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View Diary: The "Fiscal Cliff" and the Coming Retirement Crisis of the Middle Class (90 comments)

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  •  I know that this is oversimplified. (2+ / 0-)
    Recommended by:
    the autonomist, FG

    But it seems to me that one big problem with social security that I haven't really heard discussed very much in the media is that the SS tax is not really progressive.  Unlike medicare there is a cap on the amount of income that is taxed as FICA.  I can't remember the exact amount, but I think it's somewhere just above $110,000.  One study I read by the CBO indicated that about 50 to 60% of the projected deficit in SS would be gone if the cap taxable FICA salary was removed.  That would also have to entail that you didn't get proportionally more in pay out when you started to collect - some greater amount than those who contributed less in their working years, but not a directly proportionaly increase.  Yes, this is a political hot potato and it would especially impact the self-employed since they pay 100% of FICA and FICAMed, but it should be in the mix.

    As far as defined benefit pensions - except for about 20 years from around 1955 to 1975 these were, in my opinion, a scam and I would never rely on one.  I'd rather take my chances with a 401k-type retirement fund, as uncertain as that may be.  And in fact did, and it worked out fine, but I had a very long time horizon.  Anyway, here's why I think that defined benefit pension plans ended up being a scam, not that I recognized that at the time.

    Defined benefit pensions were in favor by both industry (at least "big" industry) and workers as compensation in lieu of direct compensation in the form of wage increases.  Many "blue collar" workers who were union members during that period had grand parents who were born in the last decade of the 19th century and the first decade of the 20th (and I was one in the late 1960s for a few years) and we saw how hard it was for them to make ends meet and pay for sick care as they reached their 60s (remember that there was mandatory retirement of 65 back in the day) and the promise of a decent pension and health insurance in our old age was appealling.  Additionally we were doing pretty darn well in terms of wages.  So, workers and unions were happy with deferred presumably guaranteed benefits and employers were happy since they didn't have to pay out immediately in the form of wages.  Herein lies the problem and it affect both the private sector and public sector for different, if related reasons.  By the 1980s the profits (and tax collections) were way down and the number of retirees was starting to increase at an alarming ratea.  The fact that pension plans had been allowed to be underfunded because, from an actuarial point of view, they had had enough to meet pay out obligations caught up to both private companies and state and municipal governments.  This is clearer for state and municipal governments who had to balance their budgets and for political reasons couldn't raise taxes very much.  Many had gone to a non-contributory retirement plan (state of city paid 100%) for a 50/50 match plan in the '70s or '80s with the up front reason that it was in lieu of raises, but in backgound was the fact that most employees were on the government defined benefit (pay out plan) and as long the retirement fund was actuarial solvent for a defined period of years they didn't have to put money in.  However, revenues remained low and retirements increased an some pension systems were in trouble or would be in a few years.  This is the rational that Rick "The Dark Lord" Scott used when he changed the rules last year and required state employees to pay 3% of their retirement.

    Personally I'd like to see regulations that ensured honest management with reasonable fees of investment vehicles similar to 401ks instead of defined benefit plans.  And, this being heresy of the first order, these should apply to everyone including federal employees, fire and police officers, and the military.  Yes, these are risky, but the traditinal pension has also proved to be risky as it depended more on the wims of the economy, boards of directors and legislators than was supposed to be the case.  Just some thoughts and if they aren't worth much I can live with that.  I taught school for 35 years.  I'm used to people thinking I'm full of it.

    Any Jackass can kick down a barn. It takes a carpenter to build one. - Sam Rayburn

    by Old Gray Dog on Thu Jan 03, 2013 at 02:27:40 PM PST

    •  I will soon retire with a defined benefit plan (11+ / 0-)

      and I am thrilled.  My state actually paid most of their obligations, so the plan is in good shape.  I have been paying 2-3% into it all my working life, and they didn't promise the moon--a little subsidy of post-retirement insurance and up to 60% of earnings.  Fifteen years or so ago, they offered a mixed plan with 30% defined benefit and a 401k sort of thing.  The people who went for that are all going to have to work longer than they planned because they lost so much money.

      I would like to see strong regulation of state plans, so that the states are required to pay as they go for promised benefits.  Getting rid of defined benefits throws us all at the mercy of the markets and manipulators.  

      We should not be fighting about equal pay for equal work and access to birth control in 2012. Elizabeth Warren

      by Leftleaner on Thu Jan 03, 2013 at 03:08:43 PM PST

      [ Parent ]

    •  My defined benefit plan is a real godsend. I think (10+ / 0-)

      everyone should have a retirement like mine. Working forty years in the same school district helped, of course.

      •  You hit the nail on the head--a defined (3+ / 0-)
        Recommended by:
        jfdunphy, NapaJulie, divineorder

        benefit plan is wonderful.

        But there are next to nonexistent today.  With the exception of the Boomer and older generations who did get and stay in a job (mainly public service as in a school district, etc.) for forty years now, almost no one (including Boomers) have them, anymore.

        That has to be one of the biggest misconceptions out there--that MOST Boomers have a defined benefit retirement plan.  Not so, folks.

        And, it's not likely to happen any time soon.

        Senator Tom Harkin has a plan to make it mandatory to have be private retirement savings account.  Here's the link to his USA Retirement Fund.

        Initially, it is claimed that one can "opt out." But I don't buy for a minute, that this plan is not intended to become mandatory (meaning no opt-out) in time.

        I believe this, because with mandatory health insurance coming online in 2014, does anyone actually believe the folks who won't qualify for a health premium (exchange) subsidy (couple making more than $46,000) but are more or less working poor, are going to turn around and voluntarily signup to further impoverish themselves in order to save for their retirement?

        So, while I'm open to looking into this savings vehicle further, I'm not sold on it.  I would need to see the details, first.

        Here's an excerpt from Harkins's plan:

        Employers’ only obligation with regard to the USA Retirement Funds would be to automatically enroll employees, ensure that employee contributions are processed, and make modest contributions.  importantly, employers would not “guarantee” the USA Retirement Funds or have any residual responsibility to provide additional funding or make up shortfalls.
        But I'm glad to see that at least you will have a decent retirement, Lorikeet.  


        “If a dog won’t come to you after having looked you in the face, you should go home and examine your conscience.” -- Woodrow Wilson

        by musiccitymollie on Thu Jan 03, 2013 at 03:51:29 PM PST

        [ Parent ]

    •  I'd like to see insurable options for 401k money (4+ / 0-)

      Right now we are forced to put our retirement money into completely unbacked accounts.  Even conservative incestors have taken big hits and the big fiancial firms siphon off any profits as fast as they can as fees, regardless of how well your account does or doesn't do.

      Democrats give you the Bill of Rights; Republicans sell you a bill of goods!

      by barbwires on Fri Jan 04, 2013 at 12:56:31 PM PST

      [ Parent ]

    •  Federal Employees... (1+ / 0-)
      Recommended by:

      ...hired after 1987 do have the Federal equivalent of a 401(k).

      It's called the Thrift Savings Plan -- and they can contribute up to 10% of their earnings to this with the government adding a matching 5%.

      As a retired Federal employee, I am living on my pension and money from my TSP account. I will be filing for Social Security when I reach age 70, unless my financial situation becomes so dire that I have to apply for it before then.

    •  SS was designed to be taxed regressively so the (3+ / 0-)
      Recommended by:
      Kenneth Thomas, Noor B, worldlotus

      conservatives couldn't call it welfare. And 401Ks have failed the majority of boomers just  like the critics warned.

      Defined benefits pensions worked far better for working and middle class people than this Wall St invention. And Wall St is not in the "How are the citizens doing business", and are not to be trusted with the nations retirement, survivor benefits, and support for the disabled.

      Weaken SS first. Drive home the false narrative that it is insolvent and then get recipients agree to have it handed over to Wall St.

      When FDR heard this idea he laughed it out of sunshine. And handing SS to Wall St is an idea as old as SS. And guess who's idea it is? Wait for it....Wall Sts.


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