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Retirees and Wrong Assumptions

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Posted on Aug 1, 2011
Flickr / Borya

On Sunday, President Obama and members of the U.S. Congress agreed to cut at least $2.4 trillion from federal spending over the next 10 years, some of which will come from programs that benefit retired Americans.

For this reason, a vigorous conversation on the necessity (or not) of reducing funding to programs that affect retirement age, pension allowances and other provisions for the elderly is urgently needed. Teresa Ghilarducci, an economic policy analyst at the New School for Social Research in New York City, makes a serious contribution to that discussion below, arguing that policies governing retirement age and pension allowances that have functioned effectively since the end of World War II are not the fundamental cause of our inability to pay for other social services.

The table comparing the ratios of young to old people, retirement lengths and pension and education spending of major Western nations that appears at the end of the article is especially informative. —ARK


Raising retirement ages is not a good policy and support for it is based on two wrong assumptions: one, that people can and should work longer and, that two, society cannot afford to pay for retirement because pensions and health care spending for the elderly take too many resources away from younger people.

Pensions do not limit resources for younger people. A survey of 58 nations shows that government spending on programs for the elderly does not reduce public spending for younger people. The most important determinants of government spending on education and youth health programs are whether or not political forces are allied with the vulnerable members of a population, for example the elderly, young families, and children. When such a political alliance is in place public spending on social insurance increases: my statistical analysis shows that a 10% increase in ... education spending (as a percent of GDP) is correlated with a 7.3% increase in spending on pensions.

... The repositioning of retirement as a luxury and no longer affordable depends, in part, on the wrong belief that pension spending takes resources away from other deserving people. There is also the wrong conviction which is more positive that supporting retirement is not as necessary as it once was because the current and future elderly are different: they want to work longer and they are healthier.

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John R.'s avatar

By John R., August 1, 2011 at 5:55 pm Link to this comment

The most accurate way to evaluate a countries’ level of empathy, is to examine how that country treats its poor, lower, and middle classes.

Another sign, of a bullying government, is one that cuts services to those in need.

This is another telltale sign, of the direction that the corporations want the United States to go.

History has shown us the behavior and traits of a bully government.

The war on families by corporations steering our government, is clear and precise.

The time to act is now. Practice your civic duties. Protest when and where you can.

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By richard roe, August 1, 2011 at 2:10 pm Link to this comment
(Unregistered commenter)

Social Security is social insurance. Its official name is Old Age, Survivors and Disability Insurance. Its purpose is protection against the inherent risks of being mortal common to all of us. Social Security is a recognition that sooner or later all of us are going to be too old or sick to work and earn a living. Therefore, it’s in our collective and individual interest to contribute to Social Security when we’re young and able to work and draw benefits when we aren’t.
Social Security protects against five types of risk.
1. The risk of early death by paying survivors benefits.
2. The risk of being disabled by paying disability benefits.
3. The longevity risk of outliving our private savings in retirement.
4. Inflation risk. Social Security’s benefits are indexed to inflation so that in terms of goods and services, benefits are not eroded by rising prices.
5. The risk that we could retire just when the stock market tanks.
6. The risk that even savvy speculators pick the wrong stocks, e.g., Lehman Bros., GM and so on and have their retirement investments wiped out.
Since Social Security is social insurance and not an investment vehicle, private rates of return are irrelevant to any discussion. For example, a rate of return on car insurance doesn’t make any sense. Once people pay their taxes, including Social Security taxes, they are FREE to speculate in any type of get rich quick scheme they want. That’s not the purpose of Social Security

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