So at some point we could be getting $4600/month in today's dollars which sounds great; this is way more than we need to spend to get by every month, way more. Of course this will change depending on how much our health insurance goes up in the future, but I don't think it will go from the current $330 up to $2000 in today's dollars (insert nervous grin).
Obviously benefits vary and only a smallish slice of the population gets the maximum benefit but in thinking about $4600, the question arises; how in the hell can the government afford to pay every eligible household between $1500 and $4600 per month for the rest of their lives? As a note, I don't know what the minimum benefit is, I just made that number up. Forgetting any research you've done on this for just a moment, thinking of it in this way makes it seem like an even larger problem, speaking unscientifically.
Another interesting number on the website (even if not new information) is how much has been paid in on my behalf which is $150,000. If I am lucky enough to stay at the same income level until I am 70 and the max tax stays about where it is then I will pay in another $312,000 (24 years times $13,000) which would bring the total paid in to Social Security up to $462,000. If I make it another 100 months past past age 70 (God willing) then I become a money loser for the program. Yes I realize this ignores any sort compounding that might happen somewhere along the way but it also ignores any COLA adjustments too.
If I make it to 90 (my dad will be 86 in July and is remarkably healthy and fit) then that is another 140 months at $4600 which adds up to $644,000. So we might collect more than twice what we put in which seems like a flawed strategy and of course not the duration of payout they had in mind when the program was started. Chances are you have heard the stat that notes when Social Security started the payer to payee ratio was at 25-1, has gone to three to one and is on its way to two to one.
This line of thinking leads me to the simplest conclusion about the future of the program which to repeat from many past posts is that it will be subject to very aggressive means testing that will come further down the wealth scale than most people think (yes there are logistical obstacles to this) and it will become a welfare program (if you think it already is a welfare program then it will become more so).
23 comments:
I'm envious. Well, a little envious.
My wife and I have contributed six figures into social security but will not receive a dime in monthly benefits because we have a defined benefit public pension.
Not only that, we cannot get a refund or tax credit for the loot we paid into the system, according to the IRS.
Hope all you SS recipients enjoy spending our contribution to the cause!
T
T, you've mentioned this before and it doesn't make a lick of sense to me. I understand it, but i don't get it.
Social Security should be privatized. It is funded by those who pay in for decades and die before getting their "contributions" back.
while I would personally be thrilled to have it privatized, I think 401k results for most participants provide evidence that this would be disastrous for society as a whole.
You paint an interesting picture of what could possibly happen. Consider a darker momemt for a moment. Your wife comes down with a fatal desease. At age 59, you have a fatal heart attack. That would partly explain why someone else very similar to you could get the kind of projections that are in place. The thing is an insurance program. nothing more. Hopefully nothing bad happens to either of you. Seriously.
7:02 here again. I left out the most important piece. The actuarial tables need to be adjusted to present day levels. They haven't been tweaked in quite some time. Once that is done, the insurance program will once again be viable. It is really that simple.
Are you saying that your wife has no SS contributions on her own, but will still be able to collect SS on your behalf, while you are collecting on your own behalf, and while you are married? I believe in order for her to collect one of those conditions must be false - either you divorce or you file and suspend.
$330 per month for health insurance? You're kidding, right? We can't even do high-deductible castrophic for that. Does that include any hospitalization? For a reasonable family policy (New Jersey), try $1000 to $2000+ per month. $330/month might buy low-end group coverage for a single person, assuming the group is 1000 employees.
Rich
Sure we need to privatise it. Let the Morgan Stanleys, Lehmans and MF globals etc. invest it in "SAFE OPTIONS". With all the extreme regulations imposed on them the money will be safe. Obviously our lobbying will ensure that fairness will be built into this system (going against the BIG BOYS lobbying). Lets do it and laugh all the way to the bank.
8:09, the lower earning spouse can either collect their benefit or half of the higher earning spouse's benefit; this is not new, my mother in law just started collecting and this has been my mother's payout for about 15 years.
We have a high deductible plan with an HSA and it costs $330.95 per month at age 46 and 40.
Government, including SS, is clearly trying to enter the 21st Century. Hope they make it.
I must say though Roger, that your unwillingness to comprehend the structure of a pay-go system generally and Social Security specifically has become pretty clear.* You do well to plan under the assumption SS will gone or severely reduced however since this is good for discipline; that said, you should also plan to be pleasantly surprised.
That aside, means testing is an extremely unlikely outcome under any circumstances and not simply because of logistics; i.e., it is expensive, intrusive, and inefficient. It is also toxic politically and this now goes double because the financial sector debacle revealed the recklessness, incompetence and/or greed of industry leadership for all to see; ditto private implementation of SS.
NB: T's comments make no sense because he is probably leaving something out; e.g., his pension is paid via state tax dollars and/or, if he indeed also paid into SS it was only on part of his salary, and/or his total income exceeds SS limits. The SS site says this:
"If your pension is from work where you paid Social Security taxes, it will not affect the amount of your Social Security benefit. However, if any part of your pension is from work where you did not pay Social Security taxes, it could affect the amount of your Social Security benefit.
A pension based on work that is not covered by Social Security (for example, Federal civil service and some State or local government agencies, such as police officers and some teachers) may cause the amount of your Social Security benefit to be reduced."
* Those weary of uninformed opinions or who really want to understand how SS actually operates may find the relatively un-wonky How Things Work article at http://tinyurl.com/6t9trr7 a useful place to start. Those who have a wonk itch to scratch and/or want to get into serious detail will find http://www.ssa.gov/history/ more fruitful. Either way be prepared to discover that most of what you have heard or read about SS was inaccurate at best (I am being charitable now).
Ha RW, I know I am not on the same page as you with most of this.
plan to be pleasantly surprised? I will work on that. A set of gold teeth maybe XD
Don,
I will ask the treasurer right away. Apologies for the lack of diligence here.
Roger,
I think you underestimate how rapidly your insurance premiums will rise as you get older.
My wife and I both had the highest BCBS deductible policies here in Prescott AZ to cover catastrophies. Last year our premiums hit $1000 per month. Since our policy is similar to yours, the difference is almost entirely because we are both older than you.
My wife is in her 50s; me--60s.
I very well could be underestimating insurance costs. Are you saying you pay $1000 each or combined?
Don, it was very light,about $300 based on the $0.50 addon to denote a blog reader.
Thank you for your donation and also to the others who also donated.
Yes private health insurance on a per capita basis, for relatively healthy younger population is far more expensive than medicare, which cares for the sickest portion of population. For private insurance, administrative overhead, ie non medical costs are 30% of your premium when medicare runs under 6%. Yes 30% for accounting costs -a goldmine if there ever was one. Drop this to 6% and voila our costs do not look that obscene compared to other western countries. "But of course private companies are the most cost effective"- makes me sick just hearing this nonsense.
Our political system does not allow for long-range planning (not that any other system is better). The SS system can be corrected but probably won't. When people have a free-will, they will not make difficult choices.
As far as SS, my brother-in-law retired, collects SS, and is what I would call "rich". He has extra income coming in from commisions but these are allocated to my sister who is younger. This is wide-spread in his industry....bilking the system.
Roger,
It was $1000 monthly premium for both of us with a family $10,000 deductible. Copays for most doctor visits ran $40. It was basically catastrophic coverage.
Think a nice set of gold teeth would suit (might look into that myself, maybe inset a diamond in a couple of them). XD, an olde farte doing the bling thing.
But seriously, seeing eye-to-eye is not my goal and is not even an issue here because the SS system you describe in your posts (and as generally described just about everywhere frankly) simply does not exist. Really, it doesn't.
Bernard Baruch once wrote (1950), "Every man has a right to his own opinion, but no man has a right to be wrong in his facts."
Your opinion is your own and might or might not be influenced by a better understanding of the facts but since you write publicly on the subject your process would better inform your audience if hearsay was not mixed into the discussion. Start with why an SS account is really nothing like a 401k or IRA account and go from there.*
*NB: While at it, do assiduously avoid the more grotesque fantasies such as Dubya's, "the special bonds in the SS account are really just IOU's" (as if all bonds weren't IOU's with the special treasuries in the SS account not only backed by the full faith and credit of the USA like all other treasuries but, just like the dollar, fully redeemable at par regardless of maturity).
Roger -- To the point of not being able to collect SS benefits.
In 1986, Congress passed legislation that was designed to prohibit public employees from "double dipping" pensions.
Unfortunately, the law was broadly interpreted and applies to folks such as my wife and I. Our state defined benefit is over the maximum allowed to receive a SS check. Thus, nada.
We have paid into and will receive Fed health benefits at age 65, as a separate item.
But the mass of loot my wife and I had deducted from our private businesses for SS (ongoing, I might add) is lost money. This is the opinion of the IRS and a decent tax attorney who looked into this for us (and others).
T
From T
It is known as the WINDFALL ELIMINATION PROVISION LAW
re: SS income benefit reduction/elimination
Instead of another means tested program, with all the bureaucracy and paperwork, why not simply figure out what is the amount necessary to meet essential needs and then either (1) pay that to everyone or (2)pay the amounts you are expecting but create a base amount so that no one gets less than is essential for survival. (If you feel it important that the rich get higher payments, then you could also raise the FICA limit.
Very interesting article and useful. I would like to visit your blog if your blog keep update!
Post a Comment