Social security filing questions

[palomalou]

I have read several threads on when to file, but have a few questions still.
1. Some people have mentioned ss being means tested, and even based on net worth. What do you consider a high net-worth amount? I am not comfortable saying what ours is, but we have enough investments that with ss we will be fine. If it went belly-up we would most likely have to cut back. Our net worth is about 20% in our only home, a NYC condo in a non-ritzy part of the city.
2. The women in my family do not tend to live long. I have a genetic mutation that at my current age of 62 has given me cancer five times (only two even the same kind). Have outlived my mother by 5 years already. My husband's family is long-lived.
3. If I were to file now, does only my income count for the amount one cannot exceed without losing benefits? I have already given notice at one of my part-time jobs to end in June, a decision reached after trying to go back after last summer's cancer, and in 2018 will be only working one day a week, earning about 8K a year (adjuncting at a university is not a way to become wealthy ). But my husband will continue working more than I am, so together we might earn 25K. We file married jointly, if that impacts it. I will then be only paying income taxes in one state, whereas it is presently two.
Thank you for your experiences and insights!

 

[Nightcap]

SS is not means tested. It was never intended to be.

 

[mathjak107]

it kind of is because over certain incomes you get taxed a 2nd time on it . but it is not means tested by net worth .

 

[meierlde]

it kind of is because over certain incomes you get taxed a 2nd time on it . but it is not means tested by net worth .

If you look at the SS Benefit formula it is means tested in that lower levels of income are replaced more fully than higher levels Given the 35 year average inflation adjust wage, the first 885 or so dollars get replaced 90% then the next 4400 or so get replaced 33% and the remaining dollars up to the limit get replaced 15%. So it is perhaps better termed a lifetime earnings test.

 

[mathjak107]

the lower the incomes the more you get out of ss vs what you pay in , so in that regard you can say it is mean tested but i think the op is looking at it retirement income and new worth wise .

 

[Nightcap]

it kind of is because over certain incomes you get taxed a 2nd time on it . but it is not means tested by net worth .

Sorry, I don't consider taxation to be a means test. A means test says, "You're making $100,000 per year, you don't need Social Security."

Up to 85% of your Social Security benefit is subject to tax. If you're married filing jointly and have a combined adjusted gross income of less than $32,000, your SS isn't taxed. From 32K to 44K, you would be taxed on 50% of your benefit. Above that, you're taxed on 85%. That's as high as it goes, no matter how much more you make.

https://www.ssa.gov/planners/taxes.html

 

[mathjak107]

well it is saying if you are single and making more than 32k or married and making more than 44k than you can't keep it all . we are going to take some back because you don't need it . we are taking it away as a tax .

by the way your already were taxed on that ss you put in when it went in to the fund so because your income is higher than 32k or 44k we are going to hit you a 2nd time . ,.

 

[Nightcap]

At a time when our solons in Washington seem to be looking at ways to "repeal and replace" entitlements like Social Security, it behooves us to be careful about language. Food stamps are means tested. Social Security has a maximum benefit, which makes sense since the maximum annual individual SS tax is $7,886.40.

 

[Nightcap]

well it is saying if you are single and making more than 32k or married and making more than 44k than you can't keep it all . we are going to take some back because you don't need it . we are taking it away as a tax .

by the way your already were taxed on that ss you put in when it went in to the fund so because your income is higher than 32k or 44k we are going to hit you a 2nd time . ,.

This is the kind of loose talk I'm speaking of. You are not being "double taxed." You paid into the Social Security Trust, as did your employer. Once eligible, you get a benefit from that Trust. Chances are pretty good that it'll be a lot more than you paid in.

It's all explained here. https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html

 

[mathjak107]

nope , my half i put in was taxed when i earned it . my half is taxed again along with the piece the employer put in which was not taxed , just because my income is over 44k .

that is means tested whether you want to call it that or not .

:a fraction of Social Security benefits can be subject to income taxation, on a progressive basis – and then the income tax that applies to those included benefits itself is progressive. Once a beneficiary’s total income (including half of Social Security benefits) exceeds $25,000 ($32,000 for a married couple), the first dollar of benefits begins to be taxable, up to inclusion of one-half of benefits. And once income (including half of Social Security benefits) exceeds $34,000 ($44,000 for a married couple) the portion of benefits included in taxable income begins to rise further, up to a maximum inclusion of 85 percent of benefits. This provision is designed to have no effect on the low-income elderly, while gradually increasing its impact as total incomes rise

n other words, the income tax due on Social Security benefits is quite progressive, with benefits for probably most of the elderly not subject to tax at all, but with more than a third of benefits paid back in income tax by the most well-off. Taking into account the lower benefit-formula conversion rates that apply to high-wage retirees, their after-tax returns on their lifetimes of payroll tax contributions, measured in investment terms, would be quite modest – if not in some instances negative (further reflections on that fact later). So Social Security is means tested in reality, if not in name."

."

https://www.ced.org/blog/entry/why-arent-social-security-and-medicare-means-tested

 

[pb4uski]

If you look at the SS Benefit formula it is means tested in that lower levels of income are replaced more fully than higher levels Given the 35 year average inflation adjust wage, the first 885 or so dollars get replaced 90% then the next 4400 or so get replaced 33% and the remaining dollars up to the limit get replaced 15%. So it is perhaps better termed a lifetime earnings test.

While what you write about how benefits are better for lower earners then higher earners is true, it isn't a means test.... a means test would be where benefits would be reduced or eliminated for people based on their wealth. For example, Bill Gates would be denied retirement benefits from SS despite paying into it for many years because he is rich and doesn't need it. (To be fair to Mr. Gates, I suspect that he will never bother to file for benefits but you get the idea).

I seem to recall that one of the long-time SS actuaries was very opposed to means testing from a public policy perspective as it would penalize savers and reward spenders..... I whole-heartedly agree with him.

 

[Nightcap]

nope , my half i put in was taxed when i earned it . my half is taxed again along with the piece the employer put in which was not taxed , just because my income is over 44k .

that is means tested whether you want to call it that or not .

:a fraction of Social Security benefits can be subject to income taxation, on a progressive basis – and then the income tax that applies to those included benefits itself is progressive. Once a beneficiary’s total income (including half of Social Security benefits) exceeds $25,000 ($32,000 for a married couple), the first dollar of benefits begins to be taxable, up to inclusion of one-half of benefits. And once income (including half of Social Security benefits) exceeds $34,000 ($44,000 for a married couple) the portion of benefits included in taxable income begins to rise further, up to a maximum inclusion of 85 percent of benefits. This provision is designed to have no effect on the low-income elderly, while gradually increasing its impact as total incomes rise

n other words, the income tax due on Social Security benefits is quite progressive, with benefits for probably most of the elderly not subject to tax at all, but with more than a third of benefits paid back in income tax by the most well-off. Taking into account the lower benefit-formula conversion rates that apply to high-wage retirees, their after-tax returns on their lifetimes of payroll tax contributions, measured in investment terms, would be quite modest – if not in some instances negative (further reflections on that fact later). So Social Security is means tested in reality, if not in name."

."

https://www.ced.org/blog/entry/why-arent-social-security-and-medicare-means-tested

First, your social security tax is deducted before income tax is applied. Second, most people will get back much more than they ever paid in. President Reagan believed that a compelling case could be made that this money ought to be taxed as income. I'm not a great fan of taxes, but I can't argue with the actuarial facts illustrated in the document I linked to above.

I'm not collecting SS yet, but according to my latest report from them, I can tell you exactly how much I have contributed during my career. If I begin collecting at FRA, I will have received everything I ever contributed before I'm 70.

Don't confuse this with a means test.

 

[mathjak107]

as far as i know you pay tax on the social security taxes taken out of your check . withholding's are taxed

Is my Social Security taxed 2x ?

"Some people definitely will. Social security is subject to federal withholding before it goes into the hands of the government and when they give it back to you at retirement age you may be taxed on it again, depending on your income level."

 

[Nightcap]

as far as i know you pay tax on the social security taxes taken out of your check . withholding's are taxed

Is my Social Security taxed 2x ?

"Some people definitely will. Social security is subject to federal withholding before it goes into the hands of the government and when they give it back to you at retirement age you may be taxed on it again, depending on your income level."

No, you aren't taxed on payroll social security taxes. Please refer to your W-2.

I have no idea where you're getting your information, but mine is coming straight from the Social Security Administration (and my W-2).

 

[Winemaker]

Social Security is subject to double taxation. It is identified on my old W-2s, but it is not deducted from my income on my federal and state returns and is taxed. When I start taking benefits 85% will be taxed again.

 

[pb4uski]

Nightcap..... Mathjak is right... if you earn $100 and they take out $6 for SS tax and no other withholdings, your net pay will be $94, but the wages on your W-2 will be $100. IOW, SS taxes are paid with after-tax money.

A 401k contribution would be an example of a pre-tax... if you earn $100, pay $6 in SS tax and have $10 of 401k contributions withheld your net pay will be $84 but the wages on your W-2 will show $90 ($100 wages -$10 401k contribution).

 

[mathjak107]

No, you aren't taxed on payroll social security taxes. Please refer to your W-2.

I have no idea where you're getting your information, but mine is coming straight from the Social Security Administration (and my W-2).

i did , you are not correct

 

[Nightcap]

i did , you are not correct

I stand corrected and apologize.

However, unless I'm unfortunate enough to die young (in which case it won't matter much), according to Social Security Actuaries, what I paid in will be 15% of what I receive. That's where the 85% taxable comes from.

So if I'm planning to start collecting at 66 and keel over at 67, yes, I will be double-taxed. If I make it to my three-score-and-ten, I'll be paying income taxes on money I never paid in.

 

[Nightcap]

Nightcap..... Mathjak is right... if you earn $100 and they take out $6 for SS tax and no other withholdings, your net pay will be $94, but the wages on your W-2 will be $100. IOW, SS taxes are paid with after-tax money.

A 401k contribution would be an example of a pre-tax... if you earn $100, pay $6 in SS tax and have $10 of 401k contributions withheld your net pay will be $84 but the wages on your W-2 will show $90 ($100 wages -$10 401k contribution).

Thanks. I looked at this great big number under my Social Security wages and a much smaller number under Salary, Tips, and Assorted Grift, and didn't do the math. Boy, maxing out my 403b really reduced my taxable income! I apologize for the error.

 

[pb4uski]

....However, unless I'm unfortunate enough to die young (in which case it won't matter much), according to Social Security Actuaries, what I paid in will be 15% of what I receive. That's where the 85% taxable comes from.....

There is an element of that... similar to a non-deductible IRA or a payout annuity, a portion of each withdrawal/benefit payment is a return of conribution (and not taxed) and a portion is interest (and taxed since it has never been taxed).

The 85% is probably pretty closed to the portion that would be taxable if SS was a deferred annuity... on average... if I do a similar computation based on what I contributed and my benefits it is more like 70% that would be taxable, but I was a high earner so my percentage is probably lower than the average.

 

[Koolau]

But back to the original question of means testing those receiving SS: Obviously no way to know for certain. A program as vast as SS would be less likely to means test than one which is a bit more obscure. Most citizens will eventually receive SS and telling some folks they will not "get all of theirs" would bring about a serious protest. My opinion is that whatever is done to "reign in" SS benefits will be much more subtle - for instance, taxing up to 100% or taxing everyone on their benefits with no cut off.

Planning your FIRE strategy on what MIGHT happen to SS seems less likely to be effective than planning based on current law. I could be wrong. I was once, so YMMV.

 

[evilanne]

If I were to file now, does only my income count for the amount one cannot exceed without losing benefits?

Yes, your income is below the earnings limit. Spouse's earnings can impact the percentage of your social security that is taxable see https://articles.extension.org/pages/42385/can-workers-income-reduce-their-spouses-social-security

The earnings limit ($16,920 in 2017 for beneficiaries who are age 62 through full retirement age) applies only to the income of the person who is collecting a monthly Social Security benefit check. It is that person's income that determines whether benefits are reduced. One dollar in benefits is withheld for every $2 in earnings above the earnings limit amount.

 

[palomalou]

I should have said "potentially" means-tested. EvilAnne, you are not evil, but very helpful!