Gen Z would rather cut SS benefits for seniors than pay more taxes

[pb4uski]

I'm surprised at some of the particular posters who act like a modest haircut to their SS would send them into poverty ...

Do you have links for this claim?

 

[pb4uski]

I’m a later boomer. Since I started working in 1978 the FRA was raised. In addition the FICA tax with holding % was raised 5 times with the current one of 12.4% in place since 1990 with two temporary reductions for employees. Most quick research I’ve done indicates that if this wasn't done then the benefits would have been cut in the mid-1980s. So, I’ve already had my FRA increased, my SS taxes increase and in reality my benefits cut to pay previous generations.

Even with the increase in your FRA you will, statistically, still be collecting for many more years than a 65 yo claimant 30 years ago so I think the claim that your benefits were cut is questionable. They were deferred a couple years since the FRA was changed frm 65 to 67 but you will be collecting for longer due to longevity improvements.

 

[camfused]

OK, I see the issue. That is the long term equivalent cut if the OASI and DI trust funds are combined, but that won't happen under the current law. That would take action from Congress.
...

The OASI Trust Fund reserves are projected to become depleted in 2033, at which time OASI income would be sufficient to pay 77 percent of OASI scheduled benefits. DI Trust Fund reserves are not projected to become depleted during the 75-year period ending in 2099."

Thanks for straightening that out.

 

[Time2]

I certainly don't expect my kid to have to pay more tax for my SS, or anyone's.

Exactly.

Even so, I bet they get some increase.

 

[Flieger]

Even so, I bet they get some increase.

I won't take that bet.

Flieger

 

[Time2]

Has anyone ever compared the number of dollars they paid in to what they get in their first year and divided to see how many years before they get all the money back that they paid in. I get mine back in 3.3 years,
Yep, I'm aware there is growth on the deposits and inflation, so it is a pretty worthless number, but I was surprised it was so low.

 

[RetiredHappy]

Has anyone ever compared the number of dollars they paid in to what they get in their first year and divided to see how many years before they get all the money back that they paid in. I get mine back in 3.3 years,
Yep, I'm aware there is growth on the deposits and inflation, so it is a pretty worthless number, but I was surprised it was so low.

You need to include your employer contributions into the numbers.

 

[Fermion]

Has anyone ever compared the number of dollars they paid in to what they get in their first year and divided to see how many years before they get all the money back that they paid in. I get mine back in 3.3 years,
Yep, I'm aware there is growth on the deposits and inflation, so it is a pretty worthless number, but I was surprised it was so low.

Did you include your employer's portion?

Even back in 1998 they were taking out $8,480 combined from our paycheck. That was back when you could buy a new car for $20,000 easy.

I am thinking more than 3.3 years.

 

[Fermion]

To further put that in perspective, $8480 invested in 5% bonds in 1998 would be $31,660 today. If invested in the S&P500 in 1998, it would be $91,850.

So pretty much 1 year of SS contribution is equaling 1 year of SS payment.

 

[camfused]

Has anyone ever compared the number of dollars they paid in to what they get in their first year and divided to see how many years before they get all the money back that they paid in. I get mine back in 3.3 years,
Yep, I'm aware there is growth on the deposits and inflation, so it is a pretty worthless number, but I was surprised it was so low.

But, you may be looking at this wrong. It is not an interest-earning investment that you pay into and then later start withdrawing from. Here is how I look at it: money you pay into, while working, goes directly to current retirees that are withdrawing from it. If there is any of that left over, it goes into the surplus fund (which currently runs out in 2034). While you are paying into it, you obtain "points" to determine how much you will be able to withdraw when it is your turn to do so. At that point, current workers paying into it is what is funding your withdrawals (and any shortage is made up from dipping into the surplus fund).

At least this how I look at it, simpleton that I am.

 

[bada bing]

Has anyone ever compared the number of dollars they paid in to what they get in their first year and divided to see how many years before they get all the money back that they paid in. I get mine back in 3.3 years,
Yep, I'm aware there is growth on the deposits and inflation, so it is a pretty worthless number, but I was surprised it was so low.

I don't know what such a comparison would tell you. My first significant FICA "contribution" was in 1976. $100 invested in the S&P500 in 1976 is over $24,000 today. I paid ~$800 in the OASDI portion of FICA (9.9%) in 1976, which would be worth ~$192K today if invested.

By that logic, each of my earliest years of FICA contributions would pay for over 3 years of eventual benefits. `

Don't look at the imputed returns on SS unless you want to get mad.

 

[Time2]

It is debatable whether to include an employers portion, you can if you want. I my case I pretty much did as I had 28 years of self employment so I was paying both sides.

 

[pb4uski]

You need to include your employer contributions into the numbers.

While I don't necessarily agree that employer contributions should be included, even so that doubles it to 6.6 years. The point is still valid.

 

[pb4uski]

Can y'all just cut out the whole "if invested in the S&P 500" crap? No reputable pension fund would invest 100/0 so it's a stoopid comparison.

 

[bada bing]

Can y'all just cut out the whole "if invested in the S&P 500" crap? No reputable pension fund would invest 100/0 so it's a stoopid comparison.

No reputable pension would invest in 100% long treasuries with a fraction of reserves against liabilities either. The root complaint that causes all the debate about needing "fixes" is that SS was established as a pay-go, decades ago. So discussions of SS investment strategy are pretty much moot. But likewise the idea of getting your nominal dollars back, 50 years later, is a whacky metric. Even for a 100% long treasury investment you have to impute prevailing interest. I bought some 30 year zeros in the 80's with a 13% interest imputed.

 

[pb4uski]

I agree on the first part that no pension would invest only in treasuries, but presumably the SSA actuaries used that lower return in estimating when the Trust Fund becomes unable to pay 100% of benefit payments, so I don't see investing solely in Treasuries as a fatal flaw. It's just the 100% S&P crap is ridiculous. Not pointing solely at you, I see it often enough that it is annoying.

I think a more valid approach is to look at the IRR of the portion of the taxes that you paid for retirement benefits compared to your expected retirement benefits. Your inputs compared to your outputs. I just went back and reviewed an analysis of return on SS that I did a while ago. I calculated the OASDI taxes that I paid over the years and was able to tie it to my SSA statement within reason. Then I took 92.3% of OASI taxes paid to exclude from the analysis OASI taxes paid that relate to survivorship/life insurance benefits. (DI is a separate tax so I excluded DI taxes).

I then added in my benefits from age 70 to age 82 (assuming average longevity) and assuming 2% COLA and computed an IRR based on the cash flows. I was very surprised that it was 5.7%. Not bad.

 

[Fermion]

Well I first listed what the return would be on the 1998 dollars if invested in 5% 30 year treasuries, which is quite reasonable yes? You can get near 5% today actually in 30 year. The return was over $30,000 which is nearly a year of SS for the average person if claiming at age 62. So $8480 SS tax in 1998 turned into a full year of payment in 2025.

 

[pb4uski]

Well I first listed what the return would be on the 1998 dollars if invested in 5% 30 year treasuries, which is quite reasonable yes? You can get near 5% today actually in 30 year. The return was over $30,000 which is nearly a year of SS for the average person if claiming at age 62. So $8480 SS tax in 1998 turned into a full year of payment in 2025.

There are a number of problems with the $8,480. First, 1.7% of the 12.4% of OASDI taxes are for DI, not retirement or survivor benefits. Also, only ~92% of OASI tax related to retirement benefits. Finally, it is questionable to include both your and your employer taxes paid.

So at best it is $6,733 rather than $8,480, and more realistically it is half that.

Also, $8,480 was the maximum tax that year. While I hit the max that year and presume that you did too, many people didn't.

 

[pb4uski]

... Don't look at the imputed returns on SS unless you want to get mad.

No. See post #166.

 

[explanade]

The parents just need to tell their Gen Z kids if their SS benefits are cut, they’ll need to move in with their kids to afford life. I would imagine the kids would have a complete change of opinion on SS funding.

Read an article recently that Millenials and Gen Z are going to be the beneficiaries of the greatest intergenerational wealth transfer in history as they inherit wealth from the Boomers over the next couple of decades.

This is in the aggregate, not every Millenial or Gen Z have rich parents or grandparents. So inequality will widen among their ranks.

Yet these are the ones who came up with “OK Boomer” which shows their resentment that the older generation hogged all the wealth — many of them had the traumatic experience of the Great Financial Crisis when they were children or young adults, as they lived through their parents losing jobs and homes.

 

[junkanoo]

Read an article recently that Millenials and Gen Z are going to be the beneficiaries of the greatest intergenerational wealth transfer in history as they inherit wealth from the Boomers over the next couple of decades.

This is in the aggregate, not every Millenial or Gen Z have rich parents or grandparents. So inequality will widen among their ranks.

Yet these are the ones who came up with “OK Boomer” which shows their resentment that the older generation hogged all the wealth — many of them had the traumatic experience of the Great Financial Crisis when they were children or young adults, as they lived through their parents losing jobs and homes.

No idea why anyone would be talking about Gen Z when Gen X and Gen Y (a.k.a. Millennials) come up to bat first. Heck, there are many Boomers that haven't received an inheritance yet because of "horizontal transfers" of first spouse to die to last to die of Boomer parents. The first of Gen Z were born in 1997 ... most of them will be waiting waaay longer than a couple of decades before they get a significant wealth transfer (other than the most wealthy to their grandchildren via trusts).

Robert Frank's note this morning:

"Long seen as a marketing ploy or exaggeration by the wealth-management industry, the great wealth transfer is now very real — and even larger than predicted. Cerulli & Associates just increased estimates for total inheritances by 20%, forecasting more than $100 trillion to be transferred from baby boomers and older generations by 2048.

The majority will come from the wealthy, with $62 trillion will coming from the wealthiest 2%, Cerulli said. Initially, much of it will go to spouses, known as “horizontal transfers,” which will lead to a steady rise in the global share of wealth held by women. After that, it will cascade down to Gen, X, and then to millennials and Gen Zers."

 

[Dalton]

Will the stats of 70% of family wealth being lost by the 2nd gen and 90% lost by the 3rd gen still apply? Won't be much left for gen z, if so. That being said, it won't just evaporate, and presumably it will be transferred to whoever the kids and grandkids are spending it with...so, the gens should have lots of opportunity to create businesses to capture that wealth.

 

[fognostic]

Long seen as a marketing ploy or exaggeration by the wealth-management industry, the great wealth transfer is now very real ... forecasting more than $100 trillion to be transferred from baby boomers...The majority will come from the wealthy, with $62 trillion will coming from the wealthiest 2%, ....

If 62% of the wealth transfer is concentrated in the top 2%, I don't need to know the exact figures to know the top 5% or 10% encompasses the vast majority of the remaining 38%. That leaves the vast majority of members of Gen X, Y and Z receiving next to nada wealth transfer.

I think it is a fallacious argument to claim these generations should not be disparaging boomers with "OK Boomer," because they are all receiving so much wealth transfer. The vast majority are not. There may be other reasons they should not be doing this, but wealth transfer ain't one of them. I'll file this one under "It's not a lie if you believe it."

 

[Time2]

This "horizontal transfer" is something I've been thinking about, I'm male, 5 years older then my wife, she could outlive me by 20 years. I'm considering giving at least some of my inheritance to my kids at my death. I may do this for several reasons, my wife can and will, live on much less then 1/2 of our nest egg, why make the kids wait, let them enjoy it while they are young. My wife can get a hair up her butt about, the daughters husband isn't who she thought he was when they married, she should have had a baby, the house they are building is too expensive, I'm not giving our money to her adopted son, and the list goes on,. Not so much, yet said about our son, but he's younger and has time to get on the s#iT list. She could cut them out of any inheritance. BTW, they are both great kids, and they are both working hard and getting much joy out of life. Looking at it, they have the money/joy thing figured out much better than their parents. It doesn't hurt that their parents got them there. Is this a rant?

 

[Flieger]

If 62% of the wealth transfer is concentrated in the top 2%, I don't need to know the exact figures to know the top 5% or 10% encompasses the vast majority of the remaining 38%. That leaves the vast majority of members of Gen X, Y and Z receiving next to nada wealth transfer.

I think it is a fallacious argument to claim these generations should not be disparaging boomers with "OK Boomer," because they are all receiving so much wealth transfer. The vast majority are not. There may be other reasons they should not be doing this, but wealth transfer ain't one of them. I'll file this one under "It's not a lie if you believe it."

Yes, I hate my parents' generation too. NVM they lived through the depression and made their way.

Every generation has its problems and complaints. When I hear "Ok Boomer" I know that person is irrelevant for me. If my kids ever say that, well, let's just say they won't have to worry about intergenerational wealth transfer.

Flieger