The coming Social Security fight could be 1983 all over again

[TolmiePeak]

Not when you are making six figures a year during that time. It helped push me towards the maximum Social Security benefit available. Get a perspective.

Claiming at 62, you get a 30% reduction in benefits from FRA. Working and waiting until 69 you increase your benefit by 24% from FRA. Add in the fact that I was maxing out my 401K (with employer match of 4%), HSA (me and DW) and contributing to two ROTH IRAs.

You must plan on dying early.

Once the social security trust fund runs out of money don't automatic haircuts kick in?

 

[DrQ]

Once the social security trust fund runs out of money don't automatic haircuts kick in?

Yes, but that would just take me back to my FRA benefit.

Under your plan, grasshopper, I would be claiming SS with a 30% haircut from the getgo, have to dip into my retirement accounts at a higher rate and THEN face a 25% haircut again.

As it is now, we are dipping into retirement for home improvement only. If the cuts happen, I will have to be drawing RMD which would more than make up the difference.

 

[Talent312]

I don't see the politicos allowing any great disruption.
The grey-hairs have a very strong lobby.
.

 

[DrQ]

I don't see the politicos allowing any great disruption.
The grey-hairs have a very strong lobby.

And this cohort votes consistently in local elections.

 

[ScoopKona]

And this cohort votes consistently in local elections.

... for the people who are trying to end the New Deal.

 

[ScoopKona]

I don't see the politicos allowing any great disruption.
The grey-hairs have a very strong lobby.

If Congress does nothing, the OASDI fund depletes and everything I mentioned a few posts up happens. That's the "nothing happens, kick-the-can" result. It's also the most likely result.

What do we need to shore up the OASDI? Taxes. Mountains of taxes. The OASDI needs $22 trillion dollars. Which, coincidentally is the same as our national debt. That's a stack of $1,000 bills, more than 1,000 miles high.

 

[billymach4]

I'm normally not a gambler. But I'd be willing to put money on this. Lucky for you, by the time it would be my turn to collect on this bet, I'll be too old to remember that you owe me money.

If you read the article in the original post (look for the section titled "What happened in 1983"), that's what they did back when Reagan was president. I think they will do that again because it takes the responsibility for making difficult and complex decisions off the shoulders of the politicians.

YUP. Who am I. Just another opinion. Yes the bureaucrats need to spin red tape by creating a commission.
But it is indeed annoying that they always wait until the clock runs out.

 

[ScoopKona]

YUP. Who am I. Just another opinion. Yes the bureaucrats need to spin red tape by creating a commission.
But it is indeed annoying that they always wait until the clock runs out.

This is why (barring a change in ocean currents), I live on a totally self-sufficient farm. I can even distill alcohol.

If the ocean currents change, I'm just as screwed as everyone else. I've been watching us inch towards this eventuality since 1983. In that time, one candidate showed a serious, sober interest in the problem. He lost.

If/when the OASDI depletes, there's going to be massive amounts of societal misery. Parents will have to move in with their children. There will be a fire-sale of houses as retirees desperately try to "cash out." The "when should I retire" social security math goes away, because the answer is RIGHT NOW. Get what you can while the number is still 100%. (I will never see 100%. That's why I retired young. Why pay into a system which isn't going to be there for me?)

As more people come to the same conclusion, "this ain't gonna be fixed," the depletion date will lurch forward as workers retire young, go to under the table cash jobs and similar.

 

[GetawaysRus]

This is speculative, but I disagree with you.

Politicians are celebrities, like Hollywood actors. Hollywood has the annual Academy Awards so they can pat one another on the back and boast about how wonderful and talented they are. Politicians also like to have successes so they can high-five one another, beam with pride, and boast at reelection time.

What might the "fix" include? Some guesses:
1. The Full Retirement Age may be increased, possibly in steps. 68? 69? Do I hear 70? People who take their benefit early would take a larger reduction in payments.
2. The tax code will be modified. Currently 85% of your benefit is taxed if your income is above a certain level. That % may rise, or perhaps rise in a progressive fashion so that higher earners are taxed on a higher % of their benefit.
3. For those still working, the income ceiling for Social Security (FICA) tax will rise. The 2024 limit is $168,600. That cap will rise, or perhaps even go away altogether. Or maybe there will be a "donut hole" so that FICA stops at a certain income level but then resumes at a higher level. Everyone will have to pay their "fair share."
4. If there is a benefit cut, it may only affect high earners. In other words, there may be some sort of means test based on a prior year's adjusted gross income or MAGI. This would be analogous to the current Medicare IRMAA.
5. Somebody smarter than me will come up with some other devious idea(s) that we all don't like.

 

[ScoopKona]

This is speculative, but I disagree with you.

Politicians are celebrities, like Hollywood actors. Hollywood has the annual Academy Awards so they can pat one another on the back and boast about how wonderful and talented they are. Politicians also like to have successes so they can high-five one another, beam with pride, and boast at reelection time.

What might the "fix" include? Some guesses:
1. The Full Retirement Age may be increased, possibly in steps. 68? 69? Do I hear 70? People who take their benefit early would take a larger reduction in payments.
2. The tax code will be modified. Currently 85% of your benefit is taxed if your income is above a certain level. That % may rise, or perhaps rise in a progressive fashion so that higher earners are taxed on a higher % of their benefit.
3. For those still working, the income ceiling for Social Security (FICA) tax will rise. The 2024 limit is $168,600. That cap will rise, or perhaps even go away altogether. Or maybe there will be a "donut hole" so that FICA stops at a certain income level but then resumes at a higher level. Everyone will have to pay their "fair share."
4. If there is a benefit cut, it may only affect high earners. In other words, there may be some sort of means test based on a prior year's adjusted gross income or MAGI. This would be analogous to the current Medicare IRMAA.
5. Somebody smarter than me will come up with some other devious idea(s) that we all don't like.

I don't know who you're disagreeing with, but lets address #2, #3 and #4.

I'm 100% for means-testing, removing the income cap and similar. But it won't do any good at all. Why? Because these are merely billion-dollar solutions to a multi-trillion dollar problem.

To put this into "personal finance" terms, "Well, I owe $100K on my credit card. So I'll look under couch cushions and look in phone booths for loose change. That will pay off the credit card in a few weeks!"

 

[Brett]

I don't know who you're disagreeing with, but lets address #2, #3 and #4.

I'm 100% for means-testing, removing the income cap and similar. But it won't do any good at all. Why? Because these are merely billion-dollar solutions to a multi-trillion dollar problem.

To put this into "personal finance" terms, "Well, I owe $100K on my credit card. So I'll look under couch cushions and look in phone booths for loose change. That will pay off the credit card in a few weeks!"

I don't know the impact of "means testing" on social security but at least it would be a start.
Googling "means testing social security" links to articles that indicate it would help and has some political support

 

[AlmostRetired]

Best solution, take away retirement and medical benefits from Congress and Senate by requiring 10 years of service and limiting service 8 year so they never get there. Real world experience for many. Make them live on 401K, IRA, SS and Medicare. We will see complete changes to the first 2 making them more saver friendly, 3 gets fixed and 4 gets better. All of this happens within the current election cycle this get passed on.

Replacement for above, vote out anyone who thinks SS-Medicare is an entitlement benefit. If you go unto you SS online account, you can see how much you and you employer has contributed to SS and Medicare. Small as it may be, I was 17 when my first SS was taken out. I worked through college and at 69, I still work though less hours. I enjoy my job and I work by choice (though it helps prevent dipping into savings) so i consider myself lucky, but between what I and the company I worked for contributed, our contribution to SS and Medicare is about 1/2 million dollars. What we get is not entitlement, it is well earned.

I started taking my SS this year. I can say with no uncertainty that breaking even on when to take SS will not enter my mind just before death. Take it when it makes financial sense (cents).

 

[Big Matt]

A gutless and easy solution to at least solve part of it would be to remove the income ceiling entirely and make the wealthy subsidize those who never worked much, but who still receive benefits. It's the last part of my first sentence that's the real problem and will continue to be that way until we solve for all of the free handouts leading up to "retirement".

 

[ScoopKona]

I don't know the impact of "means testing" on social security but at least it would be a start.
Googling "means testing social security" links to articles that indicate it would help and has some political support

And it might have actually done some good -- if we tried it 40 years ago.

If the OASDI trust fund was a human being, he'd be a 75-year old, morbidly-obese chain smoker who just got a stage-4 lung cancer diagnosis. And replies, "But doctor, I can lose weight and quit smoking! That will fix everything!"

It's really that dire.

Every reply of "we could..." at this point should be a lament of "we didn't..."

 

[jp10558]

Well, me and younger people have never really expected Social Security to be there when we retire. But for people like my Mom who's 65, and I'd say at least people who are 55 or older probably planned with Social Security being there, and rug pulls never go over well. Of course, I also really don't get how we're short of money in the US. We're not, we just cut taxes so much and want to only spend that money on the military. Of course the other problem is the way Social Security was set up, just like much of our economy, we for some reason plan on infinite growth, but in reality the population is declining, and that kind of screws up the system. I don't have magical solutions, but I do feel like planning in inflation adjustments, restoring higher tax rates, getting rid of the cap on social security taxes, and some level of means testing would certainly help.

EDIT: Supposedly we need more people in the country for the economy and especially stuff like Social Security to work, so fixing our immigration system, and getting more tax payers into the system would also help.

And of course, make clear if you're going to drop Social Security and when, though I think that'd be a bad idea. We have stuff in 401ks etc that didn't really exist when Social Security was started. But if we're going to do this, we also need to make it compulsory for any employer that would have paid Social Security taxes to run a 401k with that as an automatic deposit when it's shut down. This means forcing benefits scaled appropriately to part time jobs too. Honestly, I think this might make things better as it would remove some incentive to keep people part time at just below full time hours, when in reality absent that the people would be full time.

 

[joestein]

I have very different takes on this.

Means testing - How do we do this? If you have $3 or 4 million saved and you are pulling in an extra $100K to $200K a year, you don't get SS? All that does is punish the people who have done the right thing all their lives. You can make the line higher, but the amount of savings will be insignificant. We max out our 401Ks for years now - that is a ton of money I could have used increase my life style.

401K/IRA Confiscation - ???????? Just steal our money - Earnings are already taxed at higher income tax level - rather than capital gains levels. Will we still be a Republic at this point?

The other ideas, like increasing tax on SS to 100%, increasing retirement age or increasing FICA limit all make sense. They have been increasing the FICA limit excessively for years.

What I believe will happen:

We will never cut the benefits. Politicians know seniors vote and they will not mess with it.

All the tax money comes into one bucket that SS is funded from. We are already funding a shortfall because the money we take in doesn't cover current SS. We 'draw' from the 'trust fund' Which is basically an IOU from the treasury to SS. So, instead of issuing debt, they just cancel some of the debt on the books. Just a bunch of fancy accounting. So the deadline is really meaningless. We already fund more money each year on welfare and benefits for the poor than we will need to fund the SS gap, yet we are not talking about cutting that.

 

[GetawaysRus]

Means testing - How do we do this? If you have $3 or 4 million saved and you are pulling in an extra $100K to $200K a year, you don't get SS? All that does is punish the people who have done the right thing all their lives. You can make the line higher, but the amount of savings will be insignificant. We max out our 401Ks for years now - that is a ton of money I could have used increase my life style.

There's a difference between "means testing" and "wealth testing."

Although I am by no means a proponent of means testing, I think that it is one of the proposals that gets bandied about. If you are currently on Medicare, you know that the government can do this. The Medicare IRMAA is a supplemental charge to the basic Medicare monthly fee based on your Modified Adjusted Gross Income (MAGI) from 2 years prior. If you are already receiving Social Security, the cost of Medicare is automatically deducted each month. If you are 65+ but not yet receiving Social Security, you get a monthly bill. The government has your tax returns, so they already have the data, and the IRMAA is then automatically applied. They could easily do the same thing with your Social Security benefit by subtracting a portion of your monthly benefit based upon a prior year's income.

Wealth testing I suspect would be more difficult. The government would have to force all the banks and brokerages to report your account balance. Would they trust individuals to self-report their total wealth accurately? Even then, this might not capture investments via foreign banks or money somehow hidden "under the mattress." I would bet that this would encourage smart accountants to develop cleverer ways of hiding wealth. And how do you calculate wealth? For boomers who own homes, for example, there's a ton of wealth that's tied up in your home. Should the value of your home count in the calculation?

I'm one of those people who is delaying collecting my Social Security benefit beyond FRA. So I am with Joe's post immediately above, and I hope that benefit cuts never come to pass. It would make me feel very betrayed. Like many in my generation (boomers), I worked hard and earned a good living. I paid a lot into the Social Security kitty. The government made me a promise that I would receive a certain payout in retirement, and I will feel like they pulled the rug out from under my feet if they renege on that promise. In addition, Social Security is already a highly progressive system. My wife worked part time and earned about 20% of what I earned each year. But it I were to take Social Security today, her monthly benefit would be 64% of mine (yes, I did the math). In other words, instituting means testing would make the system even more highly progressive than it already is.

I also agree with those who have said that nothing is likely to happen for a while. It's potentially career-ending for a politician to take a stand on this.

I find financial planning very difficult and frustrating. The government makes the rules of the game (income taxes, retirement plans, Social Security, Medicare). I try to plan based upon the rules. Then whoops, they change the rules. It's as if I drew a bad Chance card in a Monopoly game. It makes it harder to pass GO and I do not collect $200.

 

[joestein]

. My wife worked part time and earned about 20% of what I earned each year. But it I were to take Social Security today, her monthly benefit would be 64% of mine (yes, I did the math). In other words, instituting means testing would make the system even more highly progressive than it already is.

That is another thing that might be considered. Maybe spousal payments can be decreased or eliminated. Maybe they should get 40% of their spouses SS. However, I don't advocate eliminating the survivor benefit. Surviving spouses should get 100% of their spouses SS if higher than their own.

Also... wealth is really hard to calculate based upon non-cash assets. Are my stocks, bonds or home going to be worth the same amount today as next year? What happens if the stock market crashes or has a huge year. Same for housing market. It is like a wealth tax and difficulties that go along with that.

 

[Ralph Sir Edward]

It;s called gaming the system. The US baby boomers have always been active in system gaming. Retirement is just another game. I game the system. I break no laws in doing so, but I use the loopholes available to "get the most for the least". Before you complain, isn't that what most of timeshare owners here do with their timeshares? (I already plan on a 33% "haircut" when the SS Trust Fund goes negative.)

Hint. The US tax system is based on income, not wealth. The way, in general, to game the system is to minimize your income without minimizing your standard of living. And to do that, you have to plan <and execute the plan> years in advance of the future changes.

 

[jp10558]

There's a difference between "means testing" and "wealth testing."

I am really against "wealth testing". I'm also against "Wealth Taxes". This is straight up confiscation. And I'm pretty left wing. I have no problem with "means testing" however. If your income / RMD is high enough I don't see the issue really with that lowering social security. However, I also think that in the grand scheme of things, the people who would trigger a means test in retirement would be in the ~2% range maybe? I.e. that political fight doesn't seem worth it to me as it probably doesn't make a huge difference.

I'm one of those people who is delaying collecting my Social Security benefit beyond FRA. So I am with Joe's post immediately above, and I hope that benefit cuts never come to pass. It would make me feel very betrayed. Like many in my generation (boomers), I worked hard and earned a good living. I paid a lot into the Social Security kitty. The government made me a promise that I would receive a certain payout in retirement, and I will feel like they pulled the rug out from under my feet if they renege on that promise.

I also agree with this - anything they do ought to be phased in as people start paying into Social Security to be totally fair, but at least not affect anyone within 10 years of retirement so you have some chance to plan for this.

In addition, Social Security is already a highly progressive system. My wife worked part time and earned about 20% of what I earned each year. But it I were to take Social Security today, her monthly benefit would be 64% of mine (yes, I did the math). In other words, instituting means testing would make the system even more highly progressive than it already is.

You say this like it's a bad thing

I also agree with those who have said that nothing is likely to happen for a while. It's potentially career-ending for a politician to take a stand on this.

Sadly, this is indeed likely true - no one wants to cut Social Security.

 

[ScoopKona]

There's a difference between "means testing" and "wealth testing."

and I hope that benefit cuts never come to pass. It would make me feel very betrayed. Like many in my generation (boomers), I worked hard and earned a good living. I paid a lot into the Social Security kitty. The government made me a promise that I would receive a certain payout in retirement, and I will feel like they pulled the rug out from under my feet if they renege on that promise.

Here's this year's trustee's report: https://www.ssa.gov/oact/trsum/

Near the top, where it belongs, you will find the following:

"The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, unchanged from last year's report. At that time, the fund's reserves will become depleted and continuing program income will be sufficient to pay 79 percent of scheduled benefits."


[Text bolded by me.]

Nobody has any right to feel betrayed, because the trustees have been singing this tune for decades. Every year, they plead with the government to please do SOMETHING to shore up the system, in order to minimize societal pain. There's only been one candidate in 40 years who took this problem seriously, and he lost.

If the government does nothing, the above text happens without anyone lifting a finger. No vote needs to be taken. No debate is necessary. The fund runs try, and the cuts happen.

I retired at 50 because I refuse to pay into a system which isn't going to amount to beer money when it's my turn to draw.

 

[joestein]

It;s called gaming the system. The US baby boomers have always been active in system gaming. Retirement is just another game. I game the system. I break no laws in doing so, but I use the loopholes available to "get the most for the least". Before you complain, isn't that what most of timeshare owners here do with their timeshares? (I already plan on a 33% "haircut" when the SS Trust Fund goes negative.)

Hint. The US tax system is based on income, not wealth. The way, in general, to game the system is to minimize your income without minimizing your standard of living. And to do that, you have to plan <and execute the plan> years in advance of the future changes.

Very true.... It is why I pay taxes now and put my money in 401K Roths rather than get a break and put into 401Ks. However, would have been better to do this when I was younger.

 

[easyrider]

Are any of you considering taking the money early before the automatic reductions kick in?

Maybe.

The main reason why Social Security becomes an issue is because people think just because it runs out of funds that SS it becomes insolvent. That's not how it works in a Keynesian economic policy. The SS debt becomes an asset and more funds are manufactured to pay the debt. The only downside is inflation which can be mitigated with tweaks to the interest rates.

Bill

 

[Tia]

That is another thing that might be considered. Maybe spousal payments can be decreased or eliminated. Maybe they should get 40% of their spouses SS. However, I don't advocate eliminating the survivor benefit. Surviving spouses should get 100% of their spouses SS if higher than their own.

Also... wealth is really hard to calculate based upon non-cash assets. Are my stocks, bonds or home going to be worth the same amount today as next year? What happens if the stock market crashes or has a huge year. Same for housing market. It is like a wealth tax and difficulties that go along with that.

How many surviving spouses will be eligible to collect off of one high earner? Or is it different then just having been married to someone for 10 years and being eligible to collect off one high earners SS benefits.

 

[easyrider]

The US tax system is based on income, not wealth. The way, in general, to game the system is to minimize your income without minimizing your standard of living. And to do that, you have to plan <and execute the plan> years in advance of the future changes.

This is such an overlooked idea because most people are employees that can't control their income. Being the master of ones own destiny isn't that easy either but it does force a participant to plan for results.

Bill