Surprise! Social Security Will Pay Less in the Future

For some reason, people hate it when I rant about Social Security (see Why Social Security is a Rip-Off -- Especially for Higher Income Workers and Social Security is Robbing Me of $1 Million; You Too?), so I figured I'd let Yahoo do the ranting for me this time. They detail the fact that Social Security will pay out less (as a percentage) in the future. Here's the bottom line:

A new study says Social Security will replace much less of your pre-retirement income than it has for retirees in the past.

There's a shocker.

Then, it gets worse for some people:

And the more you earn, the greater the difference would be. [between how much you used to get and what you'll get in the future.]

Personally, I'm not counting on Social Security for a dime as I save for retirement, so I'm not really worried about what happens to Social Security personally. I am hopeful that it gets worked out for those who are less fortunate and need retirement support, but I'm not too excited about paying a chunk of my current income to support many people who should be saving on their own to fund their retirement. And the fact that I'm putting in more and more and expecting to get back less and less doesn't sit well either.

But there I go again -- ranting. We'll move on to the next thought from Yahoo on what the future of Social Security holds:

For those in their 20's, 30's and 40's, you can bank on this: whatever changes are decided, you'll either end up paying more for the benefits promised or you'll receive less of them, or, possibly, both.

Just another reason to count on it for nothing. Set your retirement number and save for it yourself -- act as if you won't receive a penny from Social Security. Then, if you do get anything, it will be a pleasant surprise.

Of course, it could be worse:

Or you could just move to Luxembourg. According to data in NASI's report from the Organization for Economic Cooperation and Development (OECD), retirees in the tiny European nation get Social Security-like benefits that equal 100 percent or more of their pre-retirement income, ranking it No. 1 among all 30 member countries of the OECD, many of which fund government retirement benefits with contributions from workers, employers and general taxes, with typically higher tax rates than in the United States.

More taxes. Great idea. Maybe we could all just send our paychecks into the government and they could send us each back whatever they didn't need. Sounds like what they do in Luxembourg.

There I go again...

Comments

[Lord]

Worse? Luxembourg is one of the places with a higher standard of living than the US. You should be so lucky.

[Dave]

Imagine all the people living life in tax freedom.

Think of how the churches and non-profits would be awash in cash donations.
Think of how many more entrepreneurs could start businesses from spontaneous financing.
Think of how the US government would have to adhere to fiscal discipline.

There is a way to not pay SS - passive income.

[James]

Yeah, thats no surprise. I always figgured that social security would run out by the time I hit retirement (2047). The demographic trends don't support the program.

Best,

James

[Edmund]

When Social Security first started, the life expectancy is not much higher than the retirement age. The program was not originally designed to support people in the retirement for a long time.

What happens after that? People found out things are going good and the Social Security program can give out more benefits than what was originally designed. Instead of moving up the retirement age as life expectancy goes up, we leave it alone so people get paid for longer.

Now things are turning for the worse, and people are complaining about how it's getting worse. Where was the outrage when the program was giving out more benefits than it originally intended?

[Suze]

LOL! Well, I don't hate it when you rant about Social Security. I just dont agree with you. Healthy debate is good for society.

In fact, I don't consider your posts rants at all. You are entitled to express your opinions forcefully, particularly on your own blog.

Social Security was designed to provide minimal benefits and to keep seniors and disabled people out of poverty. It is a social insurance program, not an investment tool, and was designed to provide for the greater good of society. A society of impoverished elderly people would not be a good place to live.

I agree, it needs work -- benefits should begin later, be lower, and have a specific end point. And personally, I'd give up Social Security to save Medicare.

[Edmund]

Yet Medicare is going to be draining far more money than Social Security ;)

[plonkee]

Its all about choice. I bet the people in Luxembourg are happy with their choice. It probably helps that since there are fewer of them, the government is inherently more local.

Personally, I prefer to live in a society where old people are not completely destitute so I support a welfare state safety net (in common with most Brits - thats why we have one). This means that I need to pay for it and be a net contributor.

Whoa... I was going to comment on this, but pretty much all the comments already make my point that SS is a public good, like roads and bridges.

Is it really as expensive as you state above? $1 million?

I still don't see any blog entries from you about how much SS's annuity and insurance would cost you if you were to buy it in the private market. Then add in the benefits for the unlucky too.

[Matt]

To those who would defend Social Security as a safety net for the elderly, what is it, precisely, about being old (by itself) that makes someone deserve a piece of my income? Warren Buffet is pretty old. Does he need my help?

It's true that there is a correlation between advanced age and various types of physical and mental deterioration--and thus, earning power. But the correlation is far less than perfect.

It would be more morally defensible to confiscate working people's income only to help disabled people, regardless of their age. It would also be much cheaper and better for the economy.

[Suze]

When you are older, you are no longer working for a living and, as you stated, you are at greater risk for physical and mental problems. You are one of society's more vulnerable members.

Social Security was *not* designed to provide for every need or to replace every dime of income in retirement. It was designed as a minimum safety net for the elderly, disabled, and some minors who have no one to provide for them. Thus, it is society's contribution toward a greater good. That is *precisely* why a piece of your income goes toward it.

If you hate social security, write to your congressman. Heck, run for congress yourself.

[Luke]

Suze...

Let me just take this point...

"it needs work -- benefits should begin later, be lower, and have a specific end point."

So in essence, and I use an example here that might not be perfect, instead of receiving benefits at 67-years old, like I think Generation X COULD, and instead of receiving a measly $1250/month and instead of having those benefits until the day you die, you are suggesting that Generation X and younger will wait until 75-years of age to receive SS and only receive $750 and only be allowed to collect until you are 90?

The idea that SS needs work is already a start, IMHO, that the plan is broken and a new one needs to rise out of its ashes. When we all agree that these funds are set up to protect the eldery and to keep folks from being completely destitute and we need to continually take away money and add years and years from when you can collect, it makes this SS situation broken and need of 100% fixing.

I like the idea that there is a safety net for when you get old and I like that it does NOT provide enough to live like a king, but the point of this program is being widdled away and therefore the idea of SS can no longer be maintained in this program.

Far to many folks in my age group are flat out coming out and saying that they dont expect a DIME when they get old. I think THAT is nuts that a society would basically allow an entire generation to pay for another generation's retirement and not have something set up for their own retirement.

And when my aunt, who started SS at 62, collects 50% more than what I COULD and I will have to wait 15-years longer and will only be able to supposedely collect until some certain age, how does anyone expect the younger generations to take this lying down?

[Matt]

Suze, why do you take it for granted that when you are older, you are no longer working? Absent disability or age discrimination, that seems like a personal choice to me. Even considering age discrimination, I suspect its effects would be diminished if more people worked longer.

Why should the increased *risk* for physical and mental problems make someone eligible for welfare? Why not wait until those problems actually develop?

I favor retaining Social Security's role as a safety net for the disabled and minors with no one to care for them. What I'm arguing against here is a one-size-fits-all magic entitlement age. Some people may develop enough problems before age 65 to justify public support, and for others it may be much later.

If indeed Social Security is supposed to be a social welfare program and not just some failed, inefficient retirement savings account/pyramid scheme, then shouldn't there be a stronger relationship between eligibility and need?

Back when Social Security started, people didn't assume they had the right to a 15-25 year retirement income supplement at taxpayer's expense. Back then, people worked until they were nearly dead. Life expectancy was very different. People who managed to reach 65 at all were likely not to live much longer, and were unlikely to be healthy. In that environment, using age to determine welfare eligibility made a little more sense. I still think it was a poor design, but the flaw was less obvious when the correlation between need and retirement age was stronger. It would be as if the retirement age were 85 today.

I too am concerned about the greater good of society. But I believe that it is best served by letting people decide how to spend, save or invest their own money after the needs of the *truly* needy are met.

[Suze]

I'm sure you are concerned with the welfare of society, Matt. The fact that you think about these things indicates so.

Walmart greeters aside, very few places will hire anyone over 65. Those jobs that are available to seniors are not high paying, either. So very few seniors do work at jobs that pay a living wage. Thus, most folks over 65 aren't earning nearly what they did earlier in their careers. It's not something I "take for granted", it's a fact.

The relationship between eligibility for Social Security and need is (generally) age. I agree that the age of eligibility should be raised. On the whole people live longer and are healthier now. Also, benefits will have to be reduced -- that seems to be a given -- to maintain a minimum level of income to seniors into the future.

One one of your other points, I too would *love* to have the ability to decide how to spend and save my own money, all of it. I don't get to do that because I live within a society that makes some of these decisions for me.

Believe me, I strongly disagree with some of the ways the Federal and state governments dictate that I spend my money. I make my disagreement known to my representatives -- it's the avenue open to me -- and its the great thing about a free society.

You can and should do that, too. Who knows, maybe someday you'll see the changes you want to see.

[suze]

Sorry Luke. I didn't mean to ignore you. I wasn't talking about Generation X, I was talking immediate change which would affect earlier generations before it affected Gen X, Y or whatever comes after. I guess Gen Z.

I'm not at all in favor of putting off change. Believe me, changes in SS will hit me faster than they will hit you. I am willing to take that hit -- please let's not start a generation war.

[suze]

Sorry Luke. I didn't mean to ignore you. I wasn't talking about Generation X, I was talking immediate change which would affect earlier generations before it affected Gen X, Y or whatever comes after. I guess Gen Z.

I'm not at all in favor of putting off change. Believe me, changes in SS will hit me faster than they will hit you. I am willing to take that hit -- please let's not start a generation war.

[Luke]

No generation war intended. I just think it's a sad state of affairs when this 'great' SS system we got will be used by everyone above 30 right now, but somehow the younger crew has to look the other way, paying out of their pockets and won't get the same benefit.

If SS is this great system, it should be changed on an as needed basis and I don't understand how folks in power can sit back and allow "the youth" to be thrown under the truck.

> very few places will hire anyone over 65.

Heck, it's tough to find a job as a software developer at 55, never mind 65!

[Lord]

A few notes. When SS was implemented life expectancy was about retirement age, but if you reached retirement, you could expect to live 8 years. Even adulthood brought most of those gains. That has increased to almost 20 years, and increases by about 1 month/year. Currently the younger you are the longer you can expect to collect due to longevity. So much for the same benefit.

Societies have very limited means of storing up future consumption. Most of what will be produced will have to be produced by those working then. Saving financial assets for this purpose at the macrolevel simply can't be done. All one arrives at is asset inflation and deflation. SS is taxation for this benefit. Government is in the most suitable position to provide for real indexed annuitization and survivorship benefits. It is the largest amount for some 90% of retired, the majority of which depend on it almost entirely. That is remarkably close to means testing.

Both taxes and benefits have increased. The boomers parents could rely on a growing population to provide them, the boomers and subsequent generations will not be able to. This may entail changes or may not. The best case says no, the worst case says yes, but it is really too soon say.

There are no free lunches. You are paying your parents retirement. If you preferred they moved in with you, you will just have to convince them.

@Lord, re: life expectancy. That's a little inaccurate, check out http://www.ssa.gov/history/lifeexpect.html for the details.

[JM]

"To those who would defend Social Security as a safety net for the elderly, what is it, precisely, about being old (by itself) that makes someone deserve a piece of my income?"

How about that, generally speaking, the only reason you are able to earn the amount of income you do, is because you are building off of what the previous generations worked their entire lives to build? Which in turn the next generation will build off of, and so on and so forth. Unless of course you work in an industry that hasn't benefited from all the advancement that has occurred in society since at least the industrial revolution, and before, which incidentally, there is no such line of work.

This is not true for absolutely every retiree, of course, but for the most part it's turtles all the way down.

[eb]

How 'bout that the body tends to wear out & break down as one ages?
How 'bout people deserving a wee break from a lifetime of labor before hitting the dirt nap?