What will happen if Social Security benefits are cut in 2034

[RunningBum]

Quote:

Originally Posted by harley That's still just hearsay information to me. Is there an existing law that would mandate that? If so, does it specify the percentage to be cut? I'm not doubting you, but I would like to see the documentation to back that up. Personally I have great faith that our elected officials won't do anything unless forced by law. Leaving it to their sense of responsibility or initiative will result in disappointment, at best.

I haven't seen anything either, but I think the point is that the existing law is that they can't take money from elsewhere. So unless something is done by congress before 2034, SSA simply won't have the funds to distribute 100%. What would they do? I doubt they even have the ability to do any means testing or raise SS taxes. Do they even have the ability to limit when the give out knowing the lake is running dry? My guess is that once they have drained the reserves, they will only give out as much as they are taking in, which I believe is what's estimated to be 75%. I don't know how they could do anything but make cuts across the board. They are check writers, not policy makers. At that point, Congress might take other actions to either raise revenues or make uneven cuts.

It seems too hard to predict what Congress might do before 2034 or at the breaking point, and I don't think that was the OP's question. The question is what happens if no changes are made, right? What does the SSA actually have the authority to do?

I have a spreadsheet that shows what happens if I take SS at 62, 67, or 70, with 2% inflation and 5% investment returns factored in.

If benefits never change, or a change is made before I hit 62, the breakeven for taking at 67 is reached at 82, and for taking at 70 is reached at 86.

If a 25% cut happens in 2034, the breakeven point moves to 86 and 89.

If a 25% comes in 2031 when I hit 70 (worst case for waiting til 70), my breakeven is 88 and 94.

I've just turned 56, so I haven't spent too much time triple checking to make sure I did this right, and of course my assumptions could be way off. I still think my main factor will be starting SS when the stock market is down so I'm not selling low, and waiting until 70 if it's not down. What I consider a "down" market I haven't yet quantified, and if there are no changes to SS policy by the time I'm 62, I'm probably more likely to start in a "kind of" down market.

[Senator]

Quote:

Originally Posted by RunningBum My guess is that once they have drained the reserves, they will only give out as much as they are taking in...

Interesting observation.

Where are these reserves located? And when they withdraw the reserves, where does that reserve money come from? Do they have to take in (additional) money to get funds for the reserves to be withdrawn?

[donheff]

Quote:

Originally Posted by Senator Interesting observation. Where are these reserves located? And when they withdraw the reserves, where does that reserve money come from? Do they have to take in (additional) money to get funds for the reserves to be withdrawn?

The reserves are numbers on an accounting ledger that have been loaned to the General Fund to meet the deficit (e.g., for day to day operations, wars, etc.). Just like your Treasuries are numbers on a ledger that have funded the same deficit. When SS payments start exceeding yearly incoming revenues (I think we are there already) the $ will come via the General Fund by selling more Treasuries. Those infusions will gradually cut the numbers on the Trust Fund until the ~2034 crisis.

[pj.mask]

Quote:

Originally Posted by Senator If you wonder "What if SS benefits are cut?", you also have to wonder "what if SS benefits are not cut?". I do not worry about it. Not at all. Money can be printed.

I don’t believe printing money for an inflation tied benefit is a feasible solution. At least not for one that is a large part of the economy like social security.

I have heard several (older) people say that the SSI trust has ‘been raided to pay for other things in the past’ - if they can take out they can put back. Budget question as to where it will come from though.

[Senator]

Quote:

Originally Posted by donheff When SS payments start exceeding yearly incoming revenues (I think we are there already) the $ will come via the General Fund by selling more Treasuries.

Why can't they just sell more Treasuries even after the reserves are exhausted?

Quote:

Originally Posted by pj.mask I don’t believe printing money for an inflation tied benefit is a feasible solution.

Is selling more treasuries different than printing money?

[donheff]

Quote:

Originally Posted by Senator Why can't they just sell more Treasuries even after the reserves are exhausted? Is selling more treasuries different than printing money?

We very well may will do just that. But if, as the last thread's OP pointed out, SSA are legally prohibited from making payments that are not covered by the Trust Fund, then Congress will have to pass a fix to allow that, or a fix increasing payroll tax, reducing benefits, or whatever.

[Senator]

Quote:

Originally Posted by donheff We very well may will do just that. But if, as the last thread's OP pointed out, SSA are legally prohibited from making payments that are not covered by the Trust Fund, then Congress will have to pass a fix to allow that, or a fix increasing payroll tax, reducing benefits, or whatever.

Is the SSA prohibited from borrowing to pay the obligations, without additional law changes?

[pb4uski]

Yes, the SS trust fund is prohibited from borrowing by law. The cites for this were in another recent thread.

[pb4uski]

Quote:

Originally Posted by Car-Guy Medicare part B is already being means tested, so why not SS!

Because SS retirement benefits are a gorilla compared to Medicare Part B costs.

[UnrealizedPotential]

I used to worry about this, not so much anymore. The earliest I could get SS is 2031. Posters here have told me it will be there. I'm sure they know much more than me on the subject. I consider anything I get from SS as a bonus. I'll get something for sure, but I do not structure my future with having SS as something that will be make it or break it.

SS for me serves more as a bonus or a complimentary role later in life for my income. Isn't that what it was meant to do from inception?

[RunningBum]

Quote:

Originally Posted by UnrealizedPotential I used to worry about this, not so much anymore. The earliest I could get SS is 2031. Posters here have told me it will be there. I'm sure they know much more than me on the subject. I consider anything I get from SS as a bonus. I'll get something for sure, but I do not structure my future with having SS as something that will be make it or break it. SS for me serves more as a bonus or a complimentary role later in life for my income. Isn't that what it was meant to do from inception?

Supplemental/complimentary, yes; bonus, no, definitely not. Bonus implies something extra you may or may not get. Maybe it's evolved into that, but as far as I know that was not the original intent. If you aren't concerned about a benefit that probably will pay you 5 figures a year, good for you. It won't make or break me, but I am concerned enough to follow.

[USGrant1962]

Quote:

Originally Posted by RunningBum Supplemental/complimentary, yes; bonus, no, definitely not. Bonus implies something extra you may or may not get. Maybe it's evolved into that, but as far as I know that was not the original intent. If you aren't concerned about a benefit that probably will pay you 5 figures a year, good for you. It won't make or break me, but I am concerned enough to follow.

And to complete that thought, a benefit that you and your employer probably paid six figures into.

[Senator]

Quote:

Originally Posted by Ronstar Hopefully there would be enough of us left to vote them out.

That reminds me of several quotes by Alexander Fraser Tytler...

[UnrealizedPotential]

Quote:

Originally Posted by RunningBum Supplemental/complimentary, yes; bonus, no, definitely not. Bonus implies something extra you may or may not get. Maybe it's evolved into that, but as far as I know that was not the original intent. If you aren't concerned about a benefit that probably will pay you 5 figures a year, good for you. It won't make or break me, but I am concerned enough to follow.

I'm concerned, I guess I just feel powerless as an individual to do anything about a change in benefits that may or may not come and may or may not affect me. But I have to admit bonus is a poor word to use.

[jollystomper]

Quote:

Originally Posted by Rianne The Social Security Administration (SSA) announced that the maximum amount of wages in 2017 subject to the 6.2% Social Security tax (old age, survivor, and disability insurance) will rise from $118,500 to $127,200, an increase of more than 7%. By comparison, the 2016 wage base was unchanged from 2015.

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

[athena53]

Quote:

Originally Posted by UnrealizedPotential SS for me serves more as a bonus or a complimentary role later in life for my income. Isn't that what it was meant to do from inception?

Yes- it was meant to be part of a "3-legged stool" of SS, pensions and private savings. Pensions are mostly gone from the private sector now, but judging from the comments I see on FB posts concerning seniors, a huge number of them are trying to exist on SS alone and it's tough going, especially after a spouse dies.

And I agree with RunningBum: you and your employer paid into it for decades. It's not a "bonus".

[Blueskies123]

One could look to see what happens to pension plans when their company's go bankrupt, for example Delta airlines 20 years ago or so. Or one could look to see what happens when counties go bankrupt like Brazil or Greece. What they have done in some of the cases could be perceived as a little more fair than a cut across the board. They have capped pension payments at a certain amount so that people that got the bigger checks got a hair cut while those that receive smaller payments kept 100% of the payments. This way poorer people were not impacted while (for example pilots) got a larger cut which they should be able to afford.
This is why I am taking SS at 66 rather than 70.

[gayl]

Quote:

Originally Posted by Car-Guy I never expected SS to be around, or that it would be cut back before I became eligible to collect "my earned" benefits, so I had already written it off. OK, I was wrong, again. My financial planning never counted on SS (still doesn't) so it won't bother me other than to give me the satisfaction that I was right about SS.

+1

In addition to that, we all knew when signing retirement papers that DBP could be cut.

Agree that a 3 (or 4) legged retirement plan is vital. Mine's:

1. Pension
2. SSA
3. Investments
4. Paid off house in a state where property taxes can only increase 2% a year (paying 3100 on a 950,000 house)

[scrabbler1]

I have been living only on my personal savings for the last 9 years after I ERed in 2008 at age 45. I have often described my additional money sources as "reinforcements" waiting for me when I turn ~59.5 in 5 years from now. One of them is SS, the others are unfettered access to my IRA and my frozen company pension. If my SS benefit, also pretty much frozen because I have not changed my SS earnings history in the last 9 years, takes a 25% cut, all it means is that this specific reinforcement will be a little smaller.

[audreyh1]

We're just hoping for our SS to cover our Medicare premiums after the taxes owed on SS. Looking at today's numbers projected to 2030 it will just barely cover.