Talking personal finance with Helaine Olen: Parts 3

We continued our conversation about personal finance.

Parts 1 and 2 can be found here.

Here we discussed the inherent shortcomings of 401(k) accounts, and why the New School’s Teresa Ghilarducci has been called the “Most Dangerous Woman in America.” I lament the public sector’s failure to properly finance its retirement obligations, which undercuts the political case for professionally-managed defined-benefit pensions.

We also discussed how the current system of tax-favored savings vehicles favors the affluent. I discuss my favorite subject: Me. We discussed how my own family righted our financial ship after a crisis using strategies that less-affluent Americans could not realistically emulate. . We tend to judge people as individuals when they respond to adversity. Yet the individuals and families most able to weather such crises are often those in the most advantageous situations.

Social Security: OASI and DI

A brief response to a comment from yesterday’s post. When CBO projects the point at which the Social Security trust fund will be “exhausted” that means there are no more securities to redeem to pay benefits that are now greater than payroll taxes flowing into Social Security, and under current law when this occurs benefits must equal taxes flowing in. Thus,  if we do absolutely nothing, there will be an ~ 25% benefit cut in about 20 years (shown as 2033 in table below, 3rd column OASDI, last row). As an aside, while this would be a big cut, it also means that people saying “Social Security won’t be there at all when you retire” don’t understand the program’s finances. I don’t suggest doing nothing and allowing such a cut, but ~75% of benefits is a lot greater than 0% of benefits, obviously.

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On Raising (and lowering) the Medicare age

A new poll shows that raising the Medicare age slowly to 67 (presumably to unify it with the Social Security full retirement age) is not popular. It is a bad idea in policy (TIE FAQ is good) terms because all you are doing in a state with an exchange and a Medicaid expansion is mostly shifting the healthiest Medicare beneficiaries into a smaller risk pool so it will be more expensive. In a state without a Medicaid expansion, you will get more uninsured near poor who are likely to have relatively high needs due to age. I have often said it is also a near certainty that we will do this (raise the Medicare age) some day because for many Republicans it sounds like “fundamental reform” and they haven’t shown themselves to have so many ideas on what to actually do in health reform, and certainly not the political will to push them. Raising the Medicare age to 67 remains popular with conservatives because it is a simple idea that seems consequential in ways that they assume will reduce spending, and seems bold. As the FAQ above shows, that is not really true, but this idea remains front and center for many.

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Social Security First?

(cross posted at freeforall)

Bob Pozen writes that reform of Social Security is the route to a deal to avoid the looming ‘fiscal cliff.’ I wrote something similar in March, 2011, and followed up with more on my view of the benefits of moving sooner rather than later on Social Security reform, a theme that is echoed in my book. Several quick points about Social Security and the myriad policy problems we face.

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The Subsidy of Marriage by Social Security

Josh Barro notes that marriage cannot be an entirely state issue because of the way in which it impacts things like Social Security and Medicare eligibility. Below is the majority of a post I wrote in September, 2011 on the subsidy of marriage provided by Social Security…..

Gene Steurle and Stephanie Rennane have a nice policy brief put out by the National Institute for Health Care Management on the lifetime contributions and benefits of Social Security and Medicare. This is mostly familiar stuff, with lifetime Medicare benefits consistently being several times larger than contributions to the pay-as-you-go program, and Social Security lifetime contributions and benefits being more similar for singles and two-earner couples. However, one thing jumped out from this figure (circled):

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Social Security and the mingling of DI and OASI

The 2012 Social Security Trustees report estimates the year at which benefits will outpace Social Security (OASDI) payroll tax receipts plus spending authority granted by IOUs (from when more payroll taxes flowed in than benefits were paid out), and the program will no longer able to pay full benefits as 2033.

However, under current law, the disability portion (DI) of Social Security and the old-age retirement portions (OASI) are separate and always have been. The date of 2033 reported in the media and shown below under OASDI, assumes that Congress will pass a law allowing the mingling of funds from the old age (OASI) and disability (DI) portions of Social Security to pay for the disability shortfall, that will come about in 2016.

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Let me take that one, professor.

Commenter Mike Kaplan asks Harold Pollack a question:

Why am I paying taxes to take care of your brother-in-law Vincent? He is your family – why don’t you take care of him? Why do you want to force me to sacrifice my time and labor – in taxes – to do what you are not doing?

Not a very nice question – even setting aside the obviously false premise that Vincent isn’t being cared for by his family – but it does have a fairly easy answer.

Professor Pollack is not and should not be obligated to support a disabled relative, because that relative is neither his minor child nor his chattel.  Vincent is a human being.  The government has determined that Vincent lacks the ability to support himself, and therefore Vincent, not his family, is entitled by law to a subsistence income from the Social Security Administration.

Before Social Security, people like Vincent were considered unpleasant accidents best kept out of the public eye and certainly undeserving of personhood status.  The family of an intellectually limited person was presumptively the only means of support, and consequently entitled to make use of him or her in any way they chose.  Developmentally delayed children grew up to be exploited as slave labor and for the sexual gratification of those who supported them.

Every disabled person should be afforded the ability to live as independently as possible and to have choices so he or she is not forced out of personhood.  In Vincent’s case, this means an income from SSI, which is an entitlement, not a gift, as it would be if it came from a family member.  I can hear the libertarians lining up to scoff at the notion that a monthly SSI check can be considered “independence,” but it is the best we can do.  For people with physical disabilities, independent living requires the expenditure of public and private funds to build entrances that allow them access to buildings and transportation services.

And of course not every developmentally disabled adult has a high-income relative. In the richest country in the history of the world, whether such people can lead minimally decent lives should be guaranteed by policy, not left to accident.

This discussion reminds me of a passage from Tom Jones, following an act of generosity by Squire Allworthy:

Allworthy here betook himself to those pleasing slumbers which a heart that hungers after goodness is apt to enjoy when thoroughly satisfied. As these are possibly sweeter than what are occasioned by any other hearty meal, I should take more pains to display them to the reader, if I knew any air to recommend him to for the procuring such an appetite.

Nations, like individuals, can learn to “hunger after goodness.” Or not.



Rick Perry’s limited, modified honesty

Perry’s op-ed on Social Security, boldly headed “I am going to be honest with the American people,” calls boldly for “a conversation” on Social Security without actually being bold or honest enough to contribute anything to that conversation but some predictable talking points.

Perry’s op-ed on Social Security, boldly headed “I am going to be honest with the American people,” calls boldly for “a conversation” on Social Security without actually being bold or honest enough to contribute anything to that conversation but some predictable talking points.

Gov. Perry never says whether he thinks that Social Security is Constitutional. In his book Fed Up – which is campaign is desperately trying to shove down the Memory Hole – he writes that the program was established “at the expense of respect for the Constitution and limited government.” If that’s right, then why is Perry talking about fixing it rather than getting rid of it? Doesn’t his oath (as Governor) to uphold the Constitution mean anything to him?

Mr. Perry also never says what he’d actually do “so today’s beneficiaries and tomorrow’s retirees really can count on Social Security for the long haul. Note that there are precisely two options: increase revenues or cut payouts. Which is it, Governor?


1. Actually, of course, there are three options: we could also increase the rate of economic growth so that paying benefits to future retirees will put less of a strain on future fiscal balances. But that’s something the people trying to scare younger workers with “Ponzi scheme” talk would prefer not to mention.

2. Not clear whether Perry’s ghost-writers are lying or just unclear on the concept, but the idea that if the program isn’t shored up it will only be able to pay out 76% of currently planned benefits in 2037 is not in any way equivalent to the idea that “investors” in Social Security have lost “24% of their money.”