Social Security at 62 - Yes or No

[joeea]

AFAIK, every change to SS that might reduce the future gap between revenue and benefits is politically unpopular. That's why we continue with the system we have.

In 1983, the changes that were made were also politically unpopular, each by one side or the other.

But at the time the "crisis" was more imminent, and the government was capable of compromise solutions.

 

[joeea]

I wonder how much support there might be for a down-the-road conversion to a true pay-as-you-go system.

Social Security is already a pay-as-you-go system, except for the excess placed into the Trust Fund to provide a buffer for the lean years.
see: https://en.wikipedia.org/wiki/PAYGO

"In social insurance, PAYGO refers to an unfunded system in which current contributors to the system pay the expenses for the current recipients. In a pure PAYGO system, no reserves are accumulated and all contributions are paid out in the same period. The opposite of a PAYGO system is a funded system, in which contributions are accumulated and paid out later (together with the interest on it) when eligibility requirements are met.

An important example of such a PAYGO system in this second sense is Social Security in the U.S. In that system, contributions are paid by the currently employed population in the form of the Federal Insurance Contributions Act tax (FICA), while recipients are mostly individuals of at least 62 years of age. Social Security is not a pure PAYGO system, because it accumulates excess revenue in the Old-Age, Survivors, and Disability Insurance Trust Funds (OASDI)."

Every dollar collected would be paid out, but no more inter-generational borrowing or lending.

There is no inter-generational borrowing. By "lending" perhaps you mean the Trust Fund itself?

When the economy is prosperous, there would be more money for seniors. When the economy takes a dip, seniors would have less to spend.

So when the economy is bad, the people living on previously-fixed incomes without the ability to work have to suffer for it? Imagine trying to plan your retirement around that!

That's not going to happen. Nor would most folks want it to.

 

[Cut-Throat]

There is no inter-generational borrowing. By "lending" perhaps you mean the Trust Fund itself?


So when the economy is bad, the people living on previously-fixed incomes without the ability to work have to suffer for it? Imagine trying to plan your retirement around that!

That's not going to happen. Nor would most folks want it to.

+1 ..... I think you have to study the Depression Era a bit to understand the dynamics of this program... The 'Everyone on their Own' Philosophy was failing miserably.... The S.S. Program was set up to get the Entire Country Moving again.....



The earliest recipients of Social Security paid nothing into the program, but God knows that they contributed to the Country and the coffers of the Rich long before they received their meager stipend.

 

[explanade]

Haven't Congress dipped into the surplus many times for general spending?

 

[Cut-Throat]

Haven't Congress dipped into the surplus many times for general spending?

Yes, they have spent it all and then some! .... The programs that are spending this surplus are the ones that should be discussed and Cut!

 

[joeea]

Yes, they have spent it all and then some! .... The programs that are spending this surplus are the ones that should be discussed and Cut!

Nope.
https://www.cbsnews.com/news/lets-debunk-this-social-security-myth/

 

[pb4uski]

Has mortality increased since 1983?

Absolutely.... principally due to advances in medicine... but mortality improvements are currently plateauing.

See bottom line on page 2 of this link.... https://www.cdc.gov/nchs/data/hus/2016/014.pdf

In 1980 a 65 yo male could expect to live 14 years... in 2014 it was 18 years... pretty big difference.

 

[pb4uski]

Haven't Congress dipped into the surplus many times for general spending?

Sort of but not really.... basically, rather than issuing more bonds to the public to fund general fund deficits, they have issued bonds to the SS Trust Fund since the trust fund had a surplus and needed to invest those surpluses.

However, all owings... both to the public and interagovernmental borrowings like the bonds issued to the SS Trust Fund are included in the national debt.

Had the SS trust fund not existed then the national debt would be the same, just more government bonds would be held by the public.

 

[Cut-Throat]

Nope.
https://www.cbsnews.com/news/lets-debunk-this-social-security-myth/

I did know that, so thanks for posting this,.......But, my head is spinning trying to figure out how they bought Bonds that pays themselves with money that they may or may not have....

 

[pb4uski]

That's easy.. if the SS Trust Fund wasn't available to buy the bonds then they would have been sold to the public. Both are included in the national debt.

Think of it as two siblings where sibling A has money to invest and sibling B doesn't but had good credit.... Sibling B simply borrows from Sibling A rather than getting a bank loan. Sibling A's debt is unchanged.

 

[Cut-Throat]

That's easy.. if the SS Trust Fund wasn't available to buy the bonds then they would have been sold to the public. Both are included in the national debt.

Think of it as two siblings where sibling A has money to invest and sibling B doesn't but had good credit.... Sibling B simply borrows from Sibling A rather than getting a bank loan. Sibling A's debt is unchanged.

Except there is only 1 Sibling.

 

[samclem]

https://www.cbsnews.com/news/lets-debunk-this-social-security-myth/

Everything at the link is true, but I do not believe it is germane to the point at hand.

If we consider the US Government general fund and the SS program as one "system," there are zero net assets in the SS trust fund, since every "asset"in the fund is a liability of the US government. 1 - 1 = 0.

This is not a political point, I'm making no assessment of what should have been done with the SS payroll taxes that exceeded annual SS payments to recipients. But every special bond that SS "cashes in" from the trust fund to pay Social Security benefits must be paid by the US Government--from tax revenues, from additional borrowing, or from increases in the money supply ("printing money"). In this sense (that is, from an annual budgetary perspective), we >already< don't have a pay-as-you-go system, since we now have annual infusions from the US government every year to pay SS benefits. In fact, from that same perspective, nothing at all would need to change when the SS "trust fund" runs out, the transfers could continue just as they had been doing for the previous 20 years. Legislation would be required to make that happen, but from a USG balance sheet perspective there need be no significant change that year.


But it's not pay-as-you-go as far as SS is concerned. Pay-as-you-go would mean every collected dollar goes to beneficiaries-->paid out as we go. If we linked SS benefits directly to current year SS taxes (in a slowly phased-in fashion) it eliminates the bookkeeping "procedures" that were convenient at the time, but which just kick liabilities down the road to future generations, which is what we are already experiencing.

 

[Independent]

In 1983, the changes that were made were also politically unpopular, each by one side or the other.

But at the time the "crisis" was more imminent, and the government was capable of compromise solutions.

Yes, many of us are old enough to remember Reagan and O'Neill.

Those were the days.

 

[pb4uski]

Except there is only 1 Sibling.

And some people just don't get it.

 

[pb4uski]

.... But it's not pay-as-you-go as far as SS is concerned. Pay-as-you-go would mean every collected dollar goes to beneficiaries-->paid out as we go. If we linked SS benefits directly to current year SS taxes (in a slowly phased-in fashion) it eliminates the bookkeeping "procedures" that were convenient at the time, but which just kick liabilities down the road to future generations, which is what we are already experiencing.

Pay as you go means self-funding and no borrowing... and that is what SS is... by law.

That is why when the surplus and interest run out in 2034 that benefits will be cut by ~25%... at that point you will get your wish... SS benefits will be limited to the then current year taxes.

 

[joeea]

we now have annual infusions from the US government every year to pay SS benefits

Sorry. You are simply incorrect. There are no annual infusions.

it eliminates the bookkeeping "procedures" that were convenient at the time, but which just kick liabilities down the road to future generations, which is what we are already experiencing.

Very confusing. Of course Social Security is pay as you go.

What liabilities do you imagine are currently being kicked down the road to future generations, other than the funding for future generations of recipients (which is by definition exactly how pay as you go works)?

 

[sengsational]

Back to the 62 70 discussion for a minute...

Have any of the analysis jockies run i-orp and have an opinion about it's effectiveness in the decision?

My last known position on this topic was "Don't take it unless you need it", but that position was not based on my numbers since neither DW nor I we're 62. DW, with fewer earning years, will be 62 next year, so the decision point is arriving. My plan has been to run a bunch of i-orp scenarios, varying life span, investment return, and of course age when starting to get SS. There's even an option to presume SS benefit cuts to play with.

I just wondered if the i-orp calculations "looked right" to those that have an eye for this math.

 

[ncbill]

Pay as you go means self-funding and no borrowing... and that is what SS is... by law.

That is why when the surplus and interest run out in 2034 that benefits will be cut by ~25%... at that point you will get your wish... SS benefits will be limited to the then current year taxes.

Plenty of ways to stave that off...e.g. simply doubling (not removing) the amount of the current wage cap, increase FRA to 70.

Though I do think it is prudently conservative to choose the "75% SS benefit option" that i-ORP offers.

 

[Independent]

But it's not pay-as-you-go as far as SS is concerned. Pay-as-you-go would mean every collected dollar goes to beneficiaries-->paid out as we go. If we linked SS benefits directly to current year SS taxes (in a slowly phased-in fashion) it eliminates the bookkeeping "procedures" that were convenient at the time, but which just kick liabilities down the road to future generations, which is what we are already experiencing.

I'm not sure which liabilities are being kicked down the road under the current system that wouldn't be kicked down the road under pure paygo.

 

[pb4uski]

If you're so inclined you might try this game to look at different options to solve SS.

The Social Security Game | American Academy of Actuaries | American Academy of Actuaries

It's a bit dated but still relevant.

If I eliminate the wage cap but allow an increase in benefits commensurate with the additional taxes paid that solves 71% of the problem. The rest of the problem can be solved by either applying the payroll tax to health insurance premiums (32%) or gradually increase the FRA from 67 to 69 (40%... also see post #220 above).

 

[Independent]

+1 IIRC when SS was first established and the retirement age was 65 someone would be expected to collect retirement benefits for 13-15 years... by 1980 that had increased to 15-19 years... so in response, the FRA was changed to 67 in 1983 .... this brought the years that one would collect back to 13-17 years... however, medical advances have significantly improved mortality since 1983 and IMO an increase in FRA to reflect those improvements in mortality are long overdue. IOW, make occasional changes to FRA to reflect mortality improvements so on average people collect for 13-15 years after they retire as one way of preserving the system.

Click on C here and you'll get the financial impact of various types of adjustments to the retirement age. Option C2.2 looks like one type of indexing.

https://www.ssa.gov/oact/solvency/provisions/index.html

The political push-back is that mortality trends are correlated with income. Generally, higher income people are living longer, lower income people aren't.

So, we'd be cutting benefits for everyone because higher income people collect for increasingly long retirements.

 

[corn18]

Click on C here and you'll get the financial impact of various types of adjustments to the retirement age. Option C2.2 looks like one type of indexing.

https://www.ssa.gov/oact/solvency/provisions/index.html

The political push-back is that mortality trends are correlated with income. Generally, higher income people are living longer, lower income people aren't.

So, we'd be cutting benefits for everyone because higher income people collect for increasingly long retirements.

Thanks for the link, it was enlightening. Raising FRA is not as big an impact as I thought it might be. The biggest hitters, by a looong shot are:

1. Raise SS payroll tax rate (doesn't take much to make a huuuuge difference)
2. Raise the maximum taxable salary (not as big as 1, but still a big impact)

Everything else just seems to be noise other than eliminating COLA.

I'd be ok with raising the SS payroll tax rate by 0.1% annual increment up to a maximum of 14%. I would also be ok with eliminating the maximum salary limit all together but phasing in the tax above the limit by 0.1% annually until it reached a maximum equal to the base payroll tax. Would also be nice if they would adjust the bend points so there is some benefit to the increase in taxes.

 

[youbet]

Sorry, Mom. The government says you have to go on welfare rather than Social Security. And of course that means you'll have to work too, since welfare is now subject to a work requirement. Good luck with those "generous" benefits though. No retirement for you I guess. Thanks for playing! This hypothetical future is run (for some).


Your Social Security is already welfare, just with a name that allows you to feel better about it

And I don't see how you solve "today's funding crisis" by moving benefits from one program to another.

We'll just have to agree to disagree. My hope would be that folks like you mother would be well taken care of in our society which likely can afford to do so. I'm just not a fan of lumping welfare benefits and retirement benefits into a single funding scheme. I think it makes it too easy for the politicians to kick the can down the road and to avoid calling a spade a spade.

 

[youbet]

nue with the system we have.

The only possible exception is raising the taxable cap. I believe I've seen at least one poll where that got more than 50% support.

Of course. This concept is an example of a key part of the "American Personality." Anytime one group can benefit at the expense of another, it's popular with the group that benefits! (Stand, remove your cap and place your hand over your heart!)

An alternative/additional SS revenue raising concept is simply increasing the FICA tax. This is popular with those already collecting SS and those nearing that time (for obvious reasons). Again, the benefactors like benefitting at the cost of others!

I think we need to find compromise between the generations. For example, geezers near or already collecting take a means-based hit. Youngsters will also collect less and also pay more FICA (higher rate + higher ceiling) but not as much of an increase as if geezers didn't take a means-based hit. *

*means-based to be formulated so that low income SS recipients are not driven further into poverty. Or, provide them with a welfare-based supplemental income based on their finances.

 

[joeea]

Everything else just seems to be noise other than eliminating COLA.

That's true financially, but not politically.