Liberals love privatizing their Social Security

[Duffer]

Originally Posted by bdschobel

I don't think so. This analysis has been done a thousand ways, using a thousand different sets of assumptions. Answers are all over the block.

Bruce

Thanks. Do you have any sense of standards to apply against the analysis?

Obviously, the retirement benefit at a single starting point with its related features must be considered. Even better to consider each potential retirement point.
The related family benefits should be included.
The COL projections should be included.
Survivor benefits, including children, would be significant.
Potentially, a more sophisticated analysis would look at the disability decrement option and the pre-retirement survivor benefits.
More detailed analysis would look at the tax treatments.

Then, tax professionals could look to the tax treatment of compensation.
For example, one of my clients in an S-Corp has a choice of how much income is subject to wage taxes vs investment income.

Then we have the issues of how investment occurs.
Do we provide for the taxation treatment of different investments?
What if the funds are in equities subject to capital gain tax treatment?
What if the funds are in tax exempt muni's?
What if the funds are in pension trusts with full ordinary income treatment upon distribution?

Sounds like a good item for a university think-tank analysis....

[bdschobel]

Yeah, you hit all the important points. A couple of comments:

1. Analyzing all possible retirement ages (there are, in effect, 95 or 96 possible months at which to start benefits) isn't really necessary because the early-retirement reduction and delayed-retirement increase factors are so close to "actuarial" (ignoring the fact that they are necessarily gender-blind).

2. S-Corp owners have less freedom than they might think to define what's wages and what's dividends not subject to FICA taxation. The government regularly imputes wages in these cases.

Bruce

[Laurelinda]

Originally Posted by HatCapitol

I agree it's not clear cut, but I don't see how the ambiguity is any greater than in standard pension actuarial work.

Aren't we ignoring the fact that a pension plan can assume retirees live to average ages whereas individuals with their own 401(k)s can't? Having your own 401(k) is more like being self insured. I suppose you could assume everyone purchases a life annuity with their fund balance when they retire.

[Duffer]

Originally Posted by Laurelinda

Aren't we ignoring the fact that a pension plan can assume retirees live to average ages whereas individuals with their own 401(k)s can't? Having your own 401(k) is more like being self insured. I suppose you could assume everyone purchases a life annuity with their fund balance when they retire.

Alternatively, you could conclude that participants with lump sum balances will start taking RMD payments at age 70. That is more realistic in the world I know.
The other major trend is that retirees use their 401(k) balances to clear out all their high interest debt, at a short-term return on asset of more than 20%.

[Duffer]

http://www.usatoday.com/money/perfi/...security_n.htm

Another perspective on this issue

[bdschobel]

Boy, what a sloppily written article. First, only certain clergypeople can opt out of Social Security coverage. The religion must have been established before some date in 1950, for instance, and opposition to government benefits must be one of its precepts. And all of those government workers who can opt out? That's ridiculous. It's the governments themselves that opted never to be covered by Social Security. The workers did nothing except choose to work in noncovered employment. That's hardly opting out -- or, at least, it's not what the questioner had in mind.

Bruce

[Fuzzy]

I'll just post the headline for today's WSJ opinion without comment...

Private Accounts Can Save Social Security

With just a 3% payroll deduction, a 67-year-old retiree who earned $50,000 a year could double his current Social Security benefit.

By MARTIN FELDSTEIN

OK, maybe I will comment: "ARRRRRRRGH!"

How does he expect to "save" SS by diverting some tax money to fund a private account that "double"s a benefit that won't be there because there isn't enough tax money to fund it?

(to say nothing about the longevity question....)
(ok, /rant, I'll go back to work now....)

[limabeanactuary]

Nothing is going to "save" Social Security, except to change expectations about what it is/can do.