Americans like what's new -- whether it is ideas or cars or derivatives. Digging out from the financial crisis is no different -- not in 70 years have we been so desperate to find a new way to create lasting economic security. But there is an old tool we are not using as effectively as we could, and certainly not as it was intended. It is popular, efficient and universal.
It is the Social Security system.
We all know it and, still, we overlook it. Fifty-one million people got Social Security benefits in 2008 and virtually all workers -- 162 million of them -- are covered by it. It takes in $805 billion in annual revenue, distributes $615 billion in benefits, manages assets of $2.4 trillion and does so with an administrative charge -- total expenses as a percent of total expenditures - of 0.6 percent. The average for the smaller, private sector mutual fund industry is 0.99 percent.
For this kind of coverage and performance, Social Security is popular. A recent poll conducted for the National Academy of Social Insurance and The Rockefeller Foundation found that 77% of respondents believed that workers should increase their contributions to the system if that is what is needed to maintain benefit levels. Americans are so confident in this institution that they are willing to pay higher taxes to support it.
In spite of popularity and performance, we tend to think of Social Security as fragile -- perhaps a tad elderly itself. Yet, it remains a revered if somewhat musty compact between the older and younger generations. Whether it's George W. Bush's "carve out" or Al Gore's "lock box", Social Security has come to be something not to be fiddled with. But that rigidity stands in sharp contrast to the dynamic, even muscular framework its creators had in mind.
When Social Security legislation passed in 1935, its intent was to provide the scaffolding for a vital, agile system that would change with the times, but would, at all times, provide a stable, substantial measure of economic security for Americans: not just old age insurance, but retirement pensions for workers and widows, support for women and children who had none, unemployed industry workers and domestics. Drafters of the legislation even considered an allied system of national health insurance, but the idea was scuttled out of fear it would bring down the entire bill. (The Rockefeller Foundation offered support and staff to the 1934 committee that designed Social Security, and as early as 1923 provided support for work that led to the first American proposals of social security as a concept in 1926.)
For more than 40 years Social Security, as intended, changed with the economy and the work force. A 1996 Congressional Research Service report detailed 28 major changes to the program, amendments that by and large expanded eligibility, established new programs and raised the level and range of benefits. Social Security, in short, changed along with us.
This vision of adaptability has faded in recent decades. Old age insurance is now so untouchable it has become synonymous with the "third rail of American politics." Unemployment insurance is under-funded by states struggling to balance their own books at the same time its residents need help with theirs. Welfare has not been a federal entitlement since the 1990s and the jobs program intended to complement this support disappeared in the 1940s.
Perhaps today's turmoil, however, can provide an impetus to return to the animating spirit of 1935. Rather than putting Social Security in a lock box, what if our rallying cry was "use it or lose it"? Here are a few ideas about what we might do.
Unemployment insurance (UI). The current system is run by states, which set benefit levels and finances them through payroll taxes. Since states cannot print money and thus cannot spend countercyclically in a recession, they are least able to provide UI benefits when people need them most. Yet, perhaps 40% of unemployment insurance benefits are now being used by families to make mortgage payments. On the other hand, high contribution requirements and the exclusion of freelance workers mean that only 10 of the 14 million unemployed workers today have access to these benefits. Increased federal responsibility for UI would begin to chart a needed path toward two improvements: first, standard levels of support (levels vary widely across states and none provides support that meets the poverty level for a family of four); second, an extension of benefits to freelance workers.
Retirement savings. As access to, and funding of, employer based retirement savings plans decline -- 54% of Americans have no private pension -- Social Security becomes even more important. This is a question not only of benefit adequacy, though it is that, but also the untapped power and potential of annuitization. One of the beauties of Social Security is that it is there for you as long as you (or spouse) are, well, there. Annuities similarly guard against the risk of outliving savings and provide predictable payments -- in sharp contrast to the lump sum check provided by a 401(k). This principal of annuitization, a kind of Savings for Dummies, is one of the untapped potentials of the Social Security apparatus. Social Security is already set up to efficiently send checks based on a wide range of eligibility criteria. There are several proposals for using the Social Security system to create universal, mandatory individual retirement accounts to which employers and workers would contribute, and from which retirees would draw annuities. The Guaranteed Retirement Account is one such proposal. Others include voluntary savings plans that are managed and routed through the Social Security Administration.
Adapting to new circumstances. Americans today enjoy more years of active life -- in 1935 the additional life expectancy of a 65 year old was 12.5 years, today it is 18 years. We could, as Stephen Attewell of the New America Foundation suggests, consider half-pensions for older active seniors who want to work less than full time and at no risk to their full pension. Women, now half of the workforce, have dual care-giving challenges in providing for children and parents. Proposals to let workers accumulate family and medical leave, such as those developed by Heather Boushey and Ann O'Leary at the Center for American Progress, are creative ways to take advantage of Social Security's vaunted accounting system.
Whichever of these possibilities prove to have the most appeal, what should be clear is that, while financing Social Security may be a near term problem, our Social Security system presents opportunities our society badly needs to consider exploring.
Ms. Nittoli is Associate Vice President and a Managing Director of The Rockefeller Foundation, where she directs Rockefeller's "Campaign for American Workers".
April Rudin: Who Cares for the Caregivers?
The annuities allow savers to have a guaranteed lifetime income and a guaranteed of principal during accumulation and during income. Some of these savings vehicles now offer guaranteed withdrawal benefits of 5-7%.
We can give greater support to Social Security and simultaneously strengthen the private pension pool. Read my blog at http://www.wealthvest.com/blog/category/wade-dokken/ to read more about Americans' Retirement Crisis.
wade dokken
http://www.wealthvest.com
The average American is only living 2 years longer. Living longer doesn’t mean that you are able to work longer. We adjusted for people living longer in the Social Security Act of 1983. That is when they changed the full retirement age to 67.
Recent statistics show that the higher income groups are living 4.5 years longer than the lower income groups. The higher income groups also draw higher benefits. Raising the cap on those who make the most money would be more than fair and solve any problems of Social Security in the future
Since the higher income earners live 4.5 years longer than the lower income worker and draw higher benefits, the Social Security cap should be raised and no new benefits added for the higher contribution rate.
The current tax is flat, but payout of benefits is HIGHLY preogressive. The people who made more money, paid more taxes, and are therefore supplementing the lower earners SS checks.
Now granted, that's not a lot of money. Lowest bend point represents something like a $9000 annual income, and the second bend point is something like $18000 a year. Everybody who makes more than that is heavily supplementing their checks.
Now, interestingly, the 15% that the high earners are getting as a benefit, is PRETTY darn close to what they actually pay in SS tax when you take employer contributions into account. So for every month they collect a SS check, they are getting back about what they put in every month. Thats a 1-1 ratio.
A LOW earner pays the same tax rate (something shy of 15% total) but is getting 90% back. Thats a 6:1 ratio.
Not poo-pooing you SisterAnn, just throwing out some other numbers for consideration.
http://www.ssa.gov/OACT/COLA/Benefits.html
This is the link for the main page for calculating benefits. Go down to the first paragraph under primary insurance amounts and you will see a link to "table of bend points".
For the percentages, click on the link in the same paragraph for the "PIA formula".
Sorry I got the $1500 wrong, should have checked my facts before I posted.
Thank you, Ms. Nitolli! This is just another example of how the US depends on the small business owner and then shafts them when the economy goes South.
He was layed off and after months he found out that the businesses in this state had not set up to where they could hire independent contractors daily and have no responsibility for them. He is drawing an unemployment check, as I type.
I like the idea that family members who provide shelter and care for elderly receive the erstwhile payment that the government would have to make for nursing home care for the disadvantaged. We spend $45000 per year to incarcerate one prisoner of the 3000000 we have in prison. We could legalize marijuana and save a bundle. Bureaucrats are metally handcuffed it will take the public to come up with ideas that make sense.
For forced savings we take a certain percentage of your paycheck each month and put it into two buckets, one that you receive if you lose your job and one that you can choose to receive when you retire. Both buckets are invested only in US treasury securities (no impact to today’s funding). If you lose your job you get an annuity based on what you have saved plus interest for the next two years from the first bucket. When you retire you get an annuity (based on then current actuarial tables) for the rest of your life from the second bucket. Both of these are yours, if there is any residual value in the buckets when you die, they go to your descendants. Net cost to the government is close to zero (okay, the management costs) only cost if people live significantly longer than the actuarial expectations.
We build a welfare system that tops up anyone to a level that is livable but very meager, enough to live but to live in a way that few would choose to. This is wealth redistribution, we take from the many to provide the few that need it a base.
Really, your idea is to provide several years of UI so someone can live at poverty level for free? What happens if both working parents decide to take a few years off?
What data are you using? The April 2010 report on the state of SS? Oh yeah, the WH decided not to do that in April.
Check tommorrow when it is released.
http://news.yahoo.com/s/usnw/20100804/pl_usnw/DC45833_1
"The Concord Coalition today urged lawmakers, the president's fiscal commission and the public to focus on the report's projected cost growth of the two largest entitlement programs rather than the traditional measure of 75-year trust fund solvency. "
Great, Obama with new metrics to measure the solvency. Still trying to figure out "Jobs saved" and what paying someone to work when they would of been fired as not neccessary means?