When/who will SS reduce?

[EvrClrx311]

It's my understanding that the cap has risen to a point where raising it is becoming a diminishing return (fix) solution... that is, although there are certainly people making tons of money above the current cap, the total potential revenue per citizen approaches a limit on the curve. Less pay off the higher the cap goes... because it affects less and less people and brings in less and less money.

Point is, I think a lot of people have the basic belief that raising the cap limits will fix things more than it actually will.

That is, when SS first came out I believe it was only taxing what would be the first 35,000 or so in today's dollars salary. The cap has slowly risen, consistently over time as a bandaid fix. However, when the cap rose from say $55,0000 to $60,000 it may have brought in an extra 12.4% more from 100,000,000 people's extra $5,000 of income where as raising it from $130,000 to $135,000 down the line would only take in an additional 12.4% of say 2,000,000 people's extra $5,000.

Point being... to produce the same uptick in funds to SS you'd have to impose the tax on 50 times as much income if it affects only 2% more people... then at the next stage it would require an even larger jump because the number of people making higher salaries becomes lower the higher you raise the cap. Eventually you reach a point where it's just not bringing in a significant amount of money anymore.

The system isn't broken (well, that can be debated based on how it's spent) but rather the slosh of people collecting vs paying into it isn't a linear thing because of generational bulges in population. This self corrects over time... but is impacted by so many things... economy, employment rates, immigration, etc...

I'm only 36 so my planning is based on not getting SS, but in reality I'm sure I'll get something... and I wouldn't be surprised if whatever reduction is in place in 15-20 years may return back to today's normal 30-40 years from now... because the tides will reverse and suddenly we may have another boom and a huge influx of funds going in (and a govt looking for ways to spend it)

 

[Rianne]

It seems like neither side has the stomach to do anything substantial these days, so they and their respective bases (voters and talking heads) both just demonize the other side and do nothing of consequence. And if you think Federal SS/Medicare/Medicaid is bad, take a good look at Illinois pension financials...

I don't think manna from heaven will help Illinois. We'll be digging out way beyond my demise. Property taxes are already through the roof. Illinois is #50 in fiscal stability.



What does that mean? Our streets are getting repaired, I love Chicago (except for the murder rate), the forest preserves are beautiful, new construction all over the place in C-U. Our libraries are great, University of Illinois has best library in the country. Our school system is very good K-12 and University of Illinois excels in engineering and has the first medical school in the country combining engineering/medical degree. U of I football team sucks, but that's because ACT scores must be at least a 17 to get in.



The question is, will Illinois collapse? We provide food for the world, at least in corn and beans. The tariffs are on shaky ground, a blip in history. Housing is affordable and weather lately has been awesome. We have water, clean water. We have the Great Lakes. Our crappy financial situation does not seem to affect our growth. Our governor is the worst and the GOP agree.

 

[Independent]

It's my understanding that the cap has risen to a point where raising it is becoming a diminishing return (fix) solution... that is, although there are certainly people making tons of money above the current cap, the total potential revenue per citizen approaches a limit on the curve. Less pay off the higher the cap goes... because it affects less and less people and brings in less and less money.

Point is, I think a lot of people have the basic belief that raising the cap limits will fix things more than it actually will.

That is, when SS first came out I believe it was only taxing what would be the first 35,000 or so in today's dollars salary. The cap has slowly risen, consistently over time as a bandaid fix. However, when the cap rose from say $55,0000 to $60,000 it may have brought in an extra 12.4% more from 100,000,000 people's extra $5,000 of income where as raising it from $130,000 to $135,000 down the line would only take in an additional 12.4% of say 2,000,000 people's extra $5,000.

Point being... to produce the same uptick in funds to SS you'd have to impose the tax on 50 times as much income if it affects only 2% more people... then at the next stage it would require an even larger jump because the number of people making higher salaries becomes lower the higher you raise the cap. Eventually you reach a point where it's just not bringing in a significant amount of money anymore.

The SS actuaries publish their best estimates of how various changes would impact solvency here: https://www.ssa.gov/oact/solvency/provisions/index.html

"Eliminate the wage cap" is E2.1 (no impact on benefits) or E2.2 (full recognition for benefits).

Either one closes the immediate gap by increasing revenue by almost 15%.
They both keep revenue > benefits through 2027. That is, the Trust Fund would continue to grow up to then by both net additions and interest.

Both of them eventually get run over by the actuaries' assumption that life spans just keep getting longer.
E2.1 defers the Trust Fund depletion date to 2073.
E2.2 defers it to 2063.

If we combined E2.1 with one of the indexed retirement age proposals, say C1.3, we would probably close the entire gap.

The system isn't broken (well, that can be debated based on how it's spent) but rather the slosh of people collecting vs paying into it isn't a linear thing because of generational bulges in population. This self corrects over time... but is impacted by so many things... economy, employment rates, immigration, etc...

I'm only 36 so my planning is based on not getting SS, but in reality I'm sure I'll get something... and I wouldn't be surprised if whatever reduction is in place in 15-20 years may return back to today's normal 30-40 years from now... because the tides will reverse and suddenly we may have another boom and a huge influx of funds going in (and a govt looking for ways to spend it)

The only "tides will reverse" possibilities are that couples go back to averaging 3 kids, and that the favorable trend in mortality stops. The first would create a bulge in births and future workers.

You are probably too old for the first to help a lot, since your generation has already had most of it's children. We already know they didn't go back to earlier birth rates.

 

[Offgrid Organic Farmer]

Nope! Back when I started working in 1972 I was told that by now, SS would be long, long gone.

I have heard rumblings about SS failing for many years.

One of the motivating factors that kept me on Active Duty in the Navy, was the idea that SS may likely fail. So I was better off getting a Navy pension.

From about 1993 until 1997, part of my assigned duties was income tax preparing for crewmen. A group of servicemembers were sent to me for me to help them. They were convinced that SS was a bad place for their money to be going.

I helped them by filing their forms: F4361, or F8274, or F4029. [This is all explained in Pub 517]. So that they could revoke each of their SS accounts, and stop paying into SS.

At my next Duty Station [1997-2001] there were already many servicemembers there who had no SS accounts. Some of them had never signed up for SS as babies, and some of them had previously revoked their SS accounts. But either way, they had none.

 

[Crabby Mike]

I helped them by filing their forms: F4361, or F8274, or F4029. [This is all explained in Pub 517]. So that they could revoke each of their SS accounts, and stop paying into SS.

At my next Duty Station [1997-2001] there were already many servicemembers there who had no SS accounts. Some of them had never signed up for SS as babies, and some of them had previously revoked their SS accounts. But either way, they had none.

Wow, that's new to me! Out of curiosity, without me having to look it up in Pub. 517, can you give a brief explanation of how some people can/could opt out of Social Security?

 

[Offgrid Organic Farmer]

Wow, that's new to me! Out of curiosity, without me having to look it up in Pub. 517, can you give a brief explanation of how some people can/could opt out of Social Security?

If your parents erroneously signed you up at birth [assuming that you would want to follow that path when you become an adult].

And, if you have came to a belief that the government is not your sufficiency [either through membership of a church or by yourself].

Or if you belong to one of a list of churches that teach God [and/or the church] is your sufficiency, and that the government is evil.

Or another alternative to keep in mind is that US citizens born in one of the US territories are born into cultures that do not see the US government as a savior. They do not sign their infants up for policies at birth. If one of those people want to sign up when they become adults, they may, or not. If those people decide to enlist in the US military, that is where we get servicemembers who do not have SSNs.

 

[Mdlerth]

The pen is mightier than the irate phone call

I have written my elected representatives at all levels often in the last ~25 years. The chance at getting a response goes down as the level of government goes up; the state and local folks are more likely to reply, especially with something more than a form letter. As for these larger, federal issues, I'm lucky nowadays to get even a form letter.

The previous House member we had here from 1997-2014 was very good at writing me back. We had met several times in the late 1990s so we were on a first-name basis. Her replacement (same political party) has never replied to anything I wrote her about, not even a form letter. Very disappointing.

I grew up in the nation's capital and learned a thing or two which I'll share here.

Write letters to your representatives! Of course, they won't read them unless you're a VIP, but that hardly matters. Staffers may glance through them briefly, but they will definitely count them. They know that for every person agitated enough to write about an issue, there are a thousand constituents who feel the same but don't bother to write. So one handwritten letter equates to a thousand votes. If you and three hundred friends each wrote one letter, it could well determine how that politician votes when the issue comes to the floor.

It's important that it be handwritten. Mass-produced, pre-typed missives created by lobbyist groups don't carry the same influence; those may correspond to only 1-3 votes each. Ditto for texts and calls to their office.

Your note doesn't have to be long; the shorter the better. Don't burden them with too much data. Just state your position in a few lines and mail it. Yours could be the straw that changes that politician's mind.

 

[gwraigty]

If your parents erroneously signed you up at birth [assuming that you would want to follow that path when you become an adult].

When I was in junior high, the school arranged for students to get a SS card when they turned 16. That's how I got mine. By the time I had kids, it had become law that you had to have a SS number for anyone you wanted to claim as a dependent on your federal tax return. So, yes, I signed up my kids at birth. Nothing erroneous about it.

 

[marko]

When I was in junior high, the school arranged for students to get a SS card when they turned 16. That's how I got mine. By the time I had kids, it had become law that you had to have a SS number for anyone you wanted to claim as a dependent on your federal tax return. So, yes, I signed up my kids at birth. Nothing erroneous about it.

There's a 15 or 20 year waiting list to get a mooring for your boat in many harbors around here.

Back in the day, when your child was born, the first thing you did was get them a SS number. The next thing you did on the next day was take that SS number to the harbormaster to get them on the waiting list.

As far as opting out, I do know that my own uncle never had a SS number, never contributed to it and never received any benefits.

 

[Walt34]

....They know that for every person agitated enough to write about an issue, there are a thousand constituents who feel the same but don't bother to write. So one handwritten letter equates to a thousand votes. If you and three hundred friends each wrote one letter, it could well determine how that politician votes when the issue comes to the floor.

I also grew up not in, but near, Washington, D.C. and have heard that from many sources, including a few politicians I came into contact with via work.

 

[pb4uski]

If your parents erroneously signed you up at birth [assuming that you would want to follow that path when you become an adult].

And, if you have came to a belief that the government is not your sufficiency [either through membership of a church or by yourself].

Or if you belong to one of a list of churches that teach God [and/or the church] is your sufficiency, and that the government is evil.

Or another alternative to keep in mind is that US citizens born in one of the US territories are born into cultures that do not see the US government as a savior. They do not sign their infants up for policies at birth. If one of those people want to sign up when they become adults, they may, or not. If those people decide to enlist in the US military, that is where we get servicemembers who do not have SSNs.

Sounds like total, unadulterated bullshit to me.

 

[Cut-Throat]

Sounds like total, unadulterated bullshit to me.

+1

 

[old woman]

They will not reduce low income people's SS check. They will raise taxes on SS for higher income people, currently 85% is taxed for high income people they will first raise that to 100% and might reduce the amount we receive or stop COLA for highly paid recipients.
I get 2752 a month but have at least 30K other income so cutting me 500 a month wouldn't harm me much. A person getting 1400 a month and reducing them even 100 would leave them hungry or cold.

 

[swabby01]

We could probably eliminate the issue immediately by simply raising or eliminating the salary cap which is subject to SS deductions. As it stands today, it is a regressive tax in that it is a higher percentage of salary for those at/below the current cap of $128,400 than for those above.

Interesting that you call it a regressive tax - For the first $128,400 everyone pays the same percentage of their base no more no less. Above $128,400 no more is paid but no more benefit is earned so again there is parity as a percentage of tax vs benefit. What your option would really do is convert social security to a combination of return on investment + entitlement. Semi socialism in my book. Seems too many people nowadays feel the best solution to a problem of congress not being able to budget and allocate is increase tax on some people more than others without providing additional benefit for the increased cost to them or no additional benefit. Advocacy, as always appears to lay with "have someone else pay" and I will advocate it as long as it doesn't come out of my pocket.

 

[scrabbler1]

Interesting that you call it a regressive tax - For the first 128.400 everyone pays the same percentage of their base no more no less. Above 128,400 no more is paid but no more benefit is earned so again there is parity as a percentage of tax vs benefit. What your option would really do is convert social security to a combination of return on investment + entitlement. Semi socialism in my book. Seems too many people nowadays feel the best solution to a problem of congress not being able to budget and allocate is tax people more for no additional benefit. Advocacy, as always appears to lay with "have someone else pay" and I will advocate it doesn't come out of my pocket.

+1. I say this all the time including earlier in this discussion. And remember that SS replaces for those who had lower incomes than for higher incomes a greater percentage of it within the wage cap. This makes the program a better deal for those who paid less SS tax than for those who paid more.

P.S. First post? You made it a good one!

 

[pjigar]

+1. I say this all the time including earlier in this discussion. And remember that SS replaces for those who had lower incomes than for higher incomes a greater percentage of it within the wage cap. This makes the program a better deal for those who paid less SS tax than for those who paid more.

P.S. First post? You made it a good one!

I know lot of business owner who "game" the system by only taking $1000 a quarter in "salary" i.e. qualify for lowest SS benefit at someone else's dime.

 

[Offgrid Organic Farmer]

I know lot of business owner who "game" the system by only taking $1000 a quarter in "salary" i.e. qualify for lowest SS benefit at someone else's dime.

We thought about doing that for a while, but we never actually did it.

 

[scrabbler1]

I know lot of business owner who "game" the system by only taking $1000 a quarter in "salary" i.e. qualify for lowest SS benefit at someone else's dime.

So I guess I and many others here in this forum are also gaming SS simply by including a bunch of zero earnings years into the SS benefit calculation so a greater percentage of our wage earnings will get replaced by SS than if we had kept working? If that business owner wants to reduce his future SS benefit by taking a smaller salary, that's fine with me.

 

[Crabby Mike]

Interesting that you call it a regressive tax - For the first $128,400 everyone pays the same percentage of their base no more no less. Above $128,400 no more is paid but no more benefit is earned so again there is parity as a percentage of tax vs benefit. What your option would really do is convert social security to a combination of return on investment + entitlement. Semi socialism in my book. Seems too many people nowadays feel the best solution to a problem of congress not being able to budget and allocate is increase tax on some people more than others without providing additional benefit for the increased cost to them or no additional benefit. Advocacy, as always appears to lay with "have someone else pay" and I will advocate it as long as it doesn't come out of my pocket.

It's a regressive tax in the sense that the average tax on people above the contribution limit is lower than on those below. But it's also a regressive payout, returning a lower percentage as your contributions go up.

 

[scrabbler1]

It's a regressive tax in the sense that the average tax on people above the contribution limit is lower than on those below. But it's also a regressive payout, returning a lower percentage as your contributions go up.

Because SS is not designed to collect any extra money from the incomes above the wage cap (and not designed to pay out any extra money to those with incomes above the same cap), I would consider the SS tax to be a flat tax while the payout is progressive (not regressive).

https://www.cbo.gov/sites/default/files/109th-congress-2005-2006/reports/12-15-progressivity-ss.pdf

From the first page of the report:

"[Similarly,] public benefit programs are identified as progressive if they provide proportionately greater benefits to individuals with lower income."​

 

[Crabby Mike]

Because SS is not designed to collect any extra money from the incomes above the wage cap (and not designed to pay out any extra money to those with incomes above the same cap), I would consider the SS tax to be a flat tax while the payout is progressive (not regressive).

https://www.cbo.gov/sites/default/files/109th-congress-2005-2006/reports/12-15-progressivity-ss.pdf

From the first page of the report:

"[Similarly,] public benefit programs are identified as progressive if they provide proportionately greater benefits to individuals with lower income."​

Ok, I see that elsewhere the CBO defines the overall Social Security system as progressive in that the ratio of benefits to contributions is higher for those with lower incomes.

So I'll go back to sleep now.

 

[LARS]

To answer the OP's actual question: no, I do not think you have anything to worry about at age 60 in receiving SS. The likelihood of any changes impacting 60+ year old recipients is negligible at best.

 

[morriss003]

Social Security is not one big fund but a number of funds. Some are in danger and some are not. A good place to start is at the Wikipedia article.
https://en.wikipedia.org/wiki/Social_security

 

[RetireBy90]

+1 on upping the taxation.

I'm sorry it's too low. Over 20 years of my career I hit it, often in the first quarter of the year. Makes no sense to me. I never considered myself a high earner but there's a lot of folks who would not be negatively impacted by increasing or eliminating the write off.

Im sorry but must disagree. The problem is that the system was designed to cover a minimal amount for those that outlived the longevity tables. I have heard that when SS was created, the average life span was 59. Those that lived longer would receive a check to help with living expenses in the final years.
Over the years additional benefits have been added and abused like candy thrown from the parade float and changes to pay for them have been implemented like a dentist pulling a bad tooth, normally only after pain gets bad. (how is that for analogies - pretty good right ? )
SS disability is often granted because it is easier than fighting to deny it, and once granted there is no vehicle to reconfirm that the disability continues. One SS judge that granted 100% of appeals for disability was finally fired after years of such performance. The federal government doesn't have a track record (republican or democrat controlled) of policing abuses. Trivial efforts are made but the problem of fraud, waste and abuse are never corrected.
Second problem the lies we tell ourselves. Way too many people in this country don't save enough for retirement. We have drifted into a society where we expect someone else to pick up for our mistakes. If I don't save enough for retirement it is ok, SS will cover my needs. Our politicians tell us that taking more $$ from the successful will solve all our problems. Just because you make more than the SS limit for contributions doesn't mean it should be mine to take. I hit the limit only a couple years in my working years and so this wouldn't impact me directly, but would further the slide to relying on the feds to take care of me. Bugger thy brother. Problem is that once the percieved or actual benefit of working hard are reduced fewer will do this. More will adopt the theory that working at McDonalds is a career attitude.
Finally, while there are many that need some assistance, we tend to find an example of someone that needs help and extrapolate that to the masses. We have some that borrowed $$ to attend college and worked hard and now have student loans that will burden them for years and years. However there are those that took out student loans and used a large part of the money for a summer vacation, pizza parties and other un-necessary expenses and yet we lump them in with the ones that truely hit a bad spot. We have a friend that took out student loan and completed a career as a teacher for DOD, where she made a good paycheck, yet has refused to pay back the loan. Today she draws a federal retirement check and still pays minimum on her loan.
Sorry for the rant, but I am worried about the over reliance on someone else to take care of me. What happened to the pride of taking care of myself and my family ?

 

[njhowie]

So I guess I and many others here in this forum are also gaming SS simply by including a bunch of zero earnings years into the SS benefit calculation so a greater percentage of our wage earnings will get replaced by SS than if we had kept working? If that business owner wants to reduce his future SS benefit by taking a smaller salary, that's fine with me.

When you own a business, many variables and decisions come into play regarding salary, how/when/if the business owner takes it, among others.

You also have to remember, that as an employee, you are only paying half the Social Security contribution - your employer is paying the other half. For a business owner, that means one way or another, the business owner is paying double the contribution - once directly out of his pay check, a second time from the business.

Again, numerous factors come in to play. As a business owner, even during the peak years of operations, I would take a minimum salary, not only because of the Social Security split, but because for a business my size, the corporate income tax rates were significantly lower than my household's tax rate. Whether the money ended out in my pocket or the business's didn't really bother me one way or the other - I owned 100% of the business.