Is Rick Perry right or just looking for attention?
I’ve seen Rick Perry stating that Social Security is a Ponzi scheme. I’m hesitant to buy into that view. Slate Magazine put out an article examining – What would happen if we stopped Social Securityright now.
What do you think of Rick Perry’s statement? Do you think we should get rid of Social Security?
Cartoon courtesy of: Nate Beeler, The Washington Examiner, Washington, D.C.
This cartoon appeared in the Sunday paper yesterday. It pretty much illustrates the reality of the situation. Perry needed a sound bite and he got it.
The Truth about Social Security
The truth is more like the statement on the left. The Social Security funding methodology was developed at a time when the workforce was young and growing; where the population at work outnumbered the population in retirement. There would always be enough workers paying in to cover the blueheads drawing out. Now, of course, we have a burgeoning baby-boom generation that will (at the current pace) suck the system dry faster than you kids can replenish it.
The problem with Social Security in 2011
The problem (aside from the upside-down funding) is the expectation that Social Security will provide your average worker with a quit-and-go-fishin’ retirement. It wasn’t intended to do that and it can’t. It’s a safety net; a supplement; that’s all.
Back in the 80s, two things happened that make this all the worse. A change in the Financial Accounting Standards Board (FASB) rules required companies to fully fund their qualified pension plans. That made it a lot more expensive for employers to maintain traditional Defined Benefit plans. DB plans are the ones that provide a worker with a guaranteed annuity at retirement. They also put all the investment risk on the plan sponsor (the employer). Second, a financial advisor looking for an advantage for his client discovered an ignored chunk of the Internal Revenue Code in section 401, subsection (k). It’s a nice little tool that allows an employee to set money aside on a pre-tax basis to save for retirement. Only problem is, it’s too easy to get at your money out before retirement and all the investment risk is on the participant (that’s you) not on the employer. End result – employers are shutting down their pension plans and shifting the responsibility of your retirement back on you.
Oh, your question.
Yeah, Perry’s Ponzi Scheme comment is just inflammatory silliness. You will get a benefit from Social Security. You will likely have to pay more for it and wait longer for it. You should support federal level politicians who understand finance and who talk about restructuring Social Security funding to a system where YOU get out what YOU put in. There should be a cap on income that is replaced, but no limit on income that is taxed.
In my Dad’s last post he very adamant about using a cast iron skillet. However, since cast iron isn’t part of the young apartment dwellers’ basic collection, I needed a revised recipe. Dad told me this when I called him confused with a package of ribeye in my hand:
1) Heat butter in the best skillet you have. The hotter the pan gets, the better.
2) Sear the ribeye for 30 seconds on each side, which locks in the juice.
3) Broil the ribeye for 4 minutes on each side.
4) Let it stand 10 minutes so the fat settles.
It turned out great! I felt like next Gordan Ramsey!
Help! I’m unemployed. Can I still keep health insurance?
As you know, I’ve recently been laid off. I’m really worried about health insurance because the government Cobra plan seems expensive. Since I’m under 26, is there anything else I can do? If so, could you walk me through the general process?
You are certainly not alone in your predicament and you are fortunate (though you may not feel it) to have options that would not have been open to you a generation ago – or even a year ago.
COBRA: Consolidated Omnibus Reconciliation Act of 1985
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) mandates, among other things, that workers have the ability to continue medical insurance coverage after they leave employment. This is a vast improvement over the previous situation, in which once you left your employer, you also left your group insurance and you were on your own. And while it was an improvement for many people, it provides only that coverage be available, not that it be reasonably priced. For most people, not only do they have to pay what they previously contributed as an employee, they also have to pay whatever their employer contributed (which can vary widely). Plus, the may need to pay up to 2% more than the coverage to cover administrative costs. The idea was that you could stay in the group plan but you wouldn’t incur any cost for your former employer.
Getting coverage at a group rate is way better than having to buy individual coverage, but boy that 102% can still taste bitter.
Obama – Care: Patient Protection and Afforable Care Act of 2010
One of its many provisions is that dependents (children) will be permitted to remain on their parents’ insurance plan until their 26th birthday, and regulations implemented under the Act include dependents that no longer live with their parents, are not a dependent on a parent’s tax return, are no longer a student, or are married.
How to change back to your parents’ health insurance.
Regaining coverage under a parent’s plan is not too difficult. The loss of coverage for an eligible covered dependent is a “Qualified Change in Status” which allows for a change in plan coverage that is appropriate to the triggering event. I am allowed to increase the level of coverage (the number of people covered) to include you, but I wouldn’t be allowed to change the medical plan in which I’m enrolled. I just needed to provide proof that you were coming from another plan. That proof comes in the form of a HIPAA (Health Insurance Portability and Accountability Act) Certificate which your old employer is required to provide in pretty short order after your separation. They could also require proof of your age (usually in the form of a birth certificate). Then I just re-enroll through my HR department with you as an added dependent. Easy peasy.
For those that meet the criteria, it can be a significantly lower cost option. In some cases this is just cost shifting without actually making coverage any more available. In your example, the cost of your coverage shifts from you (under COBRA at 102% of premium) to my employer (a self insured company that has to pay claims). In the end, that will increase their overall insurance costs which will be passed on to premium payers – that’s me.
Others may be able to shift from expensive individual plans to their parent’s plans. Still others, who can’t afford an individual plan and who aren’t eligible for COBRA, may have a window of opportunity to get some cheaper coverage – provided Mom and Dad have coverage and they haven’t reached age 26.
Does recent Health Care Reform really help the country in the long run?
If you indulge me one moment of soap-box editorial – this whole thing doesn’t help as many people as you might think and it does absolutely nothing to improve the cost, quality or overall availability of health care. Providing health insurance is not the same as providing health care. It just queues up more paying customers to the insurance companies and does little to relieve the financial burden on anybody. Americans need to purge themselves of the notion that all it costs to go to the doctor is their $20 co-pay. Only then will they start being smart consumers of health care. And only that will drive prices down.
This Dad is just your average middle-aged white guy with a receding hairline, a wife, two kids, a dog and a mortgage (accelerating, beautiful, awe-inspiring, stubby and interminable, respectively).
And what makes him an authority on anything?
He has a bachelor’s degree in Business Communications, an MBA with a concentration in investment finance, 30 years in the financial services industry working in the specialty of employee benefits. He has clocked 50 some-odd years on the planet; 28 of those as a husband, 26 as a homeowner and 23 as a father.
He is also an amateur genealogist: 10,000+ individuals in the database with ancestors going back to the 1300s including royalty and half a dozen Mayflower passengers.
He is a huge Disney fan, a recumbent bicycle rider, a percussionist, a ukulele strummer, a model maker, a grammar nerd, a jazz lover, a church volunteer, a job seeker, a bad but enthusiastic photographer, a mediocre cook, a hack golfer, a brother, a registered independent, a Christian, a closet motorcycle rider and a wannabe actor.