Coronavirus pandemic could wipe out Social Security 4 years earlier than predicted

Knight

Senior Member
If this model is anywhere near becoming a reality. I wonder what politicians are going to be promising in order to get votes.


Coronavirus pandemic could wipe out Social Security 4 years earlier than predicted: Wharton Model

Revenue into Social Security has been steadily declining since the start of the coronavirus pandemic in three primary ways, according to the Wharton Model.

“First, the loss of jobs, especially concentrated among low-wage workers, reduces payroll tax revenues,” its analysis explains. “The size of this effect increases with the length of the recession. Second, lower interest rates reduce the interest income received by the Trust Fund. Third, a prolonged period of low inflation reduces earnings for all workers and, therefore, reduces tax revenue received by the Trust Fund.”

Blunting the impact of the depressed revenue is the reduction of costs to the fund, which have been steadily ballooning throughout the years.

“First, the coronavirus increases mortality rates (skewed towards those of retirement age), which reduces total benefits paid out of the Trust Fund,” the model explained.

Low inflation has also reduced the ‘Cost of Living Adjustment’ (COLA) adjustments made to benefit payments. And lastly, initial benefits claimed at retirement have also been reduced due to a lower earnings history of beneficiaries and a reduction in the Average Wage Index (AWI) that is applied to initial benefits.

Social Security benefits are indexed to the AWI, which is the average wage of each worker each year.

“The smaller AWI reduces benefits even for near retirees who maintain their employment during the pandemic,” the analysis stated.


https://www.yahoo.com/finance/news/...y-4-years-sooner-wharton-model-191101417.html

Seems logical to me if the pandemic would cause reduction in benefits and the deficit climbs with taxes supporting paying for both. Politicians will have to be creative in spinning what seems inevitable to me.
 

Knight

Senior Member
Note that in my last sentence reduction of benefits was what I posted.

In your post the wording from the article included this.

Any package, however, that restores balance only for the next 75 years will show a deficit in the following year, as the projection period picks up a year with a large negative balance. Realistically, eliminating the 75-year shortfall should probably be viewed as the first step toward long-run solvency.

What does exhaustion of the trust fund mean? The exhaustion of the trust fund does not mean that Social Security is “bankrupt.” Payroll tax revenues keep rolling in and can cover about 75% of currently legislated benefits over the remainder of the projection period. Relying on only current tax revenues, however, means that the replacement rate — benefits relative to preretirement earnings — for the typical age-65 worker would drop by more than 25%.

Increasing taxes to pay for the deficit & extend the current to the original 2036 date & beyond seem to me to be the solution, but politicians want to keep their place so it will be interesting.

Would also like to point out the use of the word could in the opinion not to word will. If I were in my 50's I'd be looking at ways to supplement my retirement income instead of depending on Soc. Sec. as the sole source.
 
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C'est Moi

Dishin' it out.
Location
Houston Y'all
If I were in my 50's I'd be looking at ways to supplement my retirement income instead of depending on Soc. Sec. as the sole source.

If you were "in your 50's??" Every single working person of any age should not plan on SS to be their sole source of income unless abject poverty is their goal. SS was never meant to be a sole source so I saved and invested as much as I could for retirement my entire working life.

Also, your thread title says "WIPE OUT SS", which leaves one to assume you meant that it will no longer exist.
 

Knight

Senior Member
If you were "in your 50's??" Every single working person of any age should not plan on SS to be their sole source of income unless abject poverty is their goal. SS was never meant to be a sole source so I saved and invested as much as I could for retirement my entire working life.

Also, your thread title says "WIPE OUT SS", which leaves one to assume you meant that it will no longer exist.
My reason for 50's was the timeline is short so taking some action now would be advisable. IMO younger as in 40's and younger would see what happened and be more in tune with planning.

As for "WIPE OUT SS", the word could as opposed to "WILL" makes all the difference. Opinion the world COULD end tomorrow. Opinion stated as fact the world WILL end tomorrow.
 

Don M.

Well-known Member
Location
central Missouri
With more and more retirees every year, most of whom Vote, the politicians would be looking for a new job if they allowed SS to fail. However, like most issues, Washington probably won't do much until this becomes a problem. The sooner they begin to react, the less "invasive" the solution would be. Raising the "caps" would be the most logical solution, at this point, and I fully expect some "means testing" to begin that would lower the benefits for those who have other retirement funding.

With fewer companies offering "defined pensions", It falls on the shoulders of everyone to realize that they, too, will one day retire, and they better start saving early in their careers....401K, etc.
 

Aunt Bea

SF VIP
Location
Near Mount Pilot
I was always told that SS was only intended to replace approx. 40% of an average person's pre-retirement income and the rest was to come from pension savings and investments, the old three-legged stool of retirement.

IMO they should remove the annual cap on contributions for two reasons. The first and most obvious reason is that it would mean wealthier people would contribute more to the fund. The second less obvious reason is that it would benefit people who have a few high earning years and a few low earning years to accumulate a larger SS benefit if they were paying in more during those high earning years.

SS may change or be replaced by a new program but the fact is that the average American is hooked on the government subsidy of retirement in some form. We will never return to the days of independence and personal responsibility that existed before The New Deal.
 

treeguy64

Hari Om, y'all!
Location
Austin, TX.
When I was in my working prime, SS was never a part of my conscious financial planning. When a friend told me I could start getting SS at 62, I was pleasantly surprised, and figured that was the way I'd go. It was a little, monthly bonus. Cool!

Don't bother explaining about how deferring SS can lead to bigger checks. I know that. I also know that government actuarials know that its in their best interests to con folks into putting off taking SS, because the odds of their dying, before they get a penny, increases as they age.

To plan on living off of only SS is, for most, to consign yourself to a life of near-poverty.
 

mathjak107

Senior Member
When I was in my working prime, SS was never a part of my conscious financial planning. When a friend told me I could start getting SS at 62, I was pleasantly surprised, and figured that was the way I'd go. It was a little, monthly bonus. Cool!

Don't bother explaining about how deferring SS can lead to bigger checks. I know that. I also know that government actuarials know that its in their best interests to con folks into putting off taking SS, because the odds of their dying, before they get a penny, increases as they age.

To plan on living off of only SS is, for most, to consign yourself to a life of near-poverty.
actually , today it is the reverse , especially for married couples ...

odds of one in a couple living until 85 and collecting those 70% bigger checks if they started at 70 is a whopping 73% ....so they would pay out more today if everyone delayed since more of us are living to older ages ... we are not going out much in maximum age anymore but more of us are seeing 80,s and 90's ....with a couple you have two horses in the race and either can outlive the other ... so to many delaying is not a good thing .

dying early and collecting less is even better for them .

 
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OneEyedDiva

Well-known Member
Location
New Jersey
Yes, I read this the other day. When I first joined this forum I posted about the projected SS cuts and nobody wanted to listen. People said something like "oh they won't let that happen". I would rather they be right but the forecasts are getting more dire.
 

Knight

Senior Member
Yes, I read this the other day. When I first joined this forum I posted about the projected SS cuts and nobody wanted to listen. People said something like "oh they won't let that happen". I would rather they be right but the forecasts are getting more dire.
For me 12 or 14 years from now I doubt if the best guessing by those that follow what Soc. Sec. might do relative to reduction in benefits won't matter. It just seems to me that so much tax revenue not going into the fund will have a negative impact Reduction being the key word. So much impacting the federal budget now I think once the smoke clears the talk will turn to where to get the money to fund the deficit, soc. sec. & social help programs.
 

mathjak107

Senior Member
Social Security is one of those catch-22 situations where the more you need it the longer you should probably wait to start drawing it.

I agree with @CatGuy we each need to do the math and make our own decision.
it is catch 22 though ... those who retire at 62 and need the bigger payment usually don't have the option to delay and spend down what they do have. the irony is most who retire pre fra don't really have the option or they have to live such a reduced lifestyle while waiting that it makes no sense to delay
 

mathjak107

Senior Member
What are some cases that wouldn't be foolish

when is taking ss early not foolish ? likely more often than delaying for many .

when you want to retire and don't have the assets to safely lay out fronting yourself the ss you are not collecting .

when large spousal benefits are involved delaying can cost you a whole lot more up front .... my wife couldn't get an extra 4500 a year in ss until i filed .


also when you are spending down invested assets or assets that could be invested if you had ss coming in .

it can take 22 years to just see the same real return delaying ss when spending down a balanced portfolio to live on for 8 years while delaying .

you have to live on something , so that is either assets invested or money that could be invested .

in fact statistically the balanced portfolio stands a better chance of seeing a 6% real return then you do living until 95 . which is what it takes to see a 6% real return from ss delaying vs spending down your own assets up front .



 
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mathjak107

Senior Member
when does it pay to delay ?

1. It’s cheap longevity insurance.

2. Don’t need the money now.

3. Good health and family history of longevity.

4. Increase survivor benefit for lower benefit spouse.

5. Take advantage of spousal claiming strategies if still available.

6. Spend or convert to Roth tax deferred savings before RMD’s start.

7. Convert to Roth to leave heirs tax free income.

8. Allow more money to convert to Roth within marginal tax rate.

9. Avoid increase in ACA premiums.

10. Catastrophic market loss insurance.

11. Working part time and making above the limit




the other factor is those who NEED the bigger ss check likely don't have the assets to lay out to delay and retire at 62 ...

so delaying is more about the perks that go with having the assets and the choice of delaying rather than delaying because you dont have the assets .

this is why only 2% of ss receivers file at 70, they cant afford to retire and not take it .
 
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treeguy64

Hari Om, y'all!
Location
Austin, TX.
What are some cases that wouldn't be foolish
1. In cases where somebody really needs the extra money, ASAP, and has no other recourse.
2. Where somebody is extremely well-off, and figures, "What the Hell, the Feds are hoping I defer this little, extra income for as long as possible, and die before I ever see a penny of it."

In putting pencil to paper, it took me less than five minutes to see that the sooner I took my SS payment, the better. I found that, for me, it made zero sense to wait any amount of time in order to increase my payments. As I posted earlier, I never counted on SS in my retirement planning, never even considered getting it. It's my little, extra, monthly bonus.
 

mathjak107

Senior Member
this is a subject that is beaten to death on every retirement forum ..yet the bottom line is if you retire at 62 , you need enough assets to live on without spending down dangerously low in order to delay ... most who argue this stuff fail to realize very few who retire early have the option to delay because they cant afford to delay.

those who do have the assets tend to be spending down money that is invested or can be invested and then that becomes an impediment to delaying .. i mean you can see all you need is a mere 4% real return over the long term to meet the 4% real return you see from ss at age 85 . a balanced portfolio can easily do that ...



.only 2% of filers delay to 70 so that tells you something about delaying not being the best choice or even a choice for most . the problem is those who argue for it don't include all these other factors , like the effect of investing or not being able to afford to delay safely ..

the truth is delaying is best when there is a strategic reason to delay like the examples i listed above, but for most who have that choice it is nooooooo slam dunk delaying ....

one caveat: no one should ever buy an annuity ever , without delaying ss first ... you can not buy a commercially available annuity that gives you as much as delaying ss , is inflation adjusted , and passes to a spouse for anywhere near the amount of checks you would give up
 

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