The Future of SS

[ziggy29]

The 50% threshold isn't mentioned there, but this document states the 50% taxable threshold would be eliminated.

https://larson.house.gov/sites/larson.house.gov/files/Larson Blumenthal Van Hollen_2019 0918.pdf

From the document linked here:

Section 104. Replace the current-law thresholds for federal income taxation of OASDI benefits with a single set of thresholds at $50,000 for single filers and $100,000 for joint filers, for taxation of up to 85 percent of OASDI benefits, effective for tax years 2020 and later.

Still not inflation indexed. Bummer. Like the AMT, this is one thing that was intended to only snare high-income folks, but eventually will hit well into the middle class and even below.

 

[Dtail]

Agreed. I woke up one day and found I have to work two years longer to get FTA SS benefits. And I don't think those people should have to take another hit to their benefits, although, the tax handling of benefits still results in a yearly cut in "after-tax" benefits.

http://www.early-retirement.org/forums/f52/the-future-of-ss-101442-4.html#post2353087

This bill would address the higher yearly taxation problem some by increasing the 85% taxable threshold.

H.R.860 - Social Security 2100 Act

https://www.congress.gov/bill/116th-congress/house-bill/860

The 50% threshold isn't mentioned there, but this document states the 50% taxable threshold would be eliminated.

https://larson.house.gov/sites/larson.house.gov/files/Larson Blumenthal Van Hollen_2019 0918.pdf

The new threshold would still not be indexed to inflation going forward.

Would the tax ratio up until it reaches 85% be graduated like it is currently?

 

[pb4uski]

Agreed. I woke up one day and found I have to work two years longer to get FTA SS benefits. ....

If you are really a GenX guy, when Congress changed the FRA in 1983, you were between 4 and 18 years old (Gex X is born between 1965-1979).... so how old were you when you "woke up one day and found out that I have to work two years longer to get FTA (sic) SS benefits"?

You must be one of the few 4-18 year olds who gave much of any thought to SS benefits.... most of us 4-18 year old males were focused on chasing frogs at 4 or chasing girls at 18.

ETA: Also, the reason for the change in FRAs were not to reduce benefts, but more to adjust benefits for improved longevity since the age 65 FRA was set and more current recipients longer lives would result in them receiving benefits for longer. See post #92.

...while many of us will be starting benefits 0-2 years later, because of improved longevity these people born later will be collecting benefits for more years... so if one looks at the expected value of benefits (benefits adjusted for mortality) it is not a benefits cut.

In 1983 the FRA was changed from 65 to 67 for people born in 1938 to 1959.... the last birth year to have a FRA of 65 was 1937 and the first birth year to have a FRA of 67 was 1960.

Life expectancy at age 65 for males and females born in 1937 was 12-13 years... so recipients would be expected to collect for 12-13 years if they begin collecting at FRA. Life expectancy for age 65 for males and females born in 1960 was 13-16 years... so recipients would be expected to collect for 11-14 years.

In my view it was an adjustment to maintain the parity of benefits between generations... particularly with respect to the number of years that recipients would be collecting benefits.

 

[Teacher Terry]

Decades ago SS disability was easy to get and was abused. For the past 25 years it’s ridiculously hard to get unless you are terminal. Yes we would retrain people that get hurt in physical jobs but sometimes it’s not possible due to either low IQ or reading abilities. So that’s not really the answer. You can keep raising the retirement age but some people due to disability or illness will not be able to continue to work.

 

[CRLLS]

Some (most) of this is semantics. Nobody's benefit got cut except for those who were collecting when SS benefits got taxed. Even then the benefit themselves didn't get cut. When I started work, the retirement age was 65 and SS wasn't taxed. Even though my FRA was moved to 66 and SS would be taxed as income at the time I retired, My "benefits" didn't get cut. I wasn't getting any benefits at the time. Only the expected (not promised) benefits changed before I started to collect.

I see no reason to expect similar situation to occur in the not-to-distant future where those who are currently collecting benefits will continue at that level and not be "cut". Maybe they could increase the taxation from 85% to 100% of those benefits for some higher income people. Who really knows? Nobody knows how it will end up. At the moment, everyone is putting their own hopes and reasoning to what might play out.

I for one, would like to see the SS withholding have no cap at all and not increase any anticipated benefit level. If required to placate some of those higher earning people, reduce the employee and employer tax by half (?) This is my preference.

I was one of those unfortunates who lost my job while in my 50's and could not find comparable pay work. I could not fill the SS earnings bucket the last 10+ years before FRA. Fortunately for me and DW, I didn't have to. Because I am sensitive for those in a similar situation, I think raising the FRA another year or two is not the way to go regardless of the higher life expectancy of today.

 

[GenXguy]

If you are really a GenX guy, when Congress changed the FRA in 1983, you were between 4 and 18 years old (Gex X is born between 1965-1979).... so how old were you when you "woke up one day and found out that I have to work two years longer to get FTA (sic) SS benefits"?

Many demographers start the GenX generation at early at 1960.

https://en.wikipedia.org/wiki/Generation_X

Here are some excerpts:

Jon Miller at the Longitudinal Study of American Youth at the University of Michigan wrote that "Generation X refers to adults born between 1961 and 1981" and it "includes 84 million people".

In their 1991 book "Generations" authors and demographers used 1961 to 1981 for Gen X birth years. At the time it was published they wrote that there are approximately 88.5 million U.S. Gen Xers.

Demographers William Strauss and Neil Howe rejected the frequently used 1964 end date of the baby boomer cohort (which results in a 1965 start year for Generation X), saying that a majority of those born between 1961 and 1964 do not self-identify as boomers, and that they are culturally distinct from boomers in terms of shared historical experiences. Howe says that while many demographers use 1965 as a start date for Generation X, this is a statement about fertility in the population (birth rates which began declining in 1957, declined more sharply following 1964) and fails to take into consideration the shared history and cultural identity of the individuals. Strauss and Howe define Generation X as those born between 1961 and 1981

Others use dates similar to Strauss and Howe's such as the National Science Foundation's Generation X Report, a quarterly research report from The Longitudinal Study of American Youth, which defines Generation X as those born between 1961 and 1981. Generation X, a six-part 2016 documentary series produced by National Geographic also uses a 1961–1981 birth year range. PricewaterhouseCoopers, a multinational professional services network headquartered in London, describes Generation X employees as those born from the early 1960s to the early 1980s.

Author Jeff Gordinier, in his 2008 book X Saves the World, defines Generation X as those born roughly between 1961 and 1977 but possibly as late as 1980. Canadian author and professor David Foot divides the post-boomer generation into two groups: Generation X, born between 1960 and 1966; and the "Bust Generation", born between 1967 and 1979, In his book Boom Bust & Echo: How to Profit from the Coming Demographic Shift. On the American television program Survivor, for their 33rd season, subtitled Millennials vs. Gen X, the "Gen X tribe" consisted of individuals born between 1963 and 1982.


I'm at the older end of GenX, and I was most certainly aware of the increase at the time, and it's been brought up many times since. Not sure why I need to explain this. I worked with a guy who was about 10 years older, and his FRA had been increased some as well (a smaller amount than for me), and he had been working for about 10 years at the time that occurred. It wasn't just GenX that saw the increase.

ETA: Also, the reason for the change in FRAs were not to reduce benefts, but more to adjust benefits for improved longevity since the age 65 FRA was set and more current recipients longer lives would result in them receiving benefits for longer. See post #92.

I disagreed with your post. Feel free not to respond to my posts if you are going to be snarky. These threads might not get shutdown as quickly.

 

[GenXguy]

You can keep raising the retirement age but some people due to disability or illness will not be able to continue to work.

Yes, and it's already been raised during many of our members' lifetimes. In addition to those who are not able to work at an an older age due to disability or health reasons, more people will die off before they are able to collect or with very few years collecting. This is always the case for some people, but raising the FRA worsens the problem as not everyone lives longer.

Yes, it's definitely a benefit cut when you the rules change during your lifetime and you suddenly have to work two extra years to claim full benefits vs. what was promised, despite the fact that you hadn't actually started collecting yet. I could make an analogy to receiving a health care insurance benefit that you haven't actually had to use yet that was taken away for two years.

Plus, the additional amount taxed every year results in an after-tax benefit cut as well, as I elaborated on in my previous post.

However, benefits are effectively cut yet another way. People on Social Security on average have higher personal inflation than the average person, so their buying power is actually reduced even further each year because of the smaller inflation adjustments to Social Security vs. the increase in their real costs. It would make more sense if SS was indexed to CPI-e.

One quick reference with additional detail on that matter:

https://www.ncpssm.org/documents/so...option-for-calculating-social-security-colas/

 

[GenXguy]

Agreed. I woke up one day and found I have to work two years longer to get FTA SS benefits. And I don't think those people should have to take another hit to their benefits, although, the tax handling of benefits still results in a yearly cut in "after-tax" benefits.

http://www.early-retirement.org/forums/f52/the-future-of-ss-101442-4.html#post2353087

This bill would address the higher yearly taxation problem some by increasing the 85% taxable threshold.

H.R.860 - Social Security 2100 Act

https://www.congress.gov/bill/116th-congress/house-bill/860

The 50% threshold isn't mentioned there, but this document states the 50% taxable threshold would be eliminated.

https://larson.house.gov/sites/larson.house.gov/files/Larson Blumenthal Van Hollen_2019 0918.pdf

The new threshold would still not be indexed to inflation going forward.

Would the tax ratio up until it reaches 85% be graduated like it is currently?

It looks like it's still "up to" just as it was, but the threshold dollar amount is increased (for 85% taxable).

 

[pb4uski]

.... I disagree with your post. Feel free not to respond to my posts if you are going to be snarky. These threads might not get shutdown as quickly.

Go all ostrich if you want. But it is a simple fact that the aggregate benefits to someone born after 1960 would have been substantially higher than for someone born in 1940 all else being equal (same real earnings history) if the FRA had not been adjusted by Congress. I can see that as someone born closer to 1960 you would prefer to get that additional benefit, but it doesn't justify it or make it a cut in benefits.

But you always have the option to start slightly reduced benefits at age 65 if you prefer and the aggregate benefits that you receive would be about the same as if you take full benefits at age 67.

 

[harllee]

From everything I have read most people receive total SS payments over their lifetimes that are substantially higher than what they (and their employers) paid into SS. For most of us SS is a great deal and I for one hope that it can continue.

 

[ziggy29]

From everything I have read most people receive total SS payments over their lifetimes that are substantially higher than what they (and their employers) paid into SS.

I would sure hope so, given decades of compound interest.

 

[Bir48die]

Plenty of articles that show most could do better if self investing. That being said those who claimed in the early years put the system behind due to lack of earnings to subsidize benefits.

I continue to believe that this can be easily fixed without cutting benefits. Possibly if Congress can put their attention in tv e proper spot

 

[harllee]

Plenty of articles that show most could do better if self investing. That being said those who claimed in the early years put the system behind due to lack of earnings to subsidize benefits.

I continue to believe that this can be easily fixed without cutting benefits. Possibly if Congress can put their attention in tv e proper spot

So you think the average person could do better self investing? I disagree.

 

[pb4uski]

So you think the average person could do better self investing? I disagree.

+1 Two aspects. Many/most people don't have the discipline to save... we can see that by the relative paucity of people who are reasonably prepared for retirement and would be up the creek without a paddle if they didn't have SS... SS is a forced retirement savings program. Second, we know that most investors do worse than the index because of poor timing, panic moves, etc. Combine the two and self investing is hard for many... it shouldn't be and it is hard to explain why, but it is.

 

[CRLLS]

Plenty of articles that show most could do better if self investing. That being said those who claimed in the early years put the system behind due to lack of earnings to subsidize benefits.

I continue to believe that this can be easily fixed without cutting benefits. Possibly if Congress can put their attention in tv e proper spot

This is the same argument from about 20-30 (?) years ago when some people were advocating self control of their SS contributions.

So you think the average person could do better self investing? I disagree.

I think that some could, but the question I would have is "would" they? And if they don't, then what? SS was set up to allow some amount of retirement income when someone could not, or would not have saved/invested during their working years.

 

[flyingaway]

Plenty of articles that show most could do better if self investing. That being said those who claimed in the early years put the system behind due to lack of earnings to subsidize benefits.

I continue to believe that this can be easily fixed without cutting benefits. Possibly if Congress can put their attention in tv e proper spot

I wonder how many will act on the JG Wentworth commercial: "It's my money and I want it now".

 

[Independent]

I expect most of you to disagree with what I am going to post, but I’ll go ahead anyway:

1. Social Security funding problems are not 12 or 15 years away. For the nation, they are here now. Since 2010, Social Security taxes collected have been less than benefits paid out. So the Treasury Dept has been using other tax revenues to pay a portion of SS benefits. That’s one of the reasons our government has been running a huge deficit, and passing on more debt to be paid by our children abd grandchildren.

This is true, but it is only part of the story.
Every year from 1984 through 2009, SS collected more in taxes than it paid out in benefits. Therefore, the deficit in each of those 25 years was less than it would have been without SS. As a result, the federal gov't borrowed less money from the public than it would have, and had a smaller total debt owned to the public at the end of 2009 than it would have. The SS negatives since then have not been enough to offset all the prior positives.

2. The Social Security Trust Fund has never had any money deposited into it. All Social Security taxes were always - since 1938 - deposited into the Treasury’s General Fund and used for government spending. Checks to Social Security beneficiaries were written from the General Fund.

I agree that the physical form of the Trust Fund is just numbers written on a multi-column worksheet. Similarly, any law is just words written on plain paper. In both cases, the real importance is how they constrain human behavior. For the Trust Fund, the Secretary is legally authorized and required to pay benefits if the last number on the spreadsheet is positive, and legally prohibited from paying benefits if the last number is negative.

Government accounting further gummed up things by making accounting for “interest earned” for every year that the cumulative difference between SS taxes and SS benefits was greater than zero. But that really had no meaning, as no interest was ever actually deposited anywhere.

I disagree with the bold. The Trust Fund records actual economic transactions -- taxes really collected and benefits really paid. The "interest earned" column might be better labeled "interest not paid". It records the interest that the gov't didn't pay the public because the positives in SS operations allowed the gov't to borrow less money from the public that it would have without SS. That's real money not paid. Any analysis of the impact of SS on the outstanding public debt has to include that number.

3. The Supreme Court has already ruled that no person has a legal claim to any future SS benefits. Congress has always been free to change the timing and amount of a retiree’s current and future benefit. And they have done so.

I agree.

Certainly, from a political perspective it would be impossible to make big, across the board changes. But maybe not small, targeted ones.

I would agree that any changes to the program that either raise taxes or reduce benefits are politically difficult. That's why we don't see those things very often.

4. Over the next five years, the gap between SS taxes collected and SS benefits to be paid under current laws will grow. So Congress will need to do something now, not in 12 years.

I don't see any magic in the next five years. Congress could choose to do absolutely nothing with SS. If so, about 15 years from now, benefits will be cut by roughly one-fourth. There is no constitutional requirement that they do anything else.

They could choose to wait until the very last minute, and avoid a benefit cut by eliminating the tax cap and raising the tax rate. Some people would like that approach (because it doesn't cut benefits).

I think it would be better to act sooner because most of us like some forewarning about bad news. As I mentioned above, there is a bill in the House that is already supported by nearly half the members, and it hasn't even had committee hearings yet. That is a promising sign to me that something might happen before the last minute.

 

[Chuckanut]

I see no reason to expect similar situation to occur in the not-to-distant future where those who are currently collecting benefits will continue at that level and not be "cut". Maybe they could increase the taxation from 85% to 100% of those benefits for some higher income people. Who really knows? Nobody knows how it will end up. At the moment, everyone is putting their own hopes and reasoning to what might play out.

I for one, would like to see the SS withholding have no cap at all and not increase any anticipated benefit level. If required to placate some of those higher earning people, reduce the employee and employer tax by half (?) This is my preference.

I was one of those unfortunates who lost my job while in my 50's and could not find comparable pay work. I could not fill the SS earnings bucket the last 10+ years before FRA. Fortunately for me and DW, I didn't have to. Because I am sensitive for those in a similar situation, I think raising the FRA another year or two is not the way to go regardless of the higher life expectancy of today.

You make some good points regarding taxation of benefits. IMHO, increased taxation will be one way SS benefits are 'reduced' for higher income people.

The other good point is that age discrimination is real and it starts in the 50's, anywhere from 5-10 years before we are eligible to take benefits at 62. I know several people who lost their job and had to work much lower paying jobs, hanging on by their fingernails, until they hit 62. At 62 they turned on SS and could start breathing easier. Of course, they are stuck with that more limited payment for the rest of their lives.

Frankly, regardless what happens to SS in the future, learning to LBYM and putting a big chunk of cash aside is a great idea. I realize many hard working people can't afford to do that even on a prudent budget.

 

[Dtail]

You make some good points regarding taxation of benefits. IMHO, increased taxation will be one way SS benefits are 'reduced' for higher income people.

The other good point is that age discrimination is real and it starts in the 50's, anywhere from 5-10 years before we are eligible to take benefits at 62. I know several people who lost their job and had to work much lower paying jobs, hanging on by their fingernails, until they hit 62. At 62 they turned on SS and could start breathing easier. Of course, they are stuck with that more limited payment for the rest of their lives.

Frankly, regardless what happens to SS in the future, learning to LBYM and putting a big chunk of cash aside is a great idea. I realize many hard working people can't afford to do that even on a prudent budget.

Amen...
I took a package at 55, but was only going to be a matter of time, as no one in my office of 400 was over 60 (NO ONE).
I tried to get another job and had many contacts and was willing to accept much lower pay, but to no avail.
Lucky to discover this site besides saving since 22 y.o. and discovered I could retire at 57.
Savings and luck.....

 

[Out of Steam]

I'm skeptical about the motivations and statistics behind this issue.

Lifespans of Americans are peaking with the generation who are about 45 today, demolishing the premise that we're all going to break the economic system with 50-60 year retirements. Also, our society is getting smarter about the limitations of medicine, and should (without the Government or insurance companies telling us to) begin to limit costly treatments aimed at "curing" people without reasonable hope of improvement.

 

[pb4uski]

.... 2. The Social Security Trust Fund has never had any money deposited into it. All Social Security taxes were always - since 1938 - deposited into the Treasury’s General Fund and used for government spending. Checks to Social Security beneficiaries were written from that General Fund. The Social Security Trust Fund has always been nothing more than accounting entries which showed the cumulative difference between SS taxes collected and SS benefits paid. Government accounting further gummed up things by making accounting entries for “interest earned” for every year that the cumulative difference between SS taxes and SS benefits was greater than zero. But that really had no meaning, as no interest was ever actually deposited anywhere. ...

Not totally right. There is a separate accounting within the general fund for the various social security trust funds.

see Funds from Dedicated Collections (Note 20) under https://fiscal.treasury.gov/reports-statements/financial-report/balance-sheets.html and https://fiscal.treasury.gov/files/r.../2018/notes-to-the-financial-statements20.pdf

The interest is credited to the fund under investment revenue... essentially that is what the general fund credits to the SS trust funds for interest that it avoided having to pay because it has borrowed money from the SS trust funds rather than from the public... $81.1 billion for FY2018.

 

[urn2bfree]

I am not sure how people are calculating what benefit they are "due," but don't forget to include the cost of disability insurance that is part of Social Security that most people never realize they are paying for and enjoying. Disability insurance is worth a lot.

 

[pb4uski]

Let's not get too excited until there is a bill working its way through Congress.

 

[Alexi]

Ummm. How about directly on point U.S. Supreme Court precedent? Flemming v. Nestor, 363 U.S. 603 (1960). You and I have no enforceable right to benefits if Congress changes the law (or if the present law forces a haircut).

Let them eat cake!
Loose lips at Davos may lead the way to Madame Guillotine!

 

[Old Microbiologist]

As a person who re-enlisted in the Army during Vietnam in 1972 with the promise of "free healthcare for life" if I made it to 20 years. Congress can and likely will renege on promises and social programs will be cut way before weapons systems or useless wars. It is all about business. I made it for 26 years to retirement and yes, they are now charging for military retiree medical and the courts have refused to uphold the re-enlistment promises saying they were only "advertising" and not a legal guarantee.

This is also why they have suggested privatizing Social Security for years. This is the last shred of money not under the direct control of Wall Street and it is a nice piece to chew on for them. Does anyone believe this would be beneficial to recipients?