Social Security increases payments to former govt employees.

[Tidewater]

Congress had bipartisan support for eliminating Windfall Elimination Provision and Government Pension Offset (WEP and GPO). Some local government employees were exempt from Social Security withholding (e.g. teachers, police officers, firefighters). Throughout their careers, the federal government did not withhold social security taxes, so they could invest in their own retirement systems. I would guess this was an incentive to go into highly valued, but less-rewarded fields. Of course, that means they are eligible for their bespoke retirement systems, but not for Social Security (because they did not pay into the SS system).
Now, with bipartisan support, the House and Senate have passed a bill eliminating WEP and GPO.

The Congressional budget office says that this change will cost the Social Security fund $196 billion over the next decade. The upshot (go to time hack 9:28 in the video) is that the the date of insolvency of the system (projected for 2035 before the change) is now going to happen in 2033. Erin asserts (without supporting documentation) that the Social Security system (if nothing is changed) will start paying out at 70% to 80% of the projected pay outs at that point.

Here is an AMAC article on it.
WEP and GPO: To Repeal or Not?
I endorse neither Erin or AMAC.

So, on one hand, this is a positive for those who did not contribute to Social Security throughout their working lives. They paid into separate retirement systems, but now this change is going to benefit them. On the other hand, the GPO change benefits elderly retired widows and widowers, so it is difficult to look at that population hard-heartedly, even if they or their spouses worked in non-SS eligible jobs.

I have just not heard a lot of chatter about this change. I post this here because (a) it is likely that some TF posters will be effected by these changes, and (b) everyone intending to take Social Security will be effected by the insolvency of the system whenever that date arrives.

 

[4Q Basket Case]

I'll be very surprised if SS payments are reduced for then-current recipients. The political implications for the President or anyone in Congress would be horrendous.

The underlying issue is that when SS was first implemented, the age for full benefits was about the general population's life expectancy. IOW, they didn't collect benefits all that long before they were in the dirt.

Today, SS benefits start in about the time we expect to have our best years. So they pay out a lot longer than they used to. And we've compounded that with two things: (1) there are benefits to survivors who didn't pay as much in as they collect after the larger beneficiary dies, and (2) there are benefits to surviving children who, in the vast majority of cases, have paid little or nothing in but collect until age 22.

The actuarial assumptions just weren't built with those increased outflows in mind.

When faced with the reality that receipts are less than payouts, there are several options:
1. Borrow the money until the Baby Boomers die out.
2. Increase SSI taxes
3. Defer the ages at which you can collect benefits, currently 62 for reduced benefits and 67 for full benefits.

The most prudent course would be a combination of #2 and #3.

I've gone into detail in other earlier posts, but the short version of what I think should happen is:
- Remove the cap on SSI withholding. Everybody pays on every dime of salary or wages.
- Establish a new reduced benefit age of 65 and a full-retirement age of 70.
- Phase in the new ages a month or two at a time. IOW, if you're 55 or older at the date of the new plan, you don't really have time to adjust your retirement finances properly, so there's no change for you.

If you're 54, you become eligible for reduced benefits at 62 years, 2 months, and full benefits at 67 years, 2 months. If you're 53, it's 62 years, 4 months and 67 years 4 months. And so on until if you're 44 or younger, the age for reduced benefits is 65 and full benefits is 70.

We've actually done this once before, I think in the mid to late 1980s.

 

[Tidewater]

I'll be very surprised if SS payments are reduced for then-current recipients. The political implications for the President or anyone in Congress would be horrendous.

I'm sure they will, Erin was just pointing out that if nothing changes, and the trust fund becomes insolvent, then they will have to reduce pay-outs. I agree that they will likely do something before then.

And I agree with your policy prescriptions, especially planks 2 and 3.

 

[TIDE-HSV]

I'll be very surprised if SS payments are reduced for then-current recipients. The political implications for the President or anyone in Congress would be horrendous.

The underlying issue is that when SS was first implemented, the age for full benefits was about the general population's life expectancy. IOW, they didn't collect benefits all that long before they were in the dirt.

Today, SS benefits start in about the time we expect to have our best years. So they pay out a lot longer than they used to. And we've compounded that with two things: (1) there are benefits to survivors who didn't pay as much in as they collect after the larger beneficiary dies, and (2) there are benefits to surviving children who, in the vast majority of cases, have paid little or nothing in but collect until age 22.

The actuarial assumptions just weren't built with those increased outflows in mind.

When faced with the reality that receipts are less than payouts, there are several options:
1. Borrow the money until the Baby Boomers die out.
2. Increase SSI taxes
3. Defer the ages at which you can collect benefits, currently 62 for reduced benefits and 67 for full benefits.

The most prudent course would be a combination of #2 and #3.

I've gone into detail in other earlier posts, but the short version of what I think should happen is:
- Remove the cap on SSI withholding. Everybody pays on every dime of salary or wages.
- Establish a new reduced benefit age of 65 and a full-retirement age of 70.
- Phase in the new ages a month or two at a time. IOW, if you're 55 or older at the date of the new plan, you don't really have time to adjust your retirement finances properly, so there's no change for you.

If you're 54, you become eligible for reduced benefits at 62 years, 2 months, and full benefits at 67 years, 2 months. If you're 53, it's 62 years, 4 months and 67 years 4 months. And so on until if you're 44 or younger, the age for reduced benefits is 65 and full benefits is 70.

We've actually done this once before, I think in the mid to late 1980s.

#s 2&3 - Of course, this would hurt me and, I'm sure you also, but it's necessary...

 

[jthomas666]

#s 2&3 - Of course, this would hurt me and, I'm sure you also, but it's necessary...

In general, I agree, but people who aren't working desk jobs might not be able to wait that long until retirement.

 

[Tidewater]

In general, I agree, but people who aren't working desk jobs might not be able to wait that long until retirement.

That is a good point.

 

[crimsonaudio]

In general, I agree, but people who aren't working desk jobs might not be able to wait that long until retirement.

I'm not planning on retiring, I love what I do and there's zero physical demand. But you make a great point - I know a few men in the trades that are already looking forward to retirement at 50 as the job is so physically demanding.

 

[TIDE-HSV]

I'm not planning on retiring, I love what I do and there's zero physical demand. But you make a great point - I know a few men in the trades that are already looking forward to retirement at 50 as the job is so physically demanding.

That is an excellent point. Few people could still work construction at those ages, President Carter notwithstanding...

 

[TIDE-HSV]

I'm not planning on retiring, I love what I do and there's zero physical demand. But you make a great point - I know a few men in the trades that are already looking forward to retirement at 50 as the job is so physically demanding.

In addition to my other reply, research has found that people age at vastly different rates, both physically and mentally...

 

[JDCrimson]

We should have advanced borrowed the liability owed to Baby Boomers in the form of a 50yr bond back when rates were near zero...

The top 1% is going to have to pay more income tax, apply FICA taxes to non-wage income for the 1% with no cap.

You cant just pull the rug out from underneath people who are living off of and paid into the system without having a riot on our hands. Also, a lot of pension and annuity programs imply the receipt of Social Security as a computation for benefits paid. There is a contagion effect in materially changing benefits.

 

[4Q Basket Case]

We should have advanced borrowed the liability owed to Baby Boomers in the form of a 50yr bond back when rates were near zero...

The top 1% is going to have to pay more income tax, apply FICA taxes to non-wage income for the 1% with no cap.

You cant just pull the rug out from underneath people who are living off of and paid into the system without having a riot on our hands. Also, a lot of pension and annuity programs imply the receipt of Social Security as a computation for benefits paid. There is a contagion effect in materially changing benefits.

You're right on all the bolded points. Which is why I've suggested a 10-year phase-in. Which is actually materially longer than that. For example, in my suggestion, the full change in retirement age doesn't kick in until the worker is 44 at the date of the new plan....26 years prior to that worker's new age at which they can receive full benefits. And it's a gradual ramp-up in the meantime.

There is no perfect solution, and I'd be seriously surprised if there could be different benefit ages for people in different jobs -- moreso because given the decline of life with one company, many (if not most) workers today are in different industries in the course of their working lives.

For example, how do you handle a guy who spent 20 years swinging a hammer and the last 20 selling construction supplies?

Plus, the significant majority of the highly physically demanding jobs we're talking about are done by men. So now you have a whole class of men who get to retire earlier than almost any woman? Good luck getting that through Congress.

But numbers are numbers, and are the most dispassionate concepts on earth. The current arithmetic just doesn't work, and I don't think there's enough of the 1% to put all this on them. Plus, that's a political pipe dream. The fix will be shared amongst all workers.

 

[Bazza]

Lot of good conversation here so thanks, guys!

I have a Social Security thread in this forum with a lot of info, but today just wanted to post a link to Clark Howard's latest article, in case it's of interest:

https://clark.com/personal-finance-...hlid=73a5f4b29f62a04e9c84c0d9918f5cab72dba526

 

[Bazza]

I'm 70 years old now and started collecting my retirement benefit at age 64.5. Felt like the right decision and I have no regrets. I still can't get over a monthly deposit showing up without me lifting a finger - other than all the years I did work and contribute to the system.

Going to be different for everyone.

My only "concern" is the cost of living increases won't keep up with the actual increases in cost of living. A lot of that though can be mitigated by how efficiently I live my life. I think I'm in pretty good shape, but we'll see.

 

[Padreruf]

I'm 70 years old now and started collecting my retirement benefit at age 65.5. Felt like the right decision and I have no regrets. I still can't get over a monthly deposit showing up without me lifting a finger - other than all the years I did work and contribute to the system.

Going to be different for everyone.

My only "concern" is the cost of living increases won't keep up with the actual increases in cost of living. A lot of that though can be mitigated by how efficiently I live my life. I think I'm in pretty good shape, but we'll see.

It is amazing...and it is "your/our" money they are giving back to us. The COLAs are not keeping up...but if you live frugally this merely serves to supplement our own retirement...

 

[Bamaro]

It is amazing...and it is "your/our" money they are giving back to us. The COLAs are not keeping up...but if you live frugally this merely serves to supplement our own retirement...

As I believe it should.

 

[Tidewater]

Okay, President Biden signed the bill eliminating WEP and GPO.
Biden signs Social Security measure to expand benefits for some retirees
I'm not opposed to this policy change per se, but it does make the insolvency date arrive two years earlier. This change is the kind of thing you may do if you are first addressing the insolvency issue (with something like the policy suggestions above).
Congress, once again, decides to do the easy "nice" thing first and never gets around to doing the hard "right" thing.

 

[Tidewater]

Here is another article warning of impending cuts to Social Security payments if Congress does not act in the next seven years.
Warren Buffett’s longtime Social Security warning is coming to fruition, with retirees facing an $18,000 annual cut
Most likely, Congress will kick this down the road, because voters reward them for doing so.
There will be much wailing and gnashing of teeth come 2032, however. I guarantee that the media will be filled with Social Security recipients saying, "Why have I never heard about cuts coming? How did this happen with nobody saying anything about it?"

 

[Huckleberry]

Here is another article warning of impending cuts to Social Security payments if Congress does not act in the next seven years.
Warren Buffett’s longtime Social Security warning is coming to fruition, with retirees facing an $18,000 annual cut
Most likely, Congress will kick this down the road, because voters reward them for doing so.
There will be much wailing and gnashing of teeth come 2032, however. I guarantee that the media will be filled with Social Security recipients saying, "Why have I never heard about cuts coming? How did this happen with nobody saying anything about it?"

Sounds like we need another $4.5 trillion in tax cuts.

 

[Tidewater]

Sounds like we need another $4.5 trillion in tax cuts.

I would have preferred $4.5. Trillion intax increases.

 

[dtgreg]

I would have preferred $4.5. Trillion intax increases.

You're about to get a minimum 15% across the board tax increase.