Good article about Social Security

[Tailgate]

Article in today's newspaper in the syndicated 'Senior' section. Looks at the possible future of SS by looking at historical reforms.

In the spring each year, flowers and trees bloom. So do gloom-and-doom stories about the future of Social Security. That’s because in April of each year, the Social Security board of trustees is required to issue a report on the status of the Social Security trust funds. (They also issue a status report on Medicare. But this is a column about Social Security, so that is the only report I’ll cover today.) Although there is some gloom associated with the report, there is no reason for doom.

ARTICLE HERE

 

[ShokWaveRider]

50 Years, that sounds [-]optimistic[/-] promising.

 

[MichaelB]

The link’s not working for me. I do like the spring metaphor

 

[ShokWaveRider]

The link’s not working for me. I do like the spring metaphor

Not too difficult You need to cut it out and paste it into your browser.

The report says … - The Dallas Morning News

 

[Cut-Throat]

Article in today's newspaper in the syndicated 'Senior' section. Looks at the possible future of SS by looking at historical reforms.

In the spring each year, flowers and trees bloom. So do gloom-and-doom stories about the future of Social Security. That’s because in April of each year, the Social Security board of trustees is required to issue a report on the status of the Social Security trust funds. (They also issue a status report on Medicare. But this is a column about Social Security, so that is the only report I’ll cover today.) Although there is some gloom associated with the report, there is no reason for doom.

ARTICLE HERE

And if anyone doubts that raising the FRA is a Cut in Benefits --- This is what the author has to say about that.




"The major benefit reduction involved making people wait longer to collect full retirement benefits. The full retirement age was increased in gradual steps – from 65 to 67. In fact, we still haven’t reached the full extent of that legislative change. The FRA won’t hit 67 until people born in 1960 and later start retiring."

 

[Smitty700]

And if anyone doubts that raising the FRA is a Cut in Benefits --- This is what the author has to say about that.




"The major benefit reduction involved making people wait longer to collect full retirement benefits. The full retirement age was increased in gradual steps – from 65 to 67. In fact, we still haven’t reached the full extent of that legislative change. The FRA won’t hit 67 until people born in 1960 and later start retiring."

A critical point.The change in FRA doesn't change when most people collect benefits. The amount goes up linearly from age 62 to age 70. The FRA changes lower the amounts that you get, not when you get it. Thus, as @Cut-Throat states, it's a cut in benefits.

I know, as I'm one of those lucky ones born in 1960 so that my FRA is 67. I can still start taking at 62 or wait until 70. The only change for me is that the monthly amount is smaller.

 

[joeea]

The change in FRA doesn't change when most people collect benefits.

Technically, since more than 50% of people decide for some reason to collect at 62, you are correct.

Still, while many folks start collecting as soon as they can (ie, 62), a substantial amount decide to hold off until FRA. Since 1983, as the age of full retirement has increased, that substantial amount has followed the increasing FRA.

Either way, it's clear that the value of lifetime benefits was decreased.
See: https://www.kitces.com/blog/social-security-full-retirement-age-fra-increasing-from-age-66-to-67/

And unless the rules are tweaked in a different way, increasing the FRA again would decrease the value of lifetime benefits more.

 

[Smitty700]

Technically, since more than 50% of people decide for some reason to collect at 62, you are correct.

Still, while many folks start collecting as soon as they can (ie, 62), a substantial amount decide to hold off until FRA. Since 1983, as the age of full retirement has increased, that substantial amount has followed the increasing FRA.

Either way, it's clear that the value of lifetime benefits was decreased.
See: https://www.kitces.com/blog/social-security-full-retirement-age-fra-increasing-from-age-66-to-67/

And unless the rules are tweaked in a different way, increasing the FRA again would decrease the value of lifetime benefits more.

True, many people hold off until FRA. But the change in FRA only impacts the amount you get whenever you take it.

Since I was born in 1960, my FRA is 67. My wife was born in 1958, so her FRA is 66 years and 8 months. She can start at 67, or I can start at 66 years and 8 months. It doesn't matter. The impact is that at whatever age I take SS, I will get less than if she retired at that same age.

So the net is that the change in FRA changes nothing but the amount that I get, which decreases the lifetime benefits as you point out.

It seems to me that a lot of people view the change in FRA as changing only the date they should take benefits. But it really makes no difference in that. The only real change from the later FRA is that those folks now get less, no matter when they start taking.

 

[CRLLS]

I expect there may be savings on the top end by raising the FRA from 65 to 67. That would be for those waiting until age 70. It reduces the increase for those by 16% (2 years @0.66% per month delayed) I doubt the FRA benefit increased anything close to match the increase in age requirement. Even for those taking SS early, the reduction % would be greater for any given age.

 

[joeea]

The only real change from the later FRA is that those folks now get less, no matter when they start taking.

If you mean less at a given age than you would have gotten at exactly the same age before, then you are of course correct.

If you mean they get less per year at FRA than they would have gotten per year at FRA before, then you are incorrect.

 

[Bir48die]

If you mean less at a given age than you would have gotten at exactly the same age before, then you are of course correct.

If you mean they get less per year at FRA than they would have gotten per year at FRA before, then you are incorrect.

Thanks for clearing that up. Was just about to.

 

[Cut-Throat]

If you mean less at a given age than you would have gotten at exactly the same age before, then you are of course correct.

If you mean they get less per year at FRA than they would have gotten per year at FRA before, then you are incorrect.

But you Get less.... for sure, as you are drawing fewer years than if they did not raise the FRA --- This is a CUT in Benefits.

 

[joeea]

But you Get less.... for sure, as you are drawing fewer years than if they did not raise the FRA --- This is a CUT in Benefits.

It is indeed a cut in LIFETIME benefits. No doubt about that. I was trying to be extra clear by including the phrase "per year ".

 

[Crabby Mike]

The amount goes up linearly from age 62 to age 70./QUOTE]
A minor quibble -- the increase isn't quite linear. To quote SSA at https://www.ssa.gov/oact/quickcalc/early_late.html:


In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when normal retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent.



Delaying beyond FRA increases your benefit by 8% per year (2/3% per month) for those born after 1942 (it used to be lower).

 

[pb4uski]

But you Get less.... for sure, as you are drawing fewer years than if they did not raise the FRA --- This is a CUT in Benefits.

Joe was born in 1960, FRA was 65 when he was born and mortality tables suggested that he would live to 80 on average... so on the day he is born it was expected that he would collect benefits for 15 years (from 65 to 80).

20 years later, in 1980, Congress reassesses SS. Due to improvements in longevity, when Joe is 65, it is now expected that he will live to be 82 and collect benefits for 17 years rather than 15 years. In response, and because of the drain on the system for paying Joe for 17 years of benefits rather than 15 years of benefits, Congress increases the FRA for people born in 1960 to 67.

Is that a cut in benefits?

View A: No. When Joe was born the system (tax rates, benefit formulas, etc) was designed so he would be expected to collect benefits for 15 years.... and when he actually starts collecting benefits he is expected to collect benefits for 15 years... so the increase in the FRA has simply put him back in the same position that he was in to begin with.... so it isn't a cut. Proponents of View A assert that if the FRA is not adjusted then benefits are increased since Joe gets to collect benefits for 17 years while the original design would have had him collecting benefits for only 15 years.

View B: Yes. While Joe was expected to collect benefits for 15 years when he was born, improved longevity between 1960 and 1980 expended that expected period of benefits to 17 years. If at that point, Congress increases the FRA for Joe to 67, then it reduces his benefits since he only collects for 15 years rather than 17 years.

 

[Cut-Throat]

Is that a cut in benefits?

Fact A: Plenty of people in the U.S. lived to age 95 the day that S.S. was enacted. --- 1935



Fact B: Plenty of people in the U.S. died at age 70 the day that S.S. was enacted. ----- 1935.


Fact C: For Both Fact A and Fact B groups, raising their FRA would have Cut their S.S. Benefits, regardless of what the mortality rates said.

 

[joeea]

Joe was born in 1960, FRA was 65 when he was born and mortality tables suggested that he would live to 80 on average... so on the day he is born it was expected that he would collect benefits for 15 years (from 65 to 80).

20 years later, in 1980, Congress reassesses SS. Due to improvements in longevity, when Joe is 65, it is now expected that he will live to be 82 and collect benefits for 17 years rather than 15 years. In response, and because of the drain on the system for paying Joe for 17 years of benefits rather than 15 years of benefits, Congress increases the FRA for people born in 1960 to 67.

Is that a cut in benefits?

View A: No. When Joe was born the system (tax rates, benefit formulas, etc) was designed so he would be expected to collect benefits for 15 years.... and when he actually starts collecting benefits he is expected to collect benefits for 15 years... so the increase in the FRA has simply put him back in the same position that he was in to begin with.... so it isn't a cut. Proponents of View A assert that if the FRA is not adjusted then benefits are increased since Joe gets to collect benefits for 17 years while the original design would have had him collecting benefits for only 15 years.

View B: Yes. While Joe was expected to collect benefits for 15 years when he was born, improved longevity between 1960 and 1980 expended that expected period of benefits to 17 years. If at that point, Congress increases the FRA for Joe to 67, then it reduces his benefits since he only collects for 15 years rather than 17 years.

View C: Joe never expected to collect benefits for a particular number of years, since that's not how Social Security benefits actually work. Instead, Joe expected to collect full benefits from 65 until he died. Maybe that would be 2 years, maybe that would be 30 years, no matter. Now Joe is told that he cannot start at 65 but instead must wait until 67. Joe is told that is not really a cut after all, since the hypothetical average age of longevity has improved.

Joe reads through the Social Security website. It doesn't say anything about longevity. Joe is unhappy.

Joe's wife Jane works for the government. Jane's contract specified that if she worked for 30 years, she could retire with a full pension. At the end of her 30 years of work, the government told her that she must actually work 32 years to get her full pension. But she is told that it's not a cut after all, since the average person's longevity has increased.

Jane reads her contract. It doesn't say anything about longevity. She is unhappy.

Joe's brother Jack purchases an annuity. The annuity contract says that at age 70, Jack gets $X/month. When Jack reaches 70, he actually gets $X-Y/month. The insurance company tells Jack that is isn't actually a cut since the average person's longevity has increased.

Jack reads his contract. Jack's lawyer reads his contract. It doesn't say anything about longevity. Jack is unhappy. Jack's lawyer isn't quite as unhappy. Jack's lawyer prepares a lawsuit.

IMHO, the full retirement age should be indexed to longevity. But it isn't now.

 

[pb4uski]

View C: Joe never expected to collect benefits for a particular number of years, since that's not how Social Security benefits actually work. Instead, Joe expected to collect full benefits from 65 until he died. Maybe that would be 2 years, maybe that would be 30 years, no matter. Now Joe is told that he cannot start at 65 but instead must wait until 67. Joe is told that is not really a cut after all, since the hypothetical average age of longevity has improved.

Joe reads through the Social Security website. It doesn't say anything about longevity. Joe is unhappy. ...

At the time Joe was told he can't start at 65 but must instead start at 67 he is 20-22 years old so it doesn't bother him one little bit (it actually happened to many of us... my FRA was 65 when I was born and was adjusted to 66 when I was in my late 20s.. no big deal).

I guess I should have framed it that the actuaries at SS designed the tax rates and benefits based on an assumption that Joe (and his cohorts) collected benefits for 15 years... had they known that Joe would really be collecting benefits for 17 years they would have had a higher tax rate or a less generous benefit formula... would it make you feel better if they left the FRA alone and just reduced the PIA to adjust outflows to inflows?

... Joe's wife Jane works for the government. Jane's contract specified that if she worked for 30 years, she could retire with a full pension. At the end of her 30 years of work, the government told her that she must actually work 32 years to get her full pension. But she is told that it's not a cut after all, since the average person's longevity has increased.

Jane reads her contract. It doesn't say anything about longevity. She is unhappy. ...

The notification of the increase to FRA is not being done anywhere close to people near retirement so Jane's notification "at the end of 30 years of work" is a poor analogy.

The last time that FRAs were changed in 1983, the people most impacted were 45 years old... and were 20 years from FRA... their FRA was changed to 65.2... BFD.

At the other end of the spectrum, the legislation changed the FRA for a 23 year old, who was 42 years away from FRA to 44 years. I was 26 and could have given a care.

....Joe's brother Jack purchases an annuity. The annuity contract says that at age 70, Jack gets $X/month. When Jack reaches 70, he actually gets $X-Y/month. The insurance company tells Jack that is isn't actually a cut since the average person's longevity has increased.

Jack reads his contract. Jack's lawyer reads his contract. It doesn't say anything about longevity. Jack is unhappy. Jack's lawyer isn't quite as unhappy. Jack's lawyer prepares a lawsuit. ....

Not sure what this has to do with any of the discussion here.... another bad analogy.

.... IMHO, the full retirement age should be indexed to longevity. But it isn't now.

If you go back to why the FRA was increased in 1983 you will find that part of the rationale for increasing the FRA was because of increased longevity... so it sort of is, albeit very imperfectly. In 1983 they increased FRAs for longevity improvements from 1940 to 1983... so 43 years... now 36 years later we need to take another bite at the apple.

https://www.ssa.gov/planners/retire/background.html

The 1983 Amendments phased in a gradual increase in the age for collecting full Social Security retirement benefits. The retirement age is increasing from 65 to 67 over a 22-year period, with an 11-year hiatus at which the retirement age will remain at 66. ...

• The original Social Security Act of 1935 set the minimum age for receiving full retirement benefits at 65.
• Congress cited improvements in the health of older people and increases in average life expectancy as primary reasons for increasing the normal retirement age.
• Since the program first began paying monthly Social Security benefits in 1940, the average life expectancy for men reaching age 65 has increased nearly 7 years to age 84.3, for women reaching age 65, their average life expectancy has increased nearly 7 years to age 86.6.

 

[dtbach]

Congress will probably wait until the system is again in desperate straits, i.e. at least a decade from now.

 

[Cut-Throat]

At the time Joe was told he can't start at 65 but must instead start at 67 he is 20-22 years old so it doesn't bother him one little bit (it actually happened to many of us... my FRA was 65 when I was born and was adjusted to 66 when I was in my late 20s.. no big deal).

This is a Cut of around $25 Grand for a lot of people, with compound interest for over 20 years.... Whether that bothers you are not, it is a CUT in benefits.


And these Cuts are chipping away at benefits, add them all up and it's like the Cut in spending power by inflation.

 

[joeea]

would it make you feel better if they left the FRA alone and just reduced the PIA to adjust outflows to inflows?

A cut is a cut no matter how you get there. Start it later, take less starting at the same time - it's still a cut. (That's the whole point).

The last time that FRAs were changed in 1983, the people most impacted were 45 years old... and were 20 years from FRA... their FRA was changed to 65.2... BFD.

When I was 45 years old I had already been working for 30 years. You can conclude it wasn't a BFD if the rules are changed after more than half your working life if you like, but it's still a cut.

If you go back to why the FRA was increased in 1983 you will find that part of the rationale for increasing the FRA was because of increased longevity... so it sort of is, albeit very imperfectly. In 1983 they increased FRAs for longevity improvements from 1940 to 1983... so 43 years... now 36 years later we need to take another bite at the apple.

I don't disagree with changing the FRA due to longevity changes. As I wrote, I believe it should be permanently indexed to longevity.

I just call these FRA increases under the current rules what they are - a cut in lifetime benefits.

The Bipartisan Budget Act of 2015 cut my expected lifetime benefits by over $40,000. You can call that "closing an aggressive claiming strategy loophole" or any other euphemism you like. But it clearly cut my benefits.

 

[pb4uski]

.... I don't disagree with changing the FRA due to longevity changes. As I wrote, I believe it should be permanently indexed to longevity.

I just call these FRA increases under the current rules what they are - a cut in lifetime benefits.

The Bipartisan Budget Act of 2015 cut my expected lifetime benefits by over $40,000. You can call that "closing an aggressive claiming strategy loophole" or any other euphemism you like. But it clearly cut my benefits.

On the first part, you say that an increase in the FRA is a cut but at the same time you favor indexing the FRA to longevity... right?

If so, then you favor building cuts into the system?

It seems that if an increase in the FRA is programmed and happens with regularity then it is a-ok, but if the same thing is done every couple generations then it is a cut.

On the second part, it impacted us too but to a lesser degree. It was clearly a loophole in the rules that some smart people figured out and hoards of people started to take advantage of so they closed the loophole.

So I guess your view is that if they take away something that you were never entitled to to begin with, be it file and suspend or longevity gains, then it is a cut. I get it, but I just disagree... I think of it as a prudent adjustment to put the system back on track to its original intent.