I do like the fact that Bush looked over this country and decided the biggest problem is that there are not enough elderly living in poverty. He'll do his best to make sure that that the elderly poor return to our shores and that families once again are forced to take in elderly parents!

Thank you, dear Brad.

"For my grandchildren--born in 2020..."

Putting some pressure on the kids already?

One way that people used to work together to deal with the contingencies of life and old age was to join fraternal benefit societies like the Moose, Elks and Odd Fellows. Joining one of these gained a person rights to take refuge in the society's old folks home and burial in the cemetery. Often the home served as an orphange for members' children. Usually there is a benevolence fund for hardship cases.

Maybe the Bush administration will come out soon to recruit for the Odd Fellows. FLT*

* That stands for their motto "Friendship, Love and Truth".

Can anyone explain what's going on here or do I have to read the trustee's report to follow this? What are the "bend points" and how do they figure into benefit calculation? Also, why is indexing based on prices less fair than indexing based on wages? Is the problem something fundamental about price inflation vs wage inflation or some detail in the way they are handling the calculation?

These are the points to bear in mind about price and wage indexing. Wages should increase faster than prices over time, or we are becoming wage poorer. If Social Security benefits are indexed to prices, then benefits will fall more and more behind wages. The benefits then will leave retirees increasing short of income relative to wage earners.

msullivan,

I have no clue what "bend points" are. But as the difference between price and wage indexing, here is a simple way to think about it: average wage growth in the long term is likely to be similar to average productivity growth plus inflation. If average productivity growth averages to 2 percent a year for the next 25 years, so does inflation, then average wage growth will be 4 percent a year.

So for a 30-year-old worker who is making average wage now, under the current scenario (wage indexing), he should expect his SS payment at 65 (35 years from now) roughly equals to the SS payment of a current average 65-year-old times (1.04) to the power of 35. But under price indexing, it will only grow at (1.02) to the power of 35. That is, if average SS payment for current 65-year-old is $700 a month, then the average SS payment for a 65-year-old 35 years later will be $2800 under wage indexing, but only $1400 under price indexing.

Put it another way, if $700 payment now put you at, say, 30 percentile of income, then price indexing will put a person at half of the 30 percentile income 35 years from now, and a quarter of the 30 percentile income 70 years from now (assuming wage growth is 2 percent faster than price growth) ...

"Bend points" simply refer to the formula derived Social Security maximum benefit levels. Better to think simply here. Wages should rise faster than prices over time, and Social Security is meant to provide a partial wage floor for retirees. A price indexed benefit will set a retiree more and more behind average wage levels.

Pat

Nice explanation. I did not notice in time :)

You all wrote:
Bend points" simply refer to the formula derived Social Security maximum benefit levels. Better to think simply here. Wages should rise faster than prices over time, and Social Security is meant to provide a partial wage floor for retirees. A price indexed benefit will set a retiree more and more behind average wage levels.

#1 As a 49 year old American I have yet to experience this
"wages rising faster than prices" activity.
When exactly does this occur? Or where?

#2 Indexing to prices makes sense.
Retirees are "presumably" not starting a family or looking for that right place to live anymore, nor are they trying to accumulate wealth for the future. It is already their future. They just want to pay the rent, eat, and go on a cheap trip now and again.

Real up already.

Jim--

Retires pay for health care which rises much faster than other prices.

Didn't the New York Times publish an analysis that said that if that method had been used from the beginning, that the average monthly benefit paid today would be just $300? At least that's what I'm vaguely recalling.

Thank you, thank you, Brad!

Now I won't have to keep asking why you buy into the "price indexing" fallacy. You have finally seen the light.

Pat

You got it all wrong, obviously Brad's post went in through one ear and out through the other. You should read it again.

What you describe is honest-to-God price indexing. But that has nothing whatsoever to do with what the Commission's plan proposes. Calling what they do "price indexing" is one of the most deceptive pillars of the administration's anti-social security campaign.

Price indexing, as you describe it, would cut every generation's benefits by the same (expected) percentage. The CSSS2 plan would keep the current 60-year olds' benefits as they are, and leave the 22nd century Americans with no meaningful benefit at all.

Jim,

Wage indexing only applies while one is earning a wage. Once you retire, unless I'm mistaken, you go fully on price indexing, based on the year-over-year rise in (urban?) CPI at the turn of the fiscal year. So those retirees who don't face the prospect of starting a family or look for a place to live will not enjoy the (someday, one hopes) faster pace of rise in wages after they stop earning wages. Wage indexation does seem fair, since up to the cap, FICA rises with wages, not prices. We are matching wage indexation in starting benefits to wage indexation in FICA.