Social Security Trust good to 2035

[Lakewood90712]

dont see any significant changes from previous years

 

[Independent]

The public perception of Social Security since its inception (I think) is that it isn't a welfare program since the benefit everyone gets bears some relation to what they contributed, with the calculation structured so that the lowest earners get proportionally more. If the cap is removed without proportionately increasing the benefit for higher earners to some extent relative to their contributions, it becomes a welfare program financed by the rich. That's a very significant change that could erode popular support.

I agree that the perception that "I paid for my benefit" is a big part of the political appeal of SS. (In spite of the fact that I think it's obvious that SS is a paygo system where each generation pays for the prior generation's benefits.)

However, removing the cap tends to poll better than other potential solvency solutions (like cutting benefits or raising the tax rate).

 

[joeea]

In spite of the fact that I think it's obvious that SS is a paygo system where each generation pays for the prior generation's benefits.

The trust fund was designed to reduce the pure PAYGO aspects of the system.

Without it, benefits would need to be cut this year. With the trust fund, the critical date isn't until 2035 or so.

 

[jimandthom]

Yes, jimandthom and Crabby Mike have it right. There seems to be an urban myth out there about congressional pensions... the worst are ignorant conservative friends of mine (I'm conservative too) that seem to think that if you serve one term in congress that you get paid for life... a total myth.. the pension benefits are similar to other federal employees... but if you have a 20+ year congressional career then you do get a nice pension.

In the late 80s, when the change from CSRS to FERS occurred, we had no clue what to do. The new FERS program probably would have been better, mostly due to the TSP match that the old system does not get.

For yucks, I entered my spouses earnings from his SS record going back to 1972. I did have to "guestimate" for the 7-8 years before Medicare tax was withheld. He worked 2 years in a SS and non SS job at the same time and about 6 years before Medicare tax was withheld.

In retrospect, it may have been better to switch to FERS. His SS estimate, using reasonably accurate $$ for the mentioned few years, came in at about 70-75% of his CSRS pension.

Throw in a TSP match, not given to CSRS people, and a very reduced defined pension through FERS, it may have been better to switch.

Either way, we are good to go.

 

[lucky penny]

However, removing the cap tends to poll better than other potential solvency solutions (like cutting benefits or raising the tax rate).

And should the benefit for those who have contributed millions increase correspondingly? Most would probably say no.

Raising taxes on the rich always polls well. Most people don't regard themselves as "rich" so let others pay more! But finding where to draw the line is tricky.

Raising the cap (not removing it) so that higher earners contribute more & also see a modest increase in their benefit isn't as sexy but seems more likely -- though that, in itself, might not be enough.

 

[Chuckanut]

There is the 'social' part of SS that is a bit like welfare in that lower income people get a higher % of their earnings back than higher income people. But, I think the main point is that to get SS just about everybody has to contribute to it for at least 10 years. IMHO, without SS, we would see a lot of older people on some sort of welfare as an alternative to a non-existent SS check. At least with SS, they were required to contribute something and thus have some skin in the game. I think it's important that all able bodied people contribute something to their old age funding while they are younger.

 

[VanWinkle]

I agree that the perception that "I paid for my benefit" is a big part of the political appeal of SS. (In spite of the fact that I think it's obvious that SS is a paygo system where each generation pays for the prior generation's benefits.)

However, removing the cap tends to poll better than other potential solvency solutions (like cutting benefits or raising the tax rate).

How does it poll with those making over 135,000 per year?

 

[Markola]

How does it poll with those making over 135,000 per year?

I would think pretty well if it avoided a 20% haircut for everyone.

 

[samclem]

We could remove the cap and add another "knee" or bend in the SS formula so that higher wage earners get an even lower %age replacement benefit on higher wages. This maintains the apparently useful notion that "everyone pays in based on their earnings, and the payout is based on what I paid in," but does more to fix the shortfall than just removing the cap.
That's not my favored solution, but it seems like the kind of compromise that might find acceptance.

 

[Helen]

I think that is the simplest solution myself along with gradually raising the age FRA.

For less physical jobs that would not be a big deal, however, as a 69 YO I can definitely tell that I do not have the stamina for physical work that I had just 5 years ago. So I have mixed feelings about raising the FRA??

I found that handling stress became much more difficult as I aged. My brother was in a similar job and found the same thing. It could be that the level of stress increased as we aged though. Either way, my health greatly improved once I left the workforce.

I don't think raising the FRA is a good way to go.

 

[Crabby Mike]

In the late 80s, when the change from CSRS to FERS occurred, we had no clue what to do. The new FERS program probably would have been better, mostly due to the TSP match that the old system does not get.

For yucks, I entered my spouses earnings from his SS record going back to 1972. I did have to "guestimate" for the 7-8 years before Medicare tax was withheld. He worked 2 years in a SS and non SS job at the same time and about 6 years before Medicare tax was withheld.

In retrospect, it may have been better to switch to FERS. His SS estimate, using reasonably accurate $$ for the mentioned few years, came in at about 70-75% of his CSRS pension.

Throw in a TSP match, not given to CSRS people, and a very reduced defined pension through FERS, it may have been better to switch.

Either way, we are good to go.

I was a Federal contractor for most of my career, then a Fed employee for a few before I retired. As I recall, the Feds I knew (mostly CSRS) felt they were lucky to be grandfathered in that system, as opposed to the later hires that were in FERS by default. I don't know what % of salary a typical CSRS pension is, but since the maximum SS at FRA is around $34k, I'm pretty sure CSRS is significantly higher. On the other hand, SS can include a 50% spousal benefit (if spouse earned no benefit of their own) and 100% survivor, so there's that. Also, CSRS employees paid more into their pension system than FERS (which has a small pension component, in addition to TSP (401k equivalent).

 

[VanWinkle]

I would think pretty well if it avoided a 20% haircut for everyone.

Please supply a link to that poll .......

 

[Markola]

No idea, just indicating how I’d probably vote if there is one.

 

[jimandthom]

I was a Federal contractor for most of my career, then a Fed employee for a few before I retired. As I recall, the Feds I knew (mostly CSRS) felt they were lucky to be grandfathered in that system, as opposed to the later hires that were in FERS by default. I don't know what % of salary a typical CSRS pension is, but since the maximum SS at FRA is around $34k, I'm pretty sure CSRS is significantly higher. On the other hand, SS can include a 50% spousal benefit (if spouse earned no benefit of their own) and 100% survivor, so there's that. Also, CSRS employees paid more into their pension system than FERS (which has a small pension component, in addition to TSP (401k equivalent).

I think his % was 72-74%( 34 years in) of his high three average. Being a mail carrier it was not a high paying job, but a good solid income. Probably the benefit would be the survivors SS, and very likely the TSP match.

On the other hand he retired at 57 and was able to provide his recently widowed mother(lived next door) a lot of assistance for a number of years. That was worth whatever extra benefit,if any, that may have come from a switch to FERS.

 

[jimandthom]

I found that handling stress became much more difficult as I aged. My brother was in a similar job and found the same thing. It could be that the level of stress increased as we aged though. Either way, my health greatly improved once I left the workforce.

I don't think raising the FRA is a good way to go.

Totally agree with this.

Most of my cohorts were physical laborors, their body needed to take the rigors of their occupation. Whether factory rats, electricians, truck drivers or even nursing, the body does wear down.

As you also said, stress matters too. For those "professional" class, it may be more mental stress than physical, but either way it applies.

 

[pb4uski]

We could remove the cap and add another "knee" or bend in the SS formula so that higher wage earners get an even lower %age replacement benefit on higher wages. This maintains the apparently useful notion that "everyone pays in based on their earnings, and the payout is based on what I paid in," but does more to fix the shortfall than just removing the cap.
That's not my favored solution, but it seems like the kind of compromise that might find acceptance.

+1 although that alone would not totally solve the problem it would be a useful first step... increase the cap and add a new bend point so those paying in more at least get something for their additional payments. This would be a good first step, in addition to increasing the FRA to reflect mortality improvements since it was last reset in 1982 (I think?).

 

[pb4uski]

The public perception of Social Security since its inception (I think) is that it isn't a welfare program since the benefit everyone gets bears some relation to what they contributed, with the calculation structured so that the lowest earners get proportionally more. If the cap is removed without proportionately increasing the benefit for higher earners to some extent relative to their contributions, it becomes a welfare program financed by the rich. That's a very significant change that could erode popular support.

+1,000....... Spot on! If you change the program to just tax higher earners with no increase in benefits it bastardizes SS into just another welfare program.... and yes, I realize that even today it has some Robin Hood aspects in that low earners get proportionally higher benefits than higher earners.

 

[Cut-Throat]

+1 although that alone would not totally solve the problem it would be a useful first step... increase the cap and add a new bend point so those paying in more at least get something for their additional payments. This would be a good first step, in addition to increasing the FRA to reflect mortality improvements since it was last reset in 1982 (I think?).

OK, seems like we've got S.S. figured out.... Has anyone figured out how to deal with the 1 Trillion Dollar Deficits that we are currently running up? - This seems to be a little more important as it is Happening NOW... Rather than a 20% shortfall 15 YEARS FROM NOW!

 

[pb4uski]

Easy....... LBYM. [emoji1]

 

[Dtail]

+1 although that alone would not totally solve the problem it would be a useful first step... increase the cap and add a new bend point so those paying in more at least get something for their additional payments. This would be a good first step, in addition to increasing the FRA to reflect mortality improvements since it was last reset in 1982 (I think?).

Agree with the increase in the FRA aspect, but what about the minimum age of 62?

 

[pb4uski]

No right answer there.

You could let the minimum age slide along with the FRA... the idea being that the period that participants can collect is kept consistent with improving mortality... so for example, if when the FRA was 67 the average participant would collect for 15 years (to age 82) and due to mortality improvements the average age becomes 84 rather than 82 so the FRA is adjusted from 67 to 69 to maintain that 15 years of collecting benefits then the 20 years of collecting benefits if taking early at age 62 would similarly be adjusted to 64.

Alternatively, you could stick with 62 and just adjust the discount factors to make it all actuarially equivalent.

I would probably lean towards the latter.

 

[Independent]

+1 although that alone would not totally solve the problem it would be a useful first step... increase the cap and add a new bend point so those paying in more at least get something for their additional payments.

The House bill that I referenced in post #30 uses this approach. That bill has 203 co-sponsors.

This would be a good first step, in addition to increasing the FRA to reflect mortality improvements since it was last reset in 1982 (I think?).

Note that most of the mortality gains in recent years have come from high income workers. See chart 1 here: https://www.ssa.gov/policy/docs/ssb/v67n3/v67n3p1.html


It seems odd to decrease all retirees' monthly benefits to offset the additional cost created by the higher income workers.

The 1983 SS amendments established the schedule of FRA based on year of birth that we have now. That schedule hasn't been completely implemented since the latest yob impacted is 1960, and that group will not turn 62 until 2022.

The SS actuaries have estimated the financial impact of a variety of changes to the FRA https://www.ssa.gov/oact/solvency/provisions/retireage.html Note that they included some examples of changes to the Earliest Eligibility Age.
I haven't looked closely to see if some combination of eliminating the cap and indexing the FRA would close the entire gap.

 

[samclem]

Note that most of the mortality gains in recent years have come from high income workers. See chart 1 here: https://www.ssa.gov/policy/docs/ssb/v67n3/v67n3p1.html


It seems odd to decrease all retirees' monthly benefits to offset the additional cost created by the higher income workers.

Wouldn't the removal of the cap go a >long< way toward addressing this disparity (to the degree it exists)?

The study at the link only covered high income males (who still, presumably, had lower life expectancy than high income females).

And "additional cost created by higher income workers" is maybe a stretch. Plenty of high-income workers still die young. It was also "created" by people who quit smoking (rich or poor), increased their use of seat belts, drove safer cars, ate healthier food, exercised, treated their high blood pressure and diabetes, etc, etc . . .

 

[Markola]

OK, seems like we've got S.S. figured out.... Has anyone figured out how to deal with the 1 Trillion Dollar Deficits that we are currently running up? - This seems to be a little more important as it is Happening NOW... Rather than a 20% shortfall 15 YEARS FROM NOW!

Maybe you should run for federal office, talk tough about solving the debt and deficit to get applause lines, win election, vote to dramatically expand the deficit. That seems to be how we “deal with” the deficit in this country.

 

[Independent]

Wouldn't the removal of the cap go a >long< way toward addressing this disparity (to the degree it exists)?

Yes, that's a good point. I think it's worth an explicit discussion because we may or may not think it's a good package.

The Larson bill includes two large tax increases (removing the cap and raising the tax rate) and no benefit decreases. I'd love to see some large portion of the other 231 house members introduce a competing bill, that also covers all the gap, that has some combination of tax increases and spending cuts. Then the voters would see the trade-offs.

The study at the link only covered high income males (who still, presumably, had lower life expectancy than high income females).

It's tougher to get female data. The SS actuaries have individual earnings records handy. They don't have family incomes. The cohorts in their study contained a lot of stay at home moms who had low individual earnings but high household incomes.

Here's a study that uses household income https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4866586/

Between 2001 and 2014, life expectancy increased by 2.34 years for men and 2.91 years for women in the top 5% of the income distribution, but increased by only 0.32 years for men and 0.04 years for women in the bottom 5%

That number is so big that I kind of wonder about the accuracy.

And "additional cost created by higher income workers" is maybe a stretch. Plenty of high-income workers still die young. It was also "created" by people who quit smoking (rich or poor), increased their use of seat belts, drove safer cars, ate healthier food, exercised, treated their high blood pressure and diabetes, etc, etc . . .

How's this wording? We can connect raising the FRA to the fact that longevity has increased. That increase in longevity increases SS total benefit costs. So it seems that raising the FRA is a "fair" way of dealing with that fact. I think it's worth recognizing that the increased longevity comes primarily from higher earning workers, with the lower earners seeing little increase.

That doesn't use the word "create". Certainly, any statistical observation regarding large groups of people will include some individuals who don't fit that observation.