Social Security Trends

Excellent question, but no.

You take the contribution limit the year they earned it and index that to today’s dollars. The result is usually close to today’s contribution limit, but it might be higher or lower.

The wages are indexed by the National Average Wage Index.

At least, that’s the best of my recollection. But I spent a lot of time checking that my employer’s developers had correctly coded up the Social Security calculations so I think that’s right. It’s too bad Bruce isn’t here to check me.

Ok Excellent info here, Twig.

The contribution limit has, on average, outpaced the NAWI, but not by a very big margin, according to my math.

I also calculated, using your data, that the highest monthly check you could receive now is about $3418.90

35* 12 =420. So your monthly wage in the formula is the total 35 year indexed wages / 420. I love how 420 is officially in the formula.

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In general, if you want to see the best info on Social Security for technical analysis, etc, go to the office of the chief actuary page:

They have their own analysis page for various proposals [there are many]

Here are their estimates for standalone provision changes/impacts:

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In about 10 years, when the Social Security Trust Fund runs short for benefits, somebody in Congress will propose that the Treasury sell extra T-bills to cover the deficit. They’ll argue that Trust Fund money has always been invested in T-bills anyway. It will pass the Senate about 98-2, House 430-5. The same will happen in 6 years when Medicare’s impending shortfall threatens to derail the 2028 elections. Thereafter both will be partially funded from general revenues. :frowning:

Yes, they will be funded from general revenues, because that’s what it will take. So what. It’s all one big money pot.

If we can sever people from the concept that they “earned” this, that will help.

Maybe they can see it as a safety net instead of retirement savings.

One thing about a fiat currency system: If you don’t have enough money, you can always print more.

(Of course, there are certain unfortunate consequences with such a strategy.)

Well, we’ll see if we hit our limit on how many Treasuries can be issued.

But my point wasn’t the Treasuries so much as it will get away from payroll taxes to be fully funded. Income tax will work just as well.

Once the Trust Fund is gone, they’re unlikely to build it up again.

I’ll tell you so what. You are fostering the shift of a mutual benefit insurance plan into a transfer tax. You loosen the relationship between what a cohort pays in vs what that cohort receives as benefit.

So the tax system as a whole becomes entirely more progressive and unfair.

You cannot keep shifting the tax burden of the whole country on the 70th to 90% percentiles of the population.

It is a problem that the bottom half or more pays nothing, and the top pays way too little.

The bottom 70% needs to pay something. The top 10%ile (90th to 99.9th) needs to pay more than the 80th to the 89.9th.

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…because?

Look, the benefits need to get changed, too.

Turn it more into a safety net. So flatten the benefits at the top - reduce, reduce, reduce.

The demographics don’t work too well as a pay-as-you go. Nobody has “earned” anything here.

It’s fine to keep a payroll tax component, but it’s not sustainable as-is.

I never realized that you were quite the communist, Meep.

Just say “No” to means testing.

If your house burned down, would you like your insurance company to look at your bank balances and then perhaps determine that they aren’t going to pay for the insured damages because you have too much money? No. You wouldn’t. You would expect that after paying for years for coverage they would fulfil the terms of the policy with utmost good faith.

As Twig pointed out (informative post on 9/15), my benefit only gets me 15cents on the dollar for my marginal tax dollars, while lower income people get 90cents on the dollar. Plus I will have to give back perhaps 1/3 of my benefit because of IRA MD’s. How much more progressive do you want to get?

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I’m saying you’re not going to get a retirement plan from Social Security as something that’s sustainable, given U.S. demographics.

You’re going to get welfare for old folks. I didn’t say the low income people would get more, just that high income people would get less.

That’s what we can support on a pay-as-we-go basis.

If you want actual retirement benefits, you’re going to need to save money for yourself. Let me know how that’s communist.

Enjoy.

This is communist. You will create a system that punishes people for hard work and success. How about flatten benefits proportionately at all levels? How about wait until I retire and then raise the payroll tax on the mopes that are still working? That’s what congress did to me in 1982?

Again, this is communism. Your words translate to “means testing”. You want to punish people for hard work and frugality and make a transfer tax to reward people for unrewarding life choices.

Government programs should be designed to encourage peoples’ successes, not reward them for failures.

Social insurance like Social Security is different from welfare. It’s a government-sponsored retirement plan designed as a floor for private pensions. It covers an area deemed to risky for private insurance.

Social Security’s long-term success is significantly affected by the change in demographics, i.e., working folks vs. retired. U.S. demographics have clearly changed since the 1930s, and could severely impact the proportion of workers (covered by SocSec) to beneficiaries in the future. That doesn’t mean that those who paid the FICA taxes didn’t qualify for the social insurance program, i.e., “earn” the benefit. It means that the design should be modified so that future beneficiaries don’t lose their benefits.

If the benefit was simply flat (not means tested… even super rich people get the flat benefit) that would in no way punish hard work and success. It just wouldn’t reward it as much.

The beauty part is that I’m only 48 so I’ll get to see what actually happens (if I live long enough).

The Trust Fund will run out in the next decade, and Congress will be forced to act (finally). They are unlikely to do much until forced, currently.

When I think about Social Security changes, I understand that there are the two parts - how the numbers will work out and how the politics will work out. Usually the second part is going to make me unhappy, and I’m not going to be able to do anything about that.

This being the professional area of goActuary, this is the appropriate place to talk about the first part. We can start a separate thread about our preferred policies if we’d like – in the Political area. I was talking about what I thought was sustainable more than my preferred policy.

The Academy put out two papers this year, summarizing and organizing proposals:

Taxation change proposals:

Benefit change proposals:

You can also go to the original source they used here:

I don’t think much action is going to happen in the next 2 years on Social Security, even though the old age program has already gone cash flow negative and is unlikely to reverse in the near term. Given these trends, and even with extra mortality from COVID, the Trust Fund is going to be gone within about a decade.

So let’s get talking! Lots of options, and I’m assuming some combo of increased taxes and reduced benefits on the upper end is what’s going to happen. The reduced benefits may just come from increased taxation of benefits - there are a variety of ways they can implement this. Check out the links.

Well on the low end that is built in, due to the fact that the taxation thresholds have not increased one red penny since they were introduced in the 1980s. $25,000 was a lot more in 1982 than it is in 2022 and more in 2022 than it will be in 2042 or 2052.

My guess is that they’re going to start taxing income above the cap and the cap will only apply to benefits.

According to the Academy’s old Social Security game that solves 88% of the problem. That’s based on old numbers though. Covid knocked out a bunch of beneficiaries prematurely, but we’ve missed out on some years to build up the trust fund in there too.

Still, suffice it to say that this change alone kicks the can pretty far down the road, and has zero negative impact to most voters, and only a pretty small impact on another group of voters, so it’s probably pretty popular, or maybe more accurately probably one of the least unpopular fixes.

In a month the wage base will be $160,200. About 94% of Americans make less than that so we’re talking about a change that only affects 6% of the population at all. And about a third of that 6% makes under $200,000 so the impact to them is pretty small.

I think this is the most likely option politically. Couple that with a tiny payroll tax increase or other minor tweak to reach a solution.

Unfortunately, Congress loves cutting taxes and increasing spending regardless of the long term impacts. Wouldn’t be surprised at all if they keep borrowing to cover the difference. If the GOP is in power, I’d expect a tax cut on top of spending increases.

The challenge with that idea has always been the impact to employers. While the impact to individual taxpayers is fairly small, the increase in tax liability for the portion paid by payroll tax can be material, especially for certain companies that are prone to instigating contributions to political campaigns.

Now, if you did something like this:

  • Eliminate the payroll tax contribution
  • Mandate an increase in wages/salary equivalent to the amount saved by reducing payroll tax
  • Increase the individual tax rate

…so that net/net employers and employees are essentially not impacted by those changes, AND THEN started taxing above the income cap (or at least reset the cap at, say, the 99th percentile and scaled cap increases to maintain the percentile, rather than scaling by general wage inflation), I think you’d have a better chance of success.

That’s awfully complicated and affects 160 million workers. The whole point is to leave almost everyone untouched.

I think it would be more feasible to impose the full tax on all Medicare wages (ie redefine Social Security wages to be the same as Medicare wages) and then give employers an offsetting credit on their corporate taxes. And it could even be a partial credit… or a full one.

That’s essentially funding some of the liability from general revenues, but in a smoke & mirrors sort of way such that politicians can continue to claim it’s not.