Umm, don't we want the benefits index to wages like they are now rather than to inflation?  If they had been indexed to inflation all along, current benefits would be something like 1/3 of what they currently are (quoting from memory and too lazy to look up exact numbers).

/grammar police  ;^)

and sorry for the flippant first comment.  what i should have said was "point well made".

1. Eliminate the cap.
   
2. Means test the benefits.

Private accounts AND Social Security. You CAN have both. (I already do)

Is there a word for this kind of synthesis? Yes: compromise, but that's a dirty word around here.

   Don't elect Republicans.

It is absolutely guaranteed to keep you socially secure. I call it the "No Catfood Plan."

Although we all know that this "crisis" has been manufactured by the republicans in order for corporations to get their hands on a part of Social Security and the true crisis is with our Health Care system, Medic-aid and Medi-care.

What is the Republican plan for this crisis?(Noting that the New Prescription drug plan helped accelerate the problem).

Ex. part of why the Septa workers in Philadelphia are threatening to strike is the city's proposed cut backs in health care. The cut backs are deemed necessary due to the rise in Health Care costs.

http://abclocal.go.com/wpvi/traffic/3705-strikesepta.html

Social Security is solvent for 40 more years. The Health Care system is in crisis now. -(I agree with you Chris...just thinking out loud)

• Raising only the employer-contributed portion
  
• Removing the cap and lowing the rate, in a way that would be revenue-neutral to people making under the 98th percentile.
  

I may be a little slow, but isn't this the plan presently in place for SS?  I mean 1) 12.4% split evenly between employee and employer is what is paid now, and 2) benefits for Retirement, Survivors and Disability are what the SSA pays now. (3&4 are retirement age and caps for taxes)

Don't get me wrong folks, I love the discussion, but the comments are like the the reverse of those recent responses to the Bill of Rights.  Most people did not believe these should be "added" to the U.S. Constiitution.

Once you call it a retirement program, you can compare it to other retirement programs/options and say "Well, I have investment choices in my 401(k) and my SEP-IRA; why can't I have an investment choice in my government retirement plan too?"

The answer, quite simply, is that Social Security is not your government retirement plan. Social Security is a promise made from one generation to the next that when you retire, you will not be forced to live in poverty. Not "this program will help you retire," but for the least among us, dignity.

If you put a plan out - any plan - any discussion of a possible plan - you make the negotiating away of the current system inevitable.

Look at all the variations and iterations of possible ways 'to fix' SS in the above thread... and that is just from the LIKE-MINDED dems on this one blog site... imagine when the discussion goes 'global'.

The only thing we need to say to Bush and the GOP now is:

"Put it out there."

Until then we say "No!"...  'No' to everything, reasonable or unreasonable. 'No' is our universal default answer that cannot be over-riden until we see a detailed plan from the GOP. Period.

Now if they want to continue to talk about something... "Who is your pick for the NCAA Final Four?"  Personally I think Illinois is going to disappoint...

If you want to thwart the Republican Party then look to the companies who donate to them.

Tell THEM you want an increase to the minimum wage.

Tell THEM to stop social security piratization and instead lift the limit of taxable income for the FICA tax which will keep social security solvent.

Tell THEM you want to repeal the faulty prescription drug law and replace it with a real prescription drug benefit that covers 80 percent of medication cost.

Tell THEM you remain outraged about the 2004 stolen election in Ohio.

They put the Republicans into office. Tell THEM what you want and boycott THEM until you get what you want. Join together and use the power of your purchases to get what you want in congress.

Stop complaining and do something.

Please pass this onto as many other people as you can especially on forums where independents can read.

Also put the url www.boycott-republicans.com on index cards and leave them in your libraries, supermarkets and post office bulletin boards.

How can the people force a mean spirited conservative congress to pass a progressive agenda? Simple. I have picked some well known companies that appear related to issues that progressives find important. Boycott these companies and make them lobby congress and get what we want or they go bust. While I agree we need to elect a Democratic congress and a Democratic president, with a consumer boycott we the people can exert influence every single day and not just at election time and not just with letters or petitions but with petitions with the bite of a boycott.

Join the revolution for progressive legislation

http://www.boycott-republicans.com

Write this url on your one, five and ten dollar bills.

Call Eckerd Pharmacy Corporate Headquarters at 800 325 3737, Call CVS Pharmacy Corporate headquarters at 888 607 4287 and Call Walgreens Pharmacy Corporate headquarters at 800 289 2273 and tell them you will not purchase any products from their drug stores until they get the Republican congress to repeal the faulty prescription drug benefit and replace it with a simple 80 percent coverage benefit under Medicare Part B. Then sign the petition.

Call Walmart at 800 WALMART and tell them you will not buy from them until they get the Republican congress to stop social security privatization, increase the minimum wage to TEN dollars an hour, and extend unemployment insurance for people who lost jobs and sought work for more than 6 months. then sign the petition.

Sign the petition to stop social security privatization, increase the minimum wage,extend unemployment insurance for people who lost jobs and sought work for more than 6 months and repeal the faulty Republican prescription drug benefit and replace it with a simple 80 percent coverage of medication under Medicare Part B. Please get two other people to sign this petition.

http://www.petitionspot.com/petitions/progressive

Also visit these fine websites

http://www.Buyblue.org

http://www.2005blue.com

http://www.choosetheblue.com

http://www.imblue.net

If the president's proposal to allow individuals to make a one time election is implemented and people make exactly the right choice for themselves, there will be additional cost to the Social Security system for those who elect the insurance benefits rather than the personal accounts. This will result in additional taxes, further benefit reductions or both.

Social Security, also known as the Old Age Survivors and Disability Insurance or OASDI, is challenged financially. The challenges have been caused by political decisions over the years, not unlike challenges to the private pension system caused by management decisions typically made for short term or expedient reasons. These decisions have led to a projected shortfall between the money anticipated to be available on an earmarked basis for Social Security and the benefits projected to be paid. Since those decisions cannot be undone, the system needs to be modified prospectively. While it is not truly necessary to make changes this year or next, the longer we wait to make the changes the greater will be adverse impact on individuals.

It is proposed by the president to essentially preserve benefits for individuals at and over age 55 and for others to be provided a one-time option to divert a portion of their and their employer's FICA taxes to individual accounts invested in the private equity market. As a consequence of this diversion, there will be two key events: First, the government will have to borrow amounts estimated to be $1-3 trillion to pay benefits for current and future beneficiaries who would have otherwise been funded by the diverted FICA taxes; and second, those who elect to participate in individual accounts will have their future Social Security benefits reduced to compensate for diversion.

I am a retired actuary with over 35 years' experience designing, modifying and terminating retirement programs for some of the nation's largest employers. I have prepared this paper to present my views of the impact of converting a portion of the current Social Security system to personal or individual accounts to advance a discussion of the impact of such changes.

Without entering the debate of the wisdom and impact of the borrowing or the methodology and impact for reducing future benefits for those electing individual accounts, it is irrefutable that the transition from "defined benefits" under the current system to individual accounts will result in significant winners and losers, that is, individuals and families who will be better off under the new system and others who will be worse off. This paper will identify some of the "losers" under such a transition so that the decision-makers considering changes to Social Security will do so with the full knowledge of the impact of their decision.

The current system is an insurance system. This means that it provides benefits in the event of certain occurrences, like old age, death or disability. Because it is a defined benefit system, it is possible to structure those benefits based on a desired outcome. For example, the amount of benefit can be based on a formula related to pre-event income, retirees with spouses receive more income than those without, surviving families receive more income than those who die without (eligible) survivors, benefits can be increased based on changes in an index such as the CPI, and so on. A significant advantage of a defined benefit system is that the benefits can be periodically altered with great flexibility to meet the changing needs of the sponsor.

In an individual account system, benefits will also be paid upon the occurrences of those events. However, the amount of the benefit is determined strictly on the basis of the value of the individual account, regardless of the personal situation of the individual or the socially desired impact of the benefit. Benefits cannot be changed retroactively and impacted prospectively on only a limited basis. It is important to note that there is nothing wrong with this approach, only that it is different and may or may not be what the public wants.

To help understand the impact of a transition to individual accounts, decision-makers ought to do a careful analysis of the winners and losers under various economic and demographic scenarios with a range of reasonable assumptions. The results ought to be publicized so that the American public can make up its own mind based on a set of facts rather than political or uninformed statements (coming from both sides of the argument) that shed little light on the true impact.

Here is a partial summary of the impact of a transition to individual accounts:

• Investment risk is transferred to the participant. Since not everyone will fare equally with their investment choices or the cost of their annuities when purchased, some will be better off than others even though their needs situation may be similar. To the extent annuities are purchased with account balances, frequent changes in interest rates can have a significant and unexpected impact on the monthly income of the annuity.

• Longevity risk is transferred to the participant. Under the current Social Security system, it is impossible to outlive one's benefit. This is not true with individual accounts unless annuities are purchased. If annuities are purchased, part of the rationale for individual accounts becomes moot.

• Female wage earners are put at a disadvantage. Under the president's proposed system, personal accounts will be required to be used, at least in part, to purchase annuities. If these annuities are purchased through commercial insurance carriers, under current pricing procedures, women would get smaller annual benefits than men of the same age to reflect their greater life expectancy.

• Inflation risk is transferred to the participant. Under the current system, income benefits are indexed to cost-of-living to remain meaningful over a potentially long payout period. Unless annuities are purchased with individual account balances with a cost-of-living feature (a costly benefit), recipients who live for any reasonable period of time will find their benefits worth substantially less over the years.

• Late entrants to the workforce lose out. Some people, including mothers or fathers who enter the workforce later in life after they have tended their children while they were young, or individuals who remain in school for an advanced education, or those who defer entering the workforce for any other reason, who will not have enough time to accumulate sufficient funds to match what they would have had under a defined benefit program like Social Security.

• Low wage earners lose out. The current Social Security system provides greater benefits as a percentage of preretirement income to those with lower income over their careers. Individual account plans provide the same contribution to all participants, up to a maximum. Thus, lower wage earners will receive a disproportionately large benefit cut from the transition to individual account plans.

• Non-working spouses lose out. Under the present system, non-working spouses (and spouses who have only a modest career compared to their working partner) are entitled to a benefit of 50% of their working spouse's pension. Under an individual account program, these spouses would lose out.

• Transition to individual accounts for those under a certain age, say age 55, will NOT leave older workers in status quo. It is acknowledged by the Administration that the transition will require massive borrowing on the part of the government - on the order of several trillion dollars or more. Regardless of how well the economy performs, this will be a debt that will be either repaid thought taxes that will be higher than they would otherwise be, or result in a reduction of government benefits and services, or both. Repayment of the debt will, among other things, diminish the value of the assets left by aging parents to their survivors.

The present Social Security system is what is known as a "defined benefit" plan. These plans focus on the benefits to be delivered and leave to the actuary (and government rules) the process of making sure there is enough money set aside to pay for them. Their design is totally flexible to meet the needs of the plan sponsor (the government, in the case of Social Security).

Thus, defined benefit plans provide exactly the desired benefits, assuming there is enough money to pay for them. It is the role of those who manage such plans to make the periodic adjustments (that are always needed in an uncertain world) to some combination of the benefits, the funding and the investments to be sure there are funds to pay the benefits when due. And that's what we should be doing now to preserve the role that Social Security was meant to fill when it was conceived and continues to fill today (for those who don't agree with this statement, that should be the debate BEFORE making ill-advised changes to the system).

The "crisis" we face today can be avoided by avoiding making commitments for the long term. That's what individual accounts are all about. It's why some employers are moving away from pensions to focus their entire retirement program on 401(k)'s and other types of individual account plans. Rather than managing their retirement program, they are achieving an avoidance of unfunded liabilities by not permitting the type of programs that could give rise to such liabilities in the first place. It would be a good idea except for one thing -- ultimate benefits will have less relationship to need. And we are back where we started. If Social Security is to serve a social purpose, then the current format is the way to do it.

Recognizing that changes need to be made periodically, here's what I suggest:

In short, a little of this and a little of that.

First, I would try to help people understand that projections over long time frames are simply impossible to make with accuracy. That's why they give high, low, and best case estimates. Economists and actuaries who make projections know that they will be called upon to do so again and again, and that gives them an opportunity to adjust to emerging reality. It's just the way it works.

My approach to fixing SS is to make small adjustments over time to avoid major disruption and to recognize that as reality in the economy sets in, additional fine tuning may or may not be required. I think it's very important for the public to know this.

In terms of specifics, I would:

1. Make a small adjustment in the CPI factor used to increase benefits once they enter pay status

2. Subject SS payments to a small increase in the income tax rate when taxable income exceeds, say, $150,000, or adjusted gross income exceeds, say, $200,000. (This is just an attempt to introduce means testing Social Security.)

3. Start to slowly increase the earnings subject to FICA taxes, starting with moving the current $90,000 cap up to, say, $150,000 over a 20 year period.

4. I would leave alone the wage indexing on the benefit formula for now, but watch solvency projections over time and be prepared to adjust it if necessary.

5. Set up a publicized non- or bi-partisan process to review adjustments every five years and be prepared to make small changes, up or down, as conditions warrant.

The right way to consider program changes to Social Security (and nobody doubts there should be some), is to do it the same way the government approached changes to the federal retirement system in the 1980's (a project I participated in) and private employers do as well - prepare and study benefit illustrations that show the impact of potential changes on a wide variety of participants and beneficiaries. Show the winners and losers under various scenarios.

The motto of the actuarial profession is to substitute fact for impression. I hope that's the attitude taking by all responsible members of Congress and the Administration as they consider what to do with Social Security.