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Getting your money's worth from SS
Old 07-19-2015, 09:10 AM   #1
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Getting your money's worth from SS

While I believed that lower earners made out pretty well vs higher earners under social security, this article provides some metrics to quantify the difference. Given this, it makes me wonder how there can be calls for further means testing vs an equal % reduction should the fund run out of money down the road:

AssetBuilder - Your Social Security ‘Money’s Worth’ - AssetBuilder Inc., Registered Investment Advisor
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Old 07-19-2015, 10:14 AM   #2
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Originally Posted by DFW_M5 View Post
While I believed that lower earners made out pretty well vs higher earners under social security, this article provides some metrics to quantify the difference. Given this, it makes me wonder how there can be calls for further means testing vs an equal % reduction should the fund run out of money down the road:

AssetBuilder - Your Social Security ‘Money’s Worth’ - AssetBuilder Inc., Registered Investment Advisor
Well, this is a Political Article if I've ever seen one. The author basically closes with "let's just call Social Security Welfare". Then the next steps of eliminating it, will be a whole lot easier.
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Old 07-19-2015, 11:39 AM   #3
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The thread was moved to the Politics and Fire forum and hot topic enabled.
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Old 07-19-2015, 01:41 PM   #4
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Well, this is a Political Article if I've ever seen one. The author basically closes with "let's just call Social Security Welfare". Then the next steps of eliminating it, will be a whole lot easier.
I wasn't quite sure where it belonged, but given your comment, it is in the right place. Nevertheless, it was eye opening to me.

Also, I noticed you attempted to quote a snipet of the article, but did not get it quite right, so here is the full text should others decide not read the article:

Quote:
As the years roll on, Social Security looks more like a welfare plan and less like a public pension system. How can I say this? Simple. The moneys worth difference between low-wage earners and highest-wage earners has grown over time. And it will continue to grow. In 1985 low-wage workers received about 2.25 times the money's worth of the highest-wage workers. For the kids who are 11 years old today, the low wageworker will receive 3 times the value of the highest-paid workers.
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Old 07-19-2015, 03:33 PM   #5
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As the years roll on, Social Security looks more like a welfare plan and less like a public pension system. How can I say this? Simple. The moneys worth difference between low-wage earners and highest-wage earners has grown over time. And it will continue to grow.
This is an interesting statement. It's kind of surprising, since the last major change in the SS rules was 30 years ago. What's going to happen in the future to make SS even more favorable to low wage workers?

I tried to find his numbers in the Actuaries' report. There are so many that this author could have used, I'm not sure if I did. First, I had to parse this:
Quote:
In 1985 low-wage workers received about 2.25 times the money's worth of the highest-wage workers. For the kids who are 11 years old today ...
I'm guessing that "In 1985 ..." should have read "For workers born in 1920..." to make it consistent with the "11 years old today" aka "born in 2004". Those two birth years are shown in the report.

Sure enough, I can find the trend in the ratio he created. But, when I compared birth year 1973 to birth year 2004, this trend disappeared. (at least for the case I tried)

1973 seems relevant because that cohort started working after the last set of changes. So their entire careers are under the new rules. One of those changes was to index the maximum taxable earnings to the wage index, instead of using the prior ad hoc adjustments. When they did this, they widened the difference between the middle and the top, so high end workers paid more taxes.

So this trend really reflects the taxes higher wage workers have been paying for the last 30 years, it just says that the additional benefits they get from those taxes are pretty small. Workers who look at the taxes they are currently paying and compare them to their projected benefits have already seen this. I don't see any big changes in the future.

So the "continue to grow" needs to have some caveats like "if you look at people only when they reach NRA" and "grow up to a point then level off".
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Old 07-19-2015, 07:36 PM   #6
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...
So this trend really reflects the taxes higher wage workers have been paying for the last 30 years, it just says that the additional benefits they get from those taxes are pretty small.

...
As a high wage earner, I would be included in that group. The issue, for me anyway, is how is any of this actionable? Just like another thread about Illinois pensions. For those who would be impacted by cuts to either, about the only sensible action I can see is to plan conservatively.

OTOH, when I was about 23 and just entering the workforce I didn't really have any sort of "plan". No matter what came my way thereafter,I just adjusted. So I'm thinking given my lifelong history of living financially conservatively while adapting to circumstances, I'll most likely do the same no matter what comes along.

So glad I was able to "proceed with an abundance of caution" in this post. I can be so reckless...
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Old 07-19-2015, 07:45 PM   #7
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As a relatively poor person on this forum from a family of mostly poorer people, I have a hard time seeing SS as favorable to low wage workers. I have multiple family members who worked hard for 35+ years and are now getting less than $1000/mo from SS as their only source of income. They worked as hard or harder than people getting more than twice their SS income. That does not seem favorable to me. I know the high earners paid in more but if you don't think you have it much better then feel free to trade with a low income worker.
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Old 07-19-2015, 07:48 PM   #8
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Even if the Social Security tax rate, and formula remain fixed, inflation will continue to push larger portions of higher earner social security payments into the lower payout aspect.
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Old 07-19-2015, 10:33 PM   #9
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As a relatively poor person on this forum from a family of mostly poorer people, I have a hard time seeing SS as favorable to low wage workers. I have multiple family members who worked hard for 35+ years and are now getting less than $1000/mo from SS as their only source of income. They worked as hard or harder than people getting more than twice their SS income. That does not seem favorable to me. I know the high earners paid in more but if you don't think you have it much better then feel free to trade with a low income worker.
"Favorable" isn't meant in absolute terms. It is meant in terms of relative to what was paid in.

The same way that you could describe Federal income tax marginal rates as 'favoring' a low income worker. The high income person has no interest in trading the income levels, but clearly 15% tax rate is 'more favorable' than a 25% tax rate - looking only at the tax rates themselves.

Some low wage workers work harder than some high wage workers, and vice-versa. There is no broad formula that could differentiate that across all the workers.

Any discussion beyond that would take this into the territory we were warned against - so let's just leave it as 'favorable' in this case is meant with a tunnel vision view. Nothing outside the 'return on investment' style definition. That's a different discussion.

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Old 07-20-2015, 08:01 AM   #10
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SS has always been a convoluted combination of retirement, survivorship and disability insurance so the fact that higher earners get lower benefits relative to what they put in and lower earners get more relative to what they put in doesn't bother me much.

Given this is the land of opportunity, some will be more financially successful than others and SS is insurance from extreme poverty in old age.

I guess I am thankful that as things turned out that I'm getting lower benefits relative to what I paid in than many of my peers.
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Old 07-20-2015, 08:37 AM   #11
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This isn't anything new. It's my understanding that the system was designed this way, so I don't understand the point of the article. I had only a few years where I paid FICA for the full year, so as a high earner, I already benefited up front.
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Old 07-20-2015, 09:21 AM   #12
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SS has always been a convoluted combination of retirement, survivorship and disability insurance so the fact that higher earners get lower benefits relative to what they put in and lower earners get more relative to what they put in doesn't bother me much.

Given this is the land of opportunity, some will be more financially successful than others and SS is insurance from extreme poverty in old age.

I guess I am thankful that as things turned out that I'm getting lower benefits relative to what I paid in than many of my peers.
+1 My only gripe is the apparent abuse I've seen reported on its use for disability in many cases.
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Old 07-20-2015, 10:52 AM   #13
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My understanding is that there isn't really any particular abuse of the disability system. If you correct the rising number of people eligible for disability for the aging of the population, disability is actually pretty stable. In my experience as a primary care physician, it's pretty hard to get disability without a major diagnosis.
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Old 07-20-2015, 12:50 PM   #14
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Now if we could only get them to stop providing benefits to dead people and identity thieves
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Old 07-20-2015, 01:41 PM   #15
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Even if the Social Security tax rate, and formula remain fixed, inflation will continue to push larger portions of higher earner social security payments into the lower payout aspect.
Since benefits are indexed by a combination of wages and inflation, I don't see why we would expect this.
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Old 07-20-2015, 04:44 PM   #16
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Since benefits are indexed by a combination of wages and inflation, I don't see why we would expect this.
+1

There is a lot of misinformation about SS out there.

I can remember my grandparents talking about "that man" because they wouldn't say his name even though he'd been dead at that time for a quarter of a century. (I've done ancestry.com, now though, so I call him "Cousin Franklin".) Fifty years ago, they were sure the program was about to "go broke".
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Old 07-20-2015, 05:05 PM   #17
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+1

There is a lot of misinformation about SS out there.

I can remember my grandparents talking about "that man" because they wouldn't say his name even though he'd been dead at that time for a quarter of a century. (I've done ancestry.com, now though, so I call him "Cousin Franklin".) Fifty years ago, they were sure the program was about to "go broke".
Yes, the misinformation continues today, even though the S.S. Program is currently running a 2.8 Trillion Dollar Surplus! Yes that is Trillion with a "T"! You just have to pay attention to the real numbers.
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Old 07-20-2015, 05:20 PM   #18
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Yes, there is currently a surplus. However, we need to look at the trend, which will tell us if there's a problem coming down the pike.

Following is a graph linked from SSA.gov.

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Old 07-20-2015, 05:27 PM   #19
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Yes, there is currently a surplus. However, we need to look at the trend, which will tell us if there's a problem coming down the pike.

Following is a graph linked from SSA.gov.

I think the U.S has enough problems to solve that are here today, without worrying about something that May Happen 20-30 years down the road.
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Old 07-20-2015, 05:33 PM   #20
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If that curve comes around like a roller coaster track, it may not take that long. But I think somebody will notice that something is not right and do something about it. Many city pension funds did nothing, and look where they are.
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