Fixing Social Security game

[SecondCor521]

Good discussion here. I make more than the cap as will the MBA students in this article. Still, I agree with them that paying SS tax on ALL income, not just the first $90K or whatever it is, is a fair thing to do.

I'm against cutting benefits -- it's a step on the slippery slope to guting the Social Security program altogether.

My understanding is that though income above the MTA (maximum taxable amount) is not taxed for Social Security, said income is also not included when determining the amount of benefits. So for those of you who propose eliminating MTA on the taxation side, would you still want your benefits calculated based only on wages up to the MTA? If not, then the positive effect this would have on the solvency of SS would be mitigated. How much, I don't know.

2Cor521

 

[Buddha44]

SecondCor, I am not sure how the formula is calculated but I believe that there is more weight on the first dollar earned than the last dollar of the MTA. It is a progressive tax in that the lesser income results in a greater proportionate benefit or return. I would venture to say that the last dollar of the MTA has little impact on the benefits paid (and I don't think they include in the computation any amount in excess of the MTA).

I think the progressive nature of SS is necessary and a worthwhile social goal and those with greater income need to bear that weight. For that reason, I also agree to some expansion of the MTA but if the cap were entirely removed, I would be hosed and since I would get no return out of it, it seems painful to the point of being unfair.

 

[Texas Proud]

Why not limit the amount of people who can collect on one account ? In these days of mutilple
marriages sometimes there are three people eligible to collect on one account .

Are you sure My sister was married to her ex for over 11 years... when she asked about benefits on his account, the lady said his other ex had dibs or something like that.. seemed to be a timing thing.... but, this is second hand

 

[OAG]

Think it is 20 years of marriage or something like that. www.ssa.gov has the answer.

 

[Buddha44]

Texas:

Here is a quote from the ssa.gov site.

If you are divorced after at least 10 years of marriage, you can collect retirement benefits on your former spouse's Social Security record if you are at least age 62 and if your former spouse is entitled to or receiving benefits. If you remarry, you generally cannot collect benefits on your former spouse's record unless your later marriage ends (whether by death, divorce, or annulment).

I don't know if there are other conditions but based on the above, it appears that multiple spouses whose marriages lasted at least 10 years and did not remarry afterwards could qualify off of one person's earnings history. Although I do not know of another solution since it would seem unfair to exclude benefits to the first or last spouse merely because the person whose earnings were relied upon remarried.

 

[OAG]

Now the question is: If two or more ex-spouses qualify do they split the 50% (or the 100% if the guy/gal dies) -- the survivors, not the dead one. What a system -- quibble about the splits based on earnings and give benefits like SSI to anyone who is breathing -- if they need it.

 

[jdw_fire]

Social Security is basically a pay as you go system.

Saying that SS is a pay as you go system can be a little misleading. It is true in practice since SS collects more than it pays but it isn't limited to being that type of a system. It does have a huge asset base beyond the cash flow from which it can make payments.

But the surplus wasn't like one of our 401Ks, invested in the market. It was used, sensibly, to offset other Government obligations.

Based on all I have read, SS ISN'T a big pile of money somewhere in Washington, it's an empty box filled with IOUs from Congress because they used the money for pork barrel projects and the like years ago.

SS' asset base (surplus) is invested in US government bonds, maybe not the best investment but an investment none the same. It is not an empty box, in fact it is like one of our 401Ks, just all invested in bonds. When the time come for SS to draw on that asset base SS will have to cash in the bonds just like someone drawing from their 401K.

BTW what Congress used the money they borrowed from SS for is no more relevent then what they used the money someone invested in Treasuries, TIPS or I-bonds for.

 

[donheff]

SS' asset base (surplus) is invested in US government bonds, maybe not the best investment but an investment none the same. It is not an empty box, in fact it is like one of our 401Ks, just all invested in bonds. When the time come for SS to draw on that asset base SS will have to cash in the bonds just like someone drawing from their 401K.

BTW what Congress used the money they borrowed from SS for is no more relevent then what they used the money someone invested in Treasuries, TIPS or I-bonds for.

The SS trust fund doesn't increase at the regular bond interest rate does it? I thought the money went in the general treasury but was earmarked on the books for SS.

 

[d]

When the time come for SS to draw on that asset base SS will have to cash in the bonds

and where will the $ come from to pay for that?... taxes!

 

[Linney]

Now the question is: If two or more ex-spouses qualify do they split the 50% (or the 100% if the guy/gal dies) -- the survivors, not the dead one. What a system -- quibble about the splits based on earnings and give benefits like SSI to anyone who is breathing -- if they need it.

Also answered on ssa.gov:
"The amount of benefits your divorced spouse gets has no effect on the amount of benefits you or your current spouse may receive."

You're right, what a system! I'm a high earner so it is possible that 3 people -- myself, my current husband, and my ex-husband -- will base their SS benefits off of my earnings record.

 

[jdw_fire]

and where will the $ come from to pay for that?... taxes!

The money will come from the same place it comes from when you cash in a US gov treasury/bill/bond. The answer depends on when the cashing in takes place. If you cash in your treasury/bill/bond now the money will come from another investor (maybe even the SSA since right now they are still a net buyer) who is buying a treasury/bill/bond at this time. When the SSA starts cashing in their bonds the money will either come from another investor or if the US gov's budget is in surplus they can be redeemed out of said surplus.

 

[Texas Proud]

Buddha,

Thanks... she is remarried, so that is the reason... but I think her ex made more money, so she tried...

As for is there cash or not... yes, there are gvmt bonds that the SS system ownes... BUT, they have been using the surplus when they tell us how big the deficit is each year.... in a few years there will be more going out than coming in for SS, SO, I bet they then decide to 'take SS out of the budget'... if not, then the deficit will balloon and the only way to bring it down is raise taxes...

You either pay now or pay later... since we are not paying enough NOW for the ordinary govmt, we will have a hard time paying for it in a few years..

 

[Tadpole]

You either pay now or pay later... since we are not paying enough NOW for the ordinary govmt, we will have a hard time paying for it in a few years..

This is good point. The federal budget needs to be brought in line with the revenues from taxes intended for the federal budget minus the trust fund borrowing. This will reduce the obligations for redeeming securities from other sources in a given year and will restore the confidence in the purchase of securities in the future.

The trust funds may have more legal basis than the SS program itself (full faith and trust guarantee on the bonds, promise on the pay-go), I just don't know how much more.

Bruce Webb, a poster at AngryBear claims that the fund growth has been higher than the government estimates for the low-cost projection (never runs out of money) for each year since the focus turned on SS in the late 90's. If boomers work longer than the projections assume, the economy trucks along as it has in the past, OR any other of the adjustable parameters comes in better than the intermediate estimate with all else being the same, the trust fund may not need to be tapped at all. Who knows? The assumptions used in the models are extremely conservative. If the estimates short range or so bad, are the long range ones better? It's all a crapshoot and I find it unconscionable that people would just decide to reduce benefits based on this long-range model that was moving out in time each year. The fund has been getting so flush so fast that they had to go to a more pessimistic future economy in order to keep it in crisis. Perhaps this estimate of the future is a better one; perhaps not. Besides, if benefits are reduced now, the trust fund just gets larger without bound. Remember that as long as it is not used, the interest is reinvested and earns interest, which is reinvested and earns interests, etc. That is what should scare people if the fund keeps over- performing. (Note, I have not independently confirmed all of what I have just written; I have just seen it referenced in many economic conversations. I think, though, the fact that the date of trust fund exhaustion which has moved from 2029 to 2042 and then back to 2041 last year seems to support these observations.)

The politicians are addicted to claiming improved deficit numbers that can be explained, at least in part, by increases in the amount borrowed each year from the excess SS contributions. At some point they may use the excess flow to claim they have no deficit (ala Clinton). If one looks at the right place, all of this borrowing to cover over $500 billion or so per year of deficit, when added to the debt where it collects interest, is a problem that makes me want to pay my income taxes now instead of freezing to death in an unheated apartment in the future. There is a letter from the actuaries somewhere on that site that warned the President about using the “infinite projection” as they were willing to compute it, as requested, but felt it had too much error to be valid. That is the number that many in the “crisis” crowd like to quote, and quote often.

I have no trouble with the government investing some of these excess funds in state and municipal bonds, conservative market investments, etc. simply because I see no difference in “personal accounts” run by the government, the TSP, and trust fund investments. There is no doubt that the funds need to be put in a place where the word “trust” may have a chance to gain meaning and people won’t feel betrayed or jerked around. Right now the trust fund is used as a cash fund to buy re-election through lower taxes. It’s like some old poor bloke who works his butt off is unknowingly contributing to the campaign coffer of a politician without knowing or approving it. But that is another rant for another day, the laundering of tax dollars.

 

[donheff]

This is good point. The federal budget needs to be brought in line with the revenues from taxes intended for the federal budget minus the trust fund borrowing. This will reduce the obligations for redeeming securities from other sources in a given year and will restore the confidence in the purchase of securities in the future.

If boomers work longer than the projections assume, the economy trucks along as it has in the past, OR any other of the adjustable parameters comes in better than the intermediate estimate with all else being the same, the trust fund may not need to be tapped at all. Who knows? The assumptions used in the models are extremely conservative. If the estimates short range or so bad, are the long range ones better? It's all a crapshoot and I find it unconscionable that people would just decide to reduce benefits based on this long-range model that was moving out in time each year. The fund has been getting so flush so fast that they had to go to a more pessimistic future economy in order to keep it in crisis. Perhaps this estimate of the future is a better one; perhaps not. Besides, if benefits are reduced now, the trust fund just gets larger without bound. Remember that as long as it is not used, the interest is reinvested and earns interest, which is reinvested and earns interests, etc. That is what should scare people if the fund keeps over- performing.

What is obvious from the above is that our problem is one of generally not living within a reasonable budget (which would allow a deficit to some degree) not Social Security per se. What is most irritating to me is that rethuglicans want to blame useful programs like SS for their own refusal to live with a reasonably balanced budget. I am convinced that since Reagan there has been a concerted neo-con effort to use deficits to drive out social programs like SS despite the fact that most Americans do not support that end.

 

[Texas Proud]

My take... again...

You can 'reduce benefits' as you say OR slow the growth of them... to me that is a MAJOR difference...

If last year you made $100,000 and I said next year you will make $101,000 instead of the $103,000 you would get with inflation... I reduced your growth... but the way most dems tell it, I would be cutting down to $95,000 or even $90,000... when you talk CUT, this is what most Americans will think..

AND, I do not want to get rid of SS... It is a great program. It is IMO the best safety net program there is... but you have to look at reality... there is a big group of people that are about to retire. If we did not have immigration at such a high level, we would be in a world of hurt... much like Japan who has (opinion here) more old people than young..

So, let the baby boomers give back a little from their SS payments to make sure it survives over the hump...

BTW.... there is NO govmt program that the politicians will let a big amount of money go unspent... whenever it is said that the SS if solvent or has a surplus, then the benefits will go UP... yes, they could reduce taxes, but that would be hard to do... more than likely they would borrow it like they do today and spend it for that dang bridge...

 

[Caroline]

So for those of you who propose eliminating MTA on the taxation side, would you still want your benefits calculated based only on wages up to the MTA? If not, then the positive effect this would have on the solvency of SS would be mitigated. How much, I don't know.

I wouldn't have a problem with them taxing me up to the limit, but not giving me benefits up to the max. Taxes SHOULD be progressive -- especially this one, which is giving money to WORKING people.

I have a view from both sides (as do many on this board). My parents struggled to get by on eighth-grade educations -- but I was lucky enough to run into the right educational and opportunities at the right time. I worked very hard myself, but the work has been mental, not physical, and the rewards have been greater.

I don't mind giving back to others making less.

The thing that frosts me the MOST about the SS debate is the idea of changing the finish line for these folks.

 

[Tadpole]

What is obvious from the above is that our problem is one of generally not living within a reasonable budget (which would allow a deficit to some degree) not Social Security per se. What is most irritating to me is that rethuglicans want to blame useful programs like SS for their own refusal to live with a reasonably balanced budget. I am convinced that since Reagan there has been a concerted neo-con effort to use deficits to drive out social programs like SS despite the fact that most Americans do not support that end.

Of course it is not a SS problem at all. They just want to make it a SS problem. In all things, consider the source (and watch your pocketbook).

 

[samclem]

I don't mind giving back to others making less.

That is a wonderful sentiment, and a practice worthy of praise. Most folks contribute to charity--we want to help others and we derive a well-deserved sense of satisfaction from doing so.

But, I get no satisfaction from the government taking my money to give to the less fortunate. It steals the joy from giving, and demeans us when we are threatened with fines or jail for not giving. There's another good word for "compulsory charity" . . . .

 

[Sundance Kid]

I would prefer increasing the wages subject to SS tax as well as increasing the payroll tax from 6.2 to 6.7%. If our society wants a safety net for the elderly then we need to all pay for it.

I think raising the retirement age to 70 should not be an option. Just because people are living longer doesn't mean they aren't burnt out in their occupations. White collar workers do not understand how brutal the blue collar occupations are and how they wear you down. Blue collar workers are out of gas by 65 and should have the option of retiring.

I agree! On top of that, many employers are just looking for an excuse to rid themselves of highly paid, long service employees. If you're forced out before your time for SS, it might be a pretty hard row to hoe!

 

[Linney]

The part of SS that is most annoying to me is how the benefits statements that I receive tell me that I am due to receive XX amount of benefit per month but in reality it will be means tested and I will only get a % of XX. And there are so many articles that tell me if I structure my retirement assets this way or that way, I can reduce the taxes paid on SS and increase that %. It feels like an elaborite "game" that we play to see how much of our supposed "benefit' we can keep our hands on.

In my fantasy world where we have a do-over on SS, the tax would be variable based on your income (no cap) but the benefit value would be fixed. Let's just say that number was $900 and it would allow you to rent a small room with a bed and 3 square meals a day. (assuming here that your medical needs are fully covered by Medicare or that the $900 covers the current co-pay). Okay, so you can't afford to keep living in your 4-bedroom house that you've always owned. But you will be sheltered and fed. No matter how much or how little you paid into the system, you get that $900 stipend. NOW . . . every dollar you set aside for your future can used to improve your living situation. For those who make a lot of money and spend every dollar, their retirement years will be quite sparse (or they keep working). For people like my SIL who make only $25-30K per year but carefully saves a percentage each month, she will be able to continue to live a simple but nice-to-her lifestyle that she has now.

Probably full of holes, but it appeals to my particular sense of fairness.

(Guess I'm stil grousing about the article I read in our local newpaper about a woman who had no savings, only had SS. In the article she was crying out to the public how unfair it was that she was going to have to move out of her 3-bedroom single family house because SS just wasn't covering all the expenses of maintaining the home, isn't that so VERY unfair to her?)

 

[Tadpole]

In my fantasy world where we have a do-over on SS, the tax would be variable based on your income (no cap) but the benefit value would be fixed. Let's just say that number was $900 and it would allow you to rent a small room with a bed and 3 square meals a day. (assuming here that your medical needs are fully covered by Medicare or that the $900 covers the current co-pay). Okay, so you can't afford to keep living in your 4-bedroom house that you've always owned. But you will be sheltered and fed. No matter how much or how little you paid into the system, you get that $900 stipend. NOW . . . every dollar you set aside for your future can used to improve your living situation. For those who make a lot of money and spend every dollar, their retirement years will be quite sparse (or they keep working). For people like my SIL who make only $25-30K per year but carefully saves a percentage each month, she will be able to continue to live a simple but nice-to-her lifestyle that she has now.
In the article she was crying out to the public how unfair it was that she was going to have to move out of her 3-bedroom single family house because SS just wasn't covering all the expenses of maintaining the home, isn't that so VERY unfair to her?)

We used to call those poor houses. I now call it dog pounds and I disagree that someone who has worked a hard labor job all their lives, paid 6.5% into SS all their lives and supported your relatives in their homes when they retired deserves such disrespect and distain. I cannot believe I am reading this. The lack of income might bring realities to people's circumstances but compassion costs nothing and is certainly more attractive.

 

[OAG]

Any playing with the system will create more ways around it. Just take a look at what is called the Section 8 Housing. Basically, apartments for low income people. A very noble and good program for the very poor among us. But, now we see widespread "asset hiding" whereby, if you want this program what you do is take all of your assets and transfer them to some trusted person (children usually). Now, since you have no or a very small dollar amount of assets you qualify for this type of housing (rent paid, heating and cooling paid, usually qualify for surplus food programs). You pay for almost nothing except your phone, if you want one, and are not on a child's "friends and family" plan. Of course you can live "high on the hog" since virtually all expenses are paid by the taxpayer and your cash assets are safe and available for use to eat out and travel the 7 seas. Kind of like qualifying for Medicaid by divesting assets (at least this program has a 39 month waiting period).

I have ranted in various threads about the fact that no matter what the Gross SS is on those letters they send do not plan on more than about 75% of that number. Medicare premiums and Income Taxes will take about 25% off of the top if you have any other significant income.

 

[lets-retire]

OAG--I haven't seen what you are talking about first hand, although I have heard stories. What I have seen is people who qualify for Sec 8 housing sub-letting a room to a friend (typically a boyfriend) for roughly the cost of all the bills. The person receiving assistance doesn't work and starts crying foul when their man leaves them. They also become very angry when the mean government people (like me) come around and report them to the powers for violating the provisions of assistance. They are kicked off the program and not allowed to receive benefits for a certain amount of time, which I guess is preferable to going to jail for fraud.

 

[OAG]

Lets-Retire: Good to hear some of this program is being policed. I was under the impression that once one got in no one checked further. New current year cars in the parking lot ought to signal something.

 

[lets-retire]

OAG--Since I didn't actually work with the program only as a police officer the policing of the program was normally a second thought. As part of the explanation of how to keep the police out of your apartment, the topic of assistance normally came up and if recipients were evicted they lost their benefits. The main way for the management to keep the complex from becoming a war zone was to evict people quickly for any violations of the law or complex rules.

IIRC two violations of complex rules within six months resulted in the rental contract not being renewed. If the resident violated the rules again the eviction process was started. After two visits from the police for any reason the occupants were given a warning the third time resulted in their contract not being renewed, and the fourth was eviction.

So during our discussions, which always happen after obtaining everyone's address, if we discovered someone not on the lease living in the apartment and the leaseholder receiving assistance we would annotate that in our report and advise our secretaries to forward it.