Crystal Ball on Future SS Haircut

[meierlde]

Agree on the first part but not on the part about Roth distributions being included for SS taxation at a higher rate... it would be too complicated and would essentially create another parallel tax scheme like AMT... I don't see them wanting to increase complexity at all... in fact, quite the opposite. But increasing the % of SS subject to tax would be easy... just change a few factors.

Besides, in the whole scheme of things Roths are not significant enough to make much of a dent even if they did what you think they will do.

Actually it would not be that hard. You already apparently get a 1099 for a roth withdrawal, add a code on the form. Then add a line on the 1040 like the one for tax exempt interest, modify the instructions for line 3 of the benefits form to include the roth withdrawals, and you are done. To boot tax exempt interest is used in determining the taxable percent of social security as well today.

 

[Winemaker]

If SS becomes means tested via income, it opens another can of worms.

If I am denied at FRA because my IRA and 401k distributions are too high, will I be able to reapply when the balance is reduced by another Great recession at 72?

 

[pb4uski]

Actually Social Security has a form of means testing if you look at the benefit formula. It rewards those with low average earnings with a much higher replacement percentage of earnings than the top earners (90% versus 15%)
So there is already an element of means testing in it. It seems that no one knows the benefit formula (at least in the Media). The SS web site does a nice job in explaining it. (But perhaps because the replacement percentage changes with average income many folks may regard it as rocket science and therefore by definition not understandable).

You're on the right track but not quite right... it isn't really means testing. It is true that those with a stronger earnings history have relatively lower benefits than those with a weaker earnings history... the program has somewhat of an element of earnings success insurance built in. But that is NOT means testing.

Under the current rules if you have two people with identical ages and earnings records and one is broke and the other is a billionaire then their SS benefits would be the same even though their means and current income are vastly different.

 

[youbet]

If SS becomes means tested via income, it opens another can of worms.

If I am denied at FRA because my IRA and 401k distributions are too high, will I be able to reapply when the balance is reduced by another Great recession at 72?

They won't deny you SS. They'll just reduce your SS by an amount determined by an annual calculation. And, no, if your income goes down in the future, you won't be able to collect retroactively.

It will be similar to how IRMAA works for Medicare Part B and Part D premiums. A year by year calculation based on your 2-years-previous income (or some form of adjusted income) will play a factor on how big your check is.

 

[youbet]

42 here, I plan on taking at 62 - or whenever the earliest is when I retire. If I lose money on that plan it's because I've lived long enough to see that happen, and that's one hell of a silver lining. But unless the political climate changes, the only possible modification I see happening is moving early retirement to 63 and regular to 68, everything else is a political third rail.

I'm turning 70 this year. I started SS at 62. It has worked out fine and unless I make some serious mistake in the future with the money I collected and invested over the past 8 years, I'll be ahead until I croak.

Additionally, since DW does not get SS on her own and cannot collect any of my SS due to GPO, I've had the insurance of an extra growing nest egg for her should I depart this world before her.

Every situation is different. Starting at 62 worked for us.

BTW laurence, I'm a huge fan of today's younger population NOT paying additional FICA or having their benefits cut just so affluent geezers can get some new tires for the Bentley. Boomers are big kids and can just hitch up their pants and pay their own way without your generation disproportionately sacrificing. I think you have enough to do to get ready to take care of yourselves.........

 

[meierlde]

Your on the right track but not quite right... it isn't really means testing. It is true that those with a stronger earnings history have relatively lower benefits than those with a weaker earnings history... the program has somewhat of an element of earnings success insurance built in. But that is NOT means testing.

Under the current rules if you have two people with identical ages and earnings records and one is broke and the other is a billionaire then their SS benefits would be the same even though their means and current income are vastly different.

It is a form of retroactive means testing, the lower lifetime earner gets a higher percentage than the higher one. (Lower lifetime earnings likley means less means at retirement) It somewhat depends on what means testing means however.

 

[foxfirev5]

Give me a little time and I'll be as rich or as poor as I need to be.

 

[Which Roger]

SS is like a pension in that you accrue future benefits based on what you pay in. If they do change the relationship of payin-to-payout, I think it would only apply to future contributions, not what one has already accrued. This would have no effect on someone who is already retired.

 

[youbet]

SS is like a pension in that you accrue future benefits based on what you pay in. If they do change the relationship of payin-to-payout, I think it would only apply to future contributions, not what one has already accrued. This would have no effect on someone who is already retired.

While that certainly could be the case, it's not necessarily the way things will come down.

For example, states like Illinois are trying (with the courts arm wrestling them) to give the pensions of already retired folks a serious haircut.

And Medicare has increased the Part B and Part D premiums for already-on-Medicare folks if their income exceeds certain thresholds. (IE., the feds know exactly how to measure current income and calculate SS levels based on that. They're already doing it with IRMAA.)

Remember that while SS has some aspects of a pension, it's also a social welfare program paying benefits to widows(ers), dependents, orphans, the disabled, spouses who do not qualify for their own SS, etc., etc. And SS benefits are much higher for low income folks than they would ever be for a traditional pension. So comparing SS to a traditional pension is a bit apples to oranges IMHO.

It's all a big guess as to what they'll do with SS though.........

 

[Car-Guy]

Call it what you want (means testing, double taxation, slight of hand or other gotcha's), but if you make to much money in any given year, you'll pay income tax on up to 85% of your social security benefits. Make even more money and your medicare payments can go up double or even triple and that comes directly out of your social security check for many of us.

Of course, I'd still rather be making more money (than not) and having to pay taxes on 85% of my SS and triple medicare premimuns but it still feels like another rip off.

What's next to get more of our "earned" SS money?

 

[AllDone]

All I can say is that I remember a impassioned, tearful conversation with my dear, late mother in the early 1970's in which I told her there was NO WAY that SS would survive long enough for me to get any of it (and I felt we were supporting her generation, it wasn't fair, blah blah blah, great tears of outrage). She wisely told me that politicians could never cut SS because older people vote consistently.

Social Security's imminent demise has been predicted for the last 80 years.

 

[Sunset]

Actually Social Security has a form of means testing if you look at the benefit formula. It rewards those with low average earnings with a much higher replacement percentage of earnings than the top earners (90% versus 15%)
So there is already an element of means testing in it. It seems that no one knows the benefit formula (at least in the Media). The SS web site does a nice job in explaining it. (But perhaps because the replacement percentage changes with average income many folks may regard it as rocket science and therefore by definition not understandable).

Exactly plus the taxation of SS is also basically means based awarding of SS, because if you are only living on SS, then probably not paying any tax on the SS.
If you saved responsibly or have a great pension, then they tax back some of the SS and tax back more if you have really good income.

 

[Sunset]

Whatever "they" are going to do will happen, someday.
But I don't understand how people can think "it" might happen suddenly, overnight, without warning.

The last time they messed seriously with SS was in 1983 when they increased the full retirement age from 65 to 67. That two-year change was phased in over a 22-year period, with an 11-year hiatus in the middle at which the retirement age remained at 66.

Whatever happens, there will be ample warning.

That is my plan, currently plan to take it at 70, right now sucking down the IRA's for spending and ROTH conversion.
Should they start mucking up SS, I'll pay attention closely, and file for it before any bad change happens.

 

[Koolau]

Waited for SS until (almost) 70 and the big(er) monthly check is nice. However, DW started at 62 and her Medicare payment got grandfathered while mine did not. So now I pay significantly more for MC than she does. SO... My feeling is that SS/MC may continue to have relatively small but meaningful "gotchas" that don't "sound" like "messing with" them. As always, I could be wrong. I was once, so YMMV.

 

[Yarnstormer]

Waited for SS until (almost) 70 and the big(er) monthly check is nice. However, DW started at 62 and her Medicare payment got grandfathered while mine did not.

Can you explain this? How did your claiming age affect your medicare payment?

 

[pb4uski]

It is a form of retroactive means testing, the lower lifetime earner gets a higher percentage than the higher one. (Lower lifetime earnings likley means less means at retirement) It somewhat depends on what means testing means however.

You still don't get it... lower lifetime earnings doesn't necessarily mean less means at retirement. From this forum we know of many of moderate earners who were savers and have more means than higher earners who were spenders. IOW, earnings do not necessarily correlate with means/wealth.

What the SS benefit formula does is provide relatively higher benefits to those who earned less and relatively lower benefits to high earners... a subtle form of transfer of wealth from high earners to low earners.... but not anywhere near means testing as that term is typically used.

I found this Society of Actuaries report on Means Testing for Social Security interesting reading. I think there could be a lot of unintended consequences if means testing were put in place that would be bad public policy... like erosion of public support for the program (it becomes just another entitlement program like retirement welfare) and disincentives for retirement saving.. etc.

Note that one of the alternatives to means testing is making the current difference in benefits between those with higher earnings history and lower earnings history more extreme than it currently is... if that were means testing then they would not have referred to it as an alternative to means testing.

 

[Yarnstormer]

Prob raise retirement age - without raising the last age to defer to over 70. Some other sneaky tweaks to reduce benefits.

 

[Hermit]

All I can say is that I remember a impassioned, tearful conversation with my dear, late mother in the early 1970's in which I told her there was NO WAY that SS would survive long enough for me to get any of it (and I felt we were supporting her generation, it wasn't fair, blah blah blah, great tears of outrage). She wisely told me that politicians could never cut SS because older people vote consistently.

In 2010, when I turned 62, I wondered if I should get SS early while I still could. There were a lot of articles being written about how one should grab it ASAP before it was cut or vanished.

OK, so I waited. I claimed divorced spousal SS at age 66, and SS still has not been cut. I am 68 now and plan to switch to my own SS at age 70 because it will be more. I got in just under the wire, so my SS is growing from now to age 70.

This is almost like playing a game of chicken.

I'm in the same boat as W2R. I am collecting SS on the late wife's account until 70. The way that is set up is great for me. Like W2R, I have to be very careful about withdrawals from retirement accounts or it will kick me into higher Medicare payments. You can call all the different add ons and premiums whatever you want, they are still taxes paid by those who make more income than the powers that be think is needed. I just did my annual withdrawal from my 401k and paid over 25% of that to taxes. That is in addition to the 85% of SS, etc. Any way you look at it, higher income means a larger tax bite. I don't see it ever getting smaller.

 

[Svensk Anga]

Whatever they do with SS (and Medicare) to make them long-term sustainable, I wish they would do it soon. It is hell to plan with the uncertainty. Once they put in the inevitable adjustment, it could be stable for couple, three decades, maybe more. With the uncertainty gone, a lot of retirement savings that are currently being hoarded by those concerned with their future SS benefits could be turned loose. Might be a very nice economic stimulus. How many are saving as if there will be no SS and what could they do for the economy if they gained confidence that 75% or whatever percentage of the current formula will be there for them?

 

[ownyourfuture]

The last time they messed seriously with SS was in 1983 when they increased the full retirement age from 65 to 67.

Didn't 'they' also vote to tax SS for the 1st time in 1983 ?

 

[Chuckanut]

I disagree... I don't think we will ever see means testing... even income based. I think there is a good likelihood that SS will become fully taxable (rather than 85%) which is a second-order of income means testing but I doubt that we will ever see different retirement benefits paid for two people of the same age and earnings history because one has a pension or other retirement income and the other does not.

I agree. It is far more likely that SS benefits of higher income people will be reduced via taxation than outright taken away.

 

[rayvt]

Social Security's imminent demise has been predicted for the last 80 years.

Well, the thing about Ponzi schemes (or "pay-as-you-go" schemes like SS) is that they work fine .... until they don't. And then they collapse.

The money that is given to retirees comes from the people who are currently working. If there is a large increase in the number of retirees and a small increase or even decrease in the number of current workers, the system runs into big trouble.

 

[Mdlerth]

...I think there could be a lot of unintended consequences if means testing were put in place that would be bad public policy... like erosion of public support for the program (it becomes just another entitlement program like retirement welfare) and disincentives for retirement saving.. etc.

I suspect this will be the critical reason why means testing won't happen. Once SS stops being the "contract between the generations" it's toast.

Boosting the 85% taxability to 100% is as certain as night follows day, and the eligibility ages will be raised again with a long transition time to soften the blow, because neither of those changes messes with the Universal Appeal factor. But once it's perceived as yet another welfare giveaway, it won't be the third rail anymore like it always has been.

 

[Fermion]

I don't see how it really could ever be perceived as a welfare giveaway considering you pay about 12% of your income every year into it. This is actually more than most people are putting away in their 401K or contributing to a pension plan.

 

[moneyviking]

So to be clear, this thread is not about predicting what haircuts will become fashionable in the second term of a Trump presidency?

I was thinking shaved on the back and the sides with 3 inches or so left on top, combed sideways but still looking like maybe you weren't trying too hard to go for a style.