SS Could Be Insolvent in 8 Years

[indiajust]

https://www.thinkadvisor.com/2021/0...und-is-in-better-shape-than-expected-for-now/

Looks like the report is in. Only came in one year to 2033, then 76% of previous. 3 more prez terms to come to terms.

 

[pb4uski]

Sorry, not going to read multiple screens full of fine print.

I do agree benefits have been reduced. My FRA is over a year more than my father's. That's a reduction in my book. And the amount of SS income that is exempt from taxes is never adjusted for inflation, another de-facto reduction in benefits for all of us.

I am glad I studied my math. It keeps me from being fooled.

Agree on the second part of the amount exempt from taxes not being indexed for inflation... though it is a nuance whether it is an increase in taxes or a reduction in benefits... or just taxing SS benefits like other tax deferred benefits like contributory pensions or non-deductible IRAs where you pay tax on the portion of benefit payments that are growth (but SS does it in a very broad brush way).

On the first part, because of improvements in longevity you're probably receiving more than a year's worth of payments that someone a generation ago.

The average life expectancy at age 65 (i.e., the number of years a person could be expected to receive unreduced Social Security retirement benefits) has increased a modest 5 years (on average) since 1940. So, for example, men attaining 65 in 1990 can expect to live for 15.3 years compared to 12.7 years for men attaining 65 back in 1940.

So factor in that the man born in 1990 can't start collecting until he is 67, then he'll collect for 13.3 years where the man born in 1940 will only collect for 12.7 years.

 

[GenXguy]

Sorry, not going to read multiple screens full of fine print.

I do agree benefits have been reduced. My FRA is over a year more than my father's. That's a reduction in my book. And the amount of SS income that is exempt from taxes is never adjusted for inflation, another de-facto reduction in benefits for all of us.

I am glad I studied my math. It keeps me from being fooled.

Bingo, I was ready to mention these things as I have in some of these past SS threads. My FRA is 2 years later than what the FRA was when I was younger.

There's a flaw in how taxes are calculated for Social Security benefits that results in after-tax "net" SS benefits being "cut" every year and have been for years, but most people aren't aware of this.
The SS formula for determining how much of your SS benefits are taxed is NOT indexed to inflation, so that threshold has not increased since it was first introduced in 1983. For a single person, if your income combined with half your SS benefits exceeds $25,000, you have to pay income tax on up to 50% of your SS benefits. If it exceeds $34,000, you have to pay income tax on up to 85% of your SS benefits. $25K in 1983 is worth a lot more than $25K in 2018. Since your retirement distributions and SS benefits will be adjusted with inflation, but NOT the $25,000/$34,000 thresholds, a greater percentage of your SS benefits will become taxable as each year passes (for married filing jointly, the thresholds are $32,000/$44,000.) It's a built-in tax increase, reducing "net" SS benefits, hurting seniors further. The greater your combined income and SS/2, the more you will be affected by this up to a max of 85% of your benefits being taxed! It's absurd, and those thresholds should be increased to reflect inflation since 1983.

The ways it is, you should play it safe by estimating that 85% of your SS benefits well into the future will be taxable. More information about this can be found in these references:

https://www.marketwatch.com/story/p...-punished-by-social-security-taxes-2019-01-07
https://www.fool.com/retirement/gen...ear-old-social-security-rule-is-wreaking.aspx
http://www.foxnews.com/story/2007/03/25/double-whammy-taxation-social-security-benefits.html
https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html

I'm not one to support tax increases, but I would be open to paying higher FICA taxes to help shore up SS to prevent cuts to benefits and to prevent increasing the FRA for people within a decade of collecting SS.

At some point, the FRA will need increased for younger workers also as lifetime durations increase over time.

There was a bill introduced to address the problem of SS benefit taxation threshold levels to some degree, but it still wouldn't index it to inflation going forward. It doesn't look likes it's gone anywhere since it was last mentioned here.

https://www.congress.gov/bill/116th-congress/house-bill/860
https://larson.house.gov/sites/larson.house.gov/files/Larson Blumenthal Van Hollen_2019 0918.pdf

 

[daylatedollarshort]

I agree with him if you caveat it that won’t go down for anyone older than 50.

They have in the past through various tweaks, especially taxation. I've posted examples in this thread, as have other posters. Many of the proposals to fix SS do include benefits cuts to current recipients through ways such as means testing, not really keeping up with inflation indexes, and tax changes.

Whether a recipients benefits get cut $3K, or taxed an extra $3K, they still have $3K less to spend.

 

[aleabo]

The benefits will never go down....because it would be political suicide.

However, a combination of the next generation having to pay more into the system and some scheme to claw back some benefits from the 'rich' is quite probable.

Maybe the 'Mu' Covid variant will reduce the pressure on the system.

Have you heard of TRUST act? Looks like according to this act changes to SS won't need full congressional approval but selected comities.

 

[pb4uski]

Actually, the more I think about it, I'm not so sure. For most people they are going to be 85% no matter whether the hurdles are indexed or not. What indexing will do is to stabilize the percentage of people who are 85% and not sweep more people in.

However, if you look at benefits in relation to what you paid in, a good portion of what one gets is interest.

I'll use my numbers disguised a bit. Let's say that over my working years I paid in $125k as did my employer, so $250k in total. However, about 28% of that relates to non-retirement benefits (survivor benefits, DI, etc), so that is $180k.

My benefit will be ~$35k a year at age 66-1/2. The annuity factor for 66-1/2 is 18.8 years, so if SS were a contributory pension plan then $9.6k ($180k/18.8 years) would be excluded as a return of contributions and the remaining $25.4k is taxable... that's 73% that would be taxable vs 85%. But that's for a fixed annuity so a higher percentage for a COLA annuity makes sense.

 

[daylatedollarshort]

Have you heard of TRUST act? Looks like according to this act changes to SS won't need full congressional approval but selected comities.

AARP has been ending out emails against that act. They say it reduces public input and may fast track cuts to SS and Medicare.

 

[daylatedollarshort]

Sorry, not going to read multiple screens full of fine print.

I am not sure what you are seeing when you click the link. I just see an article in regular font on the history of SS changes.

 

[teejayevans]

Whether a recipients benefits get cut $3K, or taxed an extra $3K, they still have $3K less to spend.

True, but in political speak, they didn’t cut your SS. Most people aren’t that detailed to notice…of course that was before social media, maybe they would now.
In DC if they were expecting to get an increase of 10% but instead only get a 5% increase….that’s called a cut.

 

[RunningBum]

I like the debate to see what seems to make the most sense. I don't see a point in arguing or trying to convince anyone though. Each person can make up their own mind whether to count on 100% SS or factor in whatever reduction they think is safe.

Personally I haven't seen a good case to make me rethink my 35% reduction. I could be convinced to make it 25%, but I'll go with what I see as the extreme end of a likely outcome. To each their own. You going with 100% has no impact on me.

 

[daylatedollarshort]

I like the debate to see what seems to make the most sense. I don't see a point in arguing or trying to convince anyone though. Each person can make up their own mind whether to count on 100% SS or factor in whatever reduction they think is safe.

Personally I haven't seen a good case to make me rethink my 35% reduction. I could be convinced to make it 25%, but I'll go with what I see as the extreme end of a likely outcome. To each their own. You going with 100% has no impact on me.

I don't care what people use in their formulas, but I don't think it is right for posters to spread misinformation by posting that Congress would never do something they've pretty clearly done many times in the past.

 

[Koolau]

I like the debate to see what seems to make the most sense. I don't see a point in arguing or trying to convince anyone though. Each person can make up their own mind whether to count on 100% SS or factor in whatever reduction they think is safe.

Personally I haven't seen a good case to make me rethink my 35% reduction. I could be convinced to make it 25%, but I'll go with what I see as the extreme end of a likely outcome. To each their own. You going with 100% has no impact on me.

Honestly, I'm much more concerned right now about rampant inflation heating up than future cuts in SS. I may be wrong. I was once.

 

[Koolau]

I don't care what people use in their formulas, but I don't think it is right for posters to spread misinformation by posting that Congress would never do something they've pretty clearly done many times in the past.

I'm not looking for a food fight on the subject. Clearly, Congress has tweaked the SS system several times. In most cases, it has had the effect of limiting (far in the ) future benefits (cuts, if you will.) But the whole thing has typically been done with enough hand waving, smoke and mirrors, "well, that's way in the future", "we're fixing SS for ever", etc. that folks don't think of it as cutting - even though it is. IOW few folks actual checks/deposits went down by much from one month to the next. My point is Congress (most likely) would not allow a sudden CUT of actual direct deposits by 35% to 80 million people - one month to the next. They like their jobs too much - especially when money grows on trees (so to speak). Of course, I could be wrong so YMMV.

 

[WestUniversity]

Can we “cancel” Marketwatch?

 

[daylatedollarshort]

My point is Congress (most likely) would not allow a sudden CUT of actual direct deposits by 35% to 80 million people - one month to the next.

I don't see where anyone in this thread has suggested Congress would cut all SS recipients 35%. That isn't in any of the current fix proposals, and that is not what they did during the last crisis. That is a different position than posters saying Congress would never make any cuts to SS, or make any cuts to current recipients, which is not supported by historical facts.

 

[Koolau]

I don't see where anyone in this thread has suggested Congress would cut all SS recipients 35%. That isn't in any of the current fix proposals, and that is not what they did during the last crisis. That is a different position than posters saying Congress would never make any cuts to SS, or make any cuts to current recipients, which is not supported by historical facts.

I didn't suggest CONGRESS would cut by 35% - just that they would NOT allow the depleted SS fund to make that cut. (I forget the exact number but 35% is close IIRC.) Of course, I have no special insight - just 74 years of watching congress buy votes with our money.

 

[pb4uski]

.... I forget the exact number but 35% is close IIRC. ...

From 2021 Trustees Report:

... The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2033, one year earlier than reported last year. At that time, the fund's reserves will become depleted and continuing tax income will be sufficient to pay 76 percent of scheduled benefits. ...

So 24% haircut, not 35%.

 

[Markola]

Life expectancy dropped (is dropping?) in the U.S. Presumably, that grim fact will show up in future data about SS projections.

https://www.nbcnews.com/health/heal...ased-alarming-amount-during-pandemic-n1272206

 

[Closet_Gamer]

I think there is another political reality rumbling around here:

Broadly speaking, our nation isn't terribly good at dealing with an issue until its hitting us square in the face with actual short term impacts.

That's a by-product of many things but I would argue generally true.

In that case, I doubt we will see substantive action on this until 2028 (inside one election cycle) or maybe even 2030. Then the national mind will focus.

Also broadly true is that once we get the national mind focused, we do tend to get things sorted out.

Its not pretty and its far from perfect...but it does seem to work.

 

[harllee]

Life expectancy dropped (is dropping?) in the U.S. Presumably, that grim fact will show up in future data about SS projections.

https://www.nbcnews.com/health/heal...ased-alarming-amount-during-pandemic-n1272206

I was wondering about this. If life expectancy drops shouldn't that eventually start reducing SS payments? To offset this I guess there may be more disability claims from people who caught the virus and cannot work.

 

[karen1972]

I was wondering about this. If life expectancy drops shouldn't that eventually start reducing SS payments? To offset this I guess there may be more disability claims from people who caught the virus and cannot work.

I think it may be awhile before it shakes out how the pandemic impacts things.
- Additional people may be on disability
- How many took early retirement that otherwise might have worked to FRA?
- How many close to retirement seeing record gains will stay in the labor force or retire early w/ or w/o SS.
- CDC estimates at least 550k excess deaths and given the stats of COVID you have to assume a vast majority of those were already on SS.
- will we get back to full labor participation? I know lots of people still choosing to home school, not sure if/when they will re-join the labor force.

So lots of factors including likely changes to peoples decisions will change the total $$ spent in the upcoming years, not sure any of that can truly be modeled at this point.

 

[tmm99]

The ex-spouse who was married for 10 years or more having the right to receive half of the SS of the ex-spouse seems strange to me while the benefit of someone who's been married for eternity and is still married is not more. My DH who is Canadian and has never lived in the US gets the same benefit, which again is strange. Even if you're married to someone American for a very short time, you get the same benefit, which is strange yet again.

Maybe the government will cut SS in some of those areas...

 

[Koolau]

From 2021 Trustees Report:



So 24% haircut, not 35%.

Thanks. My math is okay, but my memory - not so much.

 

[Koolau]

I think it may be awhile before it shakes out how the pandemic impacts things.
- Additional people may be on disability
- How many took early retirement that otherwise might have worked to FRA?
- How many close to retirement seeing record gains will stay in the labor force or retire early w/ or w/o SS.
- CDC estimates at least 550k excess deaths and given the stats of COVID you have to assume a vast majority of those were already on SS.
- will we get back to full labor participation? I know lots of people still choosing to home school, not sure if/when they will re-join the labor force.

So lots of factors including likely changes to peoples decisions will change the total $$ spent in the upcoming years, not sure any of that can truly be modeled at this point.

While pandemic deaths are the big factor right now, other causes of death are also up. Drug overdose deaths have been on the rise for quite some time. IIRC the numbers are on the oder of 70K or more/year. That's astounding to me but YMMV.

 

[ncbill]

I think there is another political reality rumbling around here:

Broadly speaking, our nation isn't terribly good at dealing with an issue until its hitting us square in the face with actual short term impacts.

That's a by-product of many things but I would argue generally true.

In that case, I doubt we will see substantive action on this until 2028 (inside one election cycle) or maybe even 2030. Then the national mind will focus.

Also broadly true is that once we get the national mind focused, we do tend to get things sorted out.

Its not pretty and its far from perfect...but it does seem to work.

+1000

IMHO they'll remove the wage cap first.