Social Security is now paying out more than it takes in. This was not supposed to happen until 2017 (when I last read about it) but due to the recession, etc., is is now happening. On its own, Social Security fund will be depleted around 2037. By the way, that date has been used for years, along with the 2017 date, suggesting that the "2037" is also bogus, and that the fund, without infusions, will run out sooner.
It is generally agreed that folks currently on social security will not be affected by any changes in social security to help "save" it.
The question is who will be affected by social security changes if Congress changes the benefits (obviously if Congress does not change benefits, everyone will be affected because taxes will be used to shore up social security payouts).
If Congress has the courage to act, it will do the easy things first: annual cost-of-living increases will be scaled back; if nothing else, Congress will figure out a different way to calculate inflation and cost-of-living increases.
Congress will not change benefits to those currently drawing social security (that would be political suicide) but "how close" do they get. Within one year of drawing social security? Within five years? Within ten years? The argument will come down to this: any changes must allow folks to prepare for those changes, and at least five years would be needed for folks to decide whether to add more to their own retirement account, continue working, or go back to school to get back into work force. So, I think within five years of drawing social security at 62. Those currently 57 years old or so should be "safe."
Next on the table will be "means testing." Just like "income tax breaks for the wealthy" which had a threshold of $250,000 annual income, means testing will affect those at a similar threshold prior to retirement or assets commensurate with someone at that income level.
The age at which folks can start drawing social security will probably be moved up just a bit; from 62 to 63 is probably politically manageable. And even to 65 might be okay. And if they can't raise the "62 year" threshold, they can make it more punitive when taking social security early. Perhaps the easiest thing to do in this area would be to require means testing for early withdrawal (at age 62).
I'm guessing that the current Congress won't touch the issue. The Republicans are looking at retaking the Senate and the presidency in 2012 and aren't going to risk it. It goes without argument that the Democrats won't touch it this time around.
Double dipping? One can argue that anyone drawing a federal government pension worth more than a certain amount should not be eligible for social security.
So, the soonest they act on this is 2012. They will rationalize the delay by saying that the reason for the current "social security deficit" is the current recession and once the US gets going again, and the unemployment rate is back down to historical levels, social security will again take in a bit more than it will pay out.
The good news for those "close" to drawing social security is that the politicians have telegraphed they won't change benefits for those already drawing social security. Those who are 62 years or older and holding off on drawing social security until they are 67 or 69 years old might consider drawing it one day before a new law goes into effect. (Sort of like playing "The Price is Right" when the winning bidder often bid one dollar more than the competitors.)
The irony is that it would be better for the government to encourage folks to wait.
i was born in 1949 so if i want full benefits i have to be 66 years old. when i started paying into SS in 1968 i believe it was 2.8 or 3 % up to $ 7,000.
ReplyDeletenow to fix this i think for those now drawing a 5 year freeze should be placed on what they recieve in benefits. For those not yet recieveing there retirement benefits should be also frozen at current rate for 5 years.. When you recieve the yearly printout from SS. it says if you retire when you are 66 you should recieve XXX $$, well if you have kept any of them the yearly benefit has gone up..
For those who are today 50 or younger, have the full benefit year rolled back 1 month for each year they have yet to retire. so if you are 16 years from being 66 you wait until 67 years and 4 month for full benefits..
So i know my thoughts can provoke many complaints. if you have other rational idea's i would love to hear them..
i know the quickest way is to get everyone a job.. but that ain't going to happen overnight and the jobless 62-66 year olds are the ones who have went to SS benefits quicker then thought.
I really like "means testing." One could set the threshold pretty high to get started and then go from there. By setting the threshold high, I mean that if social security represents less than five percent of total income in retirement, you probably don't need social security. And if not five percent, pick your percent and we go from there in the discussion.
ReplyDeleteTo make it palatable, allow those who don't qualify for social security benefits based on means testing allow them zero percent taxes on stock market investing (capital gains and dividends).
I graduated from High School in 1968 and recall discussions in public school classes about the expected future "baby boomer" Social Security (SS) shortfall.
ReplyDeleteI favor something more in the line of a SS cost of living adjustment (COLA) freeze. SS has long been used as a type of back-door "welfare" program of sorts. I worked in adult welfare in the 1970's. The institutionalized "vegetables"
were given minimum wage jobs "on the books" for ten quarters or what ever the eligibility time was and then declared "permanently disabled" so state guardians would get (in today's money) the
basic SS benefit for life. Also, most refugee immigrants over 50 are deemed "untrainable" and they get SS disability for life without ever paying into the system.
Those who went through their entire lives "off the books" can get the SS basic benefit if they do even basic "on the books", even at minimum wage for something like ten quarters. This can be a rehab type sheltered workshop. The stay at home housewife is often mentioned but if she was married and had a husband who worked "on the books" she is covered. There may be a few "common law" housewives but not many.
For the cases where you have a career caregiver for something like a disabled child some "on the books" pay can be arranged.
I'm not saying that many of these people are not in need but dealing with this should be done in the light of day. To a large degree this is was done "under the radar" using SS as a "slush fund". My "favorite": A married guy is killed in a car crash with no "living will". His wife claims he said he wanted children so his sperm is harvested and frozen. Children are conceived after his death but the children get SS survivors benefits!
As for the denying benefits to the "rich" the pool of "rich" gets fairly thin, fairly fast. With the cap on income subject to SS I would be surprised if the top benefits are much above $50K/$75K. This is "chump change" to the super rich. The numbers of "rich" are low enough so this will not have much effect on the SS cash flow. Also, those with higher incomes are expected to pay SS on more income even though we are saying they won't get the money back. This is called a "tax"!
If you milk a cow the cream may rise to the top
but it doesn't take long to go from the "cream" to the "milk".
When President, Jimmy Carter mentioned something like "assumed income" once and never again. Assumed income (or whatever the technical term is) tries to assume the working benefit of an asset. To give an absurd example to show the concept my common house cat does an excellent job of controlling mice in my 90 year old house. A professional exterminating service might cost me $600 per year while my four legged mousetrap costs $100 per year. Thus $500 assumed income per year.
Another example is "what is the value of a housewife/mother?". Some calculations put it into the six figure range. Not to disparage motherhood but these figures can be wildly inflated.
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(part 2 of 2 parts)
ReplyDeleteOn a practical note "assumed income" could look at things like the current market cost of housing versus the actual housing costs paid by the person. To give a personal example I paid off my mortgage in 2005 and my housing is zero debt. My real time housing costs are quite low, probably $1K per month less than market rent. Would this be "assumed income" if SS were means tested?
We have a real "slippery slope" here if some bureaucrat starts to define "assumed income" in means testing for SS.
As for getting both pensions and SS I have a good county/state level pension which was basically a "shotgun IRA". I had 5% taken out of my check for three decades. We also had a portfolio manager who staunchly resisted "political statement divestitures". He had a 30 year annual return of 11% before the 2008 crash.
Other local pension funds never met a divestiture they didn't like and their rate of return over the same period is 0% to 4%.
Anyway, I'd stay start with a benefits freeze so there is pressure to look at the "slush fund" aspects of SS.
I follow this stuff. This was long but I need a new spiel to cross post on my http://65y.com blog.
Hi, Greg.
ReplyDeleteThank you for posting. Yes, it was long, but well thought out.
I agree about your concerns with "means testing."
A benefits freeze might be the best way to go, doing two things at once: a) save some cash; b) get the attention of the public who might not be paying to this oncoming train wreck.