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Old 07-12-2018, 05:54 PM   #261
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Haven't Congress dipped into the surplus many times for general spending?
No. Social Security keeps the money and earns interest by investing in U.S. Treasuries. However, a growing treasury will be a source of temptation for a spendthrift Congress.
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Old 07-12-2018, 07:24 PM   #262
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No. Social Security keeps the money and earns interest by investing in U.S. Treasuries. However, a growing treasury will be a source of temptation for a spendthrift Congress.
?? I'm not at all sure what you are saying. No person or entity can "keep the money" and also earn interest on that money. Interest is paid when you let someone >else< have the money, they pay you interest in exchange for the use of that money.


In the case of SS, the excess SSI taxes which were collected when the program ran a surplus were used to buy special government bonds. The US government spent the money that it received from the Social Security Administration. SS gets paid interest by the USG (i.e from taxpayers, from more borring, etc) , and now that SS is redeeming the bonds in order to pay benefits to recipients, the money for those redemptions also comes from the US government (i.e. from taxpayers, from borrowing, etc).



The US government spent the extra money that was collected. As a practical matter, it could be argued that there was little alternative.
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Old 07-12-2018, 08:36 PM   #263
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It depends on how the paygo system is structured-- is the program size set by demand (by a set benefit for each retiree regardless of available funds) or by supply (available funds from a payroll tax determine the size of the benefits)? A demand based program would allow obligations to be pushed to the future (making promises that future workers work would have to pay for), a supply-bounded program would not. On a national level, only the total spending on retiree benefits would be determined by the available funds, the task of apportioning it to individuals could be done in any way that is desired. I'd expect that a system to highly favor those of modest working income would be chosen (aka "progressive").
Most of us (particularly on this site) are comfortable with supply-bounded spending during our working years and in retirement.
Okay, I'll restate this. You are considering these options:
A. Fix the tax rate, flex the benefits every year to match taxes.*
B. Fix the benefits, flex the tax rate every year to match the benefits.

In case A, retirees in the future will get lower benefits than retirees get today.
In case B, workers in the future will pay higher taxes than workers pay today.

You prefer A. I do, too, IF I accept your hypothesis that congress would only cut benefits at the middle and upper income levels.

Note that if congress makes no changes, our current program turns into A with equal percentage deductions for all retirees.

I don't know that I would call A or B more "kicking the can down the road" than the other, but that's not really important to me.
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Old 07-13-2018, 05:33 AM   #264
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IF I accept your hypothesis that congress would only cut benefits at the middle and upper income levels
.

Doesn't anybody around here understand politics?

Congress will do what the voters tell them to do. (Granted, not all at once, and not every little thing, and not suddenly.)

Old folks vote in large numbers. When they die off -- which the baby boomers are starting to do -- their votes to keep SS unchanged disappear.

Young folks tryng to raise a family are not going to want to pay 14% SS tax so that rich old folks can collect large SS benefits. They are already stuck with paying student loan payments while trying to raise kids and buy a house.

A lot of them now say, "I don't mind paying SS tax because it goes to Mom & Dad." But when their own Mom & Dad die, they won't be so eager to pay that tax for other people's Mom & Dad. And they'll begin to vote accordingly, in large numbers.
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Old 07-13-2018, 05:54 AM   #265
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Except young people rarely vote in large numbers, and these lat generations even less. And the Boomers will simply be replaced by the next generation of voting geezers. The population shift is very gradual. And frankly, once I’m dead, it sure won’t matter to me.
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Old 07-13-2018, 06:03 AM   #266
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There are competing proposals.
I wouldn’t call them proposals, simply because they aren’t being considered by policy makers right now. More like “options”.

I know, a nit.

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It depends on how the paygo system is structured--
This is a point that most people miss. The payout (PIA) is indexed to the national wage index, but the funds are invested in Treasury bonds (special ones) whose rates track CPI. If the wage index rises faster, then by definition additional funds external to the SS trust to offset not only longevity, but also the faster growth of wage index over CPI.

Over the past 50 years, the wage index has grown at 2x CPI, so the impact is significant.
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Old 07-13-2018, 08:24 AM   #267
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I wouldn’t call them proposals, simply because they aren’t being considered by policy makers right now. More like “options”.

I know, a nit. ...
Fair point.
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Old 07-13-2018, 08:58 AM   #268
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Okay, I'll restate this. You are considering these options:
A. Fix the tax rate, flex the benefits every year to match taxes.*
B. Fix the benefits, flex the tax rate every year to match the benefits.

In case A, retirees in the future will get lower benefits than retirees get today.
In case B, workers in the future will pay higher taxes than workers pay today.
Since the SS payroll tax could also be adjusted at the outset if we go to true paygo, (rate, removal of cap, etc) it's not necessarily true that under case A future retirees would get lower benefits than they get today. As we've seen, it wouldn't take >major< changes to increase revenues to match benefits. But, yes, if we keep the SSI payroll taxes as they are now, benefits in the aggregate would need to be cut.
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Note that if congress makes no changes, our current program turns into A with equal percentage deductions for all retirees.
True. But the annual flow of funds from the federal budget to SS recipients (through redemption of the special bonds in the trust fund) also stops. This, at least in theory, frees up funds for need-based assistance for seniors at that time, and many at the low end would probably qualify if they took a 25% cut in their SS checks. I'd prefer to avoid all the costs and "incentives" that go with that and instead meet the needs of low-income seniors through SSI, but that may not happen.
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Old 07-13-2018, 09:56 AM   #269
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Originally Posted by Archman View Post
No. Social Security keeps the money and earns interest by investing in U.S. Treasuries. However, a growing treasury will be a source of temptation for a spendthrift Congress.



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Originally Posted by samclem View Post
?? I'm not at all sure what you are saying. No person or entity can "keep the money" and also earn interest on that money. Interest is paid when you let someone >else< have the money, they pay you interest in exchange for the use of that money.


In the case of SS, the excess SSI taxes which were collected when the program ran a surplus were used to buy special government bonds. The US government spent the money that it received from the Social Security Administration. SS gets paid interest by the USG (i.e from taxpayers, from more borring, etc) , and now that SS is redeeming the bonds in order to pay benefits to recipients, the money for those redemptions also comes from the US government (i.e. from taxpayers, from borrowing, etc).



The US government spent the extra money that was collected. As a practical matter, it could be argued that there was little alternative.


Social Security trust fund reserves are by law invested in US Treasury securities. So, this, in a way, it finances federal government spending. But this has nothing do with Social Security’s shortfall. Social Security still owns all that money and earns interest on it. The program’s financing problems arise instead from its benefits exceeding the revenue (including interest) that it generates.
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Old 07-13-2018, 10:21 AM   #270
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Social Security still owns all that money and earns interest on it.
Social security doesn't own the money, it holds the bonds, which are a promise to pay by the USG. It is a significant difference, because when the federal government delivers that payment it is an expenditure on their (our) part. And that is aleady happening every year. If there were Swiss francs, gold bars, hog bellies, private equities, or something else of value in that trust fund (instead of obligations of the USG) then we wouldn't be having these annual expenditures (but those holdings would cause other problems!).
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Old 07-13-2018, 11:06 AM   #271
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Social security doesn't own the money, it holds the bonds, which are a promise to pay by the USG. It is a significant difference, because when the federal government delivers that payment it is an expenditure on their (our) part. And that is aleady happening every year. If there were Swiss francs, gold bars, hog bellies, private equities, or something else of value in that trust fund (instead of obligations of the USG) then we wouldn't be having these annual expenditures (but those holdings would cause other problems!).
Social Security has its own separate tax base and trust fund. Money comes from payroll taxes (FICA) and interest from investing in treasury bonds. Social Security is off budget. The interest is paid by the federal government to the Social Security fund.
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Old 07-13-2018, 01:04 PM   #272
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Social Security has its own separate tax base and trust fund. Money comes from payroll taxes (FICA) and interest from investing in treasury bonds. Social Security is off budget. The interest is paid by the federal government to the Social Security fund.
Those are special, non-marketable Treasury securities.

When any redemption occurs, it requires the issuance of new, marketable debt to cover the current year shortfall.

It does not show up as an expense on the annual budget, but does add to the total federal debt outstanding in the market.

The SS Trust Fund is little more than an actuarial placeholder; what really matters is the current deficit of expenditures over receipts.
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Old 07-13-2018, 01:08 PM   #273
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A lot of them now say, "I don't mind paying SS tax because it goes to Mom & Dad." But when their own Mom & Dad die, they won't be so eager to pay that tax for other people's Mom & Dad.
By then, they will BE Mom & Dad. Their children will be paying into the system.

And so it goes...
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Old 07-13-2018, 02:10 PM   #274
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Those are special, non-marketable Treasury securities.

When any redemption occurs, it requires the issuance of new, marketable debt to cover the current year shortfall.

It does not show up as an expense on the annual budget, but does add to the total federal debt outstanding in the market.

The SS Trust Fund is little more than an actuarial placeholder; what really matters is the current deficit of expenditures over receipts.
Exactly, thanks.

Functionally, when SSA receives the funds to pay those benefits, each dollar increases the US debt, and has the same impact as an extra dollar of federal deficit spending (which is also financed by the sale of bonds).

2018 was the first year that this funds transfer into SS to pay benefits increased the US public debt, but it will continue until the special federal notes run out (approx 2034).
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Old 07-13-2018, 02:36 PM   #275
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It's Politics! .... When does our government worry about fixing a problem that 'Might' Happen 20 years from now? They seemed to have no problem just passing a Tax Cut that put us another 1.5 Trillion in the hole Currently.


By that math... they could increase payroll tax by 2% (8.2% vs 6.2% for both the employee and employer) and decrease personal income tax by 2% and keep all else the same. That would mean the 12.4% contribution would grow to 16.4% for a gain of 32% or so.
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Old 07-13-2018, 04:59 PM   #276
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It's Politics! .... When does our government worry about fixing a problem that 'Might' Happen 20 years from now? They seemed to have no problem just passing a Tax Cut that put us another 1.5 Trillion in the hole Currently.
https://www.cnsnews.com/news/article...-may-still-run

I don't think the issue is tax revenue this fiscal year, it's the tax spending.
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Old 07-13-2018, 05:23 PM   #277
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https://www.cnsnews.com/news/article...-may-still-run

I don't think the issue is tax revenue this fiscal year, it's the tax spending.

The Tax Revenue Shortfall has not kicked in yet.......


But as far as the Tax Spending..... Please tell us What meaningful part of the Spending would you like to see Cut?
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Old 07-15-2018, 03:05 PM   #278
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Back to the 62 70 discussion for a minute...

Have any of the analysis jockies run i-orp and have an opinion about it's effectiveness in the decision?

My last known position on this topic was "Don't take it unless you need it", but that position was not based on my numbers since neither DW nor I we're 62. DW, with fewer earning years, will be 62 next year, so the decision point is arriving. My plan has been to run a bunch of i-orp scenarios, varying life span, investment return, and of course age when starting to get SS. There's even an option to presume SS benefit cuts to play with.

I just wondered if the i-orp calculations "looked right" to those that have an eye for this math.
So I ran those scenarios today. I started with my base numbers, turned-off Roth conversions (for simplicity) and varied the "plan duration" from age 80 to 105, all the while flipping SS initiation back and forth from 62 to 70.

I collected the "annual spend" (the bold number reported by i-orp), plus I added up taxes paid across all years and added up Social Security income across all years.

Although the "break even", looking at total SS $ collected, is age 80, the available spend is 3% higher if I take SS at 62. In other words, i-orp is saying that I can spend 3% more per year across the entire span of this 21 years if I take SS early.

Even extending the span to 31 years, to age 90, i-orp is saying I can spend 1% more. It's not until age 105, a 46 year span, that taking SS late (at 70) beats taking it early.

Something I noticed from this analysis was that the total taxes paid is between 5% and 10% higher for taking SS early. 5% higher at the short plan duration end and 10% at the long plan duration end. So by taking SS early, you're apparently able to leave your assets invested longer so you have more money to pay these taxes and spend more. Oh, by the way, I don't have any funky rate assumptions...I ran with the defaults for everything (asset class returns and inflation, and 40% stock allocation).

So what I've determined is that there's really no downside to taking SS early if you believe the i-orp simulation. I'm not quite done with the analysis, though. What I need to do is, rather than run my rather complicated "real numbers" through the tool, I need to try putting a simplified set through and chuck that output into a spreadsheet to make sure I agree with what it's doing.
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Old 07-15-2018, 03:11 PM   #279
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So I ran those scenarios today. I started with my base numbers, turned-off Roth conversions (for simplicity) and varied the "plan duration" from age 80 to 105, all the while flipping SS initiation back and forth from 62 to 70.

I collected the "annual spend" (the bold number reported by i-orp), plus I added up taxes paid across all years and added up Social Security income across all years.

Although the "break even", looking at total SS $ collected, is age 80, the available spend is 3% higher if I take SS at 62. In other words, i-orp is saying that I can spend 3% more per year across the entire span of this 21 years if I take SS early.

Even extending the span to 31 years, to age 90, i-orp is saying I can spend 1% more. It's not until age 105, a 46 year span, that taking SS late (at 70) beats taking it early.

Something I noticed from this analysis was that the total taxes paid is between 5% and 10% higher for taking SS early. 5% higher at the short plan duration end and 10% at the long plan duration end. So by taking SS early, you're apparently able to leave your assets invested longer so you have more money to pay these taxes and spend more. Oh, by the way, I don't have any funky rate assumptions...I ran with the defaults for everything (asset class returns and inflation, and 40% stock allocation).

So what I've determined is that there's really no downside to taking SS early if you believe the i-orp simulation. I'm not quite done with the analysis, though. What I need to do is, rather than run my rather complicated "real numbers" through the tool, I need to try putting a simplified set through and chuck that output into a spreadsheet to make sure I agree with what it's doing.


Dear Sengsational. Although i haven’t run any extensive research, i agree with you that taking SS early is sound planning whether you need it or not!

PompanoBeach, FL
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Old 07-15-2018, 06:45 PM   #280
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And there is the rub, not doing extensive research yet somehow making a conclusion
I made the same error for years, just assuming the "break even" point of roughly age 80 made waiting wrong for me due solely to longevity concerns. Now, the fact, proven by many an analysis presented on this forum, of having more to spend by waiting has convinced me to at least strongly consider waiting at least until 65 or 67.

I await sengsational's results with interest

however, i suspect there are just too many moving parts involved for me to make a final decision until i am say a yr or so out from 62, and then re-look every year thereafter if i do choose to wait past that age. mainly for the following two reasons:

1) market conditions may drive an earlier start if we have a severe correction/recession by then

2) if my health goes south based on a life threatening diagnosis by then, it may behoove me to take it and enjoy some lavish spending for whatever short time may be left to me at that point. We never know what can hit us regarding our health
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