August 27, 2017

Social Security: How Worried Are You About Its Future?




According to official figures, 53% of married couples and 74% of unmarried Americans count on Social Security for at least half of their retirement income. Almost half of those unmarried persons rely on Social Security for virtually all of their income. In real numbers that means probably living on less than $1,300 a month. 

Enough has been written about the problems facing Social Security and the dwindling funds meant to support it. Demographic factors, government's use of the money intended for Social Security for other purposes, and the politics of it all could spell a shaky future ahead for something that virtually all older Americans receive. Various dates have been published, but most predict there will not be enough money to pay full benefits beginning in the next 12-17 years.

Small Cost-of living adjustments were made this year, but disappeared for most because of an increase in Medicare Part B costs that matched the increase (strange how that happens). Full Retirement age also started moving upwards this year. For those born in 1955, 66 years and 2 months becomes the new age to reap 100% of expected monthly payments.

The effect will be small but produce an unexpected consequence: choosing to receive checks at 62 will actually mean taking benefits that are reduced even further than one might expect because of those pesky 2 months. And, that reduction will continue for the rest of one's life. The full retirement age will continue to increase by 2 months for those born in subsequent years until it reaches 67 for those born after 1959.

I don't want this post to become political finger-pointing. There are enough reasons and blame for Social Security's problems to go around. Since the problems became obvious to anyone paying attention, both parties, Congress and presidents have kicked the can down the road. In about a decade there is going to be no more road.

The questions I'd like you to consider are: how worried are you that your benefits are going to be cut? How will that affect you? Do you think your children or grandchildren will face a future without Social Security? 

What may be the solutions: Full retirement becomes 70, reduced payments are made to those who have substantial portfolios, the payroll tax increases, it becomes illegal to tap the Trust Fund for other uses?

For blog readers in other countries, what does your government do with the idea of retirement checks? Is your system in good shape, or are you just as concerned as many Americans?

This could become a fascinating sharing experience for us all. I doubt we will solve the problems, but we may learn something along the way that helps us plan our future.


38 comments:

  1. Yes, I believe SS benefits will eventually be either frozen, cut, or means-tested. However, it won't affect us retirees directly. Any significant change to existing recipients would be a political non-starter (we vote!), but a gradual phase-in would be palatable, particularly if it were combined with a shift of some portion of SS withholding to personal control, as corporate pensions gave way to 401(k)'s. My three children, all in their late twenties, have little expectation that they'll receive much, so the psychology has already begun to shift.

    ReplyDelete
    Replies
    1. The general consensus is that those of us receiving checks now will be unaffected. However, if the funds start to run low as projected in the next dozen years, there could be a direct impact on us, with reduced payments.

      I agree with your overall premise: it is those behind us that probably will not see the same Social Security that mom and dad enjoy.

      Delete
  2. This reminds me of a recent characterization of what the U. S. government is: a giant insurance company with an army. But seriously, I agree with Lydgate ... a slow and mostly out-of-sight reduction in benefits that will probably not affect us but will require our children and grandchildren to rethink their senior years.

    ReplyDelete
    Replies
    1. Death by a thousand cuts comes to mind: a slow whittling of the program. The problems I see are too systemic to be fixed with playing around the edges, I fear.

      Delete
  3. Since you asked about other countries, here in Canada the short answer is: The Canada Pension Plan (the equivalent of US Social Security) is in great shape.

    The government recognized a funding problem in the early 1990s and substantially raised the contribution rate moving from 3.6% of pensionable earnings in 1996 to 9.9% by 2003. These days the Canada Pension Plan (CPP) has been found to be actuarially sound for the next 75 years, which is a far as actuaries are allowed to forecast. The CPP is also at "arms length" from the government so it's reasonably secure from tinkering by the government of the day. Normal retirement age is 65 though you can take your pension as early as 60 and as late as age 70 with corresponding reductions or increases in the monthly pension amount.


    We have a second program called Old Age Security (OAS) which is based on length of residence in Canada after age 18, it takes 40 years residence to get full amount. This is a non-contributory plan and is funded from general revenues. Everyone gets this whether you worked and contributed or not. It is however income tested and if an individual has income in retirement that exceeds about $74,000 a year 15% of the benefit is "clawed back" for each additional dollar, the benefit disappears entirely when your income in retirement exceeds about $120,000 a year. To me the income seems high enough that you'd think it wouldn't bother those that are subject to it (and I am not) but it is contentious for many and for sure no one likes having money "clawed back" by the government. OAS can be taken at age 65 or delayed as long as age 70 for a higher monthly pension amount.

    As the OAS is funded from general revenues this is subject to the actions of the government of the day. The previous government had a plan in place to slowly raise minimum age to collect from 65 to 67 but after the last election the new government cancelled that plan and the age will remain at 65. Who knows what a future government may do?

    For those that have very little in retirement income (i.e. in poverty) there is another program called the Guaranteed Income Supplement (GIS) which will raise your retirement income to just above the poverty line. This keeps seniors out of abject poverty, life will still be difficult but livable. The GIS is tied to OAS so you have to be collecting OAS to be eligible for GIS. This was the main argument against raising the age to 67, that those who had worked in difficult jobs at low wages would have to continue working for an additional 2 years. Whether this is desirable or not is a political question.

    In terms of benefits my understanding is that US Social Security is more generous to higher income groups than the Canadian system (maximum pensionable earnings under the Canada Pension Plan for 2017 is $55,300) but, for better or worse, the Canadian system is more generous to lower income groups.

    I feel as if I've over answered your question but it's a multi-part system in Canada and it all meshes together in the end. Hope this helps.

    ReplyDelete
    Replies
    1. You have answered perfectly by describing a well thought out system that considers real people and real needs. The more I learn about Canada the more I believe your country has elements of governance and social responsibility worth emulating.

      If you start from the basic conclusion that all human life is worth protecting and maximizing potentials, your country has come up with a system for both older folks' financial stability and health care as a right, not a privilege for the few.

      Thank you very much for taking the time to type such a helpful response.

      Delete
    2. I have never had such a great understanding of the Canadian system, and have always wondered.. thank you for this. Can i move now????????

      Delete
    3. ddavidson has provided a very clear and accurate description of our Canadian system. I wanted to add that in addition, when a person passes away, the CPP can be paid to a beneficiary. In my case, my first husband passed away at a young age, and as his spouse, I receive a monthly survivor benefit. In addition, my children each received a dependent's benefit until they were 18, or until they were 25 if enrolled fulltime in post-secondary studies.
      These pensions made a huge difference to our quality of life as I raised my children as a single parent, and also helped ensure that my kids could attend university. I am grateful for our social network in Canada, and am happy to pay the higher contribution rates needed to fund the system, as well as our relatively high taxes.

      Jude

      Delete
  4. I refuse to believe that we will become a country of "survival of the fittest" and discard our senior citizens when they are no longer able to pay their own way! So, Social Security will be there but as you say it might be in a modified form. SS is really a matter of money in/out. Some say drastically cut benefits, others say increase taxes. One proposed solution is to raise SS taxes 0.1% per year until it is at 14.8% (currently 12.6%) and that along with ending the cap and minimal modifications will provide long term sustainability at current levels. If I had kids I would tell them to not judge the viability of SS by today's standards, empathy will eventually return to our way of doing the people's business in government.

    Eventually our government will return to something effective and can intellectually address this problem. SS is coming up on a hundred years old now and has served its purpose and will continue to do so once sane people are back in power.

    ReplyDelete
    Replies
    1. Your view of the future is surprisingly optimistic, RJ !!! One thing I think is a fact: I will not still be around when empathy returns to our government. Somewhere along the way our society lost the ability to think as a collective "we." Now, the survival of the fittest in both business and personal life, is the driving force. In one sense you are right, RJ. Either the kill or be killed mindset changes or we lose what is America.

      Your "solution" of miniscule tax increases and cap changes to fund things is quite doable and very logical, but not in the political climate that has dominated us for several decades.

      Delete
    2. You are getting to be downright depressing Bob. :)

      Are we switching places? Satisfying Retirement sells gloom and doom and RJsCorner is the cheery optimistic one? Never dreamed it would happen that way... ha..

      The government will have empathy when those who elect them have empathy. It is as simple as that.

      Delete
    3. I will keep the flame of hope burning, RJ.

      Delete
    4. It'll be a cold day in hell before our govt has empathy and it's precisely as RJ said..."when those that elect them have empathy" and I dont see much of that in this current administration and more so in the folks that elected him.

      Delete
  5. I will be very dependent on SS if something happens to my husband. It will be more than 1/2 of my income--more like 3/4. My house is totally paid off and I currently live in a very low tax state (that can change on the whim of legislators). If you read your printouts- it stated in 2012, "By 2036 payroll taxes collected will be enough to pay on about 77 % of scheduled payments." The current people have to accept that the next generation will not pay for something they will get little out of. This is the view of people I know who are in their 30's and saving like crazy for their retirement. They want out of SS entirely! Raising their taxes on their stalled income will be rejected (and this group does vote). So, yes, I am concerned.
    I don't know what to do since nothing will be done for the next few years with the resist movement and the voting of the "greatest generation" on the other side. Maybe in four years we will get a mandate???
    I did not know that Canada had a citizenship cap on part of their retirement...that makes sense. I like their ideas with a minimum living amount. Of course they only have 36 million on the books and we have 323 million on the books with another 11 million off the books. Messy, very messy (my daughter says that all of the time).

    ReplyDelete
    Replies
    1. Canada has a much smaller population which makes what they can accomplish even more impressive. They also spend their tax revenues very differently than we do: the country is ranked 74th in the world in terms of military expenditures, for example. You can do a lot for your citizens if you don't spend more on military than the next 8 countries combined while constantly looking to increase the military budget by playing the fear card.

      I am pretty sure my daughters will see squat from SS or whatever takes its place.

      Delete
    2. I would have no problem not being the policemen of the world- For Sure! After 20 years of being a military wife and now 13 of being a military Mom, I would love it if we went the way of Canada and defended our own (although Canadians were excellent with my son's cohort in Afghanistan. He could always count on them and the Aussies to pull though when needed). I love their immigration policy as well. Their minister was just on BBS at a talk and said their immigrants had a much higher educational level then their population- their screening is amazing! I agree, Canadians are great about controlling what they have and who they give it to. We could learn tons from the people to our north!

      Delete
  6. I really enjoy two of your blog subjects more than the others -- travel and finance. Today is financial. I have nothing to add but I LEARN from others who respond to your posts. I expect that there will be changes ahead, but as more people age the only way our government agents in both houses who want to be re elected will make sure it stays in place.

    ReplyDelete
    Replies
    1. For my kids and grandkids' sakes, I hope you are right, Jack.

      Delete
  7. I tend to think that WE will be fine. That said, I plan to have "the conversaton" with my 37 year old daughter and son in law at Christmas. They've had to adjust their finances in order to change careers midlife (he better now than later when ageism enters), but the end result is that I'm sure they arent getting any 401 offerings from current employers and it's time to look seriously and committing money in that area.

    ReplyDelete
    Replies
    1. Without question, those younger that the current crop of retired and sopon-to-retired people are going to be largely on their own to fund their retirement. I have a post coming up in a few weeks about the increasing percentage of 65+ folks who are working...it is now up to 1/5 of us. That number will continue to increase, bringing into question the whole concept of retirement, at least how we define it today.

      Delete
    2. I will be looking forward to that one. But I need to say that the three retiees I know who work dont do it for the money, so I am not sure how you quantify it. One used to joke all thrugh her career than we people asked her what she would do after retirement, she said "walmart greeter", lol.

      Delete
  8. I feel Ken and I will be ok but it's the next generations I feel sorry for, I htink it will be a different picture..and I can't imagine WHAT is coming,given the state of olitics and my country right now. Luckily, and by planning, our son is part of the Az. State Retirement system.A true blessing.He's wokred at MCC for over 20 years and can retire by age 50 if he wants to with a health pension--Of course he can keep wokring too and make even more.. but the enforced savings and the employer contribution make that pension system quite a prize. Hindsight is 20/20: I wish I had wokred as a nurse at Maricopa County hospital and gotten into that system.. I am too much of a free spirit to have stayed in any place that long though..and I was also managing Ken's chiro office while wokring part time as a Nurse over the years. A good trend I see if various authors and speakers encouraging young poeple to SAVE to not get into credit card debt, to buy homes that are within their means,etc.. this may go a long way towards a safety net as they age.. it sure worked for me and Ken... Thoughtful blog post. Sooooooo sorry we miss ed cards.. but SEE YOU IN SEPTEMBER!!!!!

    ReplyDelete
    Replies
    1. I certainly wish the very best for Andrew and all those in his situation. He is in better shape that a whole bunch of people.

      That said, and maybe I am being overly pessimistic, but a state run pension is in just as much long term danger as any company or organization's pension plan. The promise to pay is only as good as the cash flow to support it. Governments are not doing well in this regard. He is smart to plan and control his financial life.

      I learned rather early in my working life I don't play as well with others as I do myself, so forming my own company was the best path forward for me. I wasn't made to thrive in a corporate setting.

      See you in September was a big hit by the group, The Happenings, and our plan with you guys for card day!

      Delete
    2. Cringing at my typos.I have GOT to get better at spell checking,I am a terrible typist. Somehow Az. State Retirement has been healthy for a long time,can just hope that continues.. Andrew is set on retiring OUT of the country! Cozumel and a few other beach front places appeal to him. Me and Ken will just parch here in Az.!! ANd travel to cooler climes as needed. I knew you would get the music reference!!!!

      Delete
    3. Relax about the typos. You should see my struggles to type a comment response on my cell phone. Literally every other word is wrong until Google helps me correct them.

      Delete
  9. My wife turned 50 earlier this year. I am still a couple of years away from that milestone. In my retirement forecasts, I predict SS at 65% of what the SS site currently calculates. I don't know if that is a good number or not, but that is what I settled on. My belief is that it will pay something. I think they currently forecast around 75-77 cents on the dollar. I bumped it down a bit in my calculations to be conservative. I just don't see how it could go away completely. I guess it could, but there would be so many people that would be so completely destitute without it, that I think it will remain at least partially.
    In my calculations I also don't give myself an annual COLA. I read where one of the solutions thrown out for comments somewhere was to restrict or eliminate annual COLA's for the better off. What is the definition of better off? I have no idea and again to be conservative in my calculations I just assume I am. So basically I am assuming I will get 65% of what the SS website says I will get and then that amount will never increase. So with inflation eating away, by the time I am 97 (if I am so lucky) the "real" value of my monthly SS benefit would be reduced to between 1/4 and 1/3 of the amount I started with at 67.
    With 19 years to go before I collect - 17 for DW - I don't know if I am being optimistic, realistic, or pessimistic with my plan, but I still believe there will be something there for all of us. Just maybe a bit less for the well off or for those in earlier generations.
    And I think that is better. Although I have no desire to get less, in all fairness it is better for those of us still working to get hit than for those of you who are already in retirement. It is just not fair at all to pull the rug out from under folks who have been retired for sometime. That just wouldn't be right at all. From my point of view, find some way to work down the age ladder. Don't touch for folks already getting it, touch a bit for those who are close, and touch a bit more for those who are farther away. Just put together a plan, and then let folks know what they have to plan for so they can make their decisions during their working careers.
    Tim

    ReplyDelete
    Replies
    1. I think your analysis is right on the money (pun intended!), There is little likelihood that those already getting SS checks would ever see them stop. Cuts in the amount? Even that is playing with tremendous political fire. But, a slow increase in the retirement age (already to 67 and maybe up to 70) makes sense, as does an elimination of the income tax cap to help keep the program funded. Your projection of a reduction in benefits to something in the 65-70% range for younger folks is probably about right.

      Of course, it would really help if the government didn't feel it was OK to raid the trust fund for other uses but that will take quite a bipartisan effort to change the law.

      The one thing that would not be fair is to force everyone to pay SS taxes but then give none of that back if someone is too successful. But to reduce the amount one could receive over time based on need...that works for me.

      A very thorough analysis, Tim. Thank you for taking the time to add your thoughts.

      Delete
    2. Bob - I love your blog...Very thought provoking.

      SS need to move to age 70 for normal retirement. When SS started the average life span was about 64...Need to move the date out to reflect longer life spans to keep the system solvent. Maybe also increase the rate of 6.2% contribution to 6.5% and also move to get all of the "cash business" and "off the books business" into payroll tax collections. Removing the caps does not help as it then increases future payouts for those that would contribute more into the system. No one would stand for no change in benefits for increasing contributions.

      Delete
  10. I have no worries about Social Security. It'll be around for all my life and for my husband as well. As for my offspring, I think I've wasted enough of my lifetime worrying about them and their future. Since they know they will be getting no inheritance, how they choose to life their lives and prepare for the future is totally up to them.
    Even though hubby and me are collecting SS, pension & Medicare, we still work part time jobs sporadically to bring in more income. Most retiree friends we know all do side work for that fun cash. Fact of life.
    I'm certain this blog must bring you in some extra money, as well as your booksales, speaking engagements or other published article sales.......correct?

    ReplyDelete
    Replies
    1. Income from this blog and book sales is probably less than $600 a year. That's not even enough to pay the fees for the pictures I use on each post. So, no, this blog isn't helping my retirement lifestyle. I do it because I like to write and interact with others.

      I agree that my SS payments are solid for my lifetime. I do worry about my kids and grandkids financial future, but if they know the "rules" going in, they will take the appropriate steps.

      Delete
    2. Bob, I hope the rather unpleasant tone of the reply above regarding 'payback' for your blog does not diminish your efforts going forward. Those of us who know and follow you are deeply appreciative of all that you do without any expectation of renumeration. And for which I extend a sincere 'Thank you!'

      Delete
    3. Thanks for your comment, Tamara. No worries. Yes, the comment was confrontational, but it has no effect on my future in blogging.

      Actually, I imagine others wonder if this blog makes money. The comment allowed me to answer the question that others are may be too polite to ask.

      Delete
  11. Hi Bob! Provocative post for sure! My husband and I are not yet retired. I will be one of those who has to wait the extra 2 months to get mine at 65, but as two self employed people our entire lives, we have never counted on it as our sole retirement income. Shoot...we don't actually ever intend to fully retire because we are fortunate to love our work and have the ability to continue it for as long as we can. But with that said, I have read repeatedly that just raising the cap on SS for those making over a certain amount would solve the majority of the problem for the forseeable future. And yes, my husband and I would then have to pay extra into SS (and like I said we are self-employed so we don't have an employer matching our funds) and would do so if it was required because we believe that SS is important for older people or those with disabilities--especially those who are in the lower income brackets and really need the money. But unless public opinion and our representatives in government care more about the good of all citizens (not just those who have money) then it won't happen. ~Kathy

    ReplyDelete
    Replies
    1. If Washington bothered asking the important questions and really listening to the answers, I believe the majority of well-off people would have no problem increasing the SS wage cap to help keep the program funded. After all, they are likely to have children and eventually grandchildren who would benefit from a Social Security system that functioned.

      The average person drawing Social Security receives back more than he is taxed, while the top end earners do not. But, we need to remember that SS was never intended to be a system of forced savings that operates like an investment. All workers and employers contribute to the
      "social security" of retirees, as well as the disabled, young children, and widows of workers. That model is under serious stress today due to demographic changes, working patterns, longevity, and bungling by politicians.

      Delete
  12. Of course I worry about SS. But I have spent too much time in my life worrying about what might be, which just sapped the energy I needed to deal with what actually happened.

    Bottom line? Speculation about possibilities re SS might make me feel more in control, but it is just that, speculation. Continuing to live frugally, living on less than our retirement income, and being AARP members, so we have a voice in the political process, are things that we can do now that might make a difference no matter what ultimately happens to SS.

    We will deal with changes when and as they happen.

    ReplyDelete
    Replies
    1. Since worry is about 90% wasted energy, you have made an important point. Worrying about SS doesn't help; planning for what might happen does.

      Delete
  13. I don't worry a lot about Social Security. My understanding of the worst-case scenario is that the government will only be able to fund 75% of current benefits, and I've taken that possibility into account in planning for retirement. One of my reasons for waiting until 70 to start collecting is that 75% of a larger benefit will be a larger benefit. I agree with the point made by others that it is those who are in their forties and fifties who have more to worry about.
    Social Security is already somewhat means-tested in that it is taxed for those with higher incomes. I hope that our country won't go to greater means testing as a way out of current problems. There is strong evidence that universal programs enjoy wide public support while means-tested programs are stigmatized (witness, for example, the popularity of Medicare vs. the unpopularity of Medicaid). I believe that making Social Security a means-tested program would doom it. -Jean

    ReplyDelete
    Replies
    1. That is an interesting point about means testing, Jean. You are right: Medicare is very popular while Medicaid is seen as a last resort.

      Those of us receiving SS and everyone within a decade or so is probably going to be OK. But, as you and many others have noted, the program will probably be unrecognizable when those in their 40's reach retirement age, whatever it is by then.

      Delete

Inappropriate comments will be deleted