Wednesday, May 13, 2009

Social [In]security--Fine if over 50; otherwise...

Emily Brandon of U.S. News reports that the Social Security Trust Fund is now scheduled to be tapped by 2037; four years faster than estimated the last time that Social Security was (more or less) seriously discussed. Ms. Brandon expects few changes for future recipients who are 50 (possibly even 45) or older, but tax increases, reduced benefits, backdating the age for standard benefits (presently a sliding scale from 65 to 68 depending on birth year), means-testing (reducing benefits for wealthy retirees) or capping maximum benefits may occur for potential recipients born after the early 1960s. One-time Deputy Commissioner Andrew Biggs points out that longer life expectancy in addition to the recession has hurt the system. Additionally, Medicare is on even more precarious footing, with present projections calling for funding to run dry within a decade. Expect to see increased premiums here in the near future, especially if your income is over $170,000 for MFJs and $85 K for others. Ms. Brandon's recommendations: save more now and work later (into your 60s and perhaps even early 70s) if health permits.

I cannot fault Ms. Brandon on her recommendations, though I hope I can retire (or at least semi-retire) by my early 60s. While acknowledging that the past four years (especially the stock crash of late 2008 and early 2009) would not have been kind to partial privatization (a la Bush 2005); the past 100 years suggest that on the overall Social Security would be sounder with some market involvement--average return on the present system (barely above 0) only looks good if in a significant recession. One final alert--I am very skeptical of the CBO projection of little or no COLA for social security recipients through 2012. The odds of significant inflation as early as the middle of next year exceed 50% in my opinion and Congress cannot politically hold off cost of living raises if inflation is 4% annually or greater.


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