The Future of SS

[MichaelB]

The SS full retirement age has already been increased. When I was younger, it was 65. Now, I won't reach FTA until age 67. I would call that a benefit cut.

It most definitely is a benefit cut, affecting everyone born in 1955 or later. Those taking early SS at age 62, born 1960 or later will receive 30% less than their FRA, while someone born in 1954 or earlier receives 25% less. Those born between 1955 and 1960 see their benefit scale down. https://www.ssa.gov/planners/retire/agereduction.html

It has always amazed me that SS discussions talk about future cuts and ignore this.

 

[JoeWras]

It most definitely is a benefit cut, affecting everyone born in 1955 or later. Those taking early SS at age 62, born 1960 or later will receive 30% less than their FRA, while someone born in 1954 or earlier receives 25% less. Those born between 1955 and 1960 see their benefit scale down. https://www.ssa.gov/planners/retire/agereduction.html

It has always amazed me that SS discussions talk about future cuts and ignore this.

Yet another thing that affects the Generation Joners from Boomers. As a '63 baby, I don't like being lumped in with early Boomers. Yet I'm just a bit too old to be Gen X. This switchover massively affects Jonesers. We grew up with a promise that was yanked from us just as we were getting our feet wet in the working world.

My dad (Greatest Generation) was always amazed at how much we pay in SS, since the last big rises occurred as he was leaving the workforce and was more focused on retirement. He drew for 35 years. The first 15 years of his work life he paid 3% or less. He'd always wax poetic about his first few years only paying only 1%.

 

[USGrant1962]

Yet another thing that affects the Generation Joners from Boomers. As a '63 baby, I don't like being lumped in with early Boomers. Yet I'm just a bit too old to be Gen X. This switchover massively affects Jonesers. We grew up with a promise that was yanked from us just as we were getting our feet wet in the working world.

My dad (Greatest Generation) was always amazed at how much we pay in SS, since the last big rises occurred as he was leaving the workforce and was more focused on retirement. He drew for 35 years. The first 15 years of his work life he paid 3% or less. He'd always wax poetic about his first few years only paying only 1%.

+1 on gen Jones, definitely NOT boomers.

And while benefit cuts are unpopular, SS is already the biggest and most regressive tax for most working folks. Politicians like to pretend it is "only" 6.2%, but the employer share is yours too. So 12.4% from your first dollar earned and no standard deduction applies! The self-employed really feel it with both halves up front.

The point is that really fixing SS is a tough nut to crack. No one wants to see benefits cut, the folks that are gen Jones and later have already had a significant cut, and it is easy for older folks to say just raise the tax but the tax is already very high.

 

[samclem]

[Moderator note] SS is a subject of great interest to almost all of us, and certainly stirs up passions. To the degree we can keep the discussion free of political point-making we can keep exchanging ideas on how best to address the challenges that SS poses.


Thanks.
[Moderator mode: off]

 

[ziggy29]

And while benefit cuts are unpopular, SS is already the biggest and most regressive tax for most working folks. Politicians like to pretend it is "only" 6.2%, but the employer share is yours too. So 12.4% from your first dollar earned and no standard deduction applies! The self-employed really feel it with both halves up front.

The point is that really fixing SS is a tough nut to crack. No one wants to see benefits cut, the folks that are gen Jones and later have already had a significant cut, and it is easy for older folks to say just raise the tax but the tax is already very high.

I don't know if this or the sales tax is more regressive, but both are since SS taxes are no longer withheld after what, something like $130K of earned income? So the more you earn, the lower your effective overall SS tax rate gets for income higher than that.

And yes, one problem with fixing SS is that the folks who paid the lowest rates into it are getting the best deal out of it, and those who are paying a lot more in SS taxes over the course of their working lifetime can expect a deal that is not so good. And this is one of those sources of growing intergenerational conflict that are increasingly characterizing our politics and political divisions. It will be hard to craft a "grand bargain" that doesn't make someone feel screwed, but if minds are open, young and old alike (at least wealthier old, IMO), it may be possible. But if there is one thing more intractable than intergenerational division right now, it's partisan division and we are living in a time when compromise and reaching across the aisle is tantamount to "treason" by partisan leadership (applied to both sides).

 

[Time2]

No. "they" CANNOT cut the benefit we've all paid into. Period. If you accept the notion than they can, or believe it to be fair, you are essentially abdicating your rights of citizenship. There will never be any grounds for disruption of the full rightful SS payout to all participant-taxpayers. Period. No debate. The end.

The easy answer would be, as a group, You did not pay in enough to make the system financially viable, so we will cut the benefit to fit what You paid in. Period. No debate. The end. ( I doubt that)

 

[Time2]

We all know that SS is headed for a benefits reduction if something is not done. We also know there are people that will not ever save for there own retirement and the government forcing money from them with SS taxes is the only way for them to not end up as freeloaders on working taxpayers.
I'm well aware with my families saving and investing, we would have done much better to not have paid SS taxes, but in the long run, would have to pay for those that didn't save.
I paid $130k* into SS, it will take me 4.1 years** to get that much back in SS payments when I start collecting. Yes, I'm part of the problem, I did not have a high income so didn't pay a lot in SS taxes.
That said here are 5 fixes for SS, and I think a little of all of them should be implemented just to make everyone mad.


Increase the cap on wages subject to SS tax


Bump the tax Percentage to each person and business 6.3%, 6.4% 6.x%


Raise the retirement age


Make the cost of living adjustment 90% of CPI


Find a way to reduce disability payments, such as, Ok you have a bad back
stop lifting shingles and maybe we pay for retraining?
Or work retail and maybe give a supplement up to the SS amount if you are working while disabled.
Strict on who can get on disability.


* I paid $116k my employers paid $14k, I was self employed most of my life.


** I don't expect to start SS until I'm 70.

 

[Fermion]

The easy answer would be, as a group, You did not pay in enough to make the system financially viable, so we will cut the benefit to fit what You paid in. Period. No debate. The end. ( I doubt that)

That is kind of what I think about underfunded pensions, at least to some extent. Pensions which thought they could make 8% or more a year in ultra safe investments and required tiny contributions from the employees.

 

[Independent]

I really like what Australia, Switzerland, Chile, and about 20 other countries did. Create an account, very light funding in a welfare fashion for those who drift through life. Inheritable asset for the kids. All contributions from companies during working time go into same account (no rollovers, always same account).

It ends the generational transfer that creates war between grandparents and kids, the Ponzi legacy of FDR.

It also removes political dependence of the elderly, since funds are private. Can't steal FICA to bomb vietnam or fund interstates.

The financial problem with this is the transition. There will be some period when workers are both paying the retirement benefits of retirees and putting cash into these mandatory savings accounts.

The political problem is that we can't say for certain whether future generations really would consider these accounts off limits.

 

[scrabbler1]

My biggest bugaboo with SS reform is toward those "remove-the-cap" folks. Remember, that cap not only caps income subject to SS taxes but also caps the SS benefits people receive. If the tax cap is removed, then we do one of the following:


(1) Don't remove the benefits cap, so we tell wage earners paying higher SS taxes, "Thanks for paying those extra taxes; but you won't see a dime of any extra benefits as a result, unlike before." Very unfair.


(2) Remove the cap on benefits, and we will see SS pay out $20k (or more?) a month to Bill Gates, Serena Williams, and Taylor Swift, for example. Is this what SS was meant to do, make huge payouts to very high income earners? I have a big problem with that.


Maybe the cap on taxes and benefits should be raised slightly if it will in the long run generate more income to the SS system than it will payouts. But we should avoid both of the pitfalls I described above.


In return for raising the cap on taxes/benefits, they can start indexing the $25k/$32k income limits for taxing SS benefits. Other tax brackets are indexed throughout the tax code, why has this one been left alone for more than 25 years?

 

[Fermion]

(2) Remove the cap on benefits, and we will see SS pay out $20k (or more?) a month to Bill Gates, Serena Williams, and Taylor Swift, for example. Is this what SS was meant to do, make huge payouts to very high income earners? I have a big problem with that.

Bill Gates makes probably $3 a year in wages nowadays so he would unlikely be spiking his SS. He makes several billion a year in capital gains, but that is not subject to SS.

Also, the knee is such that you pay way more into the system than you get out of it past a certain point. The difference between paying in $250,000 and paying in $2,500,000 would probably be just a few hundred $ a month. It would be a net win to remove the cap on wages even if we removed the cap on benefits.

 

[braumeister]

Maybe a bit of perspective. I'm one of the early Boomers, so take my comment for what it's worth. I wasn't a highly paid employee; I only maxed out the SS deduction for a few years, and that was early in my career.

But I'm just thrilled to be receiving what I do now that I'm finally collecting. It's a great system and I believe it will continue to be a great system.

So let's stop for just a moment and give thanks to the inventor of retirement plans.

In 1881 Otto von Bismarck, the conservative minister president of Prussia, presented a radical idea to the Reichstag: government-run financial support for older members of society. In other words, retirement. The idea was radical because back then, people simply did not retire. If you were alive, you worked—probably on a farm—or, if you were wealthier, managed a farm or larger estate.

But von Bismarck was under pressure, from socialist opponents, to do better by the people in his country, and so he argued to the Reichstag that "those who are disabled from work by age and invalidity have a well-grounded claim to care from the state.” It would take eight years, but by the end of the decade, the German government would create a retirement system, which provided for citizens over the age of 70—if they lived that long.

This was a big "if," at the time. That retirement age just about aligned with life expectancy in Germany then. Even with retirement, most people still worked until they died.

...

when the Social Security Act was passed in 1935, the official retirement age was 65. Life expectancy for American men was around 58 at the time.

Almost immediately after that, though, that balance changed. The Depression ended, and wealth and better medicine meant that in the post-war boom, Americans started to live longer. By 1960, life expectancy in America was almost 70 years. All of a sudden more people were living past the age where they had permission to stop working and the money to do it.

https://www.theatlantic.com/business/archive/2014/10/how-retirement-was-invented/381802/

 

[ziggy29]

My biggest bugaboo with SS reform is toward those "remove-the-cap" folks. Remember, that cap not only caps income subject to SS taxes but also caps the SS benefits people receive. If the tax cap is removed, then we do one of the following:

(1) Don't remove the benefits cap, so we tell wage earners paying higher SS taxes, "Thanks for paying those extra taxes; but you won't see a dime of any extra benefits as a result, unlike before." Very unfair.

(2) Remove the cap on benefits, and we will see SS pay out $20k (or more?) a month to Bill Gates, Serena Williams, and Taylor Swift, for example. Is this what SS was meant to do, make huge payouts to very high income earners? I have a big problem with that.

As SS is designed, the more you earn (and pay in), you get diminishing returns on benefits. (In other words, someone earning $30K a year will get a LOT more than 1/4 of what someone earning $120K a year will get despite paying 1/4 as much in SS taxes).

So in theory, to placate those who think there should not be a "cap" on benefits if the tax on earnings is not capped, just keep diminishing the extra benefit as you pay more and more in SS taxes, until the incremental increase starts to approach zero as you earn millions. It would still raise a lot more revenue in taxes than it would raise benefit payouts. If that is the price to get more people to accept getting rid of the cap, so be it.

 

[Time2]

Something I just read today about the cap, (don't know where).
If you have a couple earning $70K and they start a business on the side and it makes $60k, they are at the cap. I welcome giving a small business owner
that cap, so now every extra dollar they make in the business they get to keep another 12.4 cents. I'm not saying we can't raise the cap, just don't eliminate it.
Maybe have a SS reprieve from $140k to $300K and then start taxing in again.

 

[ziggy29]

Maybe have a SS reprieve from $140k to $300K and then start taxing in again.

Many proposals have had a "donut hole" like this, where there would be no tax collected. It would require additional tweaks to make the numbers work, since by itself if would not do what completely popping the cap would do, but could make it somewhat more politically feasible.

 

[Independent]

Regarding the donut hole and benefits for higher income workers. The SS 2100 bill proposes:

Taxing earned income over $400,000 at the regular SS rates. That leaves an untaxed gap between the current $137,700 cap and the $400,000.
BUT, the $400k is not indexed. Over time the gap will shrink to zero.

(IMO, this makes some sense. The program does not have an immediate need for all the taxes that would result from simply eliminating the cap. But, over time, it will need more tax.)

Introduce a 2% benefit factor for the AIME generated by the over $400k taxes.
(this compares to the 15% factor for the top band today)

Apply the combined OASDI payroll tax rate on covered earnings
above $400,000 paid in 2020 and later. Tax all covered earnings once the current-law taxable
maximum exceeds $400,000. Credit the additional earnings that are taxed for benefit purposes by: (a) calculating a second average indexed monthly earnings (“AIME+”) reflecting only
additional earnings taxed above the current-law taxable maximum, (b) applying a 2-percent
factor on this newly computed “AIME+” to develop a second component of the PIA, and (c)
adding this second component to the current-law PIA

https://larson.house.gov/sites/larson.house.gov/files/Larson Blumenthal Van Hollen_2019 0918.pdf

 

[pb4uski]

It most definitely is a benefit cut, affecting everyone born in 1955 or later. Those taking early SS at age 62, born 1960 or later will receive 30% less than their FRA, while someone born in 1954 or earlier receives 25% less. Those born between 1955 and 1960 see their benefit scale down. https://www.ssa.gov/planners/retire/agereduction.html

It has always amazed me that SS discussions talk about future cuts and ignore this.

I don't agree that it is most definitely a benefit cut.... because while many of us will be starting benefits 0-2 years later, because of improved longevity these people born later will be collecting benefits for more years... so if one looks at the expected value of benefits (benefits adjusted for mortality) it is not a benefits cut.

In 1983 the FRA was changed from 65 to 67 for people born in 1938 to 1959.... the last birth year to have a FRA of 65 was 1937 and the first birth year to have a FRA of 67 was 1960.

Life expectancy at age 65 for males and females born in 1937 was 12-13 years... so recipients would be expected to collect for 12-13 years if they begin collecting at FRA. Life expectancy for age 65 for males and females born in 1960 was 13-16 years... so recipients would be expected to collect for 11-14 years.

In my view it was an adjustment to maintain the parity of benefits between generations... particularly with respect to the number of years that recipients would be collecting benefits.

 

[coalduck]

What am I missing here.

Does anyone in this forum DISAGREE that you are entitled to the full and promised payout of 100% SS benefits if you've paid into the SS tax fund for your lifetime?

I paid into SS like most taxpayers - for the duration of my career. I am absolutely and indisputably entitled to 100% of the amount and NOTHING LESS.

On what conceivable grounds would anyone even begin to entertain the idea of alteration of the terms by which full original benefits owed are to be paid out; i.e how would anyone possibly attempt to justify accepting anything less than 100% ROI for any SS investor to whom this payout is legally entitled?

I'll direct this to anyone who doesn't agree because the burden of proof and a response is owed to every American if you actually think there is even an iota of a right to tamper with SS benefit payout to any participant who has paid into the program to-date. This is hands-off s**t. Period.

I'll consider any lack of response as an acknowledgment. Otherwise, bring it.

Mike

This is exactly how I feel. Nothing less than promised. I already took a cut with the raise in the Full Retirement age. How about we stop fighting these stupida$$ wars and redirect those billions to shore up the Social Security program?

 

[pb4uski]

... How about we stop fighting these stupida$$ wars and redirect those billions to shore up the Social Security program?

General fund taxes cannot be used to pay for SS benefits.... similarly, SS taxes cannot be used for general fund expenses.

Now for many years the SS Trust Fund has had surplusses and has purchased special issue U.S. government bonds from the general fund. I'm not sure if it could go the other way... that is, I'm not sure if the general fund could buy special issue bonds from the SS Trust Fund with the proceeds used to pay benefits... I tend to doubt that the statute would allow that since the SS Trustees are predicting a 25% haircut in benefits beginning in 2034.

 

[North Texas Cajun]

I expect most of you to disagree with what I am going to post, but I’ll go ahead anyway:

1. Social Security funding problems are not 12 or 15 years away. For the nation, they are here now. Since 2010, Social Security taxes collected have been less than benefits paid out. So the Treasury Dept has been using other tax revenues to pay a portion of SS benefits. That’s one of the reasons our government has been running a huge deficit, and passing on more debt to be paid by our children abd grandchildren.

2. The Social Security Trust Fund has never had any money deposited into it. All Social Security taxes were always - since 1938 - deposited into the Treasury’s General Fund and used for government spending. Checks to Social Security beneficiaries were written from that General Fund. The Social Security Trust Fund has always been nothing more than accounting entries which showed the cumulative difference between SS taxes collected and SS benefits paid. Government accounting further gummed up things by making accounting entries for “interest earned” for every year that the cumulative difference between SS taxes and SS benefits was greater than zero. But that really had no meaning, as no interest was ever actually deposited anywhere.

3. The Supreme Court has already ruled that no person has a legal claim to any future SS benefits. Congress has always been free to change the timing and amount of a retiree’s current and future benefit. And they have done so. Certainly, from a political perspective it would be impossible to make big, across the board changes. But maybe not small, targeted ones.

4. Over the next five years, the gap between SS taxes collected and SS benefits to be paid under current laws will grow. So Congress will need to do something now, not in 12 years.

 

[Fermion]

2. The Social Security Trust Fund has never had any money deposited into it. All Social Security taxes were always - since 1938 - deposited into the Treasury’s General Fund and used for government spending. Checks to Social Security beneficiaries were written from that General Fund. The Social Security Trust Fund has always been nothing more than accounting entries which showed the cumulative difference between SS taxes collected and SS benefits paid. Government accounting further gummed up things by making accounting entries for “interest earned” for every year that the cumulative difference between SS taxes and SS benefits was greater than zero. But that really had no meaning, as no interest was ever actually deposited anywhere.

Well, if you go by this, then SS really is not in trouble since it can just be paid out from the General Fund and doesn't have any real way of running out of money.

 

[RetiredAt55.5]

I expect most of you to disagree with what I am going to post, but I’ll go ahead anyway:

1. Social Security funding problems are not 12 or 15 years away. For the nation, they are here now. Since 2010, Social Security taxes collected have been less than benefits paid out. So the Treasury Dept has been using other tax revenues to pay a portion of SS benefits. That’s one of the reasons our government has been running a huge deficit, and passing on more debt to be paid by our children abd grandchildren.

2. The Social Security Trust Fund has never had any money deposited into it. All Social Security taxes were always - since 1938 - deposited into the Treasury’s General Fund and used for government spending. Checks to Social Security beneficiaries were written from that General Fund. The Social Security Trust Fund has always been nothing more than accounting entries which showed the cumulative difference between SS taxes collected and SS benefits paid. Government accounting further gummed up things by making accounting entries for “interest earned” for every year that the cumulative difference between SS taxes and SS benefits was greater than zero. But that really had no meaning, as no interest was ever actually deposited anywhere.

3. The Supreme Court has already ruled that no person has a legal claim to any future SS benefits. Congress has always been free to change the timing and amount of a retiree’s current and future benefit. And they have done so. Certainly, from a political perspective it would be impossible to make big, across the board changes. But maybe not small, targeted ones.

4. Over the next five years, the gap between SS taxes collected and SS benefits to be paid under current laws will grow. So Congress will need to do something now, not in 12 years.

This SSA article says that (2) is a myth - https://www.ssa.gov/history/InternetMyths2.html

 

[Murph]

Eliminating the cap on wages taxed (#2) and a means test (#5) to change when/how much high-income retirees get would be a compromise. Additionally, small, incremental increases in the percentage wages are taxed so that the lowest income workers don't feel a tax increase.

Also, put in a sunset clause to the tax increases so they have to be re-voted on to renew them. And only if the system is still out of balance (that, or increase the benefit).

Just thoughts.

 

[GenXguy]

I expect most of you to disagree with what I am going to post, but I’ll go ahead anyway:

1. Social Security funding problems are not 12 or 15 years away. For the nation, they are here now. Since 2010, Social Security taxes collected have been less than benefits paid out. So the Treasury Dept has been using other tax revenues to pay a portion of SS benefits. That’s one of the reasons our government has been running a huge deficit, and passing on more debt to be paid by our children abd grandchildren.

2. The Social Security Trust Fund has never had any money deposited into it. All Social Security taxes were always - since 1938 - deposited into the Treasury’s General Fund and used for government spending. Checks to Social Security beneficiaries were written from that General Fund. The Social Security Trust Fund has always been nothing more than accounting entries which showed the cumulative difference between SS taxes collected and SS benefits paid. Government accounting further gummed up things by making accounting entries for “interest earned” for every year that the cumulative difference between SS taxes and SS benefits was greater than zero. But that really had no meaning, as no interest was ever actually deposited anywhere.

I only disagree because it contradicts what I've always read and heard and perpetuates myths.

https://en.wikipedia.org/wiki/Social_Security_Trust_Fund

 

[GenXguy]

It most definitely is a benefit cut, affecting everyone born in 1955 or later. Those taking early SS at age 62, born 1960 or later will receive 30% less than their FRA, while someone born in 1954 or earlier receives 25% less. Those born between 1955 and 1960 see their benefit scale down. https://www.ssa.gov/planners/retire/agereduction.html

It has always amazed me that SS discussions talk about future cuts and ignore this.

Agreed. I woke up one day and found I have to work two years longer to get FTA SS benefits. And I don't think those people should have to take another hit to their benefits, although, the tax handling of benefits still results in a yearly cut in "after-tax" benefits.

http://www.early-retirement.org/forums/f52/the-future-of-ss-101442-4.html#post2353087

This bill would address the higher yearly taxation problem some by increasing the 85% taxable threshold.

H.R.860 - Social Security 2100 Act

https://www.congress.gov/bill/116th-congress/house-bill/860

The 50% threshold isn't mentioned there, but this document states the 50% taxable threshold would be eliminated.

https://larson.house.gov/sites/larson.house.gov/files/Larson Blumenthal Van Hollen_2019 0918.pdf

The new threshold would still not be indexed to inflation going forward.