I am too close to retirement to be an objective observer of the debate about what will become of Social Security and how to fix our existing problems. I do know the current regime cannot possibly last more than 10 or 15 years without significantly disrupting the lives of our children and grandchildren. I also know that when I look at the benefits we allegedly will receive, they are a very significant part of an enjoyable, secure retirement. So, what do I do? Assume nothing will change and take my benefits at age 70 which, based on the current numbers, clearly is the way to go? Or assume 10 or 15 years from now there will be significant changes and benefits will be capped and/or reduced, and I should just take Social Security now and be done with it? There are, in fact, relatively easy fixes -- except that each fix affects some group differently than others. Eliminate the cap on earnings subject to the tax? That's an increase of 16% in those workers' marginal tax rates (someone pays the employer portion and it's usually the worker), which is huge. For many, taking their combined federal, FICA, and state tax rate to 50% to 66% of everything they earn above the current maximum. And the way benefits are currently calculated (payments are heavily weighted to the first dollars of income to be replaced and there is a maximum benefit that can be paid no matter how much one pays in taxes when working), they would not receive a dime more in Social Security benefits when they retire. Move back the age at which one can begin to claim benefits to 67 and the full retirement age to 70? Makes perfect sense from a work force perspective, as we have too many people dropping out of the work force too young, expecting someone else will work and pay taxes to fund their retirement. Good luck getting that passed, as too many people want very much to believe they can drop out of the work force at 62 or 65 and have someone else pay for their life thereafter. Slow down the growth in benefits to the growth in wages instead of the CPI? That would be a big help. But look how much pressure Congress was under from the left wing of the Democratic Party to add a "supplemental" increase to Social Security when the CPI was low enough that benefits didn't increase. Clearly, something needs to be done, and I am expecting Social Security will morph into the welfare program for the elderly it always was intended to be. Not the middle-class pension plan that people wrongly assume it is and should be.
My issue is what John D identifies; the probability the federal and state governments will be so desperate for cash -- given all the unfunded commitments they are building up (which includes Social Security and Medicare, BTW) -- they will cut or eliminate Social Security benefits for those who can live without them. Without that, I'd happily wait until age 70. We have enough cash to live on until then, I am likely to live longer than the break-even date, and I agree with the guaranteed annuity income school of thought. As far as it goes. But my decision when to claim is very much influenced by when I think the government will directly or indirectly start to take more money away from us to pay the massive bills that will be coming due. Something will change in the next 10, certainly 20, years that will negatively affect retirees who have saved and invested their money the way we are supposed to. Whether higher taxes on retirement distributions or income generally, changes in how Roth accounts are taxed for the so-called wealthy (why do people foolishly keep thinking Congress wouldn't change those rules too?), reductions in the maximum benefit for SS, increases in Medicare premiums, there are hundreds of ways to hide a reduction in what the government has "promised" to people my age. What I haven't seen is an analysis of different scenarios in which benefits would be reduced and eliminated and given that, whether it still makes sense to wait until 70. Or just take the cash now.
My head is spinning and will no doubt continue to spin until I spend some money and hire someone to tell me what my wife and I (turning 66 this year but both still working) need to do once we retire. Presumably within the next year. We get healthcare through my firm but since I'm self-employed we pay about $20,000 per year for the two of us. It had been as high as $35,000 a year with my previous firm (older population) and family coverage. Plus significant deductibles ($4000 and $10,000 as I recall for the family plan). And this is in Massachusetts, which is supposed to have such a great system. I don't foresee paying less in retirement frankly. And honestly, this whole debate about what health care "costs" if one retires early is absurd. It costs at least what I am paying now to insure a retired person. The only question is who pays. Most of the comments here as far as I can see it are aimed at explaining how to get quality healthcare subsidized by someone else. At least one commenter correctly noted that his $22 a month premium is really more like $1000 paid by someone else. Retiring early can have a lot of lifestyle benefits. But really, why should someone else subsidize anyone to retire early?
Comments
I am too close to retirement to be an objective observer of the debate about what will become of Social Security and how to fix our existing problems. I do know the current regime cannot possibly last more than 10 or 15 years without significantly disrupting the lives of our children and grandchildren. I also know that when I look at the benefits we allegedly will receive, they are a very significant part of an enjoyable, secure retirement. So, what do I do? Assume nothing will change and take my benefits at age 70 which, based on the current numbers, clearly is the way to go? Or assume 10 or 15 years from now there will be significant changes and benefits will be capped and/or reduced, and I should just take Social Security now and be done with it? There are, in fact, relatively easy fixes -- except that each fix affects some group differently than others. Eliminate the cap on earnings subject to the tax? That's an increase of 16% in those workers' marginal tax rates (someone pays the employer portion and it's usually the worker), which is huge. For many, taking their combined federal, FICA, and state tax rate to 50% to 66% of everything they earn above the current maximum. And the way benefits are currently calculated (payments are heavily weighted to the first dollars of income to be replaced and there is a maximum benefit that can be paid no matter how much one pays in taxes when working), they would not receive a dime more in Social Security benefits when they retire. Move back the age at which one can begin to claim benefits to 67 and the full retirement age to 70? Makes perfect sense from a work force perspective, as we have too many people dropping out of the work force too young, expecting someone else will work and pay taxes to fund their retirement. Good luck getting that passed, as too many people want very much to believe they can drop out of the work force at 62 or 65 and have someone else pay for their life thereafter. Slow down the growth in benefits to the growth in wages instead of the CPI? That would be a big help. But look how much pressure Congress was under from the left wing of the Democratic Party to add a "supplemental" increase to Social Security when the CPI was low enough that benefits didn't increase. Clearly, something needs to be done, and I am expecting Social Security will morph into the welfare program for the elderly it always was intended to be. Not the middle-class pension plan that people wrongly assume it is and should be.
Post: Late Shift
Link to comment from December 12, 2022
My issue is what John D identifies; the probability the federal and state governments will be so desperate for cash -- given all the unfunded commitments they are building up (which includes Social Security and Medicare, BTW) -- they will cut or eliminate Social Security benefits for those who can live without them. Without that, I'd happily wait until age 70. We have enough cash to live on until then, I am likely to live longer than the break-even date, and I agree with the guaranteed annuity income school of thought. As far as it goes. But my decision when to claim is very much influenced by when I think the government will directly or indirectly start to take more money away from us to pay the massive bills that will be coming due. Something will change in the next 10, certainly 20, years that will negatively affect retirees who have saved and invested their money the way we are supposed to. Whether higher taxes on retirement distributions or income generally, changes in how Roth accounts are taxed for the so-called wealthy (why do people foolishly keep thinking Congress wouldn't change those rules too?), reductions in the maximum benefit for SS, increases in Medicare premiums, there are hundreds of ways to hide a reduction in what the government has "promised" to people my age. What I haven't seen is an analysis of different scenarios in which benefits would be reduced and eliminated and given that, whether it still makes sense to wait until 70. Or just take the cash now.
Post: Eyeing the Cake
Link to comment from August 15, 2022
My head is spinning and will no doubt continue to spin until I spend some money and hire someone to tell me what my wife and I (turning 66 this year but both still working) need to do once we retire. Presumably within the next year. We get healthcare through my firm but since I'm self-employed we pay about $20,000 per year for the two of us. It had been as high as $35,000 a year with my previous firm (older population) and family coverage. Plus significant deductibles ($4000 and $10,000 as I recall for the family plan). And this is in Massachusetts, which is supposed to have such a great system. I don't foresee paying less in retirement frankly. And honestly, this whole debate about what health care "costs" if one retires early is absurd. It costs at least what I am paying now to insure a retired person. The only question is who pays. Most of the comments here as far as I can see it are aimed at explaining how to get quality healthcare subsidized by someone else. At least one commenter correctly noted that his $22 a month premium is really more like $1000 paid by someone else. Retiring early can have a lot of lifestyle benefits. But really, why should someone else subsidize anyone to retire early?
Post: Affordable Care?
Link to comment from April 6, 2022