(I’m currently reading The Anguish of the Jews, and will augment my prior post on Islam when I’m done. In the meantime, let’s talk retirement.)
So Marco Rubio gave a speech on retirement and Social Security reform to the National Press Club last Tuesday and has gotten a fair amount of favorable press from it, in particular, from Republican pundits who may or may not choose to welcome him back to the world of Rising GOP Stars after his “immigration reform” oopsie. Here’s the transcript of his speech. (I can’t seem to find any sort of policy document with more specifics, so this is what we’ve got to work with.)
Does he have any exceptional ideas?
His first proposal is to let anyone enroll in the Federal Thrift Savings Plan. Why this plan, rather than simply offering greater availability of private IRAs? Because, he says, the TSP offers lower fees than most private retirement plans. Is this so? According to a white paper from the Investment Company Institute (the 6th hit on a google search for thrift savings plan expense ratio), there’s no magic to why the TSP’s expense ratio is so low: Congress has exempted it from various compliance regulations, certain administrative costs are handled by the individual government entities and excluded from the expense ratio, administration is simpler because there is, after all, only one employer, the expense ratio is reduced by nonvested forfeitures, etc. Opening it up to all comers would either increase the expense ratio for everyone, or only for the new investors, or would require that the taxpayers subsidize the funds to keep the expense ratios low.
His second proposal is to eliminate the Social Security Payroll Tax for anyone who’s already reached retirement age. Now, I’ve seen this suggestion before, and, although, conceptually, there’s an argument that, past Normal Retirement Age, the individual has already “paid for” their retirement, Rubio should know better than to pretend that FICA taxes are contributions paid towards earning a benefit. It also seems unlikely that seniors who have been paying FICA taxes their entire working life are dissuaded from working into retirement by this tax.
He further proposes eliminating reductions in benefits for retirees who begin collecting benefits at age 62 but continue to work, especially because these reductions are “repaid” to the retiree later, so don’t really appear to accomplish anything. And here he’s got a point — I’ve never really understood the point of this, except to discourage collecting benefits early, back when the notion of partial retirement or part-time work didn’t really exist.
So fine.
But his next proposal is to increase the Social Security Normal Retirement Age. To what age? How quickly? No details at all. Yes, we know that life expectancy is increasing. Best-practice life expectancy tables now include an assumption that, for each year in the future, life expectancy will continue to improve by a specified percentage. But it’s not at all clear to me that there will be corresponding increases in the age up to which an individual remains hale and hearty and able to work a full-time job, whether it be physical strength or mental acuity. Even if they’re not bedridden and senile, even if they are fully able to play golf or go on cruises, I really hesitate to say that we can reasonably expect seniors to work, not just part-time, but at their “day jobs” until age 70 or later.
His final proposal:
“We also by the way need to look at how we calculate initial benefits. Social Security needs to provide a stronger safety net for those at the bottom of the income scale . . . The answer is to reduce the growth of benefits for those upper income seniors, while making the program even stronger for lower income seniors. This isn’t a cut. It is simply a reduction in how fast the benefit will increase for wealthier retirees.”
I’ve seen something similar to this before, and with similar vagueness.
Is he referring to a reduced COLA for wealthier retirees, and a greater one for poorer ones? This is, the “reduction in how fast the benefit will increase” speaking of increases for individual retirees over the course of retirement?
Is he proposing a means test to reduce benefits for those retirees with significant (or any) income outside of Social Security? Does his plan to “reduce the growth of benefits” mean that a means test would be phased in?
Is he proposing a change in the formula, for instance, increasing the lower bendpoint, so that the 90% pay replacement level covers more income, and decreasing the upper bendpoint, so that those with higher pre-retirement incomes see relatively lower benefits?
Now, as I’ve said before, I think that a move to an Australian or Dutch-style flat benefit would provide a better Social Security system in the long run — but I really don’t have any patience for politicians to tiptoe around the subjects without any details!
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