Social security grandfathering question

[tmohre]

Hello all, first time l, long time reader. I was thinking: in my shoes if I were to retire at 60, collect social security immediately at 62. Would I avoid the 25% haircut they are predicting after the fund dries up in 2034 (or sooner).

I feel like I’ve heard something like that before but curious what You guys might know what happens in that scenario.

 

[Rianne]

I find it hard to imagine, if you're over 60, already taking SS...whenever you took it...FRA, 70 or 62, that policy (politicians) would take it away from you. We talk about the "haircut" on this forum. Would a politician really vote to take away SS from already existing income? They may tax it higher or have lower COL %'s. IMHO. I have 0 proof of what I just said.

 

[Carol1862]

I would like to believe they would have some type of scale where those already getting it do not lose as much as those much younger. One reason being that a millennial has income from working coming in and those collecting SS alone would be impacted greater than them. They might take overall income into account. Or pensions and other income seniors are receiving. We can talk about it all we want, but for those that don’t believe it could happen, I also never thought the government would screw up the healthcare system either. If you told me years ago I’d be paying $1000 a month for my insurance and everything would be going to my deductible i would’ve laughed. Now, I’m crying!

 

[Chuckanut]

My guess is that they might 'freeze' your SS benefit where it is now until you have 'paid back' the excess you are getting compared to those who did not get take SS early. That, of course, is just a guess.

OTOH, Congress could fix SS so no big haircut is needed (albeit many of us will probably get a shampoo or trim at the very least) in which case you are stuck with lower SS benefit payments for the rest of your life.

Either scenario may or may not be a problem for you depending upon how long you live and your overall financial condition.

 

[Dtail]

I still believe it will be fixed in the end. Perhaps wishful thinking.

 

[cathy63]

I agree that no politician who wants to remain in office is going to make an affirmative vote to reduce SS for those already receiving it. The main concern is that if Congress does nothing, then under the existing law, benefit cuts must be applied equally across the board. The SSA can't just decide to favor those who took it early over those who are waiting until FRA or age 70.

 

[GenXguy]

Regarding it being taxed more in the future, it's already the case that a greater percentage of SS dollars are being taxed every year because the taxable thresholds are not indexed to inflation or ever raised. I commented about this last spring:


http://www.early-retirement.org/forums/f28/tax-rate-on-social-security-97958.html#post2242582

 

[Sunset]

I agree that no politician who wants to remain in office is going to make an affirmative vote to reduce SS for those already receiving it. The main concern is that if Congress does nothing, then under the existing law, benefit cuts must be applied equally across the board. The SSA can't just decide to favor those who took it early over those who are waiting until FRA or age 70.

+1
By doing nothing every member of Congress can say "I didn't cause the haircut"..

If the haircut comes, I think it will be applied across the board including folks who take it at age 62, they will get 25% less like everyone else.

 

[tmohre]

Thank you for all the replies. This is a great forum. I thought I heard somewhere it might be a deal where they don’t make dramatic cuts to those already receiving benefits. If true, a powerful reason to go early possibly. I always planned to anyhow for a good source of Cash for living expenses to stay out of the tax advantaged funds and letting them compound.

 

[LRDave]

OP: Your concern was basically mine also when I first discovered this forum many years ago. Right now, a possible SS haircut in 2034 is far down on the list of things that might wake me up at night.

 

[Sunset]

Thank you for all the replies. This is a great forum. I thought I heard somewhere it might be a deal where they don’t make dramatic cuts to those already receiving benefits. If true, a powerful reason to go early possibly. I always planned to anyhow for a good source of Cash for living expenses to stay out of the tax advantaged funds and letting them compound.

If it were true they were going to grandfather SS , I'd simply sign up for prior to the enactment, no need to take SS at the earliest moment.

My plan is opposite yours, spend down the IRA's so my SS can grow 8% per year and my tax torpedo at age 70.5 will be smaller.

 

[Dtail]

If it were true they were going to grandfather SS , I'd simply sign up for prior to the enactment, no need to take SS at the earliest moment.

My plan is opposite yours, spend down the IRA's so my SS can grow 8% per year and my tax torpedo at age 70.5 will be smaller.

Bolded by me - that is also our plan, with minor Roth conversions if possible.

 

[mrfeh]

Hello all, first time l, long time reader. I was thinking: in my shoes if I were to retire at 60, collect social security immediately at 62. Would I avoid the 25% haircut they are predicting after the fund dries up in 2034 (or sooner).

I feel like I’ve heard something like that before but curious what You guys might know what happens in that scenario.

I would put the chances of this happening to you as close to 0%, and should not factor into when you start receiving benefits.

 

[RunningBum]

Thank you for all the replies. This is a great forum. I thought I heard somewhere it might be a deal where they don’t make dramatic cuts to those already receiving benefits. If true, a powerful reason to go early possibly. I always planned to anyhow for a good source of Cash for living expenses to stay out of the tax advantaged funds and letting them compound.

Something you "heard somewhere" is all speculation, perhaps educated, or perhaps a wild guess. There are no proposals in congress, and until there is, no one really knows what will happen.

 

[VanWinkle]

Regarding it being taxed more in the future, it's already the case that a greater percentage of SS dollars are being taxed every year because the taxable thresholds are not indexed to inflation or ever raised. I commented about this last spring:


http://www.early-retirement.org/forums/f28/tax-rate-on-social-security-97958.html#post2242582

This^^^

 

[Dtail]

Regarding it being taxed more in the future, it's already the case that a greater percentage of SS dollars are being taxed every year because the taxable thresholds are not indexed to inflation or ever raised. I commented about this last spring:


http://www.early-retirement.org/forums/f28/tax-rate-on-social-security-97958.html#post2242582

One of the proposals is to raise the taxable limits to 50k(S)/100k(MJ), so perhaps some relief down the road.

 

[Chuckanut]

Regarding it being taxed more in the future, it's already the case that a greater percentage of SS dollars are being taxed every year because the taxable thresholds are not indexed to inflation or ever raised. I commented about this last spring:


http://www.early-retirement.org/forums/f28/tax-rate-on-social-security-97958.html#post2242582

+1

 

[VanWinkle]

One of the proposals is to raise the taxable limits to 50k(S)/100k(MJ), so perhaps some relief down the road.

Where did you find that proposal, and do you think it has a chance?

VW

 

[Midpack]

I agree that no politician who wants to remain in office is going to make an affirmative vote to reduce SS for those already receiving it. The main concern is that if Congress does nothing, then under the existing law, benefit cuts must be applied equally across the board. The SSA can't just decide to favor those who took it early over those who are waiting until FRA or age 70.

That's undoubtedly true now, but an obviously insolvent system can't last forever. As younger American voters (who are unlikely to enjoy today's SS benefits and/or pay relatively more in) continue to replace older American voters (who are enjoying SS benefits or planning to), eventually politicians will become beholden to a younger majority. They follow the money, fairness has little to do with it. I don't know when, but I expect a significant change well within my lifetime.

It would probably be less painful to fix it now and ask all living generations to sacrifice to some extent (equitable, not equally) - but with AARP and other selfish no-compromise special interests and their many willfully ignorant supporters, we'll probably wait until the situation is much worse to do anything.

 

[GenXguy]

One of the proposals is to raise the taxable limits to 50k(S)/100k(MJ), so perhaps some relief down the road.

That would be an improvement, for sure, especially if it was indexed to inflation going forward. If that's in reference to the lower threshold, that's actually extra generous to married couples as it exceeds what the 1983 figure is when adjusted for inflation while the single figure comes up short.

Based on the the following article it says:

So we should demand Congress index Social Security taxation to inflation, right? Based on the 1983 threshold numbers, that would ensure that only singles making over about $64,000 year, and couples making over $82,000 a year, would have to pay taxes on their Social Security income.

https://www.marketwatch.com/story/p...-punished-by-social-security-taxes-2019-01-07

With the massive tax cuts we've had for the wealthy and large corporations, it doesn't seem fair to keep sticking it to seniors by taxing more of their SS every year. I would certainly be willing to pay higher FICA tax to help adequately fund SS, not to mention Medicare.

 

[GenXguy]

That would be an improvement, for sure, especially if it was indexed to inflation going forward. If that's in reference to the lower threshold, that's actually extra generous to married couples as it exceeds what the 1983 figure is when adjusted for inflation while the single figure comes up short.

Looks like those proposed figures are based on the 85% taxable threshold that was added at a later date rather than the original 50% taxable threshold, but it would still be more fair to seniors receiving SS benefits in the future.

https://www.congress.gov/bill/116th-congress/house-bill/860

 

[Perryinva]

If that proposal became a serious contender, that would EASILY sway the Roth conversions decision for those with high SS benefits & pre tax IRAs! If MFJ SS tax income threshold went to $100k, I’d convert every cent of my IRAs and the ROI would be very few years!

 

[Dtail]

Where did you find that proposal, and do you think it has a chance?

VW

I think it was contained in the Social Security 2100 act proposal.
As far as chances to exceed, who really knows, as there are other proposals in that act too.

 

[VanWinkle]

I think it was contained in the Social Security 2100 act proposal.
As far as chances to exceed, who really knows, as there are other proposals in that act too.

Yep, found it!!

"The Social Security 2100 Act would raise the income threshold for taxing benefits to $50,000 for single taxpayers and $100,000 for married couples. Up to 85% of benefits would be taxable at ordinary income tax rates. The 50% taxation formula would be eliminated."

 

[Lakewood90712]

How long before this thread turns into a food fight and gets shutdown . I think I have seen this movie before