Saturday, August 02, 2008

Retirement Insecurity

My padre friend Pierre asked me what I thought about Social Security and Medicare in one of the comments, and this piece by Noah Millman is as good a place as any to start.

Noah is right is to emphasize that taxes on wage-earning, ie payroll taxes, are usually thought to be the most economically destructive of all usual forms of taxation. But, that's the one we have, and as the comments to that post illustrate, any attempt to reengineer some different form will run into strong resistance based on the fact that there is no consensus underlying rationale for these programs, something that's been more or less papered over for twenty years or so.

More important than that, the biggest problem with Social Security (and the other entitlement programs too) is that you can't put ten pounds of s**t in a five pound bag. At the moment, an individual contributes up to a maximum of $15K/year to Social Security (counting employer and employee contributions), and at retirement receives a maximum benefit of $2185/month. That latter number is very much worth dwelling on. Unless you're a monk, it's difficult or impossible to maintain one's standard of living on $2185/month (and even for monks, it only works if you're not the one responsible for the financial health of a monastery). If you're relying on Social Security to fund your retirement, you've got the same problem whether you retire in 2042 or next Tuesday. Of course, if you retire in 2042, the benefit will be higher, but it will be the wage and price-adjusted equivalent of $2185/month now. And, this is leaving aside all questions of solvency.

This means that retirees are going to have to independently fund a substantial part of their standard of living. But, the money available to do just that ($15K/year) is already going to Social Security. Oddly enough, George W Bush never went through this train of argument during his Social Security reform period right after the 2004 elections (he emphasized solvency problems instead). If we're looking for reasons to bash our hapless Prez, that would figure in my top ten somewhere.

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