Modeling Social Security 2033 Insolvency

[flyoverstate]

I did some back of the napkin calculations for my Social Security situation assuming the 2033 insolvency results in a 21% hit to my monthly Social Security payments.

I am 64. I do not yet draw SS. I paid the max for 35 years, so I would be one of the people most likely to be screwed when the cliff hits. I have *zero* confidence that the issue will be addressed before 2033, it is too hot of a political football. It will be talked about, debated, anguished over, and nothing will be done.

Apparently when this cliff was established in the 80's by the last SS "reform" (which also screwed me because I was born in 1960, thus my FRA went from 65 to 67), it was baked in that a 21% cut in overall benefits would take place, but that does NOT mean that everyone will take a 21% hit. I honestly believe that if there is any legislation passed concerning this issue prior to 2033, it will be that people under a certain benefit amount will be untouched, and those above that threshold will be hit harder. But, of course, it is all a guess at this point.

So, I did some calculations, assuming that I live to be 85, and that regardless of when I take SS, it will be cut by 21% beginning in 2034. The results are interesting.

My total SS benefit without any cuts, with 65, 67 and 70 as possible ages for first payment, is $827k, $868k, $915k.

My total SS benefit assuming a 21% cut beginning in 2034, with 65, 67 and 70 as possible ages for first payment, is $711k, $734k, $747k. Assuming a 21% cut in 2034 really narrows the difference in overall benefit depending on when the benefit is taken. It really does push me toward taking SS ASAP. Another factor is that, I believe, IMHO, that the lower your benefit is in 2033, the less of a target you will be for cuts. I have seen some prognostications that the cuts will be progressive in nature, similar to the tax code, so the first X amount will be cut by less that the next tier and the next tier. This also pushes me to take SS immediately.

Of course, there may be tax considerations, etc., and every person has a different situation, but has anyone else penciled this out for themselves?

 

[dak2018]

The rub is, as always, that you need to make all sorts of assumptions regarding the legislation that will "fix" the problem, and that your results will vary depending on your estimate of what Congress will do. Other fixed that I have seen floated ( raise the retirement age, remove the cap on SS earnings ) would not necessarily alter the benefits paid to recipients. So you need to ask yourself - are you an optimist or a pessimist?

 

[RetiredHappy]

I am guessing that there won't be a cut. Something will get done to preserve it in 2033.

On the other hand, for many of us on this forum even with a 21% cut, it does not affect our standard of living so we don't worry about it.

 

[SecondCor521]

I trust and use opensocialsecurity.com, which has an option for assuming a 2033 reduction. In my particular case, the potential 2033 reduction doesn't make any difference to my claiming strategy.

 

[flyoverstate]

The rub is, as always, that you need to make all sorts of assumptions regarding the legislation that will "fix" the problem, and that your results will vary depending on your estimate of what Congress will do. Other fixed that I have seen floated ( raise the retirement age, remove the cap on SS earnings ) would not necessarily alter the benefits paid to recipients. So you need to ask yourself - are you an optimist or a pessimist?

After observing the operation of the Federal Government for 50 years? Pessimist all the way.

 

[foxcreek9]

If you have a high net worth (not sure where that cutoff will be), expect cuts, but for most it will be nothing. There will be a compromise of higher taxes, another bend point, higher income limits, tweaking COLA, and possibly raising the age to 68 or 69 for full benefits.

 

[flyoverstate]

I am guessing that there won't be a cut. Something will get done to preserve it in 2033.

I wish I could feel this way, but this issue is likely to be the most financially impactful decision made since that last SS reform. Impactful both to the Federal budget, and to every single worker in the US. Quite frankly, I think it is a stretch to think that something will be done. No politician wants to touch this, because there is absolutely no upside, only downside, to whatever decision is made. There will be lots of blame-shifting and finger pointing, but no concrete action, other than, as I mentioned, the very high probability (IMHO) of means testing, or a progressive cut schedule based on your monthly benefit.

 

[Koolau]

I can't imagine an administration that will allow the cut in benefits to actually occur. I assume that, if our currency hasn't collapsed by then, we'll simply increase the debt by printing yet more money to cover the short fall (what's another few trillion? )

If anything, I would look for means testing, but I consider that a distant second though YMMV.

 

[gauss]

When I have studied this in the past, the older you were the less any proposed cuts would effect you. You can see the example of this from the 1980's Greenspan commission which put in the increase of retirement age from 65 to 67 over decades. That is to say the older folks weren't effected as much as the younger folks (back then). Many of the more modern reform proposals have this characteristic also.

As someone who will reach my 6th decade of age shortly, I am hoping that my personal impact will be minimal.

-gauss

 

[freedomatlast]

Don't waste energy worrying about things over which you have no control.

 

[Jerry1]

Don't waste energy worrying about things over which you have no control.

Agree, to a point. In modeling retirement finances, it makes sense to see how a reduction in SS would impact you. Personally, I think if I could retire and be okay if SS decreased by 50%, I’d be comfortable with that. Even better if you could get by with no SS. If you need every bit of SS to be able to meet your needs in retirement, you’re cutting it too close. Of course if you’re let go or can no longer work, you have no choice - then I would find constructive ways to “worry” about it - out of necessity.

 

[Koolau]

Don't waste energy worrying about things over which you have no control.

It's true that no one individual has a lot of control of such things, but as blocks of people, we still wield power over gummint. Recent events bear this out though YMMV.

 

[marko]

Back in 1972 when I first started working, my dad told me that SS would be long, long gone by the time I retired. After all these years it's nice to know he wasn't lying to me.

 

[Koolau]

Back in 1972 when I first started working, my dad told me that SS would be long, long gone by the time I retired. After all these years it's nice to know he wasn't lying to me.

I still remember when, in the early '80s we "saved" SS.

 

[foxcreek9]

Back in 1972 when I first started working, my dad told me that SS would be long, long gone by the time I retired. After all these years it's nice to know he wasn't lying to me.

I wouldn't say he is lying but he was wrong, it is never going away.

My fix from this site The Social Security Reformer - Interactive Tool

 

[Gumby]

So just assume you will get zero and save appropriately . If you get anything, it will be a bonus. That's what I did.

 

[Dtail]

If you have a high net worth (not sure where that cutoff will be), expect cuts, but for most it will be nothing. There will be a compromise of higher taxes, another bend point, higher income limits, tweaking COLA, and possibly raising the age to 68 or 69 for full benefits.

Agree for the most part.

 

[Koolau]

So just assume you will get zero and save appropriately . If you get anything, it will be a bonus. That's what I did.

Pretty much what I did as well. Now I've got all that "extra" money to get rid of. Poor, poor, pitiful me (apologies to Warren Zevon.)

 

[flyoverstate]

So just assume you will get zero and save appropriately . If you get anything, it will be a bonus. That's what I did.

That is fine for people in the right circumstances. My wife and I would be OK without SS, but SS is going to make a huge difference in our quality of life, and in whatever we are able to leave to our children. It will probably be the deciding factor as to whether we end up on Medicaid eventually, or get to ride out our final years in a slightly better place than the county home.

We are much better off than a *lot* of people we know. Divorce, medical issues, issues with kids needing support - there are a million reasons people end up relying on Social Security, and they are not always at fault. A good friend of ours just finally retired at age 70, despite making more than the SS max for over 35 years. They live in a very HCOL area, they had some expensive health issues, they went through a brutal "grey" divorce, and had a child that failed to launch, if you will. 21% out of their SS will force some major lifestyle changes, because their retirement savings were shot through by circumstances late in life. They are kind of a worst case scenario, but not really all that uncommon. They are a good example of why establishing "progressive" cuts that favor people who paid in the least, is bound to really wreck some people who paid the most for the longest, and who arguably have kept the system afloat all these years.

As illustrated by some of the posts on this very thread, people have expectations that our elected officials will face the tough situations and respond appropriately. I fear that those expectations are going to be shattered between now and 2033.

 

[ncbill]

Well, I really hope it gets fixed, at least for those who never came near the second bend point:

Last relative I buried was a single mother who had planned to work to around age 70.

But her long-time employer (>25 years) simply outsourced her entire department before she was 60.

Which meant she had to cash in her pension to make it to SS at age 62.

With a small inheritance & refinancing/adding a HELOC on her modest home she was able to stay in her home until just a few months before her death, but it was a very lean retirement for her.

Can't imagine she would have made it on anything less.

 

[Teacher Terry]

That is fine for people in the right circumstances. My wife and I would be OK without SS, but SS is going to make a huge difference in our quality of life, and in whatever we are able to leave to our children. It will probably be the deciding factor as to whether we end up on Medicaid eventually, or get to ride out our final years in a slightly better place than the county home.

We are much better off than a *lot* of people we know. Divorce, medical issues, issues with kids needing support - there are a million reasons people end up relying on Social Security, and they are not always at fault. A good friend of ours just finally retired at age 70, despite making more than the SS max for over 35 years. They live in a very HCOL area, they had some expensive health issues, they went through a brutal "grey" divorce, and had a child that failed to launch, if you will. 21% out of their SS will force some major lifestyle changes, because their retirement savings were shot through by circumstances late in life. They are kind of a worst case scenario, but not really all that uncommon. They are a good example of why establishing "progressive" cuts that favor people who paid in the least, is bound to really wreck some people who paid the most for the longest, and who arguably have kept the system afloat all these years.

As illustrated by some of the posts on this very thread, people have expectations that our elected officials will face the tough situations and respond appropriately. I fear that those expectations are going to be shattered between now and 2033.

A couple we were good friends with had terrible luck with their health. First she survived stage 4 ovarian cancer but couldn’t work for 3 years so received SSDI. She went back to work for 3 years but unfortunately her cancer came back 6 more times . Even though they had insurance they still owed a lot of money.

He was laid off and had to take a much lower job. He then gets cancer twice. He dies and she gets early Alzheimer’s and I have to put her in a nursing home. They owned a house and had savings. After everything was sold and bills paid I had to apply for Medicaid to keep her in the facility.

 

[Focus]

I did some back of the napkin calculations for my Social Security situation assuming the 2033 insolvency results in a 21% hit to my monthly Social Security payments.

I am 64. I do not yet draw SS. I paid the max for 35 years, so I would be one of the people most likely to be screwed when the cliff hits. I have *zero* confidence that the issue will be addressed before 2033, it is too hot of a political football. It will be talked about, debated, anguished over, and nothing will be done.

Apparently when this cliff was established in the 80's by the last SS "reform" (which also screwed me because I was born in 1960, thus my FRA went from 65 to 67), it was baked in that a 21% cut in overall benefits would take place, but that does NOT mean that everyone will take a 21% hit. I honestly believe that if there is any legislation passed concerning this issue prior to 2033, it will be that people under a certain benefit amount will be untouched, and those above that threshold will be hit harder. But, of course, it is all a guess at this point.

So, I did some calculations, assuming that I live to be 85, and that regardless of when I take SS, it will be cut by 21% beginning in 2034. The results are interesting.

My total SS benefit without any cuts, with 65, 67 and 70 as possible ages for first payment, is $827k, $868k, $915k.

My total SS benefit assuming a 21% cut beginning in 2034, with 65, 67 and 70 as possible ages for first payment, is $711k, $734k, $747k. Assuming a 21% cut in 2034 really narrows the difference in overall benefit depending on when the benefit is taken. It really does push me toward taking SS ASAP. Another factor is that, I believe, IMHO, that the lower your benefit is in 2033, the less of a target you will be for cuts. I have seen some prognostications that the cuts will be progressive in nature, similar to the tax code, so the first X amount will be cut by less that the next tier and the next tier. This also pushes me to take SS immediately.

Of course, there may be tax considerations, etc., and every person has a different situation, but has anyone else penciled this out for themselves?

Thanks for bringing this up, because it made me reuse the Open Social Security calculator (a gift to every retiree from Mike Piper). I used to assume I'd wait until 70 to collect, but to my surprise the calculator is now indicating I should do so at 65.5, whether there's a benefit cut or not. It rises a bit if I choose one of the healthier mortality tables, though. I'll have to give this some deep thought, since the dates are approaching.

If the incoming administration and Congress remove the tax on SS payouts (imposed as part of the 1983 bipartisan rescue package and adjusted in 1993), then that will accelerate the depletion of the trust fund, making it more likely that a new rescue package will need to be implemented sooner.

 

[Gumby]

I'm not saying people don't need social security, or even that I will never need it. But having created my model with SS set to zero and saved accordingly gives me more of a fighting chance.

 

[jollystomper]

I tend to file this in my "how many things in the relatively distance future did I worry about and did not come true?" folder .

As Gumby says, just plan on it and act accordingly. Maybe it means you work another year or two to build up a buffer. Worst case you will have "extra" money to put towards BTD purposes.

 

[Focus]

A couple we were good friends with had terrible luck with their health. First she survived stage 4 ovarian cancer but couldn’t work for 3 years so received SSDI. She went back to work for 3 years but unfortunately her cancer came back 6 more times . Even though they had insurance they still owed a lot of money.

He was laid off and had to take a much lower job. He then gets cancer twice. He dies and she gets early Alzheimer’s and I have to put her in a nursing home. They owned a house and had savings. After everything was sold and bills paid I had to apply for Medicaid to keep her in the facility.

The moral of your very sad story is clear: No one is immune from a worst-case scenario. Sorry they were dealt such a bad hand. (They were lucky, however, to have you supporting them.)