social security proposal

[newtoseattle]

Wondered if anyone saw the Steve Vernon's column about another group's proposals to shore up social security. The part that really caught my eye - b/c I hadn't seen this proposed before - was

"Apply the benefit formula annually to earnings to more evenly reward continued work. For example, the current formula would pay equal benefits to a worker who earns $100,000 for 15 years compared to a worker who earns $50,000 for 30 years. Under the current formula, there's little or no increase in benefits for workers who pay taxes into Social Security for more than 35 years. The BPC proposals would continue to increase benefits for workers who pay into the system for up to 40 years."

Honestly, it seems "fairer" but would really affect me (and I suppose many other higher earners planning on early retirement (i.e. not many years in the work force))

Thoughts?

 

[REWahoo]

Here is a link for more detail: How to shore up Social Security for 75-plus years - CBS News

 

[Senator]

That is probably a good formula, as long as the current benefits and formula does not get cut.

I always thought that stopping any increase in SS payments at 70 was not good. Let people defer until they decide to take SS. There will be many people that bet their life, and lose.

I always thought it was ironic that SS could run out of money, yet other government programs never run out.

 

[samclem]

"Apply the benefit formula annually to earnings to more evenly reward continued work. For example, the current formula would pay equal benefits to a worker who earns $100,000 for 15 years compared to a worker who earns $50,000 for 30 years. Under the current formula, there's little or no increase in benefits for workers who pay taxes into Social Security for more than 35 years. The BPC proposals would continue to increase benefits for workers who pay into the system for up to 40 years."

I doubt many people will work longer just to increase their SS payment.
1) Low income workers: A worker who earns very little and who chooses to work 5 more years might see a meaningful increase in his eventual SS check (because a higher percentage of his pay is below the first "knee" in the benefit ratio formula), but at that income level he's probably working longer just to meet the necessities of life. So the new formula wouldn't cause him to stay in the traces longer-- at a monthly income level closer to $1000, he has more immediate concerns.
2) For those farther above the first "knee," (and especially if they are past the second "knee") and who have actually looked at the projected level of their SS check with and without the extra years of work, the very small increase in their SS check is unlikely to make a significant impact on their decision. It sure wasn't any part of my decision.

 

[Big_Hitter]

Thoughts?

seriously doubt that will happen - there are fixes that need to be made to SS to maintain solvency

it's a social insurance program - that means there is a "relationship" between contributions and benefits, and it's leveraged to help lower paid workers

 

[Independent]

The Social Security actuaries have calculated the fiscal impact of a number of "change the computation years" proposals.

This is most like B4.2 here: https://www.ssa.gov/oact/solvency/provisions/benefitlevel.html#B4

Present law has a tax/benefit mismatch of 4.65% of payroll in the 75th year. This proposal would reduce that to 3.70%.

 

[Independent]

Presumably, this would have a bigger financial impact on individuals who choose to retire "early" (aka people who post here) than on workers who keep working all the way to their FRA.

 

[marko]

"Fixing" SS seems so simple to me. (Of course, what do I know...)

Keep SS the same for those over 50.
Stop the deduction cap.

 

[gayl]

Sounds great which is why they won't do it (FWIW:: I think FRA should increase by 1 yr per 2 months to 70 and should affect most of us as long as early disbursement stays at 62 --- how many of us said "Whoopie, I can get SSA so let's retire!")

 

[audreyh1]

I can't make heads or tails of this.

It doesn't change the 40 credits (quarters working) that means you qualify for both social security and medicare.

How would it impact retired folks like us 56 and 61? I will be 62 in 2021 (FRA is currently 66 and 10 months). Does that mean we squeak under this 2022 cutoff? Looks like it (see link below) but that doesn't seem to apply to all proposals?

Does it mean five more zero years are added to our record to reduce our monthly SS income?

Does it impact people who have already started drawing differently from those who draw later?

When would this go into effect and who would be impacted?

We were both high earners in the last couple of decades of paying into SS.

Of course, there is a benefit for working longer now. Assuming the earliest years are the lowest earning, and the later years the highest earning, you are replacing lower earning years with higher earning years. That would be the incentive to keep working.

This one seems inevitable:

In 2022, for the highest income beneficiaries, start taxing Social Security benefits in their entirety instead of just the 85 percent taxed now. This would apply to beneficiaries with adjusted gross income over $250,000 for singles and $500,000 for couples.

How to shore up Social Security for 75-plus years - CBS News

 

[gayl]

Does it mean five more zero years are added to our record to reduce our monthly SS income?

yes. That's seems to be the intent

Does it impact people who have already started drawing differently from those who draw later?

yes, grandfathered according to their proposal

When would this go into effect and who would be impacted?

one proposal tagged for 2017

I think it is significant how they are retitling this: OASI

O= old
A= age
S= security
I= insurance

With advanced in medical care and less physically demanding professions, 62 is no longer old. Nor is 65 (was when it was established) or in many cases 70 (I hope not when I get there). FWIW: I think FRA should be 70. Would hit me in the A $$ETS so I've invested well

 

[Mulligan]

yes. That's seems to be the intent

yes, grandfathered according to their proposal

one proposal tagged for 2017

I think it is significant how they are retitling this: OASI

O= old
A= age
S= security
I= insurance

With advanced in medical care and less physically demanding professions, 62 is no longer old. Nor is 65 (was when it was established) or in many cases 70 (I hope not when I get there). FWIW: I think FRA should be 70. Would hit me in the A $$ETS so I've invested well

I realize something needs to be done. But I wonder if a life long construction worker or roofer agrees with a paper pusher on what an appropriate retirement age is. Im 52 pretty fit and was a paper pusher. If I had to work one of those jobs I would be in sham disability benefit line a week after starting that job.


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[gayl]

I realize something needs to be done. But I wonder if a life long construction worker or roofer agrees with a paper pusher on what an appropriate retirement age is. Im 52 pretty fit and was a paper pusher. If I had to work one of those jobs I would be in sham disability benefit line a week after starting that job.


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Thank you for validating my point. Which is why early retirement should remain at 62 as they are more likely to work until SSA therefore building up more "credit years" leading to a higher % return than those who can afford to retire early with less yrs in the game

I haven't read where the proposals will affect SSDI just SSA

 

[Ian S]

Another alternative is to broaden the tax base which, for SS, has been declining for decades. Lift the cap and tax capital gains and dividends. I'm not sure I trust the Bipartisan Policy Center as it seems to be biased towards business. Here's a plan:
Social Security's finances can be improved without cutting benefits by even a penny. Here's how. - LA Times

 

[gayl]

Would you then add those Dividend / Cap gains into SS credits thereby negating zero yrs? So you could work 5 yrs, live off dividends / cap gains for 30 yrs and be in the same position as someone who labored for 35 yrs?

 

[Mulligan]

Thank you for validating my point. Which is why early retirement should remain at 62 as they are more likely to work until SSA therefore building up more "credit years" leading to a higher % return than those who can afford to retire early with less yrs in the game

I haven't read where the proposals will affect SSDI just SSA

If I understand it correctly (and that is an assumption) that would penalize them. I doubt their final years staggering to finish line working as a door greeter benefits them like a paper pusher who can finish out at peak earning power. Not criticizing you or the proposal, but I imagine the new proposal creator didn't work on this plan after roofing a house all day... Probably did it where he works behind a comfy seat pushing papers.


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[RobbieB]

I think the proposal sounds pretty good.

 

[samclem]

Another alternative is to broaden the tax base which, for SS, has been declining for decades. Lift the cap and tax capital gains and dividends.

Yes, combine this with removing the income cap on "contributions." Should we actually give high-earners any increased benefits at all for these contributions (they probably don't "need" them), or just stick with the minuscule amount of benefits high earners already get for the SS taxes they pay?

Of course, taxing dividends and cap gains is well removed from the 8-decade old idea of a payroll tax that is designed to provide a program to replace the pay of those who retire or become disabled. So, in keeping with the spirit of this new idea, another way to broaden the SS tax base: Apply the SS "payroll" tax to government transfer payments and benefits (Medicare, Medicaid, housing vouchers, etc), as well as any government or private pension (to include withdrawals from 401Ks, tIRAs, and Roth IRAs). There, that ought to keep the system solvent for a long time.

 

[newtoseattle]

Thank for everyone's thoughts.
I certainly agree with just raising or eliminating the cap - I think I've read that will fix approx 70% of the deficit right there.

But, for me personally - I've kind of thought that I'd have a fair (maybe 10-15) number of years at the max and so divided by 35 it would give me close to the second bend point. (so maybe in the 2000-2300/month range for benefits at 67-70) I agree years after that don't really add much - but as a backup/safety net - I still think social security plays an important role for me.

If they somehow decide to calculate on an annual basis, then a good portion of my income/contributions will be above the second bend point and therefore worth very little... (and all those 0 years will make a much bigger difference)

 

[Big_Hitter]

Yes, combine this with removing the income cap on "contributions." Should we actually give high-earners any increased benefits at all for these contributions (they probably don't "need" them), or just stick with the minuscule amount of benefits high earners already get for the SS taxes they pay?

if you don't that breaks one of the founding PRINCIPLES of social insurance

 

[samclem]

if you don't that breaks one of the founding PRINCIPLES of social insurance

True, but do the prospects for a particular change depend on appealing to principles, or do they depend on gaining the support of a majority of voters? A majority of voters will be positively impacted if the earnings cap on SS taxes is eliminated and if those high earners get zero increases in their benefits despite paying more in taxes.

As they say: " Democracy is two wolves and a lamb voting on what to eat for lunch."

 

[LARS]

As they say: " Democracy is two wolves and a lamb voting on what to eat for lunch."

And, worse, it's never the same two wolves or lamb depending on the issue...

 

[Big_Hitter]

True, but do the prospects for a particular change depend on appealing to principles, or do they depend on gaining the support of a majority of voters?

voters shouldn't have a say, IMO - that would be like voting to legally steal

SS is already heavily leveraged to the lower paid. The "R" in the principles acronym stands for "relationship between benefits and earnings"; thus, if you remove the cap but keep the pay capped in the benefit calculation, you are breaking one of the fundamentals of SS; that's why SS isn't means tested the "N" stands for "need is presumed"....man I hated studying that stuff but I still remember it!

I was lucky enough to be in a few PD sessions with Mr. Myers early in my career - we could ask him how he feels about this but he passed away a few years ago:

http://www.nytimes.com/2010/02/26/business/26myers.html

 

[samclem]

SS is already heavily leveraged to the lower paid.

Yes, it's a tremendous wealth transfer to those with low incomes. But many people believe SS needs to do even more in that regard.

We have constitutional protections designed to shield individuals and groups against "the will of the majority," and the resultant laws do protect against the use of government power to take their lives or their freedom. But there's no protection for their property.

 

[Big_Hitter]

Myers didn't like the taxation of SS benefits - that broke one of his principles - heard him say that in a PD session