What will happen if Social Security benefits are cut in 2034

[ejman]

And that is what I really worry about. Between the need to pay off debt (or even just the interest on the massive debt) and the cost of other entitlements (not including SS), the easiest thing for congress to do is print money - i.e. raise inflation. They won't have to vote to cut payments, they just pay them with less valuable dollars. Of course the effect on the recipient will be the same - less purchasing power, but they're more likely to get reelected (their primary objective).

I told a buddy of mine 25+ years ago when we started putting money into our 401K, that of course I was going to do it, but had no belief that the Government would stick to their pledge and not tax or somehow take some of that money. It's too big a target not to tap. Then my understanding of inflation kicked in and I believe that is how they settle the accounts - by printing money.

Perhaps our economy will go back to working the way it "used to" but I should point out that massive amounts of intervention over the last decade (i.e. "printing money") by the federal reserve have -so far- resulted in a total inability to drive inflation up to even the desired target of 2%. Maybe there is something else going on and the direct correlation between printing money and inflation is baroque.

 

[jimbee]

My take on this is that they will not 'means test' SS directly. That would be a really HOT potato. So everybody gets their full check.

Then.... they adjust how they tax SS so the more affluent pay more of their SS back to the Treasury.

No reduction in SS benefits. But, the more affluent you are the less you end up with after taxes. What else is new?

Um, that is happening already.

 

[Car-Guy]

I wonder what will happen to the quality of care for all the old folks in nursing homes that turn over their monthly Social Security to Medicaid in order to stay there. Will Medicaid be able to continue to pay enough to nursing homes to continue providing reasonable care for nearly broke residents with a 25% reduction to their SS benefits?

IMO, they don't provided reasonable care today in many of the facilities. I can't speak for the lower priced ones (I can only guess) but some of the better ones (more costly) I've seen, will neglect their residents if someone doesn't stay on top of things. I have a good friend who's dad is one of the nicest places I've ever seen but he (the son) is always on them for not doing something they are paying top dollar for.

 

[Senator]

Perhaps our economy will go back to working the way it "used to" but I should point out that massive amounts of intervention over the last decade (i.e. "printing money") by the federal reserve have -so far- resulted in a total inability to drive inflation up to even the desired target of 2%. Maybe there is something else going on and the direct correlation between printing money and inflation is baroque.

It's called globalization. The money velocity is nearly one. There is always another country or worker that is willing to do it for less.

Plus, the USA appears to be printing money at a slower pace than most other countries. China subsidizes their products to keep the population working, even if they lose money on the products.

If Johnny Carson would announce a shortage of toilet paper, maybe that would start a run on goods and start inflation.

 

[ejman]

It's called globalization. The money multiplier is nearly one. There is always another country or worker that is willing to do it for less.

Plus, the USA appears to be printing money at a slower pace than most other countries. China subsidizes their products to keep the population working, even if they lose money on the products.

If Johnny Carson would announce a shortage of toilet paper, maybe that would start a run on goods and start inflation.

If you find a means for communicating with Johnny Carson and get him to agree on your request please don't hesitate to let me know... I would be most interested

 

[Senator]

If you find a means for communicating with Johnny Carson and get him to agree on your request please don't hesitate to let me know... I would be most interested

Johnny did it in 1973 and it worked. I did talk to Elvis, and Elvis said the next time he meets with Johnny, he would put the bug in his ear about it.

 

[ejman]

Johnny did it in 1973 and it worked. I did talk to Elvis, and Elvis said the next time he meets with Johnny, he would put the bug in his ear about it.

Excellent! Happy to hear we got 'em on our team!

 

[flyingaway]

If the Congress could cut the corporate tax rate from 35% to 20% this time, they certainly could do something about the social security problem.

 

[Gumby]

As I believe I have mentioned before, the fact that Social Security may in the future only have sufficient funds to pay 75% of promised benefits is not particularly illuminating. You could achieve equal results by docking everyone 25% or by docking 1 person 100% and continuing to pay full benefits to another 4. Given my understanding of how voting works in this country, I think I can predict how that will turn out.

 

[Senator]

As I believe I have mentioned before, the fact that Social Security may in the future only have sufficient funds to pay 75% of promised benefits is not particularly illuminating. You could achieve equal results by docking everyone 25% or by docking 1 person 100% and continuing to pay full benefits to another 4. Given my understanding of how voting works in this country, I think I can predict how that will turn out.

I wonder what effect that raising the minimum wage has on SS solvency. Whether by law or demand, the effect should be the same.

If a person makes $10.00 more per day, that is another $1.53 in the coffers (SS and Medicare). As long as inflation stays tame, no additional payout amounts/increases are necessary to the recipients.

If inflation starts with a higher minimum wage, then payouts just increase along with higher collections and the net sum is probably equal.

 

[USGrant1962]

Here's a graphical summary of the latest status of SS. It is a little more user friendly than the full Trustee's report. https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2017/fast_facts17.pdf

Interesting tidbits:

• OASDI payments are ~5% of GDP
• 2017 payments are estimated to be $950B (soon to be a trillion...)
• Median income for married couples 65+ was $55K in 2015
• Median income for singles 65+ was $21K
• SS is about 33% of aggregate income for 65+
• New benefit awards started to increase in the late 90s, and skyrocketed in 2008
• Average monthly benefit for new retirees is ~$1,400
• Average monthly benefit for retired men is ~$1,500
• Average monthly benefit for retired women is ~$1,200
• Ratio of workers to beneficiaries is down around 3, heading for 2 in the late 2030s.
• The official shortfall estimate is 77%, that is how much of benefits that revenue will cover after the trust fund is depleted.

 

[USGrant1962]

Here's a graphical summary of the latest status of SS. It is a little more user friendly than the full Trustee's report. https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2017/fast_facts17.pdf

Oh, and 9.2% of SSI revenue is interest on the Trust Fund, which revenue of course goes away as the fund is depleted. The thought that the fund has been "raided" and is not there is urban legend. It is invested in government bonds that pay interest.

 

[harley]

I wouldn't call it urban legend as much as semantics. If the fund has invested in gov't bonds and the gov't owes so much that the bonds become worthless, or at least inflated beyond any real value, it's pretty much the same. It hasn't happened yet, but as the deficit climbs toward the bajillions, I could see it happening.

 

[Senator]

I wouldn't call it urban legend as much as semantics. If the fund has invested in gov't bonds and the gov't owes so much that the bonds become worthless, or at least inflated beyond any real value, it's pretty much the same. It hasn't happened yet, but as the deficit climbs toward the bajillions, I could see it happening.

Are you saying it's sort of the Government stating the age old saying "I would rather owe it to you, than cheat you out of it"?

 

[donheff]

I wouldn't call it urban legend as much as semantics. If the fund has invested in gov't bonds and the gov't owes so much that the bonds become worthless, or at least inflated beyond any real value, it's pretty much the same. It hasn't happened yet, but as the deficit climbs toward the bajillions, I could see it happening.

Keep in mind, regular US Treasuries which are gobbled up all over the world are no different. If anyone can keep the whole thing floating it is us. And the fiat currency enthusiasts think we could go a lot farther.

 

[CRLLS]

I have to wonder what the effect on the Trust Fund future would be if the Gov't Bonds were at a floating interest rate. That is, if the current Bond rate goes up, then all monies "loaned" see an increase in that paid interest. I think the General Fund should not benefit from long term contracts at the expense of another Gov't entity.

Maybe I'm wrong and this is already done?

 

[pb4uski]

I have to wonder what the effect on the Trust Fund future would be.... if a Martian spaceship landed in the Pentagon parking lot.

 

[RunningBum]

I have to wonder what the effect on the Trust Fund future would be.... if a Martian spaceship landed in the Pentagon parking lot.

File that one under "Things not to lose sleep over."

 

[marko]

I have been listening to scare stories like this since the 1970's. Actually they were far worse in 1973 than what I am hearing now, IMO.
.

+1.
Having said that, I've been an advocate of "take the money and run" (at 62) for just such an instance.
Someone who is now 52 or so might want to recalculate the 62/FRA breakeven point.

 

[ChiliPepr]

One option that might be considered is removing this ceiling on the 6.2% social security tax, and subject all earned wages to it.

The problem with this is the more people pay into it, the more the are supposed to get out of it.

 

[GravitySucks]

I try to leave enough of a buffer in our plan that if we get the cut it will only impact our kids' inheritances, so I see it as more of their problem. But I suspect the odds of a SS cut and maybe even a few other events of that magnitude are possible, if not probable, for us over a 40 year time span and plan accordingly.

I reran the Fidelity planner with the lower SS numbers and the "kids" (they'll be in their late sixties by then) would get about $20k less each in the crappiest market scenario.
They'll get over it.

 

[athena53]

The problem with this [removing the ceiling on wages subject to SS] is the more people pay into it, the more they are supposed to get out of it.

Yes, but there's a whole lotta income redistribution going on. The SS benefit formula starts by indexing all your past wages (limited to the SS wage ceiling) to current levels and then getting an average. The benefits for new SS recipients in 2018 will be 90% of the first $896 average monthly wages, plus 32% of the $4,503, plus 15% of the excess over that. You can see that it's heavily weighted in favor of lower-income workers. Taxing more wages at the upper end doesn't give those workers a very good return on their SS contributions, so it helps the system.

 

[gayl]

Yes, but there's a whole lotta income redistribution going on. The SS benefit formula starts by indexing all your past wages (limited to the SS wage ceiling) to current levels and then getting an average. The benefits for new SS recipients in 2018 will be 90% of the first $896 average monthly wages, plus 32% of the $4,503, plus 15% of the excess over that. You can see that it's heavily weighted in favor of lower-income workers. Taxing more wages at the upper end doesn't give those workers a very good return on their SS contributions, so it helps the system.

And why couldn't they make it 10% over $×× and 5% over $×××? Higher income earners have the option of saving / investing in addition to SS. those on mimium wage really don't

 

[pb4uski]

The problem with this is the more people pay into it, the more the are supposed to get out of it.

Yes, but there's a whole lotta income redistribution going on. The SS benefit formula starts by indexing all your past wages (limited to the SS wage ceiling) to current levels and then getting an average. The benefits for new SS recipients in 2018 will be 90% of the first $896 average monthly wages, plus 32% of the $4,503, plus 15% of the excess over that. You can see that it's heavily weighted in favor of lower-income workers. Taxing more wages at the upper end doesn't give those workers a very good return on their SS contributions, so it helps the system.

And why couldn't they make it 10% over $×× and 5% over $×××? Higher income earners have the option of saving / investing in addition to SS. those on mimium wage really don't

According to the SOA, if you lifted the caps and still allowed benefits to increase for those paying more, the combination of the two would solve 71% of the problem.... vs 88% if you lift the caps and don't allow any credit to those paying more. To me, the benefit of having those paying more get something out of those higher payments and feeling good about supporting the system rather than thinking of it becoming just another welfare program is well worth giving up the 17% difference.

On the last part of those with low income not being able to save... while it is certainly harder it is not impossible. DS earns more than minimum wage but not a lot more and still saves but his lives simply and his expenses are very low (proud of him but sometimes wish he would spend more). Dgrandmother's SS was less than minimum wage and she still saved but her expenses were low. It is what you spend... not what you earn. When DW was doing social work with low income people she saw lots of clients who had nicer cars then we drove, premium cable tv pacages that we chose not to have, more expensive cell phone plans and nicer cellphones than we had, etc and it all adds up.

 

[gayl]

IMHO the benefit amount should be capped but on a sliding scale. 88% is a lot better than 71%. But I wonder one thing. Are they permanently carving out SSDI from this equation or including SSDI and SSA to arrive at only a 71% success ratio