costly forever wars ? (Just asking.)
I assumed people retired at age 67, which is the normal retirement age, but you're correct that if they pushed off to 70 they could get even more.
There are currently very few retired couples receiving $100,000, since it demands that both spouses have high earners for 35 years. But the number will grow, because the maximum benefit increases over time. And there will be a much larger number receiving, say, $80,000+ - that's four times the poverty threshold. There really isn't much policy justification for that.
Regarding lifetime taxes and benefits, in this Wall Street Journal piece I relied on figures from the Congressional Budget Office, which found that the average American retiring in the 2030s is promised lifetime Social Security benefits that are 37% higher than than the taxes they paid, including interest on those taxes. I think SSA comes up with similar numbers.
Whatever people think about defense policy, it's just not the case that the defense budget is starving Social Security. Defense as a percent of GDP is near record lows while Social Security costs are at record highs.
You are of course right that the system is skewed. But it is like the whole of US society: those who have will be given (even more). My mom would say "the devil always s---s on the big heap". You rightly question if the US can afford this model to continue.
To a simple minded person like me the solution would be take out the limit above which no more yearly Soc. Sec. taxes need be paid, or at least make that limit higher. Otherwise, limit the amount of Soc. Sec. paid. Higher earners often have 401-k's and similar.
Again, the $ 10,000/month you mention, pertains to a very limited group of retirees. People who did not make the 35 years and/or worked in a low-paying job get less. Blue collar jobs often make the body war/tear more so this group probably retires earlier.
Retired people have to pay every month for Medicare B (amount based on income), Rx-D, a Gap Plan, Dental.
Also, a lot of USers are paying off one of those for-ever student debts making saving-for-later harder.
Whatever changes are proposed to the Soc. Sec. system, the rights of the "small heaps" people need to be paramount.
I come from a country that has a different system. Eligibility is based on presence between 16 and 66. This takes the issue away that some people cannot work, that some women choose to be stay-at-home moms, etc. If you work, you pay into the system based on your income. When you retire you get a fixed amount - which is the same for all. Does not matter how much you contributed (or maybe not at all).
Currently the retirement age is pushed upward. Many people get additional monies from a pension-fund they participated in or have other savings promoted by the government through tax-regulation. But we have healthcare for all - with Rx meds included - and nursing homes part of our "welfare"system.
My "forever wars" remark was not about the DoD budget. It was about how the wars were financed - by borrowing. Which means paying interest, a lot of interest. (Not to mention the soldiers who came home with damaged bodies, damaged brains. They are paying the real cost and will do so for the rest of their lives.)
Well, maybe. I question, though, whether most people plan precisely enough to make those changes to savings. Before some age in my 50's my assumption was that Social Security would be gone by the time I retired, because it is so ridiculous a program. But it was remarkable how many decades were bought by the Greenspan reforms in the 80s.
Mid-career professionals face a range of choices relating to family, career, and finding joy in life. A married couple of such professionals is paying such massive taxes that trying to save on an after-tax basis has little appeal for anyone not foolish enough to think inflation is dead. The easy choice is to max out tax-deferred savings options, if one can, and if necessary to take on debt as needed for those tuition expenses. But whatever the choice, it seems unclear to me that one would see the linear response you predict.
That's a reasonable supposition. But the research I've cited looks at how people respond to changes in pension generosity. The offset between government pensions and private savings isn't 1-to-1, but the higher up the income ladder you go the closer to that it gets. Anyone using a financial advisor should be close to 1-to-1, since they'd be calculating a retirement income target and adjusting personal savings to meet it. So that point of citing the research is to attempt to answer your questions which, again, aren't crazy ones,
“Imagine a Social Security reform that eliminated new benefit accruals for Americans earning over $59,000 per year. It wouldn’t affect the benefits they’d already earned, but going forward only salaries up to $59,000 would be entered into Social Security’s benefit formula.*
Does this mean they’d only be taxed the 6.2% on the 59k?
The example wasn't given as a policy proposal; it was just to illustrate how the Social Security benefit formula discourges retirement saving relative to a program like Canada's. So I wouldn't assess it as a policy idea.
Very interesting - was just wondering about the Social Security equivalent in other countries. One typo - regarding low income individuals, you have “ they increase their savings very much”. I think you’re missing a “don’t” as low income individuals savings are not responsive to changes in benefits, unlike the well off who (in theory) will save more.
Thanks for catching the typo!
I added a chart showing maximum benefits in other Anglo countries. I'm thinking of starting a research project looking at the treatment of high earners in developed countries in general. I suspect that the maximum Social Security benefit will still be at or among the very highest in the world, One reason is that we base taxes and benefits on a very high wage base, up to $176,000 per year. Most other countries use a much lower base of earnings on which they calculate benefits. So this just tends to limit how much they can pay out. Which makes sense -- high income people can save on their own.
The max a couple can get in Social Security payments is indeed just over $ 10,000 a month, if both have a right to the max amount, and they wait with applying till they are 70 years of age. The average life span for a US male is currently 73.
So, how many of these super-earners who waited to get the max amount are currently found in the Soc. Sec. system ?
I also found this: "A single person who made the average wage (about $66,100 in 2023 dollars) and retired in 2020 would have paid about $367,000 into Social Security and would then receive about $383,000 in lifetime benefits." That difference seems a fixable problem.
Are you sure the problem is Soc. Sec. and not the US need for costly forever wars ? (Just asking.)
I assumed people retired at age 67, which is the normal retirement age, but you're correct that if they pushed off to 70 they could get even more.
There are currently very few retired couples receiving $100,000, since it demands that both spouses have high earners for 35 years. But the number will grow, because the maximum benefit increases over time. And there will be a much larger number receiving, say, $80,000+ - that's four times the poverty threshold. There really isn't much policy justification for that.
Regarding lifetime taxes and benefits, in this Wall Street Journal piece I relied on figures from the Congressional Budget Office, which found that the average American retiring in the 2030s is promised lifetime Social Security benefits that are 37% higher than than the taxes they paid, including interest on those taxes. I think SSA comes up with similar numbers.
Whatever people think about defense policy, it's just not the case that the defense budget is starving Social Security. Defense as a percent of GDP is near record lows while Social Security costs are at record highs.
https://www.wsj.com/opinion/no-social-security-isnt-earned-entitlement-reform-policy-e1e5cf17?gaa_at=eafs&gaa_n=ASWzDAjnEkauoPe_XIGx1iaqbmJQq6ql0njAgi57-csLRrEPjiDcUZ_WDyw1CLk3S24%3D&gaa_ts=685eb14c&gaa_sig=uHv1p7YIHfNB-CrZB5lbb5A5FAyjI6EgE-px9fePh8c5cwgIR07GBckjQ_Q2h2WLLztbngX8-_Ggw-tRxGrHBg%3D%3D
You are of course right that the system is skewed. But it is like the whole of US society: those who have will be given (even more). My mom would say "the devil always s---s on the big heap". You rightly question if the US can afford this model to continue.
To a simple minded person like me the solution would be take out the limit above which no more yearly Soc. Sec. taxes need be paid, or at least make that limit higher. Otherwise, limit the amount of Soc. Sec. paid. Higher earners often have 401-k's and similar.
Again, the $ 10,000/month you mention, pertains to a very limited group of retirees. People who did not make the 35 years and/or worked in a low-paying job get less. Blue collar jobs often make the body war/tear more so this group probably retires earlier.
Retired people have to pay every month for Medicare B (amount based on income), Rx-D, a Gap Plan, Dental.
Also, a lot of USers are paying off one of those for-ever student debts making saving-for-later harder.
Whatever changes are proposed to the Soc. Sec. system, the rights of the "small heaps" people need to be paramount.
I come from a country that has a different system. Eligibility is based on presence between 16 and 66. This takes the issue away that some people cannot work, that some women choose to be stay-at-home moms, etc. If you work, you pay into the system based on your income. When you retire you get a fixed amount - which is the same for all. Does not matter how much you contributed (or maybe not at all).
Currently the retirement age is pushed upward. Many people get additional monies from a pension-fund they participated in or have other savings promoted by the government through tax-regulation. But we have healthcare for all - with Rx meds included - and nursing homes part of our "welfare"system.
My "forever wars" remark was not about the DoD budget. It was about how the wars were financed - by borrowing. Which means paying interest, a lot of interest. (Not to mention the soldiers who came home with damaged bodies, damaged brains. They are paying the real cost and will do so for the rest of their lives.)
Well, maybe. I question, though, whether most people plan precisely enough to make those changes to savings. Before some age in my 50's my assumption was that Social Security would be gone by the time I retired, because it is so ridiculous a program. But it was remarkable how many decades were bought by the Greenspan reforms in the 80s.
Mid-career professionals face a range of choices relating to family, career, and finding joy in life. A married couple of such professionals is paying such massive taxes that trying to save on an after-tax basis has little appeal for anyone not foolish enough to think inflation is dead. The easy choice is to max out tax-deferred savings options, if one can, and if necessary to take on debt as needed for those tuition expenses. But whatever the choice, it seems unclear to me that one would see the linear response you predict.
That's a reasonable supposition. But the research I've cited looks at how people respond to changes in pension generosity. The offset between government pensions and private savings isn't 1-to-1, but the higher up the income ladder you go the closer to that it gets. Anyone using a financial advisor should be close to 1-to-1, since they'd be calculating a retirement income target and adjusting personal savings to meet it. So that point of citing the research is to attempt to answer your questions which, again, aren't crazy ones,
“Imagine a Social Security reform that eliminated new benefit accruals for Americans earning over $59,000 per year. It wouldn’t affect the benefits they’d already earned, but going forward only salaries up to $59,000 would be entered into Social Security’s benefit formula.*
Does this mean they’d only be taxed the 6.2% on the 59k?
If so, sign me up!
Looks I spoke too soon.
“Yes, for the moment we’d still need to levy the 12.4% Social Security payroll tax on earnings up to $176,100. But over time that could be reduced.”
That’s where the issue will be course. No one will wanna pay an extra 7k taxes or 14k if you’re like me self employed for no further benefits
The example wasn't given as a policy proposal; it was just to illustrate how the Social Security benefit formula discourges retirement saving relative to a program like Canada's. So I wouldn't assess it as a policy idea.