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On my blog today I have a piece on a radical and very disturbing proposal from the CBO to change Social Security. The story originally appeared on MarketWatch.
There is a tinge of politics, so I am not posting it directly, but if Social Security is a concern, you might want to take a look on Quinnscommentary.net
The link goes directly to the article
We’re approaching a fork in the road with Social Security, and like it or not, we’ll have to choose from one—or more likely, a combination—of the following:
Given the country’s current mood for tearing down the institutions that built the middle class our parents and grandparents relied on, I suspect we’re heading toward a mix of:
The last things you want are using general revenue, means testing, private accounts. None of that is necessary. There is nothing wrong with the system as it is.
We just need to recognize that demographic changes require adjustment of funding, that is taxes, and it should be automatic each year just like the COLA. No action by Congress required. Just follow actuary funding needs.
If such a proposal were actually implemented, there would be a veritable tidal wave of so-called “grey” divorce. Marriage would become a $1,000+ per month luxury that a large majority of retirees could not afford. I’m sure there would be a host of other (unintended, at least I hope unintended!) consequences as well.
Although this proposal is scary, only something drastic will save SS.
Nope, not the case. As I have said before, a combinations of relatively modest changes can still extend solvency at least 75 years and then make regular minor adjustments.
Eliminate the wage cap on SS wages?
That does not come close to solving the problem. Raising the wage cap or eliminating it requires also giving some credit for those taxed earnings albeit at a lower bend point than current percentage. Otherwise, the entire program is distorted into pure welfare giving higher income earners cause to erode political support.
The tax rate, the allocation of taxes between worker and employer, the non-cash pay that is not taxed, the exclusion of some state workers from the system and the application of the COLA all need modification.
Is this a manipulation tactic on the part of those presenting this idea? This type of tactic involves presenting an extremely undesirable option first to make a moderately bad option seem acceptable by comparison.
Mr Q by republishing this idea are you unknowingly advancing their tactic to more eyes?
I knowingly want to have people see what is possible. This brainstorming is coming from the Congressional Budget Office, not an obscure lobbying group. The closer we get to the possibility of reduced benefits, the more radical ideas will become and possibly “justified” by the forced crisis.
People should be scared.
As we have discussed, all this is unnecessary and caused by ignoring the problem for decades. Talk about poor retirement and financial planning😡
Suggestions such as what is presented in that article serve only to scare people, but don’t seem to cause any real change. It seems that if there was some well-organized and concerted effort, either by our political representatives or a grassroots effort, that “fixing” social security might become closer to reality. Are you aware of any politicians or organizations leading the charge to making changes to social security so that benefit reductions are not implemented?
There is AARP and SS Works.
They problem is they tend not to be realistic always wanting more, but not wanting to pay for it.
Thanks.
Of more immediate interest, I got an email this morning purporting to be from the Social Security Administration stating that in future SS statements would only be available online. Assuming this isn’t a scam (I did not click on the included link), this will be a problem for the many people who aren’t online (yes, as I have discovered since moving to a retirement community, they do exist).
It’s not a scam.
I’m pretty sure that’s valid. I’ve seen it before.
It probably is, but it’s still a bad idea. People should have to opt out of paper statements, not have them cut off like this. People who don’t have email won’t even know.
On a related note, here is another news item I came across
Big Changes Are Coming for Social Security Online Users
“The Social Security Administration is moving into the 21st century with new advances in technology. In the near future, your Social Security access is going digital (although your physical card is still perfectly fine to use).”
https://clark.com/personal-finance-credit/investing-retirement/digital-access-social-security-cards/?_bhlid=5de39c2a90746537977f4397f9695a23dae9a865
I got another email today, requiring me to switch to id.me or login.gov. Not happy, when I tried to set up login.gov a while back I ran into a Catch22 with my middle name.
This is really going to mess things up for older seniors.
Hopefully relatives can help those individuals.
You know, some people don’t have relatives, or at least not close ones. And since this was sent by email, you would need email to know about it. There’s a phenomenon called “solo-aging”, which is becoming more common.
Writing this reminds me to contact the staff at my CCRC so they can help the residents who don’t use email.
The CBO presents different researched options usually to reflect the different ideas being presented by the 2 parties. My read of the editorial piece from MarketWatch is that this research could well be to squash the ideas being presented by the far left as I suspect 80% of Americans would be against it.
Aside, in what universe would a GOP majority in Congress enact a proposal that’s akin to a giant step towards Marxism? Honestly don’t think this one could even get out of committee, might not even get an hour of discussion.
The libertarian right wing of the GOP has equally unpalatable ideas. I suspect an analysis of those ideas by the CBO would generate a report most HD readers would find equally unpalatable.
I believe you are right, but the thinking displayed in the report is scary and would be unthinkable not too long ago. It would be political suicide or should be.
Regardless, the road to fixing SS – which should have begun 20 years ago – should include permanent sustainability and improved benefits. The original Social Security 2100 bill from 2019 was a good starting point, but went nowhere.
Regardless of where anyone stands on the political spectrum, the reality is a strong SS program is essential economically from the individual to the national economy.
It would be nice if every person was responsible and could fend entirely for themselves, but that hasn’t happened in the history of the human race and never will.
That proposal would result in a 68% cut of our expected benefit (without the next 3 years of inflation adjustments) from delaying our claiming until 70
For an avowedly non -socialist country one thing that has always struck me is how high US SS rates are. If there is any such thing as a nanny state it’s there in those SS payouts.
Now I can see the arguments that those benefits are bought and paid for by past contributions but there are plenty of places where individuals pay earnings geared contributions to earn a flat state pension i.e. the CEO and the factory sweeper get the same state pension if they’ve contributed the same number of years.
Even then there is a perpetual spectre that means testing might be introduced on state pensions. Personally in a DC world I think that would be political suicide breaking the social contract over the one bit of retirement income that should be rock solid.
For the same reason I suspect any US proposals will be rather more hot air than execution. People might not undertand all their personal finances but they tend to understand when SS is slashed.
This doesn’t need to turn political if we only discuss strategies to deal with potential reductions in Social Security benefits.
The flat benefit suggested in the report would represent a reduction in our benefit of about 66%. That would have a profound effect on our finances. In order to replace that lost income, we would require a distribution rate of approximately 4.5 to 5% from IRAs. That rate is most likely not sustainable if we live past our 80s. While we don’t fit the definition of wealthy, our IRA balances are substantially higher than the results I see when using Google search. This leads me to think that many people would not fare as well as us. I also wonder what the effect on the economy would be if boomer’s buying power were reduced as discussed in the report.
Any cuts made to Social Security benefits for those who started their careers in the late seventies/early eighties would be on top of the effective cuts we were subject to after the passing of the Social Security Amendments of 1983, by delaying full retirement age up to 67. I could not find performing a Google search what the effective cut is for the two year delay, but if one receives an 8% increase for each year delayed that would result in a 16% cut from the benefit we would have had at retirement without the changes.
You are right it doesn’t here, but the proposal is purely ideologically based with no concern about the consequences.
Making SS sustainable is not that hard, even improving it. It takes modest effort with combined changes affecting employers, workers and at least some retirees.
As has been discussed here it is the most important, most secure form of retirement income and it needs to stay that way.
The idea proposed in the article is so out of touch with reality as to be scary and irresponsible.
And yet the congresses and administrations of both parties have sat on there hands and done nothing to address the social security funding short fall for decades. It seems to me the 1983 economic van we are riding in with the check engine light on can not be ignored for long.