Seniors & Cost of Living

[TJ_98370]

This one may bite us all as taxpayers. Also, the article touches on something that has always been a little irritating to me. The rates of return used by most of the ritirement planning guides / packages offered by various brokerages have always seemed overly optimistic to me. I rarely got the projected 9% or so return that they would project. I always thought it was just me and my poor investment choices.
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The funds that pay pension and health benefits to police officers, teachers and millions of other public employees across the country are facing a shortfall that could soon run into trillions of dollars....

.....By their own assessment, state and local governments acknowledge that their funds for retiree benefits are increasingly falling behind, with the number that are severely underfunded soaring to 40 percent in 2006, a five-fold increase from 2000, according to the U.S. Government Accountability Office....

.....For public pension funds, a nonprofit body called the Governmental Accounting Standards Board sets guidelines but has no power to enforce them and little incentive to confront the states and localities that finance its budget. So some states, pension analysts said, have adopted accounting techniques motivated more by politics than prudent financial considerations.....

......Most public pension funds limit their contributions by assuming their investments will grow between 7.5 percent and 8.5 percent a year.
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"While anything is possible, does anyone really believe this is the most likely outcome?" Buffett wrote in the most recent annual report his firm, Berkshire Hathaway. Buffett is also a Washington Post Co. director.
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A growing number of leading investors are warning that the return rates used by state and local governments are unreasonably optimistic. Buffett, for one, has pointed out that over the 20th century -- when the Dow Jones Industrial Average soared from 60 points to 13,000 -- the stock market produced a 5.3 percent annual return for investors. Over the next century, the Dow would have to explode to 2.4 million to produce a similar rate of return.
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Yet even that would be less than the rate of return commonly projected by public pension funds....

[rose-colored-coolaid]

Great post TJ. What I hate about the pension problems is that company X makes a promise, under-commits, and then 30 years later we the tax payers are going to be picking up the tabs for this. It's like the ultimate cheat in a lot of ways...

[Markor]

I don't see why the public should heavily subsidize someone just because they moved into their current location prior to some date. We shouldn't feel too sorry for seniors when they have to leave the house they lived in for 30+ years, for a cheaper place. After all, it's likely that millions of future seniors will have to work until they die in large part because of all of the charity they're currently being forced to shower on today's seniors, like Social Security and Medicare. Public policy should not favor one generation over another.

[TJ_98370]

Markor- If you are saying the social security system is screwed up, I could not agree more. You're going to be old someday - what's the solution?

[rose-colored-coolaid]

[TJ_98370]

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comment deleted by TJ_98370

[ira s]

Rose Colored Coolaid nails it on the head. What kind of society are we when we just coldly discard people because they're no longer contributing economically?
If someone bought their house 50 years ago, and raised their kids there and entertained their grandkids there and baked cookies there, should we just say " it's fine for them to move someplace less expensive because they can't afford their property taxes."?
Yes, social security is screwed up, and needs changes because a lot more is going out than is coming in. But there are some old folks who subsist solely on social security. Should we soylent green them, as well as all those "useless" poor people?

[rose-colored-coolaid]

[Markor]

[TJ_98370]

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SUMNER, Wash. -- A 99-year-old woman whose health is declining is being threatened with eviction from the assisted living facility where she has lived for the last decade because she switched from Medicare to Medicaid, reported KIRO 7 Eyewitness News.....

[Notabull]

"It's obvious that the middle class can be greatly strengthened, when some people made more money in the time that you read this post, than you'll make all year. History shows that society does not crater when the highest tax rate is, say, 70%. The Beatles paid 70+% in taxes at one point, yet they kept on producing. (I think Ayn Rand's theory is a bill of goods that one political party loves for you to believe.)"

The question about that highest tax rate is "who pays it?".

In England back in those days, you really didn't have to earn much money to pay that kind of tax rate. Hell, when I left England I was earning an "ok" amount of money and paying a 40% tax rate (without the additional 10% equivalent of social security/medicare). Back in the 60s and 70s, England was a pit of unemployment and general misery. If anything, that made for a lot of good music... Misery and free time can be inspiring.

When I read about people earning $100M a year, or the Simpson's voice talent earning $400K an episode (or whatever the new deal is), it makes me sick. It's disgusting that there are so many people out there that earn MASSIVE amounts of money and so many that are barely getting by.

I don't know why we don't have a 90%+ tax bracket on household income over $1M (or 500K, or whatever). I'd be totally fine with some stupid movie star earning $20M a movie if I knew that $18M was coming right back in taxes. Let's call it the "top 1%" tax. I know that if I ever got to that point of income (which I likely won't) then I'd be so fortunate that I'd be happy to pay that tax. Perhaps "happy" is the wrong word, but I'd certainly feel obligated and feel that it was the RIGHT thing to do.

I think we forget that income tax was originally invented to tax EXCESS wealth, not regular people's income. When people in this country realize that the squeeze on the middle class is real, and that they are paying more of their income on taxes than they were in years prior when compared to the wealthy, maybe eventually they'll stop voting for tax cuts they'll never benefit from.

Hell, I'm not even *in* the middle class (I likely earn too much) and I'm still very angry about the situation. I wonder when people will actually "vote for change".

[rose-colored-coolaid]

One key to any future tax laws is that they should move away from assigning $$$ amounts and should instead work on percentiles. AMT was for excessive earners, but now it can affect many upper middle class families, for instance.

Here's how tax laws should be structured. All incomes from previous X years (where X is small, like 2) are analyzed. The pool from the previous year is split into percentiles, and from that pool, actual dollar figures for each percentile are calculated. If the top 1% earned over $1m a year the last two years, then that dollar figure is how we determine what the top 1% is.

Then, all the tax brackets get tied to percentiles instead of dollar figures. Each year, the IRS sends out a single sheet showing where the percentiles line up that year, and you take your adjusted income and compare to figure out your rate. It's a simple solution, the math involved is trivial with modern computers, and it means legislature wouldn't have to harangue over tax rates from year to year.

Of course, we'll never pass law like this, because...I frankly don't know why not.

[Markor]

[rose-colored-coolaid]

[TJ_98370]

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....the majority of Americans clearly want the rich to get richer....
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I remember watching a TV interview of some congressman many years ago and during the interview he actually said that any proposed legislation to increase taxes on the "rich" would be unpopular with the middle class. I remember reacting with total disbelief. The congressman went on to explain that many middle class Americans firmly believe that they have the right to be rich and they want that right protected. - Interesting perspective.

The congressman bolstered his credibility (maybe just with me) by mocking that type thinking, and by elaborating on the point that most of the "right to be rich" supporters had a very slim chance of ever being rich themselves.