Why I am not worried about SS going bankrupt

[eta2020]

I see posting of people who will claim SS at 62 because they are worried about loss of benefits due to changes.

Personally I have very much doubt that we have anything to worry about.

I am pretty sure that if I had 5 Million dollars in investable assets I could easily either spend it or transfer it my kids by the time I am 70. That means I could claim maximum benefit at 70 and pass any means test .

So if I belong to upper 130,000 households (investable assets over 5 million) I will be able to avoid this. Is to worth to have means testing to eliminate SS for maybe 60,000 people? That will be peanuts to save SS program.

IMO if you are high earner you are best off if you FIRE between 50-55 since your benefit boost of SS if you work from 50 - 67 is about 13%. (but that is different discussion)

 

[NW-Bound]

SS will not get eliminated, but most likely gets reduced. Besides means testing, they may flatten out the benefit.

Currently the maximum benefit one can get at 70 is $3501/month. They may say that one does not need to live so luxuriously, and reduce it down to, say, $2000/month, and say that is still a lot more than the average SS recipient who gets $1300.

 

[2017ish]

I see posting of people who will claim SS at 62 because they are worried about loss of benefits due to changes.

Personally I have very much doubt that we have anything to worry about.

I am pretty sure that if I had 5 Million dollars in investable assets I could easily either spend it or transfer it my kids by the time I am 70. That means I could claim maximum benefit at 70 and pass any means test .

So if I belong to upper 130,000 people (investable assets over 5 million) I will be able to avoid this. Is to worth to have means testing to eliminate SS for maybe 60,000 people? That will be peanuts to save SS program.

IMO if you are high earner you are best off if you FIRE between 50-55 since your benefit boost of SS if you work from 50 - 67 is about 13%.

I'll keep the investable assets either way and continue to plan as if they were all that we have. (In any event, getting the majority of them out of the 401k/IRA accounts before 70 would be very painful.)

Agree on the second bend point and the relative lack of benefit from working if boosting the PIA is the only reason. Was surprised when I finally ran the numbers last autumn. If Social is there for us, we'll use optimal claiming strategy, with highest PIA taking her own checks when she hits 70.

 

[eta2020]

Agree on the second bend point and the relative lack of benefit from working if boosting the PIA is the only reason. Was surprised when I finally ran the numbers last autumn. If Social is there for us, we'll use optimal claiming strategy, with highest PIA taking her own checks when she hits 70.

I was also very very surprised to find that if I work next 17 years I will get 200 dollars more a month then if quit now at the age of 50.

It kinda told me that optimal age to FIRE is early 50s certainly no later then mid 50s as far as maximizing what you get from SS.....for what you put in.

Now I am talking about situation where you max out SS contributions from 25-50.....

 

[RunningBum]

I don't get your points at all. You aren't afraid of SS going bankrupt because means testing will affect so few people? Doesn't that mean they'll likely have to take harsher measures? Did I miss your point?

As far as optimal FIRE age, is anyone going to pick their FIRE date based on diminishing returns of working longer for SS benefits? People will FIRE when they have enough money to FIRE. At best knowing the SS benefits usually don't increase that much in the final years (depending on your wages in the early years) might prevent the "one more year" syndrome, but I rarely hear padding SS benefits as a reason for OMY. It may be useful to understand that your SS benefits are based on your 35 highest earning years, so once you hit 35 years of employment you are just trading an earlier lower wage year for a higher year. But it's low on the list of factors for when to FIRE, if it's on the list at all.

 

[ejman]

I see posting of people who will claim SS at 62 because they are worried about loss of benefits due to changes.

Personally I have very much doubt that we have anything to worry about.

I am pretty sure that if I had 5 Million dollars in investable assets I could easily either spend it or transfer it my kids by the time I am 70. That means I could claim maximum benefit at 70 and pass any means test .

So if I belong to upper 130,000 households (investable assets over 5 million) I will be able to avoid this. Is to worth to have means testing to eliminate SS for maybe 60,000 people? That will be peanuts to save SS program.

IMO if you are high earner you are best off if you FIRE between 50-55 since your benefit boost of SS if you work from 50 - 67 is about 13%. (but that is different discussion)

Yes, peanuts to save the system but you are ignoring the political "optics" of such a move.

Oh, I very much doubt that SS will go bankrupt in the sense of not making any payments. SS trustees have been mentioning for a long time in their reports that benefits will be reduced IF NOTHING IS DONE BY CONGRESS to the tune of about a 25% reduction by 2033 or thereabouts (the year fluctuates but somewhere 15-18 years from now).

I would tend to agree with you that the risk would be minimal if we actually had a normally functioning political system where the parties actually compromise to achieve a desired result. Haven't seen much of that for quite a while now and getting worse. Maybe we will have such a system before the SHTF but frankly not optimistic.

I agree with you that 50-55 is the sweet spot.

 

[eta2020]

I don't get your points at all. You aren't afraid of SS going bankrupt because means testing will affect so few people? Doesn't that mean they'll likely have to take harsher measures? Did I miss your point?

As far as optimal FIRE age, is anyone going to pick their FIRE date based on diminishing returns of working longer for SS benefits? People will FIRE when they have enough money to FIRE. At best knowing the SS benefits usually don't increase that much in the final years (depending on your wages in the early years) might prevent the "one more year" syndrome, but I rarely hear padding SS benefits as a reason for OMY. It may be useful to understand that your SS benefits are based on your 35 highest earning years, so once you hit 35 years of employment you are just trading an earlier lower wage year for a higher year. But it's low on the list of factors for when to FIRE, if it's on the list at all.

I think I am trying to say quit between 50 and 55 and claim SS at 70. This is especially if you made good money between 25-50.

Do not claim SS at 62 because you are worried about change of benefits.

This should be consideration... Buying COLA annuity (like SS) costs ton of money ( get the most out of system)

 

[daylatedollarshort]

I think I am trying to say quit between 50 and 55 and claim SS at 70. This is especially if you made good money between 25-50.

Do not claim SS at 62 because you are worried about change of benefits.

This should be consideration... Buying COLA annuity (like SS) costs ton of money ( get the most out of system)

The issue is that statistically some here are not going to make it to the crossover age and would have come out ahead taking benefits sooner. That is where the actuarially neutral part comes in. We only know in advance the best age to take SS if benefits and taxes will not be changed between now and our own age 70 and the exact date we are going to die.

SS isn't exactly like buying an annuity because with SS, using a single person for a simple example, if you die before you buy the "annuity", the lump sum amount is not still sitting in your portfolio. The benefit amount you could have had by claiming sooner is forfeited for your estate.

I don't think anyone here has ever thought SS would go completely bankrupt, but the possibility exists that higher income / higher SS benefit households may get a trim or increased taxes.

 

[nash031]

As far as optimal FIRE age, is anyone going to pick their FIRE date based on diminishing returns of working longer for SS benefits? People will FIRE when they have enough money to FIRE. At best knowing the SS benefits usually don't increase that much in the final years (depending on your wages in the early years) might prevent the "one more year" syndrome...

So my situation is somewhat uncommon in that I'll be eligible for a military pension at age 42 and may or may not be FI by then, depending on the market and our spending and whether or not we have kids. IF I'm FI by military retirement age, I think I'm going to try out a bridge career just so I can say I did. The second bend point is a factor in that as I won't be too close to it when I'm done with the military. As you said, the second bend point will be a factor in my OMY since my desire to work may be driven not by purely financial means, but perhaps by seeking something more rewarding in the working world. In my head, I've set that second bend point as my "no later than" date for full retirement. It should hit right around age 50. If I'm still working by then, that second bend point could well be the straw that breaks the camel's back, so to speak. We'll see.

 

[Ed_The_Gypsy]

SS will be my primary source of income when I take it at 70. I have taken a 25% haircut into account (in 2035 or so). I am optimistic even so.

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[Fermion]

SS will be there. It is already means tested via tax on benefits. Politicians will panic in or around the year 2021 and remove the cap on income subject to SS and raise the % of benefits taxed for high income pensioners and maybe middle income pensioners.

 

[Ed_The_Gypsy]

I agree, Fermion.

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[Independent]

I was also very very surprised to find that if I work next 17 years I will get 200 dollars more a month then if quit now at the age of 50.

It kinda told me that optimal age to FIRE is early 50s certainly no later then mid 50s as far as maximizing what you get from SS.....for what you put in.

Now I am talking about situation where you max out SS contributions from 25-50.....

I think the optimal strategy "as far as maximizing what you get from SS.....for what you put in" is to start work sometime after age 52, work for 10 years @ $35,000, then quit and start benefits.

That gives average annual earnings of $10,000 so all the earnings fall in the 90% band.

That's a $9,000 annual benefit at normal retirement age. Since full (12.4%) SS taxes would only be $43,400 for the entire working career, I'd get a very favorable IRR. (If I live for 20 years after NRA, I think the IRR is about 11%.)

Your numbers reflect the fact that you get into the 15% band.

 

[marko]

I think what the OP means is that SS bankruptcy should not be the SOLE reason for early participation.

Everyone has their own reasons and rationales for taking it early or late.

While I suspect that any changes won't affect anyone who's currently over 55 --"one never knows, do one?" (Archy McNally)-- I do expect changes coming vs bankruptcy. Means testing, reduced benefits, age eligibility...

For several reasons ("possible changes" were last on the list), I chose 62. "Get in now"

 

[Chuckanut]

IMHO, it is most likely we will see two things if/when SS funds fall short:

1. Additional taxation of SS benefits. Reducing benefits would be to hard to do politically. Taxing benefits of high earners is a lot easier to do.

2. Increases in the retirement age to 68-70, phased in depending upon one's age.

I see no scenario where people who take SS early (at 62) will benefit from doing that unless one passes earlier than normal. SS benefits tend to be actuarially balanced so that the 'early' people will probably see a bigger cut in future payments than others if future benefits are reduced.

My 2 cents. Take what you wish and leave the rest.

 

[explanade]

SS will be there. It is already means tested via tax on benefits. Politicians will panic in or around the year 2021 and remove the cap on income subject to SS and raise the % of benefits taxed for high income pensioners and maybe middle income pensioners.

You'd think they'd do that but the only politicians now going near the "third rail" are those proposing to cut benefits in one way or another, not raise the cap.

Some ideologues view raising the cap as raising taxes and that seems to be more verboten to them than the prospect of proposing benefits cuts.

Or maybe they get donations or seek donations from higher income people who would be displeased at the prospect of paying more FICA but not personally getting more benefits than they would under the current cap.

 

[jabbahop]

my guess is raise ages and withholding rate (have done both before). Additional taxation on benefits might happen but doesn't that go into general fund vs SS trust fund?


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[marko]

The one thing I'm slowly coming to conclude is that the old saying is correct:
"Most things you worry about never happen".

I've growing more and more deaf (literally and figuratively) to all this noise about the next big doom coming our way. However dire the prediction is, it seems that--even when it does occur-- it's 10% of how bad it was supposed to be.

Again, 45 years ago when I first started working I was told that SS would be "long, long gone" by the time I'd be eligible.
I was told that my generation would not live as well as our parents.
I was told that I'd have to work until I died.
Yada yada yada

 

[CaliforniaMan]

There are a lot of things I worry about SS going bankrupt is not even in the top 1000.

 

[Independent]

my guess is raise ages and withholding rate (have done both before). Additional taxation on benefits might happen but doesn't that go into general fund vs SS trust fund?

So far, they have gone into the TF. This is from the 2014 SS Trustees Report Glossary:

Taxation of benefits
Beginning in 1984, Federal law subjected up to 50 percent of an individual’s or a couple’s OASDI benefits to Federal income taxation under certain circumstances. Treasury allocates the revenue derived from this provision to the OASI and DI Trust Funds on the basis of the income taxes paid on the benefits from each fund. Beginning in 1994, the law increased the maximum percentage from 50 percent to 85 percent. The HI Trust Fund receives the additional tax revenue resulting from the increase to 85 percent.

It was about $20 billion in 2013.

III. FINANCIAL OPERATIONS OF THE TRUST FUNDS ANDLEGISLATIVE CHANGES IN THE LAST YEAR

 

[eta2020]

It surprises me how many people don't know that they are not (significantly) boosting their SS benefits by working after 55.

At that point one is just paying into the system and loosing last healthy years in an office. Statistically those healthy years end in high 60s.

 

[OAG]

For those with a significant taxable pension (about $34K and up) you will already be subject to a reduction in SS since 85% of it will be taxed at your marginal rate (15% & 25% are common). So if your SS is $20K you will "lose" $3K - $5K in addition to the usual deduction for MC (at least $104 a month; or $1,248 a year). This to my way of thinking is be a significant "reduction" in benefits.

 

[samclem]

For those with a significant taxable pension (about $34K and up) you will already be subject to a reduction in SS since 85% of it will be taxed at your marginal rate (15% & 25% are common). So if your SS is $20K you will "lose" $3K - $5K in addition to the usual deduction for MC (at least $104 a month; or $1,248 a year). This to my way of thinking is be a significant "reduction" in benefits.

Good point. Down the road, I wonder if Roth gains will be treated in a similar way. They won't be taxed directly (they promised they wouldn't!), but the withdrawn Roth gains will be included in the formula to increase the amount of SS subject to taxes, lower the tax brackets and thresholds for CG and dividend taxation, etc. So, they won't be taxed (technically), but they'll increase the taxes you pay on other income.

 

[Fermion]

Good point. Down the road, I wonder if Roth gains will be treated in a similar way. They won't be taxed directly (they promised they wouldn't!), but the withdrawn Roth gains will be included in the formula to increase the amount of SS subject to taxes, lower the tax brackets and thresholds for CG and dividend taxation, etc. So, they won't be taxed (technically), but they'll increase the taxes you pay on other income.

I doubt that. Roth money has already been taxed once, unlike 401k, IRA, pension money.

But who knows?

 

[NW-Bound]

As samclem said, they are not likely to tax Roth money directly. But the tax formula is likely to change so that when the Roth money is added to your income, it pushes more of your SS, dividends, cap gains, what have you, into higher tax brackets.

In a similar way, currently SS is not taxed if it's your only income, but is taxable if you have other sources. Tax is levied depending on your ability to pay. Has always been that way.