PS I am posting as an insomniac once again hanging out with the work crew on a cruise ship at 5 am in Germany.
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Some people are hopeless when it comes to managing money. My dad was a good example. College educated. White collar job. No matter how much money he earned, he spent more. Never saved a nickle.
Fortunately, for him, he worked for a large company, which provided an entirely company paid, defined benefit, pension. Retired at 65, in 77, he had the pension from 27 years with the company, plus SS having paid in since the programâs inception. On top of that, he worked in a garden center, and sold Amway stuff. And still went farther in debt every year. Imagine where he would be now, with no pension option other than a 401k, that, first, requires the employee to put money aside, which he would never do.
What would you do with people like that? Leave them to beg on the street? Order the spawn to support them, so the next generation is destitute too, because the old man would suck them dry?
Steve
Many (most?) Western countries have various âforced saving plansâ that all wage earners and their employers are required to participate in. Those forced savings plans have various parts, some of which allow the money to be accessed every 5-10 years, ad some of which can only be accessed at retirement. This is done to ensure that people donât depend solely on social security in their old age.
The USA has no such thing. It only has entirely voluntary savings plans such as 401k, IRA, HSA, FSA, etc with varying types and duration of access. Not only that, but ALL the USA plans allow early access with a tax penalty. And way too many people opt for early access and pay the penalty. Really two penalties, first, the tax penalty to get the money, and second, the penalty in retirement having to live solely on social security.
Google found a statement that GM is paying $3.25 per hour at their truck plant. For 40 hours that comes to $130.
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That would be similar to the SS privatization schemes floated a few years ago. The schemes involved carving money out of the workerâs paycheck, and handing to a private manager, with a backstop guarantee that the money would earn at least the interest rate on US Treasuries, with the guarantee backstopped by the US Treasury, in case the private manager really honked up, or drained the account with fees. At retirement, the money would be rolled over to an annuity. Rolling over to a lifetime annuity would provide the same defined benefit payment feature as SS. The âbenefitâ seen in these schemes were the portfolio manager could skim a profit off it, then the annuity company could skim another profit off it. Whether the benefit finally received by the person, after all that skimming, was adequate to maintain life, or not, was not a factor.
Steve
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Itâs not really similar to that. It is IN ADDITION to Social Security. The best analogy would be a forced IRA contribution by both the employee and the employer. But there are multiple other savings schemes that are used with varied âopeningâ times.
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That isnât going to happen: employers paying into a savings account and SS, for each employee? I can hear the wails of âjob killingâ already.
Taking even more out of peopleâs paycheck is going to be a hard sell too.
That is why I propose a revenue stream that is not tied to employment, like a VAT, to support SS and Medicare.
Steve
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Employers are already paying into retirement saving plans in addition to Social Security. Two examples of such retirement saving plans are 401(k) and 403(b) plans. Aside from the costs of establishing and maintaining these plans, the employersâ contributions are in the form of a company match to the employeesâ contributions.
Unfortunately, not all employers offer the above plans. Several states have established retirement saving plans for smaller employers that canât afford to establish their own 401(k) or 403(b) plan. Californiia has implemented a CalSaver plan for small employers that donât have a retirement plan. The monies withheld from the employeeââ gross pay is deposited in a Roth IRA for the employeeâs benefit.
That company match is at the companyâs discretion. It can be reduced, or eliminated, at the whim of management. I know Ford Motor has suspended itâs match a couple times in recent years. Depending on the rules of the plan, the company match may, or may not, be immediately vested, or it may vest over a period of several years. Once a company pays into SS, that money is credited to the employee. The company can not welch on the payments, or claw them back. As the McDonnell Douglas case showed, any pay or benefit that is not covered by a collective bargaining agreement, is considered a gift from management, that management can change, or revoke, at will. A law requiring companies to pay into an employee savings plan wold not offer the same flexibility.
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In the aftermath of the 2008 crisis AMD suspended 401k matching. At Oracle, the match is given on a 3-year vesting period.
I presume the Oracle plan uses step vesting? Meaning the employee is 1/3 vested after one year, 2/3 vested after two years, and 100% vested after three years.
iirc, âcliff vestingâ has been outlawed in recent years. Cliff vesting is when company match is 0% vested, for a length of time, then becomes 100% vested at some point. I had a former coworker who had previously been with K-Mart when they used 10-year cliff vesting, Very few people made it 10 years with K-Mart, so, when they quit short of 10 years, the company clawed back every penny of the match payments, since the person started with the company.
Steve
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Cliff vesting has not been outlawed, but the maximum cliff length has been shortened to 3 years. From the IRS website Issue Snapshot - Vesting Schedules for Matching Contributions | Internal Revenue Service (irs.gov)
AJ
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I retired last year, as did 1poorlady. We were both under 60. Itâs much later than I would have liked, but one does have to do the math to see if it is relatively safe to retire.
The more life we can be free of work, the better. If you want to work, fine. If you donât, and have the means, then you donât have to. And you make room for young folks to fill your job if you retire.
As I recall, when SS was started in the 30s, the retirement age was about the life expectancy at that time. If correct, one could argue SS should be upped to about age 75.
I wouldnât complain if they raised the age a bit more. I took the position of not relying on SS to determine if I could retire. SS is just a safety net for us in case something really goes sideways in the next decade.
Life is too short not to be doing something you like to do.
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That is a common narrative that the anti-SS crowd likes to propagate: âSS was always a scam, because people were not going to live long enough to collect much of anythingâ. To support their case, they use life expectancy at birth. In 1940, life expectancy at birth was 63.6 years, vs 78.8 for newborns in 2012. Of course, they are counting a lot of people who died before they ever paid anything into SS, and many more that died in their 20s and 30s, when they had only paid a little in. Child mortality was higher then, and a lot of people did not survive being young and stupid. Now OSHA regs reduced the number of people being killed at work in their 20s and 30s, and emergency medical care, with high speed ambulances, helos, defibrillators, and EMTs trained in more than first aid, and more, have saved a lot of people, so they can live into middle age, and pay more in to SS.
Reality: life expectancy at age 65, in 1940, was 77.8 vs 84.3 in 2012., a 6 1/2 year difference, not the 15 year increase the SS opponents claim.
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Yes, it does matter if you include infant mortality. Starting at age 65 is an interesting metric, and the difference was a bit less than I expected. It might be a bit greater if you started at age 50, but I donât think it would be 15 years.
For the record, Iâm not a SS opponent. Iâm 60. I planned as if SS wouldnât be there, just to be conservative. But it is there, and will be a great safety net so that we can spend a bit more NOW and enjoy our retirements before health problems make that impossible. We may end up being one of those couples who can still do moderate hikes into our 90s, but Iâm not counting on it. So weâre doing a lot of traveling now. And exploring hobbies. 1poorlady is all over the place with hobbies, trying different projects. Mine is mostly photography, and keeping an eye on investments. And occasionally helping her with one of her projects. 
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Of course you would, because we have been bombarded with FUD, for decades, that SS was âdoomedâ. Most of us remember #43âs push for privatizing SS. We saw him waving a binder, and saying words to the effect 'there is your trust fund, nothing but worthless IOUs in a file cabinet", when the contents of that binder, that he was declaring worthless, were receipts for United States Treasury Bonds, backed by âthe full faith and credit of the United Statesâ.
The plan he was promoting would divert all FICA tax revenue for people born after a certain date to Wall Street, to create defined contribution accounts. Several problems with that scheme. First: it was a defined contribution plan, not defined benefit, like SS is now, so it would be possible to outlive your savings, or the monthly payout too small to provide reasonable support in a personâs old age. Second, diverting all current FICA tax revenue to Wall St would force the government to borrow Billions more, to cover the benefits for the people still covered by conventional SS. But the cost to the government, and the risk to private account âownersâ didnât matter, because Wall St would be able to skim the cash flow.
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No, thatâs not why. I know SS is not doomed. The largest voting demographic are people nearing retirement age (and above). It would be political suicide to try to touch that.
I figured my retirement without SS only because that portion I control would be subject to market volatility. It could, in principle, go to zero if the economy blew up, or I did something really stupid. Neither of which I expect to happen. But if Iâm conservative about how much money I have (or will have), I can ride out the inevitable dips and not worry about having an income (job).
Though, I actually also did some calcs with my SS included, which were much rosier. But I based my retirement on the calcs that didnât include it. Just to make sure I was very unlikely to run out of money before I died.
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That narrative, that SS will âgo brokeâ has been fed to people for over 30 years. When I was working, I do not recall any of my younger coworkers thinking they would ever get a nickle out of SS. Those 40 something coworkers are now into their 50s. Another ten years, and virtually everyone still working will have been indoctrinated in the inevitability of SS default. Once everyone has been brainwashed that they will never get anything, it will be easier to take it away.
Steve
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Just because thereâs been calls that SS/Medicare as well as the Federal National Debt will âgo brokeâ or have some crisis doesnât mean we arenât actually now at the tipping point. Weâre just about at âpeak Boomerâ retirement. Some sort of USA debt crisis is coming, even if they do raise taxes on the rich.
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And as AJ pointed out, I recently ran across a 3 year âcliff vestâ which eliminated 30% of my 401K after Iâd been there for a year and a half and suddenly showed me the door.
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