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

[donheff]

Here is another promising article. I like to think of myself as a "Glass Half Full" person (for the most part, HI not withstanding). I for one again feel encouraged. Sorry no summary points on this one you will have to read it, if you are interested. They do talk about a possible 21% Cut though.

https://www.usatoday.com/story/money/2018/11/09/when-does-social-security-run-out/38452267/

The summary is pretty much the same thing we have been talking about. Social Security will continue to have the payroll tax to support the bulk of the benefits payout after the Trust fund is exhausted. Payees would need to take a haircut if nothing is done - this article estimates 21%.

 

[Independent]

That is also the fallacy of the idea that low wage immigrants will be a boon to the system.

It's not a fallacy at all. Immigrants in general are indeed a boon. Not all immigrants are "low wage".

It's possible that you are both right. I'd say that low wage immigrants are a long term drain on the system, high wage immigrants are a long term benefit.

The economic impacts are complex due to ways the economy adjusts to accommodate them. In particular, how do the immigrants impact native born workers wages?

Of course, immigration impacts things other than SS -- education, for example. So we'd be wrong to set immigration policy by looking only at SS.

 

[target2019]

Funny how where you live affects perception. I live in a state which is heavily influenced by immigrants, past and present. In the immediate vicinity, I of course notice more homeowners. In an area of heavy healthcare employment, it is very common to come in contact with a high-wage immigrant. They pay FICA like everyone else.
In surrounding towns, there are pockets of low wage immigrants. They also pay FICA while working jobs, or running a bodega. It's all good. That's how my German, Irish, and Ukrainian ancestors succeeded. I imagine there is some percentage that avoid taxes illegally, but the same was true long ago.

 

[Midpack]

I don't know why discussions on immigrants so often fail to distinguish between legal and illegal immigration. Two very different discussions, I'll leave it at that since this is a Soc Sec thread.

 

[braumeister]

I don't know why discussions on immigrants so often fail to distinguish between legal and illegal immigration. Two very different discussions, I'll leave it at that since this is a Soc Sec thread.

So there really wasn't any reason to bring it up after 128 posts, was there?

 

[Midpack]

So there really wasn't any reason to bring it up after 128 posts, was there?

Not sure what that means, just responding to the many posts that preceded mine lumping people together indiscriminately. Too bad thread drift is common on forums...

 

[ShokWaveRider]

I got to thinking about my previous comment about me being for the most part a "Glass Half Full" person. But 2034 it probably will not matter much to me as I will be "Pushing up Daisies" by then. :ROFL:

 

[Huston55]

Just Some Thoughts

1. I found value in the AARP article on SS. But, that might be because I’m basically a ‘glass half full’ kind of guy so, I tend to see problems as something to be fixed, as opposed to throwing out the water & breaking the glass.

2. In that vein, I (of course) like the SS Game calculator (See PB4’s post #87) and, I think the best thing each of us could do on this issue is to use it and report how we’d fix the system.

3. I don’t find a lot of value in the purposely provocative terms used in many of the posts here (although, I’ll admit to occasionally committing this sin ), such as:

A. “Welfare” - it’s used to indicate that a thing it clearly bad and, of course, that’s not the case. Take a look at the definition: https://www.merriam-webster.com/dictionary/welfare Now think of all the “welfare” programs you personally benefit from; if you need help, visit the “Subsidies” thread here: http://www.early-retirement.org/forums/f52/subsidies-what-do-you-think-93469.html. I think it’s safe to say that ALL of us benefit from some form of welfare or another.

B. “Bankrupt” - While one can find a definition that essentially says ‘more outflow than income’, that’s clearly not the best definition of the current state of SS. I think “Overleveraged” is a more accurate and useful term: https://www.investopedia.com/terms/o/overleveraged.asp That’s because “bankrupt” implies ‘game over’, while ‘overleveraged’ points us toward solutions, which is what I’m interested in (See #1 above). https://www.investopedia.com/terms/o/overleveraged.asp

C. “Immigrant” (or more accurately ‘Immigrant Baiting’): As noted by an earlier poster, the issue of immigrant taxes vs benefits is very complex. But, it seems somewhat tangential to me when discussing SS because, IMO the best fiscal solution will be the best fiscal solution regardless of our current immigrant status. That’s my view because: (1) only 17% of the workforce is foreign born (immigrants), (2) those immigrants make 83% of the wages of US born workers and, (3) immigrants who are not Hispanic/Latino make >100% of the wages of US born workers. https://www.bls.gov/opub/ted/2017/f...of-their-native-born-counterparts-in-2016.htm

Just my thoughts...YMMV.

 

[Huston55]

1. I found value in the AARP article on SS. But, that might be because I’m basically a ‘glass half full’ kind of guy so, I tend to see problems as something to be fixed, as opposed to throwing out the water & breaking the glass.

2. In that vein, I (of course) like the SS Game calculator (See PB4’s post #87) and, I think the best thing each of us could do on this issue is to use it and report how we’d fix the system.

Taking my own advice, I would:

1. Remove the income cap for payroll tax & increase benefits (solves 71% of problem).
2. Add payroll tax on health care premiums (solves 32% of problem).

 

[Independent]

Sure, they'll do it by income, as they are already doing for Medicare. The system is already fully in place and has been operating for years for Medicare. Including SS will be no problem. No system is perfect, that's for sure. But the gov't seems to have a system in place and working for Medicare OK. And, sure, people do "adjust" income to avoid Medicare IRMAA. But, just the same, millions of folks are identified as so-called "high earners" and pay more, much more, for their Medicare. I'm assuming they'll do it based on income, just as they already do for Medicare. Everything is already in place and operating smoothly. Just reduce the SS of folks who pay IRMAA using the same systems already in place. Cheap and quick.

I agree that the gov't could use the same system currently used for IRMAA. They've already worked out the kinks.
I'll add that IRMAA must collect very little money (as a proportion of entire Medicare costs).

According to Exhibit 2 here: https://www.kff.org/medicare/issue-brief/income-relating-medicare-part-b-and-part/ only 5% of retirees pay any IRMAA. And, for those people, the extra premium is around 1% of their total incomes. Not enough to prompt any financial backflips.

IMO, IRMAA is mostly about optics. It deals with the "Warren Buffett doesn't pay any more for Medicare than I do" complaint.

That type of provision could be included in a SS package for the same reason. However, if it causes 5% of the people to lose 10% of the average monthly benefit, it's only worth 0.5% of benefits. Congress needs to find 20+%.

In order to get enough to have a real financial impact, Congress would need many more people giving up much larger percents. The deeper they dig, the more they prompt "creative income management".

Fair or not fair, and to whom, will be debated eternally just like all progressive taxes and benefits...... I think it's really a matter of keeping the SS system going. Certainly the burden should not fall onto the shoulders of working class families through higher FICA taxes. Retirees who consider SS "gravy" as frequently mentioned here on the FIRE Forum can kick in modestly via reduced, means tested SS.

Marko, from the tone of some of your posts, I'd assume you'd never notice the difference if your SS took a little hit so that lower income working youngsters didn't have their FICA raised as much. So, why make a big deal of it?

Yes. I always think of the people who hustle to make $20k per year by combining two minimum wage jobs, and who pay 10% of their wages into the retirement side of SS, and another 2.9% into Medicare.

Then we have a few of the recipients of those programs saying that the biggest impact of the money is that it funds an extra European trip.

That seems ripe for some adjustments.

 

[Lakewood90712]

Payroll tax on robots in the workforce. Only half way kidding. It has some merritt .

 

[pb4uski]

....I always think of the people who hustle to make $20k per year by combining two minimum wage jobs, and who pay 10% of their wages into the retirement side of SS, and another 2.9% into Medicare.

Then we have a few of the recipients of those programs saying that the biggest impact of the money is that it funds an extra European trip.

That seems ripe for some adjustments.

I totally disagree with this line of thinking. Since it's inception, SS retirement benefits have been pay in and if you are still living then when you get to retirement age you will collect based on what you paid in. To reframe it to if you live to retirement age and are unsuccessful then you can collect more and if you were successful then you collect less is changing the rules of the game in the 7th inning.

And yes... I realize that there is and for a long time has been an element of welfare in the design of the bend points.... and that is fine... but let's not make it worse. The people who hustle and make $20k a year by combining two minimum wage jobs get the benefit of those bend points. They get way more out of SS that what they put into it... have recovered all they put into it within 2-3 years so the rest is gravy.

Given a choice of changing the rules of the game now to advantage Sue Spender and disadvantage Sally Saver or just having everyone live with 77% of what they thought that they would get is an easy call for me.

 

[Closet_Gamer]

Check this out: The Social Security Game | American Academy of Actuaries | American Academy of Actuaries

It would be "easy" to solve by doing two simple things... elimimate the cap but increase benefits (71%) and apply payroll tax to earnings used to pay health insurance premiums (32%).... no real need to increase the tax rate or raise the FRA or tax more benefits.

This thing is very cool. I saw a similar simulator at some point in the past.

I think a lot of this should be solved by dealing with two realities:

1) we're living longer
2) income is concentrating at the high end

So...raise the age and raise/uncap the wages subject to taxes.

BTW, I would get negatively impacted on both but I think its the right thing to do.

 

[bobandsherry]

I totally disagree with this line of thinking. Since it's inception, SS retirement benefits have been pay in and if you are still living then when you get to retirement age you will collect based on what you paid in. To reframe it to if you live to retirement age and are unsuccessful then you can collect more and if you were successful then you collect less is changing the rules of the game in the 7th inning.

And yes... I realize that there is and for a long time has been an element of welfare in the design of the bend points.... and that is fine... but let's not make it worse. The people who hustle and make $20k a year by combining two minimum wage jobs get the benefit of those bend points. They get way more out of SS that what they put into it... have recovered all they put into it within 2-3 years so the rest is gravy.

Given a choice of changing the rules of the game now to advantage Sue Spender and disadvantage Sally Saver or just having everyone live with 77% of what they thought that they would get is an easy call for me.

Totally agree. Penalizing those who were successful with their life is not right.

 

[scrabbler1]

Check this out: The Social Security Game | American Academy of Actuaries | American Academy of Actuaries

It would be "easy" to solve by doing two simple things... elimimate the cap but increase benefits (71%) and apply payroll tax to earnings used to pay health insurance premiums (32%).... no real need to increase the tax rate or raise the FRA or tax more benefits.

I chose options from 5 different categories to get to 100%.

17% - gradually increase FRA to 68
20% - reduce COLA
23% - reduce benefits for future retirees
8% - subject benefits to higher taxes
32% - apply payroll tax to health care premiums

This more evenly spreads the pain between the tax side and the benefits side.

 

[PatrickA5]

I chose options from 5 different categories to get to 100%.

17% - gradually increase FRA to 68
20% - reduce COLA
23% - reduce benefits for future retirees
8% - subject benefits to higher taxes
32% - apply payroll tax to health care premiums

This more evenly spreads the pain between the tax side and the benefits side.

This sounds like a reasonable fix. Please consider running for Congress around 2030.

 

[Independent]

I totally disagree with this line of thinking. Since it's inception, SS retirement benefits have been pay in and if you are still living then when you get to retirement age you will collect based on what you paid in. To reframe it to if you live to retirement age and are unsuccessful then you can collect more and if you were successful then you collect less is changing the rules of the game in the 7th inning.

And yes... I realize that there is and for a long time has been an element of welfare in the design of the bend points.... and that is fine... but let's not make it worse. The people who hustle and make $20k a year by combining two minimum wage jobs get the benefit of those bend points. They get way more out of SS that what they put into it... have recovered all they put into it within 2-3 years so the rest is gravy.

Given a choice of changing the rules of the game now to advantage Sue Spender and disadvantage Sally Saver or just having everyone live with 77% of what they thought that they would get is an easy call for me.

I think we have a communication problem. Did you read my earlier post?

I'm opposed to means testing based on after-retirement assets or income.

As others have said, this punishes thrift and/or is too easy to evade.

I don't worry about the "welfare" word. You can call it anything you like, but SS is a system that takes money from current workers and gives it to former workers. The younger workers didn't make that deal, someone who came before them did.

OTOH, I'm fine with "means testing" SS benefits based on pre-retirement opportunities to save. We already do that by providing smaller increments in the benefit formula as indexed wages rise. I think we should do more of that. If $12,000 per year is enough to provide food and housing for low income workers, so they aren't begging on the street, than $12,000 per year is also enough for high income workers.

The post you're quoting is a response to youbet who said that means testing doesn't need to generate evasion, as shown by the fact that IRMAA seems to work. My response was that IRMAA doesn't generate a lot of push back because it generates so little money.

I could imagine a similarly limited provision in a SS package, just for the Buffett complaint, but the financial heavy lifting would have to come from something else.

Consider three workers:
Andy earned well below average wages and gets a PIA of $12,000. Andy has no meaningful savings.
Bob earned well above average wages and gets a PIA of $30,000. Bob saved, and his investments worked well. He would live well with no SS.
Chuck earned well above average wages and gets a PIA of $30,000. Chuck didn't save (or did save, but invested terribly, or his savings got eaten up by supporting his disabled relative, or ....). For whatever reason, Chuck has no meaningful savings.

I'm okay with taxing current workers to provide Andy's benefit. He needs that much money just for food and rent. I'm also okay with taxing current workers to provide $12,000 for Chuck. I don't care if he was a spendthrift, unlucky, or too generous, I don't want him begging on the street.

If we're going tax enough to provide $12,000 for Chuck, I think we also need to tax enough to provide $12,000 for Bob. I can't see "penalizing" Bob for his thrift or good investment performance.

But, I have trouble with the additional taxes it takes to raise Bob's and Chuck's benefits up to $30,000. I can't find a valid public purpose in that. Especially, when I know that most people paying taxes today earn less than Bob and Chuck earned when they were working.

Of course we can't jump immediately from here to there. But, I'd support something like "progressive price indexing" as a way of slowly compressing benefits. https://www.ssa.gov/oact/solvency/provisions/benefitlevel.html#B1

 

[Popeye]

Why limit revenue to the regressive FICA tax? I would keep the benefit calculation method the same for all. But on the revenue side I would scrap the FICA tax completely. Then make an adjustment to income tax rates across the board to collect the revenue needed.

In a way the trust fund is already doing that. We collected it via the FICA tax, bought those special treasuries with the fund, and then spent the money. Now when the money is needed, it is raised from taxes that are collected through the progressive tax rates now used for income, among other sources including borrowing.

 

[GravitySucks]

I got to thinking about my previous comment about me being for the most part a "Glass Half Full" person. But 2034 it probably will not matter much to me as I will be "Pushing up Daisies" by then. :ROFL:

Only on this forum is dying considered a win!

 

[donheff]

In a way the trust fund is already doing that. We collected it via the FICA tax, bought those special treasuries with the fund, and then spent the money. Now when the money is needed, it is raised from taxes that are collected through the progressive tax rates now used for income, among other sources including borrowing.

I think it is closer to the reality to think that the Trust Fund was generated by the regressive FICA tax and is owned by us. We in turn loaned it out to ourselves to pay for 17 years of war and other stuff. Eventually we will pay back that war debt through the more progressive income tax. None of that actually shifts the cost of SS onto progressive income tax shoulders.

 

[joeea]

20% - reduce COLA

That just ensures that retirees (many of whom are largely dependent on Social Security benefits) slowly get poorer over time.

That's not something I'd ever support. And I'd be shocked if politicians hoping to get re-elected would support it.

 

[pb4uski]

....Consider three workers:
Andy earned well below average wages and gets a PIA of $12,000. Andy has no meaningful savings.
Bob earned well above average wages and gets a PIA of $30,000. Bob saved, and his investments worked well. He would live well with no SS.
Chuck earned well above average wages and gets a PIA of $30,000. Chuck didn't save (or did save, but invested terribly, or his savings got eaten up by supporting his disabled relative, or ....). For whatever reason, Chuck has no meaningful savings.

I'm okay with taxing current workers to provide Andy's benefit. He needs that much money just for food and rent. I'm also okay with taxing current workers to provide $12,000 for Chuck. I don't care if he was a spendthrift, unlucky, or too generous, I don't want him begging on the street.

If we're going tax enough to provide $12,000 for Chuck, I think we also need to tax enough to provide $12,000 for Bob. I can't see "penalizing" Bob for his thrift or good investment performance.

But, I have trouble with the additional taxes it takes to raise Bob's and Chuck's benefits up to $30,000. I can't find a valid public purpose in that. Especially, when I know that most people paying taxes today earn less than Bob and Chuck earned when they were working. ...

I guess that I have a problem with the idea of telling people for years that they will receive $x or $y or $z at retirement and then reneging on that pledge or somehow saying to Andy that you'll get what we have told you for years but Chuck and Bob, sorry man, we're going to reduce your benefits because you can afford it. Just bad public policy. Either take actions other than those that renege on previous promises or cut everyone's benefits across the board.... preferably the former.

 

[Independent]

I guess that I have a problem with the idea of telling people for years that they will receive $x or $y or $z at retirement and then reneging on that pledge or somehow saying to Andy that you'll get what we have told you for years but Chuck and Bob, sorry man, we're going to reduce your benefits because you can afford it. Just bad public policy. Either take actions other than those that renege on previous promises or cut everyone's benefits across the board.... preferably the former.

You can probably predict that I'll say. The people who were "telling people for years that they will receive $x or $y or $z" are different people than those who will have to pay taxes to make those promises stand up. We promised ourselves that our children and grandchildren will pay for our comfortable retirements, without asking them. I don't blame them if they think we promised ourselves too much.

I think that part of the SS fix is adjusting the benefit formula. Yes, it should be done in advance so people can plan. But, it's obvious that some people "need" 100% of their SS benefit, others don't.

If we're going to cut someone's benefits, I'd rather cut those who don't need it so much.
(And, to repeat myself, "need" is not measured by how much we saved, but by the size of our SS benefits.)

 

[USGrant1962]

Why limit revenue to the regressive FICA tax? I would keep the benefit calculation method the same for all. But on the revenue side I would scrap the FICA tax completely. Then make an adjustment to income tax rates across the board to collect the revenue needed.

In a way the trust fund is already doing that. We collected it via the FICA tax, bought those special treasuries with the fund, and then spent the money. Now when the money is needed, it is raised from taxes that are collected through the progressive tax rates now used for income, among other sources including borrowing.

I think putting SS in the general fund would be a disaster. The political commercials write themselves.

You want to increase infrastructure spending - you are throwing granny off a cliff; increase education spending - granny off a cliff; cut taxes - granny off a cliff; raise military pay - granny off a cliff; increase immigration - granny off a cliff; decrease immigration - granny off a cliff...

 

[marko]

We promised ourselves that our children and grandchildren will pay for our comfortable retirements, without asking them. I don't blame them if they think we promised ourselves too much.

AFAIK, that promise was made by FDR and back when my dad was 5 years old.

I didn't promise myself anything.

I did sign up to a social contract when I started working that stated certain things which included me paying for other's comfortable retirements with the understanding that others would pay for mine.

Having fulfilled the first part, I just want to receive the second half of what that contract said I would receive.

At this point I don't care who pays for it...just keep sending the checks boys.