Social Security in Trouble

[unclemick]

Don't forget cheeseburgers - still my favorite.

Took my SS early and with time in the market can afford to supplement my new Medicare card.

Now they want to rattle my cage?

Well don't that just beat all.

heh heh heh -

 

[FinanceDude]

"the next step will be to further increase eligibility age"
This should be the next step, but good luck. I personally expect that they will means test it and cutback on benefits by changing the formula, freezing its wage inflation index, etc. That is just an honest assessment of the political will.

They have already done that, I have to be 67 to get the full benefit, up from 65. However, I can take the early amount at 62, I expect that will go up in the future........

 

[ziggy29]

They have already done that, I have to be 67 to get the full benefit, up from 65. However, I can take the early amount at 62, I expect that will go up in the future........

It doesn't need to go up. If it's a problem, they could just increase the amount of reduction for taking it at 62 to make it actuarially even out.

 

[dshibb]

"You know, you've been having some trouble making your points without being insulting or condescending."
Sorry, I spend to much time on FWF, and they are bigger A-holes than I am. I'll try to be a little more pleasant on here.

 

[FinanceDude]

It doesn't need to go up. If it's a problem, they could just increase the amount of reduction for taking it at 62 to make it actuarially even out.

They could but they won't. If they took the limits off where they stop taking FICA, SS could be funded indefinitely. However, the problem is not really SS, it IS MEDICARE and MEDICAID........

 

[ziggy29]

They could but they won't. If they took the limits off where they stop taking FICA, SS could be funded indefinitely. However, the problem is not really SS, it IS MEDICARE and MEDICAID........

Well, SS *is* a problem, but you're right -- compared to the ticking time bomb of Medicare it's a minor problem and easy to fix. SS can be shored up with a combination of several tinker-around-the-edges changes.

Medicare, on the other hand, needs to be (metaphorically) blown up and something sustainable rebuilt in its place. "Shoring it up" is doomed to failure and no amount of tinkering on the edges will make it long-term sustainable. But then again, "blowing it up" is political suicide (remember who votes). So we're back to square one...

 

[Cb]

I have a hunch that the young will bear more of the pain associated with fixing SS than will AARP members.

But to be on the safe side in my own planning, I more than split the difference, derating our current SSA projections by 15%, and assume that 100% will be taxed when the time comes.

We're 48 & 49, fwiw.

Cb

 

[ziggy29]

I have a hunch that the young will bear more of the pain associated with fixing SS than will AARP members.

I have a hunch that the sun will rise in the east tomorrow.

 

[mikex]

Good news - this guy says SS is not in any real trouble (but Medicare definitely is)

Weiner: The program is solvent for the next 30 years. Once, and even then, when they say insolvent, it still will be able to pay 75% of the benefits even under the worst economic model. And the economic model that they’re using is the crash that we’re in right now. So they’ve taken the worst case scenario, instead of recognizing that the economy will improve and that we’ll go back to a solvency situation with Social Security.

...

That is the real problem. Social Security is solvent for at least 30 years and one third of the cost of the Iraq war or one third of the tax cuts; even then in the worst case scenario would solve it. Let’s worry about that in thirty years. As Nancy Pelosi said, first, do no harm. But Medicare is in dire straits and it can be solved with allowing imports. It can be solved with vying and buying and it can be solved with the national health care program that there seems to be a consensus toward right now.

Medicare is the real danger, not social security – amFIX - CNN.com Blogs

 

[Independent]

Still though, the best move is private accounts(when this issue came up it was accompanied by the worst explanations I have ever seen in my life, the vast majority of the public still doesn't understand that plan). It should get younger people off the system. Then the goverment will be able to justify taking on a little bit more debt and cutting into other programs because one day 20 years down the road, the entitlement will all but stop and the savings would more than pay off the debt.

Could you explain the private account plan? If you did this on another thread, a link will suffice. (full disclosure -- I read the President's Commission report back when it was news, I wasn't impressed.)

 

[Nords]

... you clearly don't know much about this issue at all.

"It is crap because...
Anybody that says that people would end up with less in private accounts instead of government run is either A) a liar or B) ignorant."

I don't care what his thoughts are.
You don't understand that...

... this statement shows a clear lack of knowledge of economics, no offense.

When I go back and read these phrases I form the opinion that the credibility of your assessments, let alone the quality of your discourse, is greatly reduced by the personal attacks and characterizations. The strength of your arguments could stand on logic alone without resorting to those tactics.

I'll try to be a little more pleasant on here.

Looking forward to it.

 

[Zoocat]

Another problem with raising the retirement age is that there has to be additional jobs for all these older people who used to be able to retire. Do you see those jobs out there? I don't...

Exactly right. All the women I know who are my age, late 50s, do not have full time jobs with benefits. They were all been laid off along the way and now rely on contract work with no benefits. I work part time and that is my situation. This is enough of a problem because frankly there isn't a whole lot of contract work out there for older people anyway. Age discrimination is alive and well and growing.

In addition people who reach their late 50s, early 60s are often burnt out, as Martha pointed out. They don't all have office jobs or professional positions. Some are blue collar, like my brother, who does specialty printing despite a back injury, and my older son, an electrician. Their bodies will break down eventually and they will need other employment. What sort of jobs will they be able to train for in their late 50s?

Another point, albeit, a grim one. We might not all reach that projected longer lifespan which depends upon medical care that has been available to the previous generation. With funding for health care becoming so extremely tight and procedures and treatments for the elderly so expensive, you can probably bet that this is one area that will see "rationing of care." In other words, in the future a patient like my 86 yr old dad who died six months after receiving a pacemaker and a week stay in the hospital courtesy of Medicare will probably the last of his kind.

 

[mark500]

I have a hunch that the young will bear more of the pain associated with fixing SS than will AARP members.

The AARP. Don't they eat their children and grandchildren?

 

[dshibb]

It was pathetic(the president's commission).

There is one particular detail that everybody left out that made all the arguments against it a mute point. And they should have stressed it endlessly. Under the GOP plan, a very small percentage of the money that went into private accounts would go to purchase secondary insurance. That insurance said this, if an individual reaches retirement age and due to crash, losses, etc. the amount in the account wasn't sufficient for paying an income at least equal to what the current system provided, the secondary insurance would make up the difference.

So under the Bush plan you were guaranteed to receive at least what the current system paid, and had the opportunity to get much, much more. I don't remember the exact calculations, but it was something like this. If you assumed a 10% rate of return, the income would be like 4 times as much at retirement, and the excess was transferable to your heirs.

 

[dshibb]

Nords, I'll admit that I should stop saying things like quotes 1 and 4. 2 and 3 aren't bad. 2 is just factually accurate, blunt, but accurate. In 3 if Obama can't get the votes than I don't care what his thoughts are.

 

[Nords]

Nords, I'll admit that I should stop saying things like quotes 1 and 4. 2 and 3 aren't bad. 2 is just factually accurate, blunt, but accurate. In 3 if Obama can't get the votes than I don't care what his thoughts are.

Hey, I thought I'd give it a try.

You have a nice life now.

 

[Independent]

It was pathetic(the president's commission).

There is one particular detail that everybody left out that made all the arguments against it a mute point. And they should have stressed it endlessly. Under the GOP plan, a very small percentage of the money that went into private accounts would go to purchase secondary insurance. That insurance said this, if an individual reaches retirement age and due to crash, losses, etc. the amount in the account wasn't sufficient for paying an income at least equal to what the current system provided, the secondary insurance would make up the difference.

So under the Bush plan you were guaranteed to receive at least what the current system paid, and had the opportunity to get much, much more. I don't remember the exact calculations, but it was something like this. If you assumed a 10% rate of return, the income would be like 4 times as much at retirement, and the excess was transferable to your heirs.

I wasn't looking for one detail, I was looking for the entire plan. If you don't want to explain it, can you give me a link to the plan? I'd like something with numbers, not just a concept.

 

[dshibb]

Thats the whole point the administration never put the numbers forward on the plan. They only put out the numbers on the current system. I ended up hearing the actual numbers in speeches and workshops after the plan burned to the ground. I then ran the numbers myself on a future value of an annuity calculator and the numbers I got were similar to the ones that were put forward in those speeches and workshops. FYI it is actually more like 3 times at 10%

So, what you do is you pull up a future value annuity calc, and then on a seperate calc take 1/12. Put that in as interest rate. Then I used 40 years, so 40 * 12 = 480 for number of payments. Then I just used $100 for simplicity. Run the calc(the number doesn't matter its the ratio to the next piece) You then take the 10/12 for the interest rate. And then you replace the 100 with $33. Run the calc again. Divide this number by the previous one. You now have your ratio.

 

[W2R]

I think SS won't be that hard to fix. I do think raising the retirement age is a mistake. A lot of people take SS early at 62 because they are already so beat up by work and life. Very few are able to hold off past 66.x.

Although life expectancy has increased, most of the extra length is due to reductions in very early deaths. A pre 20th Century individual who lived past the teenage years could expect to live to an age close to the life expectancy of today.

So raise the tax cap.

Medicare is a bigger problem.

Martha, you should run for office! I think you make a lot of sense.

 

[Independent]

Thats the whole point the administration never put the numbers forward on the plan. They only put out the numbers on the current system. I ended up hearing the actual numbers in speeches and workshops after the plan burned to the ground. I then ran the numbers myself on a future value of an annuity calculator and the numbers I got were similar to the ones that were put forward in those speeches and workshops. FYI it is actually more like 3 times at 10%

So, what you do is you pull up a future value annuity calc, and then on a seperate calc take 1/12. Put that in as interest rate. Then I used 40 years, so 40 * 12 = 480 for number of payments. Then I just used $100 for simplicity. Run the calc(the number doesn't matter its the ratio to the next piece) You then take the 10/12 for the interest rate. And then you replace the 100 with $33. Run the calc again. Divide this number by the previous one. You now have your ratio.

I'll take it as a mathematical fact that if you took all your SS taxes and accumulated them at a real return of 10%, you would be able to provide yourself with a retirement income much higher than the SS benefit.

But, a "plan" to replace SS with private accounts needs to include an explanation of where you're going to get the money to put into the accounts. Over the next 15 years, approximately 100% of SS taxes will be needed to cover the checks that will be written in those 15 years. If the money for the accounts comes from reducing benefits, whose benefits are you going to reduce, and by how much? If it doesn't come from reduced benefits, where do we get it?

 

[dshibb]

All of it doesn't. That is why 2/3 of your ss tax money goes to pay for current workers(the way current system works) and only 1/3 goes to your private account. Mathematically speaking this is better than the status quo. While other reforms are needed(and reforms like these should be passed separately from "harsher" reforms because neither will pass if you put them together), this does considerably help.

Lets assume you were in debt up your a$$ and there was am expenditure that was slated to double in the next few years, and continue to be a worse and worse problem. Would you rather add another 1/3 of that amount to make sure the drain stopped in 20-30 years or would you rather allow the system to get progressivley worse in perpetuity so that you could save that extra expenditure now?

Personally, I think most of the costs would be dealt with by applying offsetting budget cuts in other areas to try to whether the storm. I am okay with taking on a little bit of extra debt if in 20-30 years one of my biggest expenditures starts falling rapidly off of the radar. Because the expenditure saving would be more substantial than the debt taken on in the interim in terms of paying off the interest as well as the principal.

You could then start tinkering with the benefits when that situation comes due.

 

[Bikerdude]

Martha, you should run for office! I think you make a lot of sense.

That's exactly why she won't.

 

[samclem]

Although life expectancy has increased, most of the extra length is due to reductions in very early deaths. A pre 20th Century individual who lived past the teenage years could expect to live to an age close to the life expectancy of today.

Some numbers (link to chart):

For white males:
1890 life expectancy at birth : 42.5 years
1890 life expectancy at age 20: 60.66 years
1939-41 life expectancy at birth: 62.81
1939-41 life expectancy at age 20: 67.76
2004 life expectancy at birth: 75.5 years
2004 life expectancy at age 20 77.7 years

So, it looks like mortality for the very young was reduced significantly between 1890 and 1939 (probably due largely to the advent of immunization and improved public sanitation measures).

Since SS was started, the average life expectancy at birth has increased about 12 years, while the life expectancy for those who have reached young adulthood has increased only slightly less, about 10 years. It looks like the major decreases in mortality for the last 6 decades have been concentrated among the old.

 

[Independent]

All of it doesn't. That is why 2/3 of your ss tax money goes to pay for current workers(the way current system works) and only 1/3 goes to your private account. Mathematically speaking this is better than the status quo. While other reforms are needed(and reforms like these should be passed separately from "harsher" reforms because neither will pass if you put them together), this does considerably help.

Personally, I think most of the costs would be dealt with by applying offsetting budget cuts in other areas to try to whether the storm. I am okay with taking on a little bit of extra debt if in 20-30 years one of my biggest expenditures starts falling rapidly off of the radar. Because the expenditure saving would be more substantial than the debt taken on in the interim in terms of paying off the interest as well as the principal.

You could then start tinkering with the benefits when that situation comes due.

I'm not sure where you are getting your 1/3. The Trustees' Report is the "official" source of SS numbers. Table IV.A1 here 2009 Trustees Report: Section IV.A, Short-range estimates gives year-by-year income and expenses. For 2009, the projected OASI payroll tax is $579 million, and the benefits are $555 million. There are additional columns which you may or may not want to include, most people would say "cash income" is $601 million and "cash outgo" is $561 million (because interest on the trust fund isn't "cash"). Cash-out will exceed cash-in in 2017. That's why I estimated that over the next 15 years, total income will equal total outgo.

Personally, I think most of the costs would be dealt with by applying offsetting budget cuts in other areas to try to whether the storm. I am okay with taking on a little bit of extra debt if in 20-30 years one of my biggest expenditures starts falling rapidly off of the radar. Because the expenditure saving would be more substantial than the debt taken on in the interim in terms of paying off the interest as well as the principal.

I assume "other areas" means the General Fund. Some people think that any budget cuts there should be used to cut taxes. I'd prefer they be used to reduce the General Fund deficit (which has averaged about 35% of revenue over the last 30 years). Because of these deficits, assigning any spending cuts to SS is exactly the same as having SS borrow that amount directly from the public.

If "a little bit of extra debt" would actually make big progress on dealing with SS, I'd probably be for it. But I think the fact is that we would incur a huge amount of debt, and it wouldn't do much good. I'm not asking you to take my word for it. The Trustees Report gives you enough numbers to make rough estimates of whatever plan you want. One easy to use source inside the Report is Table IV.B1 here: 2009 Trustees Report: Section IV.B, Long-range estimates

 

[freebird5825]

...What are the solutions? Don't you think means testing is part of the solution? Also, they better start making some decisions for very young workers quick, because if they pay into it for 30 years and don't get anything out of it, there's going to be hell to pay when they get to be in their 60s. I'd decide on a cutoff date (if taxes are'nt going to be raised to fund it) and tell the young workers to start funding their retirement by other means. At least they'll have been warned.

I have never considered SS to be a viable part of my retirement portfolio. Born in 1958, for age reference. I acknowledged early on that some of my payroll SS deductions were funding payments for my mom and her generation.

Two things led me to take a pessimsitic view of SS for myself:
1. All the years of listening to the program's predicted troubles "down the road", and it kept getting swept under the carpet.
2. The fact of the record numbers of boomers retiring just ahead of me.

Very little (or none, worst case) SS was a huge factor in my retirement planning. I sincerely hope I'm wrong.

I agree, younger workers need to face up NOW to the reality that SS may not be what they are expecting. SS may end up being the gravy on the meat and potatoes of a independent personal portfolio.
This generation definitely has to get on the ball sooner.
The Question du jour is...will they?