Social Security Math

[jabbahop]

Interesting discussion about future changes to Social security and how much we can count on. I am curious whether Social Security or pensions are in better shape in terms of being able to rely on future payments. I know there are many different pension situations, but are people "discounting" their pensions as some are discounting future SS payments? Just curious.


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[Walt34]

Interesting discussion about future changes to Social security and how much we can count on. I am curious whether Social Security or pensions are in better shape in terms of being able to rely on future payments. I know there are many different pension situations, but are people "discounting" their pensions as some are discounting future SS payments? Just curious.

I'm not discounting my pension, but it is almost fully funded. It's also a government so they can raise taxes if necessary. And I wouldn't care if they did that because I don't live there anymore.

I'm "fence-sitting" on whether to discount SS though. Probably not for me but DW may have to deal with it. Even so, the pension and savings/investments will see her through but she won't be taking any round-the-world cruises though.

 

[Sunset]

Interesting discussion about future changes to Social security and how much we can count on. I am curious whether Social Security or pensions are in better shape in terms of being able to rely on future payments. I know there are many different pension situations, but are people "discounting" their pensions as some are discounting future SS payments? Just curious.
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That, and whole life insurance policies that pay an interest rate, those insurance companies are looking hard for the fine print so they can reduce/stop paying the guaranteed rates.

Next stop will be annuities, looking for the fine print too. ... .

 

[pb4uski]

That, and whole life insurance policies that pay an interest rate, those insurance companies are looking hard for the fine print so they can reduce/stop paying the guaranteed rates. ... .

And other than an obvious dislike for insurance companies what basis do you have for making such a statement Sunset? Where's your proof? I worked in the industry for over 25 years, including serving on numerous industry committees, and I am unaware of any companies doing what you say. While spread compression is a concern and minimum guaranteed rates are lower for new issues, reflecting the lower interest rate environment, to my knowledge their focus is how to deal with and manage the problem rather than how to weasel their way out of it as you seem to be suggesting.

 

[2017ish]

That, and whole life insurance policies that pay an interest rate, those insurance companies are looking hard for the fine print so they can reduce/stop paying the guaranteed rates.

Next stop will be annuities, looking for the fine print too. ... .

And other than an obvious dislike for insurance companies what basis do you have for making such a statement Sunset? Where's your proof? I worked in the industry for over 25 years, including serving on numerous industry committees, and I am unaware of any companies doing what you say. While spread compression is a concern and minimum guaranteed rates are lower for new issues, reflecting the lower interest rate environment, to my knowledge their focus is how to deal with and manage the problem rather than how to weasel their way out of it as you seem to be suggesting.

Don't know if this was the source, but I recognized Sunset's comments as being very similar to an article in yesterday's Wall Street Journal:

Life-insurance companies are scouring their policies to identify ways to raise rates and fees and lower the amount of interest they have to pay on savings products as low interest rates cut into their profits.

The bottom line for policyholders is they have to pay up or relinquish benefits.

Low rates are tormenting insurers—and their customers
March 20, 2016 9:09 p.m. ET Low Rates Are Tormenting Insurers—and Their Customers - WSJ (Link should work, fingers crossed!)

 

[pb4uski]

But that has nothing to do with guaranteed rates which is what Sunset wrote about.... it doesn't mention guaranteed rates or whole life, which is a small piece of insurance liabilities today, at all.

The rates and fees that the article is referring to are those where the insurer has discretion to change them under the terms of the contract. The raising of rates and fees and lowering of credited interest are some of the ways that insurers are trying to manage spread compression that I mentioned in my post.... but from my experience guaranteed rates are sacrosanct.

The concept is pretty simple... these policies were priced long ago in a higher interest rate environment so assuming higher interest income.... prolonged low interest rates have reduced investment income and profits and the insurers are using whatever tools they have contractually to try to restore the originally priced for returns for their shareholders much in the same way that retailers seek to increase prices when their costs go up.

 

[Hermit]

Don't know if this was the source, but I recognized Sunset's comments as being very similar to an article in yesterday's Wall Street Journal:



Low rates are tormenting insurers—and their customers
March 20, 2016 9:09 p.m. ET Low Rates Are Tormenting Insurers—and Their Customers - WSJ (Link should work, fingers crossed!)

Couldn't get the link to work from Google search.

 

[2017ish]

Couldn't get the link to work from Google search.

Did you click on it? It was a shared link, I think? Otherwise, the title to use in google is: "Low Rates Are Tormenting Insurers—and Their Customers" with subtitle of: "Long-term-care policies are among hardest-hit"

 

[Hermit]

Did you click on it? It was a shared link, I think? Otherwise, the title to use in google is: "Low Rates Are Tormenting Insurers—and Their Customers" with subtitle of: "Long-term-care policies are among hardest-hit"

I clicked on it and it worked!

I don't think I have had that happen for WSJ before.

 

[manerac]

.... So, don't look for any BIG changes (File and Suspend affected a very small minority and not BIG - Fast and Furious maybe, maybe not, but did not affect the majority).

Just as laws apply to everyone and not merely the small number of law breakers, elimination of "File and Suspend" affected every married couple that lost eligibility.

 

[wmc1000]

For budgeting and projection purposes I discount SS by 25% starting in 2032 - just in case they missed the mark worse than they project. If it doesn't happen good for me! At least I know DW and I are good to go either way!

 

[Independent]

Oh okay I understand. Pretty interesting idea now that I have wrapped my head around it.

I suppose if you are that worried about what is left to heirs then taking SS at FRA wouldn't be that much different income wise. I ran the numbers and it came out to be $62,257 per year using the same numbers and assuming the FRA was 67. You'd only need to take $139,114 from the $1m to cover the first 5 years between 62 and 67.

social security at 67 $27,822 ($19476/0.7)
$27822 * 5 years stash = $139114
Left $1m - $139114 = $860,886 at 4% = $34,435

TOTAL $34,435 + $27,822 = $62,257

Please correct my math if there is a mistake.

I get the same result. It's not a huge increase, less than $3,000 per year, but it does say that deferring does not mean you can't spend money early on.