Federal Benefit Programs

[SLB_SA]

This thread is inspired by the "Can you live on $700" thread. Let me warn readers that this discussion is motivated by the article Republicans Plan Debt Crisis to Force Cuts to Medicare, Social Security which depends on the outcome of the midterm elections. Those who dislike politics should not click on the link. On the other hand, ignoring the midterm elections does not prevent the results of the election from affecting people and I believe that being informed of potential outcomes is better than being taken by surprise. The article is based on facts (i.e. the statements of potential chairs of the House Budget Committee) such as "Bloomberg’s Jack Fitzpatrick interviewed several Republican contenders to lead the House Budget Committee. They all said, with varying levels of specificity, that they plan to instigate a debt-ceiling standoff to force Biden to accept cuts to retirement and health-care programs." Except for the quote above, I will not reference the link above and allow readers to read or not read it as they wish. The primary reason for mentioning the link is to demonstrate that risks to medicare and social security are not fanciful ideas but actual potential outcomes of the upcoming election. Each reader can estimate the probability of changes to federal benefit programs for oneself.

The topic here is "How do you plan for changes to federal benefit programs?" These changes can be the annual social security benefit COLAs (8.7% for 2023), changes by Congress to benefit programs, planning at what age to begin taking social security benefits, etc. I will turn 69 in 2023 and intend to begin taking social security benefits at age 70; if Congress might reduce benefits, I might change my plan and start taking benefits sooner (and maybe immediately). My spreadsheets involving different months at which to begin benefits all assume that the laws involving social security and medicare will be unchanged because I have no idea of what might be changes to the laws. Of course, the 8.7% COLA is better than the 5.9% COLA for 2022 but it does not cover my increased costs. (For example, I buy cheap salad mix everyday and this has increased from $1.39 to $1.79, a 29% increase.) What advice can you offer to people approaching an age between 62 and 70 with regard to federal (or state) benefit programs?

 

[bullfrog]

I started Social Security at age 62 as it allowed me to work seasonal part time jobs and take off months at a time to travel instead of full time work. It also made Medicare costs to be paid automatically at age 65 as I was already receiving a Social Security check easy. By doing this, if I remember correctly my break even point where after which I start to loose money because I took early Social Security was 85 years old. Average life span for males in this country is much less than that age but if I do live beyond that and need to be on Medicaid one of the requirements was at the time less than $2,200 in the bank and a small monthly allowance all other income must go to medical or prearranged funeral expenses. By taking Social Security early my payments are much less than if I had waited till 70 but the last 8 years I was better able physically to enjoy travel and do the necessary tasks involved with travel. Now I’m 71 I’m not physically able to do a lot of hiking and lifting that travel requires so no regrets. Extra money now would be nice but I have been drawing a small pension and use the VA for most of my medical needs and still enjoy easy seasonal jobs. About the only increased costs that have affected me is fuel when I travel although I do get a discount from my seasonal employer as well as a meal card for reduced price meals while employed. I have plenty of old cheap easy to maintain vehicles but I usually ride an electric bicycle and receive basically free/cheap electricity again through either my or my wife’s employer. Bottom line is we don’t spend much and live simply. We don’t save as much as we used to but my pension alone even though it is small more than covers our monthly expenses as we both still work some which reduces lot and utility costs most of the year.

 

[Morgana]

*** one person’s opinion only ***

SLB, there are so many variables that it’s hard to give a one-size-fits-all answer.
— How much do you love/hate your paycheck job?
— Do you have any ways to supplement your income once you retire?
(Bulldog already suggested one that might work for you.)
— Is there anything on your bucket list that costs a lot of money?
— Is anyone depending on your financial help?

(Not that you should answer those here, just that things like that will affect what’s best for you.)

But if I had to give a one-size-fits-all, I’d say this:
Anything could happen next. This situation is totally unpredictable.
You’re not thinking about taking some crazy risk; you’re basically trying to decide which is a B+ strategy and which is an A+ strategy.
There is no safe option.

Maybe the best way to look at it is: which option gives YOU the most control over your future?

I don’t want to go all “the barbarians are at the gates, bwaaaaa” — but in my opinion, you’d be better off taking the money now and using it to build up the best, strongest, most agile life you can. That, too, can have payoffs — maybe bigger payoffs than just letting the money sit in Uncle Sam’s bank for two more years.

You’ve obviously done your homework. Good luck with the decisions!

*** one person’s opinion only ***

 

[tx2sturgis]

The flawed irony of Social Security retirement benefits is that the people who can best afford early retirement, and who do not 'need' those benefits, will often be able to delay payouts (because of other benefits they are receiving) and then later they get MUCH more money, compared to some who are not able to delay payouts, really needing the benefits immediately, and will get less (when adjusted for inflation) as time goes on.

Another irony is the (sometimes) yearly COLA adjustments as a percentage mean that those single beneficiaries who are receiving a minimal amount, under $1000 a month lets say, get the minimal increase (less than $100) while those (especially couples) can end up with a significant increase ( $200 to $300) after COLA, and they may be the ones who probably are able to get by easily even without the increase. For them, it might not be needed...but it is a nice increase, nonetheless.

If I could wave a magic wand and change it, I would 'adjust' the COLA increase amount to a fixed amount, say $200 per month for all beneficiaries, which would mean that the 'percentage' of the increase is higher for those in the lower brackets, so the ones who need it the most, would see a useful, tangible increase.

And yeah, just my opinion.

 

[WanderingRose]

If I could wave a magic wand and change it, I would 'adjust' the COLA increase amount to a fixed amount, say $200 per month for all beneficiaries, which would mean that the 'percentage' of the increase is higher for those in the lower brackets, so the ones who need it the most, would see a useful, tangible increase.

The thing is, many of those at this lower tier would see subsidized housing costs increase and food stamp benefits decrease, because these benefits are not designed for comfort and ease of life, but for bare subsistence, and they were never intended to be the only income supporting retirees.

Not that it’s right, that’s just the reality of it, also that for many, if not most, their SS, SSDI, etc., is all they have.

We started drawing our SS when we turned 62, as in talking with many, many others the likelihood we might get back what we had paid in working since we were 15 was best if we drew as soon as we were eligible.

He then abruptly died one month past his 65th birthday, so he did collect some but nothing close to what he had paid in.

I then received the difference between his and mine, which was $100 a month, and the rest of his remained in the SS system for the next guy.

We’re not going to solve this problem here, as there are so many, many factors that figure in, but long term, bare subsistence living is awful, as we know,

I did read and post elsewhere here that Medicare payments are going to drop by about 3% in 2023, due to an excess increase in 2022.

But, subsidized housing costs will increase for those receiving them, and food stamp benefits will drop, all because of what is considered an increase in income.

I also read just this morning that some are wanting to overhaul SS and Medicare benefits, due to concerns it will run out of money.

It’s a mess.

 

[tx2sturgis]

{snip]

I did read and post elsewhere here that Medicaid payments are going to drop by about 3% in 2023, due to an excess increase in 2022.

But, subsidized housing costs will increase for those receiving them, and food stamp benefits will drop, all because of what is considered an increase in income.

{snip}

It’s a mess.

Medicare (not medicaid) premiums will be dropping by a few dollars, is that what you are referring to?

In regards to the increase in income, my 'magic wand' (if I had such a thing!) would fix that too, just add the additional COLA (cost of living adjustment) increase as a separate 'COLA CHECK', that is NOT counted as income (similar to the pandemic relief checks most of us got)

In fact for a good number of us, only 50% of our Social Security Retirement Benefit is used to figure annual income, and only if that total income from all sources reaches a certain threshold (25,000 for singles)

For others in a higher income bracket, then the formula changes.

And yep, I agree it's a mess....and that's why there are many politicians targeting the entire Social Security System for an overhaul.

 

[WanderingRose]

What I read yesterday was that Medicare deductions would be dropping about 3% in 2023, due to an excess increase in 2022.

I’ll try to find the article, and I apologize for referring to benefits reduction, it’s the deducted payments that are to decrease. Spellcheck put in Medicaid when I intended Medicare, so I apologize for that, too, and have corrected it.

“which will actually lead to a roughly 3% drop in standard Medicare part B premiums in 2023, from $170.10 to $164.90 per month. In fact, experts consider 2023 to essentially be a once-in-a-lifetime event because Social Security benefits are rising so much and Medicare part B premiums are falling.”

This from the Motley Fool

https://www.fool.com/retirement/2022/10/14/how-much-in-medicare-premiums-will-be-deducted-fro/

 

[tx2sturgis]

Medicare benefits are increasing slightly, but the premiums are decreasing, slightly.

Medicaid is a different program.

 

[WanderingRose]

Yes, Medicaid is what used to be called a “medical card”.

Sorry for the confusion, I think I have proofread and actually I hadn’t taken enough time to do so.

 

[txmnjim]

And yep, I agree it's a mess....and that's why there are many politicians targeting the entire Social Security System for an overhaul.

many politicians are wanting to privatize ss which would be a disaster. the "flaw" w SS is that due to an unfare tax system workers in the US have a 30-40% replacement rate of their working income
while many in other countries have a 70-80% or more! "Expand SS Now!" by Steven Hill is a good book on the issue...

 

[Morgana]

And you know there is one thing you can do about that that happens on November 8.

 

[mpruet]

The original poster asked how to keep up with inflation of items that are greater than the 8.7% boost that the COLA is providing. The COLA boost is based on the average inflation and everything doesn’t increase the same. The only real answer is to adjust your consumption by reducing those items that have increased more than others. As an example the OP described the cost of a salad mix. OK. My reply would be to make your own salad mix by cutting tomatoes, lettuce, carrots, etc.

Another person pointed out that since the COLA is based as a percentage of their current benefits, that folks who deferred taking SS for a while get a higher dollar amount increase than those who took SS at 62. That‘s true. But consider one person taking SS at 62 and another at 67 and where both had the same total taxed income into SS at their respective age of 62. The person who deferred until age 67 only has 3 years of SS income at age 70 while the person who started taking benefits at age 62 has 8 years of SS income at age 70. Guess which one has received more money from SS at age 70.

It’s been no secret that by deferring SS you get an annual increase in your base benefit by about 8% annually. And it’s also never been a secret that those who wait have a higher base for their COLA once they start receiving benefits. But, those who wait also risk receiving less overall due to early death.

I realize that this reply might upset some folks, but I don’t know any other realistic response.

 

[mpruet]

Oh yes - the original poster was asking how to prepare for the possibility that congress will play games with SS. My answer is simple - don’t put yourself in the position where you’re going to have to live on SS. It’s the same ‘ole same’ole. Cut your expenses, save and invest, get rid of debt, don’t incur new debt,

When I was a little guy, my granddaddy told me when I started earning money…

give 10% to the church
save (and invest) 40%
live on the remaining 50%

Pretty smart dude, my granddaddy.

 

[SLB_SA]

It’s been no secret that by deferring SS you get an annual increase in your base benefit by about 8% annually. And it’s also never been a secret that those who wait have a higher base for their COLA once they start receiving benefits. But, those who wait also risk receiving less overall due to early death.

Sometimes people become involuntarily unemployed at (or around) 62. For such people, waiting until 70 to collect social security comes at a steep cost, partially or completely draining their retirement and/or savings accounts. By giving up 8 years of benefits, one receives larger benefits and larger cola increases. Anybody who wants larger cola increases can receive them by waiting until 70 to begin receiving benefits.

 

[mpruet]

Sometimes people become involuntarily unemployed at (or around) 62. For such people, waiting until 70 to collect social security comes at a steep cost, partially or completely draining their retirement and/or savings accounts. By giving up 8 years of benefits, one receives larger benefits and larger cola increases. Anybody who wants larger cola increases can receive them by waiting until 70 to begin receiving benefits.

That’s a valid point, but the fundamental rule remains - never make yourself dependent on the government. If anything needs to be drilled into folks when they are in their 20s, 30s, and 40s it’s that.

I’ll admit that I was fortunate in that I had a fairly good job until I was 65, but did an analysis of my resources when I was 62 and was convinced that I could have been OK if I had been forced into retirement. I had no debt, paid for house, and a fairly decent 401K. I could have sold my home and moved into a much less expensive home. That would have provided enough cash to live on for several years, and which would have allowed my investments to continue to grow as we were coming out of the housing recession. Of course when I did retire at 65, I had three additional years of earnings.

But still the fundamental goal should be - never be forced to rely on the government. And the best way to get into that position is get rid of debt, don’t incur new debt, live as cheap as possible, save & invest.

 

[SLB_SA]

Here Should You Draw Down Your Portfolio to Delay Social Security? is a discussion of when to take social security. The discussion in the video has several flaws but is a different point of view; different viewpoints are useful and important, even if one does not adopt them. Many experts say to think of social security as insurance against living too long and reject the "break even" analysis. I have adopted this "insurance" viewpoint. The video does not adequately consider "risk"; the return on investments depends on the amount of risk one is willing to take, including the possibility of losing 100% of an investment. (Options, using leverage or margin, etc. can cost you 100% or more of your investments; look at the UK pension industry and the margin calls it has to fund right now.) The fear of "outliving your money" might not occur to lots of people here but many people in the general public have this concern.

 

[mpruet]

It’s a good video and accurate. The key thing is that to have a successful retirement you really need multiple asset classes. I accept controlled risk, but would never play with leverage/margins. You lose control that way. In effect you’ve taken on additional debt.

I have multiple classes of assets, but one of the most important is my ‘near cash’ group. That’s currently short term muni bonds which provides some of my monthly income. When I first retired it was all of my income as I was deferring SS for a while and wanted to have a taxable zero income. I needed that to reduce my Medicare premiums. Once I started SS I reduced the withdrawals from the near-cash group. The beauty of the near-cash group is that since it along with SS provides my monthly income, I’m not too worried about a recession - I try to keep about 4 years in the near-cash group. That also allows me to be a bit more aggressive in my other assets.

Initially the only disbursements from my IRA were partial conversions into my ROTH, but now I have to deal with RMDs which go directly into my near-cash group.

But, in my opinion, the key things are…

In your 20s - start saving (401K/ROTH/IRA) and getting rid of all debt other than mortgage
In your 30s - double up on your mortgage payments and try to get rid of it
In your 40s - start trying to find additional ways to invest. automatic dividend reinvestments - things like that
In your 50s - be thinking of a long-term retirement strategy-play several ‘what-if’ games
In your 60s - start implementing your strategy. You’re almost there.

 

[bullfrog]

All of this will ultimately depend on your mental and physical ability as they will determine many of your options. In American society we have done a very poor job of addressing preventative medicine and general public mental and physical health as well as finding solutions that work to improve the sad situation that exists. You as an individual need to do what you can to improve your situation by using the resources available and educating yourself to improve and maintain your physical and mental health. I believe we should be focused on quality of life and the minimum requirements. I look at Social Security, Medicare and ultimately Medicaid as a last hope safety net when those requirements can’t be met. I wish the government would focus on education and treatment for those that fallen through the safety net and education and prevention for those that haven’t. Since the government isn’t thank you to those here for the useful discussion. There should probably be a sticky or thread that lists all government programs available and who is eligible. I wonder if HOWA has someone that deals with people requesting help and counseling?

 

[mpruet]

But we’ve diverted from the original post.

Yet the key is the best way to get by when the SS COLA doesn’t cover your increase of expenses is to not be dependent on SS.

 

[mpruet]

Bullfrog - absolutely correct. Prevention is by far the best medicine.