Are you concerned that your nest egg will cause you to get means tested out of SS?

[MichaelB]

Not concerned. I think SS and Medicare should be means tested.

My SS contribution is quite low - only 14 years IIRC, just past the minimum to qualify, and half of those were when I was studying and earning very little, so I am not giving up much. Still, I don't understand why I should be provided subsidized health care when I can afford to pay. All I want is access to coverage (which I am currently denied).

 

[Westernskies]

Not concerned. I think SS and Medicare should be means tested.

Of course you do, you've made it abundantly clear that just love paying taxes, and wish everyone else felt the same; More is better.

Some of us disagree.

 

[frank]

in regard to the article dying with debt. the banks and fed aren't doing anyone any favors, interest rates staying at zero, banks raising all their fees, no interest on savings, cd's, checking. why should the elderly worry about paying back banks or credit cards who are bilking them for all they can get?

 

[Sand Pounder]

It seems that folks like us that are / have been building up a nest egg would end up getting screwed by all this. If there is a high balance in an IRA, thus having a sizable RMD, or income generating or non-retirement liquid asset, or a side pension, etc., then the entitled SS benefit may be means-tested completely away!

To not get screwed, it may require that folks don't save up too much, so that they can keep their entire benefit!

It does seem that way. Remember what Willie Sutton supposedly said when asked why he robs banks, "because that's where the money is." The gov will not get much $ by taxing the poor.

But that's a very short-sighted attitude. If people stop working hard and saving and investing, the whole system collapses. It sure seems like we're headed in that direction.

To answer your subject heading, I'm not counting on any SS at all, even though I've paid in enough over 39 years to earn close to the maximum possible benefit. Not-so-easy come, easy go. To minimize the tax burden that's bound to increase, I'm moving a large portion of my IRA to a Roth and paying the tax on it now. We'll just have to wait and see if that does any good.

 

[BTravlin]

in regard to the article dying with debt. the banks and fed aren't doing anyone any favors, interest rates staying at zero, banks raising all their fees, no interest on savings, cd's, checking. why should the elderly worry about paying back banks or credit cards who are bilking them for all they can get?

On the one hand I agree but on the other the banks just pass that cost of business on to the rest of us. The responsible among us always end up paying in the end.

 

[Midpack]

Perhaps... All the more reason to FIRE early and engineer one's outcome. If one is of reasonably moderate means.... why continue to work and saving with the likely outcome being ... pay more taxes?

Same thing I tried to say in my post, but your post is much clearer, thanks. And this thought has definitely been a factor in my decision to retire early...

 

[MichaelB]

Of course you do, you've made it abundantly clear that just love paying taxes, and wish everyone else felt the same; More is better.

Some of us disagree.

Excuse me?

you've made it abundantly clear that just love paying taxes

No, this is not true

and wish everyone else felt the same

This also is not true

More is better.

I have no idea what you mean by this.

Everything else I agree with.

 

[Gumby]

A little overblown, don't you think? If you and your wife were getting maximum social security at the normal retirement age, you would be getting $56,784 per year total. Given nothing but the standard deduction and personal exemptions, you would pay $3539 in federal income tax, or about 6.2% of your income (you would be in the 15% marginal bracket). If 100% of your social security income were taxed instead of just 85% of it, your taxes would rise by $1278, and you would be paying about 8.5% of your income in taxes. Unpleasant, yes, but hardly catastrophic. And the effect on those making less than the maximum social security is even lower.

I realize that my earlier example was incomplete and did not fully address the point I was trying to make.

Let's assume that you and your wife not only get maximum social security (as above), but that you were also one of society's "ants" who saved up $750,000, which generates an additional $30,000 in ordinary income every year. Now, your gross income is $86,784. Your taxes are $8040, or about 9.3% of total income (you are still in the 15% marginal bracket). If 100% of social security were taxed versus just 85%, you would again pay just $1278 more in tax.

Now, suppose the rule were that anyone who has income outside of social security gets 100% of benefits taxed. Can you honestly say that you would prefer to give up the $750,000 nest egg and forego the $30,000 annual income ($25,500 net of tax) just so you could avoid a maximum $1278 tax increase? I wouldn't.

 

[scrabbler1]

No. It may cause SS to be taxed at 100% but I can't see it being removed altogether based on either income or net worth - that would be political suicide imo.

I agree with your assessment.

 

[79protons]

I realize that my earlier example was incomplete and did not fully address the point I was trying to make.

Let's assume that you and your wife not only get maximum social security (as above), but that you were also one of society's "ants" who saved up $750,000, which generates an additional $30,000 in ordinary income every year. Now, your gross income is $86,784. Your taxes are $8040, or about 9.3% of total income (you are still in the 15% marginal bracket). If 100% of social security were taxed versus just 85%, you would again pay just $1278 more in tax.

Now, suppose the rule were that anyone who has income outside of social security gets 100% of benefits taxed. Can you honestly say that you would prefer to give up the $750,000 nest egg and forego the $30,000 annual income ($25,500 net of tax) just so you could avoid a maximum $1278 tax increase? I wouldn't.

What if you saved up 750,000 and have it invested in a roth or municpal bonds and thus have an additional $25,000 in income that the government doesn't tax? I thought the means testing idea in this thread was they will look at the value of your portfolio, your house, your wife's wedding ring, your cars, boats, porn collection, etc. and add it all up to get an idea of how much they can rip you off on SS?

It will actually be kind of nice when/if they do start means testing, because there is this cute little house down the street owned by an older lady living off SS that I would like to buy but she doesn't want to sell. If they means test her, then she will have to sell it because it is worth $500,000 and she can't afford to have her SS reduced because of her assets. I hope they enact this soon.

 

[FIRE'd@51]

Right now, up to 85% of SS is taxed. I believe that we should go back to (pre-Clinton) a maximum of 50% SS being taxed. I have no problem with 50% being taxed because our employers match (and get a tax deduction for) our SS witholdings. However, the 50% we pay is with after-tax $, and IMO should be treated the same way as a Roth IRA. These types of inconsistencies in our tax code drive me crazy. It also makes me suspicious of whether or not Roth IRA distributions will actually remain totally tax-free.

 

[Moemg]

I can not see how someone is paying 85% of taxes on their SS . I have a $20,000 pension plus dividends and capital gains from a decent size portfolio and only 20 % of my SS is taxed . Of course I am sure this number will go up when I start to take my IRA withdrawals .

 

[FIRE'd@51]

I can not see how someone is paying 85% of taxes on their SS .

A maximum of 85% of one's SS is taxed (subject to taxation). That's different from your statement.

 

[frank]

I could be wrong about this but I think once you get above 32K in income your ss income becomes taxable. the amount you make above the 32 decides what percent is taxable. you have to do the irs worksheet to find out.

 

[youbet]

I get taxed on 85% of my ss income right now. How much more can they take?

The rest of it.

 

[rescueme]

I can not see how someone is paying 85% of taxes on their SS .

BTW, at our provisional income level, we will be at 85% (soon to be 100%, I'm sure).

Here's some info and a worksheet 4 U (from 2007):

Will Your Social Security Benefits Be Taxed -- Again? - Personal Finance - Taxes - SmartMoney.com

 

[Htown Harry]

Good posts, Gumby.

And yes, Telly, I am a moth.

The shorthand phrase "means testing" can mean any of the following, or a combination:

1. Some sort of adjustment to the benefits payout based on assets held by the recipient.
2. Tinkering with the income tax formulas for SS payments (more generally, changes to the "85%" current taxable income tax formulas to reduce the net expense of the SS benefits paid by the government)
3. Variations on the above to include Roth withdrawals, muni income and other non-taxable income in the formulas for SS benefit taxation
4. Creating a new max payment formula that accounts for lifetime earnings above SS income tax cap levels, i.e. those that consistently paid in some $7000 on $100,000 in annual income would receive bigger checks than those that consistently paid in $7000 on $200,000 in income.
5. Changing the "bend points", in effect increasing the progressivity (?) of the payout formulas that favor a low-earnings workers" "payback" percentage
6. Any number of changes to increase current payroll taxes collected from workers earning above $100,000 (similar to the upcoming Medicare tax "surcharge")

There are more, I'm sure.

One article I read summed up the means-testing options that could play a part in shoring up SS this way:

"Wealthier Americans would collect less at retirement, pay higher taxes on their benefits or have more of their income subject to payroll taxes – or all three."

This 2004 paper from an actuary's group gives a pretty good overview of the pros and cons, both financial and political:
http://www.actuary.org/pdf/socialsecurity/means_0104.pdf

 

[frank]

you bet: that was a good one. and probably truer than you think. glad to see someone has a sense of humor. it doesn't do any good to get excited about something you have no power over.

 

[swampwiz]

It will be a real kick in the butt if the government approach is:

401k or pension = wealthy


Perhaps... All the more reason to FIRE early and engineer one's outcome. If one is of reasonably moderate means.... why continue to work and saving with the likely outcome being ... pay more taxes?

That's the point I was trying to get across - that maybe it would be a good idea to FIRE especially early, and with less of a nest egg, so that when SS comes, it won't be means-tested away.

 

[swampwiz]

I get taxed on 85% of my ss income right now. How much more can they take? I thought taxing my ss income was a tax on a tax.

Since the employee's portion of SS tax does not reduce the taxable income (i.e., unlike a 401K or deductible traditional IRA), the taxing of it should be considered as a tax on a tax. Using this meme of course would thus make it OK for the portion of SS derived from the employer's contribution to be regarded as only being taxed once.

 

[Sue J]

BTW, at our provisional income level, we will be at 85% (soon to be 100%, I'm sure).

Here's some info and a worksheet 4 U (from 2007):

Will Your Social Security Benefits Be Taxed -- Again? - Personal Finance - Taxes - SmartMoney.com

Thanks for the link. Nice simple calculator.

Are the cutoff points increased every year like the standard deduction and exemptions? I'm not 62 for a few years so I hadn't looked into this before but it looks like 50% of my SS benefit will be taxable and will be right at the point of putting us into the bottom of the 15% bracket. Damn, that stings.

 

[bizlady]

I really do not believe that anyone 55+ is going to get impacted negatively for SS at this point. I think that eventually, the early SS age of 62 will get bumped up, and that full retirement age will get bumped up. I think those will be gradual as they were last time SS got moved.

I think that the maximum earnings that get taxed for ss will move up, as they should--at least by an inflation number if not more.

Means testing would be complicated and I do not see the government doing this unless they use a large number. $1 million in the midwest is worth more than $1 million in the NE. Lifestyles and expenses vary greatly- and I do not see the gov't deciding who gets what. $1 million is a number that politicians like to use (the millionaires), but a million is not much if your retirement is long. I do thing that someone with assests like Oprah or Bill Gates could get means tested (Ok and many below them). But I think the asset number would be sufficiently large that truly that group would not "need" the SS they are due.

Polititcians today cannot deal with decisions that will cost them votes. Eventually, they will have to do something, but my guess is not much will happen until at least after the 2012 elections. Whatever and whenever they do it, some will be grandfathered, and the rest eased in....

 

[FANOFJESUS]

Well just going by logic if 250k is the new rich the net worth of the average person making 250k might be the limit. My guess is over 2 million for means testing.

 

[meierlde]

Thanks for the link. Nice simple calculator.

Are the cutoff points increased every year like the standard deduction and exemptions? I'm not 62 for a few years so I hadn't looked into this before but it looks like 50% of my SS benefit will be taxable and will be right at the point of putting us into the bottom of the 15% bracket. Damn, that stings.

The cutoff (bend) points increase when there is a cost of living increase (so not the last 2 years) This is also when the maximum taxable amount increases under current rules. I see one solution is to remove the limit and add 2 more bend points one at the value of the limit which goes to 5% and then one in the 100k per month range to 1%.

Note the formula explains why ER if reasonably high income does not impact social security benefits today very much.

 

[Jay_Gatsby]

There are fixes for both SS and Medicare that will not require means testing to qualify for either. The problem is that our political leaders do not have the will to implement them. The current budget deficit is the prime example of this.