Social Security Consideration

[chinaco]

It appears that due to the recession, SS will pay more in benefits this year than it takes in for the first time. Earlier projections for this was a little later.

We have all read that this was going to happen sometime in the next 10 years or so... depending on which estimate you reviewed.

The government will likely enact some changes to cover the gap. Most likely it will mean some combination of items below:

1. SS tax increase of some form.
2. Higher taxes on SS beneficiaries (if they have other income Higher AGI).
3. Moving the retirement age out for younger people (under 40) to shore up the program for the future.
4. Some ultra liberals think qualification to get SS should be means tested (but this will not happen). Item 2 is much more likely.

If you are of moderate means and have money to ER... does this provide an extra incentive to ER and spend money early rather than late?

If you do ER, it might make sense to try to get assets characterized such that it does not factor into an AGI... but the rules will likely change to close any loopholes (except perhaps for ones home).

Any thoughts on the matter?

 

[Marc]

That social security will pay out more in 2010 than it will receive isn't "news;" here is a report explaining that this will happen form last September:

CNSNews.com - Job Losses, Early Retirements Hurt Social Security

With the past history on Social Security reform (success in the 80s and nothing since), I wonder if anything can be done in the next few years with the partisan divide. With the amount of money ripped out of Medicare, I don't think the government can get away with taking a large chunk from Social Security; therefore, I think any change will entail larger taxes on employees, employers, or retirees, or all three.

Marc

 

[chinaco]

T... With the amount of money ripped out of Medicare, I don't think the government can get away with taking a large chunk from Social Security; therefore, I think any change will entail larger taxes on employees, employers, or retirees, or all three.

Marc

I agree for several reasons:

1. Age 50 and up is a large voting block.
2. Age 40 - 50 are beginning to look at the sobering reality of their lack of planning. After this great recession and the effects on peoples 401ks... most are wary of not having the safety net.
3. Most people below 50 have parents that rely on SS to live (meet basic needs)... if parents do not get it from SS (indirectly from children SS contributions)... they will require children to support them directly... or parents will wind up in dire poverty.

No politician is going to change those rules on people closing in on retirement...

However, they might change the rules significantly on people under 30 to restructure the program. But the SS program will live on.

 

[Gumby]

Chinaco. In addition to the ones you cite, other ways to help fix social security include eliminating or increasing the current wage cap, and changing from wage adjusted cola to cpi adjusted cola. I have read that increasing normal and early retirement eligibility ages by 2 years solves the problem and renders the system actuarially sound essentially for the foreseeable future. IIRC, that was last done in the 80's, but only for normal retirement age.

I am somewhat of a pessimist, because it seems that each of the potential fixes will have someone fighting against it. Given political realities, however, I think nothing will happen until the system metaphorically "runs off the cliff", at which time means testing will probably occur. The number of "rich" old people will be far lower than the combined number of old people who cannot live without social security and young people who don't want to pay higher taxes.