Social Security for tail of baby boom

[MasterBlaster]

The australian pension system is the (welfare) lifeline for those in severe need.

They also have gone to a pay-as-you-work self funded system called Super-Annuation. It's kind of like a forced 401K plan. Both the employee and the employer pay into it.

Australia has basic government supplied medical for everyone. But if you have a good employer or are rich you buy "private" insurance to get much better medical coverage.

 

[NW-Bound]

Yes, the Australian so called Age Pension is definitely a welfare type system, which our SS system was when it started out.

Nothing wrong with the above, if their tax rate is low compared to ours to allow people to save for their own Super-Annuation. Until recently, the US SSA tax rate was 15.3% (7.65%+7.65% for employer+employee), and it started out being just 1%+1% in 1937.

As mentioned earlier, I have not been able to find out how the Aussies fund their system. Similarly to health care, it is interesting to see how other nations handle the same problems we have.

 

[NW-Bound]

The much larger financial problem facing the US is Medicare and not SS. The former will bankrupt us much sooner than SS.

So eventually, when we figure Medicare out, the SS is a much easier problem! And how can SS be fixed? Did someone just say "means testing"?

I recently got interested in the Australian system, from some posts in this forum made by some Aussies.

Australia has always had income and asset testing. I do not know how their system is funded, but the payout looks very austere compared to the US. Here's the summary of their "Age Pension" for a single person (from my research on the Web, and I may have errors).

1) Pension age: 67 for people who currently are 55 yr old or younger. No payment for early retirees.

2) Max payout: $695.3/fortnight (2 weeks) for a single, and it can only be reduced from there. This works out to $18K/yr max payment.

3) Income testing: payout is reduced 50 cents for every dollar of income above $152 per 2 weeks. So, when a single has income above $1542.6/fortnight ($40K/yr), he receives no pension.

4) Asset testing: payout is reduced $1.50/fortnight for every $1000 of asset above $696K, if our single retiree owns a home. Assets include retirement funds, cars, bank or brokerage accounts, boats, planes, secondary homes, etc...​

It was not clear to me if having a retirement fund (like the 401k in the US) would cause a hit both in income and asset tests (items 3 and 4 above), meaning the pension getting reduced both from the value of the 401k and the income generated from such 401k.

In any event, if the US adopts the same system as the above, I guess I will not get anything from SS unless I spend down my stash first.

So, do we do 10%WR (hey, enjoy it while you still can), then figure out how to live on $18K/yr after we are broke? Bleak...

PS. The asset limit of $696K for a single retiree seems high compared to the income limit. So, I double-checked and found that it is only $192K for "full pension", while the higher $696K is for "part pension". I do not understand the difference between these two Australian pensions. For what it's worth...

 

[bondi688]

While the monthly amount of SS you will receive when you delay benefits until 70 is significantly higher than that at full retirement age, possible policy changes that may be introduced, such as reduction in SS payment amount, claw back, and mean testing etc, have not been factored in. The equation people have been relying on to decide when is the best time to take SS has not taken into account the political landscape.

 

[Gumby]

Our plans have always treated social security as lagniappe. It will be appreciated, but not relied upon.

 

[mbooth]

PS. The asset limit of $696K for a single retiree seems high compared to the income limit. So, I double-checked and found that it is only $192K for "full pension", while the higher $696K is for "part pension". I do not understand the difference between these two Australian pensions. For what it's worth...

Hi NW

There is only one 'Age Pension', but there are two separate tests applied, Assets Test and Income Test. Whichever results in the lesser pension payment, that is what is applied and the other test is subsequently ignored. There are 'nuances' to the rates, depending on whether the individual is single or part of a couple and whether they are homeowners or renters.

So the superannuation (your 401k) is looked at as both a lump-sum investment 'Asset' and, depending on what you are drawing down from it in retirement, regular 'Income'. In the final Age Pension eligibility analysis however, only one of those aspects will be applied. As the balance of assets value/regular income shifts so does the pension payment, on a sliding scale, hence the full-pension/part-pension references.

So far as funding is concerned, under the Aussie system Age Pension is just one of a range of 'welfare' payments that come out of Consolidated Revenue, not separately funded per se such as your Social Security system. Our MediCare universal healthcare system OTOH is separately funded [in theory] by application of a 1.5% levy on income. If private medical insurance is purchased, that levy is reduced somewhat.

As noted elsewhere, the Aussie Age Pension and other welfare payments are meant to act as a social 'safety-net' to provide a basic level of livability, it is not a guaranteed entitlement. Those who can self-fund their retirement separately are expected to do so with a gradually diminishing contribution from the gummint/tax-payer.

Hope that 'clarifies' it, at least a bit

Cheers - Mick

 

[NW-Bound]

Thanks for the clarification, mate!

I did not know that income and asset tests are not combined, and that only the one with the higher reduction applies.

Yes, I saw that there are different payment schedules and limits for single persons and for married couples, and also married couples who have to live separately, home owners vs. renters, etc... To share the info with my fellow Americans to see a typical "means testing" scheme, I want to present just the case for a home-owner single retiree to keep it simple.

I still don't understand the two different asset limits for "full pension" vs. "part pension". It seems to have to do with people who may have some supplemental pension elsewhere, or something like that. It may involve more details than I care to know.

The way the Age Pension is computed, it is obvious that it is a safety net, and that Aussies are encouraged to save for their own. And the current $18K/yr payment certainly is higher than the minimum SS in the US (probably around $12K/yr), therefore the reason for my wondering how it is funded.

Anyway, some years ago, there was a push towards some "privatization" of SS. Whether the proponents had in mind something similar to the Aussie system, I would not know. The proposal did not go anywhere, however.

 

[MasterBlaster]

While the monthly amount of SS you will receive when you delay benefits until 70 is significantly higher than that at full retirement age, possible policy changes that may be introduced, such as reduction in SS payment amount, claw back, and mean testing etc, have not been factored in. The equation people have been relying on to decide when is the best time to take SS has not taken into account the political landscape.

That's true. We can't game the system if the rules of the game keep changing.

However we need to plan something-somehow. What do you propose ? Would that be the take all you can get at 62 approach cause there may not be much left anyway ? Would you feel that was OK even though it very well be sub-optimal for your situation ?

 

[ejman]

That's true. We can't game the system if the rules of the game keep changing.

However we need to plan something-somehow. What do you propose ? Would that be the take all you can get at 62 approach cause there may not be much left anyway ? Would you feel that was OK even though it very well be sub-optimal for your situation ?

Sometimes I feel we may get a little carried away by really minimal differences over a long period of time. When I run my numbers on Firecalc for a 38 year retirement (to age 100) no pension, married, wife already taking SS starting at age 62 I get a minimal difference in the order of 100K for minimum balance, about $150 k for average and a minus $200K for the maximum. All of the runs at whatever age show 100% success for my particular situation. A difference such as this over a period of 38 years given all the assumptions (economic, political, health, asteroids etc etc) means exactly nothing. A tempest in a tea pot in my opinion. But for reference I just applied for my SS to start at age 62.

 

[ikonomore]

Our plans have always treated social security as lagniappe. It will be appreciated, but not relied upon.

Learned a new word today. Lagniappe. It's used in Louisiana they say.

 

[mbooth]

I still don't understand the two different asset limits for "full pension" vs. "part pension". It seems to have to do with people who may have some supplemental pension elsewhere, or something like that. It may involve more details than I care to know.

Us Aussies have been described in many ways, 'uncomplicated' isn't one of them! [Although 'simple' has been used occasionally]

OK, leaving aside the 'Income Test' parameters and dealing just with the Assets Test. If your combined Assets are <$192k* then you qualify for the 'full pension'. As your Assets increase above that level, you still qualify for a 'part-pension' that reduces incrementally (the sliding-scale) until at an Assets level of >$696k*, the pension disappears altogether.

Gory details of Assets considered here: Assets

* Value of Principal Residence is not included in the Assets Test

Cheers - Mick

 

[NW-Bound]

Ah, your explanation makes sense and it is not as complicated as I thought.

But then, the info on that Web page that you provided has conflicting info. For a single homeowner retiree whose max payment is $695.30 (biweekly), the two limits do not work out.

For ($696250-$192500)*($1.50/$1000) = $755.63 and not $695.30.

Boy, why do I get so involved in this, not being an Aussie?

But while we are comparing systems of the two countries, I realized how little I knew about our own.

For example, I just learned that the way SS is computed in the US using actual income history, there is no minimum SS payment. Theoretically, a person's benefit may compute out to just pennies. The SSA Web site says that if the computed amount comes out to less than $1, they will not make a check.

How could someone get so little? It is possible because even though there is a minimum wage, theoretically some people may work part-time and have so little income that their benefits work out to pennies.

I am not going to compute what a full-time minimum wage US worker would get. I have to save that for another day. But I will add that poor people with little or no SS benefits can apply for SSI, which is a form of welfare. It is definitely much less than the $18K/yr that the Aussie system provides.

 

[Midpack]

Of significance is SS's COLA is based not on CPI-U but rather on CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers). During the ~30 years since the 1982-4 base period for current CPI calculations, CPI-W has lagged CPI-U.

True, but not much difference/significance?

 

[bondi688]

That's true. We can't game the system if the rules of the game keep changing.

However we need to plan something-somehow. What do you propose ? Would that be the take all you can get at 62 approach cause there may not be much left anyway ? Would you feel that was OK even though it very well be sub-optimal for your situation ?

In my case, I am watching the news and keep an eye on proposed changes to SS and make the decision whether I should start taking benefits before they become law. Likely to start at full retirement age instead of 70 to avoid possibility of benefit cut back and rule changes which will negate the time delay benefit, kind of a bird in hand.

 

[mbooth]

But then, the info on that Web page that you provided has conflicting info. For a single homeowner retiree whose max payment is $695.30 (biweekly), the two limits do not work out.

For ($696250-$192500)*($1.50/$1000) = $755.63 and not $695.30.

The actual fortnightly payment is not mentioned on that page. The current Age Pension is $755/fortnight as you have calculated. I suspect you may have got the $695 from another page which has not been updated, the test thresholds on the page I linked to became effective on 1st July, only three weeks ago.

Cheers - Mick

 

[BLS53]

Ah, your explanation makes sense and it is not as complicated as I thought.

But then, the info on that Web page that you provided has conflicting info. For a single homeowner retiree whose max payment is $695.30 (biweekly), the two limits do not work out.

For ($696250-$192500)*($1.50/$1000) = $755.63 and not $695.30.

Boy, why do I get so involved in this, not being an Aussie?

But while we are comparing systems of the two countries, I realized how little I knew about our own.

For example, I just learned that the way SS is computed in the US using actual income history, there is no minimum SS payment. Theoretically, a person's benefit may compute out to just pennies. The SSA Web site says that if the computed amount comes out to less than $1, they will not make a check.

How could someone get so little? It is possible because even though there is a minimum wage, theoretically some people may work part-time and have so little income that their benefits work out to pennies.

I am not going to compute what a full-time minimum wage US worker would get. I have to save that for another day. But I will add that poor people with little or no SS benefits can apply for SSI, which is a form of welfare. It is definitely much less than the $18K/yr that the Aussie system provides.

For practical purposes, the minimum SS payout is equivalent to the SSI benefit amount, currently $674 a month. If at age 65, the earned SS retirement amount, is less than the SSI amount, an additional amount will be added to equal the amount of an SSI benefit. The caveat is, that ones assets and income will have to be within SSI guidelines. Essentially, everyone 65 or older, of limited means, is considered qualified for SSI regardless of whether they're disabled or not. Additionally, under these circumstances, they would also qualify for food stamps.

I don't know what percentage of the population would qualify at age 65 for such a scenario, but I do know of some. Usually widows with enough time in the workforce, or surviving spouse benefit, to qualify for a minimal SS retirement, but no other source of income.

You have to weed through the SSA website to put all the pieces together, to figure out how this works. I only know from people I know, who get such a benefit.

I suppose the true minimum SS retirement benefit, is someone who works 40 quarters (10 years), at a minimum wage job, and works no more throughout their lifetime. You could plug the numbers into the detailed calculator on the SSA site, and come up with an estimate.

 

[NW-Bound]

Thanks to Mbooth and BLS53 for the information.

It would appear to me that the Aussie minimum pension of $755/biweekly or $19.6K/yr would allow an elderly person to survive financially without further assistance, while the lower US SSI would be supplemented with food stamp, housing assistance, etc...

If the above is true, then the US system is way more complicated than the Aussie's.

 

[old woman]

For example, I just learned that the way SS is computed in the US using actual income history, there is no minimum SS payment. Theoretically, a person's benefit may compute out to just pennies. The SSA Web site says that if the computed amount comes out to less than $1, they will not make a check.

How could someone get so little? It is possible because even though there is a minimum wage, theoretically some people may work part-time and have so little income that their benefits work out to pennies.

I am not going to compute what a full-time minimum wage US worker would get. I have to save that for another day. But I will add that poor people with little or no SS benefits can apply for SSI, which is a form of welfare. It is definitely much less than the $18K/yr that the Aussie system provides.

My cousin's mother gets no SS at all. She was a young drunk from what I hear and had some children taken away from her. Then she lived with my Dad's cousin for many decades having 5 children with him. He died without marrying her and she never worked while with him. Her daughter took her to apply for SS and that was when she found her parents had never married. Now her mom is 81 shacking up with an old man in his house. Her daughter is planning to take her in when he dies or kicks her out. She has no assets or income except part of a duplex she inherited. Her daughter bought the other party out, maintains it and rents it out but it isn't worth much. She didn't plan for old age at all, good thing one of the kids will take care of her.

 

[obgyn65]

I don't have my 40 quarters yet. Will get to 40quarters in the Fall because I spent many years abroad. Therefore, so far, my spreadsheet has zero in the SS column, starting age 62. I also agree with the post below.

For planning purposes, I would use 100% of what the SSA projects you would receive. This amount will vary over your remaining working career. The SS Trustees and Congress will make changes to the revenue and benefit amounts over the decades as they always have. You will need to adjust your plan accordingly as they do.