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Crystal Ball on Future SS Haircut
Old 03-03-2017, 01:22 PM   #1
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Crystal Ball on Future SS Haircut

I have a debate going with a friend who is also FIRE'ing this year, him at 55.

He says he is going to take SS at 62 as a hedge that when Congress finally decides to give SS recipients a haircut that they won't do it to current recipients. So the sooner he's in the system, the safer his income stream is.

I have a different guess, which is that they aren't going to do anything to "old" people, because they/we vote in great numbers. So anybody 55 years & older (maybe 60 & older?) isn't going to get trimmed. But "less old" people in their 40s and 50s will get a cut, and if you are in your 30s you are getting the whole head shaved. So based on this, I want to wait until at least FRA (67) or really 70 to take SS, for the obvious 8% reason.

What say you? What does your crystal ball say? What is the haircut scenario that you see?

PS. In my ER calcs, I model lower COLA from SS as a bit of buffer, but not lower base numbers. Otar's software makes this very easy to play with.
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Old 03-03-2017, 01:27 PM   #2
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I'm keeping with my original plan of full retirement age. Not early, not late.
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Old 03-03-2017, 01:37 PM   #3
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Sharpening up my pitchfork and laying in some extra torches, just in case...
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Old 03-03-2017, 01:45 PM   #4
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Sharpening up my pitchfork and laying in some extra torches, just in case...
Investing in dried food, water storage, and bullets?
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Old 03-03-2017, 01:47 PM   #5
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All I can say is that I remember a impassioned, tearful conversation with my dear, late mother in the early 1970's in which I told her there was NO WAY that SS would survive long enough for me to get any of it (and I felt we were supporting her generation, it wasn't fair, blah blah blah, great tears of outrage). She wisely told me that politicians could never cut SS because older people vote consistently.

In 2010, when I turned 62, I wondered if I should get SS early while I still could. There were a lot of articles being written about how one should grab it ASAP before it was cut or vanished.

OK, so I waited. I claimed divorced spousal SS at age 66, and SS still has not been cut. I am 68 now and plan to switch to my own SS at age 70 because it will be more. I got in just under the wire, so my SS is growing from now to age 70.

This is almost like playing a game of chicken.
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Old 03-03-2017, 01:52 PM   #6
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I have run firecalc scenarios for all the different claiming ages... and it's all good. I plan to decide (the first time) sometime in my 61'st year. Then if I decide to defer, I'll re-evaluate each year...

I'm only 55... a lot can happen in 7 years... no need to pick an option till it is a tangible possibility.
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Old 03-03-2017, 01:52 PM   #7
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My crystal ball says SS will become more and more income based, such that lower income folks will never see much of a haircut but someone who is collecting a $60,000 pension or pulling RMD from IRAs/401K might not see the $30,000 a year from SS they were expecting.

So if you live on $25k a year or something, you are probably going to get full SS even if you are in your 30s now.
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Old 03-03-2017, 01:58 PM   #8
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This has been discussed many, many times on this board in the past few years and opinions have been all over the map. I know when I was in my 40's and even into my mid 50's, I really didn't think it would be there when I became eligible. Well I was wrong (again) and have been collecting my benefits for several years now.

What might they do? Maybe they'll do "more" means testing in the future, maybe they'll cut everyone's benefits by some percentage, maybe they'll raise the age limits (again), maybe SS will change from an entitlement program (that you earned) to a charity program only for those you need it (or know how to work the system). Maybe they'll start clawbacks. Maybe a combination of these plus some others I haven't listed.

Now with that said, congress can decide to make changes anytime they want and about the only thing I feel sure of, is they won't be raising my monthly checks. (Other than "maybe" a partial COL adjustment from time to time)
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Old 03-03-2017, 01:58 PM   #9
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I retired three years 2014 ago at 62 and took my SS at 62.5 in January of 2015.

I took it because it covers all my fixed expenses. I had heard that payouts might be cut in future so I wanted to preserve my investments as long as possible to let them grow. I can live nicely on SS now, though that may not be true in future.

Fortunately my investments have grown well. If we can avoid another severe Recession for a bit I hope I may be ok.

Its a throw of the dice.
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Old 03-03-2017, 01:59 PM   #10
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On paper I could go either to defer to take it early. However being a control freak I prefer to take my chances with maximizing my current assets and start payments early. Right now I'm more interested in taxation variables and how that may play out.
Anyway make your own decision. Look at the bright side. By the time the long term results are in most of us will be long gone.
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Old 03-03-2017, 02:02 PM   #11
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My crystal ball says SS will become more and more income based, such that lower income folks will never see much of a haircut but someone who is collecting a $60,000 pension or pulling RMD from IRAs/401K might not see the $30,000 a year from SS they were expecting.

So if you live on $25k a year or something, you are probably going to get full SS even if you are in your 30s now.


Hmmm. Maybe I should take the lump sum on the pension and buy all the houses, boats, RV's etc before I get old. Then live on limited income but have all the stuff I need in advance.
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Old 03-03-2017, 02:20 PM   #12
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Quote:
Originally Posted by RockLife View Post
I have a debate going with a friend who is also FIRE'ing this year, him at 55.

He says he is going to take SS at 62 as a hedge that when Congress finally decides to give SS recipients a haircut that they won't do it to current recipients. So the sooner he's in the system, the safer his income stream is.

I have a different guess, which is that they aren't going to do anything to "old" people, because they/we vote in great numbers. So anybody 55 years & older (maybe 60 & older?) isn't going to get trimmed. But "less old" people in their 40s and 50s will get a cut, and if you are in your 30s you are getting the whole head shaved. ....
I think they will do it in a way that people of the same age and earnings who are collecting and who are not collecting will be treated the same... most likely with no change for people collecting... or for that matter even near to 62. My bet would be that they phase in changes gradually like they have done with the increase in the FRA from 65 to 67.... those near to 62 at the time the changes were initiated hardly noticed a difference and those much younger had larger change but it was so far away that it was hardly noticeable as well.
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Old 03-03-2017, 02:20 PM   #13
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Quote:
Originally Posted by Fermion View Post
My crystal ball says SS will become more and more income based, such that lower income folks will never see much of a haircut but someone who is collecting a $60,000 pension or pulling RMD from IRAs/401K might not see the $30,000 a year from SS they were expecting.

So if you live on $25k a year or something, you are probably going to get full SS even if you are in your 30s now.
Yes, I'm sure you are right about means testing. And as long as it is income based, I feel OK. If it becomes net worth based, many of us could be screwed even if we don't spend a lot of it.
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Old 03-03-2017, 02:23 PM   #14
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Whatever "they" are going to do will happen, someday.
But I don't understand how people can think "it" might happen suddenly, overnight, without warning.

The last time they messed seriously with SS was in 1983 when they increased the full retirement age from 65 to 67. That two-year change was phased in over a 22-year period, with an 11-year hiatus in the middle at which the retirement age remained at 66.

Whatever happens, there will be ample warning.
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Old 03-03-2017, 02:25 PM   #15
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I disagree... I don't think we will ever see means testing... even income based. I think there is a good likelihood that SS will become fully taxable (rather than 85%) which is a second-order of income means testing but I doubt that we will ever see different retirement benefits paid for two people of the same age and earnings history because one has a pension or other retirement income and the other does not.
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Old 03-03-2017, 02:29 PM   #16
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Quote:
Originally Posted by RockLife View Post
I have a debate going with a friend who is also FIRE'ing this year, him at 55.

He says he is going to take SS at 62 as a hedge that when Congress finally decides to give SS recipients a haircut that they won't do it to current recipients. So the sooner he's in the system, the safer his income stream is.

I have a different guess, which is that they aren't going to do anything to "old" people, because they/we vote in great numbers. So anybody 55 years & older (maybe 60 & older?) isn't going to get trimmed. But "less old" people in their 40s and 50s will get a cut, and if you are in your 30s you are getting the whole head shaved. So based on this, I want to wait until at least FRA (67) or really 70 to take SS, for the obvious 8% reason.

What say you? What does your crystal ball say? What is the haircut scenario that you see?

PS. In my ER calcs, I model lower COLA from SS as a bit of buffer, but not lower base numbers. Otar's software makes this very easy to play with.
I say that it is useless to guess.

But as guesses go, yours is an good as any, as is your friend's.

Ha
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Old 03-03-2017, 02:38 PM   #17
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I think there is a good likelihood that SS will become fully taxable (rather than 85%) which is a second-order of income means testing . . .
I agree there's a good likelihood of this. And I think that the things counted as "income" for the purpose of SS taxation will include Roth distributions (both Roth IRAs and Roth 401Ks). The Roth distributions themselves won't be taxed, but they will be used to determine the tax rate paid on taxable income (to include SS). As a means of selling this idea, there's a good chance that some of the revenue raised by this will be earmarked to help keep the SS program afloat. So, it would effectively amount to an income-based cut in SS.
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Old 03-03-2017, 02:39 PM   #18
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I say that it is useless to guess.

But as guesses go, yours is an good as any, as is your friend's.

Ha
As posts go, yours is better than most!
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Old 03-03-2017, 03:19 PM   #19
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My opinion is I'll take it at 62. I'll take the guaranteed money over the "chance" that I'll live long enough for the higher rates of pay to give me a few extra dollars over the years. I plan to FIRE with enough that that will be all I need and see no need to gamble money on how long I'll live. I'll take the "sure bet" (assuming I'm alive at 62 to take it anyway).
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Old 03-03-2017, 03:20 PM   #20
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I agree there's a good likelihood of this. And I think that the things counted as "income" for the purpose of SS taxation will include Roth distributions (both Roth IRAs and Roth 401Ks). The Roth distributions themselves won't be taxed, but they will be used to determine the tax rate paid on taxable income (to include SS). As a means of selling this idea, there's a good chance that some of the revenue raised by this will be earmarked to help keep the SS program afloat. So, it would effectively amount to an income-based cut in SS.
Agree on the first part but not on the part about Roth distributions being included for SS taxation at a higher rate... it would be too complicated and would essentially create another parallel tax scheme like AMT... I don't see them wanting to increase complexity at all... in fact, quite the opposite. But increasing the % of SS subject to tax would be easy... just change a few factors.

Besides, in the whole scheme of things Roths are not significant enough to make much of a dent even if they did what you think they will do.
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