Social Security: Is It Really A 'Surplus' ?

[joeea]

common belief? Check out joea's link to the info from the SS actuaries. More like a 24% haircut. Even with some means testing there would be no need to go over 30% for anyone. SS is not in the dumpster.

And it won't be in the dumpster. Social Security is one of the most popular and effective programs ever implemented by the federal government.

Raising SS taxes a percent or two, and gradually raising the maximum taxable social security wages over time could make Social Security fully solvent indefinitely.

Absent that, I could imagine gradually increasing the full retirement age and making 100 percent of social security income taxable for high income individuals.

The fact that there are many simple, relatively painless things that could be done, the fact that it looks bad for politicians to cut benefits from the elderly, and the fact that the elderly tend to vote in relatively higher percentages - all those tell me that something will be done.

It just won't happen until it must be done. That seems to be the way politics works these days.

So perhaps 2030 or so?

 

[marko]

Raising SS taxes a percent or two, and gradually raising the maximum taxable social security wages over time could make Social Security fully solvent indefinitely.

Exactly. I cannot, for the life of me understand why we can't do this AND why the doom and gloom continues decade after decade.

I always topped out my SS wages very early in the year (usually by March). I never would've minded paying the whole year if it got things on even keel.

 

[timo2]

Exactly. I cannot, for the life of me understand why we can't do this AND why the doom and gloom continues decade after decade.

I always topped out my SS wages very early in the year (usually by March). I never would've minded paying the whole year if it got things on even keel.

+1

 

[Hermit]

I look at this as a shortfall that begins somewhere around 2018. The excess SS taxes go into the Treasury. The Government spends the money just as they do any money they receive as taxes. When the SS taxes no longer cover SS payments, the Government will start paying the shortfall out of the general Treasury. The shortfall and amount contributed from general taxes will grow. The only thing that changes are these "magic" IOUs. It would cost the Government minimally more to fund SS after the IOUs have been depleted than it will the year before. The whole thing is just bookkeeping mumbo jumbo. If the politicians want to use the IOUs as a way to give retirees a haircut, they certainly can and they don't have to do anything to make it happen. There may be a bit of push back by the retired segment though.

 

[CardsFan]

Exactly. I cannot, for the life of me understand why we can't do this AND why the doom and gloom continues decade after decade.

I always topped out my SS wages very early in the year (usually by March). I never would've minded paying the whole year if it got things on even keel.

I topped out many of my latter years, and had the same feeling. I liked the extra money, but it would not impact me much to keep on paying.

Now that I am FIRE, that would not impact me at all, but I can except 100% taxation, based on INCOME.

I think anything smelling of means testing based on Net Worth is not going to happen. If two people make the same income, and one saves while the other spends, why should the benefit be different?

BTW, just my opinion, but I think the savers go to the polls more regularly

 

[athena53]

So many on this forum have used up miles of Excel sheets figuring out the best SS result. How sad would it be to decide to wait ten more years to age 70 and then get short changed!

Well, I look at it this way. I'm still alive and kicking at 64. Just got off the phone with 86-year old Dad. Mom died last year at 85. When I was born, I had 4 living great-grandparents. If I keel over before age 70 I'll greatly regret not being around to see my wonderful grandchildren grow up but I sure as heck will not outlive my savings unless I buy an airplane or a yacht. If I live to a ripe old age I've maximized my possible stream of income I can't outlive. My biggest fear has been not having enough money for the highest possible quality of life in old age.

I do not think it all that helpful to suggest the rules will change for those already in their sixties. It did not with the last 'reform" in 1983, and I rather firmly believe will not with the next "reform" either whenever it comes. Only those still too young to care or pay attention, aside from the few exceptions such as those in this forum, will be affected.

I disagree with this. Tweaking the tax code to make more of SS taxable (or, heaven forbid, phase it out at high income levels) could happen more easily than overhauls such as changing the retirement age or the contributions %s. Even among seniors, it could be popular with the ones who see that taking away someone else's SS (or a portion of it) will keep theirs intact. Still, I can't plan my finances based on speculation as to what "they" might do.

 

[donheff]

Exactly. I cannot, for the life of me understand why we can't do this AND why the doom and gloom continues decade after decade.

I always topped out my SS wages very early in the year (usually by March). I never would've minded paying the whole year if it got things on even keel.

+1. Always felt the same.

 

[Surewhitey]

I'm sorry, but I can't believe any estimate or cost projection for any program originating from a government agency. But they will just print more money since no one in government from either party will ever cut entitlement spending. The national debt can just grow exponentially with no repercussions. So why worry?

Entitlement? And I thought my company and I were paying into this for future payback...ugh!

 

[mpeirce]

I think anything smelling of means testing based on Net Worth is not going to happen. If two people make the same income, and one saves while the other spends, why should the benefit be different?

Also, it would become very advantageous to hide and disguise assets. People are very clever and I expect there would be lots of schemes springing up to dodge any asset test.

 

[Surewhitey]

Also, it would become very advantageous to hide and disguise assets. People are very clever and I expect there would be lots of schemes springing up to dodge any asset test.

Kind of like the ACA? I agree, engineering the outcome is a hobby of mine and I'm looking forward to actually playing the game one day...

 

[joeea]

There may be a bit of push back by the retired segment though.

It's happened before.

If you search Youtube, you can find some hilarious video of a Representative literally running from some angry seniors in 1989.

AARP and a few other seniors' organizations are a powerful lobby. Many politicians are loathe to cross them.

 

[joeea]

My biggest fear has been not having enough money for the highest possible quality of life in old age.

That and "being a burden on my children" is often expressed as the biggest fear of many.

 

[Chuckanut]

Given the demise of the old-fashioned pension systems some of us have and many of our parents had, the idea of letting SS fall by the wayside... well.. it's not going to happen. I can see increasing taxes on SS for the higher income groups and raising the retirement age for those under 50 (after all they will probably live even longer than the Boomers). But, letting it fail? No, I can't see that happening.

Also, keep in mind that the level for taxing SS is fixed and not adjusted for inflation, so every year more and more of the SS earnings are being taxed in terms of real dollars.

 

[Dash man]

Entitlement? And I thought my company and I were paying into this for future payback...ugh!

Guess you haven't considered the average paid out vs paid in by individuals (and their employers), not to mention those who receive without ever having paid into the system.

 

[audreyh1]

How are obviously political threads like these ok (speculating about the future of SS), but threads talking about the future of the ACA are not?

The threads talking about ACA were fine until some folks got into ideological type arguments which shut them down.

 

[EastWest Gal]

Entitlement? And I thought my company and I were paying into this for future payback...ugh!

The word entitlement does not have to be a dirty word. The Oxford English Dictionary definition of entitlement:

"The fact of having a right to something."

It would make more sense to me if they got rid of the cap on income for paying into SS, rather than means testing later for payout. SS was fully funded until about now. But as we baby boomers retire, SS will be paying more than it takes in. Eventually it needs to pay out less or take in more. If you start means testing SS, then you end up with a more complex tax code and political arguments about how much assets or income is enough, which gets messy. The way it stands now, it's a regressive tax. A person making minimum wage makes about $15K/yr and pays $900/yr, 6.2%. A person making $5 million/yr pays $7900, or 0.16% of their income.

 

[growing_older]

The way it stands now, it's a regressive tax. A person making minimum wage makes about $15K/yr and pays $900/yr, 6.2%. A person making $5 million/yr pays $7900, or 0.16% of their income.

If you want to make this argument, then you need to consider the payback side as well. The person paying in at minimum wage gets back 90% of their average wage. The person paying the smaller percentage, but the larger overall tax, gets back 0.58% of their income. Yes, it's a lower percentage of taxation, but 0.58% is a LOT less than 90%, so it's a lower percentage of benefit as well. Argue progressive vs regressive as much as you want, but be fair about both the taxation and the benefit when you do.

Last year, I paid about $7000 in SS tax and my projected benefit amount went up by $3 per month. Assuming zero time value of money, this will payback in just under 200 years. With any inflation at all, this will never payback. This year I expect to pay about the same and my projected benefit will not go up at all. Is that regressive? Progressive? It's not as simple as it seems if you only look at the taxation and not at the benefit.

 

[scrabbler1]

If you want to make this argument, then you need to consider the payback side as well. The person paying in at minimum wage gets back 90% of their average wage. The person paying the smaller percentage, but the larger overall tax, gets back 0.58% of their income. Yes, it's a lower percentage of taxation, but 0.58% is a LOT less than 90%, so it's a lower percentage of benefit as well. Argue progressive vs regressive as much as you want, but be fair about both the taxation and the benefit when you do.

Last year, I paid about $7000 in SS tax and my projected benefit amount went up by $3 per month. Assuming zero time value of money, this will payback in just under 200 years. With any inflation at all, this will never payback. This year I expect to pay about the same and my projected benefit will not go up at all. Is that regressive? Progressive? It's not as simple as it seems if you only look at the taxation and not at the benefit.

+1

Similarly, those who propose raising the income cap of wages subject to the SS tax need to remember that all of those wages above the current cap which go untaxed are also not part of the benefit calculation precisely because they are above the wage cap. IOW, they are taxed at zero and their wage replacement rate is also zero, a perfect balance. To tax those wages without increasing the benefit cap is simply theft, or the beginning of turning SS into a welfare program whose benefits are no longer linked to what one contributes to the system.

 

[EastWest Gal]

If you want to make this argument, then you need to consider the payback side as well. The person paying in at minimum wage gets back 90% of their average wage. The person paying the smaller percentage, but the larger overall tax, gets back 0.58% of their income. Yes, it's a lower percentage of taxation, but 0.58% is a LOT less than 90%, so it's a lower percentage of benefit as well. Argue progressive vs regressive as much as you want, but be fair about both the taxation and the benefit when you do.

Last year, I paid about $7000 in SS tax and my projected benefit amount went up by $3 per month. Assuming zero time value of money, this will payback in just under 200 years. With any inflation at all, this will never payback. This year I expect to pay about the same and my projected benefit will not go up at all. Is that regressive? Progressive? It's not as simple as it seems if you only look at the taxation and not at the benefit.

I think you are confusing the issue. A regressive tax is defined as a tax which takes a larger percentage from low income workers than high income workers. FICA tax is a regressive tax because of the cap. Without the cap, it would be a flat tax. My statement was not an opinion, it was based on the definition of the term "regressive tax."

The max payout is currently $31K at FRA. If you work 35 years and receive SS for 25 years, it's obvious that you, the high income worker, will receive more than you ever put in. Add baby boomer population surge entering retirement, it's easy to see why SS is underfunded now. It's the cap on FICA-taxable income that's killing SS, and IMO, it just doesn't make sense.

There is an income floor below which a person cannot survive; they need food, clothing, shelter. SS wasn't designed to replace a large percent of one's former income. For that we are expected to save and invest if we don't have a pension. SS is not an annuity, nor is it a pension, it is to provide a baseline income needed to live. For many, it isn't enough.

The stuff about it taking 200 years for you to get your $7000 back because of the $3 increase is nonsensical. You'll be paid $31K/ yr, not $3/yr. Assume no inflation and a flat salary for 35 years. 35x$7000=$245,000 paid in. Now assume 25 years of collecting SS. You would collect $775,000. You'll get every penny back in 8 years, not 200 years.

I hope this is making sense to someone besides me.

 

[CaliforniaMan]

And it won't be in the dumpster. Social Security is one of the most popular and effective programs ever implemented by the federal government.

Raising SS taxes a percent or two, and gradually raising the maximum taxable social security wages over time could make Social Security fully solvent indefinitely.

Absent that, I could imagine gradually increasing the full retirement age and making 100 percent of social security income taxable for high income individuals.

The fact that there are many simple, relatively painless things that could be done, the fact that it looks bad for politicians to cut benefits from the elderly, and the fact that the elderly tend to vote in relatively higher percentages - all those tell me that something will be done.

It just won't happen until it must be done. That seems to be the way politics works these days.

So perhaps 2030 or so?

I think the part of your quote I bolded says it all. Right now politicians know that whatever they do will piss off somebody, so better to do nothing. When it gets closer to the time, the scale will tip, and it will be better for them politically to do something than nothing, then they will do it. But not before.

 

[joeea]

To tax those wages without increasing the benefit cap is simply theft, or the beginning of turning SS into a welfare program whose benefits are no longer linked to what one contributes to the system.

SS benefits already aren't linked to what one contributes to them. Spouses whose earnings entitle them to less than half the benefits received by the higher-earning spouse receive exactly the same benefits if they contribute $0 as if they contribute a lot.

SSDI benefits aren't tied into contributions. Welfare?

Is Medicare welfare? There is no limit on the amount of wages subject to Medicare tax.

Most of us pay taxes and don't receive all of the wide range of possible benefits. Those of us without children still pay into the school system. It's hard to conclude that it's a welfare program.

 

[Taxman59]

I am not an expert, but isn't our FICA payment supporting the Social Security Disability payment, Children's benefit as well as the Spousal Benefit? As I recall, the original benefit was called the Supplemental Security Income benefit, and covered the worker, then after his/her death, their spouse. The Feds don't collect enough in taxes to cover the "add-ons" so the entire SSA will get pulled down. When the Feds went to the "Unified Budget" in 1969, the surplus in the SSA was used to hide the size of the rest of the budget. SSI was later pulled out of the unified budget in the 90's, but the damage was done. Higher spending in other areas of the Gov't offset the surplus in SSI, and no net benefit was achieved. Even the reforms in the early 80's was just another opportunity to raise spending and cut other taxes. Instead of spreading the cost of the Baby Boomers' social security over 50-60 years, the politicians just guaranteed that higher taxes to repay the "debt" to the Trust Fund would be inevitable.

Just my 2 cents.

 

[Maenad]

... something will be done.

It just won't happen until it must be done. That seems to be the way politics works these days.

It's not just politics, it's human nature. Corporations ignore the dark clouds on the horizon until everything goes kerplooey and they have to have major layoffs/close stores/declare BK. People eat like crap and don't exercise until they have heart attacks. It's us - WE are the problem.

I always topped out my SS wages very early in the year (usually by March). I never would've minded paying the whole year if it got things on even keel.

+1

 

[donheff]

The stuff about it taking 200 years for you to get your $7000 back because of the $3 increase is nonsensical. You'll be paid $31K/ yr, not $3/yr. Assume no inflation and a flat salary for 35 years. 35x$7000=$245,000 paid in. Now assume 25 years of collecting SS. You would collect $775,000. You'll get every penny back in 8 years, not 200 years.

I hope this is making sense to someone besides me.

To be fair you should double the input both for the poor and the better paid. The employer portion of the tax effectively comes out of workers pockets - it just doesn't make it that far. That makes the payback longer but doesn't undermine the reality that it is a pay as you go system that is actually way ahead of expenses today (the surplus generated trust fund that is on the way down do to the baby boom bulge).

 

[donheff]

I am not an expert, but isn't our FICA payment supporting the Social Security Disability payment, Children's benefit as well as the Spousal Benefit? As I recall, the original benefit was called the Supplemental Security Income benefit, and covered the worker, then after his/her death, their spouse. The Feds don't collect enough in taxes to cover the "add-ons" so the entire SSA will get pulled down. When the Feds went to the "Unified Budget" in 1969, the surplus in the SSA was used to hide the size of the rest of the budget. SSI was later pulled out of the unified budget in the 90's, but the damage was done. Higher spending in other areas of the Gov't offset the surplus in SSI, and no net benefit was achieved. Even the reforms in the early 80's was just another opportunity to raise spending and cut other taxes. Instead of spreading the cost of the Baby Boomers' social security over 50-60 years, the politicians just guaranteed that higher taxes to repay the "debt" to the Trust Fund would be inevitable.

Just my 2 cents.

I don't understand why people get so exercised over the fact that the Trust Fund funded other government expenses during the years it was in surplus. There was never any intent that it would be otherwise any more than your investment in Treasuries is going to be stuck in a bank somewhere and not spent. It is fair to say that we have undoubtedly taken deficit spending too far and need to claw some back eventually but SS is only a small fraction of the problem and easily adjusted if looked at by itself. No one seems to get worked up when we spend trillion on wars without concomitantly raising taxes so why the angst that some poor people get a basic old age income out of the SS system?