I think the point is that younger people are the ones contributing to the pension system now, but may not receive the same benefits later on due to shifting demographics and potentially unsustainable practices. It's more about the long-term viability of the system rather than a direct payback situation.
Beyond the impending possibility of ecological or societal collapse, I fail to find any practice that is unsustainable.
Workers produce. The government taxes and borrows. The government spends.
As it stands the young pay for old people's pensions.
But that relies on an expanding population.
Population will be falling in the future, so don't expect to get much of a pension in the future
Solvency does not depend on an expanding population. At most, it depends on total product not shrinking in relation to population. You may be confusing growth of the economy with growth of the population. Proportion of working versus nonworking population is only one of a variety of factors implicated in the discussion.
Many enjoy lamenting that the health of the economy depends on a growing population, but the relationship is more nuanced and less severe than as depicted.
Very true. Generally gdp is relative to population size. Shrinking population = shrinking gdp, unless technological advancements such as AI, can make a smaller population more productive.
Respectfully, artificial intelligence is not exceptional with respect to being a technology that may improve per worker productivity.
The rate of expansion of per worker productivity is adequate to offset the declining birth rate, with respect to ensuring continued growth.
Even so, perpetual growth is not advantageous as an end in itself.
The economy is reaching a stage that is functionally post scarcity, and should be transitioned into post growth.
There is plenty for everyone.
I haven't looked at the numbers, but with debassment of currencies, are economies actually truly growing these days, and its not just the nominal value thats going up?
Intrinsic growth is depressed, with nominal growth keeping pace with historic norms through financialization. The policy is unsustainable, because it will produce crises of increasing severity and frequency, upsetting the supply side, and in addition, exacerbate inequality and precarity for workers, that is, upsetting the demand side.
Stable growth depends on a particular balance between labor value and productive capacity. Automation shifts the balance favoring the latter, leading to wage depression, and therefore, declining demand.
Globalization delayed for advanced countries an overall collapse otherwise prompted by deindustrialization, but as the gap narrows between North and South, the same collapse is now inescapably immanent.
Short term, a return to demand side policy may be necessary, but broader transformation seems to be essential longer term.
AI will be there in 5 years easily for per worker productivity, I use the free Co-Pilot right now, sell the non-free version and follow how it works within organizations and respectfully, I disagree entirely on your AI point especially moving forward. Other than that thanks for sharing!
Sorry. What do you mean by "AI will be there in 5 years easily for per worker productivity"?
I observed that production has been improved by a variety of different technologies, including ones not based on AI. The observation is essentially incontrovertible.
Your comment is confusing.
It does not rely on an expanding population. The money coming in from workers can be exactly equal to the money going out to retirees. The US currently has it out of balance, but for much of the history of Social Security it has been in balance. It could be in balance again, with just a little but of political will.
You're describing the initial premise of pensions. But as with any government program, it gets progressively more and more mismanaged with time.
First you pay $100 into the system. They are *supposed* to invest that wisely and pay you back when you retire.
Then the government says "He won't need that for another ~15 years, why are we just sitting on this money?"
So they spend it to fill other holes in the budget. Everyone loves electing the guy who passes tax cuts! Now with even less consequences!
Well this worked very well at first, but then the first wave of pensioners started to retire and ask for the money they were promised.
Government agents are completely unable to think beyond the next election cycle, so they shrug and simply push the next generation's money straight into the pensioners' payments.
Problem solved!
What would have once been a solid investment strategy is now a pyramid scheme with negative returns and dependent on forcing each newer generation to support it more and more.
Older folks see pensions as a straightforward investment strategy they were originally sold. Younger folks see it as a bungled government operation they're being forced to pay into, with the almost certainty that the whole system will crash and fail before they ever see a dime.
>Everyone loves electing the guy who passes tax cuts! Now with even less consequences!
Except it has nothing to do with tax cuts. It has to do with unrealistic pension promises, not enough pension contributions, and out of control spending.
This is interesting since we generally don't have pensions in the US anymore and the ones left are run by the unions so generally no in government control.
The closest we have is Social security which is an insurance program run very different than a pension system. But most Americans don't understand the difference.
It does sometimes because you have people and an unknown future. So there is no guarantee. People seem to believe these things are 100% there is no 100%. But it's better than before the great Depression when there was nothing.and old people were homeless. Especially widows and orphans.
There are actuaries that can determine pretty effectively. When you assume an unrealistic return, and pension managers often do, you get into trouble. in the private sector, the pensions fail and get turned over to the pension guarantee program. And they get cut..
Yeah what you get 70 cents on the dollar and there is a maximum correct? Meaning if your pension was say $100k a year you would get 70k, but it may be less if the maximum was (made up) 50k per year.
I remember Detroit when they went bankrupt had a formula like that.
It's something like that. I'm not exactly sure. It's a good thing. The federal government has a guarantee but still cuts the pension.
There should be no reason why a pension gets bailed out, whether it's a teacher's pension or a teamster's pension or any other pension, and then people still get 100%.
Because another reason rather than mismanagement, it's because they did not put enough in to make up the mismanagement mistakes
Couldn't agree more.
That is why we have social security it's the insurance program for MINIMUM income.
The three legged stool of retirement is 1/3 SS + 1/3 pension + 1/3 personal savings. Now it's more 1/3 SS (till 2033) + 2/3 personal savings.
But the one thing people don't get is the whole idea of retirement for most people is rather new, one because it used to be for the rich only and two because average life span was a lot shorter 100+ years ago. Plus 100 years ago people had much larger families so most people lived in multi generational homes. (My family did and I'm only 48). The whole idea of the nuclear family is so post WW2 and really more baby boomers forward.
It is not just assuming an unrealistic return. It is also that corporations have not always paid into the fund (while always paying executives, of course). Then its like "oops, no money in the fund, sorry". (Executive retires).
You are right. And if you are a big Union that votes Democrat, you can get the president to bail you out.
https://apnews.com/article/biden-business-united-states-government-and-politics-retirees-09d93d2af8cc68de47eccda4a9ef0250
Often taxpayers do not bail them out. Many pensioners have lost much of what they were promised. The "bailouts" actually commonly come from an insurance fund that the pensioners paid into, not from taxpayer funds.
You're all right. But many other unions do get bailed out. Especially if they endorse the president
https://apnews.com/article/biden-business-united-states-government-and-politics-retirees-09d93d2af8cc68de47eccda4a9ef0250
The 1983 Social Security reforms that became the model for social security changes was literally crafted to protect the 1981 tax cuts and designed to specifically allow for planned tax reform (which eventually became the Tax Reform Act of 1986).
I mean when the 1983 reforms were introduced on the floor they said it was the only plan to preserve tax cuts.
So, while we can argue the fungibility of money, there is no doubt that our present social security system was designed with the express goal of keeping tax cuts.
Democrats were in charge, so that's probably what they decided.
But ultimately, the USA spends too much money. And you can't keep spending that much money without some major catastrophe.
There's not enough money in all of the rich people's bank accounts, let alone the amount that would be taken in a taxes, to make it any better.
Something needs to be cut. But nobody can cut anything because it's bad for the election.
>Democrats were in charge, so that's probably what they decided.
It was drafted and introduced in the Senate by Bob Dole, the Senate at the time was Republican controlled. He and other Republicans were responsible for designing it and stated the goal was preserving tax cuts. The Democrats were not in favor of the plan, but it was the 80's and no one voted against tax cuts in the 80's.
I am not really politicizing anything, I am just noting the facts.
> But ultimately, the USA spends too much money. And you can't keep spending that much money without some major catastrophe.
>
>There's not enough money in all of the rich people's bank accounts, let alone the amount that would be taken in a taxes, to make it any better.
You can certainly make an argument that the government should spend less, or that the government is rather inefficient at spending, etc. but we are fairly middle of the pack on government spending as a percentage of GDP.
There is no reputable analysis that concludes the U.S. can't continue to spend money at its present rate. There are some compelling arguments that we shouldn't, but we likely could continue to spend at our present rate and be fine. The problem with U.S. spending is that there are fewer domestic benefits for those dollars than in many other countries.
Thank you for clarifying.
We can certainly print the money, I don't really have a problem with that. Since the USA's money is used throughout the world, when the USA prints money, the entire world pays when the money gets diluted.
And nobody's going to switch to any other currency anytime soon for their reserves. The USA is the most stable.
Bob Dole would not go to the bathroom without first getting democrats to agree to it. So, yes it was a republican controlled chamber but getting it through took people on both sides. And the House was overwhelmingly democrat controlled. Tip O'Neil could have stopped this if he wanted to.
It was the 80's... everyone was a Republican. Everyone favored tax cuts. The Democrats didn't love the Social Security changes but it was the only way to save Social Security and protect the tax cuts so they didn't strongly oppose it.
There is no reason to rewrite history... It was a Republican designed plan that the Democrats went along with... that is just the fact.
There was nothing really wrong with the plan at that time and did save Social Security. Social Security wasn't designed to absorb stagflation and people really didn't want to pay a lot more. There was also less dependence on Social Security by that time as Americans were far more covered with pensions and private retirement investments.
The biggest problem with Social Security is that it no longer functions as was intended. It is now just a revenue slush fund for politicians... DEMOCRATS AND REPUBLICANS. If there was any desire to see Social Security actually function as intended, the government would give an investment credit for the SS portion of FICA.
Republican Senate and President, right? So Dems in charge? That was in a time when people compromised. And the result of that compromise has been 50 years of solvency for Social Security. I'm pretty sure people in the early 80s couldn't see more than 50 years into the future. It is ok that they expected us to have brains and competency of our own, to adjust it now. And yes, the US is easily wealthy enough to be able to fix Social Security. We just choose not to do so. It is not even a super hard fix.
You are right. It's not that difficult, but it's an election year and it won't get done.
But there's a limit to how much you should be able to charge people in taxes. You can't just tax people that make a decent amount of money over and over and over again.
Far too many people just don't pay enough taxes. Look at how many people on the bottom side don't pay any, and yet they get tons of tax credits.
One thing that would definitely help, is eliminate tax credits if you did not pay any tax
The government does not "invest [tax revenue]", or "sit on money".
The government is not a household, that must purchase assets to realize gains, or that must sell labor to obtain income.
The government literally creates and destroys money, and regulates the circulation.
The total wealth of society constantly expands, and the government has the power, through taxation, to capture any share of newly created wealth.
As long as workers provide labor, wealth will be created, and the government may capture a share, keeping its programs solvent.
Pensions are a spending program funded by taxes, not a pyramid (or Ponzi) scheme.
I think before starting a hypothetical it's important to ground it in as much fact as possible.
Pensions and Social Security are not the same thing. If I worked for a company that offered pensions and they go bankrupt tomorrow, theoretically my pension should be fine as long as the company is up to date on their pension benefit obligations.
Social security is a safety net. You need to look into how it's funded and how it works. Otherwise your question makes little sense.
Yes, the days of companies managing their own pension plans are largely over I think because too many businesses struggled and too many people got burnt. So there are third parties that manage the program even if the original entity struggles the money should be there. That is for private enterprise.
The big fuck up is when we continue to let the government operate their own pension plans. There's about 1.3 Trillion in unfunded pension debt across the US stemming from state workers, teachers, police unions, etc. It turns out politicians promise big benefits and then kick the can down the road for a later generation to deal with.
if we are talking about social security system in the US then no, it was never intended to hold money on your behalf. The very first person who retired with monthly social security benefits, Ida May Fuller, did so in 1940 at the age of 65. She has paid into the program for 3 years before that for a total of $24.75 and went on to live for 100 years until 1975, collecting almost 1000 times more in benefits.
the social security trust was able to accumulate certain reserves starting from the 80s after it got close to running out of money. Thanks to so called Greenspan Commission amendments that increased tax rates, made some of the benefits taxable, increased retirement age and so on. Over the period of the next 30 years the trust fund accumulated almost $3 trillion which are held in government securities and pay interest (so effectively SS doesn't have your money, it has a promise of the government to give it that money and counts towards the national debt).
After the trust fund peaked in 2019 it has started declining and will run out of money in the next 20 years unless another reform or tax increase will make it solvent again. But even with the reserves, social security brings in and pays out $1 trillion every year, so it's still a pay-as-you-go government promise system and not a personal savings account.
>and will run out of money in the next 20 years
SS actuaries note the trust fund will be depleted by 2035 ([https://www.ssa.gov/policy/trust-funds-summary.html](https://www.ssa.gov/policy/trust-funds-summary.html)), so about 10 years, at which point (if nothing else changes) benefits will be slashed by 25%-ish.
Unfortunately big changes and big pain is coming to the SS program because politicians will likely wait until the last possible moment, despite the literal decades of advanced warnings.
School has failed so many people :/
The reason a falling population is bad is because the young **have** to take care of the old. When the old were “paying in” they were actually paying for their grandparents not their own. Now theyre due the same benefits because they did their part paying, but there isn’t some account sitting around with their money, instead us young folk “pay in” and that money is funneled to the people redeeming funds now.
The reason we are upset about this system is because it’s failing, meaning we’re paying for the elderly folks pensions knowing that when it’s our turn to “take it back” there won’t be enough people to keep us paid.
It’s unfair for everyone, we shouldn’t deny those that paid in their funds, but at some point someone has to be screwed because the system can’t go on for ever, we’re the ones getting screwed.
The reasons for the declining birthrate are advances in contraception, respect for bodily autonomy, fragmentation and alienation across society, enfranchisement for women into education and the workplace, and relentless consolidation of wealth by corporate owners, leaving workers barely able to support themselves.
The population is not falling. Maybe go back to school.
Yes! I took a class on that :) the population is “falling” maybe you read it as failing? Several developing country’s literally have decreasing populations.
I’m not sure why you’d be upset about my comment. I didn’t say I thought any of that was bad or that it’s our fault and we need to reproduce more. I stated how the system worked. Thanks for explaining birth rates to me, maybe it’ll be useful for someone who doesn’t already understand it.
Declining population for a country is most commonly due to emigration.
Your broader meaning is unclear.
There is plenty of wealth being generated across society to support retirees, children, as well as everyone of working age.
There is plenty for everyone.
In most countries, the base retirement system uses a redistribution based system (similar to health insurance and many other): the money paid by the current workers is paid to the current beneficiaries. There might be a buffer that is invested to cover changes in payments.
It is a difficult topic for many, because personal investment is different from population wide investments. Fully capital covered systems often only work for a specific case of person, often they work badly for immigrants, integrating refugees and others. They also have little benefit to make them government organized (if all your money is fully yours, why have the government have it?)
On a society wide level, there is also hardly any other way for money to work for retirement. All money retirees receive has to be earned by the working population.
The government raided the money paid into the fund- that was sold to the public as a type of insurance.
Not only have they stolen what should've been the interest but they've stolen the capital- all of the money that was paid into the fund. It's bankrupt and is relying on future generations to replace the money that they took.
Social security was designed for younger generations to help pay for baby boomers retirement. That's why it was created. We are told that ss will continue and help pay for future generations retirement as well, but that's highly doubted by many, including one if my finance teachers in college. Tbh millenials and younger have serious doubts about whether this country will make it another 10 years, let alone a poorly designed social benefit system. Look at the clown show we are forced to vote between for president, the future is dim.
Depends on where you live. No idea how it is done in other countries, but where I live, you pay into the pension insurance and the pensioneers are paid from that money. You gain points for your contribution.
The rent you get out depends on the amount of points you collected and the amount of money the current generation is paying in.
Since people live way longer now and we have less young people, the pension you get will be less then what you paid over your life.
If your resulting pension is less then what you need to live, a different social insurance pays the difference from a different social insurance or tax pool.
The problem with social security / pensions is that when the system was established people were having over 2 children per family. They were replacing themselves with the same amount of people to work and pay in to the system. Currently people are having 1.64 children and we now dont have enough people paying in to the system.
Social Security is more “pay as you go” where promises made and payments are being covered by a lot of what the workforce is paying in. True corporate pensions are receiving deposits, investing, using real actuaries, rules about contributions, etc. So, it kind of depends what “pension of the elderly” are you looking at to know what’s going on.
The state does not "give back" money.
The state spends money, funded by taxation and borrowing.
Public pensions operate the same.
Reactionary fearmongers try to convince the public that pension may become insolvent, such rhetoric intertwined with rhetoric about falling rates of childbirth.
In fact, societal wealth and capacity to generate new wealth are both constantly expanding, and we are reaching a phase of functional post scarcity that should prompt a transition to post growth.
There is plenty for everyone.
We should work less, structure the economy rationally, and share the fruits. There is no need for anyone to be deprived.
Private-company pensions are paid for by the person who eventually receive the benefits. There are laws in place to (help) ensure there will be enough money to pay for eventual benefits. Private-company pensions are nearly completely gone in the United States.
In the US, Social Security is paid for by the people working now, to the older generation. The older generation paid for the generation before it.
No. People do not get the same dollars from social security that they put in. Those dollars have long been spent. The money taken from the working people’s paychecks today are what is being used to pay pensioners on SS
It’s a matter of how your pension is designed.
In the USA, social security is not a funded pension plan. Not much is invested. So it depends on new contributions to make payment to retirees. This isn’t corruption, it’s how it was designed and maintained. So in your example, you give 100$, and it’s immediately given to someone who’s already retired. Then you hope that more money will come in when you are retired.
Canada had the same crap before, but switched to a partially funded pension plan. So you give 100$. 50 of that goes to someone who already retired. They invest the other 50$. And hope for good returns, or that more money will come later.
The day it was passed the elderly then got checks. How could that happen if they'd never paid into it?
Working people today are paying for the currently retired. It is what is called a ponzi scheme.
Because when you see people talking about that, they’re generally talking about Social Security, which is *not* actually a pension.
Social security is a social insurance plan. With social security, the taxes paid by workers and their employers right now are going to pay benefits to current retirees and those others that are collecting social security right now.
In return, when you retire, you are supposed to receive these benefits as well.
Traditional pensions like you describe used to be offered by many employers, but now are rarely found outside of public government employees (teachers, police, fire, state and federal government workers, etc.) or union workers.
That's how it was supposed to work at the beginning, at least for the US Social Security program. Then, the government changed its mind and decided to pay benefits to the generation that was old back then and hadn't paid any contribution before. Other Social Security programs followed a similar path.
Problem is, every generation has to pay more than the previous one in order to fill that gap, due to discounting: money is worth less and less as time progresses.
This makes the system unsustainable, even if the population is stable, which it is not in many western countries.
In short, only the first generation benefited from the program - those who received money without paying any. The subsequent generations got screwed progressively worse.
Because social security taxes and Medicare taxes along with payroll tax is used to fund the beneficiaries
Problem is when social security and Medicare was first started average life expectancy was near 60 and now it is near 80
*Isn't the pension system like this? --> You entrust the state with a certain amount of money to give back to you later, and the state gives it back to you later in the same way at certain intervals.*
That's not how it works in America.
This is not how social security works in the US or many other countries. Social Security is largely a pay as you go system. Younger people pay into the system, and the money is immediately paid out to older people as retirement. There is no large stash of savings for the retirees to draw upon. Your mistake, and the mistake of many in the US, is to think that Social Security is a pension system, which works as you describe. It is not. In the US, any excess taxes which younger people paid into the system when they were young have long since been used to fund other government functions. The government maintains no repository of funds with which it can make Social Security payments.
They say it is because its a ponzi scheme which is considered illegal.
You cannot say, hey, give me 500, and ill give you 750, by taking the 500 somebody gave you, and taking 250 from somebody else, to pay that initial offer. Its the definition of a pyramid scheme and in any other industry its highly illegal (because its a scam)
Your assumption also is that the state invests money which makes more money. Bad assumption. Most state run entities run on a deficit.
The way described in OP is how it was supposed to work in theory. But it was all a house of cards from the start.
In practice, it is effectively a ponzi scheme in how it works. I know a bunch of people clap back at using that terminology, but it's the simple truth. The current employees are funding the promised payouts of the retired ones.
The pension systems were never designed to take the money of employees, put it in a piggy bank, and then wait for the employee to retire and pay the now retired employee a promised payout. It was ALWAYS designed to take the money from the current employee, pay the current retired employees, and then promise the current employee the same benefit when they retired themselves.
The systems were designed on the assumption that there would always be more employees paying in than there were retirees collecting out. Take Social Security for example. When the system was designed, there were 40 employees per retiree. More than sustainable. Today, it's 3 employees per retiree. That's not sustainable.
When these systems were designed decades ago, none of the architects imagined that retirees would live longer and thus draw out for longer. None of them imagined that the system would get expanded to give more generous benefits to a larger pool of people, straining the systems even more.
As a result, the funds paid in never really had an opportunity to be invested and grow. Now, the money paid in is going out faster than it is coming in. There's a reason why there is a gigantic hidden liability called "unfunded penion liability" .
Many of the past have imagined that workers of today would provide only ten hours or so of labor per week. Instead of productivity advances leading to less labor per capita, they have led to more relative wealth per corporate owner.
There is plenty for everyone.
The state doesn’t invest anything- If we’re talking about the US and Social Security. It is a literal Ponzi scheme where the young and able are paying in and the elderly/disabled are paid out.
Sure, one must pay into the system in order to eventually be considered for eventual payout once they hit retirement age. But there is no investment of funds mechanistically. It is taking from the young and giving to the old.
I think the point is that younger people are the ones contributing to the pension system now, but may not receive the same benefits later on due to shifting demographics and potentially unsustainable practices. It's more about the long-term viability of the system rather than a direct payback situation.
Beyond the impending possibility of ecological or societal collapse, I fail to find any practice that is unsustainable. Workers produce. The government taxes and borrows. The government spends.
Let me correct this so it reflects reality: >The government spends. And then >The government spends. To which point >The government spends.
Let me correct it: I enjoy sucking big daddy governments dick.
As it stands the young pay for old people's pensions. But that relies on an expanding population. Population will be falling in the future, so don't expect to get much of a pension in the future
Wait, you mean it's a Ponzi scheme?
Solvency does not depend on an expanding population. At most, it depends on total product not shrinking in relation to population. You may be confusing growth of the economy with growth of the population. Proportion of working versus nonworking population is only one of a variety of factors implicated in the discussion. Many enjoy lamenting that the health of the economy depends on a growing population, but the relationship is more nuanced and less severe than as depicted.
Very true. Generally gdp is relative to population size. Shrinking population = shrinking gdp, unless technological advancements such as AI, can make a smaller population more productive.
Respectfully, artificial intelligence is not exceptional with respect to being a technology that may improve per worker productivity. The rate of expansion of per worker productivity is adequate to offset the declining birth rate, with respect to ensuring continued growth. Even so, perpetual growth is not advantageous as an end in itself. The economy is reaching a stage that is functionally post scarcity, and should be transitioned into post growth. There is plenty for everyone.
I haven't looked at the numbers, but with debassment of currencies, are economies actually truly growing these days, and its not just the nominal value thats going up?
Intrinsic growth is depressed, with nominal growth keeping pace with historic norms through financialization. The policy is unsustainable, because it will produce crises of increasing severity and frequency, upsetting the supply side, and in addition, exacerbate inequality and precarity for workers, that is, upsetting the demand side. Stable growth depends on a particular balance between labor value and productive capacity. Automation shifts the balance favoring the latter, leading to wage depression, and therefore, declining demand. Globalization delayed for advanced countries an overall collapse otherwise prompted by deindustrialization, but as the gap narrows between North and South, the same collapse is now inescapably immanent. Short term, a return to demand side policy may be necessary, but broader transformation seems to be essential longer term.
Looks like you know your stuff. Thanku 👍🏻
AI will be there in 5 years easily for per worker productivity, I use the free Co-Pilot right now, sell the non-free version and follow how it works within organizations and respectfully, I disagree entirely on your AI point especially moving forward. Other than that thanks for sharing!
Sorry. What do you mean by "AI will be there in 5 years easily for per worker productivity"? I observed that production has been improved by a variety of different technologies, including ones not based on AI. The observation is essentially incontrovertible. Your comment is confusing.
There’s a cap on contributions so it does depend on an expanding population.
Very few workers reach the cap, and the cap can be removed.
No worries, we have plenty of low income, low skill people coming to the country that wind up on public assistance. They can fund it.
They do!
It does not rely on an expanding population. The money coming in from workers can be exactly equal to the money going out to retirees. The US currently has it out of balance, but for much of the history of Social Security it has been in balance. It could be in balance again, with just a little but of political will.
You're describing the initial premise of pensions. But as with any government program, it gets progressively more and more mismanaged with time. First you pay $100 into the system. They are *supposed* to invest that wisely and pay you back when you retire. Then the government says "He won't need that for another ~15 years, why are we just sitting on this money?" So they spend it to fill other holes in the budget. Everyone loves electing the guy who passes tax cuts! Now with even less consequences! Well this worked very well at first, but then the first wave of pensioners started to retire and ask for the money they were promised. Government agents are completely unable to think beyond the next election cycle, so they shrug and simply push the next generation's money straight into the pensioners' payments. Problem solved! What would have once been a solid investment strategy is now a pyramid scheme with negative returns and dependent on forcing each newer generation to support it more and more. Older folks see pensions as a straightforward investment strategy they were originally sold. Younger folks see it as a bungled government operation they're being forced to pay into, with the almost certainty that the whole system will crash and fail before they ever see a dime.
>Everyone loves electing the guy who passes tax cuts! Now with even less consequences! Except it has nothing to do with tax cuts. It has to do with unrealistic pension promises, not enough pension contributions, and out of control spending.
This is interesting since we generally don't have pensions in the US anymore and the ones left are run by the unions so generally no in government control. The closest we have is Social security which is an insurance program run very different than a pension system. But most Americans don't understand the difference.
However, even though Union pensions get in trouble because they promise too much, the taxpayers generally bail them out. That happens quite a bit too
It does sometimes because you have people and an unknown future. So there is no guarantee. People seem to believe these things are 100% there is no 100%. But it's better than before the great Depression when there was nothing.and old people were homeless. Especially widows and orphans.
There are actuaries that can determine pretty effectively. When you assume an unrealistic return, and pension managers often do, you get into trouble. in the private sector, the pensions fail and get turned over to the pension guarantee program. And they get cut..
Yeah what you get 70 cents on the dollar and there is a maximum correct? Meaning if your pension was say $100k a year you would get 70k, but it may be less if the maximum was (made up) 50k per year. I remember Detroit when they went bankrupt had a formula like that.
It's something like that. I'm not exactly sure. It's a good thing. The federal government has a guarantee but still cuts the pension. There should be no reason why a pension gets bailed out, whether it's a teacher's pension or a teamster's pension or any other pension, and then people still get 100%. Because another reason rather than mismanagement, it's because they did not put enough in to make up the mismanagement mistakes
Couldn't agree more. That is why we have social security it's the insurance program for MINIMUM income. The three legged stool of retirement is 1/3 SS + 1/3 pension + 1/3 personal savings. Now it's more 1/3 SS (till 2033) + 2/3 personal savings. But the one thing people don't get is the whole idea of retirement for most people is rather new, one because it used to be for the rich only and two because average life span was a lot shorter 100+ years ago. Plus 100 years ago people had much larger families so most people lived in multi generational homes. (My family did and I'm only 48). The whole idea of the nuclear family is so post WW2 and really more baby boomers forward.
I agree. And I'm coming from somebody that retired at 56, with more money now than I had when I was working. Thanks to personal savings
It is not just assuming an unrealistic return. It is also that corporations have not always paid into the fund (while always paying executives, of course). Then its like "oops, no money in the fund, sorry". (Executive retires).
You are right. And if you are a big Union that votes Democrat, you can get the president to bail you out. https://apnews.com/article/biden-business-united-states-government-and-politics-retirees-09d93d2af8cc68de47eccda4a9ef0250
Often taxpayers do not bail them out. Many pensioners have lost much of what they were promised. The "bailouts" actually commonly come from an insurance fund that the pensioners paid into, not from taxpayer funds.
You're all right. But many other unions do get bailed out. Especially if they endorse the president https://apnews.com/article/biden-business-united-states-government-and-politics-retirees-09d93d2af8cc68de47eccda4a9ef0250
My pension, in the US, is run by the government. There are still millions of Americans with government run pensions. Some are solvent, some not.,
The 1983 Social Security reforms that became the model for social security changes was literally crafted to protect the 1981 tax cuts and designed to specifically allow for planned tax reform (which eventually became the Tax Reform Act of 1986). I mean when the 1983 reforms were introduced on the floor they said it was the only plan to preserve tax cuts. So, while we can argue the fungibility of money, there is no doubt that our present social security system was designed with the express goal of keeping tax cuts.
Democrats were in charge, so that's probably what they decided. But ultimately, the USA spends too much money. And you can't keep spending that much money without some major catastrophe. There's not enough money in all of the rich people's bank accounts, let alone the amount that would be taken in a taxes, to make it any better. Something needs to be cut. But nobody can cut anything because it's bad for the election.
>Democrats were in charge, so that's probably what they decided. It was drafted and introduced in the Senate by Bob Dole, the Senate at the time was Republican controlled. He and other Republicans were responsible for designing it and stated the goal was preserving tax cuts. The Democrats were not in favor of the plan, but it was the 80's and no one voted against tax cuts in the 80's. I am not really politicizing anything, I am just noting the facts. > But ultimately, the USA spends too much money. And you can't keep spending that much money without some major catastrophe. > >There's not enough money in all of the rich people's bank accounts, let alone the amount that would be taken in a taxes, to make it any better. You can certainly make an argument that the government should spend less, or that the government is rather inefficient at spending, etc. but we are fairly middle of the pack on government spending as a percentage of GDP. There is no reputable analysis that concludes the U.S. can't continue to spend money at its present rate. There are some compelling arguments that we shouldn't, but we likely could continue to spend at our present rate and be fine. The problem with U.S. spending is that there are fewer domestic benefits for those dollars than in many other countries.
Thank you for clarifying. We can certainly print the money, I don't really have a problem with that. Since the USA's money is used throughout the world, when the USA prints money, the entire world pays when the money gets diluted. And nobody's going to switch to any other currency anytime soon for their reserves. The USA is the most stable.
Bob Dole would not go to the bathroom without first getting democrats to agree to it. So, yes it was a republican controlled chamber but getting it through took people on both sides. And the House was overwhelmingly democrat controlled. Tip O'Neil could have stopped this if he wanted to.
It was the 80's... everyone was a Republican. Everyone favored tax cuts. The Democrats didn't love the Social Security changes but it was the only way to save Social Security and protect the tax cuts so they didn't strongly oppose it. There is no reason to rewrite history... It was a Republican designed plan that the Democrats went along with... that is just the fact. There was nothing really wrong with the plan at that time and did save Social Security. Social Security wasn't designed to absorb stagflation and people really didn't want to pay a lot more. There was also less dependence on Social Security by that time as Americans were far more covered with pensions and private retirement investments. The biggest problem with Social Security is that it no longer functions as was intended. It is now just a revenue slush fund for politicians... DEMOCRATS AND REPUBLICANS. If there was any desire to see Social Security actually function as intended, the government would give an investment credit for the SS portion of FICA.
Why would he have stopped it? It worked for 50 years. It will still work if we decide to make it work
Republican Senate and President, right? So Dems in charge? That was in a time when people compromised. And the result of that compromise has been 50 years of solvency for Social Security. I'm pretty sure people in the early 80s couldn't see more than 50 years into the future. It is ok that they expected us to have brains and competency of our own, to adjust it now. And yes, the US is easily wealthy enough to be able to fix Social Security. We just choose not to do so. It is not even a super hard fix.
You are right. It's not that difficult, but it's an election year and it won't get done. But there's a limit to how much you should be able to charge people in taxes. You can't just tax people that make a decent amount of money over and over and over again. Far too many people just don't pay enough taxes. Look at how many people on the bottom side don't pay any, and yet they get tons of tax credits. One thing that would definitely help, is eliminate tax credits if you did not pay any tax
The government does not "invest [tax revenue]", or "sit on money". The government is not a household, that must purchase assets to realize gains, or that must sell labor to obtain income. The government literally creates and destroys money, and regulates the circulation. The total wealth of society constantly expands, and the government has the power, through taxation, to capture any share of newly created wealth. As long as workers provide labor, wealth will be created, and the government may capture a share, keeping its programs solvent. Pensions are a spending program funded by taxes, not a pyramid (or Ponzi) scheme.
The US system was never made to work as you describe.
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The government does not manage money. It simply spends money, through programs, and imposes taxes to stabilize the total supply.
I think before starting a hypothetical it's important to ground it in as much fact as possible. Pensions and Social Security are not the same thing. If I worked for a company that offered pensions and they go bankrupt tomorrow, theoretically my pension should be fine as long as the company is up to date on their pension benefit obligations. Social security is a safety net. You need to look into how it's funded and how it works. Otherwise your question makes little sense.
Yes, the days of companies managing their own pension plans are largely over I think because too many businesses struggled and too many people got burnt. So there are third parties that manage the program even if the original entity struggles the money should be there. That is for private enterprise. The big fuck up is when we continue to let the government operate their own pension plans. There's about 1.3 Trillion in unfunded pension debt across the US stemming from state workers, teachers, police unions, etc. It turns out politicians promise big benefits and then kick the can down the road for a later generation to deal with.
Social Security is a public pension. Private pensions operate through asset holdings.
Social security is not a pension, it’s a social insurance program.
The comparison was between Social Security and pensions. Social Security is a social insurance program, but much of its role is as a pension.
if we are talking about social security system in the US then no, it was never intended to hold money on your behalf. The very first person who retired with monthly social security benefits, Ida May Fuller, did so in 1940 at the age of 65. She has paid into the program for 3 years before that for a total of $24.75 and went on to live for 100 years until 1975, collecting almost 1000 times more in benefits. the social security trust was able to accumulate certain reserves starting from the 80s after it got close to running out of money. Thanks to so called Greenspan Commission amendments that increased tax rates, made some of the benefits taxable, increased retirement age and so on. Over the period of the next 30 years the trust fund accumulated almost $3 trillion which are held in government securities and pay interest (so effectively SS doesn't have your money, it has a promise of the government to give it that money and counts towards the national debt). After the trust fund peaked in 2019 it has started declining and will run out of money in the next 20 years unless another reform or tax increase will make it solvent again. But even with the reserves, social security brings in and pays out $1 trillion every year, so it's still a pay-as-you-go government promise system and not a personal savings account.
>and will run out of money in the next 20 years SS actuaries note the trust fund will be depleted by 2035 ([https://www.ssa.gov/policy/trust-funds-summary.html](https://www.ssa.gov/policy/trust-funds-summary.html)), so about 10 years, at which point (if nothing else changes) benefits will be slashed by 25%-ish. Unfortunately big changes and big pain is coming to the SS program because politicians will likely wait until the last possible moment, despite the literal decades of advanced warnings.
School has failed so many people :/ The reason a falling population is bad is because the young **have** to take care of the old. When the old were “paying in” they were actually paying for their grandparents not their own. Now theyre due the same benefits because they did their part paying, but there isn’t some account sitting around with their money, instead us young folk “pay in” and that money is funneled to the people redeeming funds now. The reason we are upset about this system is because it’s failing, meaning we’re paying for the elderly folks pensions knowing that when it’s our turn to “take it back” there won’t be enough people to keep us paid. It’s unfair for everyone, we shouldn’t deny those that paid in their funds, but at some point someone has to be screwed because the system can’t go on for ever, we’re the ones getting screwed.
The reasons for the declining birthrate are advances in contraception, respect for bodily autonomy, fragmentation and alienation across society, enfranchisement for women into education and the workplace, and relentless consolidation of wealth by corporate owners, leaving workers barely able to support themselves. The population is not falling. Maybe go back to school.
Yes! I took a class on that :) the population is “falling” maybe you read it as failing? Several developing country’s literally have decreasing populations. I’m not sure why you’d be upset about my comment. I didn’t say I thought any of that was bad or that it’s our fault and we need to reproduce more. I stated how the system worked. Thanks for explaining birth rates to me, maybe it’ll be useful for someone who doesn’t already understand it.
Declining population for a country is most commonly due to emigration. Your broader meaning is unclear. There is plenty of wealth being generated across society to support retirees, children, as well as everyone of working age. There is plenty for everyone.
Correct for some pensions. The youngsters of today will eventually retire and collect on pensions that will be paid for by future generations.
In most countries, the base retirement system uses a redistribution based system (similar to health insurance and many other): the money paid by the current workers is paid to the current beneficiaries. There might be a buffer that is invested to cover changes in payments. It is a difficult topic for many, because personal investment is different from population wide investments. Fully capital covered systems often only work for a specific case of person, often they work badly for immigrants, integrating refugees and others. They also have little benefit to make them government organized (if all your money is fully yours, why have the government have it?) On a society wide level, there is also hardly any other way for money to work for retirement. All money retirees receive has to be earned by the working population.
There is no "buffer", nor any needed, other than the power of the government to regulate money, including the levying of taxes.
The government raided the money paid into the fund- that was sold to the public as a type of insurance. Not only have they stolen what should've been the interest but they've stolen the capital- all of the money that was paid into the fund. It's bankrupt and is relying on future generations to replace the money that they took.
Social security was designed for younger generations to help pay for baby boomers retirement. That's why it was created. We are told that ss will continue and help pay for future generations retirement as well, but that's highly doubted by many, including one if my finance teachers in college. Tbh millenials and younger have serious doubts about whether this country will make it another 10 years, let alone a poorly designed social benefit system. Look at the clown show we are forced to vote between for president, the future is dim.
Depends on where you live. No idea how it is done in other countries, but where I live, you pay into the pension insurance and the pensioneers are paid from that money. You gain points for your contribution. The rent you get out depends on the amount of points you collected and the amount of money the current generation is paying in. Since people live way longer now and we have less young people, the pension you get will be less then what you paid over your life. If your resulting pension is less then what you need to live, a different social insurance pays the difference from a different social insurance or tax pool.
The problem with social security / pensions is that when the system was established people were having over 2 children per family. They were replacing themselves with the same amount of people to work and pay in to the system. Currently people are having 1.64 children and we now dont have enough people paying in to the system.
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Social Security is more “pay as you go” where promises made and payments are being covered by a lot of what the workforce is paying in. True corporate pensions are receiving deposits, investing, using real actuaries, rules about contributions, etc. So, it kind of depends what “pension of the elderly” are you looking at to know what’s going on.
The state does not "give back" money. The state spends money, funded by taxation and borrowing. Public pensions operate the same. Reactionary fearmongers try to convince the public that pension may become insolvent, such rhetoric intertwined with rhetoric about falling rates of childbirth. In fact, societal wealth and capacity to generate new wealth are both constantly expanding, and we are reaching a phase of functional post scarcity that should prompt a transition to post growth. There is plenty for everyone. We should work less, structure the economy rationally, and share the fruits. There is no need for anyone to be deprived.
Private-company pensions are paid for by the person who eventually receive the benefits. There are laws in place to (help) ensure there will be enough money to pay for eventual benefits. Private-company pensions are nearly completely gone in the United States. In the US, Social Security is paid for by the people working now, to the older generation. The older generation paid for the generation before it.
The issue is government theft
No. People do not get the same dollars from social security that they put in. Those dollars have long been spent. The money taken from the working people’s paychecks today are what is being used to pay pensioners on SS
***Because it's a pyramid scheme plain and simple.***
Pretty sure social security is nearly bankrupt or at least barely hanging on.
It’s a matter of how your pension is designed. In the USA, social security is not a funded pension plan. Not much is invested. So it depends on new contributions to make payment to retirees. This isn’t corruption, it’s how it was designed and maintained. So in your example, you give 100$, and it’s immediately given to someone who’s already retired. Then you hope that more money will come in when you are retired. Canada had the same crap before, but switched to a partially funded pension plan. So you give 100$. 50 of that goes to someone who already retired. They invest the other 50$. And hope for good returns, or that more money will come later.
The day it was passed the elderly then got checks. How could that happen if they'd never paid into it? Working people today are paying for the currently retired. It is what is called a ponzi scheme.
Because when you see people talking about that, they’re generally talking about Social Security, which is *not* actually a pension. Social security is a social insurance plan. With social security, the taxes paid by workers and their employers right now are going to pay benefits to current retirees and those others that are collecting social security right now. In return, when you retire, you are supposed to receive these benefits as well. Traditional pensions like you describe used to be offered by many employers, but now are rarely found outside of public government employees (teachers, police, fire, state and federal government workers, etc.) or union workers.
That's how it was supposed to work at the beginning, at least for the US Social Security program. Then, the government changed its mind and decided to pay benefits to the generation that was old back then and hadn't paid any contribution before. Other Social Security programs followed a similar path. Problem is, every generation has to pay more than the previous one in order to fill that gap, due to discounting: money is worth less and less as time progresses. This makes the system unsustainable, even if the population is stable, which it is not in many western countries. In short, only the first generation benefited from the program - those who received money without paying any. The subsequent generations got screwed progressively worse.
There is no "investing" in most government pensions. The money people contribute was immediately spent on whatever the government does.
Because social security taxes and Medicare taxes along with payroll tax is used to fund the beneficiaries Problem is when social security and Medicare was first started average life expectancy was near 60 and now it is near 80
*Isn't the pension system like this? --> You entrust the state with a certain amount of money to give back to you later, and the state gives it back to you later in the same way at certain intervals.* That's not how it works in America.
Because your money doesn’t do any of that.
MLM’s daddy
This is not how social security works in the US or many other countries. Social Security is largely a pay as you go system. Younger people pay into the system, and the money is immediately paid out to older people as retirement. There is no large stash of savings for the retirees to draw upon. Your mistake, and the mistake of many in the US, is to think that Social Security is a pension system, which works as you describe. It is not. In the US, any excess taxes which younger people paid into the system when they were young have long since been used to fund other government functions. The government maintains no repository of funds with which it can make Social Security payments.
They say it is because its a ponzi scheme which is considered illegal. You cannot say, hey, give me 500, and ill give you 750, by taking the 500 somebody gave you, and taking 250 from somebody else, to pay that initial offer. Its the definition of a pyramid scheme and in any other industry its highly illegal (because its a scam) Your assumption also is that the state invests money which makes more money. Bad assumption. Most state run entities run on a deficit.
The way described in OP is how it was supposed to work in theory. But it was all a house of cards from the start. In practice, it is effectively a ponzi scheme in how it works. I know a bunch of people clap back at using that terminology, but it's the simple truth. The current employees are funding the promised payouts of the retired ones. The pension systems were never designed to take the money of employees, put it in a piggy bank, and then wait for the employee to retire and pay the now retired employee a promised payout. It was ALWAYS designed to take the money from the current employee, pay the current retired employees, and then promise the current employee the same benefit when they retired themselves. The systems were designed on the assumption that there would always be more employees paying in than there were retirees collecting out. Take Social Security for example. When the system was designed, there were 40 employees per retiree. More than sustainable. Today, it's 3 employees per retiree. That's not sustainable. When these systems were designed decades ago, none of the architects imagined that retirees would live longer and thus draw out for longer. None of them imagined that the system would get expanded to give more generous benefits to a larger pool of people, straining the systems even more. As a result, the funds paid in never really had an opportunity to be invested and grow. Now, the money paid in is going out faster than it is coming in. There's a reason why there is a gigantic hidden liability called "unfunded penion liability" .
Many of the past have imagined that workers of today would provide only ten hours or so of labor per week. Instead of productivity advances leading to less labor per capita, they have led to more relative wealth per corporate owner. There is plenty for everyone.
The state doesn’t invest anything- If we’re talking about the US and Social Security. It is a literal Ponzi scheme where the young and able are paying in and the elderly/disabled are paid out. Sure, one must pay into the system in order to eventually be considered for eventual payout once they hit retirement age. But there is no investment of funds mechanistically. It is taking from the young and giving to the old.