Obama's State of the Union speech - wealthiest seniors

[zedd]

Portion of transcript from the president's speech:

"And -- and the reforms I'm proposing go even further. We'll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors."

Read more: Transcript of Obama's State of the Union speech | Fox News

Hmmm, define wealthiest seniors for me
​

 

[ziggy29]

[mod hat on]
Moved to the Politics forum.

This is a retirement-relevant topic but also a pretty sensitive one, so let's remember to be civil and avoid the usual derailments that can accompany a topic like this so we can keep the conversation going. Thanks!
[mod hat off]

 

[BTravlin]

Portion of transcript from the president's speech:

"And -- and the reforms I'm proposing go even further. We'll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors."

Read more: Transcript of Obama's State of the Union speech | Fox News

Hmmm, define wealthiest seniors for me
​

Anyone with a pulse.

 

[ziggy29]

Anyone with a pulse.

The usual working definition of "wealthy" is "anyone who makes at least one dollar more than me".....

 

[BTravlin]

Unfortunately, our fiscal problems are such that everybody will need to feel some pain to help get us back on the right track. Anybody not complaining is probably getting favorable treatment.

 

[Sniggle]

Wealthy Senior - Someone who worked hard and saved for retirement, who will be called upon to support those who did neither, through additional taxes and fees on their savings.

Seriously, it worries me that the government is looking to punish those that planned for retirement. I have never made more than $150,000 combined (job and reserves) in a given year, wife does not work, but I can see reaching retirement and having SSN means tested against my accumulated wealth(no, I have no inheritance).

 

[ziggy29]

Unfortunately, our fiscal problems are such that everybody will need to feel some pain to help get us back on the right track. Anybody not complaining is probably getting favorable treatment.

I agree completely. I have long been on record that as long as we (collectively) insist that only other people's oxen are gored, we'll never solve or "fix" anything because we'll be too busy engaging in political, class and generational warfare.

As long as we cling to the expectation that we will not support *anything* that personally hits us at all, as long as people feel like anything that doesn't leave them unscathed is "unfair", nothing will get done, and that will just make it a bigger crisis in the future.

 

[BTravlin]

Many in the boomer generation have a significant amount of accumulated wealth and the politicians are looking at all these retirement accounts with hungry eyes. I think Obama's quote in the OP is just the opening salvo in getting everybody ready for means tested benefits.

 

[Midpack]

 

[ziggy29]

Many in the boomer generation have a significant amount of accumulated wealth and the politicians are looking at all these retirement accounts with hungry eyes. I think Obama's quote in the OP is just the opening salvo in getting everybody ready for means tested benefits.

I've been saying here for years that this may be prudent financial planning whether it happens or not: to "engineer" your assets in a way that allows you to live comfortably on a lower AGI. (Until they start "means testing" net worth, anyway.)

For now, it's much more likely that they start with means testing using AGI. We already see it in terms of marginal tax brackets, in terms of the level of taxation on dividends, how much of your SS benefit is subject to taxation, and soon in terms of health insurance subsidies through PPACA. I personally expect (at age 47 now) my future SS and Medicare benefits to be heavily means-tested along the lines of AGI.

I don't like that, but I think prudence requires me to move assets around defensively to help keep AGI below a certain threshold in any given year makes sense.

 

[samclem]

I haven't seen the specific proposal but we know that income is not distributed on a bell curve, that there is a very small percentage of folks with high incomes. If the intent is to cut SS and Medicare costs by reducing benefits to the wealthy ("asking more from the wealthiest seniors"), then the "cut line" might have to be fairly low in order to get a substantial number of recipients to pay more. This is a "per head" issue: If we want to save a lot of money by having people pay a higher percentage of health care costs, then just capturing the top 1% of recipients won't save very much money.

If we assume that the President believes the top 15% of seniors are the "wealthiest seniors", then that would equate to an individual annual income of $50,000 (2011 numbers, figure 7 here: http://www.aoa.gov/aoaroot/aging_statistics/Profile/2011/docs/2011profile.pdf) . I'm sure we could find a figure for household income somewhere, as a WAG it might be about 175% of this amount ($87k/year)?

 

[NW-Bound]

Unfortunately, our fiscal problems are such that everybody will need to feel some pain to help get us back on the right track. Anybody not complaining is probably getting favorable treatment.

I agree completely. I have long been on record that as long as we (collectively) insist that only other people's oxen are gored, we'll never solve or "fix" anything because we'll be too busy engaging in political, class and generational warfare.

As long as we cling to the expectation that we will not support *anything* that personally hits us at all, as long as people feel like anything that doesn't leave them unscathed is "unfair", nothing will get done, and that will just make it a bigger crisis in the future.

We can look at European countries that are destitute like Greece and Spain, where an entire young generation is wiped out by high unemployment to see where we do not want to go. Entitlements have to be cut, so that the young can survive.

All I am asking is for the cut to be evenly distributed, so that it is fair, and does not reward spendthrifts at the expense of savers. Else, it would just encourage people to "look poor", or even become actually poor so that they would become truly needy and get the public assistance that everybody says they "deserve".

 

[rbmrtn]

Isn't the medicare premium already "means" tested. You pay a higher part B premium based on MAGI

http://www.socialsecurity.gov/pubs/10536.pdf

If I had over $200k income in retirement, paying the full premium for medicare would be the least of my worries. But I guess it depends where the cutoff is.

 

[ziggy29]

We can look at European countries that are destitute like Greece and Spain, where an entire young generation is wiped out by high unemployment to see where we do not want to go. Entitlements have to be cut, so that the young can survive.

All I am asking is for the cut to be evenly distributed, so that it is fair, and does not reward spendthrifts at the expense of savers. Else, it would just encourage people to "look poor", or even become actually poor so that they would become truly needy and get the public assistance that everybody says they "deserve".

I agree that encouraging people to not be economically successful is counterproductive policy. I'm not saying means testing is really my preferred method, just that (a) I'm planning for it because I expect it and (b) it might be appropriate as a minor part of overall reforms, but (IMO) not the core theme of. Fair reforms need to factor in many things, I think.

 

[NW-Bound]

...I'm not saying means testing is really my preferred method, just that (a) I'm planning for it because I expect it and (b) it might be appropriate as a minor part of overall reforms, but (IMO) not the core theme of. Fair reforms need to factor in many things, I think.

Oh, I would be trying to make myself look "poor" too, when it comes to that.

When I have been living frugally all my life, just to see people who had the same career and the same income now getting rewarded, I would be a fool not to do something about it, so that I do not look so rich.

The point I was making is that determining who is truly needy can get very tricky. Having raised children, I have seen that it is human nature to get an easy way out if at all possible. People do not want to work too hard if they do not have to, myself included.

 

[Sniggle]

Oh, I would be trying to make myself look "poor" too, when it comes to that.

When I have been living frugally all my life, just to see people who had the same career and the same income now getting rewarded, I would be a fool not to do something about it, so that I do not look so rich.

The point I was making is that determining who is truly needy can get very tricky. Having raised children, I have seen that it is human nature to get an easy way out if at all possible. People do not want to work too hard if they do not have to, myself included.

Exactly the problem with mean testing. The only means testing I could consider would be a means testing that looked at lifetime Medicare income. That would be a way to means test without punishing the savers.

It is, however, clear to me that the politicians will be looking for ways to raid the 401K and Roth IRA plans in the near future...or at least punish anyone who has a substantial amount saved by means testing social security and medicare.

 

[anethum]

Portion of transcript from the president's speech:

"And -- and the reforms I'm proposing go even further. We'll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors."

Read more: Transcript of Obama's State of the Union speech | Fox News

Hmmm, define wealthiest seniors for me
​

Just as important, if not more important, is the part not in bold, "We'll reduce taxpayer subsidies to prescription drug companies..".

At present, Medicare is not allowed to negotiate with Big Pharma over prescription drugs prices, the way the Veterans Administration can, along with every other developed country in the world. This would save the government billions. Lobbying by Big Pharma has prevented this from passing Congress in the past, and is yet another example of the corrosive effect of money on American politics. Changing this giveaway to Big Pharma is a major necessary step needed to ensure the solvency of Medicare.

 

[youbet]

Many in the boomer generation have a significant amount of accumulated wealth and the politicians are looking at all these retirement accounts with hungry eyes. I think Obama's quote in the OP is just the opening salvo in getting everybody ready for means tested benefits.

You say this as though benefits aren't already being means tested now. With the "wealthy" already being taxed on SS and paying more for Medicare Part B and Part D, we need to say "additional means testing" I would think.

I'm not saying that means testing is inappropriate or wrong or commenting on what wealth levels it should kick in at. I am saying that it is already here in significant ways.

 

[youbet]

If we assume that the President believes the top 15% of seniors are the "wealthiest seniors", then that would equate to an individual annual income of $50,000 (2011 numbers, figure 7 here: http://www.aoa.gov/aoaroot/aging_statistics/Profile/2011/docs/2011profile.pdf) . I'm sure we could find a figure for household income somewhere, as a WAG it might be about 175% of this amount ($87k/year)?

But.... but.... but.... The speeches I keep hearing on TV call for having the Billionaires pay more. A retirement income of $87k/yr and Billionaire status seem like two distinctly different levels.

You don't think our politicians could be exaggerating or misleading us with this "Billionaire" jargon do you? No.... no... they wouldn't do that.

 

[Alan]

It sounds like another good reason to keep up IRA to ROTH conversions so that if more income-based taxes come into play, one will have more after-tax money to spend. (I personally don't expect net worth taxation to come into play)

 

[NW-Bound]

It sounds like another good reason to keep up IRA to ROTH conversions...

Eh, the law could be easily changed so that Roth withdrawal is not taxed (to keep Uncle Sam's promise), but included in determining Medicare costs. Remember that Uncle Sam has X-ray vision, and knows where each of us keeps his stash.

Just the other day, I was thinking about FIRECalc which many of us run again and again, trying to optimize our results. It is actually a fairly simple program.

Now, imagine the "mother of all spreadsheets" that Uncle Sam has at his fingertips, when trying to estimate results of any policy change. I am sure that one exists, and wonder how many zillion variables that one can tweak. Not only that there are so many things to vary, they would also have to estimate the populace's response to the changes. Let's say I up the IRA contribution limit to $10K, how many workers would take advantage of that? What if I tax this and not that? Where would these people run to hide?

That would keep me busy all day, playing with that program.

 

[Alan]

Eh, the law could be easily changed so that Roth withdrawal is not taxed (to keep Uncle Sam's promise), but included in determining Medicare costs. Remember that Uncle Sam has X-ray vision, and knows where each of us keeps his stash.

Eh?

Why is that a reason not to do IRA - ROTH conversions? Do you think taxes will go down in the future or that RMD's will go down or disappear?

Taxes have to be paid on the IRA's at some time, and as I said in my post, this is another reason to pay over the coming years while taxes are low. (and I personally don't believe they will tax net worth)

If it is announced that it will go the way you suggest then it would be worth transferring the ROTH money into a savings account before the new law comes into effect, so only the interest from the previous ROTH money is income.

Spin the wheel and place your bets.

 

[youbet]

Eh, the law could be easily changed so that Roth withdrawal is not taxed (to keep Uncle Sam's promise), but included in determining Medicare costs.

Exactly. And similar things are already going on. For example, muni bonds are typically tax exempt for fed taxes. But muni bond interest in added back to AGI to calculate MAGI for determining your Medicare Part B and Part D premium.

Roth distributions could be handled exactly the same way....... not taxed as fed income tax but added into MAGI for other purposes such as Medicare costs.

I would bet even money that that eventually happens. With the rule change allowing "wealthy" folks to convert TIRA's to Roth IRA's, there are too many dollars now hiding in Roths to go overlooked.

 

[NW-Bound]

Eh?

Why is that a reason not to do IRA - ROTH conversions? Do you think taxes will go down in the future or that RMD's will go down or disappear?

No, don't get me wrong. I will certainly do Roth conversions. It's just that the advantages may be reduced in the future.

 

[youbet]

Eh?

Why is that a reason not to do IRA - ROTH conversions? Do you think taxes will go down in the future or that RMD's will go down or disappear?

Taxes have to be paid on the IRA's at some time, and as I said in my post, this is another reason to pay over the coming years while taxes are low. (and I personally don't believe they will tax net worth)

If it is announced that it will go the way you suggest then it would be worth transferring the ROTH money into a savings account before the new law comes into effect, so only the interest from the previous ROTH money is income.

Spin the wheel and place your bets.

I think you missed NW's point Alan. He's saying that it's possible that Roth withdrawals might be included in MAGI for determining Medicare Part B and Part D premium levels. I pointed out they are already doing that with muni int and divs so it's wouldn't be an unprecedented action on the govt's part.

I agree with you, there would still be other reasons to do Roth conversions, and I'm doing some right now. It might or might not help you for Medicare premiums though depending on how the feds work things going forward. For example, I never thought my muni bond portfolio would generate income that counts against me for means testing for Medicare. But they chaged the rules, long after I created the muni bond portfolio, and now muni bond income does go into MAGI for Medicare means testing.