Social Security Needs Small "Tweaks"

[Purron]

Quote:

Originally Posted by ronocnikral I would sign on the dotted line today never to receive any SS benefits if I never again have to pay into it

If you and others were given this option I bet lots would sign on the dotted line. You impress me as the type who would take care of your money and plan for the future. Others would just blow the money. Plus even good money planners could have bad luck, health problems or other circumstances resulting in ending up elderly, unable to work, and broke.

I can't see most Americans allowing elderly people to starve to death. Therefore, a taxpayer funded welfare system would end up supporting them and I'd end up carrying a heavier burden to support those who didn't pay into the system.

[MasterBlaster]

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Originally Posted by LARS Interesting thoughts on this very issue here today: charles hugh smith-Demographics and the End of the Savior State Biggest point he makes, which seems compelling, is that demographics are the real problem (number of workers per number of SS recipients).

The article points out the big problems coming our way. However it ignores the changes that will inevitably come to make the system (more)affordable. If everything stays the same, then yes his charts reflect the problem entitlements will cause. It is unreasonable to assume that those paying for it all won't push back for some sort of system that is more affordable.

This whole topic is better covered by Kotlikoff and Burns book "The Coming Generational Storm".

[Nodak]

Quote:

Originally Posted by Purron If you and others were given this option I bet lots would sign on the dotted line. You impress me as the type who would take care of your money and plan for the future. Others would just blow the money. Plus even good money planners could have bad luck, health problems or other circumstances resulting in ending up elderly, unable to work, and broke. I can't see most Americans allowing elderly people to starve to death. Therefore, a taxpayer funded welfare system would end up supporting them and I'd end up carrying a heavier burden to support those who didn't pay into the system.

Though it bothers me as a libertarian to do this I think you are absolutely right.

[Purron]

Here's a link to the full report released today:

United States Senate Special Committee on Aging&

Here's an article discussing it:

12 Ways to Fix Social Security - Planning to Retire (usnews.com)

[Independent]

Quote:

Originally Posted by ronocnikral ... I would sign on the dotted line today never to receive any SS benefits if I never again have to pay into it (and I'd even be generous enough to finish out this year as well). Sigh...as LARS points out, that will never happen, as I have to continue to feed money into this sham for those drawing benefits.

Social Security is almost unique among gov't programs in that it's possible for an extended family to effectively opt out of both the tax and benefit portions.

If your parents agree with you, they can collect their SS benefits, but send the money to you and your siblings to offset your SS taxes. When you're old enough to get benefits, you can do the same for your children.

This will (approximately) eliminate your taxes and your benefits.

[tuixiu]

I'm always amazed at how many people I meet who are in their 30s and 40s that will state as fact that there won't be any social security around for them to collect.

If you dig a little they usually have general sensationalist headlines as evidence, usually involving some big number or the word ponzi.

[LARS]

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Originally Posted by Purron Here's a link to the full report released today: United States Senate Special Committee on Aging& Here's an article discussing it: 12 Ways to Fix Social Security - Planning to Retire (usnews.com)

I just looked at the US News summary, but I was surprised to see nothing on means testing... maybe I will get SS

[ziggy29]

Quote:

Originally Posted by tiuxiu I'm always amazed at how many people I meet who are in their 30s and 40s that will state as fact that there won't be any social security around for them to collect.

I don't know how many of them truly believe that compared to how many are just trying to convince themselves not to assume it will be there. Frankly I think anyone under the age of about 50 should plan conservatively when it comes to SS.

I think everyone knows SS will be a worse deal moving forward from one generation to the next. The $64 question becomes, in what ways will it be worse, and in which ways will it affect me?

Having said that, as I mentioned earlier, SS is one of the easiest of the major unfunded liabilities to "fix." A small tax increase here, a little retirement age adjustment there, perhaps a pinch of means-testing over there, a little change to COLA calculations over yonder and it's back into balance for (probably) a couple more generations.

[ziggy29]

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Originally Posted by LARS I just looked at the US News summary, but I was surprised to see nothing on means testing... maybe I will get SS

From the article:

Quote:

Another proposed idea is directing estate tax revenue into the Social Security trust fund, which would eliminate 20 percent of the fund’s deficit.

That would be a "retroactive means test" after one assumes room temperature...

[MasterBlaster]

Suggestions that all SS needs are some minor mods assume that SS operates in a vacuum. I suspect that SS medicare and medicaid will have some sort of joint comprehensive solution.

I could see much bigger cuts in SS to help fund medicare/medicaid overruns.

[LARS]

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Originally Posted by ziggy29 From the article: That would be a "retroactive means test" after one assumes room temperature...

Yeah, but DW and I will be dead so... well you get the point.

[Bikerdude]

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Originally Posted by ziggy29 Having said that, as I mentioned earlier, SS is one of the easiest of the major unfunded liabilities to "fix." A small tax increase here, a little retirement age adjustment there, perhaps a pinch of means-testing over there, a little change to COLA calculations over yonder and it's back into balance for (probably) a couple more generations.

Alan Greenspan was quoted once as saying something like this about fixing SS. "SS could be fixed in a 10 minute meeting where the hardest part would be what to do in the remaining 9 1/2 minutes".

[LARS]

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Originally Posted by Bikerdude Alan Greenspan was quoted once as saying something like this about fixing SS. "SS could be fixed in a 10 minute meeting where the hardest part would be what to do in the remaining 9 1/2 minutes".

Alan Greenspan has proved he is NOT worth listening to on any subject.

[FinanceDude]

There is one way to keep the train running.....remove the income cap on SS payments. Of course, it becomes yet another tax on those who make large incomes, but the govt is targeting those folks anyways........

[LARS]

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Originally Posted by FinanceDude There is one way to keep the train running.....remove the income cap on SS payments. Of course, it becomes yet another tax on those who make large incomes, but the govt is targeting those folks anyways........

Given same approach on Medicare, I suspect that will be one of the first things attempted, which I guess is also a form of "future" means testing.

[ziggy29]

Quote:

Originally Posted by LARS Given same approach on Medicare, I suspect that will be one of the first things attempted, which I guess is also a form of "future" means testing.

There already is some amount of means testing on Medicare premiums in terms of how much is withheld from Social Security checks.

That could become a bit more extreme, though. I'd also expect to see Medicare deductibles means tested at some point in the future as well. Someone with a $30K AGI might pay a $1,000 deductible and someone with a $100K AGI might pay the first $5,000 out of pocket.

[LARS]

Quote:

Originally Posted by ziggy29 I'd also expect to see Medicare deductibles means tested at some point in the future as well. Someone with a $30K AGI might pay a $1,000 deductible and someone with a $100K AGI might pay the first $5,000 out of pocket.

Certainly would be a reasonable approach... Have you seen any estimates of $s raised from a change like you suggest?

[jIMOh]

Links from above, I'd like to know more about the ones in blue

Quote:

Reduce benefits. If Social Security payouts were reduced by 3 percent for new beneficiaries beginning in 2010, about 18 percent of the funding shortfall would be eliminated. A 5 percent benefit cut would reduce the deficit by 30 percent. Alternatively, reductions could be more gradually phased in and exempt those with low lifetime earnings. [See 6 Ways Couples Can Maximize Social Security Payouts.] Raise the retirement age. The Social Security eligibility age for unreduced retirement benefits currently ranges from 65 to 67 depending on the worker’s year of birth. If benefits are claimed between age 62 and the full retirement age, payouts are reduced. Proposals to push back the retirement age include accelerating the increase currently underway to age 67, further increasing the full retirement age to 68 or even 70, and indexing the full retirement age to keep up with longevity. Each of these switches, however, eliminates less than a third of the deficit. Increase worker and employer contributions. Workers and their employers currently pay 6.2 percent of earnings up to $106,800 into the Social Security system, or a maximum of $6,622 each per year. Self-employed workers are required to pay 12.4 percent of pay up to the same cap. If the contribution rate were increased by 1.1 percent to 7.3 percent of earnings, Social Security’s projected deficit would be eliminated. Using this fix, a worker making $43,451 in 2010 would face a tax increase of $478 a year, or $9.19 a week, and the employer would face an identical increase. Boost future contributions. Taxes don’t need to be increased immediately because there is currently enough money in the Social Security trust fund to pay out scheduled benefits. For example, the Social Security tax bite could be increased from 6.2 percent to 7.2 percent for workers and employers in 2022, and to 8.2 percent in 2052, which would also completely eliminate the shortfall. Alternatively, taxes could be gradually ramped up by 1/20 percent annually for 20 years, which would decrease the Social Security deficit by about 69 percent. Tax as needed. Social Security contribution rates could be designed to increase as funds are needed and reduced when there is a surplus. Additionally, efforts to collect unpaid Social Security payroll taxes could be enhanced. [See The 10 Biggest Sources of Retirement Income.] Modify the Social Security tax cap. Workers pay into the Social Security system on earnings up to $106,800 in 2010. About 83 percent of worker earnings were subject to Social Security payroll taxes in 2008. If all earned income above $106,800 annually were subject to Social Security contributions but did not count toward benefits, Social Security’s projected deficit would be completely eliminated. If the higher income counted toward Social Security benefits, about 95 percent of the shortfall would be absolved. Other ideas: apply a new Social Security formula to earnings above the current cap or raise the amount of the income cap to apply to 90 percent of all worker earnings. Average in more working years. Social Security checks are currently based on an average of a worker’s 35 highest paid years in the workforce. Those who haven’t worked 35 years have zeros averaged in. The averaging period could be increased to 38 or 40 years, which would reduce the deficit by 14 and 23 percent respectively. Decrease the cost-of-living adjustment. Social Security benefits are currently automatically adjusted each year to keep up with inflation, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers. Reducing the cost-of-living adjustment by 1 percent each year would eliminate 78 percent of the deficit. Even knocking half a percent off the annual adjustment would reduce the deficit by 40 percent. An alternative way of measuring the cost-of-living could also be used. Lower spousal benefits. Social Security pays a benefit to nonworking and low earning spouses equal to up to 50 percent of the higher earning spouse’s check. One proposal would gradually lower the maximum spousal benefit to 33 percent by 2026. This change would reduce about 6 percent of the long term deficit. However, this provision may have less of an impact over time as more women become entitled to Social Security benefits based on their own work records. [See How Divorce Affects Retirement Benefits.] Include more workers. Most Americans are already covered by the Social Security system. About 94 percent of workers pay employment or self-employment Social Security taxes. But some Americans are currently exempt from Social Security taxes including state and local government workers participating in alternative retirement systems, federal workers hired before 1984, college students working at academic institutions, and ministers who choose not to be covered. However, this fix would need to be applied in conjunction with others. Extending coverage to workers who previously didn’t participate would only reduce the Social Security shortfall by about 9 percent. A legacy tax. The first retirees who received Social Security payments from the system didn’t pay Social Security taxes throughout their entire working life, which contributes to Social Security’s fiscal problems. Several ideas have been raised to counteract this legacy cost including a 3 percent legacy tax on earnings above the current tax cap of $106,800 or on adjusted gross income over $125,000 for individuals and $250,000 for couples. This legacy tax would eliminate close to a third of Social Security’s shortfall. Another proposed idea is directing estate tax revenue into the Social Security trust fund, which would eliminate 20 percent of the fund’s deficit. [Use our Mutual Fund Score to find the best investments for you.] Diversify investments. Part of the Social Security trust fund could be invested in equities to try to earn returns that would help to sustain the Social Security program. Investing 15 percent of trust fund assets in equities would reduce the deficit by 14 percent if a 9.4 percent rate of return was achieved. If 40 percent of the trust fund were shifted into the stock market and earned 9.4 percent annually the deficit could be reduced by a third. Of course, this also exposes the trust fund to increased liabilities in times of economic downturn.

I did not understand the legacy tax

[Independent]

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Originally Posted by jIMOh Links from above, I'd like to know more about the ones in blue I did not understand the legacy tax

The SS actuaries have a handy list of possible changes and the financial impact of each at: Individual Changes Modifying Social Security

For example, the ideas on using the highest 38 or 40 years are B4.1 and B4.2 Note that the article just looks at average impact over the 75 year horizon, but the actuaries also give the impact in the last year (and all those in between).

However, they don't do a "who wins and who loses" analysis. For example, I've heard that increasing the calculation years has a bigger impact on high income workers because they tend to start working later and quit working sooner.

The "legacy tax" is better described as a "tax". The "legacy" refers to the fact that the early generation of participants got a lot more in benefits than they paid in taxes. But those people are all dead, so I can't see how you can tax them. (Note that those people also provided private help to their aged parents while they were working because SS wasn't available to their parents. So they didn't have the free lunch that some people think they did.)

[Rustic23]

I looked at my spread sheets and how SS effected them. Bottom line with SS my kids will inherit somewhere 1 to 2 million. This should more than make up for what they pay in to keep me happy. Now if the market really caves, or I go on a wild spending spree, they may not. But I can assure you they will get a lot more because I get SS than they would if I did not.