Exercise One: Old Age, Personal and Societal Responsibility
Following are several brief descriptions of how a number of different people live their lives. After you read these, you will be presented with a series of questions relating to personal and societal responsibilities for “retirement income” support in old age.
Person “A” graduated from college and got a good job. “A” has had steady salary progression, has saved about 12% of salary every year, paid the maximum amount of Social Security tax (FICA), and retired at 65. “A” is getting a good company pension, and has a retirement income from all sources at about 120% of final salary.
Person “B” graduated from high school and went into the armed forces, serving 5 years in a combat zone. On leaving the military, “B” went to work as a mechanic on heavy equipment (road graders, bulldozers, etc.). At age 62, “B” is physically worn out and retired. “B” has saved a little money, mainly in the form of a house, which is paid off. “B” also gets a small company pension and a reduced Social Security benefit. Retirement income from all sources is at about 40% of final salary.
Person “C” graduated from college, got an MBA from a prestigious school, and got a job as a trader for a major investment firm. After 5 years, “C” went independent and made $500,000 to $600,000 annually the remainder of their career. “C” lived very well – only the best of everything – and saved almost nothing. “C” has earned the maximum social security benefit available but no company pension. Retirement income from all sources at age 65 is about 25% of final salary.
Person “D” dropped out of high school and survived on marginal jobs (think repair jobs, common laborer, lawn and garden care) while following a dream of becoming a world-class surfer. Because many of the jobs were short-term and paid in cash, contributions to Social Security were rarely made and “D” will get little from Social Security (about 15% of final salary) and no company pension at age 65.
Person “E” came from a wealthy family, got a college degree in business, and worked in white-collar jobs. The family supplemented “E’s” income and “E” spent every penny earned and every penny received from the family. Unfortunately, “E’s” family had everything invested with a pyramid scheme and on their death “E” was surprised to find the estate worth nothing. “E” is now 65 retired and looks to have very little from Social Security or an employer. “E” will retire with about 12% of final salary.
Person “F” has a college degree and worked hard in a profession. “F” has a company pension which along with Social Security will replace about 50% of final salary at age 65. “F” bought a large house early on and the house appreciated greatly in value (to several times what “F” paid for it) and “F” took out second mortgages on the house for travel, cars and other spending. Everything went well until the housing market crashed and the market value of the house today is about what it was when “F” purchased it. “F” has not yet paid off the first mortgage.
Person “G” has a college degree and an MBA and has had a steady income growth for an entire career, making upper management at age 45. “G” saved 15% of salary and got a pension from the company. “G” was an early casualty of the Great Recession – got laid off at age 63. “G’s” pension was vested at the time but the company went bankrupt a few months later and the pension was taken over by the government but was limited on payouts. “G” has not been able to get another job at the previous salary level. Unemployment insurance payouts ran out two years ago and “G” has worked at Home Depot and Wal-Mart since. Retirement income for “G” (including Social Security, company pension and savings) is about 40% of final salary and other work earnings bring it to about 45%,
These are typical of real people reaching retirement age today. Some work hard, save, and do fine. Others work hard, save, and through no fault of their own have little retirement income. People in some jobs are able (and want) to work into their 70’s. People in other jobs are physically worn out by their job and are lucky to work until they are 60.
Some people do not save, spend irresponsibly (relative to their income), borrow excessively and have little retirement income. In some cases, the decisions they made have resulted in a life that offers little prospect of a comfortable retirement.
Questions to answer: (Turn in on Canvas. Make sure the answers are saved as Word documents.)
Which of the persons noted above should society/government provide extra retirement income help to?
Should any of the persons above have Social Security payments reduced or pay extra taxes to help pay for more retirement income of others? If so, which ones? If not, why not?
What is the responsibility of the individual in making sure they have an adequate retirement income? If they don’t live up to that responsibility what should the consequences be?
Should Social Security be means-tested? That is, should someone with adequate savings and a company pension even get Social Security? Remember, people have been paying into Social Security for their entire careers, and that Social Security has been considered a retirement insurance program.
Should employers have any obligation to assure that their employees have adequate retirement income under all circumstances?
Should the government have an obligation to assure that citizens have adequate retirement income under all circumstances? If yes, what would you recommend to ensure that everyone has adequate retirement income? If no, why?
Of the life stories described above, which of these people would you like to be at retirement? Why and how would you accomplish that goal?
Note: You must justify your answers. Your justifications can be ethical, social, and economic and/or any other rationale you believe. Answers must be thought out and considered, not just “It’s the right thing to do” or “It’s a social obligation.” For example, if you were to have a reason for having the better off subsidize the less well-off based on economic reasons, what economic purpose does this serve? Similarly, if it is for societal reasons, how does such a policy help society? Etc.,
