Over the years I've talked about the importance of not taking anything for granted with things like pensions or social security (probably a good idea in non-financial matters too).
In the news this week was whether or not Congress would extend the payroll tax holiday for two months (so they can then extend it for the full year later) or extend it for the full year all at once. If it is not clear, anything we don't personally pay in FICA during this period is being made up by the treasury which contributes to the ever increasing debt load. This may obviously lead to some bad outcome for social security in the future that ten years ago was equally unthinkable as pension cuts.
For a long time I've been saying that something will have to give with Social Security in terms of benefit cuts one way or another. There have been comments taking the other side noting various data points to the contrary. Things are evolving such that I do not believe it is wise to rely on various assumptions and projections as things have developed over the last ten years in a way that I would submit has been unfathomable and more realistically unanalyzable.
If the last ten years has been reasonably unanalyzable then so too could the next ten years. I am still not in the financial apocalypse camp, I'm not that pessimistic of a person, but do remain in the noticeably uncomfortable camp consistent with my ongoing assertion that the US will still be the world's most important customer but that we will slog through.
A little longer term, as I've said once or twice before, something will have to give with entitlement payments. I think it will be some sort of means testing but either way I think the math being assumed is shaky at best based on assumptions being used, but again I think it is a bad idea to rely on the current assumptions and projections.As grim as it may sound, prepare for the worst and hope for the best. Preparing for the worst has to mean, in my opinion, expecting nothing from social security especially if you have a high income and did the "right thing" in terms of saving money. Yes, the odds of this being unfair is very high, again, in my opinion.
Obvious statement; it would be better to not be financially done in by a surprise in your social security payment.
The picture; I tried to make a joke on Facebook out of taking it cross country next summer but no one knew I was joking so I'll just say neat motorcycle.
14 comments:
Scenario: a married couple works their entire lives and is looking at $40,000 social security between the two of them. They have saved another million so we will use the 4% rule and say that will throw off another $40,000.
Along comes the government and says you have too much so you won't get social security. Couple says screw that, we are going on a spending bing that their fellow boomers did during their earlier years. 10 years of fun, no more savings and still with $40,000 in income...through social security checks insread of through their (now disappeared) savings.
Just a thought.
DE
plausible but also wildly self-destructive
None of the discussions of "asset checks" for SS income have been anywhere near as low as $1m.
Social security is off by what, pick a number, 20-25% tops? That is not impossible to correct while still providing significant benefits. It seems to me the issue is Medicare/Medicaid, not Social Security. Medicare is off by say 50%. That is much harder to correct. Back to death panels?
Rich
My semi-retired brother, who happens to be very wealthy, enjoys his SS payment every month. He still works part-time in his insurance business. In order to collect his commisions, he had his wife get an insurance license so she can collect the commisions under her name. This is just one example of how the system is bilked.
SS can easily be fixed by means testing. Politically, I'm not sure if SS can be fixed at this time. I've always wondered why the wealthy don't have to pay SS taxes on all their income???
The Democrat party has evolved from the party of tax-and-spend to the party of borrow-and-spend, and the Republicans at the moment are tagging along. The 1 year SS tax reduction is a another $140B hole being blown into the already in-trouble SS "trust fund." Party on, America (for now); the century of China has arrived. Young people, get ready for a lifetime of higher taxes and a reduced standard of living.
A couple thoughts:
Reneging on contracts with public employees seems to be the new rage but if they agree to the cut then one can only applaud their sense of civic duty. Of course we all remember how talk of contract 'revision' went down when it focused on Wall Street and bankster bonuses, right? Sounded like a bunch of cats shrieking -- maybe if the public employees had robbed us blind, smashed the system and gave us all the finger we'd cut 'em some slack.
Medicare/Medicade is THE problem and the only way to get the necessary leverage on costs is for a single payer to bargain against the providers: Think Walmart on a bigger scale.
Focusing on SS or lumping everything together as "entitlements" is confuses the debate.
Anon 8:34 mentions means testing and asks why the cap on SS tax but flip that around. If the cap was raised (not to the top) that would obviously increase SS revenue but that revenue is really only insufficient now because we are in recession: In growth periods revenue is more than sufficient (there is a surplus).
Further if SS benefits are taxed as ordinary income and wealthy folks have more income than that then there is no need for means testing because the tax does the same job.
I agree that social security is the smaller of the entitlement problems. Medicare/medicaid are huge and inflatting rapidly. But a single payer system is loaded with problems only one of which is who gets to decide the coverage. I think a better solution would be developement of three or four national HMO groups that would then offer competing plans to the people. Best coverage for lowest price wins.
Interesting how time and the herd changes perseption toward defined benefit pension plans. In the late 90,s, early 2000's many companies took advantage of the frothy stock market by offering cash outs on defined benefit plans. Many employees bit the hook because the momentum in the market was going to last forever.
Today, companies that offer the same cash out options on their defined benefit plans are not getting the same positive response from their employees, while valuations of the market are much cheaper, and thus opportunities higher than 2000.
Next time you go to a D-back game and observe a cop directing traffic, realize that he/she is more than likely 3 years or less from retiring, and thus padding the last three years pay for a higher pension payment. Don't feel sorry for the police and fire dept., they have been abusing their pensions for years.
anon 9:09
You are correct. I work in the medical field and we all want to make as much profit as possible. A government-mandated system (with all its flaws) is the only way to rein-in the spiral. I know physicians in other countries that don't like their system compared to ours because they are limited in income. America needs to learn we cannot have everythig.
08:59
Would you care to detail a time ever when the Republicans weren't borrow and spenders? They seem to be the reason we are in the mess we are in IMHO.
If we're tossing around problems in the U.S. federal budget, what about military expenditures? These have been out of control for decades. The central obscene fact is the we spend as much or nearly as much as the rest of the world on military items, including our now eternal wars. Congressmen all fight tooth and nail to protect military-related industries in their districts. The Executive decides we need to invade some country and Congress sings God Bless America. Mention a 10%, 5%, 1% reduction year-to-year and the Pentagon screams bloody murder. We need a change. --Spirit of Christmas
2:54. Yes, we spend a great deal on national defense. However, unlike most of the other spending we do, defense is in the Constitution. I made a comment about excessive military spending once to my father, and his response to me was that money spent on national defense is not wasted.
Nobody has an issue with national defense. It is the "offense" that has many of us concerned. Nothing in the constitution authorizing the president to take offensive action on his own. These "illegal" wars are what is killing us.
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