my kids are Gen X’ers and I have been telling them for years that they need to start saving yesterday as me and my boomer friends will drain the Trust fund dry way before they can think about retiring. hahahahaha
That said, there is more than one law that governs SS. When the Trust Fund runs short in ~2035, the Trustees, by law, will have to reduce payments – ~21% as of recent projections. But, another subsection indicates that payments are due and therefore owed by the federal government. (Kinda like when the feds run out of approved budget and the start giving federal employees IOUs’ until a new budget is approved.)
Per the Congressional Research Service, “Social Security beneficiaries would remain legally entitled to full benefits and could take legal action to reclaim the balance of their benefits.”
Obviously, no one wants it to come to that. OTOH, if Congress chooses to ignore the SS funding shortfall, they could just make it up thru General Fund.
I think that sadly many people don’t have the means to save and others have the means but don’t bother. Savings are widely disparate when you look at retirement portfolios. And not all of it is dependent on income. Some are good savers.
No one knows what will actually happen. The SS fund has been expected to run out of money since I was in high school (almost 40 years ago). I remember writing about it. But there is a huge bump right now with the boomers retiring and living longer lives and a large number of folks behind them lined up to receive their payments.
They have tried to get funds with people’s names on them. There was a lot of pushback. After all it’s an entitlement program but people have specifically paid into it and expect a return. Name a single major entitlement program that has ever ended after having public participation and financial input by individuals?
I think there are also many people who did the right thing and have either a pension or plan to use SS to supplement their needs rather than have it be the sole income.
Either my spouse is wrong or I am. My spouse thinks that if SS goes away for the financial well off that will prevent taxes on the highest incomes heading further North. Again, no one knows. But everyone wants to be in the group that comes out on top.
We don’t need it as part of our retirement but I can’t say that I’d be happy to let the government decide as they certainly haven’t managed SS well over the years. I’ve done very well with our savings. But the government IMO is like a kid with a credit card with no limit. Reckless and buying things they cannot afford. I’m frugal. They are not. I actually pay my bills.
Thank you for that information. I will read through it.
It is interesting that in the past the retirement age was raised, so obviously changes can be made to the system that affect only certain groups. I don’t recall anyone suing over that either.
I suppose as you’re saying the whole system couldn’t legally be abolished but I’m not so sure it couldn’t be adjusted to affect certain groups greatly. Government pensions already reduce SS benefits of those that also worked outside of the government and are entitled to social security. It’s not a stretch to think that could be expanded upon.
you can always make prospective changes of the working population, but cutting an existing beneficiary’s benefits is retrospective. That said, I’m sure they could figure out a way to tax those benefits more.
But my broader point was that, even when the Trust Fund runs out of money, the feds still have a legal obligation to pay existing beneficiaries.
I hear your point about the feds having a legal obligation towards existing beneficiaries. I hope that would not change.
I also think I see you say that changes could be made towards workers not currently receiving those benefits (under retirement age). That is my worry, and where I could see them making changes towards those that prepared otherwise.
I have never, ever been eligible for pension, 401K, 403B, etc., etc. I did put away $2000/year when IRAs were first created (maybe 10 years until I became a single mother and I needed that money to live on) and I was fortunate to pick good investments. But if you are living on the median income in this country ($68,703 in 2019), paying for childcare, paying for health insurance if you’re lucky to have it offered to you with cost-sharing, paying rent (how could you ever save enough for a down payment?) there is no way to create a substantial nest egg and build on it. No.way.no.how. And of course half of the population lives below that level. The annual earnings for a full-time minimum-wage worker is $15,080 at the current federal minimum wage of $7.25. Full-time work means working 2,080 hours each year, which is 40 hours each week.
@oldmom4896 on Medicaid, that may be the ‘cost sharing’ on the first 3 years. But then it is my understanding that the state would have a significant cost with these additional folks on Medicaid. States HAVE to balance their budgets. Fed Gov’t doesn’t - they raise the deficit and countries like China buys up the treasury bonds.
I think many companies do a less than good job on explaining 401k and match money. The company I work for matches 4%, and with pretax money from employee, they would barely even notice a decline on their paycheck. But a great many don’t bother to do this. As a non-management/non-benefits person, I have spoken and explained the 401k plan 1 to 1…one gal had worked for the company 7 years, so she missed the pretax money going in and the match. We also have health insurance where you have to pay pharmacy (that accepts their insurance, which is a mainstay, Blue Cross Blue Shield) and then file with insurance online - after $100 towards deductible they pay 100% - but I know employees that also don’t bother with getting that money either. Another employee told me the basics and it was easy to do, and worked great.
@SOSConcern the first three years the cost sharing was less. But the law states a maximum of 10 percent paid by the states after that.
I repeat, I never worked for a company that offered 401K/403B/etc plans with or without a match, or had a pension. I worked mostly for very small companies. And that is the truth for many, many workers.
Ironically, I now work for a nonprofit that offers a 403b match. But I am older than 70.5 so not eligible.
Some employers are aggressive at making sure that every non-“highly compensated” employee knows about the 401k plan and its matching, so that the 401k plan does not become top-heavy (i.e. too much of its use is by “highly compensated” employees, which could get the plan into trouble).
Seems like the pay first and then submit a claim method makes it less likely for the participant to use the insurance for the covered expense, compared to having the pharmacy bill the insurance directly at the time of purchase (which is what I remember seeing from major medical insurance companies and major pharmacies like Walgreens and Wal-Mart). Of course, if a deductible applied, the participant would have to pay it, but it would then be credited toward the deductible limit then.
When we started our retirement planning, we had assumed SS might not be healthy by the time we needed it. So we invested heavily in our 401k accounts. It turned out that SS is OK, but our expected pensions were not OK. So we are glad we saved a lot. (It was all in tax deferred 401k. Yea, perhaps at some point we should have started doing Roth instead. I don’t fret over that. The money grew without taxation, and the main thing was that we committed to saving rather than lavish spending.)
@ucbalumnus yes one year H had to have money come out of 401k due to poor participation of a lower group of paid employees (how he was grouped in with highly compensated employees…unless it was a year that he somehow got a nice bonus or some payout from change of company).
I worked for a small physician group who always had highly compensated employees due to the 3 MD’s large salaries/bonuses, but they didn’t mind paying the rest of the employees a required % of pay into the plan. That was a nice boost to my 401k.
Get your kids started early! A great friend and client just had his 28 yr old speak with me. Very educated (Masters degree), good job that pays well, entrepreneurial (side business). He was concerned his daughter wasn’t doing all she could to set money aside and invest in her future.
Long story short, she was doing nothing other than accumulating cash in her savings account at the bank. Not contributing to her 401k (so no match), no Roth IRA, no nonqualified brokerage. She does own her home which is great. When she told me her dad was concerned because she had too much in dormant savings I was a bit shocked. I was expecting to hear 10k-15k and it was more like 100k+ in cash. After expenses, this kid saves 3k-4k per month. Imagine what just 2k per month in a diversified fund/etf portfolio would do for 30 yrs.
The 30 yrs is the point. She’s still plenty young, but she’s missed out on the past four yrs (at least her 401k).
Get the snowball started as soon as possible. Don’t bite off more than they can chew, but something comfortable every month. The very basic tools of the trade: time in the market, dollar cost average, asset allocation based on risk tolerance, rebalance to maintain risk tolerance. Lot of “Wealthy Barber Millionaires” out there regardless of background or job.
Early Early Early or as Nike says. teach them to “Just do it!”
I’m trying to understand how the government would be able to change SS benefits to be based on wealth rather than income.
To me, this has been a huge issue with the stimulus checks. The receipt of them has been solely tied to income level which is easy to determine through tax returns. I have friends whose elderly parents are receiving the max amounts in stimulus checks. Their income is low enough that they qualify, but they are sitting on a pile of investments, retirement accounts, a paid off home, etc.
I’m just trying to understand, logistically, how SS payments could be adjusted/lowered to be tied to one’s wealth - which I think is what some of you are speculating could happen.
While there may be a law saying you are entitled to benefits at a certain level, there was a Supreme Court case in 1960 wherein the section of the SS Act where Congress reserved to itself the right to modify benefits, was ruled constitutional. You have no contractual right to benefits, and payments due are not a property right. So at the stroke of a pen your benefits could be eliminated.
As for wealth-testing benefits, the same issue exists for the proposed 2% millionaire’s tax. The easiest way would be to use income as a proxy, and add in some easily findable assets like retirement accounts, brokerage accounts, house equity, NPV of pensions, etc.
I was speculating so I’ll give one example. It would still be based off of income in retirement though as opposed to wealth.
Currently those who take SS early and continue to work see their benefits reduced once they earn over a certain amount at their job. This does end once these individuals meet full retirement age. Currently income from other sources (pensions annuities, investment income, interest income, and other retirement income) do not affect SS benefits. I’m speculating that rule could change thus reducing benefits paid out to those with other “income” and it could be extended beyond full retirement age.
There could be an X dollar limit set from all income sources ($75,000 individual/$150,000 family) where above that SS payments are reduced until they are eliminated. This could include IRA withdrawals and 401k distributions.
Now this wouldn’t necessarily catch those that have a lot invested, own their own home and can live frugally but it would snare a large swath of people that have done well saving and investing but still need a large income coming in.
I personally fully plan on pulling a good “salary” from my 401k account when the time comes. It would be nice to also have my social security benefits to rely on. In some ways I could see the government changing the rules to affect that. Hopefully I am totally wrong but maybe I’m not. Can it happen? Could other changes be implemented to shift the entitlement to benefit those more in need and away from those that have less need because of their life circumstances?
It’s interesting and scary in many ways to ponder. It could certainly affect the retirement planning for many if changes are implemented.
Curious: how much time do people spend on tending to their finances? What is normal or necessary for a full time working stiff to do, and how long does it take on a monthly or yearly basis?
Reading these posts, it feels like for some people it is a part time job to track their portfolios, changes in law, budget, etc. Even the people with financial advisors have to still pay attention and give input.
I have one of those children who are sitting with piles of cash in CDs and online savings accounts. No 401 K available but does fund a Roth IRA that is invested in a age based mutual fund.
Before I retired, I was buy and hold, i.e., “stay the course.” (John Bogle). 100% equities, Total Stock Market index fund. Only looked at my year-end balances when doing taxes.
When my father died and I received an inheritance, that and my IRA money was sufficient for me to get a financial advisor via Vanguard Personal Advisory Service. I filled out a questionnaire about my tolerance for risk and they do the rest, including checkins a few times a year and any time I want them. My advisor has changed a few times since then (2015) as my personal advisors were promoted, but they have all been wonderful, and one sent me flowers when I got my MSW in 2018! And although my total amount invested has dipped below the limit (500k), I am not reduced to the next level, in which clients always have an advisor available but not just one person.