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On SS means testing
Old 08-05-2012, 11:15 PM   #1
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On SS means testing

Pretty interesting and reasonable points on how this won't really work.

Another Voice for Social Security Means Testing | Go To Retirement
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Old 08-06-2012, 08:40 AM   #2
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From the article:

Quote:
I am also OK with increasing the full retirement age, as long as it doesn’t apply to those of us who are already quite close to it.
Translation: I'm all for shared sacrifice as long as "other people" are the ones sharing it.

This is why we are screwed. Everyone knows we need to get our fiscal house in order, but almost no one is willing to support anything that requires that they share in the pain. As long as ONLY "other people" feel the pain, we support it. But we are collectively too damn selfish to accept anything that hits us.
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Old 08-06-2012, 09:04 AM   #3
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Originally Posted by ziggy29 View Post
From the article:



Translation: I'm all for shared sacrifice as long as "other people" are the ones sharing it.

This is why we are screwed. Everyone knows we need to get our fiscal house in order, but almost no one is willing to support anything that requires that they share in the pain. As long as ONLY "other people" feel the pain, we support it. But we are collectively too damn selfish to accept anything that hits us.
I disagree. It has nothing to do with being 'selfish'. It has to do with people who've made their financial plans over a long period of time. Suddenly we're changing the rules on them??

In this new ear of 'fairness'?

If you're 59, 60, 61 years old and have factored in your SS as a key element of your income; to have it suddenly changed on you...

If people have 15, 20, 25 years to adjust to new rules, that's one thing. To screw those with a 4-5 year horizon...how can that be fair?
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Old 08-06-2012, 09:10 AM   #4
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Next up: Congress trying to figure out how to get their hooks into the billions (trillions?) in 401k and IRAs.

In the name of 'fairness' of course.
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Old 08-06-2012, 09:13 AM   #5
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Old 08-06-2012, 09:21 AM   #6
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Originally Posted by marko View Post
Next up: Congress trying to figure out how to get their hooks into the billions (trillions?) in 401k and IRAs.
They have already figured it out, since it's taxed as ordinary income when distributed. And with RMD's at age 70.5, there is forced distribution.

A more important question is how they will get their hooks into Roth's.
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Old 08-06-2012, 09:24 AM   #7
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Rather than revising SS so that benefits are determined by a person's other retirement income or available wealth (which penalizes people for saving) we could instead structure SS so that checks vary according to your lifetime earnings. Those who had lower incomes would receive proportionately much higher returns than those who earned more. That would assure lower wage earners receive enough to live on, but avoids penalizing those who saved.

Oh, wait--that's exactly how we do things already. Never mind.
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Old 08-06-2012, 09:27 AM   #8
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Originally Posted by marko View Post
I disagree. It has nothing to do with being 'selfish'. It has to do with people who've made their financial plans over a long period of time. Suddenly we're changing the rules on them??

...(snip)...

If people have 15, 20, 25 years to adjust to new rules, that's one thing. To screw those with a 4-5 year horizon...how can that be fair?
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Old 08-06-2012, 09:30 AM   #9
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I actually have two different thoughts on this the conflict with each other...


We paid into the SS system... there was a promise to pay benefits when we retired... with the people starting to retire now, we paid in more than enough to pay our benefits.... IOW, we are not getting back more than we put in....

Now, the gvmt. decided to take all that money and spend it on OTHER things... they hid the true deficiet spending over the past few decades from the people... we were like Greece... spending more than we could afford...

This was known by the gvmt and some of the people.... that at some time the gvmt would have to borrow a lot of money to pay off the promised benefits.... but now that the time has come, the gvmt has said 'We are broke and it is because of your greed on wanting to get paid what we promised'.... so the one part of me says 'that is not my problem, pay me what I EARNED'... it is not some gift from above.... but something that I paid into for many years....

The other side of me says 'well, my income taxes have been lower because they used that money instead of taxing me'.... this is true... but, I was single most of this time and paid a good amount of taxes... I do not think they would have gotten much more out of me over those years.... the tax benefits went to others....


In the end, I seem to land on the side of stop spending on all the other stuff that we never should have started in the first place... one in seven are on food stamps... our defense system is spending more than almost all of our allies combined... we give tax breaks to people and companies that do not need them or deserve them....

As for shared sacrifice, I would be more than willing to pay say 10% more in income tax IF they cut REAL spending by 20%... not the fake spending cuts, but spending 20% less money next year than you spent this year... and get rid of a lot of those tax credits that do very little for the money that is spent...
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Old 08-06-2012, 09:35 AM   #10
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A more important question is how they will get their hooks into Roth's.
My guess--they won't tax Roth distributions ("just like we promised"), but the distributions will be added to income for the purposes of computing the tax rate on all other income (including SS). The Roth distributions would effectively force other income out of the 10% and 15% brackets and into higher tax brackets. But the Roth income was never taxed again. Easy, and the pain would conveniently fall on retirees with more income.
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Old 08-06-2012, 09:38 AM   #11
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Originally Posted by marko View Post
I disagree. It has nothing to do with being 'selfish'. It has to do with people who've made their financial plans over a long period of time. Suddenly we're changing the rules on them??

In this new ear of 'fairness'?

If you're 59, 60, 61 years old and have factored in your SS as a key element of your income; to have it suddenly changed on you...

If people have 15, 20, 25 years to adjust to new rules, that's one thing. To screw those with a 4-5 year horizon...how can that be fair?
Understanding that, in the fatherly advice given from my FIL to DW when she was 13, "life's a bitch and then you die," I tend to agree with the zig.

Of course, I'm biased since I am still under the ripe ol' age of 30. But, how is it fair for those that are 59, 60, 61 years old to get to have the party of their lives and leave me to clean it up? My voting rights way back then were zilch, as I was either under the age of 18 or a twinkle in my parent's eye.

I've been a proponent of shared sacrifice when fixing this problem. Perhaps the cuts aren't as deep for those who have done a poor job planning for the future. Certainly, some old geezer's can pick a few of the red "party cups" up with their cane.

As far as the article goes, what is meant by means testing? SS is already "means tested" to some degree through the PIA bend points. Independent provided an excellent link many months ago, and very few of these "solutions" alone can fix the problem. The only one I can recall that helps is leaving max benefits as they are and uncapping "contribution" limits. But I just lightly perused...

Individual Changes Modifying Social Security
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Old 08-06-2012, 09:50 AM   #12
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But, how is it fair for those that are 59, 60, 61 years old to get to have the party of their lives and leave me to clean it up?
I'm trying to understand your statement - please explain...
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Old 08-06-2012, 09:52 AM   #13
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Understanding that, in the fatherly advice given from my FIL to DW when she was 13, "life's a bitch and then you die," I tend to agree with the zig.

Of course, I'm biased since I am still under the ripe ol' age of 30. But, how is it fair for those that are 59, 60, 61 years old to get to have the party of their lives and leave me to clean it up? My voting rights way back then were zilch, as I was either under the age of 18 or a twinkle in my parent's eye.

Buddy, we PAID for the party! We paid for it in advance.

News Flash: Leaving it for the grandkids to clean it up is the new Washington mantra. Life's a bitch and then you die, right?
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Old 08-06-2012, 09:52 AM   #14
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My guess--they won't tax Roth distributions ("just like we promised"), but the distributions will be added to income for the purposes of computing the tax rate on all other income (including SS). The Roth distributions would effectively force other income out of the 10% and 15% brackets and into higher tax brackets. But the Roth income was never taxed again. Easy, and the pain would conveniently fall on retirees with more income.
IOW, include Roth distributions in AGI but tax them at 0% (similar to what is currently done with qualified dividends and LT capital gains). This will also make it easier to trigger means tested items (like Medicare part B premiums) and raise the threshold for itemized medical (and other) deductions.

Yep, very likely, IMO.
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Old 08-06-2012, 10:04 AM   #15
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Quote:
Originally Posted by ziggy29 View Post
Translation: I'm all for shared sacrifice as long as "other people" are the ones sharing it.

This is why we are screwed. Everyone knows we need to get our fiscal house in order, but almost no one is willing to support anything that requires that they share in the pain. As long as ONLY "other people" feel the pain, we support it. But we are collectively too damn selfish to accept anything that hits us.
Quote:
Originally Posted by marko View Post
I disagree. It has nothing to do with being 'selfish'. It has to do with people who've made their financial plans over a long period of time. Suddenly we're changing the rules on them??

In this new ear of 'fairness'?

If you're 59, 60, 61 years old and have factored in your SS as a key element of your income; to have it suddenly changed on you...

If people have 15, 20, 25 years to adjust to new rules, that's one thing. To screw those with a 4-5 year horizon...how can that be fair?
I agree with Ziggy.

Life throws curves at us all the time, that doesn't change just because we're older or retired.

If you're "59, 60, 61 years old" or "with a 4-5 year horizon" and it comes as a surprise to you that you're Soc Sec benefits may not be what earlier projections have shown, you're not paying attention. "Suddenly" - you must be joking...

No way around it, the more we exempt older generations, the more our children/grandchildren will have to pay in. And we already know they're going to get less of a benefit than generations that have come before them - who's getting "screwed?" What's "fair" or "selfish" for all concerned?

Soc Sec is a paygo system, has little to do with 'I paid in, I earned it.'

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Originally Posted by Texas Proud View Post
We paid into the SS system... there was a promise to pay benefits when we retired... with the people starting to retire now, we paid in more than enough to pay our benefits.... IOW, we are not getting back more than we put in....

Now, the gvmt. decided to take all that money and spend it on OTHER things... they hid the true deficiet spending over the past few decades from the people... we were like Greece... spending more than we could afford...

This was known by the gvmt and some of the people.... that at some time the gvmt would have to borrow a lot of money to pay off the promised benefits.... but now that the time has come, the gvmt has said 'We are broke and it is because of your greed on wanting to get paid what we promised'.... so the one part of me says 'that is not my problem, pay me what I EARNED'... it is not some gift from above.... but something that I paid into for many years....
It wasn't hidden from any responsible adult citizen, we've been running deficits for decades, it's a matter of public record. Since 1962, the debt limit has been increased 74 times by Congress, and 10 of those increases have taken place in the past 10 years — with the debt limit increasing from $5.95 trillion in 2000 at the end of the Clinton presidency to the present level of $14.29 trillion. Anyone who didn't know we were running deficits hasn't been paying attention AT ALL, no excuse.

In fact, I'd say we've known (or should have) all along and yet demanded our politicians do nothing about it by electing folks who won't raise our taxes or cut our benefits, in fact we expect benefits to improve. Any candidate who told us the truth, wouldn't have a chance to get elected - and we're still voting this way NOW! We're still falling for being bribed with our own money even today...
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Old 08-06-2012, 10:12 AM   #16
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Originally Posted by FIRE'd@51 View Post
IOW, include Roth distributions in AGI but tax them at 0% (similar to what is currently done with qualified dividends and LT capital gains). This will also make it easier to trigger means tested items (like Medicare part B premiums) and raise the threshold for itemized medical (and other) deductions.

Yep, very likely, IMO.
Yes, Roth withdrawals might be treated like qualified dividends, but with an added twist. Rather then just adding them into AGI (thereby reducing other tax benefits and govt subsidies) and taxing them at a different rate (zero in this case), they would be taxed at zero but also displace income from the lower level of the tax table, pushing it up into higher brackets. Every dollar of income that gets forced up one bracket is a big increase in the tax "take." And folks can still claim that Roth withdrawals aren't being taxed (but every dollar of Roth withdrawals will force other income to be taxed at higher rates--which amounts to much the same thing while technically keeping the promise).

I think we'll all become less enamored of "promises" and more trusting in hard assets we directly control as time goes on.
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Old 08-06-2012, 10:51 AM   #17
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If people have 15, 20, 25 years to adjust to new rules, that's one thing. To screw those with a 4-5 year horizon...how can that be fair?
SS has never been fair. Think of it as welfare for old people and you'll feel better about having your benefits cut.

AS the boomers move into retirement the numbers for SS don't work so well. Hence the call for changes (including means testing). But if we exclude much of the Boomer population the problem doesn't get fixed and the fixes will be more draconian on everyone else.

No the solution must include everyone, including those close and far from retirement.
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Old 08-06-2012, 10:56 AM   #18
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Good news for the younger generation: boomers retiring today have for the most part paid more into Social Security than they will get back, so the whippersnappers are off the hook for paying for us! Now the younger folks can just worry that they will be paying even more into the system than they will get back.

Retiring soon? You probably paid more in taxes than you will get in Social Security benefits - chicagotribune.com

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A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85, according to a 2011 study by the Urban Institute, a Washington think tank.
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Old 08-06-2012, 11:35 AM   #19
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The only thing I ask when it comes to revising the Full Retirement Age is that nobody who was subject to the previous FRA change after they began paying into the system now gets subject to a second change in their FRA. The previous SS overhaul which included a change in the FRA was in 1984, so anyone born in, say, ~1966 or earlier (age 18 or older at the time) would not be subject to a second change in their FRA after they began paying (or could have been paying) into the system.

Fully taxing all SS benefits is a form of means testing because of the progressive nature of the federal income tax system, and I would support that measure.

As for using withdrawals from Roth IRAs (I don't have one) to displace other income, I can see that being done for the growth part of a Roth IRA, not its principal, because the principal has been taxed already, like the principal of a non-retirement mutual fund or a bank account which doesn't get taxed today. Not sure how easy it would be to distinguish between the principal and growth, perhaps some percentage split between the two when the withdrawal is taken?
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Old 08-06-2012, 11:46 AM   #20
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Not sure how easy it would be to distinguish between the principal and growth, perhaps some percentage split between the two when the withdrawal is taken?
I can see this happening. It's already being done for non-deductable IRA's as I/DW have for the period of 11 years between 1987-97, and reported on IRS form 8086 and shows the "basis" (total) that was invested - not including subsequent earnings which are taxed at normal rates.

It's not that big of a deal. If a 1099 was issued (for TIRA withdrawls) and block #7 has an "X" in it, the distribution is pro-rated to account for the taxes paid at the time of investment. Using a product (such as TT) will keep track of this amount, be it the original investment basis amount (even with no distributions) and year-to-year basis values if distributions are already being taken.

Of course, catch-up tracking of Roth IRA info (both investments and withdrawls) would be a challange, but there are usually ways around such things, assuming the IRS has past records of contributions/withdrawls as related to Roth accounts.
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