Implementation: Recutting the social security pie (Part 3 of 3)

 Hello Readers,

In this series so far, I introduced a premise for (and reasoning behind) a policy, which would involve dividing up the social security funding allocation pie. I believe that we should divide up the pie into four separate (but not necessarily equal) slices:

1. Funds paid out all to current retirees
2. Funds reserved for specific generations of retirees
3. Funds diverted to personal investment funds
4. Funds diverted to paying down any outstanding national debts

In this post, I will put forth a possible mechanism or strategy for implementing this pie-cutting process in a manner that will be fair to current social security beneficiaries but also address the needs of current (and future) generations of workers.

To begin this process in a politically tenable and socially agreeable manner, we need to start at the current baseline and move incrementally toward the goal(s) of this reform.

Currently, the social security pie is nominally set to give 100% of the funding allocation pie to slice number 1 (Funds paid out to all current retirees). However, the baseline according to ssa.gov's 2012 annual report summary:

"...The trust fund ratio, which indicates the number of years of program cost that could be financed solely with current trust fund reserves, peaked in 2008, declined through 2011, and is expected to decline further in future years. After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086."

In essence, social security will not survive in its current form past 2033 (before anyone born in the 1970's or later starts collecting). Thus, it does not seem unreasonable to aim for reform to be fully implemented by 2030. In the graph below, I have offered one possible trajectory for social security fund allocations.

I would recommend implementing the various slices slowly at a rate of roughly 1% per year. I would introduce slices 2 and 3 (the generational and personal slices) starting in 2014, and I would cap their percentages at 15% and 10% respectively. In this way, no more than 15% of an individual worker's social security payments would go to their generational trust fund. Likewise, no more than 10% of an individual worker's social security payments could be diverted to a personal retirement account. 

Similarly, I would recommend introducing slice 4 (the national debt slice) starting in 2018 at a capped rate of 1% and let the cap grow to 10% in 2028. Starting in 2029 and beyond, I would recommend allowing slice 4 to fluctuate between 0% and 10% based on some reasonable measure of the federal government's deficit spending over the preceding decade.

While I am not in a position to determine which metric this slice 4 percentage is tied to, I would simply hope that the calculations would be clearly defined in such a manner that deficit spending results in a reduction in the amount of money allocated to social security spending. Thus, Congress would be heavily incentivized to reduce deficit spending (and thereby proportionately increase the amount of spending allocated to current retirees). Similarly, it would encourage current retirees to hold members of Congress accountable for short-term deficit spending.

***

In summary, I believe that each of these implementation timelines should be slow enough that there will not be any huge/unexpected shock to the economic system. Also, in the long-term, this will: (1) ensure that at least some small part of an individual's retirement funding will be secured regardless of when they are born or how many current workers there are, and (2) ensure that reducing the national debt is no longer simply an exercise in letting future generations resolve the issues of today.

I look forward to your thoughtful criticisms and suggestions on this matter.

Regards,
Sean

This "Recutting the social security pie" series:
Introduction: Recutting the social security pie (Part 1 of 3)
Reasoning: Recutting the social security pie (Part 2 of 3)
Implementation: Recutting the social security pie (Part 3 of 3)

Reasoning: Recutting the social security pie (Part 2 of 3)

 Hello Readers,

In the previous post, I introduced a premise for a policy, which would involve dividing up the social security funding allocation pie. I believe that we should divide up the pie into four separate (but not necessarily equal) slices:

1. Funds paid out all to current retirees
2. Funds reserved for specific generations of retirees
3. Funds diverted to personal investment funds
4. Funds diverted to paying down any outstanding national debts

In this post, I will discuss why I believe that social security funds should start to be divided into these four slices. Then, in the next post, I will put forth a possible mechanism for implementing this pie-cutting process in a manner that will be fair to current social security beneficiaries but also address the needs of current (and future) generations of workers.

1. Funds paid out to all current retirees

The reasoning behind the first slice "Funds paid out to all current retirees" is perhaps the most obvious. This appears to be the original intent of the social security program, allowing funds from the actively working body politic to help support the currently retired. This helps senior citizens mitigate the negative impacts of any short-term personal financial hardships during or immediately before retirement.

Thus, as long as social security survives, a certain share of any social security funds will need to be spread across all current retirees, who are actively receiving benefits. Perhaps this slice might appropriately be renamed the "we (the living) are all in this together" slice... to indicate that we are not going to leave senior citizens to fend for themselves.

2. Funds reserved for specific generations of retirees

The reasoning behind the second slice "Funds reserved for specific generations of retirees" is a new, subtle adjustment to the current social security scheme. Originally, (when social security was created) there would have been an expectation that with most citizens not surviving long enough to collect social security (or not surviving long enough to collect it more than a few years) that there would always be a sufficient number of active workers to fund the needs of living retirees.

However, today, with the 20/20 vision afforded to us by basically 80 years of practice, it is clear that for social security to function in perpetuity from generation to generation: each individual generation needs some certainty about their own retirement. By immediately spreading all incoming social security funding across the needs of current retirees, we will inevitably encounter situations (such as the crashing of the baby-boom retirement wave) where the working generations cannot reasonably be expected to support the needs of current retirees without putting in peril their own needs in the future.

Thus, I would suggest that one way to mitigate the impact of these fluctuations over time is to move away from a current workforce supporting current retirees model toward a current workforce supporting future retirees model. In this way, each generation would more directly be supporting itself, and (likewise) the size of each generation of retirees will be proportionately supported by a generation of roughly the same size (i.e. the younger version of itself). As such, perhaps this slice might appropriately be renamed the "we (our generation) are all in this together" slice... to indicate that we should not forget about our future selves even as we work to support the ones we love.

3. Funds diverted to personal investment funds

While the original version of the social security program appears to have had provisions that limit the level of benefits an individual is eligible to receive based on the amount of money they paid into the program during their working life, it does not appear that the program was ever intended to give individuals any autonomy over how their own funds were invested. As a result, citizens, who do not (whether by choice or circumstance) set up other retirement plans (e.g. pensions, 401k's, IRA's) for themselves, have little-to-no direct control over the future of their own retirement funds.

Understandably, this format runs contrary to the 'spirit of rugged individualism' upon which many citizens pride themselves, and I believe that ultimately the degree to which this 'spirit' is real or perceived (a not uncommon point of contention) is irrelevant. Politicians (typically on the left) will ignore this popular sentiment at the peril of the program they support.

I believe that for social security to have any real chance at surviving in the long-term that: (1) it is necessary to offer some autonomy to those who desire it, and naturally (2) the government should only offer up such a concession under auspices of a mutual understanding that - for those who opt for autonomy - there is some risk of failure (and some risk of loss).

In practical terms, I am suggesting that individuals be able to designate (each year they are working) a certain portion of the social security funds (that would otherwise be withheld from their pay) to be diverted to some sort of personal retirement account. Then, in a complementary manner, whatever portion of a retiree's pay had been diverted to their personal retirement account over the course of their working life would be deducted from the pay-out they would otherwise receive from the more traditional social security fund(s).

At this point, I do not have any preference regarding who would run such an account (whether run by the government or -more likely- the private sector), and I do not think that the administration of such a program would need to be any more complicated than the current system of claiming a tax credit for money deposited in an IRA at the end of each tax year. Instead, it is more important that Congress just settle on something that works - politically and practically.

All things considered, this slice of the pie might easily be renamed the "rugged individual" slice of the pie... allowing those who would desire it, the ability to take a chance to earn (or lose) a little bit more than their neighbors.

4. Funds diverted to paying down the national debt

The reasoning to include this "Funds diverted to paying down the national debt" slice of the pie may be much less obvious (and much more controversial) than any of the others. However, this slice of the pie stands firmly on principles of sustainability and inter-generational equity.

It has been rightly pointed out (no pun intended) that the United States federal government is spending a large amount of money that it does not have by borrowing money from other countries... and in essence from future generations, who will be forced to pay off that debt (or possibly go to war to avoid paying the debt if it is too burdensome). In any case, it is a fundamental issue of inter-generational equity that each generation do their best to pay for the governmental programs (especially those with one-off benefits) they benefit from in their own lifetime, rather than leaving that burden to those that follow them.

Also, in perhaps a more tangible way (especially for those born of since 1970 and/or those familiar with the Greek debt crisis): what good is it to have retirement benefits promised to you in the future, if the overall functionality of your government may come into question due to astronomical national debt?

I believe that by tying the overall pool of social security benefits to the amount of national debt (or lack thereof) incurred by each generation, every generation will be incentivized to manage government spending more prudently. While this concept may seem intimidating - and I can't promise that it isn't - it may be less intimidating than trying to address the national debt issue from fiscal year to fiscal year.

****

I have offered the best (brief) reasoning that I can muster for including each piece of the social security funding scheme that I am proposing. In the next post, I will do my best to offer a good way to implement the social security reforms that I am proposing.

Regards,
Sean

This "Recutting the social security pie" series:
Introduction: Recutting the social security pie (Part 1 of 3)
Reasoning: Recutting the social security pie (Part 2 of 3)
Implementation: Recutting the social security pie (Part 3 of 3)

Introduction: Recutting the social security pie (Part 1 of 3)

Hello Readers,

Earlier this month, I offered a letter to the newly re-elected president, in which I discussed the need for swift and decisive action on climate change and the national debt crisis. I reasoned that by taking action on issues that will greatly impact my grandchildren's grandchildren, we can see immediate improvements in the short-term while moving in the right direction overall.

This week, I would like to take some time to see if we cannot help future generations and current generations (old and young) all at the same time. To do so, I propose that we dance on another third rail (perhaps the sixth rail?) of politics: social security reform.

Over a year ago, in the summer of 2011, I offered a detailed '3 year plan' proposal for implementing automatic adjustments to the social security retirement age. With much clarification provided in the posts (links provided at the bottom of this post), the proposal boiled down to this:

The United States government should enact legislation that implements an automatically adjustable retirement age for social security retirement benefits, such that: during the decade in which citizens turn 50 their retirement age will be set at an age that is 3 years less than the average United States life expectancy at the time.

After carefully re-reading and re-considering my thoughts from last year, I stand by that proposal, and I would like to offer up some more thoughts to President Obama and the Congress as they swerve to avoid the so-called "fiscal cliff" at the end of this year.

Before I start to layout my new proposal to re-cut the social security pie, I would like to point out that I know that my idea will not be perfect (and will need a lot of collective thought and will-power to implement effectively). Thus, I strongly encourage my readers to consider the spirit of my proposal fundamentally set while considering the numbers in my proposal to be entirely negotiable.

Now, as I understand it, many people have argued about the merits of whether or not the 'social safety net' of social security should exist (even if some elected officials equivocate in public for the benefit of gaining senior citizen votes). However, for the sake of moving towards action, it is important to come to an understanding that whether or not you believe that social security should exist or not, it does exist.

It exists, and millions of people now depend on it as at least one of their primary sources of income.  It exists, and it will not be politically feasible to (safely) dismantle it (even if you would like to see it go). It exists, and it directly impacts most of the country (whether they are paying into it whenever they are working or they are receiving payouts now or are expecting to receive payouts soon).

As such, I hope that all of my readers, will concede that social security exists, so it is important to address its viability now to avoid potentially devastating financial consequences that will span generations. To address this viability in the fairest and most politically actionable manner, I propose that we start in the middle of the middle of all reasonable proposals for social security reform (at least of those that I have come across) and then add a little bit more.

In essence, I suggest that we begin to divide up the social security funding allocation pie.** While this may superficially seem to make the process more complicated, please stay with me and hopefully it will make sense at the end. I believe that we should divide up the pie into four separate (but not necessarily equal) slices:

1. Funds paid out all to current retirees
2. Funds reserved for specific generations of retirees
3. Funds diverted to personal investment funds
4. Funds diverted to paying down any outstanding national debts

In the next post, I will discuss why I believe that social security funds should start to be divided into these four slices. Then, in another post, I will put forth a possible mechanism for implementing this pie-cutting process in a manner that will be fair to current social security beneficiaries but also address the needs of current (and future) generations of workers.

Regards,
Sean

**Throughout this entire series I am focusing solely on the social security program as it pertains to retirees, and I am not proposing to make any adjustments to parts of social security benefits for the disabled or other non-retirees.**

This "Recutting the social security pie" series:
Introduction: Recutting the social security pie (Part 1 of 3)
Reasoning: Recutting the social security pie (Part 2 of 3)
Implementation: Recutting the social security pie (Part 3 of 3)

The previous "Adjustable Retirement Age" series:
Proposal: Social Security Reform - Adjustable Retirement Age
Response: Social Security Reform - Adjustable Retirement Age
Discussion: Social Security Reform - Adjustable Retirement Age (Part 1)
Discussion: Social Security Reform - Adjustable Retirement Age (Part 2)

The Challenge of Returning Veterans

Hello Readers,

I found a very interesting TED talk, which seems especially appropriate on this (observed) Veteran's Day.



As the speaker suggests, a program or organization like this might be a crucial step in helping veterans returning from Iraq and Afghanistan to re-integrate themselves into society. Also, it could be an intelligent model for implementing a climate change adaptation policy or program, and I would suggest that it might not necessarily need to be limited to post-disaster relief. It could also be extended to include pre-disaster preparations and overall disaster mitigation strategies.

Respectfully,

Sean

A letter to the president

Hello President Obama,

I obviously want to start off by congratulating you on a well fought electoral campaign and, of course, your re-election. On Tuesday, I voted for you for a second time, and I wanted to let you know why.

I believe that we need to leave the planet and society in better shape than they were given to us.

I am not (especially) worried about myself, because I have been given the opportunity to share in a rich and on-going human experience: the opportunity to grow and learn and live. My main concern is that I leave the planet and society in such a state that my grandchildren’s grandchildren (which – for the record – are hypothetical, as are any children I may have in the future) will have the opportunity to say the same thing. I believe that if I live my life like this – asking for nothing that will detract from the human experience of my grandchildren’s grandchildren – my life, my neighbors’ lives, and my children’s lives will be enriched all the more.

I understand that none of our country's problems (financial, social, or environmental) materialized overnight nor could many of them be easily predicted (or avoided even if they were clearly predicted). Instead, the issues we face are the result of an accumulation of decades of (and in some cases generations of) complex decisions made with the best intentions.

I also understand that there are indeed limits to presidential power, and that it is necessary for a president to work with (or in some cases against) the Congress as well as many other parties. I understand that the social cost of not addressing our country's health-care system in your first term would have been great.

In short, I am very understanding. However, I voted for your re-election, because I believe that you genuinely care, speak and act sincerely, and possess the fortitude to that will be required to work through the issues at hand.

That being said, I must demand two things of you. The first, of which you are no doubt well aware, is that you do whatever it takes to get our nation's debt under control. The second, which you only mentioned in passing during your campaign and which in my mind is absolutely paramount, is that you put a truly unprecedented effort forward to implement substantial measures that address climate change - both its mitigation and (due to the unfortunately modest progress made on this issue thus far) our adaptation in response to the effects that can no longer be avoided.

You have been given 4 more years to accomplish both of these demands; however, the impact of your actions will determine the course of our history for the next 40 years or more. While others will demand necessary and useful short-term actions to fix the economy and provide more jobs over the next couple of years, any such short-term gains will be completely negated soon after the end of your term if a comprehensive long-term strategy is not initiated.

I have waited four years with patience and understanding. We cannot wait another four years. We need serious and comprehensive action now. We need to find solutions that work - whether they are government-based solutions or private-sector solutions or a little of both, I frankly do not care... whether it requires raising more taxes or making thoughtful spending reductions, I do not care. It simply needs to work. The rest of the details will sort themselves out over time, just make it work!

With high hopes and best wishes,

Sean Diamond
A member of the Warmest Generation

TED Talk - smart building materials

Hello Readers,

I thought you might enjoy watching this TED Talk about smart building materials, which provide passive air conditioning (reducing energy consumption).



Cheers,
Sean

Sandy: a footnote in history

Hello Readers,

Unless you have been living under a flooded rock, you know that hurricane Sandy started hitting the east coast of the US one week ago. There have been a flurry of articles in the news media discussing how climate change played a role in Sandy's strength...

Bloomberg Businessweek:
http://www.businessweek.com/articles/2012-11-01/its-global-warming-stupid

 ...among many others. And yet, climate change has just begun to take effect (according to basically any credible scientific climate model). Just imagine what the 14' storm surge in New York City could have been if the baseline sea-level had already risen 1-3' (as it may within the next several decades). What would the IKE be...

Washington Post:
http://www.washingtonpost.com/blogs/capital-weather-gang/post/sandy-packed-more-total-energy-than-katrina-at-landfall/2012/11/02/baa4e3c4-24f4-11e2-ac85-e669876c6a24_blog.html

...if the global temperatures were a few degrees warmer, and the atmospheric humidity was just a little bit higher (holding a little bit more rain water), which would add to the amount of rain that fell in the span of just a few days...

Washington Post (again):
http://www.washingtonpost.com/blogs/capital-weather-gang/post/hurricane-sandy-recap-historic-storm-from-storm-surge-to-snow/2012/10/31/9a7c56d8-2362-11e2-ac85-e669876c6a24_blog.html

So yes, the impact of hurricane Sandy was (and still is) devastating, and I certainly hope that those still living through those impacts the best of luck, but please take a moment to consider that this storm may be considered mild or average in two or three decades (if climate change plays out how the models predict).

After you consider that, let's have a discussion about what we can do to avoid a worst-case-scenario. (Again, sorry for implying that the current situation is nowhere near the worst-case-scenario, but it is not even close.) Let's start talking about how we can reduce our greenhouse gas emissions nationally (reducing the long-term impacts of climate change) and how we can increase the baseline-resilience of our local communities (increasing our tolerance for extreme weather events). This is the two-pronged approach that we need to take in order to ensure our place in history as the Warmest Generation.

Regards and best wishes,

Sean Diamond

Before you vote, watch this...

Hello Readers,

I have finally gotten a chance to get settled in after my move into my new apartment and beginning my new job, so it appears that it is time to come out of blog-itudinal hibernation. Given that it is the last weekend before election day, I must urge that you at least take climate change in mind before you vote!

Here is a Frontline PBS special about climate change and politics...



I can't promise that everything that they say in the video is right or wrong, but at least they are talking about it... unlike the presidential campaigns!

Once you are done watching, GO VOTE!!!

~Sean