FREE NEWSLETTER
Go to main Forum page »
The status of the Social Security and Medicare trusts is well known. I’m not going to rehash it here. Unfortunately, the amount of misinformation and false information about SS on social media is incredible and scary.
No serious effort at necessary reform has occurred since 1983 and certainly not now which is sad given fixing SS is not that hard or necessarily that painful.
One key question is how, if at all, should changes be allocated between current workers and current retirees.
How concerned are you?
What are your friends saying about the issue?
I’m not concerned; I’m terrified. Telling seniors to work longer is not the answer unless you also address the age discrimination that throws so many into retirement before they are ready.
If there’s a crash of the system, or a “Great Tightening,” it will come late enough in my life that I don’t have to care.* I’m not proud of having that attitude, but there it is.
If I were younger I probably would be planning for a future in which the system pays less. That would also require making informed guesses on how much less is likely.
*This is based on the assumptions that the “trust fund” runs out when current estimates indicate, and that lawmakers don’t do a thing before then to avoid it.
Why the large number of net negatives to my limited COLA idea?
People earning $176,100 plus and earning the maximum for many years before retirement are not able to save enough to offset inflation?
What am I missing? 😱
Any proposed reduction in SS benefits triggers a lot of negativity.
Sounds like a good idea except that it would add complexity and incentivize people to earn just enough so as to not have their COLA limited.
You’re not missing a beat. You have my vote.
People were told there would be a COLA and planned accordingly. As far as I am concerned all pensions, government and otherwise, should have COLAs.
Only talking prospectively with several years notice as with other changes.
The answer is simple… increase the earnings cap.
Removing the cap entirely only close 60% of the 75 year funding gap.
The rest can come from increasing employer/employee payroll contributions by 1%. Let everyone have some skin in the game, for once.
No Social Security contribution increases in over 40 years. Ridiculous!
60% solution seems to be a great start.
I think a method to use to keep people working longer is for the federal government to offer a $2000 tax credit against federal income taxes for anyone working full time past their 65th year. Some states with low unemployment rates could offer a similar tax credit against state income taxes.
You mean fellow taxpayers, right?
It’s time to be a broken record again: We need to stop thinking about Social Security’s financial problems in isolation. If you want to “fix” Social Security, and indeed “fix” the budget deficit, what you need to do is create incentives for folks to say in the workforce for longer:
https://humbledollar.com/forum/solve-this-problem-by-jonathan-clements/
Cutting Social Security forces folks to stay in the workforce when they don’t want to, and will likely force some retirees to un-retire. By contrast, creating incentives to work longer only means more income for those who want to work, and more revenue for the federal government. It’s a win-win.
Why does nobody talk about this? It’s bizarre.
You mention employer tax incentives. Any other ideas? I just cannot see employers wanting to retain older, generally higher cost workers often perceived as stuck in their ways. In addition, most workers do not spend the day at a desk like you and me. My experience says many blue collar workers, physical workers simply cannot do the work. I visited a Ford assembly plant once. I can understand how they want out ASAP.
As I said, your approach is logical, I just can’t see how it could work in any significant numbers. I’m pretty sure unions would not like it.
Let me be crystal clear: I’m not suggesting ALL workers stay in the workforce for longer. I’m not suggesting workers with PHYSICALLY DEMANDING jobs stay in the workforce for longer. I’m not suggesting that those who want to retire should be FORCED to stay in their jobs for longer.
The typical retirement age is 62. But some people — hello, Mr. Quinn — continue to work until age 67. If there are folks who WANT to continue to work, and the tax code can make it appealing for both the worker and the employer, wouldn’t that be a huge plus? These workers would continue to pay taxes, and those taxes could be used to fund Social Security. Isn’t that better than CUTTING benefits and thus FORCING many folks to continue working when they don’t want to or are no longer physically able?
This is America — a country that used to prize freedom of choice. But reading the comments in this thread, I get the sense that some readers want to take away the freedom to keep working later in life and, indeed, are offended by the very idea that others might continue to work in their late 60s and perhaps into their 70s.
I had always planned to retire at 70. Then I was laid off at 61 for no reason other than my age. In the six years since I haven’t been able to replace that full time income and had to start collecting Social Security much earlier than I’d planned. You can talk incentives to employ older workers, but the fact is, when the boss likes young girls, the boss likes young girls, and that’s the truth.
I don’t see any comments in this thread that indicate a desire to take away the freedom to work later in life. Instead, I think the tenor of the comments is that it would be great if we could incentivize workers to work longer that is tempered by skepticism that this will ever happen for a variety of reasons.
The current financial incentives to work longer include both the ability to save more employment income for retirement and to be able to delay claiming SS–ideally until 70. Those two benefits are substantial which implies that any additional financial incentives would also need to be substantial in order to have a meaningful impact on when folks decide to retire.
Frankly I never did understand the retire at 50 or 55 or even 62. Isn’t avoiding being forced to retire why there are laws against mandatory retirement?
For one thing, retiring early lowers your eventual SS benefit.
You are likely to miss your best earning years and of course, a good chance at needing more investments to fund a longer period with no pay and less time to accumulate them.
Seems there are incentives to stay in the workforce. 🤑
Well, you certainly won’t need as much money in retirement if you shorten it by working longer, so sure, I guess that works.
I detect a level of snarkiness in your comment. So, should we force everybody to retire at 62 or 65, whether they want to or not, because you don’t like the idea of working in your 60s, and you’re also offended by the idea of others doing so?
I guess it has to do with a lot of people being forced by their circumstances to work into old age. People that want to keep working generally can without much issue, so I don’t think about that aspect as much. I don’t mind a bit if someone wants to keep working in a role that brings them joy and fulfillment, all the power to them. It just doesn’t match what I see in my own workplace, or the places I shop. Most people in their 60s that I know would like to retire already, and the one person I know who stayed through her 70s said retirement is the best choice she could have made. I just have limited experiences. And don’t mind the snark, my bark is worse than my bite 😉
By Jove, I have it. Just make sure everyone works until they are able to replace 100% of their base pay before retirement.
It took me until age 67. That should help SS 🤑😎😀
May husband and I replaced considerably more than 100%!
I think RDQ’s comment was a tongue in cheek reference to his much debated previous articles and threads where he argued that everyone’s goal should be to be work until they are able to replace 100% of their base pay before retirement.
I gleaned from the “solve this problem” post that the cost of health insurance for older employers is a major contributor to ageism. Another impediment to working longer is the earnings test for early SS recipients. Solutions for those issues would help workers stay on the job longer.
What are the incentives for the physically worn down workers, and the “I hate my job” crowd?
Ageism is definitely a problem (aside from people physically unable to keep working). Employers would have to be incentivized first. Instead the megacorp I worked for was incentivizing people to leave early. Not just buyouts, but freezing pension payments at 30 years, and paying that amount if you retired early.
That may be logical, but i don’t think employers want it and neither do many workers. Many workers are not joyful in their work.
I wonder whether that many employers are actually so eager to get rid of older people who want to work. The only push back we ever got was from retired colleagues. And I’ve noticed that even Walmart is accommodating older cashiers who need to sit while they work.
I agree employers don’t want people who cling to the old ways of doing things, but for those who embrace change it does work.
I am also a retired academic and like you, I didn’t experience any pressure to retire. However, there was clearly a bias on the part of the administration against older candidates for tenure-track positions at the assistant professor level.
If the financial incentives are there, some workers and some employers will respond. Or should we just slash benefits, raise taxes and make everybody unhappy, without bothering to try policies that could be good for everybody? It’s time to change the conversation.
I totally agree. My husband and I both worked until we were 72. The University of Wisconsin doesn’t have a compulsory retirement age. We weren’t motivated to stay for the money; rather, we both enjoyed what we were doing. I don’t regret the decision at all. In fact, I hope our children follow our example.
Glad for you that you had jobs you enjoyed and were physically and mentally capable of doing in your 70s. Look around you. How many people do you think are that lucky?
Actually more than you may think. I have friends who retired at 55. When I ask what they do with their days, the answer is “golf and reading.” What if, as Jonathan suggests, they had other options— maybe working three days a week? Wouldn’t at least some folks be interested? Work provides mental and social stimulation; those benefits shouldn’t be underestimated.
Were they also academics? What about the other workers at your university? Cafeteria, workers, cleaners, maintenance staff, groundskeepers, security? What about police, firefighters, EMTs, road workers, garbage collectors, truck drivers etc. etc?
Actually, the the EMTs and ambulance drivers in the town where I spend my summers are mostly retired people. Some police jobs are done at a desk, and there was an elderly janitor who worked in my bldg who took great pride in his work and his ability to interact with the faculty.
i suspect you’re seeing this through the lens of someone who retired I her early 50s. I don’t question that choice. But I’m 82; I suspect I would have gone insane if I’d been retired for 30 years!! Even now, some of my best times are doing taxes as a Vita volunteer!
Yes, I retired early, but I don’t think I have gone insane! In fact, I have never been bored, even during Covid, and even though I enjoyed my job, much of the time. Probably there are two kinds of people: those who live to work, and those who work to live. Just as there are those who live to eat and those who eat to live.
I am generally a plus 1 on your thinking. I could write more but I am getting ready to go to work at my seasonal part time job and need to go. My employer is happy to have me, at age 74, helping them. For me, I have been able to set the boundaries of the type of work I do and the hours I do work. Those criteria were set before I signed on. I am fortunate that my health, type of work I do and our financial resources allows me these employment options where many do not have these options due to their own health issues or other circumstances.
It isn’t a question of luck. It’s a question of creating incentives to work for those who want to. Shouldn’t we encourage those who want to work to keep doing so? Wouldn’t everybody else be the beneficiary of their work and of the taxes they pay? It almost seems like retirees are offended by the idea that some of their age cohort want to continue working. Isn’t that also a form of ageism?
I don’t know whether that’s directed at me, given I retired from full-time work at 53 and part-time work not long after, but I have no problem whatsoever with people who want to work in their 70s or 80s doing so. I do worry about people with physically demanding jobs having to work longer, but I think the difficulty around other workers is with employers rather than employees. How many techies do you think are still in demand in their 50s, never mind their 70s?
I read meany useful and honest discussions about Social Security on this site, but as RDQ has written, there are a lot of discussions elsewhere about the topic that are not. I remember the 1993 Bipartisan Commission on Entitlement Reform. It defined the size of the problem, but the two parties could not reach consensus on solutions. And here we are. I agree with you Jonathan, that incentivizing people to do something productive is preferable to penalizing them for failing to do it. I’d like to see another bipartisan attempt, but given politics today, my planning is based on realistic appraisal not hope, and takes into account eventual cuts in my benefits.
I do my retirement planning based on SS paying 75% of the current promised benefit level.
As others have mentioned eventually some changes will be needed. Removing the limit on earned income subject to tax with a 3rd primary insurance bend point seems likely.
I agree with your comment that SSA reform is relatively simple and can be done so with minimal impact to current beneficiaries. As a former pension and retirement plan advisor who had the benefit of hanging around a bunch of actuaries who were way smarter than me, there are basically only three levers needed to create real SSA reform and extend the life of the program for a very long time.
First, extend the retirement age. Everyone knows life expectancy has increased since the program began almost 100 years ago, so rather than an FRA of 67, extend FRA to something closer to 70. Second, increase or uncap the annual OASDI wage limit, currently at $176,100. Congress already did this with Medicare, why not do the same with OASDI? These first 2 changes would significantly strengthen the program. If needed, a third lever would be to raise the OASDI tax rate currently at 6.20%, either through the current flat rate structure or through a revised income-based rate similar to the current Medicare tax model.
The problem is that our political leaders on both sides of the aisle lack the courage to discuss simple reform steps, choosing to focus on political pitches that play to both bases that they “won’t touch social security.”
There HAS to be some sort of change using these 3 levers sometime between now and the early 2030’s. Might as well be honest with the general public and do it sooner rather than later.
Raising the retirement age is unfair as life expectancy has not increased equally for all demographic groups.
There are several minor things that add up such as enroll all new state workers in SS and tax Section 125 cafeteria plan premiums for FICA just as we do 401k plans. Raise the taxable earnings limit, tax an equal amount of income. on those without payroll earnings. For example, Warren Buffett’s salary is only $100,000. Raise the taxable rate, but add an extra half or percent on employer . portion.
The demographic differences and life expectancy are due to lifestyle choices. Why should retirement age depend on lifestyle choices?
That’s not actually true. It’s also related to poverty and some just genetic differences relative to certain diseases.
There are a few things we can do about this. We aren’t powerless.
This is about Congress, which has refused for decades to act to resolve this. As I recall SS has been called the “third rail” because to touch it implies electrocution. There have been solutions postulated by “experts” and more than a little fear mongering and sensationalism in the MSM. Some like me consider this to be irresponsible and a slow torture of the citizens.
In fact, the rational discussions have included several possibilities: 1) Raise the amount taxed on employers and employees. This is currently 6.2% and withholding stops when annual earnings reach $168,600. 2) Reduce benefits (currently a maximum $4,018 at Full Retirement Age FRA in 2025). 3) Raise the early retirement age (currently 62) or reduce early retirement benefits. It is likely any solution will include several of these.
I assume #2 is the one that is of most concern to HD readers. There are subtleties to this, too and the benefit could be reduced on a sliding scale so lower income individuals might not be affected at all.
What can I do about my finances? One solution promoted for beneficiaries is to include a SS benefit reduction in their long-term retirement budgets. This is a “what if” planning situation, which may not occur. It is best to do this earlier, prior to retirement when it can influence our plans. We may decide it is in our best interest to work longer and delay taking social security. To work beyond early retirement age may increase our benefit by 32% at peak retirement age under current rules. That’s better than hoping that Congress will fix this.
I decided to assume a future benefit reduction will occur, so I worked longer, saved more but took SS at FRA. For example, let’s assume my projected SS benefit at Full Retirement Age (FRA) was to be $3,300 a month. A 20% reduction in the future would reduce my benefit by $660 to $2,640 each month.
If this was undesirable, I could have chosen to work longer and delay SS benefits until 68, 69 or 70. I didn’t because my financial plan indicated I needed SS income so I could reduce working hours and related income. This allowed a partial retirement which was my goal. There are a range of options with trade-offs, and I don’t imply any of these are easy.
What does this really mean to me? If I keep my spending constant but adjust for inflation my retirement nest egg will slowly dwindle until 60% has been spent when my younger spouse reaches age 92. If I reduce my SS benefit by 20%, then my withdrawal rate from retirement savings will increase to compensate. At that higher withdrawal rate 70% of the nest egg will have been spent when my spouse reaches 92.
Any benefit reduction is undesirable. However, according to my “Lifetime Planner” such a SS benefit reduction will have no real impact upon my finances in our lifetimes. It could reduce the charitable giving upon our deaths.
I conclude that there is no substitute for planning and preparation.
Increasing the retirement age is probably the most middle of the road solution. Whatever can be done to keep kicking the can down the road. Really this isn’t any sort of complicated math problem to solve, the solutions are simple and completely workable, like eliminating the cap on FICA taxes, and expanding SS taxation to cover other forms of income. But there’s no political will for that sort of thing. I’m not confident that there ever will be.
Eliminating the wage cap does not do it. Expanding to other income would add revenue, but how are those earnings counted toward benefit calculation. I don’t think we want to turn SS into pure welfare and void the basic structure and tax without benefit credit even at a lower level.
I conclude that your final sentence is right on the mark. It’s irresponsible not to plan for that possibility.
In conjunction with several other changes not involving retirement age, I would change the application of the COLA.
For example, anyone who retires with the equivalent of the FRA maximum benefit at the time they retired would not receive a COLA or at least not for some period such as five years.
This is on the theory that if earnings resulted in the maximum SS benefit, they should have been able to accumulate assets to at least offset future inflation.
It doesn’t sound like a bad plan to me, but I will point out that so few people wait for full retirement age to get the maximum benefit that I think the cost savings might be negligible if you remove the COLA. I don’t have any numbers though, so if you know them I’d be interested to know.
They don’t have to wait, just have earnings that would equal the maximum even if they took reduced actual benefit before then.
Richard, would your thinking on this change if the earnings limit for the payroll tax were eliminated, as has been proposed as a possible remedy for funding?
That helps but does not solve the solvency problem and I would be totally opposed if those earnings were not counted toward the benefit calculation even at a lower percentage than normal. To me that would violate the basic intent of SS and give higher income earners a reason to oppose the program.
No real worries …
It’s not hard to predict the compromise, higher limits, higher max payments with a 3rd bend, likely raising early retirement to 65.
What’s of more interest/discussion is how long it’s going to take elected Dems to figure out what’s happening because lately they’re doubling down on what was a badly losing message. (Anti-Trump without any affirmative messaging)
Scott, I just read the Bean soup has been offered on the U.S. Senate dining room menu every day since 1903. (Except for 1 day during WW2 due to a bean shortage).
That may explain a lot about todays politics.
I keep reminding myself we’re doing better than the 1850s
I just heard on NPR that the head of Social Security will not close the agency after all. That was close!
Current discussions on Social Security are based on gaining political advantages by sowing fear about changes that might occur to the program. This is nothing new as it has been happening for the last 50 plus years. Most of us are old enough to know that, but still succumb to the fear mongering. Small changes will be made and the program will continue to be the base income for many retirees.
I used to be 100% certain of that as well, but now …
The problem is now there are no reasonable discussions, no talk of a task force or commission as in 1983 to assess the matter and make practical recommendations.
In fact, I have not even heard mention of dealing with the fundamental financial problems of both SS and Medicare Part A
We’re not even close to crunch time for all of the politicians to get serious. When this might actually affect the way people vote and they can still be re-elected, then the change will come.
1983 was just one year short of the SS surplus funds running out. Why do you believe it would be different this time? You must be on the AARP board.
Well gee whiz Richard, with important issues, like the daylight savings time argument for example, there’s just no time for SS and Medicare!
Yup. Keep us distracted by other issues, like that one and many others.
I’m definitely concerned about Social Security. I’m starting to have my own concerns about whether it will be there in future decades when it’s my turn, concerns I once dismissed as ludicrous among my peers. I’m not certain I’ll actually need it myself, but it’s one of the economic pillars of this country, and for it to be even hamstrung, let alone destroyed, would be financial Armageddon for this country. I’m assuming at this point the goal is to do what is being done currently to the Post office, making the service so unreliable that it’s barely functional. I’m just hoping we keep piling on the political pressure before they really break something we can’t fix. These are scary times.
The post office works fine in my part of the woods. I’m not sure why you would disparage the fine workers of the postal service.
He’s obviously not disparaging the workers, but those who are not providing the resources to run the PO to its full potential.