Observations on life

SS Revisited

Let’s say you have a pool of money and you plan to retire tomorrow. You will draw from that pool of funds and the funds will earn interest while you do so. 

During the first few years the fund earns more than you need to withdraw, but as time goes by and expenses rise and you withdraw more, the fund is depleted, as a matter of fact, it’s all gone by 2035 and with no money going into the fund, you are in deep trouble. 

How secure do you feel?

That is how you should feel about Social Security and why you should be incensed that Congress has ignored the problem for decades and that fixing the problem is still so low on the agenda. 

The only difference between the example and Social Security is that incoming payroll taxes will allow Social Security to continue to pay reduced benefits. I hope that gives you a warm and fuzzy feeling, especially if you rely on SS for most of your income. 


4 replies »

  1. I will start getting SS at age 62 in Feb 2018. $862 per month. My average earnings for 35 years of employment is $8,857. I will be getting $10,344 per year.

    First, a worker’s previous earnings are restated in terms of today’s wages to reflect wage growth.
    Second, earnings for the highest 35 years are averaged and divided by the number of months in 35 years to arrive at Average Indexed Monthly Earnings (AIME).
    Third, the Social Security benefit formula is applied to AIME to produce the Primary Insurance Amount (PIA), the benefit payable at Full Retirement Age (FRA).

    I think when they restate earnings in terms of today’s wages it inflates the benefit amount. I made $8,100 in 1980, it equals $25,697 in 2017 dollars.
    Now using 2017 dollars the benefit amount equals 40% of the $25,697.

    Since you get back everything paid in SS taxes in 8 years or less, it is a welfare system sold as a retirement system. I will have everything paid in SS taxes back in 42 months.

    The Congress will have to fix the projected shortage in the 2030’s or there will be riots in the street, I am sure.


  2. Here is another perspective. Minutes ago I just downloaded my wife’s Social Security statement. If she starts collecting SS at age 62, her first year collecting will be the 3rd highest earning year. If she waits until she is 70, it will be the most money she has ever made and doesn’t have to doing any extra work for it. Of course that is not factoring in her cut of my SS if she starts collecting before me.

    No wonder it is running out of money. I am all for the money but how is it that she will collect more in one year from SS than she ever earned in any given year working?


    • Not sure how that is possible given the SS formula is designed to pay no more than about 44% of average earnings over many years.


      • Not sure either, but it is all there in black & white & green. My benefits report puts me in the 40% range (actually less because I often exceeded the max earning level). I suspect it has to do with the COLA. My wife worked part-time most of her working career. I did notice that her benefit estimate went from $788 in 2010 to $888 in 2017 (normal retirement @ 67) while her actual high earning year still remained during the late 1990’s. Her highest year she earned $13k. If she collects at 70 she would get $1101 per month or $13,212 per year.

        If it were a true market base 401K style plan with 8% returns and all, I could understand it. I think of social security more of a fixed pension style plan, x dollars per month, period. But since social security invests in treasuries and still gives COLA raises, the increase of benefits seems excessive even 10 years out. I would have to do more research but it seem that the COLA raises in some years approach 50% of the going treasury bond rates during the past few years. As far as I know, the COLA is not tied to the fund income or returns. Year 2035 will be very interesting.


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