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Old 02-05-2011, 11:51 AM   #61
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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.
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Old 02-05-2011, 11:52 AM   #62
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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 .
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Old 02-05-2011, 12:09 PM   #63
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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.
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Old 02-05-2011, 12:33 PM   #64
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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.
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Old 02-05-2011, 12:36 PM   #65
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I get taxed on 85% of my ss income right now. How much more can they take?

The rest of it.
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Old 02-05-2011, 01:05 PM   #66
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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
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Old 02-05-2011, 01:36 PM   #67
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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/socialsec...means_0104.pdf
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Old 02-05-2011, 01:39 PM   #68
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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.
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Old 02-05-2011, 01:47 PM   #69
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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.
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Old 02-05-2011, 01:54 PM   #70
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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.
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Old 02-05-2011, 01:58 PM   #71
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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.
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Old 02-05-2011, 02:05 PM   #72
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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....
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Old 02-05-2011, 02:32 PM   #73
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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.
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Old 02-05-2011, 05:20 PM   #74
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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.
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Old 02-05-2011, 08:10 PM   #75
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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.
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Old 02-06-2011, 06:06 AM   #76
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if our current political leaders implement the policies needed to avoid means testing they would loose their jobs and that is the reason why nothing will happen until after the 2012 elections. If you pass an unpopular bill then the people will have 4 years to forget before you are accountable.
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Old 02-06-2011, 06:26 AM   #77
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Interesting comment on an article about AARP: AARP holds its fire on Social Security reform

AARP holds its fire on Social Security reform - The Hill's On The Money

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I'm not at all surprised that the AARP is not making an all out effort to protect Social Security. For the past ten years, I have been researching and writing about Social Security, and I have published four books on the subject. During that entire period I have been trying to alert the public to the fact that all surplus Social Security revenue generated by the 1983 payroll tax hike was being diverted to the general fund and used for general government operations. The money was supposed to be saved and invested to build up a large reserve in the trust fund with which to pay benefits to the baby boomers.

The AARP is fully aware of the great Social Security scam, but they don't want the looting exposed. When my book, "The Looting of Social Security" was published in 2004, I sent a review copy to then AARP CEO William Novelli, along with a letter requesting that the AARP give me help and support in alerting the public to the looting of the trust fund. I received a reply from William Novelli, dated April 9, 2004 scolding me for exposing the looting.
Novelli wrote, "Saying that the trust funds have been looted could result in people losing confidence in Social Security, and that is counterproducti ve." Following that letter, the AARP cut off all communcations with me. I tried repeatedly to communicate with the organization, which I had been a member of for many years, but they would not respond to my letters, emails, or phone calls. I have had no further communications with them, but they have fought my efforts to expose the looting every step of the way. It wasn't that Novelli didn't believe the trust fund was being looted. His concern was keeping the public from finding out about the looting. In my opinion, the AARP is more concerned with maintaining good relations with corporate America and government officials than it is in representing the best interests of its 38 million members. Their refusal to join with the other organizations in fighting against benefit cuts reinforces that opinion.

Allen W. Smith, Ph.D.
Professor of Economics, Emeritus
Eastern Illinois University
Paying for SS going forward (i.e., today's FICA taxes even with an increase) is not the problem.... it is repaying the last 25 years of FICA collected and spent for other purposes. In effect.... they have to Double FICA to collect what they spent on other programs over the last 25 years (instead of collecting the taxes). Paying almost 25% FICA (12.4% from the worker and 12.4% from the company).

The Reagan and Bush tax cuts were little more than a ruse on the public... they cut and kept spending... the scam was covered up by using FICA collections.

Now the bill is due. Those taxes that Reagan and GWB cut (but not really)... will be reconciled by not paying people their SS.
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Old 02-06-2011, 07:38 AM   #78
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During that entire period I have been trying to alert the public to the fact that all surplus Social Security revenue generated by the 1983 payroll tax hike was being diverted to the general fund and used for general government operations. The money was supposed to be saved and invested to build up a large reserve in the trust fund with which to pay benefits to the baby boomers.
Well, in all fairness, the Trust Fund itself has been saved and invested, and a large reserve has indeed been built up. Of course, that reserve is in unmarketable US government securities, a large portion of which will soon be coming due. The fact that the return on this portfolio hasn't been high enough to provide for retiring "boomers" is a whole additional matter. IMO, the "scam" is that the borrowing from the Trust Fund was not included in the deficit, as it would have been if the Treasury had auctioned the dollar-equivalent of these "IOU's" to the public.
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Old 02-06-2011, 07:43 AM   #79
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Well, in all fairness, the Trust Fund itself has been saved and invested, and a large reserve has indeed been built up. Of course, that reserve is in unmarketable US government securities, a large portion of which will soon be coming due. The fact that the return on this portfolio hasn't been high enough to provide for retiring "boomers" is a whole additional matter....

Yes... Trust Fund is the ruse. And it is fair to call it out!

Thanks for the description ... Are you for real?? Are you really that naive?
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Old 02-06-2011, 08:02 AM   #80
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I try to not let the gyrations of the government prevent me from doing smart things.

I'm not saying SS is government aide, but I've know people who rely on government aide rather than work and save for a living. They do not thrive. For example - have you ever heard of someone receiving unemployment benefits not getting a job yet because their benefits haven't run out? They may be "milking" the system for money - but it's not a technique that's going to cause them to thrive.

Not that I won't try to max out on the "financial" games the government plays - I take taxes into consideration in everything I do. But I refuse to count on the government for anything.

My game plan for minimizing future taxes has been to put as much as I can into Roth accounts. If this causes me to be means tested out of SS, I may not like it, but I'm not going to stop accumulating wealth so that I can get SS.
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