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Monday, September 28, 2009

Social Security in a nut shell: Part I

Since we are talking about government programs, how about if I be a "snit" and bring up Social Security. That is a problem too lest we forget and it has not been dealt with at all best I can remember. In what follows I will try and lay out the problems. There will be more postings to follow.

It all boils down to three things:
Problem 1: People are living longer. That is not a problem. Longer life is a good thing. But the current structure of the system is not equipped to handle it. When Roosevelt signed Social Security into law, life expectancy was 62. Thus Social Security was considered a "jackpot" program. If you lived past life expectancy and made it to 65 then "jackpot", you collected. But Roosevelt hocked the collection age of 65 from Chancellor Bismarck when he thought it up in 1870 as the age to begin benefits when Germany started the modern welfare state. I ask you now, don't you think after 139 years it is time to have some fresh thinking about the actuarially appropriate age to begin collecting Social Security? Well folks, 65 is not it. If people today retired for the same number of years that people did back in the 1930s when Social Security was started, they would work until the age of 74. They don't and they start looking for the "jackpot" earlier for longer retirements. This has put the system under stress that it won't be able to withstand.

Solution: I was born in 1960 and can collect, under current law, 100% benefits at age 67. That's too early. It needs to be raised to 70 or more. Look, I'm arguing for me to get less so you know my words are sincere. You need to get less too. The eligibility age needs to rise. We can still let people have 70% benefits at 62, but full benefits age needs to go up. Start with me. Anyone born in 1960 or after, you are now moved to age 70. Have a nice day now knowing you are not milking the generations that come after you. What? Do you think this is France or something?

Next up: Declining worker-to-retiree ratio


Glaucon said...

I don't like this "jackpot" scheme. Why should I be forced to pay for this type of system, when I can do it privately on my own terms?

That is, if you could at all, provide me with a defense for social security's existence.

Thank you for your time.

A student of yours.

Randall Parker said...

Look at Chile. They have done this privately if I am not mistaken. And it is wildly successful. Certainly you don't want ME to defend Social Security when you are exactly correct that private solutions would have been much better. However, now that is it what it is and we have generations that depend on it, its dismantling is not doable. But cutting the promised benefits and increasing the eligible age is essential.

Glaucon said...

"Chile's Social Security Lesson For The U.S.," by José Piñera

Dr. Piñera wrote, at least in this article, that the American socialis-social security system will bust in 2010. I believe you stated in class yesterday that it will bust 2042, assuming by "go bust," Piñera means broke.

How does Pinera's numbers dffer from yours?

Also, would you comment on this article?

A student of yours.

Randall Parker said...

Dear Glaucon: Please come and see me.