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Social Security Jitters? Better Prepare Now - U.s.

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http://www.nytimes.com/2010/07/31/your-money/31money.html?_r=1&ref=business

If you are worried about the future of Social Security, join the crowd.

With the nation’s debt swelling, the pressure on Washington to cut spending will only rise. Social Security may not be the first place lawmakers look. But the program, which has provided a significant financial cushion for retirees and others since the first checks were mailed in 1937, will surely be part of the discussion.

The program, which has its own dedicated stream of income, is projected to pay out more this year than it is taking in, but that is a function of the weak economy. Social Security will, according to the last annual report from its trustees, be able to pay full benefits through 2037. Then, if there are no changes in the program in the meantime, the taxes collected will be enough to pay out only about 75 percent of benefits through 2083.

So while Social Security’s finances are stable in the short term, most experts agree that the program needs to be bolstered for the long term. Among the proposals circulating is one from Representative John Boehner of Ohio, the House Republican leader, who recently suggested raising the retirement age to 70 for people at least 20 years from retirement.

Other options include increasing Social Security payroll taxes, subjecting more income to the tax, reducing initial benefit payments or cutting cost-of-living increases (which would affect current retirees).

But even if it’s not clear yet what, if anything, will be done to Social Security and when, we thought it would be useful to look at a worst-case possibility — to assume that benefits will not continue to be as generous. This is especially important as pensions continue to fade away.

So what are the financial implications of pushing back the full retirement age? What happens if the government reduces benefits for future retirees? What will that mean to people in the middle of their careers, beyond the rote response that they’re going to have to work longer and save more?

Yes, it means fewer dinners out and driving a more economical car. But it also may mean that people in their 20s, 30s or even older have to put aside a lot more money to partly make up for any cut to benefits. Otherwise, people may risk a sudden drop in their living standard when they retire.

And while lawmakers may, in the end, not decide to make drastic changes in Social Security, many of the financial advisers and other experts we talked to said they were erring on the side of caution and were already recommending that their clients start saving more now.

“People 50 and below should change their planning now to incorporate a benefit cut,” said Laurence J. Kotlikoff, an economics professor at Boston University who ran some numbers for us to see what life would be like if the retirement age were immediately raised to 70. That change would translate into a nearly 20 percent cut in benefits, because you would have to wait an extra three years to get the same amount of money, he added.

Several financial planners told us they were assuming that clients in their 30s and 40s might receive just 50 to 80 percent of their full benefits. Or, the advisers say, they may figure that the cost-of-living adjustments applied to benefits won’t keep pace with inflation, or some other combination of adjustments. (For the record, executives from AARP said their polls had long shown that younger people were skeptical about receiving full benefits.)

How nice that it's the under 50's that get the benefit cuts.

The irony is that if you encourage the under 50's to save that means less money getting spent in the wider economy which would surely result in a drop in GDP?

Genius.

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In the pre-2008 world where revenues had to match expenses it was hard for people to see how national pensions could be paid years from now. But in the post-2008 world with deflation and QE, its not that big a deal.

Honestly just add a few hundred billion USD to the annual borrowing to cover the shortfall.

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How nice that it's the under 50's that get the benefit cuts.

The irony is that if you encourage the under 50's to save that means less money getting spent in the wider economy which would surely result in a drop in GDP?

Genius.

And you nailed why squeezing the under 50's harder won't work. Raise taxes on them and they simply have less money to spend into the economy. Not sensible when demand has fallen off a cliff.

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The irony is that if you encourage the under 50's to save that means less money getting spent in the wider economy which would surely result in a drop in GDP?

Not necessarily. Current discretionary spending in the US includes an unusually high proportion of imports. Imports are deducted from, and therefore reduce, GDP. So lowering discretionary spending right now might even result in an increase in GDP. Isn't economics fun?

Edited by whoami

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http://www.nytimes.com/2010/07/31/your-money/31money.html?_r=1&ref=business

How nice that it's the under 50's that get the benefit cuts.

The irony is that if you encourage the under 50's to save that means less money getting spent in the wider economy which would surely result in a drop in GDP?

Genius.

Boomers - 506341

Young'ons - 0

Another goal for the boomers!

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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