TSP

Can we count on Social Security in the future? This question is related to the Thrift savings Plan because, if we can’t count on Social Security, we will need more income coming from sources such as the TSP and IRAs.

For the last two years, the report of the Social Security Trustees has said that Social Security would become insolvent by the year 2034. This does not, however mean that Social Security will not be able to pay benefits to those who have earned them once we hit 2034. The Trustees have said that, even if nothing changes for the worse, they will be able to pay 80% of promised benefits. 80% is way, way better than 0%.

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In Congress, our elected representatives are asking themselves if it is 2033 yet. It is likely that many Senators and Representatives will have retired by that future date, so they don’t have the level of concern that most Social Security recipients (or future recipients) have. As long as politicians continue to think of the next election, instead of the next generation, we will continue to lurch from crisis to crisis.

There have been suggestions from various interested groups about how to “save” Social Security; and the suggestions vary widely based upon the constituency of the group that is making the suggestion.

Here are some of the suggestions:

• Gradually increasing the full retirement age (FRA). The most common age suggested is 70. Some suggestions would keep the age of 62 for reduced benefits, but the benefits will be reduced more for someone whose FRA was 70 than for one whose FRA was 67. Other suggestions would increase the age for early benefits to 64 or 65.

• Raising the payroll tax. Currently a 6.2% payroll tax is assessed on income up to $137,700 per year. Some propose eliminating the “tax cap” altogether.

• Decreasing benefits. 80% is a common suggested reduction percentage.

• Means testing the benefits of higher income recipients. The Internal Revenue Code (and other federal laws) are rife with examples of means tests.

• Changing how the COLA is computed. Back in 2013 there was an attempt to switch from the currently used Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the less generous Chained Consumer Price Index. That attempt failed even though it had the backing of the leaders of the two major political parties.

Why are our representatives loath to make changes to Social Security? Because most changes would adversely affect a major constituency. One major constituency is the Social Security recipients who have contributed to the system for their whole career and who were told that they had an earned benefit waiting for them.

There are around 65 million people in this group and all of them are old enough to vote. Another constituency is current wage-earners (of whom there are even more that there are Social Security recipients) who are averse to paying higher payroll taxes for a benefit that they will receive at retirement.

It’s no wonder that those who make a career representing us are afraid to act; they’re between a rock and a hard place. For years Social Security has been called the 3rd rail of American politics.

So where does the TSP fit in? If we are not going to receive the currently promised benefits from Social Security, we will want to find more money from other sources if we wish to have the kind of retirement we want.

Putting more money in the TSP is never a bad idea! If you think your future Social Security benefits might receive a 20% haircut, start today by socking 20% more in your Thrift Savings Plan. This way you’ll be ready if Social Security is cut (it will never go away) and, if it isn’t cut, you’ll be that much better off because you’ll have more money in your TSP for your retirement.

You say that you’re already contributing the maximum to the TSP? Well then start contributing to an Individual Retirement Arrangement (IRA) or to a taxable investment account. The TSP is where you can make a difference.

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