Social Security at 62 - Yes or No

[corn18]

That's true financially, but not politically.

True dat.

 

[joeea]

My hope would be that folks like you mother would be well taken care of in our society which likely can afford to do so.

I would hope the same for everyone's mother. Sadly, it hasn't always worked out that way.

Mine passed away a few months ago, so it's no longer her problem.

I think it makes it too easy for the politicians to kick the can down the road and to avoid calling a spade a spade.

No idea what you mean by "spade" remark here.

It appears that kicking the can down the road is inherent in our political system. I'm not sure how "unlumping" changes that.

 

[rprun54]

Not sure if someone pointed this out, (I may have missed a post) but Social Security is not SS. It is SSI. The "I" means Insurance. So when I see people talking about "getting" their money back it ignores the Insurance part of the equation. In particular disability insurance. All those years of paying in are not just building your old age benefit, they are "buying" you disability insurance. Insurance premiums are not something you get back So don't forget to subtract out yearly disability insurance premiums while calculating how much you "should" be getting back.

Urn2b:
You are wrong. SSI is welfare. Supplemental security income. For low income people.

 

[samclem]

I'm not sure which liabilities are being kicked down the road under the current system that wouldn't be kicked down the road under pure paygo.

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.

 

[pb4uski]

.... AFAIK, every change to SS that might reduce the future gap between revenue and benefits is politically unpopular. That's why we continue with the system we have.

(The only possible exception is raising the taxable cap. I believe I've seen at least one poll where that got more than 50% support.)

Even when I was working and would have paid more I favored eliminating the cap to help the survivability of the program.

Of course. This concept is an example of a key part of the "American Personality." Anytime one group can benefit at the expense of another, it's popular with the group that benefits! (Stand, remove your cap and place your hand over your heart!) ....

While many people are so self-serving, many are not.

It would be interesting to me if there are polls/surveys on eliminating the cap if people that are currently subject to the cap. Anecdotally, my sense is that those currently subject to the cap would be fine with eliminating it as long as their additional contributions count towards the calculation of benefits... and that one change would go 2/3rds of the way towards solving the problem.

ETA: Found this tidbit in a Washington Post article:

..... In addition, 59 percent went further, saying they would support eliminating the cap on taxable earnings entirely. .....

.... in the survey, people with incomes over $100,000, who would be singularly affected by raising the cap on income subject to the payroll tax, favored doing so by the same large majorities as for those who would not be affected.

 

[youbet]

While many people are so self-serving, many are not.

There's always room to see things in different ways....... My own experience is that most people are in favor of what benefits them at the expense of others, especially related to taxes and gov't spending. I wish it was different. I guess it depends on what you mean by "many."

my sense is that those currently subject to the cap would be fine with eliminating it as long as their additional contributions count towards the calculation of benefits...:

The proposals I've seen wouldn't work this way. Folks making over the current cap, and thus paying more under the new proposals, would receive no additional benefits. They'd receive as though they contributed exactly at the cap.

But, who knows what we'll wind up with. I'll say it again, my hope is that today's young people don't get stuck with higher taxes while current geezers skate....... There needs to be compromise. It would be wrong for a young, working family to pay higher FICA and a multi-millionaire geezer continues to collect full SS. IMHO anyway..........

 

[pb4uski]

.... The proposals I've seen wouldn't work this way. Folks making over the current cap, and thus paying more under the new proposals, would receive no additional benefits. They'd receive as though they contributed exactly at the cap. ....

There are competing proposals. See https://www.ssa.gov/oact/solvency/provisions_tr2017/payrolltax.html

The one you referred to is E.2.1 and would solve 83% of the gap if there were no additonal benefits.... see https://www.ssa.gov/oact/solvency/provisions_tr2017/charts/chart_run181.html

The proposal that I was referring to that removes the cap but allows additional benefits is E.2.2 and would solve 67% of the gap.
https://www.ssa.gov/oact/solvency/provisions_tr2017/charts/chart_run193.html

 

[youbet]

There are competing proposals. See https://www.ssa.gov/oact/solvency/provisions_tr2017/payrolltax.html

The one you referred to is E.2.1 and would solve 83% of the gap if there were no additonal benefits.... see https://www.ssa.gov/oact/solvency/provisions_tr2017/charts/chart_run181.html

The proposal that I was referring to that removes the cap but allows additional benefits is E.2.2 and would solve 67% of the gap.
https://www.ssa.gov/oact/solvency/provisions_tr2017/charts/chart_run193.html

Thanks...... Great info! I guess I was blowing off E.2.2 because the cries of outrage from the "tax the rich" crowd had me thinking it could not happen....... And I was only catching snippets off the usual sensationalistic media outlets.

I'm long past paying FICA but if I was still paying it, having a reasonable formula where paying beyond the current cap (perhaps unlimited) got me at least a tad bit higher payout would make it much more palatable.

The 67% provided by E.2.2 coupled with a modest, means tested (to protect the near indigent) reduction in benefits to current and future recipients would probably do it and might be considered a fair compromise with no negative consequences for low income citizens.

 

[VanWinkle]

Pay as you go means self-funding and no borrowing... and that is what SS is... by law.

That is why when the surplus and interest run out in 2034 that benefits will be cut by ~25%... at that point you will get your wish... SS benefits will be limited to the then current year taxes.

and AARP will be out of business..........

 

[pb4uski]

and AARP will be out of business..........

One can only hope.

 

[Archman]

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.

 

[samclem]

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.

 

[Independent]

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.

 

[rayvt]

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.

 

[Perryinva]

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.

 

[MichaelB]

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.

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.

 

[pb4uski]

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.

 

[samclem]

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.

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.

 

[Archman]

Quote:
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.

?? 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.

 

[samclem]

Quote:
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!).

 

[Archman]

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.

 

[ncbill]

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.

 

[joeea]

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...

 

[samclem]

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).

 

[Lukeee]

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.