retirement « POWIP

7Aug/107

Pension envy? You wish.

Sorry for the brief hiatus on public pension posts -- it's not that there's no pension action, just that I've been busy.

So let me go back some weeks to an editorial out of St. Louis, proclaiming the current round of public pension kerfuffles is just down to that green-eyed monster envy. The private sector no longer has its defined-benefit pensions and thus want to grab that prize away from the public employees.

In his 2003 book, "Envy," scholar and critic Joseph Epstein relates a joke of the sort that Russians tell on themselves that perfectly captures the meaning of zavist:

"An Englishwoman, a Frenchman, and a Russian are each given a single wish by one of those genies whose almost relentless habit it is to pop out of bottles. The Englishwoman says that a friend of hers has a charming cottage in the Cotswolds, and that she would like a similar cottage, with the addition of two extra bedrooms and a second bath and a brook running in front of it. The Frenchman says that his best friend has a beautiful blonde mistress, and he would like such a mistress himself, but a redhead instead of a blonde, and with longer legs and a bit more in the way of culture and chic. The Russian, when asked what he would like, tells of a neighbor who has a cow that gives a vast quantity of the richest milk, which yields the heaviest cream and the purest butter. 'I vant dat cow,' the Russian tells the genie, 'dead.'"

Lately, whenever we read of another attempt to "reform" pensions, we think of the Russian's cow. Two out of every three private-sector workers in America no longer are covered by traditional pension plans. Such "reform" has contributed to a crisis in retirement security.

That's a sweet idea, if the neighbor didn't get that cow by taking it away from us.

Remember those promises made to the public employees? Whose money is being used to pay for those promises?

Ours. The taxpayers.

We're not envious. We just are tired of having our money taken away, and we don't think we're getting value for that money.

I noted back in April that even though the public union employees could keep taking those golden eggs from the geese, the demography is not to the advantage of continued farming in this manner. The eggs aren't going to be increasing at a rate at which these public servants, who see the public as serving them, will like.

One often hears "Oh, but the average pension amount is $20K! And they don't get Social Security!" (whatever the average may be, and some may or may not receive Social Security payments). But how many years are they receiving? And do they get automatic increases in amount each year? A single year's cost doesn't mean much when you've got a cost that is getting paid out for more than thirty years -- indeed, for more years than the worker served the public.

So smirk at the "pension envy" with its close parallel of "penis envy", but the fact is that these souped-up pensions come out of our pockets. All sorts of crazy investment schemes tried in the name of hiding just how expensive these pension promises were.

The assumption always was that if all else failed, the taxpayers could be soaked to make up the difference.

I think we're about to find out the truth of that statement.

MORE ON THE PENSIONS "CLASS WAR": A short piece in the NY Times with the punchline:

“We have to do what unions call givebacks,” said Mr. Lamm, the former Colorado governor. “That’s the only way to sanity. Any other alternative, therein lies dragons.”

THE OTHER SIDE: John Cole and his Balloon Juice:

And let there be no doubt that there will be a class war over this. Matt Welch and the glibertarian wingnut welfare recipients at Reason have been beating this drum for a while now.

Well, John, there are a couple ways this goes down: taxpayers outnumber the public employees and down go the public benefits; taxpayers are outnumbered by public employees... and there's not enough money to pay for the benefits. Huzzah! It all works out in the end.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

Tagged as: public finance, public pensions, retirement 7 Comments

9Jul/100

Pension roundup 9July2010

While Oakland was having its little to-do, Greece was having its own. Both were equally productive.

Let's take a look, shall we?

Beware of Greeks protesting pension changes...or not. When you've got the frickin socialists telling you to suck it up, waiting to retire until you're actually old is no injustice, it's time to get your head out of your ass.
And while it's not coming from socialists, UK public workers are told to get real about pension reform
Responding to a green paper [huh? is it b/c they use recycled paper in Europe?] on automatically adjusting retirement age, a note not to take the politics out of it. Actually, I agree, because there's no way this will stop being political. What would happen is that actuaries' work would get politicized and there would be incentive to fraud. Better to have politicians wrangle over the tradeoffs rather than making stats-heads fudge the data.
Study in contrasts: Convicted ex-sheriff collecting >$200K pension and a difference convicted police chief getting his pension rescinded.

Meep

Tagged as: public pensions, retirement, retirement age No Comments

5Jul/1019

Time to “fix” Social Security

I've been seeing lots of white papers coming out re: Social Security lately, so I guess this time they're serious. Boehner already threw down the gauntlet, in saying that a normal retirement age of 70 was on the table [mind you, people would likely still "retire" at age 62, the age of first eligibility... it's just their benefits will be actuarially adjusted down..... of course, Social Security doesn't pay much to begin with so people might start rethinking that early retirement].

steveegg has a post on the OASI fund that you should read, if you're a number-cruncher. And a previous one on the disability portion.

But let's play an easy numbers game. Here's what Congress is looking at: a projected deficit of 0.6% GDP in present value terms, and then a chart of options in the same units... and the name of the game is to come up with a basket of changes that add up to 0.6 [mind you, we're ignoring cross-effects here, but hey, close enough for government work]:

Now, the American Academy of Actuaries put together a little game years ago to do what I'm about to show [LINK WORKING], but one can do this in your head. The name of the game is to get to +.6.

So you could do these separate combinations

increase payroll tax by 2 percentage points over the next 20 years [does it by itself]
increase Full Retirement Age [FRA] to 68, increase salary cap to 90% of earnings, reduce cost-of-living adjustments [COLAs] by 50bps
Increase FRA to 70, base COLAs on chained CPI-U, raise from 35 to 38 the years of earnings included in the AIME
remove the salary cap on earnings, don't change the benefit formula, introduce a poverty-related minimum benefit [there's no minimum benefit now], and enhance low-earners' benefits based on number of years worked

Now, my favorite choice is that next to last one; it moderates expectations for workers as to what they will need to do to prepare for retirement. Now, retirement age should be linked to longevity, but seriously.... that's asking for trouble in official stats. I would like to be able to rely on the mortality tables I'm seeing.

But the last option is the one I think Congress would like to go with. The main reason? Cash right now. That's why. And the immediate, obvious impact are on those evil rich people who will pay more in taxes. Until they get the legit ways to avoid taxes in place [I keep meaning to set up my LLC....]

But watching Social Security, it seems to me the direction Congress would like to go is more and more explicitly welfare for oldish folks. And that last choice would be a big step in that direction.

There are political dangers in making it a welfare program, but those dangers wouldn't be seen right now. Prior Democrats realized the danger of making it outright redistribution - they could pretend that it was like a pension program as long as there was some sort of weak link between payroll taxes paid and benefits received. I'm not sure the current crop of politicians understand the long-term dangers.... but if they understood that sort of thing, we wouldn't be seeing their behavior of the last couple years.

HOWDY HOT AIRHEADS: Here's a previous post on the "right" to retirement

Meep

Tagged as: public policy, retirement, social security 19 Comments

24May/102

The “right” to retirement

Too lazy to look up the link, but I recall a recent article about some “right to vacation” being bandied about in Europe [before the whole Grecian meltdown....I think. I wouldn't put it past the “intelligentsia” of Brussels to consider vacation welfare during a massive economic crisis].

To Americans, this was obviously absurd.

But the “right” to retirement is equally absurd, and yet many buy into it. There's a “right” to retirement as much as there's a “right” to a couple weeks on the French Riviera.

I'm not that old, and I'm not a historian, but I find it a wonder that Victor Davis Hanson doesn't just lose it some days, listening to the various whining about how awful it is that 70-year-olds may have to be Walmart greeters.

Look, people. We've got it =great=. We are not dropping like flies in our middle age from strokes and heart disease, as once was more common, and while various infectious diseases are making a comeback, children in the developed world have a 99% chance of making it to adulthood. Historically, there was no such thing as retirement – you worked til you died or fell apart, and in the second case, you better have made sure you had some family to take care of you (though also there were religious groups who would also care for the decrepit, family was the go-to source).

With an advanced economy, people could actually save up some wealth during their productive years, and then enjoy a modest life without necessarily having a large family to support them, though again, once you were decrepit, it helped to have a spinster daughter or a loyal daughter-in-law to take good care of you.

It's not as if the hoi polloi were RVing, going on cruises, living in senior communities in Arizona, taking college classes, etc. back in “Ye Good Olde Days”. The old have it pretty sweet in this society.

Especially since most people still retire when they're not that old – looking up the stats from the Social Security Administration, most people take benefits at their earliest age of eligibility (62), and almost all have started taking it by Medicare age (65). Very few wait til the Normal Retirement Age (now 66, will be 67 for me...but that's where it stops... needs another law for it to adjust even higher). Extremely few wait til the oldest age (70 – you're forced to start taking benefits at that age).

Just using Social Security tables from a few years ago, expected age at death, given you've made it to age 65, is around 85-ish for women and 79-ish for men. So one goes from a situation where you might be alive for a couple years after “retirement” to being around for almost 2 decades.

Now, nothing wrong with retiring early, but those who want to should save up for it.

Just as it was a bad idea to encourage people to buy homes who didn't have the fiscal discipline to save up for even a modest downpayment, it's not a good idea to encourage early retirement amongst those
who don't bother to save up for it. The best encouragement to save is to boost the retirement age well beyond where it is now, set at a place to protect the decrepit (there's always been the Disability portion of Social Security to protect those who really can't work – so if age at earliest eligibility is boosted, we'll see more people taking the disability benefit. But still, it would set an expectation.)

Some recent pension and retirement links: