Just for fun – what does it take?

Calls for higher Social Security benefits abound. For most people the initial benefit they receive equals only 40% of their pre-retirement income. Is that a livable income as they say?

Let’s see how that may work using the CRFB estimator.

We’ll increase the initial monthly benefit by 50%

To pay for that we need more money. Assume we increase the employee payroll tax rate by 5% to 11.2% and we subject all wages to the higher tax. That’s a lot of new taxes.

And yet Social Security remains insolvent. The trust fund will run out in 2067 at which point all beneficiaries will face a sudden 15% benefit cut.

It’s not easy paying for what we want.


  1. You’re thinking about average (and above) workers again. For lower income it is not just difficult to save for retirement, it is economically illogical.

    “For a low-income individual in the bottom fifth of the earnings distribution, Social Security replaces between 83 and 96 percent career-average earnings. Even assuming that low earners require a higher replacement rate, these figures explain that it is rational for many low earners not to save for retirement above what Social Security provides. This does not mean low earners are perfectly provided for by Social Security. Due to quirks in Social Security’s benefit formula, some low earners receive very high replacement rates while others receive lower ones. But these are problems that a properly-designed Social Security reform proposal could fix.”

    Andrew Biggs


    1. Lower income is not the same as poor. All I can say is look at how people spend their money. If it was all on necessities, I’d agree with you, but that is not the case.


      1. Man does not live by bread alone. It is also commonly said that one should not have children until they can afford to raise them. In which case I and seven of my sisters would not be here. There are a lot of people who have negative savings (debt) literally* from cradle to grave, not all of them are poor either, or low income.

        If poor/low income or anyone else only spent money on necessities, what would our economy look like? It’s a double edged sword.

        *OK, figuratively, on the cradle part.


      2. I’m not sure what you are saying. Sounds like living beyond ones means is not only okay, but not unusual.


      3. “Understanding the Life-Cycle Hypothesis
        The LCH assumes that individuals plan their spending over their lifetimes, taking into account their future income. Accordingly, they take on debt when they are young, assuming future income will enable them to pay it off. They then save during middle age in order to maintain their level of consumption when they retire.”

        Some folks never make it past the first stage, and never will.

        “We should have a true guaranteed minimum benefit that keeps everyone out of poverty. It’s not that expensive to pay for.”
        Andrew Biggs

        I frequently quote Biggs because he is a classic conservative/libertarian economist and considered one of the world class experts on retirement. And sometimes I agree with him.

        Income/wealth disparity is a real thing, and for the most part it is not because these people are lazy, ignorant, or profligate. It is endemic.

        This suggests an increase in taxes for the high(er) incomes:
        Biggs: “Well, this is an argument that goes back to the 1930s when Social Security was started. It’s summarized in a phrase: a program for the poor is a poor program. Meaning, if you have a program that’s focused on low-income people, middle- and high-income Americans won’t support it. Now, I think this argument is factually incorrect.”

        “If you look at progressive Social Security reform plans, sure, they don’t cut benefits for high earners, but they do massively increase their taxes.”
        “If you think high earners aren’t going to respond to that, you are assuming that they only care about their benefits and not their taxes. I worked in the Bush White House when we thought about Social Security reform. And one of the insights we had is that high-income people care more about their Social Security taxes than their benefits. Why not accommodate that insight to make the system work?”



      4. I too quote Biggs all the time.

        I have no problem with Congress deciding to fund a welfare benefit out of general revenues. However, Congress should be concerned (as the states are today) regarding gap filling welfare entitlements – versus providing incentives for individuals to save (state madated automatic IRAs). . .

        Social Security is an “earned” entitlement – you have to contribute to receive the amount provided by the entitlement formula. People think the taxes they paid from their wages “earns” them a benefit from the system.
        Few understand that their contributions don’t truly fund the benefit they receive.

        However, nothing is to be gained by bastardizing Social Security in such a way that you trigger a loss of support for the program we currently have. The “right” answer for Social Security is to leave the benefit formula alone and demonstrate through change how the system will be made financially sustainable, through an inter-generationally-savvy process. Any other strategic changes, like providing a benefit to keep individuals out of poverty should be part of a separate initiative/legislative solution.


    2. I wonder what “properly designed” means? Many want to convert Social Security to a welfare system for those with spotty earnings records (where, because there are many years with $0 earnings in the 35 year average, the benefit is depressed). Some assert there should be a dramatic increase in the minimum benefit (set no less than the poverty line) – regardless of earnings.

      To give you an idea what Social Security’s formula provides, 40 quarters of minimal earnings qualifies you after paying $3,276 in FICA and $766 in FICA-Med (assuming 10 years of 2013 – 2022), for ~$115/mo at Full Retirement Age, about $1,400 a year, plus another $800 or so in Supplemental Security Income, plus non-contributory Medicare Part A, and, generally, you become dual eligible for Medicaid – where your Part B and Part D premiums are waived, and you have no point of purchase cost sharing.

      Given that the cost of Medicare coverage (A, B and D combined) is estimated to be an average of $14,000+ per year, that’s quite a return!


  2. Hey, no need to increase Social Security benefits. Something wrong with those who want more to make it easier to maintain their standard of living by reducing spending now and saving more? Why do we need to shift the burden of savings to taxpayers? If you ask people, they will confirm they would like to spend about 130% of their current income in retirement.


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