When/who will SS reduce?

[Rianne]

I think all agree SS will decrease, but for who? I search for articles regarding who/when SS will change. DH and me are 60. Any insight as to who is safe? The retirement community is a huge voting block and getting bigger everyday. I assume the younger generations will be affected the most.

 

[pb4uski]

Nobody is safe. If Congress fails to act the most likely result is that in 2034 that benefits will be reduced across-the-board to the extent needed to balance outflows with tax inflows... most likely ~25% across-the-board cut.

The percentage of the cut will float thereafter based on the ratio of tax receipts to benefit payments due.

 

[Rianne]

Found great article by Bloomberg.


https://www.bloomberg.com/graphics/2016-saving-social-security/

 

[pb4uski]

Good article. I find it interesting that in a country with a population of ~325m that we only have 1.2m (0.37%) of immigration and 4.4m (1.34%) of immigration will solve not only the SS problem but a host of other problems with the need to workers.

 

[ShokWaveRider]

Is there really any incentive (Other than perhaps voting Seniors) to make any changes at all? What I mean here is; possibly those who have to make the decisions will probably earn too much to receive the benefits, or have what they may receive make a meaningful difference to their quality of life.

 

[athena53]

Good article, especially the fixes suggested at the end, although they'll disproportionately affect some people (later retirement age hard on those who have physically-taxing jobs, slowing COLA increases would be hard on those who rely mostly on SS).

I don't see a 25% across-the-board cut happening. The average monthly SS check is about $1,400 and a scary % of seniors have little income other than SS. Instead, I see more taxation of SS for SS recipients in higher income brackets, and eliminating the cap on wages subject to SS (with no proportionate increase in benefits).

 

[njhowie]

Found great article by Bloomberg.

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.

 

[marko]

Nobody is safe. If Congress fails to act the most likely result is that in 2034 that benefits will be reduced across-the-board... most likely ~25% across-the-board cut.

As I've mentioned in almost every "should I take SS at 62?" thread here: "Take the money and run".

But one thing I've never understood was why they don't raise the salary cap. I would reach my cap sometimes as early as March...It was one tax that I wouldn't mind to have kept paying.

Having said that, the demise of SS or reduced benefits has been predicted since the 1960s. I just don't see it coming.

 

[MRG]

Good article, especially the fixes suggested at the end, although they'll disproportionately affect some people (later retirement age hard on those who have physically-taxing jobs, slowing COLA increases would be hard on those who rely mostly on SS).

I don't see a 25% across-the-board cut happening. The average monthly SS check is about $1,400 and a scary % of seniors have little income other than SS. Instead, I see more taxation of SS for SS recipients in higher income brackets, and eliminating the cap on wages subject to SS (with no proportionate increase in benefits).

+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.

 

[athena53]

+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.

Yes, but the underlying reason was that your wages above the cap were not counted in the benefit formula, either. (In addition, the benefit formula is already less generous to high income earners, returning a lower % of their average indexed wages- as low as 15% in the highest interval, between the last "bend point" and the wage cap). So, eliminating the cap with no commensurate increase in benefits is just a straight transfer payment to lower-income workers. Without getting into whether that's good or bad, it does change the way SS is structured.

 

[Crabby Mike]

I wonder how much the numbers may have changed in the nearly two years since the Bloomberg article was written. Also, I have to question the assumption that more immigration or a higher birth rate automatically adds a commensurate increase in SS-paying workers, though I suppose with low unemployment it might be close.

 

[ShokWaveRider]

If Unemployment rates are actually so low, shouldn't that also increase the pool of payers into SS?

 

[pb4uski]

I totally agree with the last few posters that eliminating the cap should be considered... when I was working it was always a mystery to me and I would have been fine with it if it helps to save SS.

The next question is if the cap is eliminated then do you allow the addiitonal taxes paid by those impacted to factor into their benefit calculation or not.

My view would be yes... you need to allow those paying those additional SS taxes to gain some benefit... to not allow an increase in benefits would be an additional nudge of SS towards being just another welfare program (more than it already is given the bend points in the benefit calculation)... and IMO the popular support that the program has will wane if it becomes just another welfare program.

According to this source (perhaps a bit dated but still relevant in an order of magnitude way), subjecting higher wages to SS tax would solve:

A. No maximum on earnings subject to tax, no Increase in benefits.. 88%

B. No maximum on earnings subject to tax, increase in benefits... 71%

C. Increase but not eliminate maximum on earnings subject to tax, increase in benefits... 29%

I would chose B.

Try your hand at Social Security reform | American Academy of Actuaries

 

[SecondCor521]

I predict there will be another SS reform bill of some sort between now and whenever the drop-dead date turns out to be - 2034 or thereabouts. Most politicians will have increasing incentives to address the issue as the drop-dead date gets closer and Americans continue to get older on average.

If history is any example, it is easy to predict roughly what the contents of the bill will be. There will be some reforms that improve the financial strength of the program - my guess would be some combination of raising the SS tax rate, raising the wage cap, reducing COLAs, increasing the FRA, and either means testing or higher taxation of SS benefits.

But interestingly, there will also be an expansion of the program to provide additional benefits which will reduce the financial strength of the program. Historically this has happened every time they modify the program. It seems to me that this is sort of the sugar that helps the medicine go down - "Hey, we're raising the SS tax rate by 1%, but now heirs get an additional 2 years of SS payments!" or something like that.

 

[pb4uski]

I think Congress will act before benefits are required to be cut because the political implications will be too severe.... my only reservation is that the polarity of Congress may not allow that to happen as it might have 20 or 30 years ago.

 

[SecondCor521]

I think Congress will act before benefits are required to be cut because the political implications will be too severe.... my only reservation is that the polarity of Congress may not allow that to happen as it might have 20 or 30 years ago.

I agree with you that things are polarized. I think it is still possible to get "a compromise that did some things the Democrats wanted and some things the Republicans wanted" as happened in 1983:

https://www.usnews.com/opinion/arti...l-security-deal-in-1983-showed-it-can-be-done

Both parties have SS reforms that would largely fix the problem. Personally I would be fine with taking the top X ideas from both parties and enacting that as a law, where "top" is defined as ability to financially strengthen the program, and X to be enough to push the insolvency date out another 75 years.

 

[Huston55]

I totally agree with the last few posters that eliminating the cap should be considered... when I was working it was always a mystery to me and I would have been fine with it if it helps to save SS.

The next question is if the cap is eliminated then do you allow the addiitonal taxes paid by those impacted to factor into their benefit calculation or not.

My view would be yes... you need to allow those paying those additional SS taxes to gain some benefit... to not allow an increase in benefits would be an additional nudge of SS towards being just another welfare program (more than it already is given the bend points in the benefit calculation)... and IMO the popular support that the program has will wane if it becomes just another welfare program.

According to this source (perhaps a bit dated but still relevant in an order of magnitude way), subjecting higher wages to SS tax would solve:

A. No maximum on earnings subject to tax, no Increase in benefits.. 88%

B. No maximum on earnings subject to tax, increase in benefits... 71%

C. Increase but not eliminate maximum on earnings subject to tax, increase in benefits... 29%

I would chose B.

Try your hand at Social Security reform | American Academy of Actuaries

Thx PB4. I was hoping someone would link this SS Reform game; it’s great!

Personally, I’d (1) remove the cap on earnings subject to SS tax, with an increase in benefits and, (2) raise the SS payroll tax just a bit. Boom, done!

 

[joeea]

I think all agree SS will decrease, but for wdayho?

All do not agree. All should agree that - unless changes are made - there will be a decrease in benefits.

I search for articles regarding who/when SS will change. DH and me are 60. Any insight as to who is safe? The retirement community is a huge voting block and getting bigger everyday. I assume the younger generations will be affected the most.

You can assume that if you like, but it's clearly up to your elected officials.

Under the current law, when the trust find runs out of money (currently projected to be somewhere around 2034 or so), Social Security can only pay out what it collects.

Today, that is estimated to be a 23% cut. It will be applied across the board with no exceptions, unless congress acts to make changes. Folks who have been retired for many years will have their benefits cut by 23%. New generations just starting their benefits will be cut by 23%.

We could talk about what our elected officials could do, and what we guess they might actually do, but that may be straying too far into "forbidden political" territory? (shrug)

 

[joeea]

Is there really any incentive (Other than perhaps voting Seniors) to make any changes at all?

That's a pretty big incentive by itself.

You can also toss in all those who expect to eventually become voting seniors. And also all those who have relatives who are voting seniors.

I would expect a rather large population of folks with a voting interest.

 

[joeea]

As I've mentioned in almost every "should I take SS at 62?" thread here: "Take the money and run".

Under current law, you can run but you can't hide. Cuts would be across the board and taking SS at 62 wouldn't stop them.

 

[joeea]

If Unemployment rates are actually so low, shouldn't that also increase the pool of payers into SS?

It will. But not enough to matter.

 

[joeea]

I predict there will be another SS reform bill of some sort between now and whenever the drop-dead date turns out to be - 2034 or thereabouts. Most politicians will have increasing incentives to address the issue as the drop-dead date gets closer and Americans continue to get older on average.

If history is any example, it is easy to predict roughly what the contents of the bill will be. There will be some reforms that improve the financial strength of the program - my guess would be some combination of raising the SS tax rate, raising the wage cap, reducing COLAs, increasing the FRA, and either means testing or higher taxation of SS benefits.

I agree.

But interestingly, there will also be an expansion of the program to provide additional benefits which will reduce the financial strength of the program. Historically this has happened every time they modify the program.

I'm not sure I agree.

What was the expansion when Social Security was overhauled most recently in 1983 (with about 3 months to spare before insolvency)? What kind of expansion do you envision?

 

[joeea]

I think Congress will act before benefits are required to be cut because the political implications will be too severe.... my only reservation is that the polarity of Congress may not allow that to happen as it might have 20 or 30 years ago.

The polarization that exists today, might not exist when they actually getting around to proposing changes.

Remember, the last time around, changes didn't happen until about 3 months before insolvency.

 

[Dtail]

Thx PB4. I was hoping someone would link this SS Reform game; it’s great!

Personally, I’d (1) remove the cap on earnings subject to SS tax, with an increase in benefits and, (2) raise the SS payroll tax just a bit. Boom, done!

+1

 

[marko]

Under current law, you can run but you can't hide. Cuts would be across the board and taking SS at 62 wouldn't stop them.

Of course. But depending upon one's age, taking it at 62 in 2025 vs 70 in 2033 would be wise.
Please correct me if my math is wrong.