Promising Editorial On SS "Are Benefits Safe" from AARP Bulletin 11-2018

[ShokWaveRider]

In this months AARP Bulletin there is an encouraging editorial about Social Security. They list 12 Fun Facts about SS.

Here are some highlights (Not All):

1) Social Security is NOT Going Bankrupt

2) Congress will probably not take up SS Reform Any Time Soon

4) Lawmakers do NOT raid the Trust Fund

12) Most people get more back than they put in.

Those are the ones that caught my eye, you will find the whole section on Page 8 of the Publication. There may also be more info on their AARP Web Site. https://www.aarp.org/retirement/social-security/

 

[brainsagolfer]

Yep.... I am sure AARP would NOT lie!

 

[esterhazy]

Yep.... I am sure AARP would NOT lie!

Nothing they've said is a lie. Can you provide anything other than an ad hominem attack? Data, sources, charts,....?

 

[target2019]

This may affect some.

Tax cap grows
Taxes on workers’ wages finance Social Security. Workers pay 6.2 percent of their earnings to fund the benefit (employers pay the same). Next year, the maximum amount of earnings subject to the Social Security tax will increase from $128,400 to $132,900.

 

[pb4uski]

....12) Most people get more back than they put in. ....

Easy to get a sense of the above, your SS statement will show how much you paid in for SS in the left column on the middle of page 3 under:

Estimated taxes paid for Social Security:
...................You paid.................$xxx,xxx

Take that amount and multiply by ~80%... about 20% of what is paid in funds disability benefits.

Then divide the result by the payment on page 1 to get the number of months by which you have received all your money back. The amount is shockingly short.... mine (high earner) is 3 years and DW (a SAHM) is 8 months.

 

[SecondCor521]

Easy to get a sense of the above, your SS statement will show how much you paid in for SS in the left column on the middle of page 3 under:



Take that amount and multiply by ~80%... about 20% of what is paid in funds disability benefits.

Then divide the result by the payment on page 1 to get the number of months by which you have received all your money back. The amount is shockingly short.... mine (high earner) is 3 years and DW (a SAHM) is 8 months.

This ignores both the time value of money and inflation over decades.

 

[pb4uski]

No kidding.

If you're more ambitous you can do this. Apply the appropriate SS tax rates to the annual earnings on page 3 to get the amount of SS that your paid each year. Multiply those numbers by 80% to factor in only estimated amounts paid in relating to retirement benefits (and exclude amounts relating to disability benefits).

Estimate the lump sum value of your benefits at your FRA. The best way would be to get quote for a SPIA with inflation adjusted monthly benefits equal to your PIA.

I go to opensocialsecurity.com and put in my info and select advanced options. I use the TIPS real discount rate less 200 bps assuming the insurer takes a 200 bps spread for overhead and profit and I use the least conservative mortality table (non-smoker super preferred) since annuity mortality is less conservative than life mortality. The resulting value is ~150% of a fixed benefit SPIA at my FRA rather than COLAed benefits, which seems about right.

Using Excel's IRR function, solve for IRR that equates what you paid in to the lump sum value of your benefits... YMMV but my IRR is about 8%. The reason that seems high is because the cash outflows are only what I paid in, but my benefits and therefore the lump sum value is based on what both I and my employers paid in, but it is a true return comparing what I paid in to the benefits that I will receive. If I include what my employers paid in then the IRR is about 5% in my case.

The IRR would be higher for lower income earners due to the benefit structure and bend points.

 

[ShokWaveRider]

Rather than one obvious naysayer, I think the report is both positive and relieving. Hopefully we will not see the potential haircuts and speculated changes that have been discussed at length in other posts. One can also feel a little better about waiting to take SS as the chances are it will be solvent, at least in my lifetime.

 

[donheff]

The link just took me to a general SS page, not the editorial cited above. But I don't find the summary bullets controversial. The data is out there for anyone to see. The SS Trust Fund is alive and well, no different than the Treasuries in your portfolio. The Trust fund will be exhausted somewhere around 2034 after which the incoming funds will pay for about 77% of current benefits if nothing is done to address the shortfall. How we address that shortfall is ultimately up to us via our chosen representatives in Congress.

 

[ShokWaveRider]

The link just took me to a general SS page, not the editorial cited above.

Yes, that is the AARP SS Page. The 12 bullets are in the AARP Bulletin Magazine that gets delivered. I did not list them all, only the ones I thought were the most pertinent.

 

[target2019]

The article with 12 top bullets is here.
https://www.aarp.org/retirement/social-security/info-2018/12-fact-about-ss.html

The graphic under #4 portrays the challenge pretty well, IMO.

 

[ShokWaveRider]

The article with 12 top bullets is here.
https://www.aarp.org/retirement/social-security/info-2018/12-fact-about-ss.html

The graphic under #4 portrays the challenge pretty well, IMO.

Thanks for this. I still think it is encouraging considering all the commentary and speculation we have all had here over the years about SS.

 

[target2019]

Thanks for this. I still think it is encouraging considering all the commentary and speculation we have all had here over the years about SS.

I think many of us accept the "facts" as presented and marketed too quickly. I am encouraged that the problem will be solved.

 

[Crabby Mike]

The SS Trust Fund is alive and well, no different than the Treasuries in your portfolio. The Trust fund will be exhausted somewhere around 2034 after which the incoming funds will pay for about 77% of current benefits if nothing is done to address the shortfall. How we address that shortfall is ultimately up to us via our chosen representatives in Congress.

And the White House, since any such legislation would have to be signed into law by the President. Sadly, it's hard to picture today what miracle it would take for both houses of Congress and the White House to agree on any fix in the next 16 years. I will continue to assume that my SS payments will drop by 25% or so starting in 2034, since that's what will automatically happen if nothing is done.

 

[ShokWaveRider]

And the White House, since any such legislation would have to be signed into law by the President. Sadly, it's hard to picture today what miracle it would take for both houses of Congress and the White House to agree on any fix in the next 16 years. I will continue to assume that my SS payments will drop by 25% or so starting in 2034, since that's what will automatically happen if nothing is done.

Can you please point us to some credible documents that explain this?

 

[gerntz]

12) Most people get more back than they put in.

That's always been how it's been sold since AARP ignores that employers directly put in as much as employees do instead of paying same to employees. But that's their agenda.

 

[ShokWaveRider]

That's always been how it's been sold since AARP ignores that employers directly put in as much as employees do instead of paying same to employees. But that's their agenda.

I do not think you read the whole article. It states that employers do contribute. Check the top left Paragraph.

 

[gerntz]

I do not think you read the whole article. It states that employers do contribute. Check the top left Paragraph.

OK, but does it count the money employers put in as part of YOUR contribution? If not, then you need to double employees contributions amount to see whether they're getting back more than they put in. I.e., the employer money doesn't go in w/o you contributing first/also.

 

[USGrant1962]

Can you please point us to some credible documents that explain this?

Well, here's the info from the horse's mouth. But it is written in bureaucrat-eze, and so is a little dense. https://www.ssa.gov/OACT/TRSUM/index.html

The operative paragraph is:

The OASI Trust Fund, when considered separately, has a projected reserve depletion date of 2034, a year earlier than in last year’s report. At that time, income would be sufficient to pay 77 percent of scheduled OASI benefits.

The Social Security Administration has no authority to spend any non-OASDI monies, so will need legislation to fix the shortfall.

 

[pb4uski]

That's always been how it's been sold since AARP ignores that employers directly put in as much as employees do instead of paying same to employees. But that's their agenda.

Wrong.

Actually, the statement wasn't based on any AARP analysis, but was based on an Urban Institute study... the study indicates:

We assume that workers pay both the employer and employee shares of the payroll tax. By statute, the payroll tax, except for the HI surtax, is split evenly between workers and employers, with each paying 6.75 percent for combined OASI and HI taxes. However, a standard economic assumption is that in the long run, employers can pass this tax onto workers by slowing wage growth or offering fewer fringe benefits.

So even if you include both employee and employer contributions, the average recipient gets out much more than what they and their employer contributed.

You can check for yourself. Take what you and your employer contributed on page 3 and divided it by your monthly benefit get the number of months that it would take to get back what you and your employer put in.

 

[Crabby Mike]

Can you please point us to some credible documents that explain this?

USGrant beat me to it. The 2034 and 77% (or thereabout) numbers have been published many places, most importantly in the annual SS trustees report. As to the inevitability of a reduction in payments once the trust fund is depleted, I'd have to find a source, but I'm confident in the information. Look at it this way -- where else would the money come from? They can't just pay it out of general funds.

 

[target2019]

OK, but does it count the money employers put in as part of YOUR contribution? If not, then you need to double employees contributions amount to see whether they're getting back more than they put in. I.e., the employer money doesn't go in w/o you contributing first/also.

By the meaning of the words used, your contribution is yours, and agrees with what the article is saying. If you choose to add in employers' contributions, and calculate, then you could say the payout does not exceed employer + employee contributions over lifetime. How about we also consider the total payout to contributor and spouse? These are all considerations that will no doubt mean something when revamping SS.

 

[pb4uski]

OK, but does it count the money employers put in as part of YOUR contribution? If not, then you need to double employees contributions amount to see whether they're getting back more than they put in. I.e., the employer money doesn't go in w/o you contributing first/also.

Yes, their analysis counted both employee and employer contributions.

If you take the sume of employer and employee contribtions from page 3 of your SS statement and divide it by the monthly benefit on page 1, how many months do you get?

I get 93 months (7.75 years) for me and 21 months (1.7 years) for DW.... but in fairness those numbers should be multiplied by 80% to reflect that about 20% of what is paid relates to disability benefits.... that would make it 6.2 years for me and 1.4 years for DW... in both cases assuming that we draw at 66 and 2 months.

You obviously have it in your mind that SS is a rip-off for you, so please don't let facts cloud your view.

 

[marko]

USGrant beat me to it. The 2034 and 77% (or thereabout) numbers have been published many places, most importantly in the annual SS trustees report. As to the inevitability of a reduction in payments once the trust fund is depleted, I'd have to find a source, but I'm confident in the information. Look at it this way -- where else would the money come from? They can't just pay it out of general funds.

Something tells me this will get fixed before 2034 rolls around lest the 18,327 threads here on when to take SS become moot.

Just think of all the recalculation discussions on this forum!!!!! Excel sheets burning up trying new formulae!

Been hearing of the demise of SS since I started working 45 years ago.

 

[bobandsherry]

Thanks for this. I still think it is encouraging considering all the commentary and speculation we have all had here over the years about SS.

Bad news sells better in the news, so def gets more attention for the sensationalism. Just look at how much doom and gloom there is vs. rainbows and unicorns on a daily basis. Lopsided.