SS may be depleted by 2029 due to virus economy

[Markola]

Our neighbor both worked and both collected SS at age 62. They literally have practically no other savings, except for a small 401K at best.

Any cut to SS will have a dramatic effect on their lives.

I’m not going to worry about cuts to current recipients and will bet that politicians will elbow their way in front of each other to prevent cuts to them. Retired people vote and have lots of extra time to cause headaches for elected officials, not to mention it wouldn’t be right to do to people.

 

[LARS]

You may look at means testing SS as "window dressing," but it is very popular with many of our fellow citizens and a block of our political leadership. Both taxing up to 85% of your SS benefits and the graduated schedule which allows for higher percentage payouts for lower level lifetime contributors are really examples of means testing already happening today. Future additions to means testing might include:

1. Additional bending of the curve further reducing payout percentages at higher incomes.

2. Changing the current "up to 85%" level of SS benefits taxed as income to 100%.

3. Removing the annual cap on FICA contributions.

4. Establishing a graduated scale of FICA tax levels similar to graduated income tax. This would be similar to IRMAA for Medicare and would be convenient since the hardware and methodology are already in place.

5. Adding an asset-based component in determining payout levels or FICA tax levels. In this age of computers and the Internet, having the fed gov't know your real estate, banking and brokerage assets would be simple. For us geezers, your bank and/or brokerage is already doing this on your TIRA accounts for purposes of calculating your RMD.

I'm not a proponent of means testing SS. But, it's already begun. Adding more means testing would be relatively easy. Some politicians like it because it gives them someone to villainize (the "rich"). I'm betting some expansion of means testing SS occurs within the next decade. This is a downer to me.......

And so be it........

I am not in anyway suggesting there will not have to be changes to SS to buy it another fifty or sixty years as was done in Reagan Administration.

Second, there are two parts to this discussion, which shouldn't be confused. The impact on contributors to SS and recipients of SS. The focus of my "window dressing" comment was as to recipients. The pain of adjustment will be shared though I highly suspect it will favor the current recipients as to where the pound of flesh will be extracted.

Thirdly, if you try to Means Test (and by that I mean phasing out benefits) our way out of the funding problem with SS we would have to deny benefits well into the middle class ranks. And that is not going to happen. It is easy to make an example of why Warren Buffet not getting his SS benefits... but it is "window dressing".

Finally, I am 100% convinced any Means Testing will be Income based, which is how we handle all taxes. The ability to track Assets, and value them, is a nightmare.

 

[MichaelB]

The real levers will be increasing FRA (on future retirees) and increasing the cap on SS tax, IMHO.

Remembering my days in corporate finance working on RIF-finance, there’s one additional lever that can be quite powerful which is to slow the rate of growth of the benefit. Because it permanently shifts the curve down, it may offer the greatest long term impact on trust fund solvency, and at the same time, be easier to implement than a direct benefit cut or an increase in tax. That would most likely be part of a chained-CPI proposal.

I’m not advocating this, but I do think it has a greater probably of implementation than increasing taxes or cutting benefits. Despite all the talk in the thread about class confrontation, in real life that rarely leads to meaningful reform legislation, which more often takes the path of least resistance. If a change in methodology causes CPI to fall below the wage growth rate, this would have significant potential to improve funding vs outlays of the SS trust along with other aspects of public funding.

 

[Spock]

Remembering my days in corporate finance working on RIF-finance, there’s one additional lever that can be quite powerful which is to slow the rate of growth of the benefit. Because it permanently shifts the curve down, it may offer the greatest long term impact on trust fund solvency, and at the same time, be easier to implement than a direct benefit cut or an increase in tax. That would most likely be part of a chained-CPI proposal.

I’m not advocating this, but I do think it has a greater probably of implementation than increasing taxes or cutting benefits. Despite all the talk in the thread about class confrontation, in real life that rarely leads to meaningful reform legislation, which more often takes the path of least resistance. If a change in methodology causes CPI to fall below the wage growth rate, this would have significant potential to improve funding vs outlays of the SS trust along with other aspects of public funding.

And this has the potential to hurt even more than a "31%" benefit cut IF inflation kicks in as hard as some suggest it will.

 

[Spock]

You are so right: Inconvenient truth.

If SS fails to deliver than much hurt is across all four corners of the United States.

As to means testing, it is a "window dressing" solution for politicians. Would have to drop so far into Middle Class land to make a difference that it is not a viable option. Moreover, if you are Asset rich and Income poor (i.e. no pension) I think even with Means Testing you have very little to worry about unless you're sitting on $30-40 million plus in Assets (and even then I think it unlikely).

Put another way, any Means Testing will be Income driven not Asset driven.

I do not share your confidence in income-only driven means testing.
Just look at the snarling on this board over "asset rich but income poor" people taking the ACA credits. The debts have gone non-linear/vertical and no stone will be left unturned to "protect SS for those who really need it".

 

[gerntz]

They'll pay full amount & just add more to debt like now.

 

[Dtail]

They'll pay full amount & just add more to debt like now.

Possibly, but less likely if inflation is much higher.

 

[youbet]

Second, there are two parts to this discussion, which shouldn't be confused. The impact on contributors to SS and recipients of SS. The focus of my "window dressing" comment was as to recipients. The pain of adjustment will be shared though I highly suspect it will favor the current recipients as to where the pound of flesh will be extracted.

Semantics and terminology, as always, play a big part in these discussions. By "means testing," I take the broader view and define it as any adjustments that impact either inputs or outputs based on "means" (income or assets). For example, if my SS benefit is reduced because of my relatively higher income, that's "means testing." If my benefit stays the same but, while I'm a contributor, I pay higher FICA taxes and therefore benefit less per dollar contributed, I also call that "means testing." Or if part of my SS benefit is clawed back in the form of fed income taxes, well, that's "means testing" too.

if you try to Means Test (and by that I mean phasing out benefits) our way out of the funding problem with SS we would have to deny benefits well into the middle class ranks. And that is not going to happen.It is easy to make an example of why Warren Buffet not getting his SS benefits... but it is "window dressing".

Take a look at the IRMAA system and how it causes higher income folks to pay more for their Medicare Parts B and D. IRMAA impacts more folks than just the Warren Buffet types (a LOT more) but does not go deep into the middle class. Similar could be done to tinker with SS benefits. And I'm guessing they won't try to solve the SS problem using only means testing. It will be just one part.

I never believed the feds would means test Medicare for many of the same reasons you've given for why you think they won't means test SS. But, along came IRMAA, reducing my Medicare supplement (thus increasing my Part B and Part D premiums) and Medicare turns out to be pricey for me in retirement. And the last I looked, I'm not quite as wealthy as Warren Buffet!

Finally, I am 100% convinced any Means Testing will be Income based, which is how we handle all taxes. The ability to track Assets, and value them, is a nightmare.

Gee, I just paid the first installment of my real estate property taxes, a hefty tax here in Illinois. That's asset based. Should I ask for a refund?

Tracking the bulk of our assets would not be a nightmare at all LARS. It would be simple for banks and brokerages to report your accounts and, in fact, they are already reporting your TIRA account year end amounts. And the states could easily report your real estate holdings. As far as personal possessions, the feds could ask you to report them and few would....... and who cares? Like unreported income, stuff happens........

SS is already being means tested (by my broader definition). I'm fearful the trend will grow in the future. The precedent has already been set by means testing Medicare via IRMAA. Expanding means testing within SS won't be as unpopular (with the voting majority) or difficult as you imagine. And they'll eventually slide into including some of your assets in your "means" add-up too. IMHO of course.

I wish I could be as optimistic as you about it not happening LARS. I hope you're correct, but I feel means testing (broader definition) coming to SS.

 

[street]

I may not need it or planned for SS but I want it. It is mine it was above and beyond taxes I paid for me and me wants what I paid in.

 

[Montecfo]

Remembering my days in corporate finance working on RIF-finance, there’s one additional lever that can be quite powerful which is to slow the rate of growth of the benefit. Because it permanently shifts the curve down, it may offer the greatest long term impact on trust fund solvency, and at the same time, be easier to implement than a direct benefit cut or an increase in tax. That would most likely be part of a chained-CPI proposal.

I’m not advocating this, but I do think it has a greater probably of implementation than increasing taxes or cutting benefits. Despite all the talk in the thread about class confrontation, in real life that rarely leads to meaningful reform legislation, which more often takes the path of least resistance. If a change in methodology causes CPI to fall below the wage growth rate, this would have significant potential to improve funding vs outlays of the SS trust along with other aspects of public funding.

I think chain CPI could be part of the formula. But the last time SS was reformed in the 1980s, we were at a similar point in the runway to SS insolvency. The levers were (from memory):

-higher taxes, both rate and cap level
- reduced benefits, by extending FRA based on when you were born.
-more taxing of benefits i.e., "means testing"

This approach did not impact near term retirees as to benefits (but did for the tax side).

This approach was viewed as "fair" because life expectancy had moved so far compared to original vision, and taxing higher incomes put extra burden on those most able to pay is attractive.

I agree with you that adding chain CPI to the mix is very attractive to lawmakers, because it is wonky, people do not understand it but it has a very powerful impact to solvency over time.

In my opinion ALL of these tools will be used, because they will be needed. Reduction of benefits and a higher cap will be needed to sell a higher tax rate to younger voters.

Running counter to this is a sentiment in some quarters that SS needs to be increased. This seems destined to fail unless we decide the deficits not only do not matter, but they never will.

So in this environment that has to be at least an outside possibility.

 

[USGrant1962]

This is still a great tool to understand the levers on SS. The Reformer: An Interactive Tool to Fix Social Security

It does not reflect the Great Repression hit to the trust fund so your solution will need to be even more aggressive.

 

[ejman]

This thread reminds me of why I decided to take SS at 62 7 years ago.

 

[camfused]

...impacts similar to the Great Recession would accelerate the depletion date of the OASI trust fund reserves from 2034 (projected in this year’s trustees’ report) to 2029... triggering a cut of 31% in retirement benefits

I plugged these new numbers into my model this morning (instead of depletion in 2034, with a 23% cut), and I go from both DW and I doing SS at 70, to me doing FRA and her doing 70. So, this actually would change the strategy, for us.

 

[USGrant1962]

I plugged these new numbers into my model this morning (instead of depletion in 2034, with a 23% cut), and I go from both DW and I doing SS at 70, to me doing FRA and her doing 70. So, this actually would change the strategy, for us.

Good thought on revisiting models. I plugged 31%/2029 into Open Social Security and its model moved DW's smaller SS up from age 65 to 62, and left mine at 70. 62/70 is what we're planning anyway.

It really slams the NPV of the benefit too.

https://opensocialsecurity.com/