Advisor One reported on a speech that I made about retirement. For the most part they understand my positions, but I want to clarify some of what they reported.
Speaking in Boston on Monday evening at the 4th annual Retirement Income Symposium, Pozen first said that it’s “pathetic on how little we’ve agreed on to deal with our debt.” Charging that “We’ve only agreed on $1 trillion; we should be aiming for $5 trillion,” he then laid out a proposal to “to keep our GDP to debt ratio as it is over the next 10 years.” Continue reading
Herman Cain has been busy lately touting his 9-9-9 tax plan, which I wrote about on Monday. He has countered criticisms that his plan is regressive by noting that the current 15.3% payroll tax (which applies to the first $106,800 of income) would be abolished—lowering the tax burden for the working class.
This analysis leaves many questions, the most important of which is the issue of paying for Social Security and Medicare—which the payroll tax currently funds. Mr. Cain’s apparent solution to this problem would be to gradually move away from Social Security towards the Chilean model where employers contribute a portion of their payroll to a private account. But this change would not solve the problems with the program.
Read the rest at the Huffington Post
Social Security has been the focus of heated exchanges between Rick Perry and Mitt Romney. Perry has referred to the program as a “Ponzi Scheme,” and a “monstrous lie.” He has backed off some of his most radical positions—that Social Security is unconstitutional and should be delegated to the states—but still clearly favors drastic changes to the system. Romney has attacked Perry vigorously for these statements; Romney instead advocates more moderate reforms to restore solvency of Social Security.
With all of this rhetoric, it is hard to cut to the meat of the matter. How big of a problem is Social Security? How should it be fixed?
The retirement landscape is changing dramatically for financial advisers. As they prepare to help clients navigate this environment, advisers will need to wrestle with a variety of issues. Among them: what’s the right default option for defined contribution plan participants? What type of investment products and strategies are most appropriate as clients move from the wealth accumulation to the distribution phase of their financial plan? And what role will Social Security play in a client’s retirement income?
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To finance the U.S. government until after the 2012 elections, Congress must raise the U.S. debt ceiling by roughly $2.4 trillion. Many members of Congress will not support such an increase in the debt ceiling without a similar decrease in long-term federal spending.
The time is ripe for Social Security reform. Last month AARP—a historic foe of such reform—announced its openness to modest benefit reductions in order to restore the program to solvency. This week President Obama offered major reforms to Social Security as part of a far-reaching debt reduction deal.
Liberals should not be fighting Social Security reform — they ought to be leading the charge for change, for a simple reason: The program is no longer progressive. Contrary to popular opinion, the structure of federal retirement programs today favors middle and high earners over less well-off retirees.
There are a limited number of big items in the US budget. Large cuts in defense are unlikely and healthcare is a political football. Restoring Social Security to solvency, as difficult as it seems, is our best first step toward fiscal discipline, as well as a worthwhile goal in itself.