Spain is Doomed; Youth Unemployment Hits 51%

[Jacob]

Given that those were adopted as an alternative to employer-paid pensions, I don't think that quite holds up.  The public pension was always a minimum standard, and the RRSP and 401k was just a matter of transfering the remainder of retirement income from the relatively reliable employer to the certain doom that is the market.

Good point.

[Jacob]

I'd argue that both are bloated. SSA has payment caps that are quite high from where they started (though certainly most people aren't hitting the caps), while you can put away a lot in tax advantaged vehicles for retirement.

The two most popular are the 401k (through an employer) which has a cap of $17,000 a year (excluding an employer match) while the IRA (done by an individual) has a cap of $5,000 a year. If you assume an employer match of $3k, that means a married couple could put away $50k a year. At a certain point we've moved from giving working class people a chance to save for a comfortable retirement to helping upper class folks avoid taxes.

You're arguing that people who are sufficiently wealthy (however you define that), should not receive the government funded SSA? I'm okay with that. My wife was looking at someone getting pension payments of $70 000/ month. I'm sure that individual can do without his or her Canada Pension payments.

[alfred russel]

You're arguing that people who are sufficiently wealthy (however you define that), should not receive the government funded SSA? I'm okay with that. My wife was looking at someone getting pension payments of $70 000/ month. I'm sure that individual can do without his or her Canada Pension payments.

No--there could be a rule that suspended payments to people who in retirement have a certain income in that year, but my understanding is that it has been looked at and it wouldn't save very much money. Plus it would start to change the program from a "social insurance" program to a welfare program, and that could undermine the political support for the whole thing.

I think the smartest way to save money is to change the cap on payments from the $30k or whatever it is to something more like $20k. Most working class people aren't going to get that anyway.

[Malthus]

I'd argue that both are bloated. SSA has payment caps that are quite high from where they started (though certainly most people aren't hitting the caps), while you can put away a lot in tax advantaged vehicles for retirement.

The two most popular are the 401k (through an employer) which has a cap of $17,000 a year (excluding an employer match) while the IRA (done by an individual) has a cap of $5,000 a year. If you assume an employer match of $3k, that means a married couple could put away $50k a year. At a certain point we've moved from giving working class people a chance to save for a comfortable retirement to helping upper class folks avoid taxes.

You're arguing that people who are sufficiently wealthy (however you define that), should not receive the government funded SSA? I'm okay with that. My wife was looking at someone getting pension payments of $70 000/ month. I'm sure that individual can do without his or her Canada Pension payments.

I took it he was referring not to social security payments, but to the availability of tax-deferrral vehicles to the relatively wealthy in the guise of retirement savings.

[Jacob]

I took it he was referring not to social security payments, but to the availability of tax-deferrral vehicles to the relatively wealthy in the guise of retirement savings.

Ah okay. Yeah sure, then

[Malthus]

I took it he was referring not to social security payments, but to the availability of tax-deferrral vehicles to the relatively wealthy in the guise of retirement savings.

Ah okay. Yeah sure, then

In the Canadian context, I'm not sure I agree with him - the amounts at issue are simply not great enough to lead to the conclusion that it's a way of protecting anything like wealth.

In Canada at least, the RRSP cap is $22,970 for 2012, to which you can add a yearly $5,000 in TFSA (the difference is that RRSP money is money you don't pay tax on now - you pay it when you take it out; TFSA is money where on which you don't pay any capital gains).

Obviously, the RRSP is most valuable if you are in a high tax bracket, because the benefit is the difference between the tax you pay now and what you pay when you retire.

But $23K (or 28K) per year isn't really what I'd call "rich".   

[Martinus]

Let me preface by saying that I agree with Jacob on a philosophical/ideological level - i.e. that we can't see old people starving to death in a civilized society.

That being said, I think the problem with the pension system comes from the following: there are three criteria that, imo, can be used to set up an universal (state-run) pension system: (i) that it is fair, (ii) that it provides a minimum needed to survive to everyone, and (iii) that it is financially sound - and I think that as with many of things like this, you can achieve two out of three, but not all three.

I think you can have a financially sound system that is "fair" in that you get out what you put in (the system described by Monoriu) but the downside is going to be that if you put very little or none at all, you will end up being destitute.

On the other hand you can have a financially sound system that provides simply the bare minimum to everyone/those in need, but in order for such system to work, people who earn more will need to contribute more - but still they will be eligible to only get the bare minimum - so the system is not going to be "fair".

If you try to be both fair and provide the bare minimum to people who put in nothing/very little, you are bound to run out of money.

I think the political decision, therefore, is to choose whether you want to be "fair" (and keep the illusion that you get what you put in, such as individual state pension accounts) or whether the objective is to simply keep destitute people out of starvation, while the average person is more or less expected to keep their own savings/pension scheme - and the state run one is treated more as an insurance against old age poverty.

[alfred russel]

In the Canadian context, I'm not sure I agree with him - the amounts at issue are simply not great enough to lead to the conclusion that it's a way of protecting anything like wealth.

In Canada at least, the RRSP cap is $22,970 for 2012, to which you can add a yearly $5,000 in TFSA (the difference is that RRSP money is money you don't pay tax on now - you pay it when you take it out; TFSA is money where on which you don't pay any capital gains).

Obviously, the RRSP is most valuable if you are in a high tax bracket, because the benefit is the difference between the tax you pay now and what you pay when you retire.

But $23K (or 28K) per year isn't really what I'd call "rich".

The numbers are about the same in the US context, so we probably actually disagree. The issue as I see it is that roughly $25k a year put away for a single individual adds up to a very significant balance after 30 years or so. With investment earnings, and a spouse also maxing his or her account out, it is a multi million dollar tax deferral vehicle. Of course that isn't all of the savings you have, but it will be the last you want to touch for a lot of reasons, including that you can keep some of the deferral going after your death for you heirs.

Also these are just one of several tax deferral mechanisms. For example, college savings plans, health savings accounts, and deferred comp plans. Even stock options have this kind of benefit. I've heard of people retiring, moving to Hong Kong, and attempting to use that time collect their deferred comp and exercise their options (sometimes company withholding thwarts this, and global tax authorities are getting wiser to it). This stuff won't really help Warren Buffet, but they sure do help you ordinary millionaire.

Something interesting that I mentioned earlier is that they seem to be exploited by the non ordinary millionaires as well--Mitt Romney has an IRA that is worth something like $30 million--presumably obtained by cramming illiquid and difficult to value assets into it, and claiming a low valuation to get under the caps.

[Malthus]

In the Canadian context, I'm not sure I agree with him - the amounts at issue are simply not great enough to lead to the conclusion that it's a way of protecting anything like wealth.

In Canada at least, the RRSP cap is $22,970 for 2012, to which you can add a yearly $5,000 in TFSA (the difference is that RRSP money is money you don't pay tax on now - you pay it when you take it out; TFSA is money where on which you don't pay any capital gains).

Obviously, the RRSP is most valuable if you are in a high tax bracket, because the benefit is the difference between the tax you pay now and what you pay when you retire.

But $23K (or 28K) per year isn't really what I'd call "rich".

The numbers are about the same in the US context, so we probably actually disagree. The issue as I see it is that roughly $25k a year put away for a single individual adds up to a very significant balance after 30 years or so. With investment earnings, and a spouse also maxing his or her account out, it is a multi million dollar tax deferral vehicle. Of course that isn't all of the savings you have, but it will be the last you want to touch for a lot of reasons, including that you can keep some of the deferral going after your death for you heirs.

Also these are just one of several tax deferral mechanisms. For example, college savings plans, health savings accounts, and deferred comp plans. Even stock options have this kind of benefit. I've heard of people retiring, moving to Hong Kong, and attempting to use that time collect their deferred comp and exercise their options (sometimes company withholding thwarts this, and global tax authorities are getting wiser to it). This stuff won't really help Warren Buffet, but they sure do help you ordinary millionaire.

Something interesting that I mentioned earlier is that they seem to be exploited by the non ordinary millionaires as well--Mitt Romney has an IRA that is worth something like $30 million--presumably obtained by cramming illiquid and difficult to value assets into it, and claiming a low valuation to get under the caps.

Consider that this money is supposed to fund a pension. While 30 years of saving 28 K is a lot of money as a lump sum, it doesn't look so large when weighed against the requirements - that this is the money you will need to live off of for the next 20-30 years.

[MadImmortalMan]

Plus it would start to change the program from a "social insurance" program to a welfare program, and that could undermine the political support for the whole thing.

I don't see any point in worrying about that at this stage. We can't make it an insurance program. It's well beyond that transition now.

[Admiral Yi]

I don't see any point in worrying about that at this stage. We can't make it an insurance program. It's well beyond that transition now.

Fredo is saying that's what is now.

[alfred russel]

Consider that this money is supposed to fund a pension. While 30 years of saving 28 K is a lot of money as a lump sum, it doesn't look so large when weighed against the requirements - that this is the money you will need to live off of for the next 20-30 years.

Which is another point I left off: pension plans may be hidden from the employee but are tax advantaged as well.

The issue I have is that this is in addition to social security. A person maxing out these accounts is probably going to be close to the max for social security, so we already have a base income of nearly $30k in retirement (in the US at least). Now lets just assume that our investments on the account can only keep pace with inflation: you can now pull out about another $30k a year in retirement (roughly 30 years of contributions offsetting roughly 30 years of drawing on the money). An income of $60k is not super rich by any stretch: but it is also above average and comfortably middle class. Is that something that needs to be subsidized by the general public? We aren't talking about making sure old people aren't destitute anymore.

[Martim Silva]

Let me preface by saying that I agree with Jacob on a philosophical/ideological level - i.e. that we can't see old people starving to death in a civilized society.

Really? Then you don't understand the Liberal mindset very well, do you.

Over here, in order to reduce the deficit without raising taxes on the rich (but hiking them by over 10% on the poor), the highborn Liberals who run the government brilliantly decided to shut down this year most public hospitals, in particular those in the interior, which served small communities.

THEN they hiked by 500% the price of an ambulance trip from those places to the hospitals in the litoral, AND jacked up by 100% the price of an examination by a public doctor.

As the elderly of the interior usually have pensions of USD $4k a year, they cannot afford health care anymore.

The result: the death rate among the elderly increased threefold in the first quarter of this year.

The Liberals in power are "very amazed" at this "odd" turn of events and promised an investigation by a parliamentary commission (which undoubtably will find *no* correlation between shutting down the hospitals to the poor and a massive increase of the death rate of the same right afterwards).

[Martinus]

Let me preface by saying that I agree with Jacob on a philosophical/ideological level - i.e. that we can't see old people starving to death in a civilized society.

Really? Then you don't understand the Liberal mindset very well, do you.

Over here, in order to reduce the deficit without raising taxes on the rich (but hiking them by over 10% on the poor), the highborn Liberals who run the government brilliantly decided to shut down this year most public hospitals, in particular those in the interior, which served small communities.

THEN they hiked by 500% the price of an ambulance trip from those places to the hospitals in the litoral, AND jacked up by 100% the price of an examination by a public doctor.

As the elderly of the interior usually have pensions of USD $4k a year, they cannot afford health care anymore.

The result: the death rate among the elderly increased threefold in the first quarter of this year.

The Liberals in power are "very amazed" at this "odd" turn of events and promised an investigation by a parliamentary commission (which undoubtably will find *no* correlation between shutting down the hospitals to the poor and a massive increase of the death rate of the same right afterwards).

I think you suffer from the same fallacy that Tamas does - i.e. you both come from badly organized countries ruled by highly corrupt coteries. You then use their corruption as an argument against their nominal political ideologies.

I have recently viewed the Portuguese corruption first hand, by having a closer look at a major banking group in your country and its ties with the government. You guys make Poland look like transparency international poster boy.

[Tamas]

Actually, Marty, what the left stands for economically/ideologally, and what it does, is pretty much the same, in Europe anyway, so I don't think I am committing any fallacy by disliking them, apart from disagreeing with you.

You are right about one thing: the idiotic fact that the political right here is much more left-leaning economically than the political left, would indeed keep me away from them, if their bigottry and racism weren't enough.