Any Social Security experts here?

scatmandu wrote:

FW: as a conservative investor, do the following: live and save as if SS will evaporate before you get to use it.

Worst case scenario: you are RIGHT, i.e., Soc Sec goes away, at least for you (e.g., Fed institutes some means test; you have savings, ergo, you do not qualify).

Best case scenario, Fed hands you excess income--you can invest, donate, give your other money to your heirs, whatever.

Plan for retirement AS IF there will be no Soc Sec for YOU; why? Because, for a number of reasons, it might go away...

Remember, Soc Sec can be *voted* on...and the grasshoppers outnumber the ants by a factor of, what? 10 to 1? Better safe than sorry.

No worries brother. If you've read any of my investing stuff here before, you know that for the first 7 years of my marriage, my wife and I invested about half our income for retirement. Then the kids came along, and for a few years I cut back to 5% going to retirement, but have slowly and steadily raised it back up to 20% (20% automatically taken; planning on putting some into my IRA every year too, so ultimately this is more than 20%). I probably have enough right now that I could stop contributing at all and still be fine in 19 more years when I retire. I've done all this mostly because I want to retire early (59 1/2) but also because I don't trust when and how and how much Social Security payments will be made available.

Flagpole Willy wrote:

then my children will inherit the money, pay huge taxes on it ...

i know this is an aside, but i try to give browsers here an accurate picture of the federal tax system. unless the estate tax law changes significantly, which it of course could, there should be no reason at all for your estate/your heirs to pay any tax on the amount you transfer to them.

the combined exemption amount for you and your spouse will likely be at least $5 million, more likely $10 million or more, if you live to 80+. between that exemption and some very basic planning, essentially annual gifts up to the annual limit (currently $11k or so) to your children, their spouses and their children (starting when it's apparent you might have an issue, say, in your early 70s), it's highly unlikely that the estate tax, again assuming its basic structure is retained, will apply to your estate.

and in addition, for non-retirement-account-assets, they will receive a "stepped-up basis" such that they never pay tax on the built-in gain. it's really an incredible deal.

Yeah. I've heard all that before, though I'm admittedly not an expert on any of that. I was just making a cynical joke, not really stating what was likely to happen. I DO NOT understand the whole gift tax thing though of if you give more than $11,000-$12,000 per year to a person that they then have to pay taxes on it. Seems like if I take a dispersal and pay taxes on that that I should be able to give money to whomever I want and as much as I want. Oh well.

Flagpole Willy wrote:

So, what I'm getting at is, do those of you who get Social Security or are soon to get it and you know how much it will be, do you consider it to be a big part of your retirement income? I have always thought of it as gravy if I get anything, but never really thought of it as a significant part of my retirement income. In talking to my dad recently, he mentioned how big a part of their income it is, and he has a nice pension and other retirement income too.

There's been a lot of replies so far, so I won't belabor the point, but I will say this:

Think of your total income during retirement like a three-legged stool. You've got Social Security as one leg, 401(k)/Pension as another leg, and any personal savings (Roths, investments, etc.) as the third leg. So long as you recognize that all three legs are important to your total retirement income, the stool won't topple over.

Social Security, for most people, is a vital part of their net retirement income. Plan on that being the case for yourself.

I think you're right that that is the case for most people. My stool will have it's longest leg from the 401k investments followed by the IRA / Mutual Fund leg and then Social Security. I will just think of the Social Security thing as gravy.

Man, just for grins I did a calculation on what I would get (wife and me combined if she never went back to work) if I worked up to age 67 and then took Social Security -- $85,000 per year. Holy crap even 27 years from now assuming no mortgage and just my wife and me, that's not bad. Of course I won't work full-time anyway to age 67, and even if I did I wouldn't expect to get that much, AND they assume salary increases each year I'm not likely to see. Still, interesting to me.

My guess is most of the people who bother to read this thread are "ants" and not "grasshoppers," and we're doing our best to build up those three-legged stools.

Unfortunately***, we live in a society where we're in the minority, and retirement policy doesn't revolve around us.

***On the other hand, one can argue that the spendthrift grasshoppers are the ones keeping our economy strong, and while they buy crap that depreciates, we buy investments that appreciate.

Flagpole Willy wrote:

Yeah Sagarin, gonna have to agree with fmr here. No way people my age get just 10 cents on the dollar. 70 cents? 75 cents? Yeah maybe. Kind of why I've socked a ton away. I will be able to have a very nice retirement even without a dime from Social Security. I was just curious what people thought about it, that's all.

Uh, dude, have you read nothing else I wrote here? $0.10 on the dollar was obviously a gross exaggeration to make a point. But the $0.75 on the dollar figure that everyone keeps trotting out is a ruse. It is a mean figure; not EVERYONE will receive that payout. The very wealthy will receive substantially less to keep this payout afloat. What people are not taking into consideration here is the 800-pound gorilla known as medicare. Medicare liabilities are growing exponentially faster than social security, and I don't see that trend changing. As Kaitainen correctly pointed out, there is no separate coffer called "social security" into which funds are demarcated and invested. The CBO estimate for social security is a static estimate and is a projection as if though a separate fund for ss actually existed, rather than a bunch of government IOUs.

So you can plan to take your gravy in social security, but if you plan on being affluent as I do, you know that the onus of fulfilling governmental safety nets will fall heavily on you. I have managed to double my 401k in the last two years alone. So when I look at social security, I see a huge opportunity cost. As far as I'm concerned, I really will be lucky to get $0.10 on the dollar of what I otherwise should have been entitled to.

Flagpole Willy wrote:

I was just making a cynical joke, not really stating what was likely to happen. I DO NOT understand the whole gift tax thing though of if you give more than $11,000-$12,000 per year to a person that they then have to pay taxes on it. Seems like if I take a dispersal and pay taxes on that that I should be able to give money to whomever I want and as much as I want. Oh well.

that's why i wanted to respond though. too many people think that all inheritances are taxed. in fact, only 2 or % of all estate face any estate tax at all.

the gift tax thing is also wildly misunderstood. the federal estate and gift tax is a "unified" tax. the gift tax exists as a backstop for the estate tax. without it, you could avoid estate tax on your deathbed by giving everything away just before you die. so conceptually, the gift tax and the estate tax are the exact same thing. for both taxes, taxes are generally only due after death and they are only paid by the giver, not the recipient.

for the combination of the gift and estate tax, you have a "unified credit" that you may have heard of referred to before as an exemption amount. the amount is currently in flux as the law changes, but it is around $2 million per person. each individual can use that $2 million during life and/or at death. so if you give your kid a $500,000 gift so he can buy a house, you've eaten up 1/4 of your credit. thus, upon death, your estate is taxable on amounts above $1.5 million rather than on amounts above $2 million.

this gets us back to the $11-$12k exemption. amounts below that each year are ignored for purposes of the unified credit. it would be too administratively difficult to force everyone to track smaller gifts. gifts used for certain eligible purposes, like education, are also excepted. gifts to your spouse in any amount are likewise ignored.

so the estate planning "trick", if you can even call it that, is to give away $10k or so to as many close relatives as is reasonable each year to reduce the size of your estate. any growth on those gifts before you die will also not count against your credit because you never owned that growth.

finally, it's worth noting that for the large majority of people, the gift "tax" can be completely ignored in practice because their estate won't be large enough to matter. there are, nevertheless, certain filing requirements so that the IRS can keep track of the use of your unified credit.

hopefully this makes some sense. i had to write it quickly.

napper wrote:

***On the other hand, one can argue that the spendthrift grasshoppers are the ones keeping our economy strong, and while they buy crap that depreciates, we buy investments that appreciate.

Definitely an argument to be made there. The counter argument though is that for people (like myself) who have no debt other than a mortgage, I actually have MORE disposable income than someone who has a ton of credit card debt and is spending a lot of their money on interest payments. So, instead of doing that, I buy items that support manufacturers like storm doors and brick patios and furniture and so on.

But, there are lots of people out there who have little or no credit card debt and make a lot of money (two incomes) who invest little or nothing and spend all their money on matreial things. Certainly the economy loves these people.

Sagarin wrote:

So you can plan to take your gravy in social security, but if you plan on being affluent as I do, you know that the onus of fulfilling governmental safety nets will fall heavily on you. I have managed to double my 401k in the last two years alone. So when I look at social security, I see a huge opportunity cost. As far as I'm concerned, I really will be lucky to get $0.10 on the dollar of what I otherwise should have been entitled to.

Well, since there is so much debate about what will really happen (and has been forever) that is one reason why I have invested as much as I have and why I will continue to. I will have enough of my own investements to guarantee an annual salary of between $200,000 and $250,000 by the time I retire at age 59 1/2 in 19 more years (actually a little less than that now). Who knows what inflation will bring, but that should be enough. It actually should be more than enough as I will never make that much money while working (though it's possible toward the end that combined with my wife's salary that we could approach that much -- just depends on how much salaries increase. In any event, it should be more than enough.

Nice info. I'm sure they'll change everything by the time I'm ready to expire. If I do have more than enough money when I retire, it would be nice to be able to give some money each year to my kids if they need it. Hopefully they will not spend more than they should, but that may be wishful thinking, and I will not be an enabler, so while I may bail them out of a tough situation once, it will come with some tough talk and helping them get straightened out.

Flagpole Willy wrote:

Well, since there is so much debate about what will really happen (and has been forever) that is one reason why I have invested as much as I have and why I will continue to. I will have enough of my own investements to guarantee an annual salary of between $200,000 and $250,000 by the time I retire at age 59 1/2 in 19 more years (actually a little less than that now). Who knows what inflation will bring, but that should be enough. It actually should be more than enough as I will never make that much money while working (though it's possible toward the end that combined with my wife's salary that we could approach that much -- just depends on how much salaries increase. In any event, it should be more than enough.

Well, you sound like you have a rock solid plan. I do worry about the government repealing some of the "perks" of the vehicles that enable us to grow our savings, such as tax exemptions and tax deferrals. After all, isn't EVERYONE in society ENTITLED to a quadruple bypasses, lifetime insulin shots, and "obesity" drugs?

By the way kaitainen, what is it that you do? Are you an accountant or do you have a degree in taxation?

i'm an attorney. i learned much of what i know about personal income taxes in law school, some of it college, and the rest from doing reading/research for either my own taxes or so i could better understand the whole federal tax scheme.

i mostly come at this stuff with two ideas in mind - first, i'm interested in politics, economic "justice", distribution of wealth in socieyt, and second, i want to minimize my own taxes when possible.

When you have time, I'd like to hear how you evaluate economic justice, perhaps on another thread.

Well, you sound like you have a rock solid plan. I do worry about the government repealing some of the "perks" of the vehicles that enable us to grow our savings, such as tax exemptions and tax deferrals. After all, isn't EVERYONE in society ENTITLED to a quadruple bypasses, lifetime insulin shots, and "obesity" drugs?[/quote]

Sagarin, I don't think these tax deferred (or avoidance, e.g., Roth) vehicles are going to go away any time soon. Who knows what will happen in 20 years, but the trend right now is to expand these savings opportunities, as they make it more likely that people won't need to rely on Social Security.

Look at some recent law changes: EGTRRA increased maximum contribution limits to 401K plans and IRAs, expanded rollover opportunities, and created Roth 401Ks. The Pension Protection Act repeals the sunset on the EGTRRA changes, permits nonspouse beneficiary rollovers, and permits direct rollovers to Roth IRAs. I don't think a Democratic congress is going to be against these savings incentives (even if things like higher contribution limits are more likely to benefit those who make more).

A steady job and a mutual fund are still the best defenses against social security.

napper wrote:

Sagarin, I don't think these tax deferred (or avoidance, e.g., Roth) vehicles are going to go away any time soon. Who knows what will happen in 20 years, but the trend right now is to expand these savings opportunities, as they make it more likely that people won't need to rely on Social Security.

Look at some recent law changes: EGTRRA increased maximum contribution limits to 401K plans and IRAs, expanded rollover opportunities, and created Roth 401Ks. The Pension Protection Act repeals the sunset on the EGTRRA changes, permits nonspouse beneficiary rollovers, and permits direct rollovers to Roth IRAs. I don't think a Democratic congress is going to be against these savings incentives (even if things like higher contribution limits are more likely to benefit those who make more).

Good points all, but I still believe that there are tax changes coming down the pipe, and I don't blame it on a Democratic Congress. Fact is, in the interest of political expediency, both parties have been terribly negligent about addressing the massive and imminent medicare and social security liabilities. My former boss was on President Bush's tax advisory panel, and despite being extremely fiscally conservative, she was among those making recommendations to repeal certain advantages that appeared to tip the balance in favor of the more affluent in society, such as the mortgage interest rate deduction. Frankly, talking about social security is an utter waste of time; it's medicare that's going to be the big problem. That's where we should be directing this dialogue. Anyway, I'm off for now, but I will rejoin this thread later if it still exists.