New Administration & Social Security

[Sangiovese]

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Originally Posted by phil1ben I was also born in 1960. Those born in that year will want to pay attention to Senate Bill S. 4180 (IS) - Protecting Benefits for Retirees Act. It appears to be bipartisan and was sponsored by a Democrat and a Republican. If adopted, it would fix the problem.

As I understand it, bills from a previous Congress that did not receive a vote will die when a new Congress is sworn in. So it needs to be reintroduced in the new 2021-2022 Congress. Let's hope it has better luck in 2021 than it had in 2020.

[GenXguy]

Those changes wouldn't be at the top of my list!

The ever-increasing taxing of SS needs to be addressed.

Social Security after-tax "net" benefits are already being "cut" every year and have been for years, but most people aren't aware of how this is being done.

The SS formula for determining how much of your SS benefits are taxed is NOT indexed to inflation, so that threshold has not increased since it was first introduced in 1983. For a single person, if your income combined with half your SS benefits exceeds $25,000, you have to pay income tax on up to 50% of your SS benefits. If it exceeds $34,000, you have to pay income tax on up to 85% of your SS benefits. $25K in 1983 is worth a lot more than $25K in 2018. Since your retirement distributions and SS benefits will be adjusted with inflation, but NOT the $25,000/$34,000 thresholds, a greater percentage of your SS benefits will become taxable as each year passes (for married filing jointly, the thresholds are $32,000/$44,000.) It's a built-in tax increase, reducing "net" SS benefits, hurting seniors further. The greater your combined income and SS/2, the more you will be affected by this up to a max of 85% of your benefits being taxed! It's absurd, and those thresholds should be increased to reflect inflation since 1983.

The ways it is, you should play it safe by estimating that 85% of your SS benefits well into the future will be taxable. More information about this can be found in these references:

https://www.marketwatch.com/story/pe...xes-2019-01-07
https://www.fool.com/retirement/gene...-wreaking.aspx
http://www.foxnews.com/story/2007/03...-benefits.html
https://www.ssa.gov/policy/docs/issu...ip2015-02.html

I'm not one to support tax increases, but I would be open to paying higher FICA taxes including taxing all wages to help shore up SS to prevent cuts to benefits and to prevent increasing the FRA for people within a decade of collecting SS.

At some point, the FRA will need increased for younger workers also as lifetime durations increase over time. Perhaps the FRA should be increased a year or two for those of us 55 and under, maybe another year or two if you're under 50 today, etc.

And for those with high household incomes over $100,000, they could stand to get a cut in their benefits to help keep the system afloat for those who need it.

I saw there was a proposal to make everyone's SS benefits exactly the same, which I think is a very bad idea (flat rate / universal social security.)
https://www.cnbc.com/2020/12/02/univ...etirement.html
Biden's minimum benefit seems like a better way to lift poor people's SS, although 30 years is a long time to work.

I think spousal benefits should be eliminated when both are still alive. It makes no sense to me that someone who has never worked is getting a generous SS benefit at taxpayer expense simply because they married someone that did work, who is getting a full benefit as well. Death benefits I can understand.

[maestro]

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Originally Posted by aaronc879 If i'm not mistaken, there needs to be 60 votes in the Senate to pass any of those things. That means the plan will have to be supported by both sides so I agree there won't be anything too drastic.

+1. Our illustrious 'elitists' in Congress will put their necks on the line to preserve their own interests and benefits they feel they deserve. It's not about us.

[donheff]

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Originally Posted by aaronc879 If i'm not mistaken, there needs to be 60 votes in the Senate to pass any of those things. That means the plan will have to be supported by both sides so I agree there won't be anything too drastic.

It only takes a majority to pass the legislation but it takes 60 to end debate. At one time they actually had to keep talking but now they just table the debate if they don’t have 60 votes. This is not required it’s just a rule they adopted that they can drop with a simple majority vote. Unfortunately, or fortunately depending how you view it, getting that majority to agree isn’t likely.

[earlyretirement]

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Originally Posted by pb4uski I was over the cap for many years and always thought that they should increase it or even eliminate it and perhaps add in a 10% bend point so those who pay more get at least a little something out of it and the rest goes to help the system as a whole. That said, I'm not in favor of the doughnut hole in the payroll tax for earnings between $142,801 and $400,000 that has been proposed.

I'm in the same situation, due to working a lot of overtime in my life. When I was able to hit the max it would always be mid to late December. If someone making 140K can pay the max, those up to 400 can certainly afford more.

[Gumby]

I used to stop paying social security in February. I certainly could have afforded to pay more.

[Ronstar]

I used to stop paying social security around September - October during my working years. With direct deposit and varying working hours, I sometimes didn’t notice that social security was no longer taken from my pay. I could have afforded to pay through the entire year. I suspect that the rules will be changed so that higher earners pay more.

[steveark]

I was above the cap every single year of my 38 year career. Yet I'll get proportionately less than lower earners because the system is set up to favor lower earners. That's already unfair. If you remove the cap but don't increase high earners benefits that makes it even more unfair. I thought this forum was the last place I'd hear "let's tax the other guy". My wife and I will get over $70K in five years when we start taking it.

[Dtail]

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Originally Posted by Gumby I used to stop paying social security in February. I certainly could have afforded to pay more.

Same here due to bonuses being paid in Feb.

[Gumby]

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Originally Posted by Dtail Same here due to bonuses being paid in Feb.

Exactly so.

[EdL3]

What is the purpose of the cap on taxing earnings? The worker who makes $100k pays the full amount, while the one who makes $200k doesn’t

[Aerides]

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Originally Posted by EdL3 What is the purpose of the cap on taxing earnings? The worker who makes $100k pays the full amount, while the one who makes $200k doesn’t

They both pay the same overall amount (or the $100k earner pays slightly less as she's below cap, currently $142.8k). The percentage is the same for both up to the cap.

The reasons for the cap are long and part of a storied tax/political history. I believe the chief argument in favor of the cap is linked to similar caps on payouts. IE, the super high earners do not receive a similar super high SS payment in retirement.

[foxcreek9]

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Originally Posted by EdL3 What is the purpose of the cap on taxing earnings? The worker who makes $100k pays the full amount, while the one who makes $200k doesn’t

FDR sold it to the public as insurance, not welfare. It was meant to be a basic amount of income in old age up to a limit. In keeping that principle with no cap would mean high earners would have no cap on the amount of SS they receive, which of course, won't happen.

[kjpliny]

Why would there be an issue with SS funding if the government can print $5T out of thin air in a few months during a pandemic? It's all funny money with ever decreasing real value.

[foxcreek9]

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Originally Posted by Chuckanut I think the most likely change will be that higher income folks will see 100% of their SS taxed.

Be prepared for those with "large" IRA balances, including Roth, to have their SS cut, not just taxed. The question will be what is large?

Some proposals have also been floated, related to the basic income for everyone, to cut the max amount of SS received to help pay for it.

[ERhoosier]

The spousal benefit is an interesting issue. My DW w@orked for 20yrs earlier in life but her personal 'benefit' from SS calculates to be a bit less than 50% of my benefit. So when we start drawing SS (numbers now favor both starting at same time) she will get ZERO rerun from her SS taxes over all those years.
A 'quirk' in the system, but a most unfair one IMHO.

[Gumby]

Why should there be a spousal benefit at all? If you work and contribute, you should get a benefit based on that. If you don't (i.e. - non working spouse) you shouldn't. So, I'd look at it slightly differently - your wife is getting a free ride for the spousal amount in excess of her own benefit.

[skipro33]

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Originally Posted by ERhoosier The spousal benefit is an interesting issue. My DW w@orked for 20yrs earlier in life but her personal 'benefit' from SS calculates to be a bit less than 50% of my benefit. So when we start drawing SS (numbers now favor both starting at same time) she will get ZERO rerun from her SS taxes over all those years. A 'quirk' in the system, but a most unfair one IMHO.

This is not true. Your wife will get her full benefit. IF that amount is less than 50% of your benefit, she will get a supplement to her benefit to make up the difference. While it works out to the same amount of funding, it's from the pot it's pulled from that matters.

The bigger question is; where does this difference amount come from? If she had not worked at all, this would be an even greater question. Yours comes from your earnings, hers from hers. But the make-up to 50% of the spouses earnings isn't explained.

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Why should there be a spousal benefit at all? If you work and contribute, you should get a benefit based on that. If you don't (i.e. - non working spouse) you shouldn't. So, I'd look at it slightly differently - your wife is getting a free ride for the spousal amount in excess of her own benefit.

It was explained to me that back in the day, one of the purposes of government was to encourage the traditional family profile. Traditionally, wives did not work, certainly those with children did not. Because housewife doesn't 'earn' SS, a method to compensate for that value added to society was created within the SS system.

[Dtail]

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Originally Posted by Gumby Why should there be a spousal benefit at all? If you work and contribute, you should get a benefit based on that. If you don't (i.e. - non working spouse) you shouldn't. So, I'd look at it slightly differently - your wife is getting a free ride for the spousal amount in excess of her own benefit.

Agree and there also should not be availability of multiple ex spouses claiming on the same person.

[athena53]

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Originally Posted by skipro33 It was explained to me that back in the day, one of the purposes of government was to encourage the traditional family profile. Traditionally, wives did not work, certainly those with children did not. Because housewife doesn't 'earn' SS, a method to compensate for that value added to society was created within the SS system.

It's good public policy. I qualify on my own record but my Mom and my DDIL are/were stay-at-home mothers. Imagine the cost to public programs if widows of primary earners got zero or minimal amounts based only on their own work record after the death of a spouse. Plenty out there are already struggling on Survivor benefits (and there are proposals to increase those). In theory, the cost of spousal benefits is priced into the SS contributions.

In addition, the average woman collecting SS on her own record gets $200 or $300 less/month than the average man collecting on his own record (I forget the exact number but it's in stats published by SS). Women are more likely to leave the workforce to raise children or care for sick relatives or both, and jobs that are predominantly female tend to pay less. (Nursing would be a notable exception.)