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Old 06-30-2010, 04:47 PM   #101
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Why are medicare, medicade, and health care reform suddenly popping up?
Because they are all in the same pot - The unified budget. When the pot is empty things will give. SS is not independent of other budget woes.
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Old 06-30-2010, 04:50 PM   #102
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Raising the retirement age may well indeed be a good long-term plan. However, based on the stuff I have read (referenced in an earlier post) on the SSA site, it doesn't seem like we will even start getting into trouble with SSA (other budget problems are aside) until 2020 or so.
A couple thoughts:

1. Yes, SS isn't in immediate danger of not meeting its obligations, but the sooner we address it, the less serious and draconian the "fix" need be;

2. Right now just seems like a terrible time to increase the size of the pool of people who need to be working when jobs are so scarce at the moment (especially for people over 50).

These two goals are in conflict to some degree. Actually raising the retirement age, from what I've seen, makes less difference than changing the benefit formula to use price increases rather than wage increases. (Then again, it feels like wage increases aren't beating inflation and in fact may *lag* inflation for a while as the global economy kicks our butt, so this could actually be counterproductive at some point despite the analyses.)
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Old 06-30-2010, 06:55 PM   #103
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Ahhh...yes indeed Pink Floyd....

Brought back memories of sittin' around with a group of friends smokin' contemplating life....

...I just wish I could remember what we discovered...
Okay.

That means that...

our whole solar system...

could be, like...

one tiny atom in the fingernail
of some other giant being.

This is too much!

That means...

-one tiny atom in my fingernail could be--
-Could be one little...

tiny universe.

Could l buy some pot from you?

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Old 07-01-2010, 01:42 AM   #104
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(snip)...make "emergency retirement" available to anyone who has paid into the SS system for enough quarters to be eligible for benefits and is over 50. I would leave that as a fixed age, because it's more a function of what age makes it difficult to find another job than of life expectancy. Make the amount actuarially equivalent to full retirement, so the cost to the system will be the same regardless of the age a person retires at. I will guess that making the benefit at this earlier age equivalent to full retirement benefits starting some 15 or 20 years later, would probably reduce the monthly benefit enough that few people would elect to retire at 50 unless they've run out of other alternatives. A possible additional qualification would be that to be eligible, you first must exhaust any unemployment benefit you might have coming. The benefit wouldn't be a large amount, but combined with one of those "not very good" jobs which may be all that's available to people in this predicament, would keep food on the table and a roof over the head.(snip)
If the average 65 YO can now expect to live 18 more years, then allowing someone to start taking withdrawals at 50 would mean a monthly check of less than 1/2 of the full retirement amount. For many workers, that will be below the government poverty line, which will mean more transfer payments from the taxpayers for these "can't afford it but want to quit" early retirees. Plus the already mentioned taxpayer subsidies for health insurance for low income folks (who,because they quit work at 50 haven't yet reached 65 and the Medicare eligibility). (snip)
My suggestion was meant as a way to reconcile the conflicting goals of (1) getting Social Security solvent by adjustments to the eligibility age (and possibly other adjustments) and (2) discrimination against workers over 50 and/or inability of 50+ workers to continue in physically demanding work combined with (3) not enough jobs to go around if older workers stay in the workforce longer. It is not intended for people who leave their jobs voluntarily, but for people who have tried unsuccessfully to find work, or who are physically no longer able to do the work they have done in the past. That's why I suggested the possibility of requiring exhaustion of unemployment benefits as part of eligibility.

I ran two annuity quotes: both were for single-life inflation-adjusted annuities for a woman, age 50 compared to age 65. For the same lump sum, the monthly income at age 50 was about 65% of that at age 65. The reduction might be greater for a man—I didn't check.

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My rationale: For a lot of folks, getting a $1000 a month SS check would let them quit work and start drawing the additional government benefits. Without the SS check, they'd have to stay at the job (and, paying into SS and Medicare).
Again, my proposal is for people who get laid off, not those who quit voluntarily. Seriously, do you think $1000 a month is enough to tempt people to deliberately get themselves fired? Would people really sabotage themselves for such a small sum of money? Especially with kids in or approaching college, as many people that age have?
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Old 07-01-2010, 07:12 AM   #105
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Again, my proposal is for people who get laid off, not those who quit voluntarily. Seriously, do you think $1000 a month is enough to tempt people to deliberately get themselves fired? Would people really sabotage themselves for such a small sum of money? Especially with kids in or approaching college, as many people that age have?

The unintended consequences is that if there is a benefit IF you get laid off and not one if you quit.... there will be a lot of people who ask to get fired knowing they will not get another job.... get their unemployment and then their SS....


NOW... since you are saying to give it to them based on annuity charts... well, then it really does not cost SS anything as long as they do not have to pay spousal amounts... it is a wash...
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Old 07-01-2010, 08:11 AM   #106
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--Why age 50? Why not let workers take out their SS at whatever age they want, at decreased amounts.

-- Why only those who have been fired/lost their jobs, tried to find work? We already have unemployment insurance. Age discrimination--it affects some people more than others. Some people, in some lines of work, suffer no discrimination as they get older. Should we set up some type of rating method that assesses this based on Labor Department job category, spinal curvature of the alleged discriminee, and physical requirements of the job? Some people have trouble finding work for reasons totally unrelated to their age--should SS cut them a check as well?
-- Proving that the individual has been "trying to find work" --sets up a whole cottage industry of checkers and callers. "Hello, Vandelay Industries."


- Let's not forget that those who are old but who have been doing physically demanding work have presumably been the beneficiaries of decades of "age discrimination." They got paid more for many years because the pool of suitable workers was smaller due to the demands of the work. They chose their line of work, presumably, in full recognition of the pay they would get and the demands of the job. Would they be open to some kind of government recapture of the "windfall profits" they got for decades as a result of this prior unfair advantage they enjoyed? They laughed all the way to the bank after 8 hours of hauling concrete blocks up a scaffold knowing that they were getting paid more because they could do the work and old broken-down Joe couldn't, now they want a special deal. Ha!

- I'd prefer to avoid any further mission creep for SS. The expansion of its charter is one reason it's in trouble financially. The more it becomes a welfare program, the more support for it will erode.
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Old 07-01-2010, 08:21 AM   #107
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- I'd prefer to avoid any further mission creep for SS. The expanson of it's charter is one reason it's in trouble financially. The more it becomes a welfare program, the more support for it will erode.
Which is fine, as long as we accept that the outcome is likely to be more spending on other "welfare programs" for older unemployed and underemployed individuals who are now on unemployment and food stamps instead of SS. And who will hire someone at that age given the large (and increased) imbalance between the supply of labor and the demand for labor?
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Old 07-01-2010, 09:09 AM   #108
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-- The more it becomes a welfare program, the more support for it will erode.
Social security is a welfare program that taxes the working middle class to support the working poor. The maximum (percentage of income) social security tax is paid by a dual income working couple who each make exactly the SS earnings limit. Because of Social Security's payment structure they get the absolute worst return on the payment.

The rational approach is to transfer the current "welfare" component of social security to the general budget and make it compete for funding but be supported by the entire taxing structure, not just the working middle class.

This can be done without endangering any of the "social insurance" aspects of social security. These include the survivors and disability "insurance"
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Old 07-01-2010, 04:03 PM   #109
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I fully intend to game the system by amassing assets and engineering a fairly low taxable income.
I think you're overestimating how successful you can be at "engineering a fairly low taxable income." Perhaps your personal situation is different enough that you'll succeed but in my case, and I assume the case of many others, I'm already managing income to minimize taxes (hopefully!) and don't see much of an opportunity to improve.

For example, I live day to day on:

Pension
SS
Interest, dividend and capital gain income managed to minimize taxes.

Where would you suggest I go with this in order to live the same but have a significantly lower AGI? That is, still have the same purchasing power and life amenities? I ask this question with passive investing in mind. Currently FIRE'd, I don't want to go back to anything that involves active investments just to achieve tax breaks, etc. So, no businesses, rental ownership or that sort of thing.

Thanks.
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Old 07-01-2010, 04:39 PM   #110
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I think you're overestimating how successful you can be at "engineering a fairly low taxable income." Perhaps your personal situation is different enough that you'll succeed but in my case, and I assume the case of many others, I'm already managing income to minimize taxes (hopefully!) and don't see much of an opportunity to improve.

For example, I live day to day on:

Pension
SS
Interest, dividend and capital gain income managed to minimize taxes.
This is one of the very few advantages of not having a significant pension. But it requires a *lot* of saving (and not only in TIRAs and 401Ks but also taxable and/or Roths) and decent long-term investment returns to get there.

But once there, I'd have taxable IRA/401K withdrawals, and a tiny pension (about $8K a year at 65), which are all fully taxable.

Let's say I get that $8K in my old, frozen Megacorp pension at 65, and I withdraw another $20K from my TIRA/401K accounts. Now I'm up to $28,000 a year in taxable income plus maybe another $5,000 in gains on taxable accounts (interest, dividends, cap gains). That's $33K.

We would probably get about $20,000 a year (combined) in SS, so our "adjusted income" for the purposes of SS taxation would be $43,000 (the taxable $33,000 from pension, TIRA and 401K plus half of the $20K SS benefit) -- which keeps only 50% of our SS taxable (if that).

So that's $53,000 in income on a very small amount of taxes and an AGI probably low enough to pass most means tests. And it's even easier to do before the pension kicks in with the additional $8,000 of unavoidable taxable income.

At that point if it didn't screw up my means testing or jack up my taxes into a higher bracket, I'd probably withdraw more from my TIRA/401K as I could at the low rate. If I needed more money above and beyond that I could take more income from taxable and Roth investments.

Having said all that, I'd still rather have the big pension. It would just be *horrible* for these plans to be messed up if my wife got the ministry gig and became eligible for their pension plan.
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Old 07-01-2010, 04:53 PM   #111
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I think you're overestimating how successful you can be at "engineering a fairly low taxable income." Perhaps your personal situation is different enough that you'll succeed but in my case, and I assume the case of many others, I'm already managing income to minimize taxes (hopefully!) and don't see much of an opportunity to improve.

For example, I live day to day on:

Pension
SS
Interest, dividend and capital gain income managed to minimize taxes.

Where would you suggest I go with this in order to live the same but have a significantly lower AGI? That is, still have the same purchasing power and life amenities? I ask this question with passive investing in mind. Currently FIRE'd, I don't want to go back to anything that involves active investments just to achieve tax breaks, etc. So, no businesses, rental ownership or that sort of thing.

Thanks.

You got his version... but here is another... convert all tax advantaged accounts to ROTHs if you can and the tax hit is not to bad... remember all distributions from a ROTH is not part of AGI....

Right now I am about 40% taxable, 40% ROTH and the other tax deferred..

But, if SS is means tested.... then I would BET that withdrawals from a ROTH will be added to your AGI to see if it is taxable or not... right now, (and I could be wrong on this) I think that tax exempt interest is added to see if you have to pay tax on SS distributions...
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Old 07-01-2010, 04:57 PM   #112
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This is one of the very few advantages of not having a significant pension. But it requires a *lot* of saving (and not only in TIRAs and 401Ks but also taxable and/or Roths) and decent long-term investment returns to get there.

But once there, I'd have taxable IRA/401K withdrawals, and a tiny pension (about $8K a year at 65), which are all fully taxable.

Let's say I get that $8K in my old, frozen Megacorp pension at 65, and I withdraw another $20K from my TIRA/401K accounts. Now I'm up to $28,000 a year in taxable income plus maybe another $5,000 in gains on taxable accounts (interest, dividends, cap gains). That's $33K.

We would probably get about $20,000 a year (combined) in SS, so our "adjusted income" for the purposes of SS taxation would be $43,000 (the taxable $33,000 from pension, TIRA and 401K plus half of the $20K SS benefit) -- which keeps only 50% of our SS taxable (if that).

So that's $53,000 in income on a very small amount of taxes and an AGI probably low enough to pass most means tests. And it's even easier to do before the pension kicks in with the additional $8,000 of unavoidable taxable income.

At that point if it didn't screw up my means testing or jack up my taxes into a higher bracket, I'd probably withdraw more from my TIRA/401K as I could at the low rate. If I needed more money above and beyond that I could take more income from taxable and Roth investments.

Having said all that, I'd still rather have the big pension. It would just be *horrible* for these plans to be messed up if my wife got the ministry gig and became eligible for their pension plan.
You are correct that flexibility goes out the window if you have a significant pension. But for those of us that have substantial net worths, there are many ways to get around an income means test.

For example, put some serious funds into a second home and sell it when you need the cash or access value through a reverse mortgage down the road. Put a couple million dollars in collectable cars or serious art and sell off over time. Put millions in non-dividend, but hopefully growth, stocks. Or continue to add to already significant US savings bonds positions (as they don't generate current income).

So the only way to really means test (for those with significant NW, but no pensions) is to do a net worth test and that would be a nightmare (and you still could get around it with art or gold coins, for example).

So outcome we will probably see for fixing SS is push back retirement age and lift cap on FICA.
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Old 07-01-2010, 05:05 PM   #113
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This is one of the very few advantages of not having a significant pension. But it requires a *lot* of saving (and not only in TIRAs and 401Ks but also taxable and/or Roths) and decent long-term investment returns to get there.

But once there, I'd have taxable IRA/401K withdrawals, and a tiny pension (about $8K a year at 65), which are all fully taxable.

Let's say I get that $8K in my old, frozen Megacorp pension at 65, and I withdraw another $20K from my TIRA/401K accounts. Now I'm up to $28,000 a year in taxable income plus maybe another $5,000 in gains on taxable accounts (interest, dividends, cap gains). That's $33K.

We would probably get about $20,000 a year (combined) in SS, so our "adjusted income" for the purposes of SS taxation would be $43,000 (the taxable $33,000 from pension, TIRA and 401K plus half of the $20K SS benefit) -- which keeps only 50% of our SS taxable (if that).

So that's $53,000 in income on a very small amount of taxes and an AGI probably low enough to pass most means tests. And it's even easier to do before the pension kicks in with the additional $8,000 of unavoidable taxable income.

At that point if it didn't screw up my means testing or jack up my taxes into a higher bracket, I'd probably withdraw more from my TIRA/401K as I could at the low rate. If I needed more money above and beyond that I could take more income from taxable and Roth investments.

Having said all that, I'd still rather have the big pension. It would just be *horrible* for these plans to be messed up if my wife got the ministry gig and became eligible for their pension plan.
OK Zig, thanks. You don't seem to be doing anything I'm not already doing. I could write MegaCorp and tell them to stop sending the pension, but somehow that doesn't seem like a good idea....... not a desirable way to reduce reported income......

I was hoping you had some way to show $53k of income but have more (significantly more) to spend. I understand that spending non-deferred savings is one way to do that, and I'll do that as I see how retirement and the economy goes.
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Old 07-01-2010, 05:05 PM   #114
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They won't necessarily be high-paying, "fullfilling", fun jobs. But, they'll put some food on the table, which may be more important.
If and when hardship arrives, "filling" will become the new fulfilling.

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Old 07-01-2010, 05:12 PM   #115
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You got his version... but here is another... convert all tax advantaged accounts to ROTHs if you can and the tax hit is not to bad... remember all distributions from a ROTH is not part of AGI....

Right now I am about 40% taxable, 40% ROTH and the other tax deferred..

But, if SS is means tested.... then I would BET that withdrawals from a ROTH will be added to your AGI to see if it is taxable or not... right now, (and I could be wrong on this) I think that tax exempt interest is added to see if you have to pay tax on SS distributions...
I'm looking at Roth conversions now. During my w*rking years, we didn't qualify for Roth IRA's and Roth 401k's and 403b's hadn't been invented yet. We did contribute for 2009 and 2010 based on some part time income DW had.

The issue I'm mulling over with Roth conversions is tax bracket. It'll cost me 28% (more if I convert a serious amount) to convert and if it turns out that Roth withdrawals serve as disqualifying income for things such as SS means testing, I will have probably made a bad decision.

Thanks for your comments.
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Old 07-01-2010, 05:17 PM   #116
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SS was started when the life expectancy was much lower than it currently is.
I see this notion frequently in discussions about SS and impending benefit cuts or increases in retirement age. But I think it's important to note that contributions into the SS system were also very much lower than they are today when those life expectancies were lower. In fact, I believe that contributions (both employee and employer tax rates, and amount of income subject to tax) have risen a lot more than life expectancy.
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Old 07-01-2010, 05:22 PM   #117
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For example, put some serious funds into a second home and sell it when you need the cash or access value through a reverse mortgage down the road. Put a couple million dollars in collectable cars or serious art and sell off over time.
Yeah..... but...... if I didn't want to own and invest in houses, collectable cars or similar, I don't think I'd do it just to avoid a means test on my SS. To use your examples, the 2nd house requires that you enjoy it enough to justify the taxes, utilities, maintenance, etc. The car collection calls for expertise I just don't have. I'd lose my ass! The dollars lost through means testing my SS would look like a bargain!

But I understand your point.
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Old 07-01-2010, 05:25 PM   #118
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I'm looking at Roth conversions now. During my w*rking years, we didn't qualify for Roth IRA's and Roth 401k's hadn't been invented yet. We did contribute for 2009 and 2010 based on some part time income DW had.

The issue I'm mulling over with conversions is tax bracket. They'll cost me 28% or more to convert and if it turns out that Roth withdrawals serve as disqualifying income for things such as SS means testing, I will have probably made a bad decision.

Thanks for your comments.
I see it similarly for the same reasons, plus the AGI boost from conversions cause me to pay a higher Medicare premium.

Still, I am converting as quickly as seems prudent. Why? I would not be suprised if the current and recent choppy, non-trending stock market conditions continue for quite a while. If so, I want the opportuniy to take my CGs without thinking about current or future taxes on them. A trading emphasis rather than a holding emphasis. Unfortunately the looming onset of RMDs will draw my conversions out even longer.

It does seem though, that going forward it will really pay to have more non-cash income, such as a paid for house. This interference with free markets annoys me, but reality is what it is.
Ha
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Old 07-01-2010, 05:50 PM   #119
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Yeah..... but...... if I didn't want to own and invest in houses, collectable cars or similar, I don't think I'd do it just to avoid a means test on my SS. To use your examples, the 2nd house requires that you enjoy it enough to justify the taxes, utilities, maintenance, etc. The car collection calls for expertise I just don't have. I'd lose my ass! The dollars lost through means testing my SS would look like a bargain!

But I understand your point.
Certainly if you were on the margin (ie of losing SS based upon means testing of income) it would make sense to buy a bigger house (or second) doing the math so that incremental cost of bigger house (or second) was equal to SS income. That way, the government is "paying" you spend the money.

I agree with you that the analysis becomes different (and the investment risks greater) if you are way over the cutoff limit.

But for everyone at the margin, it would be a no brainer to buy an asset (like a bigger house) that drains off the necessary income to qualify for SS. Thus you have a bigger asset, funded courtesy of the US govt that you can liquify at a later date.
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Old 07-01-2010, 05:59 PM   #120
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It does seem though, that going forward it will really pay to have more non-cash income, such as a paid for house. This interference with free markets annoys me, but reality is what it is.
Ha
That makes a lot of sense. Our income is our income is our income and since I already try to manage investments to minimize reportable income, there don't seem to be a lot of opportunities to reduce it (but still have it ).

But moving financial investments into hard assets that offset the corresponding loss of income with similar reductions in expenses might be the trick. Your example of a paid for house works. Sell a stack of income producing CD's and buy a house. The interest income is gone but the rent payments are also gone.

We already have a house, so I guess the task at hand is to brainstorm with DW (oh boy - she hates talking money. ) about other similar opportunities.
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