SS Could Be Insolvent in 8 Years

[scrabbler1]

That is why they use terms like chained CPI instead of benefit cuts. Benefits have been tweaked, including cuts, in many ways over the years, like raising taxes on benefits and then putting the tax money back into the SS trust fund. The taxable thresholds set up in 1984 aren't indexed to inflation, so that is another subtle way benefits are cut each year for many retirees.

There is a two-tiered system to determine how much federal income tax is paid on SS benefits. First, there are 0/50/85 brackets to determine how much of one's SS is taxable. Those brackets, introduced in 1984 and 1993 have not been indexed. Then, if any SS income is taxable, that income, along with one's remaining income, gets taxed according to the regular tax brackets which are indexed.

I can surely see the currently unindexed 0/50/85 brackets getting adjusted, especially because any taxes derived go back into the SS trust fund. Taken together, these brackets act as a backhanded means test for SS benefits.

 

[camfused]

^^^ Question: why should they be indexed, if they are going against wages, which are indexed?

 

[harllee]

I am certainly counting on SS in my planning. I delayed my SS payment until age 70 which is coming up in a few months (I have already applied for the payments to start at age 70). I am definitely counting on that $3000 per month.

 

[Aerides]

^^^ Hold, on. I did not say I agreed with the article, I just posted it as a news item of interest for this forum, since the person was taking an "educated" guess at the new haircut date. I suspect we will get the official report from SS pretty soon.

I know that SS will not "run out" of money, and I believe that (at the last possible moment), congress etc will do *something* to make sure that benefits do not get cut (much) for us retired folks.

My apologies for posting this thread. I'll go away for awhile now.

Ah, so, you missed the opportunity to include your perspective in your opening post, instead just including the points of the article.

It's always helpful, if members create threads based on articles, to say "This is what this is saying, and this is what I think, how about you?" vs. "This is what this is saying" and leaving it at that.

---

Aside from that:

If SS ever gets reduced it will be via pushing out the FRA's again, and/or haircuts to those more than 10 years away from starting SS, probably more like 20 years
It will never reduce (beyond cola stuff) for those already receiving it, or within a handful of years from eligibility
Many of us don't include SS in our planning because it's too complicated, too far out for ER's, and treat it as icing on the cake vs. required for safe ER

 

[camfused]

^^^ Yeah, silly me trying to just report a reference to an "expert opinion" without putting my own uneducated spin on it. You're right.

 

[daylatedollarshort]

It will never reduce (beyond cola stuff) for those already receiving it, or within a handful of years from eligibility

Taxing benefits, then putting those taxes back into the Social Security trust fund, is a way to reduce benefits without saying Congress is reducing benefits. And that was one of the fixes that shored up SS in the Reagan years. Taxes on SS were increased again under Clinton. And then not adjusting the levels for inflation means collecting more and more taxes over the years as inflation increases benefits but the taxable income levels remains the same.

 

[ShokWaveRider]

Stash / 25-30 = SS No Worries.

 

[Retch The Grate]

Well, I've always made my plans with the assumption that there would be no SS, and if it did happen, it gets to push me up to RobbieB spending. As I get closer to it being a thing I might actually get (13 more years to 62) I'm raising my expectations of getting some. I tend to do models at 75% and 50% of what they tell me I'll be getting, but I really want to make sure my core critical spending is covered by a 3% WR off my investments and have SS be bonus/safety net.

 

[Andre1969]

I always ran two sets of scenarios when planning my retirement. One with full SS and one worst case scenario with no SS at all. In just about every scenario, if SS went away entirely, it only kept me in the workforce for another 2-3 years if I wanted the same chance of success.

For instance, I ran my numbers earlier this year. Assuming full SS, if I wanted to make it on $85K per year, I'd have a 96.0% chance of success. Assuming no SS at all, I'd have to hold out another two years to get a 94.1% chance, and three years for a 97.0%

Of course, that mindset only really works as intended if I keep working AND know for a fact that they're going to cut SS, so then I just keep working 2-3 years earlier. It doesn't really help me if I decide to retire, and then SS goes away. I could try to go back to work, but might not have good luck in finding a similar paying job. So I might have to do some financial belt tightening.

If I had retired earlier this year, but knew there would be no SS at all, I'd have an 84.2% chance of success with $85K/yr, 93.1% with $80K, and 96.0% chance with $75K.

So, worst case, if I want the same 96% chance of success, I have to take an 11.8% reduction in withdrawal rate (75/85 = ~88.2). But, since SS won't go away entirely, and will most likely still be good for around 75%, I decided to stop worrying about it.

Now in my case, retiring this year would mean I'm going out at 51, and taking SS at 62. My estimated monthly SS payment here is $1412. So in the overall scheme of things, I'm not depending on SS *that* much. If I was expecting a benefit of, say, $2500 or more, I'm sure I'd be a bit more concerned about it!

 

[Time2]

Stash / 25-30 = SS No Worries.

Did you mean, "Stash / 25-30 + SS No Worries?

 

[camfused]

I don't understand the concept of running the scenario where there is NO SS. I, so far, have not seen any government official or economist say they believe there will be no SS, only that it *may* have a (I think) 24% reduction in payments. Seems to me that that should be the worse case scenario to plan with. Am I wrong?

 

[Markola]

Michael Kitces says that, "a maximum Social Security benefit of $2,642/month (for those who maxxed out the Social Security wage base for 35 years), the value of Social Security amounts to about $572,000 for men and $683,000 for women". Good for all the posters who aren't counting on SS in their retirement calculations, but we sure don't have the kind of savings to ignore SS amounts worth seven figures in our planning.

Nor do we. We aim to take it at ages 67-70 and it will be real money to us.

Using Kitches’ maximum number above, for example, two people drawing $2,642/month is $5,284/month or $63,408/year. That’s equivalent to a $1,585,200 nest egg, using the 4% guideline.

 

[Love This Community]

Exactly my point. How can people ignore a $1,500,000 nest egg (SS for a couple). It’s almost like having an IRA / pension but planning scenarios pretending that the balance may be $0 for whatever reason.

 

[Telly]

Stash / 25-30 = SS No Worries.

Did you mean, "Stash / 25-30 + SS No Worries?

I'm thinking that ShokWaveRider meant to say:

Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness.

Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

 

[zippy2020]

....Using Kitches’ maximum number above, for example, two people drawing $2,642/month is $5,284/month or $63,408/year. That’s equivalent to a $1,585,200 nest egg, using the 4% guideline.

Yes, but I wouldn't consider the $63K a figure to depend on for life, due to several factors:

1) Not everyone gets such a large SS check. My spouse falls under the WEP Act, for example. His SS check will be reduced by 60% due to his state pension income. If he ends up with $400/mo we'll be surprised. Needless to say, we're having him wait until age 70 to claim, LOL.

2) $63K for a couple sounds great until you remember that (a) life expectancy has dropped; and (b) the chances of a couple dying at the exact same time aren't very good, meaning the survivor now has 50% of what they had before - minus, of course, the amount that SSA claws back; e.g., the monthly benefit of the deceased's date of death.

3) If you're 5 yrs or more from retirement when the budget shortfall hits, it would not be surprising to see benefits trimmed. Maybe not by much, but between income taxes and a 5-10% reduction, it can be the difference for a retiree between having a small but comfortable cushion vs an uncomfortable "umm....we need to cut back a bit, dear."

4) Inflation is inevitable. Like it or not, historically it averages 3%/yr. We have all been very, very lucky to have such a long period of almost no inflation yet no deflationary effects. This will not last - change is natural. I agree with Powell/Fed Reserve that the current inflation rate is a blip, but we should count ourselves lucky if it steadies at a 'mere' 2.5%/annually. For a retiree, this means buying power may get halved within their lifetime.

So I'm in the camp that figures, 'hey, great if I get it, but we can survive without it." But in our situation that was 50% luck and 50% financial planning. We could easily have ended up in that "gotta cut back somewhere - AGAIN" group.

 

[Markola]

^^^^^ All fine points about SS. Personally, I like a diversified portfolio of assets and revenue streams, including SS, because if I want to, I can conjure up similar dark clouds for stocks and bonds, too.

 

[Bongleur]

For those of us between min & max retirement age, we want to calculate if we should claim prior to any legislated reduction in benefits for "future" retirees, or continue to wait until a later age.

We know the % (& thus $$) lifetime loss for each year prior to age 70.
The big question is how large any cut might be.
Even with a higher loss for claiming early, we may still want to claim "later."

If claiming "now" under current rules would cost me say 15% of my lifetime $$ vs age 70, that amount might be less than waiting to age 70 under "new" rules, because I still gain some % each year.

And as usual your choice for age of death is a huge factor; but you can plug in several.

 

[Closet_Gamer]

I agree there is zero chance that SS will just get cut/pay out nothing. Not viable politically or economically.

I do think a slow motion crisis may be building in a way that it hasn't in the last several decades due to that old monster -- inflation.

I'm of the opinion (note the word choice) that we are starting to see something like structural inflation brought on by money printing & changes in the labor market, both of which are going to be very hard to contain.

In that circumstance, something has to give. Either government largesse gets cut (in absolute terms or via un-indexed inflation) or dog-chases-tail printing money to maintains immediate benefits that just spurs new inflation.

Un-capping SS taxes will clearly happen. Biden has proposed it already in some form. But its not enough to "fix" the problem. I think the politicians (read citizens) are unlikely to step up to overt benefit cuts to existing or near-retirement people. Overt tax increases on the younger workers will also be tough to get through in an era where younger workers are stressed by multiple economic shocks & college debt.

My guess is that they will hit it in the background via inflation modifiers that the typical person will be hard-pressed to understand.

Net result will be erosion of benefits...likely substantial as this compounds.

 

[harllee]

^^^^^ All fine points about SS. Personally, I like a diversified portfolio of assets and revenue streams, including SS, because if I want to, I can conjure up similar dark clouds for stocks and bonds, too.

Agree. I think substantial losses in stock and bonds are much more likely than SS
reductions, at least in the next 10-20 years.

 

[LRDave]

Yes, but I wouldn't consider the $63K a figure to depend on for life, due to several factors:

1) Not everyone gets such a large SS check. My spouse falls under the WEP Act, for example. His SS check will be reduced by 60% due to his state pension income. If he ends up with $400/mo we'll be surprised. Needless to say, we're having him wait until age 70 to claim, LOL.

2) $63K for a couple sounds great until you remember that (a) life expectancy has dropped; and (b) the chances of a couple dying at the exact same time aren't very good, meaning the survivor now has 50% of what they had before - minus, of course, the amount that SSA claws back; e.g., the monthly benefit of the deceased's date of death.

A couple of thoughts about your points 1) and 2):

My spouse will also have a WEP-reduced SS benefit. Have you modeled your family SS situation in opensocialsecurity.com or some similar modeling tool? Do/will you receive SS? How does the WEP-reduced spousal benefit compare to the your spouse's own benefit? Depending on what your payment is and what your ages are and who claims first (and when), when to take a WEP-reduced benefit can be a complicated puzzle.

On your point 2) above, I am not sure what you are saying about life expectancy. I am also not sure how it would be relevant to your family's decision. Also, it is unlikely that the death of spouse when both are receiving some SS benefit will result in a 50% reduction of the total family benefit.

 

[ShokWaveRider]

Did you mean, "Stash / 25-30 + SS No Worries?

Nope, SS is extra. If one has enough in one's stash (Not House, Cars or any other material goods) and the result of the equation is enough to live comfortably, one does not need SS as it is one's SS. So the original equation holds.

 

[Markola]

Nope, SS is extra. If one has enough in one's stash (Not House, Cars or any other material goods) and the result of the equation is enough to live comfortably, one does not need SS as it is one's SS. So the original equation holds.

^^^^^^ Or you can use a different formula that allows you to meet your goals on your timetable using whatever assets and income streams you have or that may come your way in life.

 

[ShokWaveRider]

^^^^^^ Or you can use a different formula that allows you to meet your goals on your timetable using whatever assets and income streams you have or that may come your way in life.

The point I was trying to make was if one has a decent stash, the SS becomes insignificant.

 

[harllee]

The point I was trying to make was if one has a decent stash, the SS becomes insignificant.

Between DH and I we will be getting around $60,000 a year in SS. I don't think that is insignificant no matter how large my stash is.

 

[RetiredHappy]

Agree that SS is significant for many of us no matter how large the stash is. Our SS total is $65K, husband claimed at 70 and me will be at 62 in 3 years' time (on my own earnings record).