Sylvester Schieber: "The Predictable Surprise: The Unraveling of the U.S. Retirement System"
http://thedianerehmshow.org/shows/2012-03-12/sylvester-schieber-predictable-surprise-unraveling-us-retirement-system
It's a perfect storm: the percentage of active workers compared to retirees in the U.S. will shrink dramatically in the coming years. Social security funds will be depleted by the 2030s. Most U.S. companies have long since abandoned defined benefit pension programs. Workers are increasingly relying on the vagaries of the market, and many simply have no idea what they will live on in their retirement years. A former chair of the social security advisory board joins Diane to explain why the U.S. retirement system seems to be coming apart at the seams and what we should do about it.
Guests
Sylvester Schieber
former chairman of the Social Security Advisory Board and author or editor of numerous books on aging and retirement
Program Highlights
Demographics, two major market meltdowns, and rising health care costs. These are just a few of the factors contributing to the unraveling of the U.S. retirement system. Sylvester Schieber is former chair of the Social Security Advisory Board. In a new book titled "The Predictable Surprise," he explains why our retirement system, which seemed to work so well for so many years now seems to be coming apart, and what we can do about it.
"For A Long Time, People Thought Everything Was Pretty Grand
"The Social Security system got off to such a blockbuster start, seemed to thrive 'till we got to the 1970s when we had a little bump, but then has been on track for much of the last 25 years or so," Schieber said. But, he added, it all seems to be coming apart now, and part of the problem is simply demographics. Back when the programs were getting started, there were many workers and not very many retirees drawing benefits, but now, of course, as the baby boomers become retirees, that ratio is almost reversing.
Other Factors Besides Demographics
Back in the 1980s, our policymakers wanted to raise a lot of tax revenue but also wanted to keep tax rates low, Schieber said. "So they reduced or limited the amount that employers could fund in their plans. But as Schieber points out, if you don't fund a worker's benefits as he's earning it while he's young, you have to make up both the contributions and the interest that wasn't earned at a later time. And one of the big problems as Schieber sees it is that we hadn't been funding plans for too long; many baby boomers were getting very close to retirement; and the markets tanked in 2008.
Payroll Tax Holiday A "Partial Holiday"
The payroll tax holiday is actually a "partial holiday," Schieber said. It's a reduction of 2 percentage points in the payroll tax, but funds are still being credited with the income as if it were still being generated. So in a way, there's a sort of "IOU" check outstanding. "They're just issuing additional government bonds and putting them in a binder out in Parkersburg, W.V.," Schieber said.
"I Can't Imagine We're Going to Shut The Program Down"
Schieber said he can't imagine that the social security program will be shut down. "That would be political suicide for anybody who is operating in our federal government in a policy-making position," he said. "The projections right now are that in 2036 when the trust fund is projected to be depleted, we would still have revenues coming in. We'd still be collecting the payroll tax. The projections are that you'd get a benefit that's at least 75 percent or so of the benefit that's defined in current law. Now I can't believe that congress is actually going to go up to that cliff and jump over it and let people's benefits from one month to the next be reduced by 25 percent," Schieber said.
You can read the full transcript here.
Comments
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It's such a laugh when NPR financial discussions bring on a scolding expert to inform seniors they need $300K or more in their 401Ks to retire. Most American households boast a negative net worth. A large percentage of recent retirees have SS only. In most cases health and opportunity do not provide for employment past age 65. NPR, and most media, float the fiction of general prosperity. This makes our poor senior majority feel like losers after they have labored hard all their lives to make exploitative employers wealthy. The injustice comes not from individual inadequacy but from sadistic public policies that reward greed. I think about this all the time because I participate in operating some emergency charities and am the appointed guardian of 9 indigent rest home residents (Two others died of pneumonia this mild winter).
If you'd ever dealt with Medicaid and care facilities you'd know a death camp is operating right in public view, and that few people care. Mr. Schieber is a fool to believe this retirement system can be redeemed under capitalism. The punitive and unnecessary chemical restraints that occur (in care facilities) alone would horrify any empathetic person. Social Security checks are being seized to pay exorbitant prices for chains fashioned from psycho-active pharmaceuticals. And if that doesn't work residents are tied to
wheelchairs. It seems necessary because there is never enough staff. Investors won't allow it. Maybe they're saving up that $300K in their retirement accounts.
After saving the $300K+ for retirement, I discovered a couple of years after I retired that the financial system could cut that in half practically overnight. The fact is that if you need $300K, you probably need to save a million dollars in hopes of having $300K after Wall Street gets through with it.
Pancake, there you go again, taking anecdotal evidence and passing it off as proven fact. The majority of people I interact with on a daily basis all have 401k's so based on my anecdotal evidence all people are fine and there is no poor. Also if you think $300,000 is enough to retire on you're sadly mistaken.
This is the same scare tactic we've had for 30 years. Cui Bono? The problem with private sector plans is they are based on impossible investment returns, and worse yet, under the control of administrators who have other interests. Public sector plans such as SS are a safety net to mitigate poverty effects among the elderly. The whole purpose is different and to treat them interchangeable is asinine.
I'm in my 401k and I have very little confidence that I will ever see that money. Some crook will steal it or some inept boob will lose it and no one will suffer for it but me. I have much more confidence in Social Security, simply because so many eyes are on it and so much emotion is invested in it. Oversight at least exists for SS.
Depends on where in the U.S. the retiree lives and their lifestyle. In my section of the midwest, $300,000 would be a pretty tidy sum for retirement. The standard of living is fairly low but wages are low. Experts say a retiree should have at least one year's wages in savings. That sounds reasonable as that takes into consideration standard of living and wages.
Look. Let's be clear-eyed about this. First, there's no long-term Social Security collapse on the horizon.
Social Security can be fully funded forever by making minor tweaks to tax rates. What *will* bankrupt the US is Medicare and Medicaid. But even that misses the point. The growth of health care costs are what will bankrupt our country.
I don't think I've heard a single voice here or elsewhere on NPR make the obvious point that "entitlements" are not in danger of imploding, or of bankrupting our country. It would be nice if someday, you had an alternate voice, Diane. Thank you.
More here:
"Social Security has a funding shortfall too—about 0.8% of GDP over the 75-year horizon. That’s just about equal to the revenue from the expiration of the high-end Bush tax cuts, and less than half from all the Bush cuts. So please don’t tell me we can’t afford this guaranteed pension that provides more than half of their income to more than half of the elderly."
http://jaredbernsteinblog.com/social-security-is-not-the-problem/
Diane,
I have a simple question I would like a simple, non-partisan answer to -
Is a social security type system mathematically and economically sustainable? Or are politicians just deluding the American public into believing so?
Thanks,
One thing I never hear any expert discuss is the number of people who get social security as a disability pre retirement. I personally know several people who pursued that designation. One was in his late 50's. The other in her 40's. What percentage of the people on social security are on pre retirement disability?
I find it always interesting how the expert discussion about Social Security never talk about the 3 or more trillion dollars that the Congress has appropriated from the funds. Is it not ever to be payed back?
QUESTION for GUEST:
Can Social Security be revamped as an annuity, invested in government securities?
It's odd to look at the comment board and the number of comments from last hour to this hour. Here is something truly important and it gets very few comments. Thankfully I have followed sensible savings programs and am doing well. We can expect most of the commenter's from the last hour becoming totally dependent on the government teet because they are a intellectually unable to understand the difference between self reliance and dependency and it's moral implications.
Mr. Schieber just said that $300,000 a year is not considered wealth in all areas. I wholeheartedly disagree. My wife and I have worked very hard to get barely above entry level in professional careers, and we don't even make a third of this combined. That much money would be security for my family, my home, no more student loans, education for my children, and MOST IMPORTANTLY: A SECURE RETIREMENT. Things that are rapidly becoming "luxuries" in this country. This attitude reveals a disconnect with the actual day-to-day life of a truly Median Income American (around $50,000).
I would not have applied for Social Security early, had I been able to find a job after more than two years of looking. This current economic climate has not been hospitable to us seniors. I lost over half the value of my 401K and savings garner no interest. You seem to scold us regarding our choice to draw on our social security benefits, but what are we to do when few will hire a senior and our 401K's are almost non-existent?
It is disingenuous to suggest that a cap on Social Security contributions stop at the current level because "those high-income contributors will only ever get 1/2 of what they contribute" as your guest said. What other tax is based upon how much the payer gets back? None.
I pay for school taxes in a district in which I have no children. My children are no longer in any public school. And my contribution to school, city, county, hospital, and other political services is not capped at a level - it follows my income regardless of how high.
Maggie in Fort Worth
Without getting into a lot of details, I'm wondering if we can solve the problem by eliminating the salary cap on payroll taxes, making payroll taxes subject to a $ for $ credit on income tax returns, and raising the income tax rates by 4% or 5% on all income.
These are scary times. The jobs market wants to eliminate experienced employees over 45 years of age.What do you do when you`re thrown out ? Now they`re talking about raising retirement to 70 years of age. Between the age of 45 and 70,many would be withdrawing from their savings just to live.I feel badly for younger Americans.We`re letting the market decide,and the market always decides to screw us.
The problem with SS program for the future goes back to the first part of the program which is birth control. There aren't enough workers to fill to make up for the ones retiring. There used to be 16 workers per 1 retiree, now it's 3 to 1. We're killing off the US's future. Look at Europe and Japan, everyone is old and not regenerating their people.
IVE HAD 2 SPINAL FUSIONS, IVE LOST A KIDNEY, I HAVE FIBRO MYALGIA AND STILL I WORK FULL TIME BECAUSE I NEED THE MEDICAL. MY DRS TELL ME TO GO ON DISABILITY. I CANT. YET ALL THESE OTHER PEOPE COME TO THIS COUNTRY AND WE HAVE TO SUPPORT THEM. THE AUTHOR LIED ALSO ABOUT PEOPLE RETIRING EARLIER NOW. ARE YOU KIDDING? I HAVE TO WORK TILL IM 66 1/2. OTHERS ARE GOING TO WORK TILL THEY ARE 70 BASED ON WHAT YEAR YOU WERE BORN. WHAT PERCENT OF ALL THE COLLECTIVE MONIES ACTUALLY PAYS FOR RETIREE BENEFITS> I LOOKED IT UP AND ITS LESS THAN 15% PEOPLE. THESE RADIO SHOW HOSTS AND GESTS ARE JUST TALKING HEADS. ITS ALL LIES.
If an adjustment to SS benefits must truly occur, it needs to be done fairly:
- Determining “higher income” needs to be based upon wages/earnings during a person’s lifetime, not their available savings/pension/investments; otherwise, we’ll have situations where those who have been prudent over the course will be punished to subsidize reckless spenders (let the latter sell off their possessions if they need to - with a possible exception for those harmed by health expenses).
- If the eligibility age is raised, it should be done incrementally; this shouldn’t be a(nother) case where persons born one day get the existing deal, while those born a day later get a much worse one. I think an increase of 3 months in retirement age per birth year increment is reasonable and equitable.
Mr. Scheiber betrayed his bias (and by extension, the bias of the Social Security Advisory Board) in his reluctance to at first even mention and later adequately address the issue of lifting the income cap on the payroll tax. He fretted over the pain that those making over $300,000 would suffer in paying so much more in taxes, and emphasized the political impossibility of imposing such "hardship" on the 1%, while minimizing the hardship suffered by the rest of us when asked to work past age 65 and take bennefit cuts.
I am searching for Mr. Scheiber's email address because I would like to ask him why it is unthinkable to ask the wealthy to sacrifice some of their luxury but perfectly acceptable to ask seniors to give up benefits that are already inadequate. People who rely on SS alone already have to make a choice between medicine and food. I don't know.... Lexus for the top 1%? Or food for the bottom 50%? Vacation home for the top 1%? Or heart medicine for the rest of us? Perhaps it IS that simple, and the real obstacle to fixing social security is the lack of political will because the 1% not only controls the government, but our thinking and analysis about what is "fair."
Many conservatives I know consider SS a ponzi scheme. I would like to know why they have this idea. Also many conservatives would like to privatize this system which I think would be a disaster. My husband and I lost a considerable amount in our 401K in 2008 as did many people. We were able to postpone retirement to make part of this back. However, I am concerned about my children who in the future may have private retirement accounts and will lose them in a another economic crisis.
Is Sylvester Schieber a right wing hack? A book review of his 1999 'The Real Deal: The History and Future of Social Security' says the privatization of Social Security was proposed by the authors, along with dire assertions for the need to do so. Anytime anyone talks about 'privatizing' think 'profitizing' because profits always come first in the private sector. If this guy is supposed to be looking out for the average American's retirement, watch out.
I about fell off my bike when I heard Mr. Schieber gravely intone about the unfairness of raising the income limit on the payroll tax. He sounded deeply troubled by how unfair it would be to the affluent to save social security by making them pay more given how little they receive in benefits. This was in stark contrast with the breezy way he talked about raising the retirement age or reducing benefits without any mention of unfairness to retirees who have paid into the system their entire lives expecting to be able to retire.
I was also bemused when he patiently explained that the one percent making over $350K are in fact not wealthy at all and are just getting by.
Clearly Mr. Shieber is just another Beltway one percenter, who socializes and works primarily with other one percenters, and whose only mission is to protect himself and his friends from the higher taxes necessary to keep social security going through the retirement of boomers.
I had the same reaction. The problem is that 95% of the experts and pundits are one percenters who socialize exclusively with other one percenters and to them economic mortals are just faceless masses who don't really count because neither they, nor any of their friends, know anybody who really needs social security to retire. I think every pundit and expert should be required to work one day a week at Walmart before they are allowed to pontificate about social security. Let's see what they have to say when they know they are going to have to work with the people they want to cut off.
The commenters who think that raising the income ceiling is the only solution ignore the inefficiency of the Social Security System, and simply want to throw more money at its inefficiency. If an average participant will only see a "return" of 50 cents on the dollar he or she "invests", it is not a good deal in terms of a retirement system. It doesn't make sense if your income is $20k a year, 50k or 250k. It may make sense as a welfare system, but not as a retirement system. And it seems to me that those who argue for raising the ceiling as the only solution, are arguing that we need to think of Social Security as a welfare system.