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by Olivia S. Mitchell, a Wharton professor of business economics and public policy whose work focuses on pensions, household finance and retirement. She also served on the 2001 U.S. President’s Commission to Strengthen Social Security and the 2014-2015 Chilean Pension Reform Commission.
A few take-aways:
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As a nation, scheduled benefits under our Social Security program exceed system revenues by $25.8 trillion, according to the 2015 Social Security Trustees Report. This is the so-called “perpetuity” calculation, which includes current and future revenues, along with current and future benefits payable.
and
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The Trustees Report also stated that the long-term system shortfall can be eliminated with an immediate and permanent payroll tax hike of 33% (from 12.4% to about 16.5%). Or benefits would have to be cut immediately and forever for all current and future recipients by 23.4%.
In other words, we’re all going to have to pay in much more, or get much lower benefits, forever (or both, most likely). As it will be costly to fix, we need to begin reforming the program right away so as to avoid much worse.
For those of you with the stamina to actually read it, here is the underlying Social Security Trustee Report, more formally known as
And for us millennials retirement won't even be an option.
Not really. The program is 30% underfunded. It's just turned cash-flow negative over the last couple of years. The general budget is now paying "interest" to the Social Security trust fund. In another 8 years or so, the "Trust Fund" will start hitting the principal. The "trust fund" money has already been spent. Write it off. Social Security taxes need to go up 30% and/or the retirement ages need to be adjusted upwards a bit to account for the fact that people now live longer.
In the grand scheme of things, 30% isn't insurmountable. There will be all kinds of political squabbling about it but there's really no choice but to fund the program properly. 2/3 of Millennial retirees would live in abject poverty without it since defined benefit pensions have vanished. Rich people and corporations don't want their taxes to go up. That's totally understandable. Nobody wants the retirement ages to slide up. Also totally understandable. In the end, taxes are going up on everybody in some way.
Anyone that is 62 or older cannot collect Social Security if they still have more than $200,000 in an IRA, 401k, other retirement account, bank accounts, stocks, mutual funds, etc -
Once they have less than $200,000, then they begin qualifying for what is defined by law as 'benefit payments' from the Social Security Administration.
Instant Social Security fund solvency for the long term.
Either that or have the federal government keeping printing more money out of thin air and see how that works out.
Anyone that is 62 or older cannot collect Social Security if they still have more than $200,000 in an IRA, 401k, other retirement account, bank accounts, stocks, mutual funds, etc -.
Well, that is certainly innovative. We sort of do that already via the income tax - based on your income, your SS payments will be taxed. So, if you are withdrawing enough from an IRA in combination with other income sources, the your SS payments are taxed away.
I think I prefer a combination of
(a) raising more revenue via an increase in premiums (the payroll tax),
(b) increasing the retirement age, and
(c) taxing defined benefit pension disbursements to government workers.
You are quite right it cannot be sustained - that math shows that clearly. But that doesn't mean it can't be fixed via changes to retirement age, premium rates and the like.
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Originally Posted by J.Thomas
And for us millennials retirement won't even be an option.
I know what you mean. My generation (I'm late 50s) has really screwed my daughter's generation (mid-20s).
Several years ago, I decided to do my part & completely fund her retirement for her. She can't touch the money for decades, but she will be able to retire very well in 30 years.
Totally eliminating the income cap for Employees would generate $65 Billion in 2012 Dollars. Eliminating the cap for Employers would double that amount, bringing it to $130 Billion, annually, at least in theory. In Reality®, the net revenues would be 10% to 20% less, as cash benefits are switched to other forms of non-taxable compensation.
That fails as the sole solution, since the short-falls will reach $500 Billion annually within a few short years.
Total taxable payroll for 2015 was $6,435,900,952,129 or about $6.5 TRILLION.
Each 1% of FICA payroll tax generates $64,359,009,521 or about $65 Billion.
Increasing the FICA payroll tax to 9.4% for Employers and Employees would add another 3.2% or $205,948,830,468 ($200 Billion) annually, to keep the system solvent through the Infinite Horizon, which has average losses of $289,887,640,449 annually.
Totally eliminating the income cap for Employees would generate $65 Billion in 2012 Dollars. Eliminating the cap for Employers would double that amount, bringing it to $130 Billion, annually, at least in theory. In Reality®, the net revenues would be 10% to 20% less, as cash benefits are switched to other forms of non-taxable compensation.
That fails as the sole solution, since the short-falls will reach $500 Billion annually within a few short years.
Total taxable payroll for 2015 was $6,435,900,952,129 or about $6.5 TRILLION.
Each 1% of FICA payroll tax generates $64,359,009,521 or about $65 Billion.
Increasing the FICA payroll tax to 9.4% for Employers and Employees would add another 3.2% or $205,948,830,468 ($200 Billion) annually, to keep the system solvent through the Infinite Horizon, which has average losses of $289,887,640,449 annually.
Your math is totally broken. It assumes zero economic growth.
Anyone that is 62 or older cannot collect Social Security if they still have more than $200,000 in an IRA, 401k, other retirement account, bank accounts, stocks, mutual funds, etc -
A 62 year old has a safe withdrawal rate of about $670/month with a $200k stash.
Do you really think that someone who has paid their fica taxes for 40 years should be cut off from receiving social security benefits because their investments can safely generate $670/month to live on?
You'd probably end up with lots of retirees with $199k in investments along with lots of real estate.
........Either that or have the federal government keeping printing more money out of thin air and see how that works out.
And what do you think money is? We went off the gold standard a long time ago. All of that paper and other forms of money are all but created out of thin air.
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