Means testing SS

[wolfbay]

I keep seeing references to the inevitability of means testing SS. Supposedly not if but when.Of course no one knows for sure what shape it would take but what is the most likely scenario? Would cash,gold or other tangibles outside the banking system be exempt? Is it likely that people already on SS would be grandfathered in?

 

[Alan]

I keep seeing references to the inevitability of means testing SS. Supposedly not if but when.Of course no one knows for sure what shape it would take but what is the most likely scenario? Would cash,gold or other tangibles outside the banking system be exempt? Is it likely that people already on SS would be grandfathered in?

I think the key words in your statement are "supposedly" and "no one knows". If and when SS becomes means tested you'll have plenty of notice and panic time.

 

[samclem]

Since you asked about the most likely scenario, I'd guess an income-based screening method is more likely/much easier to implement than an asset-based screening method. That's the route that is being taken with the government subsidies under the new health care law as well.
It's hard to know what would count as income.

 

[73ss454]

I don't see it happening without riots. They will have to change the name from SS to Welfare.

So the people who spent all their money and didn't save get SS and the one's who LBTM
and saved, don't. I don't think so!

 

[Bestwifeever]

I keep seeing references to the inevitability of means testing SS.

Can you cite some of these references?

 

[NW-Bound]

I do not know about inevitability, but this has been discussed before in this forum. See this.

I don't see it happening without riots. They will have to change the name from SS to Welfare.

So the people who spent all their money and didn't save get SS and the one's who LBTM
and saved, don't. I don't think so!

Well, in fact SS is already a form of welfare. To see for yourself, go to SS web site and try out the SS calculator. A person who makes $100K/year contributes 2X the amount from someone that makes $50K/year, and 4X the amount from someone that makes $25K. Yet, the pay-out is not at all proportional to the pay-in. Other individual retirement plans such as 401K and IRA, etc..., all pay out proportionally to what one paid in.

I myself do not mind this, as SS is a social program to help the workers at the bottom rung.

But now, they are going to say that two persons who both made the same, say $50K/year in the working years, and paid the same into the system, now the one that was LBYM has to subsidize the spender, because the former has more "means" while the latter has more "needs".

Heck, that would quickly cause the country to turn into profligate spenders, so that they would all have more "needs" and less "means". Just another example of how I find it difficult to think highly of any politician.

 

[Gumby]

Since you asked about the most likely scenario, I'd guess an income-based screening method is more likely/much easier to implement than an asset-based screening method. That's the route that is being taken with the government subsidies under the new health care law as well.
It's hard to know what would count as income.

If it is income based, that is one more reason not to carry a mortgage in retirement -- you need to generate income to pay it.

 

[travelover]

...........<snip>............
Heck, that would quickly cause the country to turn into profligate spenders, ..............

..........And the US savings rate before this latest recession was negative what?

 

[NW-Bound]

Yes, the aggregate savings rate has been negative, but there have always been people who save, like people in this forum, to help partially cancel that out. Else, how much worse it could have been?

When even the savers find themselves getting short-changed and throw in the towel (hey, can't beat them so let's join them), god helps us.

PS. I thought I read somewhere that the savings rate has been positive, ever since the Great Recession scared Joe and Jane Blow into having some rainy day funds. I surely hope that this trend is not going to reverse.

 

[friar1610]

It's already means tested to the extent that the percentage of your SS which is taxable is related to your overall income (that is, SS+other income.)

 

[NW-Bound]

Yes to the above.

There has always been stealthy "means testing" going on, but when they talked about it explicitly, I shuddered.

 

[wolfbay]

Can you cite some of these references?

The most recent one I can think of was on the "financial sense " web site. Also when I do the math it seems that at the very least some kind of means testing will happen. Federal debt about 15 trillion,Private and corporate about 30 trillion, large state debt with huge unfunded pension liabilities and future SS and Medicare liabilities somewhere between 50-100 trillion. Things don't add up and yes riots are a possibility.

 

[skipro3]

How about reining in the raids on SS? First cut out the payouts to all those who aren't even US citizens, never worked a day in this country and refuse to learn our language.

 

[youbet]

If it is income based, that is one more reason not to carry a mortgage in retirement -- you need to generate income to pay it.

Not necessarily. Withdrawing money from your bank account or most other savings generates no income.

I suppose it could be different for others but in my case I could use MF CG distributions dividends to pay a monthly mortgage (or any debt) and that would generate no income I don't have anyway. These distributions are taxable whether I reinvest them, as I'm doing, or if they were applied to a mortgage.

What are you thinking of? Perhaps Taxable IRA withdrawals you wouldn't have taken otherwise? That is, pre RMD TIRA withdrawals directed at the mortgage?

I don't have a mortgage, so this is hupothetical. But if I did, there would be no extra income earned (and taxed) because of the mortgage.

 

[samclem]

Not necessarily. Withdrawing money from your bank account or most other savings generates no income.

Option A: Pay off the $200K mortgage
Option B: Keep the mortgage and invest the $200K (in the bank, stocks, whatever). Use the proceeds to pay the mortgage.

Option B generates income (interest, CG, etc) that (according to the discussion we are having) might reduce your SS check. So, that would be the reason to pay off the mortgage (Option A).

Now, if the government decides that owning a home is equates to a certain amount of imputed income each month (another scheme that gets discussed frequently), then both options are the same.

 

[Gumby]

What are you thinking of? Perhaps Taxable IRA withdrawals you wouldn't have taken otherwise? That is, pre RMD TIRA withdrawals directed at the mortgage?

Precisely what I was thinking (or 401k distributions).

 

[youbet]

Precisely what I was thinking (or 401k distributions).

OK. In my case my FIRE portfolio is split about 50 - 50 between IRA and non-IRA money. I could be paying a mortgage without beginning IRA withdrawals early without a problem. So, no extra income.

But, if you're one of the folks who is 90 -10 or 80 - 20 IRA vs non-IRA, yep you would likely need to begin withdrawals early. Depending on how early you RE, RMD's might be just a few years away anyway.

Of course, if you decide to pay off the mortgage pre-retirement, that implies you either have the cash available non-IRA to pay it or you're willing to withdraw the whole amount lump sum from your IRA...... generating a tax hit and making Uncle Sam think you're rich and don't need SS......

All hypothetical for me one way or the other. No mortgage. Already collecting SS. RE'd 6 years. Water under the bridge.

 

[youbet]

Option A: Pay off the $200K mortgage
Option B: Keep the mortgage and invest the $200K (in the bank, stocks, whatever). Use the proceeds to pay the mortgage.

Option B generates income (interest, CG, etc) that (according to the discussion we are having) might reduce your SS check. So, that would be the reason to pay off the mortgage (Option A).

Now, if the government decides that owning a home is equates to a certain amount of imputed income each month (another scheme that gets discussed frequently), then both options are the same.

Good example samclem. I guess I was poo-pooing the interest on the incremental portfolio amount because of today's low rates. But indeed, if a few $k of incremental income would move you over a means testing threshold, that effect would be an important consideration in deciding to pay off a mortgage or not.

 

[TromboneAl]

So the people who spent all their money and didn't save get SS and the one's who LBTM
and saved, don't. I don't think so!

That's exactly how college financial aid system works.

 

[PaddyMac]

My guess is that "means testing" would only relate to a very high net worth. I could certainly foresee legislation that said if someone has a net worth so high that they wouldn't miss their SS income, then they won't miss it.

As it is, a Republican Senator is proposing that someone that had a million dollars in annual income but who was laid off, should not be allowed to claim food stamps because of current low income level. If they think a million in annual income is a threshold they can live with, I would think a retirement net worth of $10 million or so would be their threshold.

The Morningstar webinar last Saturday also referred to changes in SS; the panel agreed that anyone over the age of 50 should not expect changes in their benefits. It's the younger employees (20 and 30) that will see the most changes.

 

[PaddyMac]

That's exactly how college financial aid system works.

The difference here is that it's the student that's applying for the loan. It would not be fair to punish a student who thru no fault of their own had parents who didn't save for their college education. It might not be fair, but it's not the same thing as saving for your own retirement.

 

[Focus]

The Morningstar webinar last Saturday also referred to changes in SS; the panel agreed that anyone over the age of 50 should not expect changes in their benefits.

Interesting you should say that. "No one over 50 should worry" used to be the refrain. Unfortunately, what I've kept seeing lately is "no one over 55 should worry." As someone who falls between 50 and 55, and who is already going to be hit hard by the effects of the last SS restructuring (with the rise in the full retirement age to 67), I think politicians better stick to the original refrain if they want to have any chance of being re-elected.

I also remain convinced that we have to be careful not to overshoot in attempting to fix SS. Only a couple of tweaks will fix the program.

 

[ProGolferWannabe]

I am not yet collecting Social Security (a few years to go) but isn't it already in a way means tested? I understood (perhaps incorrectly) if you have certain levels of other income, that more of your Social Security benefits are taxable than otherwise.

 

[obgyn65]

IMO, "means tested" simply means that all your assets would be taken into consideration, including cash, gold or other tangibles.

Would cash,gold or other tangibles outside the banking system be exempt?

 

[RetireBy90]

All the proposals I've seen discussed by lawmakers would keep SS the same for those 55 and older. However, with increase in SS disability and the cut in contributions SS will be in worse shape than previously estimated so changes to the 55 may be needed.

I agree any means testing would probably be against income. DA man already gets these figures in your tax returns each year and there is already a clear (if flawed) method of computing income. Note I didn't say easy method :-}