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Rich people benefitting disproportionately from Social Security

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An interesting piece about what has been happening for a while now with Social Security.  Rich people receive higher payments, of course, because they made more money during their working years.  But their advantage does not end with that.  Rich people, more and more, are living longer and longer as compared with poor older folks.  So in terms of being a drain on limited Social Security resources, the rich are a double whammy.

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letsspendlotsofmoney (May. 11, 2017 @ 6:31p) |

There is so much bad arithmetic in this thread.

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These are questions/debates about the systemic incentives within our society and economy. They are important questions f... (more)

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Headline doesn't really represent the data. The analysis is saying that the changes in relative life expectancy has made Social Security LESS progressive, but it's still progressive.

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Is that how SS works in practice, you keep getting your SS checks until you die, even if you live to 120?

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Well, here's the thing:

I believe most Americans realize those who had higher earnings during their working years will receive larger Social Security payments following retirement.  This is mitigated to some extent by the existence of a minimum Social Security entitlement for those who have the requisite number of quarters at time of retirement.

What might not be front-of-mind for many, though, is the extent to which larger incomes following retirement contribute to longevity, and the fact this in turn results in ability of the wealthy to profit out of proportion to their higher earnings alone.  There is a sort of multiplier effect.  And at the bottom line that effect means the wealthy are draining Social Security resources beyond what a merely cursory examination might suggest.

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rufflesinc said:   Is that how SS works in practice, you keep getting your SS checks until you die, even if you live to 120?
  
Yes.  Absolutely.  There is no age cutoff to payouts.

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Sounds interesting OP! But it definitely is reasonable and "neutral" / "generic" for all.
My strongest point is: Healthy people have generally costed the public system LESSER. So wouldn't it cost the nation lesser?

....meaning to say, the people that worked hard during their earning_years, diligently contributed into Social security, made healthy choices about their personal affairs and are now finding themselves living longer. It's neither sad (that rich people live longer) nor happy (that poor people die early)........it simply is generic to all....so it is way way reasonable to issue SS checks as long as a person lives.

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Another view - https://www.wsj.com/articles/the-big-winners-and-losers-in-ameri...  (possible paywall)

"What will you receive in Social Security benefits compared with the taxes you pay in?  The short answer: Low earners often get more than they put in, while high earners get less. By one estimate, the turning point is currently around $65,000 for a single worker and double that for couples earning similar pay."

The under the hood "bend points" in Social Security of 90%, 52% and 15% are far more progressive than the current Federal income tax brackets.  The Bloomberg article also does mention that lifestyle choices (including substance abuse and obesity) are a major - and growing - factor in shortened lifespans.
 

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In theory, they're predominantly competent investors. I'm sure they'd prefer to have not had their FICA extorted from them.

SSA's numbers say real rate of return falls precipitously with income, with middle- and upper-earners (especially two-income households) falling below 2% now or in the near future.  Longevity wouldn't necessarily affect that as much as you might think since the term of the compounding would also increase.

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IMBoring25 said:   In theory, they're predominantly competent investors. I'm sure they'd prefer to have not had their FICA extorted from them.

SSA's numbers say real rate of return falls precipitously with income, with middle- and upper-earners (especially two-income households) falling below 2% now or in the near future.  Longevity wouldn't necessarily affect that as much as you might think since the term of the compounding would also increase.
 

  Agreed.  I am 40 and a high earner for 17 years, SS can keep every penny I have paid into it the system if they would let me opt out from contributing ever again.

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Take that SS paycheck and move to Thailand. Thats my plan. It will go much further in Thailand than it would here.

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show me a study that shows what people paid into it vs what they get out of it
otherwise it's just nonsense

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I recently had the somewhat grim thought that if you have a social goal of "reduce income inequality" then, all other things being equal, you should prefer policies which extend the lifespans of the rich.

Unless I'm doing the math wrong, it seems to me that a society's Gini coefficient goes down (towards more perfect equality) if the poor have shorter lives and more infant mortality. It seems like any metric which measures the distribution of income across the entire living population has this feature.

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Social Security is regressive to the extent that it was never meant to be retirement income for wealthy people. It was designed and passed in the 1930s during the great depression when the poverty rate for senior citizens was over 50%. Americans were told that their social security withholding would never have to grow. As the poverty rate dropped dramatically from the 1940s to the 1970s, what happened to social security? It grew! That was never the point. That's why, whenever government is claiming to set up a temporary program to fix a problem, we should never assume the program will go away when the problem is fixed. As Milton Friedman often said, "Nothing is so permanent as a temporary government program."

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meade18 said:   Social Security is regressive to the extent that it was never meant to be retirement income for wealthy people. It was designed and passed in the 1930s during the great depression when the poverty rate for senior citizens was over 50%. Americans were told that their social security withholding would never have to grow. As the poverty rate dropped dramatically from the 1940s to the 1970s, what happened to social security? It grew! That was never the point. That's why, whenever government is claiming to set up a temporary program to fix a problem, we should never assume the program will go away when the problem is fixed. As Milton Friedman often said, "Nothing is so permanent as a temporary government program."
  these programs never go away once they start.that sack of garbage fdr knew he'd be long dead before it became a problem.

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meade18 said:   Social Security is regressive to the extent that it was never meant to be retirement income for wealthy people. It was designed and passed in the 1930s during the great depression when the poverty rate for senior citizens was over 50%. Americans were told that their social security withholding would never have to grow. As the poverty rate dropped dramatically from the 1940s to the 1970s, what happened to social security? It grew! ,
So... Means testing then?

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I wonder if the effect dissappears if you consider the value of Medicare services provided to the poor as compensation ? They die sooner so collect less SS but they probably consume a lot more healthcare.

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rufflesinc said:   
meade18 said:   Social Security is regressive to the extent that it was never meant to be retirement income for wealthy people. It was designed and passed in the 1930s during the great depression when the poverty rate for senior citizens was over 50%. Americans were told that their social security withholding would never have to grow. As the poverty rate dropped dramatically from the 1940s to the 1970s, what happened to social security? It grew! ,
So... Means testing then?

If you want a more progressive program, yes, it has to be means tested.But don't be surprised when that program ends up creating negative incentives.

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TravelerMSY said:   I wonder if the effect dissappears if you consider the value of Medicare services provided to the poor as compensation ? They die sooner so collect less SS but they probably consume a lot more healthcare.
  what do upper middle class retirees use for health care

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There are always those Obamacare death panels that can keep this in check if it gets out of hand.

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meade18 said:   rufflesinc said:   
meade18 said:   Social Security is regressive to the extent that it was never meant to be retirement income for wealthy people. It was designed and passed in the 1930s during the great depression when the poverty rate for senior citizens was over 50%. Americans were told that their social security withholding would never have to grow. As the poverty rate dropped dramatically from the 1940s to the 1970s, what happened to social security? It grew! ,
So... Means testing then?

If you want a more progressive program, yes, it has to be means tested.But don't be surprised when that program ends up creating negative incentives.


It's partially means tested already. Your net from social security goes down the more you earn outside of social security.

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fw9999 said:   Another view - https://www.wsj.com/articles/the-big-winners-and-losers-in-americas-social-security-system-1477647007  (possible paywall)

"What will you receive in Social Security benefits compared with the taxes you pay in?  The short answer: Low earners often get more than they put in, while high earners get less. By one estimate, the turning point is currently around $65,000 for a single worker and double that for couples earning similar pay."

The under the hood "bend points" in Social Security of 90%, 52% and 15% are far more progressive than the current Federal income tax brackets.  The Bloomberg article also does mention that lifestyle choices (including substance abuse and obesity) are a major - and growing - factor in shortened lifespans.

  So, I'll never get back what I put in.  That figures. 

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Bloomberg said: In 1980, a wealthier 50-year-old could expect to collect $103,000 more than a poor American. Thirty years later, the gap was $173,000. “These results suggest that Social Security is becoming significantly less progressive over time due to the widening gap in life expectancy,” the researchers write.

But still progressive, which means that the wealthy are still paying a larger share.  Describing it as "a better deal" for the wealthy, when it isn't a very good deal to start with, is a stretch.  This is just more fodder for the agenda to scale back benefits for those who pay the most into the system.

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dcwilbur said:   
Bloomberg said: In 1980, a wealthier 50-year-old could expect to collect $103,000 more than a poor American. Thirty years later, the gap was $173,000. “These results suggest that Social Security is becoming significantly less progressive over time due to the widening gap in life expectancy,” the researchers write.

But still progressive, which means that the wealthy are still paying a larger share.  Describing it as "a better deal" for the wealthy, when it isn't a very good deal to start with, is a stretch.  This is just more fodder for the agenda to scale back benefits for those who pay the most into the system.

  Eh, they are still going to be wealthy

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bxlefty23 said:   show me a study that shows what people paid into it vs what they get out of it
otherwise it's just nonsense

  Just did a quick "back of the envelope" calculation and it looks like I'll get back what I put in if I retire at 67 and collect until I'm 122, not taking inflation into the equation.  Alternatively, I can begin collecting at 62 at a reduced amount and break-even if I live until I'm 126.  If I stay fit and prolong my life, I may even come out ahead except I'll probably get dementia in my 90's and my quality of life will suck.

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rufflesinc said:   
TravelerMSY said:   I wonder if the effect dissappears if you consider the value of Medicare services provided to the poor as compensation ? They die sooner so collect less SS but they probably consume a lot more healthcare.
  what do upper middle class retirees use for health care

  Everyone gets medicare at 65.

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shallot said:   rufflesinc said:   
TravelerMSY said:   I wonder if the effect dissappears if you consider the value of Medicare services provided to the poor as compensation ? They die sooner so collect less SS but they probably consume a lot more healthcare.
  what do upper middle class retirees use for health care

  Everyone gets medicare at 65.

That s not what I ask. What do they actually use?

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Depends on your definition of 'rich'.Social Security contributions maximum cap caps out at an income of around 126k.  

126k is a nice salary but it isn't what I would call rich in most coastal cities.  I'm solely basing this off the fact that many homes in "middle class neighborhoods" sell for $500-$700k, which in most cases probably require an income in that range or higher.

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shallot said:   
bxlefty23 said:   show me a study that shows what people paid into it vs what they get out of it
otherwise it's just nonsense

  Just did a quick "back of the envelope" calculation and it looks like I'll get back what I put in if I retire at 67 and collect until I'm 122, not taking inflation into the equation.  Alternatively, I can begin collecting at 62 at a reduced amount and break-even if I live until I'm 126.  If I stay fit and prolong my life, I may even come out ahead except I'll probably get dementia in my 90's and my quality of life will suck.

   I think you did that calculation wrong. Maximum SS tax right now is ~$7886      Its been less in previous years.   But lets ignore that and assume it was 7886 for 45 years that would be $354k total tax.If you spent that you'd get the maximum SS benefit of about $32k a year.    You'd get all your money back in ~11 years.   Worst case for self employed is 22 years.  But its not even close to that because you didn't pay 7866 in tax for 45 years.   Max taxed earnings 45 years ago were just 9000.    

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rufflesinc said:   
shallot said:   
rufflesinc said:   
TravelerMSY said:   I wonder if the effect dissappears if you consider the value of Medicare services provided to the poor as compensation ? They die sooner so collect less SS but they probably consume a lot more healthcare.
  what do upper middle class retirees use for health care

  Everyone gets medicare at 65.

That s not what I ask. What do they actually use?

  They use medicare mostly.A handful of people get private retirement health insurance benefits but thats very rare and mostly government or old school corporate like defined pensions. 

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jerosen said:   
shallot said:   
bxlefty23 said:   show me a study that shows what people paid into it vs what they get out of it
otherwise it's just nonsense

  Just did a quick "back of the envelope" calculation and it looks like I'll get back what I put in if I retire at 67 and collect until I'm 122, not taking inflation into the equation.  Alternatively, I can begin collecting at 62 at a reduced amount and break-even if I live until I'm 126.  If I stay fit and prolong my life, I may even come out ahead except I'll probably get dementia in my 90's and my quality of life will suck.

   I think you did that calculation wrong. Maximum SS tax right now is ~$7886      Its been less in previous years.   But lets ignore that and assume it was 7886 for 45 years that would be $354k total tax.If you spent that you'd get the maximum SS benefit of about $32k a year.    You'd get all your money back in ~11 years.   Worst case for self employed is 22 years.  But its not even close to that because you didn't pay 7866 in tax for 45 years.   Max taxed earnings 45 years ago were just 9000.    

  Everyone really pays both halves of the SS tax.

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stanolshefski said:   jerosen said:   
shallot said:   
bxlefty23 said:   show me a study that shows what people paid into it vs what they get out of it
otherwise it's just nonsense

  Just did a quick "back of the envelope" calculation and it looks like I'll get back what I put in if I retire at 67 and collect until I'm 122, not taking inflation into the equation.  Alternatively, I can begin collecting at 62 at a reduced amount and break-even if I live until I'm 126.  If I stay fit and prolong my life, I may even come out ahead except I'll probably get dementia in my 90's and my quality of life will suck.

   I think you did that calculation wrong. Maximum SS tax right now is ~$7886      Its been less in previous years.   But lets ignore that and assume it was 7886 for 45 years that would be $354k total tax.If you spent that you'd get the maximum SS benefit of about $32k a year.    You'd get all your money back in ~11 years.   Worst case for self employed is 22 years.  But its not even close to that because you didn't pay 7866 in tax for 45 years.   Max taxed earnings 45 years ago were just 9000.    

  Everyone really pays both halves of the SS tax.

Why don't we also include your employers property taxes then , I imagine it's higher in TX

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stanolshefski said:   
jerosen said:   
shallot said:   
bxlefty23 said:   show me a study that shows what people paid into it vs what they get out of it
otherwise it's just nonsense

  Just did a quick "back of the envelope" calculation and it looks like I'll get back what I put in if I retire at 67 and collect until I'm 122, not taking inflation into the equation.  Alternatively, I can begin collecting at 62 at a reduced amount and break-even if I live until I'm 126.  If I stay fit and prolong my life, I may even come out ahead except I'll probably get dementia in my 90's and my quality of life will suck.

   I think you did that calculation wrong. Maximum SS tax right now is ~$7886      Its been less in previous years.   But lets ignore that and assume it was 7886 for 45 years that would be $354k total tax.If you spent that you'd get the maximum SS benefit of about $32k a year.    You'd get all your money back in ~11 years.   Worst case for self employed is 22 years.  But its not even close to that because you didn't pay 7866 in tax for 45 years.   Max taxed earnings 45 years ago were just 9000.    

  Everyone really pays both halves of the SS tax.

 We'll have to agree to disagree on that topic.  I get your point though, the actual tax paid is double the employee portion.   Either way his math is way off.  If you count both employee and employer half then its still far less than 22 year pay back for maximum SS tax rate.   (ignoring inflation as he said)In fact if you do ignore inflation the actual maximum tax paid by anyone into SS in nominal dollars is more like $165k total over the past 45 years and that person will get max SS payment around $32k and recover all that money in ~5.2 years.    And that ignores spouse benefit and other SS benefits. 

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I skimmed through article - didn't see anything that calculated ROI - only what people are getting as benefits. The proper way to calculate it is how much was contributed vs how much is paid out (aka ROI). My understanding was that the lower tier ROI is 3-4x higher than the people that are on the upper end.

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jerosen said:   
  They use medicare mostly.A handful of people get private retirement health insurance benefits but thats very rare and mostly government or old school corporate like defined pensions. 

Most "upper middle class" retirees will indeed use Medicare. They may also choose to supplement it with "Medigap" policies that are secondary payers to Medicare. And for those getting retiree medical insurance from their former employers, very often these policies change at 65 when Medicare kicks in - the retiree medical plan pays for the supplemental Medigap insurance, which is considerably less than paying for pre-65 coverage because Medicare pays the lion's share.  

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its NOT an entitlement,,they PAID (forcibly taken,,there was NO choice) for it,,you people should worry about the people waltzing across the border getting it and everything else FREE without inputting one dime to it !!! plus paying NO taxes on top of that..you People who hate the rich,,,please ask a poor person to give you a job next time you need one (like you ever will)..

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trumpotron said:   its NOT an entitlement,,they PAID (forcibly taken,,there was NO choice) for it,,you people should worry about the people waltzing across the border getting it and everything else FREE without inputting one dime to it !!! plus paying NO taxes on top of that..you People who hate the rich,,,please ask a poor person to give you a job next time you need one (like you ever will)..
  Even though technically it's not an entitlement as it is written into the law, it's effectively an entitlement as the SS trust fund is a slush fund with no proper accounting and is underfunded by trillions from a GAAP perspective. 

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trumpotron said:    People who hate the rich,,,please ask a poor person to give you a job next time you need one (like you ever will)..
  So I can walk up to Bill Gates and ask him for a job?
plus paying NO taxes on top of that..
the rich do not pay proportionally enough

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I feel like inigo Montoya every time some liberal dummy starts claiming all these taxes are regressive. Social Security, not regressive, income tax, not regressive, sales tax, not regressive, even a flat tax, not regressive.

Wake me up when poor people pay more tax dollars than rich people for anything and we can talk about regressive taxation.

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jd2010 said:   I feel like inigo Montoya every time some liberal dummy starts claiming all these taxes are regressive. Social Security, not regressive, income tax, not regressive, sales tax, not regressive, even a flat tax, not regressive.

Wake me up when poor people pay more tax dollars than rich people for anything and we can talk about regressive taxation.

  Cigarette tax. SS and income are clearly progressive. 

Skipping 257 Messages...
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letsspendlotsofmoney said:   justignoredem said:   
rufflesinc said:   
justignoredem said:   
rufflesinc said:   
justignoredem said:   
. Probably because working stressful careers in combination with properly raising a child is a PITA.

  it's unfortunate that the best time for a woman to have a child is the worst time financially

  
That's only because of our society though. Our society says you have to go to school full time for 12 years and then you have to go to college for another 4 years. If you want to be a doctor you have to continue going to school for another 8 years or whatever.

 

  are you suggesting women not graduate high schol?

  
Not in the slightest. When I said "Until we get job requirements like paying for or providing daycare, I don't think were ever going to get out of this mess." I was indicating that society needs to be more accepting of pregnant women, not that women need to not be in the work force.

  Having children is a choice and you are owed nothing by your employer for you having a child. 


These are questions/debates about the systemic incentives within our society and economy. They are important questions for everyone's future.

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