Changes Americans are willing to make to fix Social Security

[Big_Hitter]

I'm surprised that raising the cap on SS earnings would eliminate so much of the shortfall, especially since they're only bringing it back at the $400+ and up threshold, which implies to me that $147K-$400K would not be affected.

Years ago, I read that the cutoff (currently the $147K) was designed to capture 90% of all wage income. So if that's still the case, it doesn't seem like there's much income left out there to tax.

you have leveraging, as SS benefits (as a % of pay) for those over the TWB are much less in proportion to those who aren't

 

[Car-Guy]

If I had bought and paid into a retirement annuity from a private insurance company with promised benefits for 40+ years and then they decided to change the benefits structure (negatively) once I retired, what would that be called?

 

[scrabbler1]

If I had bought and paid into a retirement annuity from a private insurance company with promised benefits for 40+ years and then they decided to change the benefits structure (negatively) once I retired, what would that be called?

It could be heroic, if that's the alternative to the company going bankrupt so you get zero.

 

[Bigdawg]

one change I am in favor of is the way spouses are treated. After death of primary earner I am fine with surviving spouse taking the higher earners SS. But, while alive and only one spouse paid into the system there should only be one SS check going out. Having one spouse receive 50% of the other spouses SS benefit despite never paying into the system is wrong in my opinion. Seems to me that if a traditional SAHM lived her whole life without a pay check she should be fine without a SS check (until her spouse dies or course). This would work the same if the stay at home spouse was male.

I am preparing for the hate mail. Bring it.

 

[cathy63]

Received an email this morning
"Your New Social Security Statement is now available"
Not much new, but opened an attached PDF associated with it.
I have heard about possible reductions, but do not recall seeing it posted on the SS website.
Its listed as a 22% reduction.
Retirement Ready: Fact Sheet For Workers Ages 49-60 (Am 60 till Sep)
https://www.ssa.gov/myaccount/assets/materials/workers-49-60.pdf

"New Social Security Statement
Social Security will be there when you retire The Social Security taxes you pay go into the Social Security Trust Funds that are used to pay benefits to current beneficiaries. The Social Security Board of Trustees estimates that, based on current law, the Trust Funds will be able to pay benefits in full and on time until 2034. In 2034, Social Security would still be able to pay about $780 for every $1,000 in benefits scheduled."

Will be 62 in 2024. Am thinking I should grab the 10 years at the full rate guaranteed more or less. Rather than waiting 8 years till 70 to take it, at a possible 22% reduction. As I have little faith in the decision making process of our government these days. Just wanted to share the pdf link. Was news to me, might be old news to you.

If you take SS at age 62, then you will take a 30% cut on your FRA benefit for claiming early, and ten years after starting you may take another 22% cut on that. If you wait until age 70 to claim, then you get a 24% bonus on your FRA benefit, which may get cut by 22%.

If your FRA amount would be $1K/mo, and you claim at age 62, then you're only getting $700/mo. If that gets cut by 22% after ten years, it would go down to $546/mo. If you wait until age 70 to collect, then you'd get $1240/mo for the first two years and $967/mo thereafter.

Even with a future reduction, the break-even is at age 82. If you expect to live longer than that, you'll get more money out of the system if you wait and take SS at age 70. (This ignores spousal considerations and things like investment returns on the money you claim early.)

 

[pb4uski]

If I had bought and paid into a retirement annuity from a private insurance company with promised benefits for 40+ years and then they decided to change the benefits structure (negatively) once I retired, what would that be called?

I think you need to frame it differently. The private insurance company undercharged the premiums paid for the promised benefits and as a result doesn't have sufficient assets to pay the promised benefits and went into receivership. The company only has sufficient financial resources to pay 75% of benefits so rather than a 25% reduction of benefits, the receiver is considering alternatives that include some reductions to benefits for existing policies along with higher premiums for new policies.

I'd suggest that any of the alternatives that they ultimately put in place will give you more than a 25% haircut.

So what would you rather have... some targeted reductions to the benefits structure that you were promised or 75% of the benefits that you were promsed?

 

[athena53]

one change I am in favor of is the way spouses are treated. After death of primary earner I am fine with surviving spouse taking the higher earners SS. But, while alive and only one spouse paid into the system there should only be one SS check going out. Having one spouse receive 50% of the other spouses SS benefit despite never paying into the system is wrong in my opinion. Seems to me that if a traditional SAHM lived her whole life without a pay check she should be fine without a SS check (until her spouse dies of course). This would work the same if the stay at home spouse was male.

I am preparing for the hate mail. Bring it.

No hate here- an interesting idea. I think it would be more likely to fly now with more women having earnings on their own records. I'm the mother-in-law of a wonderful DIL who's a SAHM and I still agree. It could free up some $$ to pay more to lower-income earners but would eliminate the shock when one spouse dies (usually the husband goes first) and the other finds that household SS has been reduced by 1/3- from 150% of the principal earner's amount for the couple to the Survivor benefit of 100%. This makes it really hard for a lot of widows who should have seen it coming but...)

 

[Car-Guy]

one change I am in favor of is the way spouses are treated. After death of primary earner I am fine with surviving spouse taking the higher earners SS. But, while alive and only one spouse paid into the system there should only be one SS check going out. Having one spouse receive 50% of the other spouses SS benefit despite never paying into the system is wrong in my opinion.

The DW and I talk about this a lot.... (She was a stay at home mom) She now gets roughly half of the SS $ of what I get... HOWEVER, I've often wondered when SS was originally setup (or sometime later) if that wasn't considered in the payout calculations. Surely it was... Would mine be ~50% more now, if spousal benefits were never considered or enacted?

Not trying to stir it up, "this time" since I really don't know (the logic) of how/why this came about.

 

[almost there]

They’ve been telling us about the shortage for decades, not new.

I know. But I had not seen the the actual / official percentage 22%. Guess it was out there and I didn't see it.

 

[almost there]

If you take SS at age 62, then you will take a 30% cut on your FRA benefit for claiming early, and ten years after starting you may take another 22% cut on that. If you wait until age 70 to claim, then you get a 24% bonus on your FRA benefit, which may get cut by 22%.

If your FRA amount would be $1K/mo, and you claim at age 62, then you're only getting $700/mo. If that gets cut by 22% after ten years, it would go down to $546/mo. If you wait until age 70 to collect, then you'd get $1240/mo for the first two years and $967/mo thereafter.

Even with a future reduction, the break-even is at age 82. If you expect to live longer than that, you'll get more money out of the system if you wait and take SS at age 70. (This ignores spousal considerations and things like investment returns on the money you claim early.)

Thanks, I would have thought it pushed out the actual break-even point past 82.
Getting 8 yrs from 62 without the 22% reduction. (2024 to 2031) Will be 62 in 2024.
In my case (as of today) its $2173 at 62, $3089 at 67, $3830 at 70 in 2024 dollars/ or $2988 with the - 22% in 2034.

 

[SecondCor521]

If I had bought and paid into a retirement annuity from a private insurance company with promised benefits for 40+ years and then they decided to change the benefits structure (negatively) once I retired, what would that be called?

I would call it a red herring - the argument, not the annuity issue.

Whether people know it or not, like it or not, or agree with it or not, Social Security benefits are described by the federal government but are not a binding promise or a contract. Never have been so far, I doubt they ever will be, and the opposite is explicitly stated occasionally.

Congress can change the rules at any time; their only constraint is what they view as politically palatable and viable.

Social Security and private annuities are different things; expecting the behavior of one to match the behavior of the other simply won't work.

 

[neihn]

one change I am in favor of is the way spouses are treated. After death of primary earner I am fine with surviving spouse taking the higher earners SS. But, while alive and only one spouse paid into the system there should only be one SS check going out. Having one spouse receive 50% of the other spouses SS benefit despite never paying into the system is wrong in my opinion. Seems to me that if a traditional SAHM lived her whole life without a pay check she should be fine without a SS check (until her spouse dies or course). This would work the same if the stay at home spouse was male.

I am preparing for the hate mail. Bring it.

What about the SAHM or SAHD who gets divorced at 62 or 65? Does he or she get any thing?

 

[almost there]

one change I am in favor of is the way spouses are treated. After death of primary earner I am fine with surviving spouse taking the higher earners SS. But, while alive and only one spouse paid into the system there should only be one SS check going out. Having one spouse receive 50% of the other spouses SS benefit despite never paying into the system is wrong in my opinion. Seems to me that if a traditional SAHM lived her whole life without a pay check she should be fine without a SS check (until her spouse dies or course). This would work the same if the stay at home spouse was male.

I am preparing for the hate mail. Bring it.

Am thinking many paid into it, but were short the 40 Social Security credits.
My wife is short by a couple points. But its not worth going after.... The way the program is set up.

The system is getting scammed big time. But am betting this is not the big ticket item...

 

[gauss]

My understanding is it's because there is a cap on benefits. So, you'd be asking some folks to pay more in, without any corresponding increase on the way out. (fine with me, probably fine with a lot of those high earners to). But the worry about position (capped benefits, uncapped contributions) is that removing the cap would further erode overall support for the program among particularly tax-averse voters.

I don't see raising the ages as helping - firstly because the age expectancy hasn't risen hardly lately, and secondly because post-60, good paying jobs are harder to find than they are when you're 35 and mid-career.

I think you have this backwards. My understanding of the law is that contributions are capped. Payouts are not directly capped by law.

The only reason that you hear in the media about a "maximum SS check for this year is: $xxxx.xx is that the contributions are capped. This maximum payout assumes that the earner earned the cap every year.

In a similar fashion, there is no reason to define another bend point to give high earners something for the added taxes. It is already in the law. Additional FICA taxation above the cap will provide higher benefits.

-gauss

 

[gauss]

Some have suggested raising the retirement age as a distinct solution from reducing benefits.

Please understand that raising the retirement age will be a direct reduction in benefits for anyone that it applies to. Lifetime benefits would go down about 8% for every year that they raise the retirement age beyond what it is currently is.

-gauss

 

[youbet]

Just to make this thread interesting, is a fix that impacts only those working, but not those retired, fair?

No. But our entire system of wealth redistribution seems to be unfair for this group or that group.

 

[youbet]

Discussions here often point out that SS actuarial tables are out of date and contribute an advantage to delaying SS to 70. They should update the tables so that delaying to 70 is less profitable and in line with modern longevity. They might stretch the table out so you have to delay to 71 or 72 to get what you would get at 70 today.

 

[Bigdawg]

What about the SAHM or SAHD who gets divorced at 62 or 65? Does he or she get any thing?

I would think that a SAHM/SAHD who got divorced at 62-65 would get compensated by the US judicial system quite handsomely. Just a guess. Having an independent mother and 2 sister's, I grew up learning that ladies need to be independent. I tell everyone I know that the most attractive thing in the world to me is a women who doesn't need me. My DW loves me but certainly doesn't need me. I encourage all partner's (man or women) to be independent. Never rely on another person for your success. If you are 62-65 and were a stay at home spouse, how many of those years (18-65) were you actually a SAHM/SAHD? I knew ladies who stayed home for a period of time to raise children but definately got their SS credits in the bank. Even my mother stayed home for a few years. She went back to work when I was in pre school.

 

[neihn]

I would think that a SAHM/SAHD who got divorced at 62-65 would get compensated by the US judicial system quite handsomely....

Hmm, I don't see how he or she would get compensated, if they always live in an apartment (no home equity to split), if the spouse has no investment nor 401k.

Other poster has mentioned, those SAHM/SAHD probably had worked here and there but don't have enough 40 credits.

And taking care of kids (making sure that they grow up to be good members of society), cooking, cleaning, keep the house in order is not a full-time job

 

[athena53]

I would think that a SAHM/SAHD who got divorced at 62-65 would get compensated by the US judicial system quite handsomely. Just a guess.

I doubt that. The headline cases make it sound like Exes get big bucks but your average Joe and Jane Sixpack are lucky if they have equity in a house. Certainly most over-60 couples wouldn't have enough to split to allow both to live as well as they used to. I'd be in favor of applying the 100% benefit to each partner of a divorced couple provided they didn't do something fraudulent like divorce on paper and continue to live together.

Many SAH parents are contributing a lot of non-monetary value to the marriage- not just holding down the fort domestically but freeing up the wage earner to do and make more $$$ because, for example, they can travel for business. Others like my BIL walked away form great career potential because the couple decided one person needed to stay home with the kids because of the work demands of the other (my sister was a doctor). DDIL is home-schooling the kids, which meant that they were able to move into a bigger, nicer house with no change in ongoing costs because the new school district wasn't as stellar. It would be wrong to leave them with nothing or a pitttance.

 

[scrabbler1]

I think you have this backwards. My understanding of the law is that contributions are capped. Payouts are not directly capped by law.

The only reason that you hear in the media about a "maximum SS check for this year is: $xxxx.xx is that the contributions are capped. This maximum payout assumes that the earner earned the cap every year.

In a similar fashion, there is no reason to define another bend point to give high earners something for the added taxes. It is already in the law. Additional FICA taxation above the cap will provide higher benefits.

-gauss

While SS benefits are not directly capped, the complicated benefit formula does limit them because of the "Contribution and Benefit Base," as the SSA describes it.

https://www.ssa.gov/OACT/COLA/cbb.html

This page, also in the SSA website, shows 2 sample calculations which determine the AIME, or Average Indexed Monthly Earnings, a key step toward determining the actual benefit.

https://www.ssa.gov/OACT/ProgData/retirebenefit1.html

On that page, there is a long table which shows income amounts by year. To make this post more readable, I will show column headings and one row for the hypothetical worker whose nominal wages were capped by the CBB. I added the column for SS taxes paid. (I am not good with posting tables, sorry.)

.........Nominal....Indexing...Indexed....SS Taxes
Year...Earnings...Factor........Earnings.....Paid

1989_$48,000__2.4201___$116,163__$2,976

In the AIME calculation, the Indexed Earnings for the highest 35 years are added together and divided by 420 (35 years x 12 months) to get the AIME.

If the wage cap was lifted but the benefit cap was unchanged, then the SS taxes paid would increase but Nominal (capped) and Indexed Earnings would stay the same, the unfair situation I and others here have pointed out. If the cap was raised for tax purposes while an extra bend point were added to a level appropriate for the wage cap's higher limit, then the Nominal Earnings amount would increase, along with the Indexed Earnings and SS Taxes Paid.

 

[Exchme]

Remember when Bush 43 tried to privatize a piece of SS and there were howls and political fallout (recall the ads with granny in a wheelchair being pushed off a cliff?) I have no idea whether partial privatization would have been a good idea or a terrible one and that's not relevant to my point, which is that politicians have long memories of what worked and what didn't work politically. Given the reaction back then, I predict no elected official will try to do anything any time soon.

 

[Midpack]

From Pfau’s latest book:

Reforms Impacting Current or Near Retirees	Other Reforms
Use a smaller COLA	Increase payroll tax rate
Use more than top 35 years or earnings	Increase maximum taxable earnings
Link benefit reductions to longevity improvements	Gradually raise FRA
Means testing for benefits	Switch from “wage indexing” to “price indexing”
Make SS benefits fully taxable	Expand trust fund beyond US Treasuries

All are painful, so there’s no need to pick any of the above to argue it’s unfair because of the pain to one group or the other. Something has to give somewhere sooner or later, I’d vote for shared “pain” - between payers and payees. There is no painless silver bullet that no one has thought of as some seem to wish…

Any near/recent retiree who is planning on full SS benefits throughout retirement is kidding themselves or willfully ignorant. SSA has been warning us for decades.

 

[pb4uski]

Some have suggested raising the retirement age as a distinct solution from reducing benefits.

Please understand that raising the retirement age will be a direct reduction in benefits for anyone that it applies to. Lifetime benefits would go down about 8% for every year that they raise the retirement age beyond what it is currently is.

-gauss

The reason that one would be raising the retirement age is due to increased longevity. So, let's say that when Congress reset the FRA to age 67 in 1983 that the projected average longevity for someone born in 1960 or later was 83, or they would be collecting benefits or 16 years (67 to 83).

And let's say that from 1983 to 2022 that longevity increased from 83 to 84, so the average person would now be collecting for 17 years (67 to 84) rather than for 16 years (67 to 83).

If you increase the FRA by 1 year to 68 to reflect that increased longevity so people now collect for 16 years as was intended all along (68 to 84), is that really a cut or is it just simply adjusting so on average recipients still get 16 years of retirement benefit payments rather than 17 years and an additional year as a windfall?

I don't see that as a cut.

 

[RetireBy90]

I think the postings here show that solving the problem isn't hard but solving it in a manner that is acceptable to most is almost impossible. I'm no fan of the boys and girls in DC but several issues like SS funding are indeed difficult to get done in a manner that we the people will accept. What we need is some political will to upset many a bit. My best guess is Congress will allow some decrease in benefits and fund the rest with other income which means more borrowing. Of course my best guess is only that, a guess.