[icelancer]

>Who will pay for all the people who didn't save? The people who did.

Correct. It is generally a good idea to consider all of the money being paid into Social Security to be completely wasted. I am in my early-mid 30s and I do not expect to see a dime of it. I think it will either be insolvent or subject to some ridiculous tax structure if people have earned X dollars in their lifetimes or spent too many years in high tax brackets (which I expect to in my late 30s and 40s).

Taxes will also go up dramatically as the years go by. I have a maxed-yearly Roth IRA but I also don't expect the government to keep their promise on letting me take out 100% of it tax-free despite all my contributions being post-tax. I expect to be double taxed on that, because, well, why not?

Retirement is ridiculous. It's just generally safe to assume all of your money is going to be taxed at a much higher rate and through loopholes/broken promises by the government. We face a really huge shortfall in the next few decades in public welfare programs, Social Security, and other tax-advantaged vehicles that I doubt will be honored down the line.

[marvin]

Just out of curiosity, what's preventing the US from implementing changes to Social Security that are sustainable? I read up on this for Norway a few months ago, and was actually pleasantly surprised at the thought that's gone into the sytem.

Norway's public pension system is now funded by every employee having 8% of their salary taxed away and earmarked to retirement. The money is placed in a broad stock and bond fund. In retirement, the earmarked amount of money for each employee is paid out in a monthly amount that matches the life expectancy of the retiree.

E.g. if the employee has paid $150.000 to the system over a lifetime of work, retires at 65 and the life expectancy for this age cohort is 10 years, the annual payment will be $15.000. The state covers for retirees that live longer, keep the money for retires that live shorter and provide a guaranteed minimum for people who reach 67 without saving up a minimum amount. To offset this, the possible monthly payment is capped with a maximum for high earners. There is also some inflation adjustment built in.

In effect, this provides a living wage for all retirees, with additional private savings required if you want to maintain a higher standard of living. The system is self-contained and is not based on younger workers paying the pensions of older workers.

[tonyedgecombe]

"Just out of curiosity, what's preventing the US from implementing changes to Social Security that are sustainable?"

Politics, in particular the "tax is theft" brigade.

[icelancer]

>Norway's public pension system is now funded by every employee having 8% of their salary taxed away and earmarked to retirement.

Social Security payroll taxes are ~15% of salary per employee, so assuming Norway doubles the 8% (employee responsible for half, employer responsible for the other half) that's not much higher than the United States' system.

>The money is placed in a broad stock and bond fund.

Social Security is not privatized in the United States and efforts to do that by Republicans are regularly shot down. Social Security is an annuity that is tax-free and inflation-adjusted. The average ROI is about 2-4% for single, average salary employees who work full-time.

EDIT: Forgot to add, the United States excess funds in Social Security are loaned to the government for use for non-SS purposes. The government owes the Social Security program something on the order of $5+ trillion right now, which makes up over 25% of the national debt. Yes, you are reading this right. No, it is not a good thing.

You could argue that Social Security could do a lot better if citizens were allowed to control that money or if it was simply invested in a total stock/bond market index fund, but then you'd be incurring significant risk as well.

>In retirement, the earmarked amount of money for each employee is paid out in a monthly amount that matches the life expectancy of the retiree... The state covers for retirees that live longer, keep the money for retires that live shorter and provide a guaranteed minimum for people who reach 67 without saving up a minimum amount.

This is basically how it works in the United States, except:

> To offset this, the possible monthly payment is capped with a maximum for high earners.

This is likely to happen in the United States as the country moves more economically liberal (current administration excluded, but even Trump has some economic policies that old-timer conservatives would never agree to). We currently don't have this. But taxes and fees and other such efforts will be successful against the rich soon enough here.

>The system is self-contained and is not based on younger workers paying the pensions of older workers.

This doesn't really make sense. Your example describes this to a T.

Tell me: What happens when the "broad stock and bond fund" collapses in a thirty-year low for a period of six years and pension promises far outpace receipts? Who will pay for this? The state will cover, correct? Well, that's younger people paying for older people no matter how you slice it.

[votepaunchy]

> Social Security is an annuity that is tax-free and inflation-adjusted.

This used to be true but Social Security is fully taxed on the way in and now partially taxed when payed out.

[kamaal]

>>Norway's public pension system is now funded by every employee having 8% of their salary taxed away and earmarked to retirement.

In general this how any pension scheme is supposed to work. Except that it doesn't. When you start to add things like exceptions whole scheme starts to come apart after a while.

Pensions are one of those things which are ripe for abuse. Also you need to start looking at other benefits that come along with it like health care. Then there are unions that graciously award over time work to employees to drive up their compensation in the last few years of work.

There are also other things going on like inflation adjusted pensions.

In India there was a recent drive to include One Rank One Pensions for armed forces, which demands pension revisions every single year based on last highest pension paid in that rank for that year.

[mattmanser]

It's not retirement that's ridiculous, it's that old people have a vote in this and because that vote is so overpowering, no-one will even try and fix the issue until it's too late.

[awinder]

Double taxation is extremely unlikely, and would likely have to be of the form of applying a tax to earnings in the Roth IRA or something like that. Which is how other investment-related income is taxed anyways so, I don’t know.

Additionally, SS pays out at 75% of projected levels at the height of the retiree crunch, so assuming the program will just vanish is not something a lot of financial advisors are going to consider. Given the universe of possibilities, the one that doesn’t result in people with pitchforks is probably the one that we will go with. We could also solve this problem today with a 1.8% addition to the payroll taxes, removing means testing, etc. It’s a problem to be solved but expecting the world to burn in the process of solving it, the magnitude just isn’t there. Makes for good fan fiction though :-).

[icelancer]

>>and would likely have to be of the form of applying a tax to earnings in the Roth IRA or something like that. Which is how other investment-related income is taxed anyways so, I don’t know.

Correct, this would be a huge breach of trust by the federal government. Which is nothing new, obviously, but....

[carbocation]

If you really expect your Roth to be double taxed, why not contribute to a traditional IRA instead?

[icelancer]

There's some business-related reasons why I don't (I don't yet make enough money in salary for it to matter wrt deductions) but also because I think taxes will be very high when I retire and that my Roth will be taxed at a relatively low rate, subject to some "fees" or something.

I think the Roth will still exceed the value of a traditional IRA (plus it's only $5500/year, hardly huge as I get older and my net worth increases), but I would be willing to bet that the Roth IRA will not exist in the form it does in 20-30 years, and that existing ones will be subject to a tax/fee to make it "fair."

[hkmurakami]

Because expectation is not certainty.