Author Topic: Social Security will not be bankrupt  (Read 6926 times)

StarBright

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Re: Social Security will not be bankrupt
« Reply #100 on: June 11, 2018, 01:05:10 PM »
Looks like the maximum amount of income subject to SS taxes this year is $128,400. I would like to see that number raised to infinity. That has always seemed like the logical solution to fill in future gaps but I never hear it mentioned when discussing shortfalls. I'm also not opposed to pushing back the full retirement age or whatever it is called.

I am always shocked when people don't realize there is a cap on how much is taxed for SS. I was having a conversation with my FIL last year about how to "fix" the fund and I mentioned raising or getting rid of the cap. He had no idea it existed and was like "You mean all those years I made more than 120k I wasn't paying on the overage? WOW!"

The thing I find most shocking about this is that people are very sure that SS is an awful idea, etc, but don't actually seem to know some pretty major details of how it works.
« Last Edit: June 11, 2018, 01:16:38 PM by StarBright »

austin944

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Re: Social Security will not be bankrupt
« Reply #101 on: June 11, 2018, 01:41:58 PM »
The Social Security Administration regularly communicates on the state of the funds it oversees. Here is the link to their latest press release:
https://www.ssa.gov/news/press/releases/2018/#6-2018-1

What more do you want? A postcard personally addressed to you with a link to a youtube video explaining how US treasuries are real money?

How about an explanation that the "trust fund" assets are nothing more than IOUs, and the money borrowed has already been spent?  I don't see it in the web page you provided.  It does not even say anything about the composition of the so-called "trust fund".

Jrr85

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Re: Social Security will not be bankrupt
« Reply #102 on: June 11, 2018, 01:44:16 PM »
Ponzi schemes are based on deception. How Social Security operates is entirely transparent.

The proponents of Social Security almost never mention the fact that the program is currently $2.9 trillion in the hole.  The original article of this thread made no mention of this important fact.  It linked to a SSA web page that never mentioned the bookkeeping trick used to hide this massive debt.  Are these not deceptive practices?

The Social Security Administration regularly communicates on the state of the funds it oversees. Here is the link to their latest press release:
https://www.ssa.gov/news/press/releases/2018/#6-2018-1

What more do you want? A postcard personally addressed to you with a link to a youtube video explaining how US treasuries are real money?

I think more of the misleading statements come from politicians. 

But again, the entire thing was designed to sort of mislead people who weren't paying close attention.  It should be called something more like the Old-Age and Survivors Assistance Program, not Old-Age and Survivors Insurance program.  Likewise with the Trust fund.  That's a weird thing to call what is essentially an accounting function.  I think if you asked most people in the U.S., to the extent they know it exists at all, do not understand that the OASI Trust does nothing to make it easier for the government to pay SS benefits.  I don't think that's an accident that people refer to the SS Trust fund.  They are all misled because politicians want them to be misled. 

tomsang

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Re: Social Security will not be bankrupt
« Reply #103 on: June 11, 2018, 01:47:16 PM »
The Social Security Administration regularly communicates on the state of the funds it oversees. Here is the link to their latest press release:
https://www.ssa.gov/news/press/releases/2018/#6-2018-1

What more do you want? A postcard personally addressed to you with a link to a youtube video explaining how US treasuries are real money?

How about an explanation that the "trust fund" assets are nothing more than IOUs, and the money borrowed has already been spent?  I don't see it in the web page you provided.  It does not even say anything about the composition of the so-called "trust fund".

Obviously you will never buy a bond. By definition a bond is money borrowed that has already been spent.  A treasury Bond is backed up by the US government.  If the government needs to pay the bond they can just print more money.  A corporation can not do that.  That is why the SS Trust fund invests in US Treasuries. They are 100% safe.  You will always get paid by the US government.  The US dollar may become worthless, but you will always be paid.  With corporate bonds, the corporation can default and you get nothing. 

tomsang

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Re: Social Security will not be bankrupt
« Reply #104 on: June 11, 2018, 02:01:55 PM »
Ponzi schemes are based on deception. How Social Security operates is entirely transparent.

The proponents of Social Security almost never mention the fact that the program is currently $2.9 trillion in the hole.  The original article of this thread made no mention of this important fact.  It linked to a SSA web page that never mentioned the bookkeeping trick used to hide this massive debt.  Are these not deceptive practices?

The Social Security Administration regularly communicates on the state of the funds it oversees. Here is the link to their latest press release:
https://www.ssa.gov/news/press/releases/2018/#6-2018-1

What more do you want? A postcard personally addressed to you with a link to a youtube video explaining how US treasuries are real money?

I think more of the misleading statements come from politicians. 

But again, the entire thing was designed to sort of mislead people who weren't paying close attention.  It should be called something more like the Old-Age and Survivors Assistance Program, not Old-Age and Survivors Insurance program.  Likewise with the Trust fund.  That's a weird thing to call what is essentially an accounting function.  I think if you asked most people in the U.S., to the extent they know it exists at all, do not understand that the OASI Trust does nothing to make it easier for the government to pay SS benefits.  I don't think that's an accident that people refer to the SS Trust fund.  They are all misled because politicians want them to be misled.

I think you have been misled by someone. By owning US Treasuries the Social Security Trust Fund can have expenses greater than revenues by liquidating their assets (US Treasuries).  They don't have to get Congress to approve of the overages they can cash in US Treasuries like you can, corporations can, like insurance companies can, like retirement plans can, like individuals, and like other countries can.  All of these entities invest in US Treasuries as they have been perceived to be one of the safest assets in the world.  Whether they will retain that is up to our politicians. 

Do you realize that the Social Security Trust Fund gets interest from all of the Treasuries that they own? That the interest expense hits our general fund?  That the debt is reflected in the $20 trillion that our general fund has as debt? 

They are not playing games.  They are accounting for these assets like any other corporation would. Where the fund has difficulties is that the amount withheld from everyone's paycheck has not been keeping track with the actuarial benefits that they have been receiving.

Every year for the past 10+? years, I have been getting a statement that says the trust fund will be depleted in 2035 or some very specific date without changes to the funding of the plan or reducing the payouts to participants.  I don't think they have been deceiving anyone. They have been brutally honest.  Politicians chose decades ago to stop increasing the withholding even though the actuarial lives have been increasing.  What would have required a small tweak is going to require some significant changes to make the fund solvent. 

Dabnasty

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Re: Social Security will not be bankrupt
« Reply #105 on: June 11, 2018, 02:04:17 PM »
Looks like the maximum amount of income subject to SS taxes this year is $128,400. I would like to see that number raised to infinity. That has always seemed like the logical solution to fill in future gaps but I never hear it mentioned when discussing shortfalls. I'm also not opposed to pushing back the full retirement age or whatever it is called.

I am always shocked when people don't realize there is a cap on how much is taxed for SS. I was having a conversation with my FIL last year about how to "fix" the fund and I mentioned raising or getting rid of the cap. He had no idea it existed and was like "You mean all those years I made more than 120k I wasn't paying on the overage? WOW!"

The thing I find most shocking about this is that people are very sure that SS is an awful idea, etc, but don't actually seem to know some pretty major details of how it works.

Welcome to America! or should I say 2018?

Jrr85

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Re: Social Security will not be bankrupt
« Reply #106 on: June 11, 2018, 02:29:45 PM »
Ponzi schemes are based on deception. How Social Security operates is entirely transparent.

The proponents of Social Security almost never mention the fact that the program is currently $2.9 trillion in the hole.  The original article of this thread made no mention of this important fact.  It linked to a SSA web page that never mentioned the bookkeeping trick used to hide this massive debt.  Are these not deceptive practices?

The Social Security Administration regularly communicates on the state of the funds it oversees. Here is the link to their latest press release:
https://www.ssa.gov/news/press/releases/2018/#6-2018-1

What more do you want? A postcard personally addressed to you with a link to a youtube video explaining how US treasuries are real money?

I think more of the misleading statements come from politicians. 

But again, the entire thing was designed to sort of mislead people who weren't paying close attention.  It should be called something more like the Old-Age and Survivors Assistance Program, not Old-Age and Survivors Insurance program.  Likewise with the Trust fund.  That's a weird thing to call what is essentially an accounting function.  I think if you asked most people in the U.S., to the extent they know it exists at all, do not understand that the OASI Trust does nothing to make it easier for the government to pay SS benefits.  I don't think that's an accident that people refer to the SS Trust fund.  They are all misled because politicians want them to be misled.

I think you have been misled by someone. By owning US Treasuries the Social Security Trust Fund can have expenses greater than revenues by liquidating their assets (US Treasuries).  They don't have to get Congress to approve of the overages they can cash in US Treasuries like you can, corporations can, like insurance companies can, like retirement plans can, like individuals, and like other countries can.
  This is incorrect.  The OASI Trust holds non-negotiable treasuries.  They cannot liquidate them like individuals or other companies can.   
http://www.dollarsandsense.org/archives/2001/1101frank.html
https://www.forbes.com/sites/mikepatton/2013/06/12/is-the-social-security-trust-fund-solvent/#48d578a749d2



All of these entities invest in US Treasuries as they have been perceived to be one of the safest assets in the world.  Whether they will retain that is up to our politicians. 

Do you realize that the Social Security Trust Fund gets interest from all of the Treasuries that they own? That the interest expense hits our general fund?  That the debt is reflected in the $20 trillion that our general fund has as debt? 

They are not playing games.  They are accounting for these assets like any other corporation would. Where the fund has difficulties is that the amount withheld from everyone's paycheck has not been keeping track with the actuarial benefits that they have been receiving.
  Which is what is misleading; they are not any other corporation.  To a corporation, treasuries are actual economic assets.  If SS actually stood on its own and there was no expectation that Congress will do something so that benefits aren't cut by 20-25%, then it would be reasonable to account for it just like any other corporation or retirement fund would count US treasuries.  But SS is basically a department of the U.S. government.  SS pays what Congress tells it to pay with money made available to it by Congress.  Congress could tomorrow say "the trust fund was a scam" and direct SS to only pay benefits that can be paid for by SS tax revenue.  The trust fund is essentially an appropriation.  Congress doesn't have to appropriate more money to social security to pay for benefits as long as the "trust fund" shows a positive balance.   

Every year for the past 10+? years, I have been getting a statement that says the trust fund will be depleted in 2035 or some very specific date without changes to the funding of the plan or reducing the payouts to participants.  I don't think they have been deceiving anyone. They have been brutally honest.
 
Again, I think more of the misleading statements come from politicians. 

Politicians chose decades ago to stop increasing the withholding even though the actuarial lives have been increasing.  What would have required a small tweak is going to require some significant changes to make the fund solvent.
 
And this is more evidence that somebody is out there misleading people.  As long as SS revenue not needed to pay current benefits is not invested in productive assets, then increasing the withdrawal decades ago wouldn't have helped.  The existence of the "trust fund" doesn't change the amount of tax revenue (or debt) the government has to have to pay current benefits.  How do so few people understand the basics unless there was an actual effort to confuse people.  I know there are a lot of things that people don't understand, but Social security is not that complicated, at least at the basic level necessary to understand that there is not a "trust" in the sense that there are any assets that can be drawn on by the U.S. government to pay benefits.
 

tomsang

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Re: Social Security will not be bankrupt
« Reply #107 on: June 11, 2018, 02:46:22 PM »
JRR85 - The two articles that you listed basically said the same thing, but this might clear it up for you.

https://www.cbpp.org/research/social-security/policy-basics-understanding-the-social-security-trust-funds
"How Are the Trust Funds Invested?

The Social Security trust funds are invested entirely in U.S. Treasury securities.  Like the Treasury bills, notes, and bonds purchased by private investors around the world, the Treasury securities that the trust funds hold are backed by the full faith and credit of the U.S. government.  The U.S. government has never defaulted on its obligations, and investors consider U.S. government securities to be one of the world’s safest investments.

The Treasury securities held by the trust funds have some special features that make them even more attractive investments than other Treasury securities.  First, the trust funds’ investments do not fluctuate in value and can always be redeemed at par.  Even if the securities must be redeemed early, Social Security is guaranteed not to lose money on its investment.  Second, all of the securities purchased by the trust funds — even short-term securities that will mature in one or two years — earn interest at the same rate as medium- and long-term Treasury securities (those not due or callable for at least four years).

By the end of 2016, the trust funds had accumulated over $2.8 trillion worth of Treasury securities, earning an average interest rate of 3.2 percent during that year.  The Social Security Administration provides monthly reports on the investment holdings of the trust funds, their maturities, and interest rates.  The trustees project that the trust funds will earn $86 billion in interest income in 2017."

Jrr85

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Re: Social Security will not be bankrupt
« Reply #108 on: June 11, 2018, 03:18:14 PM »
JRR85 - The two articles that you listed basically said the same thing, but this might clear it up for you.

https://www.cbpp.org/research/social-security/policy-basics-understanding-the-social-security-trust-funds
"How Are the Trust Funds Invested?

The Social Security trust funds are invested entirely in U.S. Treasury securities.  Like the Treasury bills, notes, and bonds purchased by private investors around the world, the Treasury securities that the trust funds hold are backed by the full faith and credit of the U.S. government.  The U.S. government has never defaulted on its obligations, and investors consider U.S. government securities to be one of the world’s safest investments.

The Treasury securities held by the trust funds have some special features that make them even more attractive investments than other Treasury securities.  First, the trust funds’ investments do not fluctuate in value and can always be redeemed at par.  Even if the securities must be redeemed early, Social Security is guaranteed not to lose money on its investment.  Second, all of the securities purchased by the trust funds — even short-term securities that will mature in one or two years — earn interest at the same rate as medium- and long-term Treasury securities (those not due or callable for at least four years).

By the end of 2016, the trust funds had accumulated over $2.8 trillion worth of Treasury securities, earning an average interest rate of 3.2 percent during that year.  The Social Security Administration provides monthly reports on the investment holdings of the trust funds, their maturities, and interest rates.  The trustees project that the trust funds will earn $86 billion in interest income in 2017."

Good point.  So I should say it's mostly politicians and think tanks trying to mislead people. 

Note this statement:

"When Social Security needs to start cashing in its holdings of Treasury securities to meet its benefit obligations, the federal government will have to increase its borrowing from the public, or raise taxes or spend less.  That will be a concern for the Treasury — but not for Social Security, as long as the solvency of the federal government itself is not called into question.  Social Security will be able to sell its bonds just as any private investor might do."

and (ignoring the fact that the last sentence is inaccurate) compare it to this statement:

"That said, acting sooner to address the shortfall, whether by reducing benefits, raising contributions to Social Security, or a combination of the two, would spread the burden over more generations of workers and beneficiaries and allow for smaller future adjustments.  For example, if Social Security tax increases were phased in soon, current workers could contribute to restoring solvency.  But if payroll tax increases were delayed until the 2030s, they would fall entirely on younger workers still in the labor force after that date, and the required increase would be larger." 

The first quote is accurate (again, ignoring the last sentence).  The second quote is not, and the reason why is seen in the first quote.  Regardless of how early they impose the tax increases, the actual burden of paying for social security is only and always going to fall on workers/taxpayers at that time.  That is true as long as surplus revenues are not invested in an a productive asset, because as they note, SS cashing in treasuries means the federal government has to increase the amount of borrowing, raise taxes, or reduced spending in the same amount.   

tomsang

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Re: Social Security will not be bankrupt
« Reply #109 on: June 11, 2018, 04:02:56 PM »
When you control the printing presses you can make as many dollars as you want. So You are saying that Social Security will have a problem when the government shuts down. If the government shuts down, we have way bigger problems then the fact that Social Security has invested and owns US Treasuries.

The government tomorrow could print 50 trillion dollars. They could send a billion to each and every person in the US. When you have debt denominated in US dollars there is zero chance that people will not be paid in US dollars. It is too easy to pay people in US dollars. What the value of a US dollar is another question. If we get to the point that the US government shuts down, our US equities will be virtually worthless, our houses will be in jeopardy, our dollar denominated assets will be worthless,  our laws will be undermined, and complete chaos will ensue.

I am not worried about Social Security cashing in their assets for US dollars. I am worried that a large portion of the US trying to survive on 75% of their projected Social Security benefits if we don’t start funding this safety net.

Our tax rates are less than half of what they were in the 80’s. The population will realize that tax rates need to increase to fund our government and the social programs that have been in place for decades.

TheWifeHalf

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Re: Social Security will not be bankrupt
« Reply #110 on: June 11, 2018, 04:13:26 PM »
Looks like the maximum amount of income subject to SS taxes this year is $128,400. I would like to see that number raised to infinity. That has always seemed like the logical solution to fill in future gaps but I never hear it mentioned when discussing shortfalls. I'm also not opposed to pushing back the full retirement age or whatever it is called.

I am always shocked when people don't realize there is a cap on how much is taxed for SS. I was having a conversation with my FIL last year about how to "fix" the fund and I mentioned raising or getting rid of the cap. He had no idea it existed and was like "You mean all those years I made more than 120k I wasn't paying on the overage? WOW!"

The thing I find most shocking about this is that people are very sure that SS is an awful idea, etc, but don't actually seem to know some pretty major details of how it works.

It does not shock me, but a lot of people don't realize that after a certain income, part of SS is taxed. We will pay tax on SS (Railroad Retirement) starting in year 1 of receiving it. THH and I just look at it as being fortunate that we have to.
I'm guessing a lot of seniors will, when the tIRA RMDs come due. That's why the years between retiring and getting RR, we are going to convert a lot of our tIRA to Roth.

DreamFIRE

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Re: Social Security will not be bankrupt
« Reply #111 on: June 11, 2018, 05:22:29 PM »
Looks like the maximum amount of income subject to SS taxes this year is $128,400. I would like to see that number raised to infinity. That has always seemed like the logical solution to fill in future gaps but I never hear it mentioned when discussing shortfalls. I'm also not opposed to pushing back the full retirement age or whatever it is called.

I am always shocked when people don't realize there is a cap on how much is taxed for SS. I was having a conversation with my FIL last year about how to "fix" the fund and I mentioned raising or getting rid of the cap. He had no idea it existed and was like "You mean all those years I made more than 120k I wasn't paying on the overage? WOW!"

The thing I find most shocking about this is that people are very sure that SS is an awful idea, etc, but don't actually seem to know some pretty major details of how it works.

It does not shock me, but a lot of people don't realize that after a certain income, part of SS is taxed. We will pay tax on SS (Railroad Retirement) starting in year 1 of receiving it. THH and I just look at it as being fortunate that we have to.
I'm guessing a lot of seniors will, when the tIRA RMDs come due. That's why the years between retiring and getting RR, we are going to convert a lot of our tIRA to Roth.

I actually addressed this multiple times in this thread, with the detail provided in this post:

https://forum.mrmoneymustache.com/welcome-to-the-forum/social-security-will-not-be-bankrupt/msg2031636/#msg2031636

It's actually even worse than you mention, because the thresholds for calculating those thresholds have not been increased since those changes were passed in 1983!  The further you look into the future, since benefits are indexed to inflation, but the thresholds for taxation are not, a much greater percentage of SS benefits will surpass the taxation threshold.

DreamFIRE

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Re: Social Security will not be bankrupt
« Reply #112 on: June 11, 2018, 05:34:08 PM »
Can we consider "well-off boomers" as those who had high incomes rather than high savings? :-)
I'm a "well-off boomer" but only averaged an inflation adjusted $71k over the last 36 years.
 Don't take my savings just because I decided to live below my income, while the family that made $120k
and spent it all, would not have to pay.

^This.  I make the same argument, and this is why in my "means testing" comment earlier, I stated that it would be based on retirement "income", not "assets".  So if someone was raking in over $50K/yr in pension and taxable income in addition to SS benefits, they would see a significant reduction in SS benefits, but not the guy who saved $1M living off a lower amount of taxable income.  I don't think savers should be punished vs. those who spent their money like drunken sailors, and I think it would be a terrible idea to discourage saving, so means testing based on higher retirement income and pensions makes a lot more sense.

You can't treat a pension differently than $1M in savings.

Sure you can, by means testing based on income, not on assets.  Just think about the Medicaid expansion, the ACA Premium Tax Credit, and Obamacare Cost Sharing Reductions subsidies.  They are based on MAGI income, NOT assets.  Pension income is included in that calculation.  Of course, someone with a nice savings will be generating income that would be factored in, but just not the assets themselves.

Quote
If you want to means test based on who had the ability to save and not who actually did save (which is I think the right way to do it),

That's not how I would means test.

Quote
Someone who made $50k a year and never had kids should have a lot more assets saved than somebody who made $50k per year and raised four kids.

That's not part of the calculation.  If someone chose to get married and have fours kids and wasn't able to save despite the generous tax breaks, that's too bad.  I'm talking about means testing based on other retirement income.  If it's over $50K/yr, then cut SS benefits.  This is how those other programs determine eligibility, and it's far less complicated.
« Last Edit: June 11, 2018, 05:45:38 PM by DreamFIRE »

DreamFIRE

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Re: Social Security will not be bankrupt
« Reply #113 on: June 11, 2018, 05:44:23 PM »
Just came across a morningstar article which explained that 79% of social security is funded by payroll taxes. so there will still a reduced amount of social security even if the social security trust funds are used up.

http://www.morningstar.com/articles/868505/social-security-isnt-going-away.html

There is no SS "trust fund"; that money has already been spent by the government (2.9 trillion dollars).  The so-called trust fund is nothing more than a bunch of IOUs issued by the government for funds which it does not currently possess.  It would either have to raise taxes or borrow that money in order to pay off the IOUs.

Social Security fits the definition of a Ponzi scheme:


That is absolutely false.  There most certainly is a SS trust fund, and it contains government securities which pay interest.  It is not expected to be depleted for many years:

https://en.wikipedia.org/wiki/Social_Security_Trust_Fund
  There is something called a trust fund, which is just a tracking of how much revenue of SS taxes has been spent on non-governmental spending, and that number is increased for "interest".  There is no trust fund with assets that make it easier for the government to pay benefits in the future when outlays exceed ss tax revenue.  If you really believed that SS was a separate entity from the U.S. government and benefits will actually be cut when scheduled benefits exceed ss tax revenue, then yes, the trust fund does contain real assets of the SS trust.  But I don't think anybody expects the SS trust fund to really stand on its own and for it to pay out ~75% of scheduled benefits when the trust fund shows zero. 


I never said that SS was a separate entity from the U.S. government.  And I expect that they will increase payroll taxes and increase the retirement age for those currently under 50 so that 100% of the promised benefits are paid to seniors and those within 10 years of SS age.  I linked to information that spells it out clearly, and tomsang responded with good info about it also, so I don't think there's any need for me to elaborate further.

I'm a long ways from collecting SS, but I'm not selfish, and I want to see our seniors provided for, so I wouldn't have a problem paying higher payroll taxes to help fund SS.

pecunia

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Re: Social Security will not be bankrupt
« Reply #114 on: June 11, 2018, 06:42:41 PM »
Seems like lowering the military spending was only mentioned once.  The US has about 800 military bases around the world.  If we closed some of them, could that money be used to bump up the failure date to say 2040?  Wars can be pretty expensive in many ways.

maizeman

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Re: Social Security will not be bankrupt
« Reply #115 on: June 11, 2018, 06:55:10 PM »
Seems like lowering the military spending was only mentioned once.  The US has about 800 military bases around the world.  If we closed some of them, could that money be used to bump up the failure date to say 2040?  Wars can be pretty expensive in many ways.

We spend about $600B/year on the department of defense each year, and we're currently spending another $90B/year separately to pay for the cost of operations on the war on terrorism across the globe. Call it $700B/year all in.*

This year the government is projected to have a deficit of $800B/year.

We could close down our entire military and join pacifist countries like Iceland and Costa Rica, and we'd still be in the hole every year, let alone be in a position to start closing the social security revenue deficit (which started this year and is going to grow rapidly in coming years) with revenue from the general fund.

*I don't include spending on things like the VA, since now that we have the veterans from previous wars we cannot stop providing them with healthcare even if we closed down our entire active military tomorrow.

pecunia

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Re: Social Security will not be bankrupt
« Reply #116 on: June 11, 2018, 07:40:42 PM »
Quote
We could close down our entire military and join pacifist countries like Iceland and Costa Rica, and we'd still be in the hole every year,

Numbers don't lie, but it seems like all that money would be worth a lot of shovel fulls. 

Jrr85

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Re: Social Security will not be bankrupt
« Reply #117 on: June 11, 2018, 09:33:29 PM »
When you control the printing presses you can make as many dollars as you want. So You are saying that Social Security will have a problem when the government shuts down. If the government shuts down, we have way bigger problems then the fact that Social Security has invested and owns US Treasuries.
  No, I am saying people have been misled about social security, which I think you make a pretty convincing case of.  It's not that Social security has "invested" in US treasuries.  It's that social security can't invest in treasuries anymore than you can invest your retirement savings by lending money yourself and then wasting the money.  When it is time for you to cash in the IOUs, you are in the same position that you'd be in without going through the ruse.   

The government tomorrow could print 50 trillion dollars. They could send a billion to each and every person in the US. When you have debt denominated in US dollars there is zero chance that people will not be paid in US dollars. It is too easy to pay people in US dollars. What the value of a US dollar is another question. If we get to the point that the US government shuts down, our US equities will be virtually worthless, our houses will be in jeopardy, our dollar denominated assets will be worthless,  our laws will be undermined, and complete chaos will ensue.
  All true enough.  Not particularly relevant to anything we've talked about. 

I am not worried about Social Security cashing in their assets for US dollars.
  Nor should you.  There's pretty much zero chance that SS payments are going to be cut to the extent that total outlays won't well exceed any SS revenues. 

I am worried that a large portion of the US trying to survive on 75% of their projected Social Security benefits if we don’t start funding this safety net.
 

Our tax rates are less than half of what they were in the 80’s. The population will realize that tax rates need to increase to fund our government and the social programs that have been in place for decades.
This is just nowhere near correct.  Our taxes as a percent of GDP are basically what they were for most of the 80's.  They will presumably go down some this year b/c of the most recent tax cuts. https://fred.stlouisfed.org/series/FYFRGDA188S
 But we also have much higher state and local taxes now than we did in the 80's, as documented in Elizabeth Warren's the two income trap (although she tried her best to hide that fact).  https://www.theatlantic.com/business/archive/2010/07/more-weird-metrics-for-elizabeth-warren/60351/

Jrr85

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Re: Social Security will not be bankrupt
« Reply #118 on: June 11, 2018, 09:36:27 PM »
Just came across a morningstar article which explained that 79% of social security is funded by payroll taxes. so there will still a reduced amount of social security even if the social security trust funds are used up.

http://www.morningstar.com/articles/868505/social-security-isnt-going-away.html

There is no SS "trust fund"; that money has already been spent by the government (2.9 trillion dollars).  The so-called trust fund is nothing more than a bunch of IOUs issued by the government for funds which it does not currently possess.  It would either have to raise taxes or borrow that money in order to pay off the IOUs.

Social Security fits the definition of a Ponzi scheme:


That is absolutely false.  There most certainly is a SS trust fund, and it contains government securities which pay interest.  It is not expected to be depleted for many years:

https://en.wikipedia.org/wiki/Social_Security_Trust_Fund
  There is something called a trust fund, which is just a tracking of how much revenue of SS taxes has been spent on non-governmental spending, and that number is increased for "interest".  There is no trust fund with assets that make it easier for the government to pay benefits in the future when outlays exceed ss tax revenue.  If you really believed that SS was a separate entity from the U.S. government and benefits will actually be cut when scheduled benefits exceed ss tax revenue, then yes, the trust fund does contain real assets of the SS trust.  But I don't think anybody expects the SS trust fund to really stand on its own and for it to pay out ~75% of scheduled benefits when the trust fund shows zero. 


I never said that SS was a separate entity from the U.S. government.  And I expect that they will increase payroll taxes and increase the retirement age for those currently under 50 so that 100% of the promised benefits are paid to seniors and those within 10 years of SS age.  I linked to information that spells it out clearly, and tomsang responded with good info about it also, so I don't think there's any need for me to elaborate further.

I'm a long ways from collecting SS, but I'm not selfish, and I want to see our seniors provided for, so I wouldn't have a problem paying higher payroll taxes to help fund SS.

I didn't say you thought they were separate.  I was just pointing out that the only way you could think the OASI trust has real assets is to think they are separate. 

OurTown

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Re: Social Security will not be bankrupt
« Reply #119 on: June 13, 2018, 08:31:03 AM »
So, politics aside, what are your thoughts about accounting for future SS benefits in your asset allocation? Jack Bogle thinks we should count it as a bond.  But how?  The present value of benefits?  That would probably skew the asset allocation such that we would be taking a fairly risky position in our real world portfolio.  How about the amount we paid in, and treat it like we purchased an annuity?  Which is, effectively, what it is.  In my case, that changes my asset allocation from around 65/35 to around 50/50.  If I were to assume that Social Security will be there in 15-20 years, that means I could take a substantially more aggressive posture with respect to asset allocation without overly excessive risk.

Another thought is whether we can increase SWR (say to 5%) based on an assumption that Social Security will exist at age 62, 67, or 70, whichever we are planning to take.  At the trigger date, your SWR would decrease to 5% less your SS benefit.  A higher SWR means you reach your number earlier in life.  Another way to look at it is, are you working longer just because you are of the opinion that Social Security won't exist when you reach age ___?  And is that opinion based on a rational belief or an irrational belief?

maizeman

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Re: Social Security will not be bankrupt
« Reply #120 on: June 13, 2018, 08:39:22 AM »
Another thought is whether we can increase SWR (say to 5%) based on an assumption that Social Security will exist at age 62, 67, or 70, whichever we are planning to take.  At the trigger date, your SWR would decrease to 5% less your SS benefit.  A higher SWR means you reach your number earlier in life.  Another way to look at it is, are you working longer just because you are of the opinion that Social Security won't exist when you reach age ___?  And is that opinion based on a rational belief or an irrational belief?

I think it depends a lot on when you're planning to FIRE. If you're in your early 30s (or 20s), the SWR to get you to 62 is essentially the same as the SWR to get you to 100. So it's an extra source of emotional reassurance, but don't change how much you can actually spend for a given level of risk tolerance.

If you're FIREing in your 50s, yes you can calculate how much higher your withdrawal rate is if you assume you get some fraction of your expected social security payments when you reach minimum, full, or maximum retirement age and it's probably noticeably higher.

Jrr85

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Re: Social Security will not be bankrupt
« Reply #121 on: June 13, 2018, 10:50:28 AM »
So, politics aside, what are your thoughts about accounting for future SS benefits in your asset allocation? Jack Bogle thinks we should count it as a bond.  But how?  The present value of benefits?  That would probably skew the asset allocation such that we would be taking a fairly risky position in our real world portfolio.  How about the amount we paid in, and treat it like we purchased an annuity?  Which is, effectively, what it is.  In my case, that changes my asset allocation from around 65/35 to around 50/50.  If I were to assume that Social Security will be there in 15-20 years, that means I could take a substantially more aggressive posture with respect to asset allocation without overly excessive risk.
  Future SS benefits don't impact my current asset allocation at all.  When you get the point of drawing them (or maybe a year or two out if you're target is somewhere around a 50/50 equity/bond split at retirement), then you don't need as much bonds because the steady income will reduce your need to sell stocks into a downturn.  But I don't see how a stream of income 10 or 15 years off changes the optimal asset allocation now.

Another thought is whether we can increase SWR (say to 5%) based on an assumption that Social Security will exist at age 62, 67, or 70, whichever we are planning to take.  At the trigger date, your SWR would decrease to 5% less your SS benefit.  A higher SWR means you reach your number earlier in life.  Another way to look at it is, are you working longer just because you are of the opinion that Social Security won't exist when you reach age ___?  And is that opinion based on a rational belief or an irrational belief?

I think a pretty conservative approach is to assume a 23% haircut based on the fact that SS tax revenue is projected to fund somewhere between 75 and 80% of scheduled benefits.  I don't think anybody is going to really take a 23% haircut.  But more of their SS wages will probably be taxed, their full retirement age might be pushed back by a couple of years, their general income taxes may go up, COLAs may be switched to CPI or chained CPI, their share of medicare costs will go up, etc., and for higher earning, higher net worth people, presumably between all the different things they could reasonably get hit with a burden that would approximate the haircut that would be necessary to pay scheduled benefits.  For middle and lower income earners with moderate assets, they can probably reasonably expect that the screwing will be absorbed by higher earners and net worth people, and younger workers. 

I personally am treating it as it won't be there.  It will be a pretty good cushion in the event something goes wrong, but also, chances are if I don't get screwed with significant cuts, it will be because my kids getting screwed with much higher taxes.  I want any social security payments paid to me to be available to give to my kids in the event their generation gets the screwing it looks like they're going to get.   


Acastus

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Re: Social Security will not be bankrupt
« Reply #122 on: June 13, 2018, 11:11:25 AM »
Here is a little thought experiment on social security.

Current state:  SS holds special bonds. When they don't collect enough payroll tax to pay out benefits, they cash in the interest on the bonds. The central government issued the bonds, so they pay the shortfall. When the SS deficit gets bigger than the interest, they cash in some of the bonds as well, and the central government pays the shortfall.

So at the end of the day, the central government covers the shortfall that SS has. The bonds are merely that method the government uses to record the obligation.

Now imagine we just erase the ledger on the bonds, and the central government agrees to pay the SS shortfall. If they do this forever, that is really just satisfying what everyone wants - guaranteed SS benefits for everyone, forever.

The only remaining question is, how do we pay for this increased obligation to the central government?
Which is exactly where we are now!
« Last Edit: June 13, 2018, 11:20:34 AM by Acastus »

zolotiyeruki

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Re: Social Security will not be bankrupt
« Reply #123 on: June 13, 2018, 11:51:07 AM »
I personally am treating it as it won't be there.  It will be a pretty good cushion in the event something goes wrong, but also, chances are if I don't get screwed with significant cuts, it will be because my kids getting screwed with much higher taxes.  I want any social security payments paid to me to be available to give to my kids in the event their generation gets the screwing it looks like they're going to get.
That's actually a really, really good point.

I similarly do not include SS in my retirement planning.  Since I plan to retire 15ish years before FRA, I'll have lived for 15 years on my own savings.  If I make it that far, it's probable that my assets are growing rather than being depleted.

It *would* be kinda funny to send a check each year to our kids, with a note saying "Here's a partial refund of your SS taxes!"

FIRE@50

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Re: Social Security will not be bankrupt
« Reply #124 on: June 13, 2018, 12:11:23 PM »
So if 2034 is the projected date for the trust fund to reach $0.00, the earliest Boomers(that are still alive) will be pushing 90. At what point does the trust fund start to grow again? I'm struggling to find those projections, if they even exist.

Do you see what I'm getting at? I won't be 70 until 2047. The Boomers will all be dead some day. When that happens, will there be a surplus again?

zolotiyeruki

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Re: Social Security will not be bankrupt
« Reply #125 on: June 13, 2018, 12:54:43 PM »
So if 2034 is the projected date for the trust fund to reach $0.00, the earliest Boomers(that are still alive) will be pushing 90. At what point does the trust fund start to grow again? I'm struggling to find those projections, if they even exist.

Do you see what I'm getting at? I won't be 70 until 2047. The Boomers will all be dead some day. When that happens, will there be a surplus again?
That's a great question, and it depends on your assumptions/projections of life expectancy and the age at which people will opt to start taking SS.
 This report from 2010 seems to indicate that it's not projected to ever have a surplus again without any changes (chart 5), although it's expected to stabilize at a fairly steady shortfall of about 25% for the forseeable future.

EDIT: fixed link
« Last Edit: June 13, 2018, 03:05:07 PM by zolotiyeruki »

maizeman

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Re: Social Security will not be bankrupt
« Reply #126 on: June 13, 2018, 01:47:51 PM »
So if 2034 is the projected date for the trust fund to reach $0.00, the earliest Boomers(that are still alive) will be pushing 90. At what point does the trust fund start to grow again? I'm struggling to find those projections, if they even exist.

Do you see what I'm getting at? I won't be 70 until 2047. The Boomers will all be dead some day. When that happens, will there be a surplus again?

Birth rates in the USA dropped below replacement during the 2008 financial crash and have continued to trend downwards ever since. Barring a dramatic change in immigration or taxation policy, my guess would be that social security does not go back to turning a surplus given the current payout system. 

FIRE@50

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Re: Social Security will not be bankrupt
« Reply #127 on: June 13, 2018, 02:41:43 PM »
So if 2034 is the projected date for the trust fund to reach $0.00, the earliest Boomers(that are still alive) will be pushing 90. At what point does the trust fund start to grow again? I'm struggling to find those projections, if they even exist.

Do you see what I'm getting at? I won't be 70 until 2047. The Boomers will all be dead some day. When that happens, will there be a surplus again?

Here is the full report.

https://www.ssa.gov/OACT/TR/2018/tr2018.pdf

Figure II.D2 on page 13 indicates that we will never have a surplus again under the current plan. Or at least not in the next 75 years.

simonsez

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Re: Social Security will not be bankrupt
« Reply #128 on: June 13, 2018, 03:13:57 PM »
So if 2034 is the projected date for the trust fund to reach $0.00, the earliest Boomers(that are still alive) will be pushing 90. At what point does the trust fund start to grow again? I'm struggling to find those projections, if they even exist.

Do you see what I'm getting at? I won't be 70 until 2047. The Boomers will all be dead some day. When that happens, will there be a surplus again?

Birth rates in the USA dropped below replacement during the 2008 financial crash and have continued to trend downwards ever since. Barring a dramatic change in immigration or taxation policy, my guess would be that social security does not go back to turning a surplus given the current payout system.
I agree, there will not be a surplus unless variables change.  People born in the USA are surviving to older ages more and more and I don't think that will reverse irrespective of the birth rate.  Not only are more people (both absolutely and proportionally) surviving to 65 - life tables show that 85% of everyone born makes it to 65, but the life expectancy from then on (e65) is also higher.  A few decades ago e65 was about 11, now it is about 19.  That is to say, this underrates the Silver Tsunami a little bit and the influx of new humans, either born or migrating in, to the US would need to be higher than replacement (or whatever value taken to create a surplus in a vacuum) to compensate.  You have more people sucking on the S.S. teat than ever and they will do it longer than ever as well.

You could raise the tax base contribution limits but there might need to be a re-adjustment of the inflection (bend) points.  You can't raise the tax base without raising the benefits side somewhat, otherwise you are totally screwing the upper middle class. "Hey give this program some extra money so that you can receive pennies on the dollar for your extra contributions."

Honestly, one thing that's bothered me is that some careers don't participate in S.S. and the employee has no choice but employees at positions that do participate in S.S. also don't have a choice.  When my wife taught in VA, she paid into S.S. but now as an educator in MO, she does not and couldn't if she wanted to.  I'd be fine if every job had to pay equal FICA tax but if there are some that do not, then it makes you question the whole thing.  I think the S.S. program as a whole would be stronger if they had all workers paying into it, especially large educated groups like teachers and many municipal workers.

zolotiyeruki

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Re: Social Security will not be bankrupt
« Reply #129 on: June 13, 2018, 04:10:10 PM »
A couple things I've run into while researching the topic:
--Life expectancy at 65 has increased over the last 50 years.  Not enormously, but by about 4 years.  So retirees used to get (on average) 14 years on SS if retiring at 65, whereas now they get 16 years if they retire at 67.
--However, this is not the same for all groups.  White people have seen life expectancy increase a lot more than other races.
--Most of the shortfall is due to the plummet in birth rates.  Before WWII, it was about 3 kids (after accounting for infant mortality rates).  After the baby boom, it settled down to 2.

So really, we need to blame it all on the Baby Boomers.  Since they're the ones who didn't raise enough kids to sustain the system, they should be the ones to take the cuts, right? :P

(Of course I'm kidding.  Mostly.)

DreamFIRE

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Re: Social Security will not be bankrupt
« Reply #130 on: June 13, 2018, 04:40:05 PM »
So, politics aside, what are your thoughts about accounting for future SS benefits in your asset allocation? Jack Bogle thinks we should count it as a bond.  But how?  The present value of benefits?  That would probably skew the asset allocation such that we would be taking a fairly risky position in our real world portfolio.  How about the amount we paid in, and treat it like we purchased an annuity?  Which is, effectively, what it is.  In my case, that changes my asset allocation from around 65/35 to around 50/50.  If I were to assume that Social Security will be there in 15-20 years, that means I could take a substantially more aggressive posture with respect to asset allocation without overly excessive risk.

Another thought is whether we can increase SWR (say to 5%) based on an assumption that Social Security will exist at age 62, 67, or 70, whichever we are planning to take.  At the trigger date, your SWR would decrease to 5% less your SS benefit.  A higher SWR means you reach your number earlier in life.  Another way to look at it is, are you working longer just because you are of the opinion that Social Security won't exist when you reach age ___?  And is that opinion based on a rational belief or an irrational belief?

SS is a defined benefit, not part of an AA.  I have a spreadsheet with different time periods of my retirement, and for my SS years, my benefit is listed as one of the income sources I will use that year.  So, the SS benefit (after taxes) is subtracted from my total expenses, but the remaining expenses still need to be covered by my stash as if SS didn't exist.   SS only affects the part of my expenses which it can cover.  So I don't consider it a bond or anything else in regard to the expenses that it cannot cover.

SS benefits are increasingly taxed every year, as I mentioned in this thread two or more times, so I assume by the time I collect SS benefits,  85% of my benefits will be taxable.  Hopefully less, but I conservatively have my spreadsheet calculate based on that.

https://forum.mrmoneymustache.com/welcome-to-the-forum/social-security-will-not-be-bankrupt/msg2031636/#msg2031636

I can cover barebones with a decent cushion easily even without SS, but considering I will get SS after 15 years of FIRE, it will allow me to withdraw more discretionary dollars from my stash prior to SS age since SS will later cover a significant portion of my expenses at SS age, depending less on my stash at that point.  At 2.6X FIRE barebones spending, cFireSim gives me 100% success at that spending rate with SS factored in.

« Last Edit: June 13, 2018, 04:41:57 PM by DreamFIRE »

Rosy

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Re: Social Security will not be bankrupt
« Reply #131 on: June 13, 2018, 04:41:03 PM »
So if 2034 is the projected date for the trust fund to reach $0.00, the earliest Boomers(that are still alive) will be pushing 90. At what point does the trust fund start to grow again? I'm struggling to find those projections, if they even exist.

Do you see what I'm getting at? I won't be 70 until 2047. The Boomers will all be dead some day. When that happens, will there be a surplus again?

Here is the full report.

https://www.ssa.gov/OACT/TR/2018/tr2018.pdf

Figure II.D2 on page 13 indicates that we will never have a surplus again under the current plan. Or at least not in the next 75 years.

It's not like we have to reinvent the system.
We are only talking about making up for 21%.
There is plenty of time between now and then to fix it. Solutions have been suggested, it's just a matter of picking one. There are several plans in existence already just waiting to be debated and legislated.

Like the title of the article said SS will not be bankrupt, but it is time to shore up the fund for future generations or come up with something different altogether.

Quote
We will have used up our trust fund, our extra money that we've been collecting.

"So if nothing changes between now and 2034, we still will be able to pay out Social Security benefits, but it will be at a rate of 79% because that's what our payroll tax dollars will cover. So in effect everyone will receive 79% of their benefit."


DreamFIRE

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Re: Social Security will not be bankrupt
« Reply #132 on: June 13, 2018, 04:53:16 PM »
I don't think anybody is going to really take a 23% haircut.  But more of their SS wages will probably be taxed

That's pretty much guaranteed as it's already part of the current law.  I conservatively estimate that 85% of my benefits will be taxable by the time I can collect benefits.  Hopefully, it's no worse than that but could be with a change to the current law.

https://forum.mrmoneymustache.com/welcome-to-the-forum/social-security-will-not-be-bankrupt/msg2031636/#msg2031636


DreamFIRE

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Re: Social Security will not be bankrupt
« Reply #133 on: June 13, 2018, 05:02:18 PM »
I similarly do not include SS in my retirement planning.  Since I plan to retire 15ish years before FRA, I'll have lived for 15 years on my own savings.  If I make it that far, it's probable that my assets are growing rather than being depleted.

That's the same as me.  I plan to draw SS 15 years after I FIRE.  However, I do plan for SS in my spreadsheets for those SS years.  With a WR that provides plenty of discretionary spending, it takes me from 92+% success to 100% success factoring SS (even after factoring taxes and a benefit reduction).  The good thing is that I'm not really dependent on it since I'm over 90% success rate without it even before I cut back on discretionary spending, which is even more than my base expenses, so there's plenty of room to cut back if it came to that.
« Last Edit: June 13, 2018, 05:04:40 PM by DreamFIRE »

DreamFIRE

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Re: Social Security will not be bankrupt
« Reply #134 on: June 13, 2018, 05:15:25 PM »
You could raise the tax base contribution limits but there might need to be a re-adjustment of the inflection (bend) points.  You can't raise the tax base without raising the benefits side somewhat

Says who?  Who said taxes were fair?  I can tell you as a single person with no kids that they aren't.  The government will do what it's going to do.

Quote
, otherwise you are totally screwing the upper middle class. "Hey give this program some extra money so that you can receive pennies on the dollar for your extra contributions."

By some metrics, I'm upper middle class, but I wouldn't mind paying higher taxes to help shore up the system, even if it means benefit levels are simply maintained with an inflation adjustment as they are now, but I would definitely prefer that the tax formula for SS benefits was indexed to inflation (per my previous SS tax comments) and that benefit growth was indexed to CPI-E to more accurately reflect the increased living costs to seniors.  In the ACA thread, it was mentioned how much seniors are paying out of their pockets despite having Medicare, so they aren't just getting shafted from a SS perspective.

Jrr85

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Re: Social Security will not be bankrupt
« Reply #135 on: June 14, 2018, 08:00:55 AM »
I don't think anybody is going to really take a 23% haircut.  But more of their SS wages will probably be taxed

That's pretty much guaranteed as it's already part of the current law.  I conservatively estimate that 85% of my benefits will be taxable by the time I can collect benefits.  Hopefully, it's no worse than that but could be with a change to the current law.

https://forum.mrmoneymustache.com/welcome-to-the-forum/social-security-will-not-be-bankrupt/msg2031636/#msg2031636

I would bet that 100% will be taxed.  It just makes sense as part of means testing benefits. 

Jrr85

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Re: Social Security will not be bankrupt
« Reply #136 on: June 14, 2018, 08:12:09 AM »
Can we consider "well-off boomers" as those who had high incomes rather than high savings? :-)
I'm a "well-off boomer" but only averaged an inflation adjusted $71k over the last 36 years.
 Don't take my savings just because I decided to live below my income, while the family that made $120k
and spent it all, would not have to pay.

^This.  I make the same argument, and this is why in my "means testing" comment earlier, I stated that it would be based on retirement "income", not "assets".  So if someone was raking in over $50K/yr in pension and taxable income in addition to SS benefits, they would see a significant reduction in SS benefits, but not the guy who saved $1M living off a lower amount of taxable income.  I don't think savers should be punished vs. those who spent their money like drunken sailors, and I think it would be a terrible idea to discourage saving, so means testing based on higher retirement income and pensions makes a lot more sense.

You can't treat a pension differently than $1M in savings.

Sure you can, by means testing based on income, not on assets.  Just think about the Medicaid expansion, the ACA Premium Tax Credit, and Obamacare Cost Sharing Reductions subsidies.  They are based on MAGI income, NOT assets.  Pension income is included in that calculation.  Of course, someone with a nice savings will be generating income that would be factored in, but just not the assets themselves.

Quote
If you want to means test based on who had the ability to save and not who actually did save (which is I think the right way to do it),

That's not how I would means test.

Quote
Someone who made $50k a year and never had kids should have a lot more assets saved than somebody who made $50k per year and raised four kids.

That's not part of the calculation.  If someone chose to get married and have fours kids and wasn't able to save despite the generous tax breaks, that's too bad.  I'm talking about means testing based on other retirement income.  If it's over $50K/yr, then cut SS benefits.  This is how those other programs determine eligibility, and it's far less complicated.

I didn't mean that you literally can't.  I meant it would be stupid to.  For example, somebody that had a pension or annuity with a value of $1M would be treated differently than somebody with a $1M in cash.  That's just bad tax design to treat two basically identically situated people differently.  But the bad part would not be the disparate treatment between different types of savings, it would be that savers would get penalized harshly.  You don't want such a major disincentive for people to save.  Somebody who made $200k per year on average for his career and spent all of it should not be treated better than somebody who made $200k per year on average for his career and saved a steady 25%, and they sure as hell shouldn't get treated better than somebody who made $50k on average and saved 10%.  We already discourage (or at least deincentivize) savings and investment enough by "promising" people that younger workers will be forced to pay for their SS and medicare.  We don't need to further penalize savings/investment with significant taxes on top of income taxes (in the case of savings into a tax deferred vehicle) and capital gains (for qualified investments outside of tax deferred vehicles). 

DreamFIRE

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Re: Social Security will not be bankrupt
« Reply #137 on: June 14, 2018, 07:11:32 PM »
Can we consider "well-off boomers" as those who had high incomes rather than high savings? :-)
I'm a "well-off boomer" but only averaged an inflation adjusted $71k over the last 36 years.
 Don't take my savings just because I decided to live below my income, while the family that made $120k
and spent it all, would not have to pay.

^This.  I make the same argument, and this is why in my "means testing" comment earlier, I stated that it would be based on retirement "income", not "assets".  So if someone was raking in over $50K/yr in pension and taxable income in addition to SS benefits, they would see a significant reduction in SS benefits, but not the guy who saved $1M living off a lower amount of taxable income.  I don't think savers should be punished vs. those who spent their money like drunken sailors, and I think it would be a terrible idea to discourage saving, so means testing based on higher retirement income and pensions makes a lot more sense.

You can't treat a pension differently than $1M in savings.

Sure you can, by means testing based on income, not on assets.  Just think about the Medicaid expansion, the ACA Premium Tax Credit, and Obamacare Cost Sharing Reductions subsidies.  They are based on MAGI income, NOT assets.  Pension income is included in that calculation.  Of course, someone with a nice savings will be generating income that would be factored in, but just not the assets themselves.

Quote
If you want to means test based on who had the ability to save and not who actually did save (which is I think the right way to do it),

That's not how I would means test.

Quote
Someone who made $50k a year and never had kids should have a lot more assets saved than somebody who made $50k per year and raised four kids.

That's not part of the calculation.  If someone chose to get married and have fours kids and wasn't able to save despite the generous tax breaks, that's too bad.  I'm talking about means testing based on other retirement income.  If it's over $50K/yr, then cut SS benefits.  This is how those other programs determine eligibility, and it's far less complicated.

I didn't mean that you literally can't.  I meant it would be stupid to.  For example, somebody that had a pension or annuity with a value of $1M would be treated differently than somebody with a $1M in cash.  That's just bad tax design to treat two basically identically situated people differently.  But the bad part would not be the disparate treatment between different types of savings, it would be that savers would get penalized harshly.  You don't want such a major disincentive for people to save.  Somebody who made $200k per year on average for his career and spent all of it should not be treated better than somebody who made $200k per year on average for his career and saved a steady 25%, and they sure as hell shouldn't get treated better than somebody who made $50k on average and saved 10%.  We already discourage (or at least deincentivize) savings and investment enough by "promising" people that younger workers will be forced to pay for their SS and medicare.  We don't need to further penalize savings/investment with significant taxes on top of income taxes (in the case of savings into a tax deferred vehicle) and capital gains (for qualified investments outside of tax deferred vehicles).

My posts repeatedly stated means testing based on "income", not savings of any kind.  I don't believe in a wealth tax and have never stated to support such a thing.   Interest income, dividend income, capital gains, IRA withdrawals, pension income, are all examples of other types of retirement income that someone might earn in addition to SS.  Don't confuse that with savings/assets themselves being taxed.

Jrr85

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Re: Social Security will not be bankrupt
« Reply #138 on: June 15, 2018, 07:44:42 AM »
Can we consider "well-off boomers" as those who had high incomes rather than high savings? :-)
I'm a "well-off boomer" but only averaged an inflation adjusted $71k over the last 36 years.
 Don't take my savings just because I decided to live below my income, while the family that made $120k
and spent it all, would not have to pay.

^This.  I make the same argument, and this is why in my "means testing" comment earlier, I stated that it would be based on retirement "income", not "assets".  So if someone was raking in over $50K/yr in pension and taxable income in addition to SS benefits, they would see a significant reduction in SS benefits, but not the guy who saved $1M living off a lower amount of taxable income.  I don't think savers should be punished vs. those who spent their money like drunken sailors, and I think it would be a terrible idea to discourage saving, so means testing based on higher retirement income and pensions makes a lot more sense.



I didn't mean that you literally can't.  I meant it would be stupid to.  For example, somebody that had a pension or annuity with a value of $1M would be treated differently than somebody with a $1M in cash.  That's just bad tax design to treat two basically identically situated people differently.  But the bad part would not be the disparate treatment between different types of savings, it would be that savers would get penalized harshly.  You don't want such a major disincentive for people to save.  Somebody who made $200k per year on average for his career and spent all of it should not be treated better than somebody who made $200k per year on average for his career and saved a steady 25%, and they sure as hell shouldn't get treated better than somebody who made $50k on average and saved 10%.  We already discourage (or at least deincentivize) savings and investment enough by "promising" people that younger workers will be forced to pay for their SS and medicare.  We don't need to further penalize savings/investment with significant taxes on top of income taxes (in the case of savings into a tax deferred vehicle) and capital gains (for qualified investments outside of tax deferred vehicles).

My posts repeatedly stated means testing based on "income", not savings of any kind.  I don't believe in a wealth tax and have never stated to support such a thing.   Interest income, dividend income, capital gains, IRA withdrawals, pension income, are all examples of other types of retirement income that someone might earn in addition to SS.  Don't confuse that with savings/assets themselves being taxed.

Well you said you would tax someone with a pension but not somebody with a million in savings.  How is that not taxing wealth?  If a person receives his pension money and puts it directly into a savings account, they are getting taxed on all of it, despite the fact that they are not spending it, but the person who has a $1M in a tax efficient index fund pays taxes on a fraction of their growth.  If the person tries to sell off their pension stream to "deannuitize" it (I'm not sure this is even legally permissible; not sure if courts will enforce an agreement selling off pension income), they get hit with a huge tax. 

But again, even if you provide some relief for that, you are still setting up a situation where consumption is basically not taxed (at the federal level) while somebody is not eligible for (or at least not yet taking) social security benefits, then you tax consumption heavily when they are taking social security benefits, and then you tax consumption lightly or not at all if they defer it until their kids inherit it. 

That's just a messed up incentive structure. 

And what kind of implicit tax rate are you envisioning for social security means testing?  You'll already have capital gains taxes on income outside of tax advantaged accounts.  Are you going to essentially slap an income tax on top of the capital gains tax?  And then for money coming out of retirement accounts, you are going to slap an additional income tax on it?  And I assume you are going to reclassify Roth distributions as income for social security means testing, or else you are greatly tipping the scale towards the roth?  However you do it, you are greatly penalizing savers except for those who live on low income in retirement with the intent to devise their savings to their heirs.  I guess by greatly taxing seniors who spend down their resources, you are encouraging them to pass on larger inheritances and not suck up resources when they are not working, but those resources are still (presumably) going to be sucked up by the heirs. 

I mean, I get that there is a simplicity benefit as far as implementing it, but I think the awful incentives make it worth taxing based on lifetime earnings, rather than taxing consumption only in retirement.
« Last Edit: June 15, 2018, 11:40:34 AM by Jrr85 »

pecunia

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Re: Social Security will not be bankrupt
« Reply #139 on: June 15, 2018, 10:44:48 AM »
After seeing how the US handles medial compared to other countries, I began to wonder (and still do) if they do it in a more sensible fashion in other countries.  Here's a blurb from an article on German retirement.

Quote
Anyone in employment is automatically covered by the state pension, as well as some groups of self-employed people. As in other countries, you pay in half and your employer pays the other. Germans can also choose to pay into a private pension if they wish to.

Every month, employees pay 19.9% of their net untaxed income into the state pension scheme, this is usually automatically deducted with the listing RV or Renteversicherung, meaning pension insurance.

https://www.thelocal.de/20171124/5-things-to-know-about-retirement-in-germany

It is too late for me as I will be eligible for Social Security very very soon, but could a change benefit Gen X, Gen Y, millennial people or any other titled people.

Would restoring the taxes on the major corporations and having that money pay into Social Security make a dent in the 21 percent deficit?

starguru

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Re: Social Security will not be bankrupt
« Reply #140 on: June 15, 2018, 10:53:31 AM »

Would restoring the taxes on the major corporations and having that money pay into Social Security make a dent in the 21 percent deficit?

Any number of things or combination of things could solve the current deficit.  It's not a math problem its a politic's problem.  Liberals lose their shit at the idea of raising the retirement age, reducing benefits, keeping benefits the same, suggesting people should save on their own, or having anyone other than "the rich" pay for it.  Conservative lose their shit at the idea of any form of higher taxes, increasing benefits, keeping benefits the same, etc.  Lack of compromise is what makes this an actual problem.

Paul der Krake

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Re: Social Security will not be bankrupt
« Reply #141 on: June 15, 2018, 11:12:51 AM »
After seeing how the US handles medial compared to other countries, I began to wonder (and still do) if they do it in a more sensible fashion in other countries.  Here's a blurb from an article on German retirement.

Quote
Anyone in employment is automatically covered by the state pension, as well as some groups of self-employed people. As in other countries, you pay in half and your employer pays the other. Germans can also choose to pay into a private pension if they wish to.

Every month, employees pay 19.9% of their net untaxed income into the state pension scheme, this is usually automatically deducted with the listing RV or Renteversicherung, meaning pension insurance.

https://www.thelocal.de/20171124/5-things-to-know-about-retirement-in-germany

It is too late for me as I will be eligible for Social Security very very soon, but could a change benefit Gen X, Gen Y, millennial people or any other titled people.

Would restoring the taxes on the major corporations and having that money pay into Social Security make a dent in the 21 percent deficit?
What the article describes in Germany is the exact same thing as the US setup: almost everybody is eligible for Social Security, and encouraged to save elsewhere too. German pensions aren't this magical cushy system that supports them in their round-the-world golden retirement: the average monthly payout is something like 1200 euros for men, and way less for women (because Germany has some weird family dynamics outside the scope of this discussion). The amounts in other European countries are similar.

The main difference is that Europeans are already used to much lower salaries than their American counterparts. We pay our nurses like they pay their doctors, so there is less of a shock when they stop working.

BDWW

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Re: Social Security will not be bankrupt
« Reply #142 on: June 15, 2018, 11:19:59 AM »
What if we just kill all the poor?

https://www.youtube.com/watch?v=owI7DOeO_yg

robartsd

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Re: Social Security will not be bankrupt
« Reply #143 on: June 15, 2018, 02:44:55 PM »
What the article describes in Germany is the exact same thing as the US setup:
...
The main difference is that Europeans are already used to much lower salaries than their American counterparts. We pay our nurses like they pay their doctors, so there is less of a shock when they stop working.
That and the tax for the pension is more than twice ours!
Quote
Anyone in employment is automatically covered by the state pension, as well as some groups of self-employed people. As in other countries, you pay in half and your employer pays the other. Germans can also choose to pay into a private pension if they wish to.

Every month, employees pay 19.9% of their net untaxed income into the state pension scheme, this is usually automatically deducted with the listing RV or Renteversicherung, meaning pension insurance.

DreamFIRE

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Re: Social Security will not be bankrupt
« Reply #144 on: June 15, 2018, 06:36:21 PM »
Can we consider "well-off boomers" as those who had high incomes rather than high savings? :-)
I'm a "well-off boomer" but only averaged an inflation adjusted $71k over the last 36 years.
 Don't take my savings just because I decided to live below my income, while the family that made $120k
and spent it all, would not have to pay.

^This.  I make the same argument, and this is why in my "means testing" comment earlier, I stated that it would be based on retirement "income", not "assets".  So if someone was raking in over $50K/yr in pension and taxable income in addition to SS benefits, they would see a significant reduction in SS benefits, but not the guy who saved $1M living off a lower amount of taxable income.  I don't think savers should be punished vs. those who spent their money like drunken sailors, and I think it would be a terrible idea to discourage saving, so means testing based on higher retirement income and pensions makes a lot more sense.



I didn't mean that you literally can't.  I meant it would be stupid to.  For example, somebody that had a pension or annuity with a value of $1M would be treated differently than somebody with a $1M in cash.  That's just bad tax design to treat two basically identically situated people differently.  But the bad part would not be the disparate treatment between different types of savings, it would be that savers would get penalized harshly.  You don't want such a major disincentive for people to save.  Somebody who made $200k per year on average for his career and spent all of it should not be treated better than somebody who made $200k per year on average for his career and saved a steady 25%, and they sure as hell shouldn't get treated better than somebody who made $50k on average and saved 10%.  We already discourage (or at least deincentivize) savings and investment enough by "promising" people that younger workers will be forced to pay for their SS and medicare.  We don't need to further penalize savings/investment with significant taxes on top of income taxes (in the case of savings into a tax deferred vehicle) and capital gains (for qualified investments outside of tax deferred vehicles).

My posts repeatedly stated means testing based on "income", not savings of any kind.  I don't believe in a wealth tax and have never stated to support such a thing.   Interest income, dividend income, capital gains, IRA withdrawals, pension income, are all examples of other types of retirement income that someone might earn in addition to SS.  Don't confuse that with savings/assets themselves being taxed.

Well you said you would tax someone with a pension but not somebody with a million in savings.  How is that not taxing wealth?

No, my references were in regards to means testing SS based on "INCOME", which is why I repeatedly used the word "income", whether that be income from a pension or income generated from a savings/investment or other taxable income.  And means testing doesn't mean needing additional "taxing" at all, it means determining your eligibility to qualify for such a program (i.e. cut/eliminate SS benefits if other income in retirement is over some threshold like $50k/yr), as I said earlier when I first brought it up.  I didn't say anything about increasing taxes for certain SS recipients as a method of means testing.  I referred to increasing payroll taxes on us who are still in the workforce, but never mentioned increasing taxes for retirees or as a form of means testing.  So, means testing SS benefits based on other retirement income to determine eligibility for benefits (or at least a % of full benefits) could be one of several ways to shore up the program.  Wealth itself would not be taxed whether in a savings or the value of a pension.  So, that's why it's not taxing wealth.  It's not actually taxing income either, only using it as a means to test eligibility for SS benefits.

Quote
If a person receives his pension money and puts it directly into a savings account, they are getting taxed on all of it, despite the fact that they are not spending it

The pension payout can be rolled into an IRA or qualified retirement plan like a traditional 401K without being taxed.  Only the distributions would be taxed, the same as any other savings in a 401K or similar retirement plan.   Roth plans obviously aren't taxed during distributions, but the money is taxed as income at the high marginal rate while still employed prior to being contributed to the fund in the first place.  The pension will get the same treatment as the 401K/IRA as far as taxing as is the case today (and the income applied in the same manner for means testing that I am suggesting should be used).

Quote
but the person who has a $1M in a tax efficient index fund pays taxes on a fraction of their growth.

That would be a non-retirement account, for which the recipient would have fully paid his income taxes at a likely high rate during his working career on those investments, and any growth would be subject to taxation in the form of interest, dividends, realized capital gains throughout this career at that high marginal rate (and cap gains rate), and eventually taxed in retirement as possibly lower rates.  Yes, regulation of realizing gains and such could allow you to minimize taxes on the gains, but the principal and pre-retirement earnings and realized gains are taxed at a high rate while still working.   For retirement accounts, a pension and traditional 401K are taxed as income.  And for my means testing proposal, one doesn't have an advantage over the other.

Quote
If the person tries to sell off their pension stream to "deannuitize" it (I'm not sure this is even legally permissible; not sure if courts will enforce an agreement selling off pension income), they get hit with a huge tax.

No, they simply need to rollover into a qualified retirement plan as I mentioned above, and they will only be taxed on the distributions, just as with a traditional IRA.  Means testing as I describe it would treat both the same.

Quote
But again, even if you provide some relief for that, you are still setting up a situation where consumption is basically not taxed (at the federal level) while somebody is not eligible for (or at least not yet taking) social security benefits, then you tax consumption heavily when they are taking social security benefits, and then you tax consumption lightly or not at all if they defer it until their kids inherit it. 

That's just flat out not what I'm proposing.  As far as means testing, I'm not suggesting any change in taxing income any differently than it is today, only using "other" retirement income to determine the eligibility for full (or reduced) SS benefits.  This is exactly how means testing is currently done under ACA for Medicaid, PTC, and CSR.  I haven't come up with some totally new idea, just something that is fair as possible without being too impractical to implement and administer.

Quote
That's just a messed up incentive structure.

Nothing is perfect, but it's probably the best practical solution just as with ACA.

Quote
And what kind of implicit tax rate are you envisioning for social security means testing?

No direct link, but people in the 12% tax bracket could be affected.  In my example above and one or two earlier posts, I stated $50K/yr in other retirement income would mean a loss of SS benefits.  And I think that figure should be indexed to inflation, unlike the thresholds used for determining how much of SS benefits are taxable, which haven't been changed since 1983.  The actual amount would really need to depend on where this factors in as part of a larger restructuring of SS and benefits and how the CBO scores it, so I'm speaking more in general terms of means testing based on income here rather than trying to nail down the exact amount outside of the context of the larger plan.

Quote
You'll already have capital gains taxes on income outside of tax advantaged accounts.  Are you going to essentially slap an income tax on top of the capital gains tax?

No.  No changes in tax rates or additional taxes on any existing income.

Quote
And then for money coming out of retirement accounts, you are going to slap an additional income tax on it?


Again, no changes to taxes in regards to means testing.

Quote
And I assume you are going to reclassify Roth distributions as income for social security means testing, or else you are greatly tipping the scale towards the roth


No changes in taxes with Roth, either.  The means testing method proposed doesn't change anything regarding work retirement accounts, IRAs, or pensions themselves.  Only income is factored in, just as with ACA for Medicaid, PCT, and CSR. I'm not reinventing the wheel, just extending that type of means testing to determine SS eligibility for full (or reduced) benefits until they are phased out completely.

Quote
?  However you do it, you are greatly penalizing savers except for those who live on low income in retirement with the intent to devise their savings to their heirs.

Saving itself isn't the issue, but rather income.  If someone wants to live a very meager existence to keep their income so low as to avoid a cut to their SS benefits, that is their choice.  That is no different than those who regulates their taxable income to take advantage of ACA subsidies.  There's a MMM thread sticky thread all about it:
https://forum.mrmoneymustache.com/ask-a-mustachian/information-on-the-affordable-care-act-with-a-focus-on-early-retirees/
However, those most affected by the cut in SS benefits due to means testing aren't likely to force themselves to suffer for benefits they don't need, just like many wealthy retirees aren't restricting their incomes simply to qualify for ACA subsides.  They're going to enjoy their sweet SWR and sacrifice some of their SS benefits because they will still be better off doing so.  That would need to be part of the formula - that the penalty of reduced benefits rolls off more slowly than the increase in income so that they will prefer the additional "income" over a greater SS benefit and prevent gaming the system.

Quote
I guess by greatly taxing seniors who spend down their resources, you are encouraging them to pass on larger inheritances and not suck up resources when they are not working, but those resources are still (presumably) going to be sucked up by the heirs.

Remember, I've not said I would tax anyone any more as part of means testing, only cut/reduce SS benefits, and wealthy seniors with large stashes aren't likely to cut down their distributions and spending that much for an additional benefit that they didn't need, but that will allow the SS system to more adequately fund the benefits to the seniors who will be more likely to need and spend those benefits.  The formula needs setup as just mentioned to prevent people from gaming the system.  If $10,000 more in income meant a $10,000 loss in SS benefits, then you would keep the $10000 in your retirement account to avoid the means testing cut and take the SS instead.  Your spending would be the same.  That's a bad formula.  But if it's $10,000 in income vs. a $2,000 loss in SS benefits, you might prefer to withdraw the $10,000 from your IRA because that still gives you $8000 more to spend rather than just leaving it for your kids, despite a $2000 loss in SS due to means testing. Again, just examples on how it could be workable to prevent the issue you mentioned.

Quote
I mean, I get that there is a simplicity benefit as far as implementing it, but I think the awful incentives make it worth taxing based on lifetime earnings, rather than taxing consumption only in retirement.

I don't really want to add additional taxes at all as part of means testing - only use income as a means of testing eligibility for the benefits (or a reduced benefit that rolls off with greater income).  Lifetime earnings could be another way of determining eligibility, which seems reasonable as well, although I think ALL income should be included for lifetime means testing as well, including taxable gains, dividends, interest, and distributions, which do not show on SS statements, so this would require a lot more effort to implement such a different system for applying this method of means testing when the one I recommend is already being used and would merely need to be extended to SS means testing.  Lifetime earnings means testing would also incentivize working fewer years or early retirement, to keep lifetime earnings down to guarantee a full SS payout later in life, which is good for us FIRE folk, but it might not be the best method for means testing in general as it applies to the general public.

austin944

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Re: Social Security will not be bankrupt
« Reply #145 on: June 15, 2018, 06:53:43 PM »
https://www.marketwatch.com/story/the-financial-hole-for-social-security-and-medicare-is-even-deeper-than-the-experts-say-2018-06-15

"Taken together, the combined unfunded liabilities of Social Security and Medicare are more than $50 trillion, according to official government projections. Unsettling as these estimates are, they are probably optimistic — for two reasons.

First, the Medicare projections assume deep, permanent, and ongoing cuts in payment rates for physicians and hospitals that are difficult to believe will be implemented.
...
The second reason that both the Social Security and Medicare projections may be optimistic is the recent news of declining birth rates. Last month, the Centers for Disease Control and Prevention released data showing that the birth rate in the U.S. is now at its lowest level in 40 years.
..."
« Last Edit: June 15, 2018, 06:55:47 PM by austin944 »

DreamFIRE

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Re: Social Security will not be bankrupt
« Reply #146 on: June 15, 2018, 07:45:33 PM »
SS still has a surplus in the trust fund that isn't expected to run out until 2034.  So some fix, such as one or more of the many I have mentioned, will need implemented to ensure current retirees and those nearing retirement aren't hurt by a cut in benefits in their coming retirement or in 2034 and beyond, especially those with lower retirement incomes, when they are older and have fewer years to make up the difference in savings that a cut would entail.
« Last Edit: June 15, 2018, 07:48:50 PM by DreamFIRE »

zolotiyeruki

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Re: Social Security will not be bankrupt
« Reply #147 on: June 15, 2018, 07:57:17 PM »
SS still has a surplus in the trust fund that isn't expected to run out until 2034.  So some fix, such as one or more of the many I have mentioned, will need implemented to ensure current retirees and those nearing retirement aren't hurt by a cut in benefits in their coming retirement or in 2034 and beyond, especially those with lower retirement incomes, when they are older and have fewer years to make up the difference in savings that a cut would entail.
Yeah, but politically speaking, who's gonna be the one to tell people their taxes are going up and/or their future benefits are going down?  There's a reason it's a third rail. Anyone who tries to fix it is gonna get creamed in the next election.  It's a game of chicken, all the way until 2034.

Jrr85

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Re: Social Security will not be bankrupt
« Reply #148 on: Today at 02:38:54 PM »

Well you said you would tax someone with a pension but not somebody with a million in savings.  How is that not taxing wealth?

No, my references were in regards to means testing SS based on "INCOME", which is why I repeatedly used the word "income", whether that be income from a pension or income generated from a savings/investment or other taxable income.  And means testing doesn't mean needing additional "taxing" at all, it means determining your eligibility to qualify for such a program (i.e. cut/eliminate SS benefits if other income in retirement is over some threshold like $50k/yr), as I said earlier when I first brought it up.  I didn't say anything about increasing taxes for certain SS recipients as a method of means testing.  I referred to increasing payroll taxes on us who are still in the workforce, but never mentioned increasing taxes for retirees or as a form of means testing.  So, means testing SS benefits based on other retirement income to determine eligibility for benefits (or at least a % of full benefits) could be one of several ways to shore up the program.  Wealth itself would not be taxed whether in a savings or the value of a pension.  So, that's why it's not taxing wealth.  It's not actually taxing income either, only using it as a means to test eligibility for SS benefits.
That is taxing income.  You can call it means testing, but economically, it's the same.  If somebody is entitled to a $15k SS benefit, and you say that for every $1 of income over $50k they are going to lose $0.10 of SS benefits, that is the same as taxing them 10% (in addition to any other income taxes) for every dollar of income over $50k and less than $200k. 

Quote
If a person receives his pension money and puts it directly into a savings account, they are getting taxed on all of it, despite the fact that they are not spending it

The pension payout can be rolled into an IRA or qualified retirement plan like a traditional 401K without being taxed.  Only the distributions would be taxed, the same as any other savings in a 401K or similar retirement plan.   Roth plans obviously aren't taxed during distributions, but the money is taxed as income at the high marginal rate while still employed prior to being contributed to the fund in the first place.  The pension will get the same treatment as the 401K/IRA as far as taxing as is the case today (and the income applied in the same manner for means testing that I am suggesting should be used).
  Allowing pension income to be rolled into another tax advantaged vehicle is better than punishing defined benefit pensions compared to 401k savings, but again, that just turns the SS means testing into a consumption tax as far as retirement accounts go. 

Quote
but the person who has a $1M in a tax efficient index fund pays taxes on a fraction of their growth.

That would be a non-retirement account, for which the recipient would have fully paid his income taxes at a likely high rate during his working career on those investments, and any growth would be subject to taxation in the form of interest, dividends, realized capital gains throughout this career at that high marginal rate (and cap gains rate), and eventually taxed in retirement as possibly lower rates.  Yes, regulation of realizing gains and such could allow you to minimize taxes on the gains, but the principal and pre-retirement earnings and realized gains are taxed at a high rate while still working.   For retirement accounts, a pension and traditional 401K are taxed as income.  And for my means testing proposal, one doesn't have an advantage over the other.

Quote
If the person tries to sell off their pension stream to "deannuitize" it (I'm not sure this is even legally permissible; not sure if courts will enforce an agreement selling off pension income), they get hit with a huge tax.

No, they simply need to rollover into a qualified retirement plan as I mentioned above, and they will only be taxed on the distributions, just as with a traditional IRA.  Means testing as I describe it would treat both the same.

Quote
But again, even if you provide some relief for that, you are still setting up a situation where consumption is basically not taxed (at the federal level) while somebody is not eligible for (or at least not yet taking) social security benefits, then you tax consumption heavily when they are taking social security benefits, and then you tax consumption lightly or not at all if they defer it until their kids inherit it. 

That's just flat out not what I'm proposing.  As far as means testing, I'm not suggesting any change in taxing income any differently than it is today, only using "other" retirement income to determine the eligibility for full (or reduced) SS benefits.  This is exactly how means testing is currently done under ACA for Medicaid, PTC, and CSR.  I haven't come up with some totally new idea, just something that is fair as possible without being too impractical to implement and administer.

Again, that is economically what you are proposing. For retirement accounts, when it comes out, it gets taxed at ordinary income taxes plus the surtax you are proposing in the form of means testing.  If they keep it in the retirement account, it's not taxed.  The SS surtax is effectively a consumption tax that only applies while the person is eligible to receive SS.  IF they take it out before, they only pay ordinary income taxes.  If they take it out, they are hit with ordinary income tax and also are essentially taxed for the consumption.  If they pass it on to their heirs, their heirs only pay ordinary income taxes, not the consumption tax (unless they too are taking SS)
Quote
That's just a messed up incentive structure.

Nothing is perfect, but it's probably the best practical solution just as with ACA.
  I would argue that ACA is terrible in that it forces poorer people to subsidize the retirement of wealthy people (granted that's the same as SS, but worse because it subsidizes relatively young wealthy people).   

Quote
And what kind of implicit tax rate are you envisioning for social security means testing?

No direct link, but people in the 12% tax bracket could be affected.  In my example above and one or two earlier posts, I stated $50K/yr in other retirement income would mean a loss of SS benefits.  And I think that figure should be indexed to inflation, unlike the thresholds used for determining how much of SS benefits are taxable, which haven't been changed since 1983.  The actual amount would really need to depend on where this factors in as part of a larger restructuring of SS and benefits and how the CBO scores it, so I'm speaking more in general terms of means testing based on income here rather than trying to nail down the exact amount outside of the context of the larger plan.

Quote
You'll already have capital gains taxes on income outside of tax advantaged accounts.  Are you going to essentially slap an income tax on top of the capital gains tax?

No.  No changes in tax rates or additional taxes on any existing income.

Quote
And then for money coming out of retirement accounts, you are going to slap an additional income tax on it?


Again, no changes to taxes in regards to means testing.

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And I assume you are going to reclassify Roth distributions as income for social security means testing, or else you are greatly tipping the scale towards the roth


No changes in taxes with Roth, either.  The means testing method proposed doesn't change anything regarding work retirement accounts, IRAs, or pensions themselves.  Only income is factored in, just as with ACA for Medicaid, PCT, and CSR. I'm not reinventing the wheel, just extending that type of means testing to determine SS eligibility for full (or reduced) benefits until they are phased out completely.
  If you don't include roth income, you have given a huge windfall to people who invested in roths versus traditional.  Of course in reality, unless the means testing tax is particularly low,  what will happen is that prior to retirement age, people will start rolling over as much as they can to roth and pay the slightly higher ordinary income taxes to avoid the hit from later having to pay ordinary income taxes and SS means testing later on.


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?  However you do it, you are greatly penalizing savers except for those who live on low income in retirement with the intent to devise their savings to their heirs.

Saving itself isn't the issue, but rather income.  If someone wants to live a very meager existence to keep their income so low as to avoid a cut to their SS benefits, that is their choice.  That is no different than those who regulates their taxable income to take advantage of ACA subsidies.  There's a MMM thread sticky thread all about it:
https://forum.mrmoneymustache.com/ask-a-mustachian/information-on-the-affordable-care-act-with-a-focus-on-early-retirees/
However, those most affected by the cut in SS benefits due to means testing aren't likely to force themselves to suffer for benefits they don't need, just like many wealthy retirees aren't restricting their incomes simply to qualify for ACA subsides.  They're going to enjoy their sweet SWR and sacrifice some of their SS benefits because they will still be better off doing so.  That would need to be part of the formula - that the penalty of reduced benefits rolls off more slowly than the increase in income so that they will prefer the additional "income" over a greater SS benefit and prevent gaming the system.
  Again, the ACA subsidies for the wealthy are pretty gross, but yes, you are greatly penalizing savers.  People who don't save get to spend all of their income plus all of their SS.  People who do save either get their SS reduced, or they only get to devise it to their heirs. 

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I guess by greatly taxing seniors who spend down their resources, you are encouraging them to pass on larger inheritances and not suck up resources when they are not working, but those resources are still (presumably) going to be sucked up by the heirs.

Remember, I've not said I would tax anyone any more as part of means testing, only cut/reduce SS benefits, and wealthy seniors with large stashes aren't likely to cut down their distributions and spending that much for an additional benefit that they didn't need, but that will allow the SS system to more adequately fund the benefits to the seniors who will be more likely to need and spend those benefits.  The formula needs setup as just mentioned to prevent people from gaming the system.  If $10,000 more in income meant a $10,000 loss in SS benefits, then you would keep the $10000 in your retirement account to avoid the means testing cut and take the SS instead.  Your spending would be the same.  That's a bad formula.  But if it's $10,000 in income vs. a $2,000 loss in SS benefits, you might prefer to withdraw the $10,000 from your IRA because that still gives you $8000 more to spend rather than just leaving it for your kids, despite a $2000 loss in SS due to means testing. Again, just examples on how it could be workable to prevent the issue you mentioned.

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I mean, I get that there is a simplicity benefit as far as implementing it, but I think the awful incentives make it worth taxing based on lifetime earnings, rather than taxing consumption only in retirement.

I don't really want to add additional taxes at all as part of means testing - only use income as a means of testing eligibility for the benefits (or a reduced benefit that rolls off with greater income).  Lifetime earnings could be another way of determining eligibility, which seems reasonable as well, although I think ALL income should be included for lifetime means testing as well, including taxable gains, dividends, interest, and distributions, which do not show on SS statements, so this would require a lot more effort to implement such a different system for applying this method of means testing when the one I recommend is already being used and would merely need to be extended to SS means testing.  Lifetime earnings means testing would also incentivize working fewer years or early retirement, to keep lifetime earnings down to guarantee a full SS payout later in life, which is good for us FIRE folk, but it might not be the best method for means testing in general as it applies to the general public.

This is true, but between penalizing earnings and penalizing savings/investment, I would rather penalize earnings.  Most people need to earn to survive.  We already penalize earnings with the current bend points, and outside of the very weird people here on MMM forums, it doesn't stop most people from working.