Social Security Benefit Reductions

Hi All-

Given the precarious financial state of SS, I am wondering what adjustments are being made by users as to benefit taxation or reductions. ESP clearly allows for you to adjust some parameters and by different dates. Anyone come up with reasonable ideas?

Mark

Comments

gyropilot's picture

I've incorporated a 25% reduction in our social security benefits starting in 2033.

Based on the latest Social Security Annual Report (http://www.ssa.gov/OACT/TRSUM/), that's the year the trust fund assets are projected to be completely depleated with incoming taxes adequate to cover only about three-quarters of scheduled benefit payments. Hopefully between now and then this projected funding shortfall can be fixed, but I prefer to take a conservative approach with financial planning.

dan royer's picture

I'm not making any adjustments myself. I view much of the discussion about this topic as fearmongering.

What about Larry's writings about intergenerational accounting and Social Security? Disagree?

dan royer's picture

Well, he's written widely about SS and of course the recent book is excellent. But at that end of that book there are three different essays from each of the respective three authors and he points out there that each of the three of them have different views. I find Paul Soloman's view most compatible with my own in those three essays. I'm not a fan of the intergenerational accounting. I'm not an economist or an expert in these matters, but I found James Galbraith and his coauthor's response to that very convincing, a pretty direct rebuttal. But of course, some of this is politics, some is economics, and some is just theory and ways of viewing the world that intelligent people disagree about.

Ah. A timely reminder to buy Larrys new book on SS. Thx.

MPM

Here are some ideas:

First, and most importantly, what is your personal impact if Social Security is decreased by X% (or a range from Y% to Z%)? This could be modest up to very high. Either way, this is a risk management issue. Can you cope if varying reductions occur and are you able to hedge against this possibility, perhaps by spending less than the recommendations?

Given the potential for reductions, it seems likely that these would be applied unevenly. For current seniors a high percentage of people rely on SS for ~50% or more of their income. This leads to a lower percentage for reductions for this group or those near retirement. Unfortunately, if accurate, this also means a higher burden for everyone else.

Since "something" will likely change to manage the funding/benefit gap, perhaps this includes changing the CPI applied to SS (e.g. chained CPI), means testing for benefits, taxation changes, pushing the retirement age out further, reducing or eliminating spousal (or other benefits), etc. Maybe even all of the above.

To cope, I've written elsewhere (for example https://www.esplanner.com/question/monte-carlo) about risk management in ESPlanner.

There is no way to know exactly when/how much potential hits could occur. Depending on your specific profile, personal impact of cuts, risk tolerance, etc., the simplest way to model coping that I've found is the "safety factor" approach described in the link.

Edit - Scott Burns has an interesting take. As long as the government can get away with printing money (QE), what's to stop the same thing happening to cover Social Security (or other) benefits? Of course, there is a great deal of uncertainty with all of this. http://assetbuilder.com/scott_burns/the_disappearing_$27_trillion_security_blanket

Best,
Brian

Like gyropilot, I entered a 25% reduction in 2035. It's really the only known fact, if you want to interpret a future estimate as fact.

Now, I really don't think that's going to happen. Something in between that, and no change, is more likely. But I'm about 3 years from retirement but 10 years out from collecting SS at 70 so, lacking something more concrete I choose to incorporate that conservative estimate into my plans.

If I choose to ignore the potential SS decrease (of whatever cause or information source) I could retire earlier. As much as I'd like to, that would be imprudent, in my opinion.

As Dan states, much of this is opinion, or politics.

Using the language off my latest SS statement from the MySocialSecurity website, I entered a 23% reduction in 2033. And I'm going to monitor the situation very closely as I get closer to 65. Because when I entered the 23% reduction, MaximizeMySocialSecurity changed its recommendation in my case from 'file at 67 and defer until 70' to 'file and take retirement from 65 to 67, then defer to 70'

Just reran my plan with the Nov. 2015 changes to the SS rules, both with ESPlaner and MaximizeMySocialSecurity. Both my wife and I were born after January 2, 1954. The recommendation now is for each of us to simply file for full retirement when turning 70.
So at this point, it appears that MaximizeMySocialSecurity is no longer a useful planning tool unless at least one spouse was born before January 2, 1954.

If you are eligible for "other" SS related benefits (e.g. ex-spousal, survivor, disability, etc.), there are still plenty of options to optimize your strategy even though the spousal option is no longer available for most people.

Best,
Brian

dan royer's picture

Certainly some of the complexity is eliminated now. My strategy, like yours, is now both of us file at age 70. Many people don't seem to want to "plan" or integrate their SS benefit with the rest of their economy, which puzzles me. But many want to see that "discounted value" amount and compare it to some what if discounted value amount.

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