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Social Security Benefits Cut For Early Retirees
Old 01-04-2005, 03:17 AM   #1
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Social Security Benefits Cut For Early Retirees

It looks like my haircut will be about 10% under the President's Social Security plan.

http://www.washingtonpost.com/wp-dyn...-2005Jan3.html
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Re: Social Security Benefits Cut For Early Retiree
Old 01-04-2005, 07:50 PM   #2
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Re: Social Security Benefits Cut For Early Retiree

This will hit us early retirees.... I was not aware of the wage indexing (vs. price indexing) before and I'm not sure any of the calculators I use actually used it, so it may not be that bad - about a 10% hit for those of age 50. And since SS is only about 1/6th of my projected income stream in my 70's, that is not world stopping. I still don't like it however.

BTW, use www.BugMeNot.com to bypass the registration needed, as parnass mentioned elsewhere.
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Re: Social Security Benefits Cut For Early Retiree
Old 01-04-2005, 08:55 PM   #3
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Re: Social Security Benefits Cut For Early Retiree

I posted this over on Radr's board but haven't gotten much response yet. Maybe someone over here can help me make sense of this.

From the article:
Quote:
According to the Social Security Administration's chief actuary, a middle-class worker retiring in 2022 would see guaranteed benefits cut by 9.9 percent. By 2042, average monthly benefits for middle- and high-income workers would fall by more than a quarter. A retiree in 2075 would receive 54 percent of the benefit now promised.
I assume this is where Michael's 10% estimate comes from, but I don't understand how this works. The 2075 retiree who retires at age 67 does not begin his/her last 35 years of work till 2040 (ie. in the future). Similarly, the 2042 retiree does not begin his/her last 35 years of work till 2008 (also in the future). So why does one see benefits cut by 25% and the other see benefits cut by 54%?

Presumably, the only benefit cuts are resulting from changing the formula used to normalize your highest 35 years of income and the reduction comes from the fact that wages increase, on average, about 2% more per year than inflation. Are the SS planners counting on that spread changing?

I can understand how the 2022 retiree sees less benefit errosion than later retirees . . . if you assume that the new calculations will only apply to years in the future and not the past. Of course if this is true, the ER who has already left the workplace today may not see any benefit erosion.

If anyone knows how this will really work, I would love to see the details. I expect there are no details worked out yet. We'll all have to wait to see what the changes are and how they affect us.

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Re: Social Security Benefits Cut For Early Retiree
Old 01-05-2005, 03:26 AM   #4
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Re: Social Security Benefits Cut For Early Retiree

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Presumably, the only benefit cuts are resulting from changing the formula used to normalize your highest 35 years of income...
There is another part to the new plan. The maximum Social Security amount will be forever frozen at 2005 levels, in inflation adjsuted terms. It does not matter how much wages increase in the future. Your personal 35 years will only determine what percentage of the maximum you get, not how high the maximum possible benefit is set. The maximum will no longer rise over time in real terms like it does now.
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Re: Social Security Benefits Cut For Early Retiree
Old 01-05-2005, 03:34 AM   #5
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Re: Social Security Benefits Cut For Early Retiree

Quote:
And since SS is only about 1/6th of my projected income stream in my 70's, that is not world stopping. *I still don't like it however.
I ran FireCalc with and without Social Security, and it made little difference in how much I could withdraw now. *I look at Social Security as an emergency back up plan in case hospitals take everything else away. *Medicare has fairly low limits on its coverage, and private health insurance is going up at a terrific rate. *They let you keep Social Security after everything else has been taken away from you.
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Re: Social Security Benefits Cut For Early Retiree
Old 01-05-2005, 06:25 AM   #6
 
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Re: Social Security Benefits Cut For Early Retiree

Under my current planning, SS is well over 50%
of our retirement income. If I was not so close to
drawing benefits, all of these reform scenarios would make me nervous. OTOH, I can't control the changes that may be coming, so I will just have to adapt.

JG
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Re: Social Security Benefits Cut For Early Retiree
Old 01-05-2005, 08:23 AM   #7
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Re: Social Security Benefits Cut For Early Retiree

Quote:
The 2075 retiree who retires at age 67 does not begin his/her last 35 years of work till 2040 (ie. in the future). Similarly, the 2042 retiree does not begin his/her last 35 years of work till 2008 (also in the future). So why does one see benefits cut by 25% and the other see benefits cut by 54%?
I can take a guess but no hard facts. I think it was reported that the government doesn't want the cuts to affect those who are older than 50 or 55 (to avoid massive voter backlash). That may mean that the change from wage indexing to price indexing won't occur for 10 to 15 years. That might be enough to account for the difference.
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Re: Social Security Benefits Cut For Early Retiree
Old 01-05-2005, 09:01 AM   #8
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Re: Social Security Benefits Cut For Early Retiree

Quote:

There is another part to the new plan. *The maximum Social Security amount will be forever frozen at 2005 levels, in inflation adjsuted terms. *It does not matter how much wages increase in the future. *Your personal 35 years will only determine what percentage of the maximum you get, not how high the maximum possible benefit is set. *The maximum will no longer rise over time in real terms like it does now.
Michael,

Where does this information come from? I re-read this article and don't find anything to indicate that this is true. In fact, the article seems to contradict that point. Maybe I'm missing something or missunderstand you.

These two quotes:

Quote:
The Bush administration has signaled that it will propose changing the formula that sets initial Social Security benefit levels, cutting promised benefits by nearly a third in the coming decades, according to several Republicans close to the White House.
and

Quote:
Currently, initial benefits are set by a complex formula that calculates workers' average annual earnings in their 35 highest-paid years and adjusts those earnings up from those years to reflect standards of living near that worker's retirement age. That adjustment is based on wage growth over that time span. Under the commission plan, the adjustment would be based instead on the rise of consumer prices.
for example seem to indicate that initial benefit calculation is simply modified to use a CPI normalization instead of an average salary normalization.

Hyper's suggestion that maybe the new formula will be phased in over a decade or more could be consistent with the figures quoted. I see nothing in the article to confirm or contradict that.
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Re: Social Security Benefits Cut For Early Retiree
Old 01-05-2005, 10:43 AM   #9
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Re: Social Security Benefits Cut For Early Retiree

We are by necessity shooting in the dark. But one thing at least seems very likely. At age 62, one's basic benefit is set. From then on, CPI indexing is applied to that figure. Also, it is increased by a certain amount for every month you delay drawing, up to age 70.

I do not know however how new earnings are treated. I don't think they are indexed to wage growth after one reaches age 62, but I am not sure.

For younger retirees the big question will be are the multipliers for one's early years's earnings changed retroactively, or will the switch to CPI indexing only affect earnings going forward?

Mikey
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Re: Social Security Benefits Cut For Early Retiree
Old 01-05-2005, 01:11 PM   #10
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Re: Social Security Benefits Cut For Early Retiree

Quote:
Where does this information come from?
This may help:

http://washingtontimes.com/commentar...5026-2597r.htm

http://www.cbpp.org/12-10-01socsec.htm
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Re: Social Security Benefits Cut For Early Retiree
Old 01-05-2005, 01:27 PM   #11
 
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Re: Social Security Benefits Cut For Early Retiree

Remember folks - These are just proposals. The opponents have not yet begun to fight. They are throwing all of these 'trial balloons' out there to see what draws the biggest fire.

The actual changes will be so far from these proposals, that they will probably have to increase benefits for anyone alive to get this thing through!
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Re: Social Security Benefits Cut For Early Retiree
Old 01-05-2005, 01:29 PM   #12
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Re: Social Security Benefits Cut For Early Retiree

Thanks, Michael.

There is obviously still a lot of detail to work out, but this second article certainly implies that the goal is not just to change the salary base calculation but also phase out benefits . . . possibly entirely eventually.

Still, it sounds like those already retired might get a free ride under this plan. :
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Re: Social Security Benefits Cut For Early Retiree
Old 01-05-2005, 01:45 PM   #13
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Re: Social Security Benefits Cut For Early Retiree

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phase out benefits . . . possibly entirely eventually.
I would think that is the ultimate goal. Once Social Security benefits become sufficiently irrelevant to people's life styles, switching entirely to private accounts will become politically feasible. Another interesting breakdown of the formula is at:

http://www.deadparrots.net/archives/..._security.html
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