Promising Editorial On SS "Are Benefits Safe" from AARP Bulletin 11-2018

[ShokWaveRider]

+1 Not sure what SWR is referring to.

Some folks are still think that it will go broke. The Chart, all things being equal suggests otherwise.

 

[Chuckanut]

I think the problem with means testing is that it's hard to do. That's why whether to tax SS is based upon income not means.

If you mean income as 'means' I think there's a bunch of threads here about how folks easily adjust their income for ACA reasons.
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+1 An excellent point.

IMHO, part of the SS 'fix' will be to tax more of it away from those with high incomes. The interesting part will be deciding who is a high income person.

 

[pb4uski]

Some folks are still think that it will go broke. The Chart, all things being equal suggests otherwise.

With all due respect to whoever those folks are, I think I'll put more credence in the view of the SS actuaries. There are a lot of ignorant folks out there.

 

[Midpack]

The interesting part will be deciding who is a high income person. For example, a person who makes a $100,000 a year may be able live very well in rural Alabama, but can barely survive in NYC.

To me that's an easy one, we all choose where to live. It's not the role of government to factor in individual cost of living IMO. If you live in NYC, you know what you're in for financially and folks in Alabama shouldn't subsidize your choice.

 

[PatrickA5]

While I was impacted by that change as well, it is irrational to expect that FRA would remain constant in light of longer lives due to medical advances. The system and premiums were designed based on x years of retirement/collecting benefits... if the x years changes due to better longevity, then the FRA needs to adjust accordingly. Candidly, we are probably overdue for another adjustment of FRAs.

Agreed. But, I just don't think there should be a change in FRA for those that have already made it to 62 or older.

I don't think there will be since anybody that votes for such a thing would be out of office the next election.

 

[pb4uski]

The change in FRA frm 65 to 67 gave participants a lot of runway to adjust their retirement plans. I would expect that a change from 67 to 69 would be done similarly.

.... To soften the impact of the increase, the Greenspan Commission recommended a phased approach over time. Everyone who was already within 20 years of full retirement age (approximately age 45 or older at the time the law was passed) would get to keep the original full retirement age of 65. Those who were age 44 or younger – born in 1938 or later – would have to accept a higher full retirement age, but the phase-in would occur gradually over a 22-year period, with an 11-year hiatus in the middle. The end result was that only those aged 22 or younger in early 1983 – born in 1960 or later – would actually be subject to the new full retirement age of 67. ...

 

[PatrickA5]

That attitude really surprises me, but so be it. We are fortunate to lived during a time when a well paying career was much easier than it is for today's 20-30 somethings starting out. We don't even have kids or grandkids, and I can't dismiss the generations saddled with supporting SS for us with "sure it will suck" for them. Especially when I am certain they won't be getting the SS benefit we will.

Again, that's why shared sacrifice WRT SS for 2034 and beyond is the only fair answer to me, and it gives us all a chance to plan accordingly. And the sooner Congress acts the less pain there will be, but I am not holding my breath by any means.

I "normally" am against passing the buck down to the next generation - we've been doing just that for, well... for generations. But, on the other hand, I don't think people that have spent their life planning on a certain SS amount, on a certain date, should have it changed after the fact. There are many, many people that rely on SS for a very large % of their retirement income. I think people that spent 35 years paying into the plan should get what they expect.

 

[PatrickA5]

The change in FRA frm 65 to 67 gave participants a lot of runway to adjust their retirement plans. I would expect that a change from 67 to 69 would be done similarly.

+1 Seems like the logical thing to do (again).

 

[pb4uski]

I "normally" am against passing the buck down to the next generation - we've been doing just that for, well... for generations. But, on the other hand, I don't think people that have spent their life planning on a certain SS amount, on a certain date, should have it changed after the fact. There are many, many people that rely on SS for a very large % of their retirement income. I think people that spent 35 years paying into the plan should get what they expect.

+1

 

[Midpack]

I "normally" am against passing the buck down to the next generation - we've been doing just that for, well... for generations. But, on the other hand, I don't think people that have spent their life planning on a certain SS amount, on a certain date, should have it changed after the fact. There are many, many people that rely on SS for a very large % of their retirement income. I think people that spent 35 years paying into the plan should get what they expect.

Except we've all read and heard stories about how Soc Sec is going to have to be reconciled sooner or later, I've been aware of it for many years. The demographics issues have been known for decades. Most people here are planning on some fraction of what Soc Sec projections have said. To act like it's been guaranteed for the "35 years paying into the plan" is willful ignorance at best. Sounds like something AARP would say.

 

[Popeye]

Once we do have the next fix, how long before we start hearing that the system is going broke again?

Have we as a country decided that SS has changed from pay as you go to pre-funded? Was the trust fund a one time fix for the baby boom or do we think we should now always have a trust fund?

 

[pb4uski]

Check this out: The Social Security Game | American Academy of Actuaries | American Academy of Actuaries

It would be "easy" to solve by doing two simple things... elimimate the cap but increase benefits (71%) and apply payroll tax to earnings used to pay health insurance premiums (32%).... no real need to increase the tax rate or raise the FRA or tax more benefits.

 

[audreyh1]

Once we do have the next fix, how long before we start hearing that the system is going broke again?

Have we as a country decided that SS has changed from pay as you go to pre-funded? Was the trust fund a one time fix for the baby boom or do we think we should now always have a trust fund?

I think the current build of funds was a somewhat temporary fix in anticipation of the baby boom generation retiring, but the trust fund was established in 1935 with the idea of needing to build reserves at times.

 

[bada bing]

To me that's an easy one, we all choose where to live. It's not the role of government to factor in individual cost of living IMO. If you live in NYC, you know what you're in for financially and folks in Alabama shouldn't subsidize your choice.

One of the confounding factors is that someone who lives in a HCOL area probably makes a HCOL income. and therefore paid much more per dollar of benefit than a lower wage worker. They much more than paid for their greater benefit.

Talk of "shared sacrifice" needs to start with an acknowledgment of who paid for what benefits. SS is a program that transfers wealth from young to old, from upper earner to lower earner, from long career to short career and from single people to married. It is welfare. The sooner the idea that we all paid for all our benefits and that we all get a similar good deal gets dropped, the better. The discussion is properly about how much burden, how much "welfare" is proper to force from upper earner to lower earner. Because SS is a peculiar form of welfare that isn't paid from the general fund, it is forced on earned income (wages) only. It is already an onerous tax on long career upper earners and every proposal I've seen increases the inequity. That would be a discussion if it was acknowledged how the burden was already distributed, but it seldom is.

I am fully in favor of a straight, across the board cut to balance the books, and the sooner, the less painful. Doing so would impact me as much as anyone and more than most. I am not in favor of increasing the burden on young workers just so I could get closer to what I was "promised". I am especially not in favor of increasing "beggar thy neighbor" politics to force those who already paid more than "their fair share" to pick up the tab. Shared sacrifice implies proportional sacrifice. Across the board cuts are the only proposal the does that.

 

[PatrickA5]

Except we've all read and heard stories about how Soc Sec is going to have to be reconciled sooner or later, I've been aware of it for many years. The demographics issues have been known for decades. Most people here are planning on some fraction of what Soc Sec projections have said. To act like it's been guaranteed for the "35 years paying into the plan" is willful ignorance at best. Sounds like something AARP would say.

You're right. Most people HERE have known about it forever and are in much better shape financially than the vast majority of seniors. Since I'm already 60, my plan calls for receiving 100% of what I expect - and I think there is a very good chance that will happen. I don't think I'm being "willful ignorant" at all.

The vast majority of people have no clue and are expecting whatever the statement says they're going to get - if they even read the statement. Expecting everybody else to know what we know and "plan" on a 25% haircut is unrealistic and is exactly why AARP tries to inform them and advocates for them.

I think we're just going to have to agree that we sees things differently. Nobody is going to win any argument on these types of issues.

 

[Brett_Cameron]

Once we do have the next fix, how long before we start hearing that the system is going broke again?

Have we as a country decided that SS has changed from pay as you go to pre-funded? Was the trust fund a one time fix for the baby boom or do we think we should now always have a trust fund?

There has been a Trust Fund by design from the very beginning. It was always needed.

There is a good discussion of the action taken in 1978 and 1983 that addressed the Boomer generation and cash flow issues with a depleting Trust Fund. see the section "Reserve Depletion and Cash Flow Crises"

https://www.ssa.gov/policy/docs/ssb/v75n1/v75n1p1.html

Based on my research of the establishment of the Social Security program, it was always intended that ther e would be continual check and adjust efforts based on the actualities of the the economy, wages, and demographics. My opinion is that the Trustees have done a remarkably good job. It is also evident that it should be espected that the forecasting out 75 years into the future will highlight problem areas.

 

[Blueskies123]

This is just wrong. By 2033 SS will have to cut benefits by 25% or it will go bankrupt.
"By 2035, the number of Americans 65 and older will increase from about 48 million today to more than 79 million. As a result, more people will be taking money out of the system — but there will be fewer people paying into Social Security."
https://www.businessinsider.com/soc...-out-and-no-one-will-like-the-solution-2017-7

 

[MooreBonds]

Please explain this double tax up to 30% of your SS benefit.

Actually, a small portion of what your receive is money that you were already taxed on.... the vast majority of what you receive has never been taxed.

When you earn $10,000 in wages, you pay $620 in SS taxes, and your employer pays $620 in SS taxes. However, when you pay your income taxes, you pay income taxes on your full $10,000 in wages, not $9,380.

Yet, when you collect SS benefits, depending on your income amounts, you pay taxes on up to 80% of your SS benefit income.

50% of your SS benefit income was paid by your employer (which you never paid taxes on), but the remaining "up to 30%" that is subject to income taxes were already taxed when you earned it.

For those who paid this tax back in the 90s when it was first passed and currently are actually getting some sort of 'fair' investment return on all of the SS contributions, so it's not as bad....but fast forward to the future, and those of us currently working (who will be lucky to get back out of SS just what we put into it, given funding levels) will be paying income taxes on up to 30% of the SS benefits we receive. But we already paid income taxes on this 30% when we were working.

If you were double taxed on 30% of your ROTH IRA withdrawals, would you still say "but the vast majority of your ROTH IRA withdrawal is not double taxed"?

 

[PatrickA5]

When you earn $10,000 in wages, you pay $620 in SS taxes, and your employer pays $620 in SS taxes. However, when you pay your income taxes, you pay income taxes on your full $10,000 in wages, not $9,380.

Yet, when you collect SS benefits, depending on your income amounts, you pay taxes on up to 80% of your SS benefit income.

50% of your SS benefit income was paid by your employer (which you never paid taxes on), but the remaining "up to 30%" that is subject to income taxes were already taxed when you earned it.

For those who paid this tax back in the 90s when it was first passed and currently are actually getting some sort of 'fair' investment return on all of the SS contributions, so it's not as bad....but fast forward to the future, and those of us currently working (who will be lucky to get back out of SS just what we put into it, given funding levels) will be paying income taxes on up to 30% of the SS benefits we receive. But we already paid income taxes on this 30% when we were working.

If you were double taxed on 30% of your ROTH IRA withdrawals, would you still say "but the vast majority of your ROTH IRA withdrawal is not double taxed"?

The "simple" answer is the 50% is the employers portion that was never taxed. The additional 35% was interest on the employees and employers portion that was also never taxed. The remaining 15% is what the employee actually contributed - after tax.

This link will make everything clear

https://www.ssa.gov/history/taxationofbenefits.html

 

[Midpack]

You're right. Most people HERE have known about it forever and are in much better shape financially than the vast majority of seniors. Since I'm already 60, my plan calls for receiving 100% of what I expect - and I think there is a very good chance that will happen. I don't think I'm being "willful ignorant" at all.

This is the group I’m referring to as willfully ignorant > The vast majority of people have no clue and are expecting whatever the statement says they're going to get - if they even read the statement. Expecting everybody else to know what we know and "plan" on a 25% haircut is unrealistic and is exactly why AARP tries to inform them and advocates for them. Anyone who can’t be bothered to know something about something as crucial to their retirement as the status of Social Security when shortfalls have been broadcast/published all over the place for decades is “willfully ignorant” IMO. It’s the same as pleading ignorance of laws, it’s not accepted. The phrase “know or should have known” applies.

I think we're just going to have to agree that we sees things differently. Nobody is going to win any argument on these types of issues.

Agree to disagree.

 

[Popeye]

There has been a Trust Fund by design from the very beginning. It was always needed.

There is a good discussion of the action taken in 1978 and 1983 that addressed the Boomer generation and cash flow issues with a depleting Trust Fund. see the section "Reserve Depletion and Cash Flow Crises"

https://www.ssa.gov/policy/docs/ssb/v75n1/v75n1p1.html

Based on my research of the establishment of the Social Security program, it was always intended that ther e would be continual check and adjust efforts based on the actualities of the the economy, wages, and demographics. My opinion is that the Trustees have done a remarkably good job. It is also evident that it should be espected that the forecasting out 75 years into the future will highlight problem areas.

A small trust fund for sure not the massive one we built up. So haven’t we been overtaxed for 30 years to build that trust fund to multi-trillion dollar levels? If so, a benefit cut doesn’t seem fair.

Sure, a 75 year forecast would highlight potential problems. I’m talking about the usual divisive doom and gloom type discussions. You know, where one side is saying the system is bankrupt and the other says “they” want to throw granny off the cliff.

 

[audreyh1]

A small trust fund for sure not the massive one we built up. So haven’t we been overtaxed for 30 years to build that trust fund to multi-trillion dollar levels? If so, a benefit cut doesn’t seem fair.

The benefit cut occurs when that trust fund has gone to zero as far as I understand it.

 

[pb4uski]

When you earn $10,000 in wages, you pay $620 in SS taxes, and your employer pays $620 in SS taxes. However, when you pay your income taxes, you pay income taxes on your full $10,000 in wages, not $9,380.

Yet, when you collect SS benefits, depending on your income amounts, you pay taxes on up to 80% of your SS benefit income.

50% of your SS benefit income was paid by your employer (which you never paid taxes on), but the remaining "up to 30%" that is subject to income taxes were already taxed when you earned it.

For those who paid this tax back in the 90s when it was first passed and currently are actually getting some sort of 'fair' investment return on all of the SS contributions, so it's not as bad....but fast forward to the future, and those of us currently working (who will be lucky to get back out of SS just what we put into it, given funding levels) will be paying income taxes on up to 30% of the SS benefits we receive. But we already paid income taxes on this 30% when we were working.

If you were double taxed on 30% of your ROTH IRA withdrawals, would you still say "but the vast majority of your ROTH IRA withdrawal is not double taxed"?

Still not sure where the 30% comes from.

Actually, most higher income people pay income tax on 85% of their SS benefit, not 80% as your erroeously state above. If you go back to post 66 you'll see that the 85% is the employer share that you are benefiting from but never paid tax on (50%) with the remainder being growth on your contributions (that you never got taxed on).

It is similar to if you made contributions to a non-deductible tIRA and had an employer match of contributions.... your contributions have already been taxed but the employer match and any growth on contributions have not been taxed.

It seems that you naively expect that the portion of the benefit from employer contributions should not be taxed.

 

[joeea]

Maybe it's a localized thing.

I know about a dozen 23 to 30 year olds; every one of them has a decent job, some of them making 6 figures already.

(My deliberately unemployed, video playing, pizza eating, living in the basement niece and nephew excluded! [emoji23])

A dozen is nice. It's going to take a few more than that to make much of an impact on Social Security input.

I'm not saying that the young people of the US aren't working. I'm saying that there aren't enough of them. If only there were some way to increase the population of relatively young folks paying into the Social Security system...

 

[pb4uski]

A small trust fund for sure not the massive one we built up. So haven’t we been overtaxed for 30 years to build that trust fund to multi-trillion dollar levels? If so, a benefit cut doesn’t seem fair. ....

You are totally wrong Popeye. You need a massive trust fund... in fact, bigger than the one that we have... to pay for the promised benefits. So what that means is that we have been undertaxed for 30 years, not overtaxed.... if we had been overtaxed as you think then there would be plenty of money to pay for benefits and we would not be facing a 23% haircut in 2034.

Think of it this way... how much money would you need in the bank today to provide for your promised SS benefits? Then multiply that result by 76.4 million baby boomers... its a big number.
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