AuthorTopic: 👴🏻 The Death Throes of Social Security  (Read 416 times)

Offline RE

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👴🏻 The Death Throes of Social Security
« on: June 13, 2019, 12:26:21 AM »
I planned my birthdate well.  I'll easily be dead in 15 years.  However, I could also easily withstand a 20% cut in my bennies.  The big advantage of keeping your fixed expensive very low.  Particularly since that also would drive a deflationary spiral and prices would have to drop.


Social Security Is Staring at Its First Real Shortfall in Decades. Big Cuts Could Follow.

President Ronald Reagan signing 1983 legislation that he negotiated with the House’s top Democrat, Thomas P. O’Neill Jr., behind his left shoulder, to preserve Social Security. Credit Getty Images

By Jeff Sommer

    June 12, 2019

A slow-moving crisis is approaching for Social Security, threatening to undermine a central pillar in the retirement of tens of millions of Americans.

Next year, for the first time since 1982, the program must start drawing down its assets in order to pay retirees all of the benefits they have been promised, according to the latest government projections.

Unless a political solution is reached, Social Security’s so-called trust funds are expected to be depleted within about 15 years. Then, something that has been unimaginable for decades would be required under current law: Benefit checks for retirees would be cut by about 20 percent across the board.

“Old people not getting the Social Security checks they have been promised? That has been unthinkable in America — and I don’t think it will really happen in the end this time, because it’s just too horrible,” said Alicia Munnell, the director of the Center for Retirement Research at Boston College. “But action has to be taken to prevent it.”

While the issue is certain to be politically contentious, it is barely being talked about in Washington and at 2020 campaign events. The last time Social Security faced a crisis of this kind, in the early 1980s, a high-level bipartisan effort was needed to keep retirees’ checks whole. Since that episode, the program has often been called “the third rail of American politics” — an entitlement too dangerous to touch — and it’s possible that another compromise could be reached in the current era.

Benefit cuts would be devastating for about half of retired Americans, who rely on Social Security for most of their retirement income. A survey released in May by the Federal Reserve found that a quarter of working Americans had saved nothing for retirement.

The shrinking of Social Security’s assets expected in 2020 would mark a significant change in the program’s cash flow, one that could complicate Americans’ retirement planning — even for the many relatively affluent citizens for whom Social Security is still a major source of income in old age.

“Fifteen years is really just around the corner for people planning their retirements,” said John B. Shoven, a Stanford economist who is also affiliated with the Hoover Institution and the National Bureau of Economic Research.

“The cuts that are being projected would be terrible for a lot of people,” he said. “This needn’t happen and it shouldn’t happen, but we’ve known about these problems for a long time and they haven’t been solved. They’re getting closer.”
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Social Security has a long-known basic math problem: more money will be going out than coming in. Roughly 10,000 baby boomers are retiring each day, with insufficient numbers of younger people entering the work force to pay into the system and support them.

And life expectancy is increasing. By 2035, Social Security estimates, the number of Americans 65 or older will increase to more than 79 million, from about 49 million now. If the program has not been repaired, they will encounter a much poorer Social Security than the one seniors rely on today.
Representative John Larson and Senator Richard Blumenthal discussing their Social Security legislation at a senior center in Bristol, Connecticut.CreditMonica Jorge for The New York Times
Representative John Larson and Senator Richard Blumenthal discussing their Social Security legislation at a senior center in Bristol, Connecticut.CreditMonica Jorge for The New York Times
How cuts would affect a typical person

Under current law, cuts would start in 2034, when the main trust fund is expected to be depleted, or in 2035, if Congress authorizes Social Security to pay old-age benefits through the Disability Insurance Trust Fund.

Consider a woman with average annual earnings of $51,795 (in current dollars) over the course of her career, who retires at age 67 in 2037. The latest Social Security study indicates that she will be entitled to $27,366 in inflation-adjusted benefits. But if the trust fund shortfall has not been remedied, Social Security would be permitted to pay her only $21,669 — a 21 percent cut.

Nearly every older American would be affected, but those at the lowest income levels would be hurt the most. Social Security benefits are progressive, providing greater assistance for those with greater need. A worker with average career earnings of $12,949 until 2037 is entitled to receive the equivalent of 75.6 percent of that income, but with mandatory cuts, this person would have to survive on just 59.9 percent, the Social Security report says.

According to a study by the Center on Budget and Policy Priorities, 9 percent of all retirees lived in poverty in 2017 — but the figure would have been 39 percent if not for Social Security.
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For African Americans, the study found, the anti-poverty effect has been even greater: 19 percent lived in poverty, but 52 percent would have done so if they had not received Social Security payments. For Hispanics, the numbers were 17 percent and 46 percent.

The reductions of roughly 20 percent on average are just a starting point. If current laws are unchanged and current economic projections remain intact, the cuts would rise to 25 percent in later years, a New York Times analysis of Social Security data indicates.

Unless Congress and the White House reach an agreement before the trust funds are emptied, most Americans will face hard choices: delaying retirement and working longer if they can, or simply surviving on less.

The Social Security mess already complicates some commonly accepted retirement-planning wisdom — such as the advice to delay claiming benefits until age 70.

People who do so are entitled to an 8 percent annual increase in benefits. That makes Social Security “the best annuity that money could buy,” said Wade Pfau, a professor of retirement income at the American College of Financial Services, in a 2015 report. But he redid his calculations at the request of The Times, and for workers who are 55 now, statutory benefit cuts just when they turn 70 could make that approach far less attractive, Professor Pfau said.
The ‘third rail’

Cutting the Social Security checks of people in retirement is, to say the least, politically dangerous.

David Stockman, President Ronald Reagan’s budget director, tried to do just that in 1981. What happened in that episode gives some clues for a possible solution today.

Like other conservatives of that era, Mr. Stockman viewed Social Security as a form of “closet socialism” that needed to be scaled back. With the program facing a solvency crisis, he proposed immediate reductions in retirees’ benefits.

Older Americans rebelled, and members of Congress listened to them. “I just hadn’t thought through the impact of making it effective immediately,” Mr. Stockman observed ruefully in his 1986 book, “The Triumph of Politics: Why the Reagan Revolution Failed.”
Rosly Ray in a Social Security Administration video kiosk room at a public library in Quincy, Florida, last year.CreditMark Wallheiser for The New York Times
Rosly Ray in a Social Security Administration video kiosk room at a public library in Quincy, Florida, last year.CreditMark Wallheiser for The New York Times

A nimble politician, Reagan rejected Mr. Stockman’s recommendations and formed a bipartisan commission to study the issue. Ultimately, Reagan reached a long-term agreement with the Democratic speaker of the House, Thomas P. O’Neill Jr., who viewed the preservation of Social Security as essential.

While they made no immediate cuts in Social Security checks, they reduced benefits in more subtle ways, using measures that are still being used, like gradually delaying the standard retirement age from 65 to 66, where it stands today, and eventually to 67.

Taxes increased, too — bolstering cash flows and creating the trust fund surpluses that have given retirees and current politicians some breathing room.

But in ways large and small, the Reagan-O’Neill Social Security fix is coming undone. Notably, the hefty balances in those trust fund accounts today — some $2.9 trillion — may be having an unintended consequence.

“The trust fund surpluses were intended to provide a buffer that would give politicians enough time to show some fiscal responsibility,” said Robert D. Reischauer, a former Social Security trustee who was also head of the Congressional Budget Office and is now president emeritus of the Urban Institute. “But the problem is that without an immediate crisis, the politicians don’t have to act. And really, they would rather sleep. So when the crisis eventually comes, as it will, it is likely to be much, much worse because of the delay.”

John Cogan, a professor of public policy at Stanford, said Social Security’s fundamental problem was that benefits had been rising faster than revenue. Cuts, he said, will be unpalatable but inevitable.

“The solution, I think, is to slow the growth in real benefits promised to future recipients,” he said.

Democrats in Congress have suggested an increase in Social Security benefits, accompanied by higher taxes for the wealthy. In combination, the bill’s various measures would eliminate the program’s financial shortfall, according to projections by Stephen C. Goss, the chief actuary of Social Security.

Conservatives continue to push for sharp reductions in the size of Social Security as well as Medicare, saying the United States can’t afford the growing burden of the two “entitlement programs.”

“Entitlement programs in the United States have expanded more than tenfold since their inception, but workers are nowhere near 10 times better off as a result,” the Heritage Foundation said in a May 20 policy proposal. The conservative think tank favors cuts to benefits and siphoning money from payroll taxes into individual investment accounts. That echoes an initiative that President George W. Bush once embraced but Democrats blocked.

There are no signs of an imminent breakthrough, though Professor Cogan said that, as in the past, the impending prospect of benefit cuts “is likely to change the political atmosphere and make it possible to find a compromise.”

But Mr. Reischauer fears that, given the current acrimony of American politics, there will be no compromise until the last minute.

“We will need a combination of increased taxes and reduced benefits, undoubtedly,” he said. “But if we wait, the deficits will only grow and the eventual solution will be much more painful.”
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Offline RE

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👴🏻 The 1 Reason You Shouldn't Save for Retirement
« Reply #1 on: July 22, 2019, 12:36:22 AM »

The 1 Reason You Shouldn't Save for Retirement
Believe it or not, under some circumstances, saving for retirement doesn't make sense.

Maurie Backman (TMFBookNerd)

Jul 21, 2019 at 10:18AM

We're often told how important it is to save for retirement, especially since senior living costs keep climbing and Social Security isn't enough to sustain seniors in the absence of outside income. And while it's generally a smart idea to allocate money each month to an IRA or 401(k), there's one scenario where you actually shouldn't be saving for your future: when you don't have the money to handle unforeseen expenses in the near term.
You need emergency savings

You never know when a financial emergency might strike, whether in the form of a home repair, vehicle issue, or injury. And if you don't have money in the bank to pay for such unplanned expenses, you'll risk racking up loads of debt to cover them. The result? You'll waste money on interest, damage your credit, and make it difficult to borrow money the next time you need to.
Man in white t-shirt against pink background raising an eyebrow


If you're without emergency savings, building that safety net should trump all other financial objectives on your radar, including retirement. Though neglecting your nest egg could indeed cause you to lose out on investment growth, it's still more important to save money for the present than to save for the future.

Ideally, your emergency fund should contain enough money to cover anywhere from three to six months' worth of living expenses. Now if you're single and don't own a home, you can probably stick with the lower end of that range, but if you have a family and a mortgage, you're better off focusing on the higher end.

Of course, the tricky part of building emergency savings is that you don't get any help from the IRS in doing so. By contrast, when you fund a traditional IRA or 401(k), your contributions go in tax-free so that you're saving money the year you make them. But there's no tax incentive to put cash into the bank. Still, it's imperative that you do so, because if you ignore your near-term savings, you might rack up enough debt that your interest payments alone monopolize your income and force you to neglect your nest egg later on.

Now if you don't have emergency savings but you do have some money in an IRA or 401(k), you may be wondering if you're set. After all, can't you just access that cash in a pinch, since it's yours? The problem, however, is that because of the aforementioned tax break you get for funding a traditional IRA or 401(k), the IRS doesn't take kindly to early withdrawals. As such, if you remove funds from either account prior to age 59 1/2, you'll face a 10% penalty on the distribution you take. And depending on the sum you withdraw, that penalty could be substantial.

Let's be clear: Once you have a fully loaded emergency fund, you should absolutely start contributing to a retirement plan on a regular basis. But if you don't have any near-term savings, that needs to be your priority -- even if it means putting your nest egg aside for the time being.

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Offline AJ

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Re: 👴🏻 The Death Throes of Social Security
« Reply #2 on: July 22, 2019, 03:45:27 AM »
And why did you post this?? :D
Obviously to get a laugh?? I'm sure you followed this advice. :icon_mrgreen:
I hate this stuff! I love all the Fidelity ads on the tube. When they go the way of Lehman and Bear Sterns who will be crying - all their account holders who listened to their great advice. Learn to farm and do manual labor that's my retirement advice (along with know which end of a gun to be on).
Nullis in Verba


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