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

[swampwiz]

Of course all the chatter in Washington these days is about the unsustainable deficit. Folks are talking about means testing the middle class retirement programs like Social Security and Medicare (obviously Medicare isn't going anywhere, but perhaps a larger premium would be required for folks who have means.)

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!

 

[harley]

I'm not concerned about getting means tested out of SS, but I suspect I could get means tested into a reduction. I'm 55, so 7 years minimum before I could get anything. And I plan to wait for the max, so actually 15 years. A lot could happen in that time. That's why (not to stir up a recent thread) I don't take SS into account much in my SWR calculations. I don't know what they'll do with it, but I can pretty much guarantee it won't be to my benefit. But I'd far rather get means tested out of SS than retire poor so I can get the whole benefit. Sort of cutting off your nose to spite your face.

 

[dex]

I'm not concerned about getting means tested out of SS, but I suspect I could get means tested into a reduction. I'm 55, so 7 years minimum before I could get anything. And I plan to wait for the max, so actually 15 years. A lot could happen in that time. That's why (not to stir up a recent thread) I don't take SS into account much in my SWR calculations. I don't know what they'll do with it, but I can pretty much guarantee it won't be to my benefit. But I'd far rather get means tested out of SS than retire poor so I can get the whole benefit. Sort of cutting off your nose to spite your face.

I'm in the same situation and my calculation have me taking it at 62 but I might delay it until 65.

I don't think you have to look at all trends in your planning. My expectations are:
- Bush/Obama cuts extended at least until 2014 (presidential candidates will not want to be for a tax increase while running) - I am 59
- 2015 - Income taxes increase, gov't spending cut to address deficit - & Bush/Obama cuts expire - I am 60 Little affect on my tax bill - I might start taking IRA distributions while taxes are relatively low
- 2017 - 2020 - Take SS? Yes
- 20?? - more income tax increases
- 20?? - VAT or similar starts

I'm thinking the means testing might not be put into effect for people in my age group.

I don't really know what a person can do about any of this to minimize the impact.

 

[freebird5825]

Age 52 and not counting on any of those digits that appear on my SS statements.
I never figured SS into my FIRE calculations.
Call me a pessimist, go right ahead. I prefer the term "realist".

I have other government benefits from my late husband's (he paid no SS) and my own w*rk records (I paid SS), so I cannot in good conscience sit here and cry waa waaa waaaah.

If I do get some SS benefit in 10 years at age 62, that's great. Time will tell.

Mr B is 59 and a heck of a lot closer to filing for benefits at 62. He intends to do exactly that.

 

[M Paquette]

So far our esteemed Congresscritters haven't twigged to the idea that wealth could be in a nest egg, rather than in annual income. As long as they remain comfortably ignorant, I won't be concerned.

 

[NW-Bound]

Do you mean you plan to maintain a large nest egg with 0% WR, like this homeless man?

 

[W2R]

I'll be 63 in June, and my plan is to take SS at 66. However, at this point I feel like I'm playing "chicken" with the Social Security Administration. Dare I wait as planned, and possibly get caught up in means testing or other reductions, or will I chicken out and take it before 66? Who knows.

They might just implement means testing as an increase in SS taxes, rather than diminishing the amount of one's retirement benefit.

I don't think they will just cancel SS for some with greater means. I think it will just be reduced. They might just heavily tax SS for those retirees with income beyond some threshold. A multi-million dollar nestegg would probably yield some income in capital gains and dividends most years.

 

[Midpack]

I don't take SS into account for any of my retirement income planning, but I will be "disappointed" to the extent I lose benefits due to means testing, though that's exactly what I expect to happen. Only uncertainty IMO is when.

It's the sort of thing that makes early retirement make more sense to me than it otherwise would. If I was convinced that I would NOT be penalized (any more than present taxes and laws) for building our net worth further, I'd probably do just that. Looks like greatly diminishing returns in the future for those who have saved and built up a nest egg, so why bother beyond a comfortable SWR?

 

[ikubak]

Maybe I am just greedy, but I would be very upset if the government decided I didn't need the proceeds of this program I have been contributing into for the past 30 years. I think means testing would also send a message to the rest of the merkins that if you don't save your money, the gubmint will step in to make sure you are taken care of.

 

[Midpack]

Maybe I am just greedy, but I would be very upset if the government decided I didn't need the proceeds of this program I have been contributing into for the past 30 years. I think means testing would also send a message to the rest of the merkins that if you don't save your money, the gubmint will step in to make sure you are taken care of.

Brace yourself...

 

[ziggy29]

It's something I think about, yes, and I am hoping I can take steps to eliminate or reduce the degree to which such means testing will hit me, but other than how I vote and urge others to vote and sound off, there's not much I can do about it -- and I'm trying to get better about not stressing over things I can't control.

Most federal programs with some means testing look at income, not total assets. If that continues, my strategy of trying to look asset rich and "income poor" may well work. If not, oh well -- I'd get screwed anyway.

 

[NW-Bound]

Maybe I am just greedy, but I would be very upset if the government decided I didn't need the proceeds of this program I have been contributing into for the past 30 years. I think means testing would also send a message to the rest of the merkins that if you don't save your money, the gubmint will step in to make sure you are taken care of.

Of course it would incentivize people to save even less.

Consider two persons who make exactly the same salary. Both contributed identical amounts to SS. One spends all the rest. The other saves some money in his 401k, or IRA, or in an after-tax account. When the time comes for retirement, one has "too much" while the other is "empty handed". The gummint says that one now deserves more, and the other deserves less.

Note that this scenario can happen at any income level. The two peer persons can be both making $100K/year, or $30K. If they contribute the same to the system, why should the frugal one get penalized?

But that is what means testing is. I think they are just going to do that by raising taxes, instead of out right cutting your benefits.

“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing” - Jean Baptiste Colbert (French Economist and Minister of Finance under King Louis XIV of France. 1619-1683)

 

[youbet]

So far our esteemed Congresscritters haven't twigged to the idea that wealth could be in a nest egg, rather than in annual income. As long as they remain comfortably ignorant, I won't be concerned.

I don't think they're ignorant of the wealth vs. income issue at all. I just think they haven't thought of a way to increase taxes on wealth without alienating key voting blocks and contributors. But I feel it coming...... If nothing else, younger citizens are beginning to scream due to their feeling that their income taxes will need to be increased to support wealth holding retired Boomers.

I'm looking for higher real estate taxes, personal property taxes and sales taxes and possibly a VAT.

I'm not sure how the gov't will determine a method for measuring wealth so that it can be used as a gatekeeper to gov't benefits, but I'm confident they'll find a way. They do it now for Medicaid and other things.

 

[youbet]

I'm trying to get better about not stressing over things I can't control.

A worthy goal!

 

[NW-Bound]

All this talk does is to get me upset, on a fine Friday afternoon.

Maybe I will cash out all my accounts, convert my net worth to Krugerrands, hide them in my little motor home and take off into the NM mountain.

PS. I figure that I can survive without SS, but the thought that these Congresscritters passing laws which encourage people to do more of the wrong things was what made me upset.

PPS. On second thought, who the hell voted them into the Capitol anyway?

 

[East Texas]

I never counted on social security in my numbers; however, I certainly won't turn it down. The reason is I'll need it to pay all the additional taxes I'll get assessed because I chose to save instead of spend. Someone has to pay for the deficit and I fear the burden of it will be on us (as a savings and investment group).

 

[BTravlin]

I expect they will make more of our SS benefits taxable and, at the same time, raise or eliminate the cap on taxable income where SS taxes are concerned. I'm 52 and plan on drawing at 62 if that is still an option at the time. I expect I'll get close to the full benefit I've been promised but all of it will be considered taxable income.

 

[East Texas]

I fully expect 100% of my social security to be taxed - it's just a matter of time. I also expect the tax laws to change so our savings and investments are taxed at a significantly higher rate than earnings. Someone has to pay for the deficit.

 

[obgyn65]

I am 45, and I expect to be means tested out of SS...

I'll be 63 in June, and my plan is to take SS at 66. However, at this point I feel like I'm playing "chicken" with the Social Security Administration.

 

[fisherman]

I'm 46 now and DW and I both will receive small pensions at 55 or later but they are not government pensions. We have also been on our own for Health Ins for 4 years now. I have a very negative outlook for government programs providing any benefits to us. After reading Paul Ryan's proposal on ending Medicare and the effect on my age group and younger I see no option to remain in this country after 65. This is not to say that his proposal is not needed just that younger folks are impacted more by it. I also assume HC will be repealed and will NOT be replaced as no politician will want to touch it. If you do not share this opinion I sure could use a peep talk on this.

Our current portfolio can cover all current expenses of about $50K now at less than a 3% rate if needed but at the rate of cost growth we have seen projections are very iffy we could make it if either of use lives very long and polices change as proposed.

I have been evaluating locations in Mexico and Argentina where we could move if this all really does hit the fan for us youngsters. Considering my family first came to the US in 1724 I hope to not be the generation that left but we may not have a choice.

In summary I imagine we will get something from SS but it will be so little after taxes and means testing it will not put a dent in the Health care costs of old age.

 

[Nords]

By the time 2030 rolls around we'll have 85% of our SS subject to taxation in the 25% bracket. Whatever's left will probably go right back into paying Medicare premiums. And by then, 85%/25% will probably seem like very low numbers.

I only have 24 years of W-2 work history anyway.

 

[TromboneAl]

However, at this point I feel like I'm playing "chicken" with the Social Security Administration. Dare I wait as planned, and possibly get caught up in means testing or other reductions, or will I chicken out and take it before 66? Who knows.

Perhaps you can keep your finger on the trigger, and as soon as you hear unpleasant noises from the government, pull it. You'll probably be grandmothered in anyway.

 

[W2R]

Perhaps you can keep your finger on the trigger, and as soon as you hear unpleasant noises from the government, pull it. You'll probably be grandmothered in anyway.

So true! I love it - - -"grandmothered in".

I guess that is kind of what I am doing, or trying to do anyway. Listening and hoping to pull the trigger early enough, and that it helps.

 

[growing_older]

Means testing based on wealth is likely to have other "fairness" issues, such as how one values pensions or annuity contracts.

 

[dex]

By the time 2030 rolls around we'll have 85% of our SS subject to taxation in the 25% bracket. Whatever's left will probably go right back into paying Medicare premiums. And by then, 85%/25% will probably seem like very low numbers.

I only have 24 years of W-2 work history anyway.

What you say is the key.
It may not be means testing but just inflation and/or an increase in the tax rates that eats away from what you keep of SS.



Benefits Planner: Taxes and your Social Security benefits
No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules. If you:

• file a federal tax return as an "individual" and your combined income* is
  • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $34,000, up to 85 percent of your benefits may be taxable.