Another Social Security gloomy outlook

[youbet]

I am a genXer.......But I am mad at our parents.

Don't paint with too broad a brush. For example, I'm both a Boomer and a member of the squeeze generation. We help support DW's 85 yo mom and fund the grandkids' college funds!

I am happily collecting SS however!

edit: posted this before reading the other posts between there and here. Sorry if I only restated what others have said.......

 

[molly]

Social Security is not a system that was either designed or put in place by BOOMERS. There are generations of "blame" for its insolvency.

I remember when my FIL first started collecting SS. At the time - there was an article in Time Mag. explaining the "breakdown" of SS benefits. My FIL collected more benefits in two months than he had contributed to the system in his entire lifetime (well paid engineer).

The article was in response to what was at the time thought to be a huge increase in SS taxes. I believe that was in the very late 60's or early 70's.

The problem is indeed that we have asked too much of Social Security. I remember when widows/widowers children could collect SS all the way through college - while everybody else had to pay for their own children's college.

How about an old neighbor of mine who at 62 (retired) - remarried - and had 4 children. They collected SS for each child - to add to his good pension and SS. People at 55 - support their own children. He says that he had never made so much money.

We have always lived modestly, paid our bills, aimed for no debt, saved to put our kids through college (state schools - no college loans) and have saved for our retirement. I do believe that we are entitled to SS but expect that it will be "sliced and diced".

We have dumped a lot on the next generations. However, those responsible "Middle Class" people who have done all the right things are the people who will be most punished by future changes.

We have boxed ourselves into a corner.

The Elizabeth Warren interview was EXCELLENT - Thank you.

 

[MasterBlaster]

Molly:

You point out a number of examples of people who apparently gamed the system in the past to their advantage.

You seem to have some sort of expectation that SS will be "fair" to you because you paid into it. If you start thinking about SS as a welfare system for old people you'll feel better about it than thinking it is some sort of insurance that you are entitled to.

 

[molly]

MasterBlaster I have no expectations personally of "FAIRNESS" with regards to SS or any other govt. program.

My point is that the very people who are the "financial backbone" of the "entitlement system" (SS is an "entitlement), play by all the rules and exercise prudence, are the very people who will shoulder the "generational blame".

And -future generations will have an increasing burden if some of these issues aren't addressed soon.

I also want to make sure that we try to leave something for our kids and grandkids. It isn't going to be a rosy picture ahead.

 

[youbet]

Molly:
If you start thinking about SS as a welfare system for old people you'll feel better about it than thinking it is some sort of insurance that you are entitled to.

That's where the debate will intensify and become explosive. By blending the retirement-pension and the welfare aspects together, our leaders set us up for this decades ago. What were they thinking?

I'm anticipating SS will continue its drift away from being a pension system towards being a safety net for widows/widowers, orphans, low wage earners and folks who only worked a few years at the expense of medium to high wage earners who contributed for a lifetime. This will manifest itself with a change to progressive taxation levels (as opposed to the current flat system) on the input side to income and wealth testing on the output side.

For folks with FIRE aspirations, the implications are obvious and need to be part of the scheme. For us already enjoying a FIRE lifestyle, there's probably some prudence in formulating plans to account for future cutbacks.

 

[ziggy29]

I'm anticipating SS will continue its drift away from being a pension system towards being a safety net for widows/widowers, orphans, low wage earners and folks who only worked a few years at the expense of medium to high wage earners who contributed for a lifetime.

It could be, but I think this would need to be phased in over a long period of time, say 2-3 decades. It would be political suicide and a gross miscarriage of economic justice to say "people born before 19XX will get everything ever promised to them and everyone born in or after 19XX get screwed out of everything. And oh, yeah -- all you post-19XXers still have to pay all the taxes for a benefit you won't get."

I think more means testing of SS is inevitable, but it should never be 100% means tested. I think it serves a useful purpose with encouraging retirement to open up jobs for the next generation, and taking that retirement incentive away could cause the unemployment rate to soar.

 

[eridanus]

As others on this forum have suggested, the bottom line is that we all live too high on the hog. Cut spending? Where and how?

 

[MasterBlaster]

And -future generations will have an increasing burden if some of these issues aren't addressed soon.

Oh these issues will be fixed one way or another - the bond markets will see to it.

As others on this forum have suggested, the bottom line is that we all live too high on the hog. Cut spending? Where and how?

Lots of choices, but Medicare/Medicaid is the elephant in the room. Expect medicare to migrate towards the "HMO from Hell" model. There really is no other choice as the money just isn't there.

 

[youbet]

As others on this forum have suggested, the bottom line is that we all live too high on the hog.

Hmmmm...... Perhaps the word "all" shouldn't be in there. I certainly don't live too high on the hog! Perhaps you were refering to the collective "we?" But, definitely not "me."

 

[youbet]

Expect medicare to migrate towards the "HMO from Hell" model

Agreed. I just hope that whatever "progress" we make with health insurance reform, we continue to have Medicare supplemental policies available for those who can afford them. I want one, even if they are expensive.

 

[eridanus]

Lots of choices, but Medicare/Medicaid is the elephant in the room. Expect medicare to migrate towards the "HMO from Hell" model. There really is no other choice as the money just isn't there.

Looking at the federal budget, there are 3 elephants in the room. They're all pretty much equal in spending: defense, SS, and Medicare/Medicaid make up ~60% of our spending. Actually, only one is truly an elephant in the room by the strictest definition...it's there and it's huge but no one will talk about it.

 

[samclem]

Lots of choices, but Medicare/Medicaid is the elephant in the room. Expect medicare to migrate towards the "HMO from Hell" model. There really is no other choice as the money just isn't there.

Agreed. This is one reason for the frantic desire in some quarters to get any kind of govt run health care bill passed immediately, almost without regard for what it contains. The public does not like what is happening and the 2010 elections will close the door on further "reforms" if they are anything like this approach. Soon after, the true magnitude of the Medicaid/Medicare underfunding will come clear as people are forced into increasingly substandard medical treatment (ref: Mayo Clinic in CA announced recently they would no longer accept Medicare patients). As Medicare becomes the ghetto of American health care, any prospect for citizens handing over more health care responsibilities to DC become increasingly remote. Thus, some believe it is now or never for healthcare reform.
I disagree. If this present effort founders, the way will be clear for a market-based approach. People want reform, they just don't want this brand of reform. If the other party doesn't seize on that opportunity (after the elections), they deserve all the bad press they'll get.

 

[teejayevans]

Looking at the federal budget, there are 3 elephants in the room. They're all pretty much equal in spending: defense, SS, and Medicare/Medicaid make up ~60% of our spending. Actually, only one is truly an elephant in the room by the strictest definition...it's there and it's huge but no one will talk about it.

Are they suppose to be gorillas ;-)
Anyhow, add another: interest on the US Debt.
TJ

 

[samclem]

Well, when we're considering the budget allocated to various "elephants", I hope we'll give priority to functions that are actually mentioned in the Constitution by name. We've added lots of frills over the years--it's a good bet that the things we thought to include in the budget in the beginning are more essential for a nation than some of the later "good ideas."

 

[misty57]

Firedreamer, I sympathize with your viewpoint. I am personally trying to arrange my own modest finances and estate so that it will benefit my children. I realize that the economy will not benefit GenXers and those younger as it did previous generations.

But, I would ask you to view this presentation by Elizabeth Warren, chair of the Congressional Oversight Committee, on the coming collapse of the middle class. She points out many of the flaws in the viewpoint, similar to yours, that the post-WWII generation squandered their riches. It is well worth watching.
YouTube - The Coming Collapse of the Middle Class

I loved the Warren lecture. To avoid the two income trap (before I took the pregnancy route to retirement), we always lived off of his income and saved mine (we made equal salaries). We always contributed the max to our 401Ks so when I stopped working, we were already used to the "retirement deduction" from his paycheck. We delayed having a child and stopped at one. We took our savings and allocated 50% for the 20% down payment on our first home and the other 50% for a huge EF in case hubby lost his job. It took a few years, but hubby also "banked" as much vacation as allowed (400 hrs) which we considered extra "unemployment insurance". Other than our home mortgage, we never carried any debt - not even on cars. When I finally did leave the work force, our lifestyle did not change one bit - we just couldn't save any money until DH's income increased over time. Despite job opportunities/salary increases to go to other companies, DH stayed with the same company that he went to work for right out of college and will retire at age 55 with a little over 31 years of service so we will have a pension and medical insurance upon retirement.

DH made the money, and I made the money make money. I also stretched his income to the max. Geez, I could stretch a buck like it was made of rubber!!!

I'm not really sure if what we did could be done today; I am pretty sure, however, that not many couples would want to do it.

 

[metabasalt]

This thread has had a lot of ideas on what is and isn't Social Security and what it was originally intended to do. This link from the SS site I think gives a very interesting perspective on its history: Social Security Online

From what I've read in the past it actually was intended to be something of a welfare system in the sense that lower income earners get a far greater proportion of their salary as benefits than did higher earners. So I don't really think it's true to say that it's changing from a pension plan to a welfare plan. Though I haven't read the full history above so I don't know just when the variation in payments began. It could be that it wasn't in the original bill and only came later.

 

[metabasalt]

This thread has had a lot of ideas on what is and isn't Social Security and what it was originally intended to do. This link from the SS site I think gives a very interesting perspective on its history: Social Security Online

From what I've read in the past it actually was intended to be something of a welfare system in the sense that lower income earners get a far greater proportion of their salary as benefits than did higher earners. So I don't really think it's true to say that it's changing from a pension plan to a welfare plan. Though I haven't read the full history above so I don't know just when the variation in payments began. It could be that it wasn't in the original bill and only came later.

An interesting quote from the SS site:

In 1893, for example, the $165 million spent on military pensions was the largest single expenditure ever made by the federal government. In 1894 military pensions accounted for 37% of the entire federal budget.

 

[Martha]

Just so you know, I am a Boomer and have paid SS/medicare all of my life.

However I am well aware of the anguish that SS causes the gen Xers. There truly is a fairness issue here (The generational Storm Issue).

For those that are not in poverty, exactly what do the Xers owe the Boomers ?

I think the anguish is the uncertainty of whether SS will be there for them. It isn't about owing or not owing the prior generation, it is about whether the social contract will be undone leaving them with nothing. They have been sold the uncertainty of SS.

 

[samclem]

From what I've read in the past it actually was intended to be something of a welfare system in the sense that lower income earners get a far greater proportion of their salary as benefits than did higher earners. So I don't really think it's true to say that it's changing from a pension plan to a welfare plan. Though I haven't read the full history above so I don't know just when the variation in payments began. It could be that it wasn't in the original bill and only came later.

Right--it has always been a two-axis wealth redistribution system:
Younger people --> Older people
Higher income people --> Lower income people.

What has changed over the years is the degree of other benefits that have been added (for the disabled, children of disabled parents, etc). These were not in the original legislation. Also, there have been firm promises to everyone who pays in for 40 quarters of exactly what their benefit will be (per the annual statements we get). The wealth transfer from wealthy --> poor was already baked into that cake (by way of the much lower payout a high income earner gets for each dollar contributed in his working life), and changing that formula will undermine confidence in the system. But, it will probably happen.

 

[Martha]

Confidence in the system is already undermined. The younger generations have no confidence that SS will be there for them. So changing the formula might actually increase confidence in the system.

 

[ziggy29]

Confidence in the system is already undermined. The younger generations have no confidence that SS will be there for them. So changing the formula might actually increase confidence in the system.

Maybe. But when you go to the well too many times, it starts to dry up. Similarly, too many "one-time" reforms that make it a worse deal for younger folks will leave them wondering how many more times it's going to be watered down before they will collect.

 

[youbet]

What has changed over the years is the degree of other benefits that have been added (for the disabled, children of disabled parents, etc). These were not in the original legislation.

That's right. These additional add-on benefits are not necessarily bad. Appropriate safety nets are a function of gov't IMO. But the politicians cleverly forgot to fund them thereby putting the pension portion of SS in peril.

 

[av8er]

An interesting quote from the SS site:

In 1893, for example, the $165 million spent on military pensions was the largest single expenditure ever made by the federal government. In 1894 military pensions accounted for 37% of the entire federal budget.

Yes, this was the result of a successful lobbying effort by veterans' organizations (specifically the Grand Army of the Republic) to secure pensions for disabled Civil War veterans and their widows. The costs associated with this special pension system were enormous, but they decreased over time as the Civil War generation died off...the cost of ss and medicare are never going to get smaller with time.

 

[old woman]

I have saved pretty hard for the last 25 years. I don't earn a fortune so it has all been money it would have been easy to spend.

A coworker my age has spend every cent she earned. She has no house and no savings except about 50K in 401K mostly put in by profit sharing. She is now saving 125.00 a week.

I have a house, not all the way paid off yet but equity. I save about 25K a year on a 54K salary. So far I have 435K saved and am two years younger than her. I spent the time and money to finish college while workng full time.

SS will give her a higher percentage so she will get about the same check as I will get.

If it were to turn to welfare I would need to be broke to get anything because they can say I don't need it.

I don't know many people over retirement age earning 100K and you can't until full retirement age now. My boss is 67 and earning that much but for how many more years? Since he earns that now and saves 22K into the 401K plan he will need to save much more to replace so much income. He has a million dollar house with a big mortgage and some land he will sell someday. Property taxes are about more than his SS would be. Saving 3 million to replace his income will be harder than the coworker who can expect SS to cover 40%.

Also what counts as income after you don't work? If he sells a piece of land for 100K is that costing him more than 20K in lost SS plus the taxes on the long term gain? If he has 6 to sell does he need to get them all closed the same year so he can go back to lower income?

When he draws his 401K money because of RMD will that cost him his SS checks? It might be cheaper to take it all out before the RMD starts pay the tax and pay off the mortgage.

If you take money out of your ROTH is that income showing you don't need your SS?

Why don't they just say you don't need more than 40K to live so reduce it dollar for dollar until the savers are equal to the non savers.

I could live on 40K but I have to have my investment income so need to keep saving.

I and the other woman coworker never had children. I have one nephew who might help a little but she has nobody except a sister who had a stroke today and her children are on drugs and worthless.

 

[Tadpole]

If you take money out of your ROTH is that income showing you don't need your SS?

Why don't they just say you don't need more than 40K to live so reduce it dollar for dollar until the savers are equal to the non savers.

I have always expected for the solution to be found in a wealth transfer between retirees with as minimal impact on current workers as possible. This process was begun with the 50%-85% taxable means testing back in the early 90s when the money wasn't needed to pay current benefits. This transferred current benefits back to the trust fund to be borrow for current operations of the general fund budget under the guise of deficit reduction. There aren't enough "very rich" retirees to supply/repay this money so it will rapidly become an upper middle class retiree transfer and gradually a middle class retiree transfer if that isn't enough. I expect the phase in to be sneaky. (Look at Medicare B.) Even the RMD has become a potential mechanism to accomplish more than tax collections.

As the Lenin Strategy (search CATO) points out, erosion of middle class benefits to provide a minimal income for poor retirees will destroy support for the entitlements entirely. If cash flow is diverted from the pay-go through private investment of part of it, the cash flow in Social Security becomes even worse and more and more will be required from savings and pension fund redistributions. The funny thing is that people who don't support wealth redistribution from the rich seem to support it when the middle class is the main class impacted. In that case, generational fairness becomes an argument. Funny thing is that the same fairness could be used for any budget, not just Social Security.

Brace yourself. You have been saving for your neighbor who earns more than yourself but has been smart enough to spend rather than save. He can probably sell that boat to his brother in law under the table and hidden from income records in relative safety of being caught.

The only thing I haven't figured out is how the transfer will be projected since 401k's and pensions aren't guaranteed and most pensions aren't inflation protected. I guess that is why mandated annuities are being discussed. But... what if the insurers go broke?

Exaggeration? Of course. But the major thing people with savings need is inflation protection. (Actually, that is true of all retirees especially as they get older.) Social Security has provided a little of that and is important to middle class retirees.

Since (almost) no politician would say outright - we aren't going to pay the boomers back for the fake pre-payments but we are going to pay Japan and China back so they can afford their aging problems, any mechanism that drags out repayment to SS will be used. Lowering the bend points is a perfect mechanism as well as reducing the COLA gradually. Unfortunate, according to the American Academy of Actuaries, the only "perfect" solution is tethering the retirement age to longevity. I, myself, don't see how that helps the cash flow problem since it just solves the long term actuarial balance problem. No, since this occurs in the short term, there will be one big pot and all retirement money from all sources will be thrown in and redistributed.

Who will support this? A greater number of people than you think. If you combine the numbers of retirees without pensions or savings with current workers you have a lot of people. The former gets their SS guaranteed and the later gets lower taxes.