SS File and Suspend to End?

[pb4uski]

I flat don't get this bias to taxing folks earning wages more and letting those with higher non-wage income skate on this.

It depends on what you are referring to as non-wage income. Self-employment income would be subject to it. While I'm not sure if SE tax phases out like SS does, it would seem equitable to eliminate any phase out. If you're referring to interest, dividends, capital gains, etc. I wouldn't agree with you.

 

[haha]

The logic of penalizing success and rewarding bad behavior has always escaped me. That is truly baffling.

Tax and spend. It's all about buying votes.

Ha

 

[NW-Bound]

I don't understand your point.

When a budget shows a surplus, there will be pressure to spend it. In the case of SS, how can we be sure that the spigot will not get turned looser? We have seen how entitlement programs keep getting a larger and larger portion of the Federal budget. Should we set a limit to its increase, and what is the mechanism to keep our lawmakers to this limit?

 

[NW-Bound]

I flat don't get this bias to taxing folks earning wages more and letting those with higher non-wage income skate on this.

I remember that in some countries their SS-equivalent program is funded from general income tax. So, passive incomes or investment gains all help pay for the social program. It depends on how the social program was "sold" to the voters from the beginning.

Also, in some countries, their SS is more like welfare and means-tested. To make up for that, people get their own privatized SS, which I understand is like a portable 401k or 403b. You take that with you when you move from job to job. But same as with SS, the contribution is mandatory, not optional as with 401k. The money is yours, and you draw it as you see fit. At 62 or 70, it's your choice.

I like the above system better than ours, because it promotes personal responsibility. If you divorce, the spousal benefit for your ex comes from your pocket. If you like to raise kids in geezerdom, you pay for that, and the state will help only if you are truly broke, etc...

 

[gerntz]

It depends on what you are referring to as non-wage income. Self-employment income would be subject to it. While I'm not sure if SE tax phases out like SS does, it would seem equitable to eliminate any phase out. If you're referring to interest, dividends, capital gains, etc. I wouldn't agree with you.

What is equitable about having only high wage earners/self-employed pay for the problem? The program has been mismanaged - promising more benefits than covered by predicted future tax receipts - since its beginning yet everyone but this group is exempt from fixing it by your proposal. Why? We're supposedly in our problems as a country together but trust babies & Bill Gates aren't required to help fix it by you. Did current high wage earners only create the problem?

 

[Tandemlovers]

How many times have you had your head handed to you since making that statement? You know, by people like stay at home mothers whose efforts allowed their husband to be the high earner.

No offense meant. Just curious.

+1

 

[NW-Bound]

And then there's this viewpoint, which I happen to agree with.

In the case of SAHM's married to high wage earners, that couple should send in additional FICA dollars to fund a 50% of hubby's SS benefit for her. It's giving the SAHM, who's making the spouse's high wages possible, SS benefits without corresponding contributions that's the problem......

Would you like to share your 401k, 403b, or your military pension with a coworker whose wife is a SAHM? To his ex? Man, that's 50%+50% = double benefit!

We will always run into trouble when deciding how to cut a common pie. Better for each to have his/her own pie, i.e. privatized SS, and have a true safety net for unfortunate people.

 

[pb4uski]

What is equitable about having only high wage earners/self-employed pay for the problem? The program has been mismanaged - promising more benefits than covered by predicted future tax receipts - since its beginning yet everyone but this group is exempt from fixing it by your proposal. Why? We're supposedly in our problems as a country together but trust babies & Bill Gates aren't required to help fix it by you. Did current high wage earners only create the problem?

SS contributions have always been a function of wages or self-employment income... forever... all lifting the cap is doing is tweaking the rate to bring in more income to help cover the projected deficit in benefits. The idea is that those who benefit contribute to the program and get something out of it... if you're a high earner you get less out of it than lower earners, but still, those who contribute benefit.

Why should investors who receive interest, dividends and capital gains contribute to fixing SS when they don't get any benefits from SS? That makes NO sense at all IMO.

If you're too cheap to be part of the solution, why not just say so.

 

[pb4uski]

When a budget shows a surplus, there will be pressure to spend it. In the case of SS, how can we be sure that the spigot will not get turned looser? We have seen how entitlement programs keep getting a larger and larger portion of the Federal budget. Should we set a limit to its increase, and what is the mechanism to keep our lawmakers to this limit?

For general fund I would totally agree. At least in theory, SS benefits are set by law... based on your circumstances you qualify or not.

 

[meierlde]

+1 IIRC taking away the limit goes a long way toward solving the problem especially if they don't increase benefits to reflect the increase in tax. When i was working I exceeded the limit and if my SS taxes had continued it would not have bothered me.

Actually given the structure of the benefit formula what about a 3rd bend point where the amount goes to 5% of the average wage at where the old limit would be.

 

[NW-Bound]

For general fund I would totally agree. At least in theory, SS benefits are set by law... based on your circumstances you qualify or not.

If the benefit formulas are fixed, the fund may still get exhausted because of demographic changes, and I understand that. That is a valid cause for looking to increase the fund inflow.

But then, why did they enact this F&S in 2000, then now took it out? Also, the number of people claiming disability has increased. Are more Americans getting weaker and cannot work? So, have the requirements been relaxed? These are the questions in my mind.

Actually given the structure of the benefit formula what about a 3rd bend point where the amount goes to 5% of the average wage at where the old limit would be.

I think it is just a matter of time before the cap on contribution is removed. There are not too many options to keep SS afloat.

 

[meierlde]

But then, why did they enact this F&S in 2000, then now took it out? Also, the number of people claiming disability has increased. Are more Americans getting weaker and cannot work? So, have the requirements been relaxed? These are the questions in my mind.
.

It was essentially admitted that no one in congress intended the file and suspend strategy to exist. A bright financial analyist figured it out and the idea began to spread.

 

[growing_older]

It was essentially admitted that no one in congress intended the file and suspend strategy to exist. A bright financial analyst figured it out and the idea began to spread.

I thought I heard this said about 401k plans also. Let's hope that's not a precedent for closing that loophole.

 

[iac1003]

I doubt they'll eliminate Spousal benefits. Too many elderly (mostly) women would be thrown into poverty, even if it's phased in for future recipients. My wonderful DIL is 30 and a SAHM with a 2-year business degree. They're good savers but I'd hate to see her without Spousal SS.

An example of one change I believe they made to the original model- it used to be that you lost your Widow/Widower's SS if you remarried. Now if you remarry after a certain age you're unaffected. Too many seniors were living in sin! [emoji4]. Sometimes expensive decisions have to be made as a matter of public policy.

Most 30 year olds I know (son is 28 so I know quite a few) do not even think SS will be around when they are at FRA. Not that a lot of them are doing much about it right now.


Sent from my iPhone using Early Retirement Forum

 

[pb4uski]

The same thing probably could have been said when we were 30.

 

[gerntz]

SS contributions have always been a function of wages or self-employment income... forever... all lifting the cap is doing is tweaking the rate to bring in more income to help cover the projected deficit in benefits. The idea is that those who benefit contribute to the program and get something out of it... if you're a high earner you get less out of it than lower earners, but still, those who contribute benefit.

Why should investors who receive interest, dividends and capital gains contribute to fixing SS when they don't get any benefits from SS? That makes NO sense at all IMO.

If you're too cheap to be part of the solution, why not just say so.

I'm collecting, not paying, so if everyone contributes to solving the problem, I'll pay. As you propose, it only costs others, not me. Net, I not being cheap, am I? (That said, I don't propose a tax increase of any kind as the fix. Increasing eligibility ages is the way to go.)

Of course to date only taxes on wages have paid for benefits. Why restate the obvious? But as I hope you can see, benefits have been over promised. It's interesting that you have the nerve to describe a 12.4% rate increase as tweaking. I take that excludes you.

Why should only those with high wages pay more to fix it when they will gain no more than investors? And investors do collect if they've had any wage income or have a spouse that did. Net, to me it makes no sense to put all the burden for a fix on a narrow class of people, excluding Gates. I'm guessing you're in the investor/collecting classes & not the high wage earners class.

 

[travelover]

It is important to remember that a lot of the SAHM's are raising the next generation of workers
paying into SS so the SAHM's are making a in-direct contribution.
These are workers who will be helping pay for our SS.

It is a spousal benefit, not a parent benefit. There is no requirement to raise children to collect the spousal benefit. A spouse can lounge around the pool all day eating bonbons and collect up to $1300 a month for life.

 

[athena53]

When SS was first enacted, perhaps it was promoted to be just a safety net or supplemental income, hence a cap in benefits and also in the tax. I surmise that SS might be difficult to be passed into law otherwise.

SS was not meant to be the sole source of income for retirees. How did old people manage prior to SS? But as the years go by, more and more people rely on SS for sole income, claim disability, have children late (dependent benefits), get divorced (spousal benefits), and live longer, and here we are.

Based on the book I'm reading ("The Battle for Social Security" by Nancy J. Altman) it was meant to be enough to allow retired people to afford the basics ("live in dignity"). It was thought that that would encourage private saving as well, but I don't understand the logic in that. Maybe people would be motivated to save so they could afford extras in retirement such as travel? Sadly, I think it discouraged savings among many.

As for how people survived before SS: there were more private pensions for the lucky. People had more kids so maybe the kids all chipped in to support them or maybe even took them in. My Ex's great-grandmother lived with her adult daughters- they took turns (a few months at a time) till she died at age 102.

And there really were poorhouses. Here's an eloquent but cringe-worthy quote from a 1930 report of the NY State Commission on Old Age Security: "worthy people are thrown together with whatever dregs of society happen to need the institution's shelter at the moment; sick people are thrown together with the blind, the deaf, the crippled, the epileptics; the people of culture and refinement, with the crude and ignorant and feeble-minded".

 

[pb4uski]

......Of course to date only taxes on wages have paid for benefits. Why restate the obvious? But as I hope you can see, benefits have been over promised. It's interesting that you have the nerve to describe a 12.4% rate increase as tweaking. I take that excludes you.

Why should only those with high wages pay more to fix it when they will gain no more than investors? And investors do collect if they've had any wage income or have a spouse that did. Net, to me it makes no sense to put all the burden for a fix on a narrow class of people, excluding Gates. I'm guessing you're in the investor/collecting classes & not the high wage earners class.

Taxes are NOT only on wages as you state... self-employment profits are subject to SS taxes as well.

I think we can agree that the whole thing has been a cluster you-know-what... benefits haven't really changed or been increased (other than arguably more liberal granting of disabled status since the great recession)... it is just that mortality trends and demographics have worked against the system and Congress has been slow to respond with changes. While you suggest that the problem is increased benefits one could equally claim that it is that tax rates have been too low... since it is supposed to be ring-fenced it could be either or a combination of both.

There is no 12.4% rate increase in the works that I can find... 12.4% is the current OASDI rate... unchanged for many years now... so what are you referring to? Unless you're misinterpreting removing the cap as a 12.4% increase.

If you go back to the first post that you objected to you will find that I was agreeing with another person who was also a high income earner while working that we would not have objected to removing the cap to preserve the system for others. What is wrong with that? I think most high earners would agree.

My objection with expanding SS tax to investors as you suggest is that it would then violate the historical notion that SS is a ring fenced system. I favor some changes on those who are close to collecting (like me) to eliminate file and suspend, transitioning to chained CPI, etc. I also favor extending the retirement age for those in their 20s to 40s to reflect increased mortality as was done in the 1980s (for me BTW). I do not favor changing benefits for those who are collecting (other than arguably chained CPI) because those people have planned on a certain level of benefits.

And while you are correct that I am now in the investor class, I am not currently collecting and I was a high wage earner while I was working and I had the same view then as I do now.

 

[marko]

When the first 401k plans came out they'd show you charts showing how SS was just one part of your retirement income stream. After that were pensions, 401k/IRAs and other streams would contribute to your retirement income. I don't know anyone who was planning to live just on SS.

It just seems that the rules keep changing
I PAID my money into a certain agreement and now the rules are somehow different! This should not be open to interpretation.

If the plan was viewed as 'flexible' why didn't they allow for a higher 401k contribution limit all these years? Why now? And why not make adjustments to the under 40 y.o. set so that they have 25 years to adjust?

I just don't see how you can sign up for something, pay your money for 40 years and then as you're about to cash it in, they can say "ooops! Sorry".

Full Disclosure: I wasn't thinking of "File and suspend" for myself, but this is about the principle of the thing

 

[RunningBum]

I thought I heard this said about 401k plans also. Let's hope that's not a precedent for closing that loophole.

What loophole is this? I'm not aware of anything like file & suspend with 401Ks. There are some special rules about being able to take some early, and of course there are RMDs, but basically you have a certain amount of money, and when it's gone it's gone. No loophole to draw extra out of it that I know of.

 

[marko]

If you go back to the first post that you objected to you will find that I was agreeing with another person who was also a high income earner while working that we would not have objected to removing the cap to preserve the system for others. What is wrong with that? I think most high earners would agree.

Back in the day, I would reach my SS limit sometime around early March. Despite my normal aversion to taxes, I always thought it was unfair and never understood the rationale, but hey, an extra few bucks a week, so.....

I would not have minded paying the tax throughout the year. At the time it was small potatoes for me and if it helped, well....

 

[marko]

What loophole is this? I'm not aware of anything like file & suspend with 401Ks. There are some special rules about being able to take some early, and of course there are RMDs, but basically you have a certain amount of money, and when it's gone it's gone. No loophole to draw extra out of it that I know of.

Maybe the catch-up provision?

 

[athena53]

I think we can agree that the whole thing has been a cluster you-know-what... benefits haven't really changed or been increased (other than arguably more liberal granting of disabled status since the great recession)... it is just that mortality trends and demographics have worked against the system and Congress has been slow to respond with changes.

The first recipient of SS was Miss Ida May Fuller, who collected her first check, for $22.54, in 1940. By the time she died at the age of 100, she'd collected $22,888.92 from SS after only 3 years of payroll contributions.

I'd say it's all Ida May's fault.

But, seriously- they didn't take long enough to accumulate adequate funds before making payouts, and the first planned increase in payroll tax was postponed for years because it would be politically unpopular. So it didn't get off to a very good start.

What loophole is this? I'm not aware of anything like file & suspend with 401Ks. There are some special rules about being able to take some early, and of course there are RMDs, but basically you have a certain amount of money, and when it's gone it's gone. No loophole to draw extra out of it that I know of.

I suspect they were referring to the fact that the 401(k) is named after paragraph 401(k) of the Internal Revenue Code. It wasn't meant as a vehicle for the massive company programs we have now, but it allowed for deferred taxation of wage income under certain conditions. A few employers realized it was a great way to defer compensation (and taxation) for their highly-paid employees, and then it went mainstream. No, I don't think they'll close that down. Too many companies have replaced private pensions with a 401(k) plan. For most people, it represents some sort of forced savings, although I know people who have raided their 401(k)s orliquidated them when they left their employer.

 

[pb4uski]

File and suspend is relatively new (2000 or so as I understand) so it is really just taking back something that was essentially unintended to begin with rather than reneging on a promise.

The changes needed will likely impact those 40 and under. The change from 65 to 67 was part of changes enacted in 1983 (when I was 28) and the first recipients impacted by the 1983 changes was not until 2003 so those recipients had 20 years to adjust.

Like you, I do not favor any substantial changes for those collecting or near since they have made plans and don't have sufficient time to adjust.

The bigger problem is that the old 3 legged stool (SS, pensions and savings) has had a leg changed (pensions... from DB plans to 401k and DC plans) and many in our generation has not responded to the changes in their never-ending quest for McMansions, luxury cars and conspicuous consumption.