The Third Rail - Social Security

I would do it in age tranches since the closer you are to retirement the more you have relied on benefits being available at a certain date. But I would have no problem with my age to full benefits being raised right now.

 

What does math have to do with government budgeting? 9 years is an eternity in politics, and nothing is going to happen until then. My best guest will be temporary stop gap measures that keep things more or less the same YTY, just like all budgeting now. Just another "fiscal cliff" unless someone has a functional supermajority to make serious changes. Even then, that supermajority would be toast if they cut SS in a meaningful way. I suppose the other possibility is elections have been canceled under Emperor Trump, so maybe that changes things, but we might have bigger worries in that scenario.

 

1. Unlike discretionary spending, social security inflows and outflows can be predicted with a reasonable degree of accuracy. It is simply demographics.

2. Unlike most government expenditures’a d discretionary spending, social security is not allowed, by law, to go into a net borrowing position. So around 2033, expenditures will have to be cut by 20% if nothing changes.

It is possible I assume that congress could vote to allow SS to borrow, either temporarily or permanently. That would reduce the short term SS crisis but make the longer term overall budget deficit even worse.

Ideally, if they were to act now, they could phase something in that would not be as dramatic as waiting until it fails, but you are probably right, there won’t be enough motivation to compromise until the system is on the brink of failure.

Social security faced a similar, perhaps worse shortfall in late 1983. In 1981 the greenspan commission was put together to make recommendations, they finalized their report in early 1983 and legislation passed in 1983

Social Security History

History of Social Security in the United States - Wikipedia

The likely scenario is something similar will play out. The difference now is back then congress would usually come together and compromise on critical issues, whereas today compromise is a dirty word. But with social security I expect they will find a way to at least put a band aid on it.

 

Ultimately social security is a political question, not a math problem

 

Interesting concept, but how do you means test exactly? And at what level do you start reducing benefits? You can't just pull the rug out from someone who is on the verge of retiring and take away expected retirement income. And this would be a major breaking of the social contract for someone that paid in all their working life.

I know you are I are probably in the same boat. I don't "need" social security, but it would certainly cover the taxes on what I pull from other retirement accounts. I know full well that 85% of it will be taxable, and a significant tax rate at that.

 

Unfortunately that is the Catch 22 and why no politician is willing to propose what we should do. And I agree with you about you cant just pull the rug out. It would be a process. That likely needs to take decades. But should be implemented so people can understand where we need to get.

I could lay out a general thought of what I think should happen. And it would tick off multiple from both sides lol. But the end goal should be to create a program that helps those who cannot help themselves (whether it be family has passed away and due to age need assistance/same circumstance but disabled with/family does not have the means to support and they just need assistance). But the idea that people getting a pension or with plenty of wealth built up need SS is part of the problem. They do not need it. They want it because they paid in for it. And that is understandable. I want what I paid in as well. But I fully understand that what I am paying in is largely being redistributed to older generations as was what many of them paid in was done to. I would happily at 43 opt out today if I could stop paying in and let the government keep every dollar I paid in (more than my parents who are on SS with the pension my dad gets as a retired O-4). But the government needs to redistribute my earnings.

fdr is truly one of the worst Presidents in history because he did not implement a program to help those truly in need. He implemented a redistribution ponzi scheme. And I am not sure we can fix it. Just screw the younger generations until it finally blows up in a 75-100 years.

The good news for me and you is we will be fine. But it really stinks for the younger generations that will live pay check to pay check their entire lives. Too many want their extra 1st world vacation. Cant solve the problem and take that away from them...

 

I have said this before, but the best way to solve this problem is to identify the financially responsible solutions (raise retirement age, raise taxes, and reduce benefits), and detail how much for each solution would be required to solve the problem for the next 20 years. Then let everyone vote on it during a mid-term election. Use the percentage of the votes for each solution to determine the percentage that each solution is applied. If 50% vote to raise the retirement age, and the age must be raised four years to solve the problem, then raise the retirement age by two years. Same with the other solutions. Make people over a certain age (60?) immune from the changes. The people would support the solution, Congress would have no choice but to turn the solution into law, and the problem would be solved. Repeat the process every 20 years.

 

Rationally that's the best alternative although it remains to be seen whether the current dysfunctional highly partisan Congress would agree to follow the recommendations of nonpartisan commission.

 

They will likely use it as a wedge issue until the last possible moment, and chances are they will come up with something, because being the party that caused social security payments to suddenly get cut 20% is probably something they will want to avoid.

While I generally support most of what Biden has done, I don’t like his hard line position that social security can under no circumstances can be cut. Then there is some dumb democrat in congress pushing legislation to eliminate income taxes on social security.

 

I retired two years ago at 66 years + 2 months old when I was eligible for full SS payments. I started in the workforce in 1980 (1979 UF grad in Engineering). That is 40 years of work and I have paid into the system and earned this retirement. Many seniors have only SS as income se we should not allow payments to decrease and we do not know how much longer we have to enjoy retirement so I do not like the idea of increasing the retirement age. Since SS taxes end after around $170K, perhaps an increase in taxes for richer Americans is in order.

 

I think changes in Social Security (like raising the retirement age) should also be supported by reserving jobs that seniors can do for seniors (or creating financial incentive for hiring seniors). Teaching assistant is a perfect example. Teachers need a second set of eyes in the classroom, someone who can walk children to/from the front office once in a while, and some help grading papers or tutoring. It isn't a high-paying job, but it will help pay the bills.

 

The reason that Social Security cuts off the income level for taxes is that it also cuts off the payments above a certain maximum (I think it is something like $48k/yr). It was sold as a forced savings program. The average person gets out what the average person pays in. With people living longer, it doesn't work. Raising the retirement age needs to be a part of the solution. I don't think it's practical to just increase taxes on the wealthy, as attractive as that might sound. Lower income people (such as teachers) have been able to retire as millionaires simply by prioritizing saving for retirement over having the latest electronics, or the nicest car or biggest house. The new expectation is that people need to rely on themselves saving for retirement as much as on Social Security. As engineers, it is relatively easy for us to rack up a couple million in retirement money (if one does not get divorced, of course). Less fortunate people need to figure out how to save more, or how to work longer. (And, of course, we should increase minimum wage to offset all of the inflation since 2007.)

 

So others should pay more and earn less for you?

 

How convenient of a proposal for you requiring zero sacrifice. Many of the “richer” Americans will already pay in far more than you ever did with the current system and receive a far smaller benefit as a % of contribution, but sure, make them support you by paying an additional $1000 a month. It’s not like they have their own families to raise, kids to send to college, etc.

 

Ideally no.

However if changes are needed they should gradually be added. Give anyone affected a little notice as many planned their retirement around SS. Changes have been discussed and needed for a long time. That’s not the fault of regular retired people who have played by the rules set up for them.

 

I don’t disagree with the sentiment. But what we need to do is reform the program. And gradually. One that becomes a true safety net for those that cannot help themselves. Not a redistribution from younger generations to older. Which is all we keep doing. These ideas do not fix the root of the problem.

We need to turn this into a program that most never receive anything. But we help those that truly need it.

 

Along with gradually raising the retirement age and lifting the cap on which earnings are subject to the FICA tax another strategy to preserve the future solvency of social security would be to increase legal immigration. Demographically immigrants are younger the US citizens and would be paying into the system for many years before they become eligible for benefits.
From a 2019 bipartisan paper:

How Immigration Supports the Social Security System
Immigration has been a valuable tool in blunting the effects of these demographic changes to the Social Security system. As the U.S. population ages, immigrants arriving to the United States—who are on average younger than the native-born population and who have a higher propensity to be in the workforce—directly support the growing ranks of Social Security beneficiaries.

Demographics of the Immigrant Population

Immigration strengthens the solvency of the Social Security system by boosting the number of new workers without immediately adding more new beneficiaries. In 2016, nearly 81 percent of immigrants to the United States were between ages 15 and 64, and most of them will be working and paying into the Social Security system. In 2016, those between ages 25 and 34 comprised nearly one-quarter of all new lawful permanent residents. The demographic composition of the immigrant population may have a significant impact on the working-age population. As Figure 5 shows, projections indicate that immigrants will provide a small but important boost to this population as their numbers grow from 33.9 million in 2015 to 38.5 million in 2035.​

https://bipartisanpolicy.org/downlo...ions-Effect-on-the-Social-Security-System.pdf

Unfortunately under the current anti-immigrant climate it's unlikely that increasing immigration will even be considered although in addition to helping address to problem of social security it solvency it would benefit the US economy in other respects.

 

Nothing like screwing those who want to become citizens by redistributing what they earn to older generations…

 

And when they become eligible for benefits those benefits at least in part will be paid by a younger generation.

 

Yeah. We will redistribute what you earn and give you less so we can help keep the older generations happy because we already redistributed what they paid in…