Hypothetical SS question

Thanks for all the replies and thoughtful insight. We always ran firecalc without using our SS income. We have always viewed SS as our fun money anyway but I started wondering about the what ifs while playing with the numbers.
 
Perhaps some of the SS income can be poached from the Supplemental Security Income. SSI is funded from the U.S. Treasury general funds. Perhaps rework the qualifications for SSI, which now is distributed to people who have little or no income or resources, a disability, blindness, or attained the age of 65 or older.
IF SS is cut, it could put many elderly into qualification for SSI anyways, making up the difference since a person can collect both SSA and SSI at the same time.

Also, if SS ends up being exempt from tax in the future, then a cut to SS benefits is less of a hit to the pocketbook, right? And if pensions are exempt from income tax as well, then cuts to SS would also be lessened to those persons as well.
 
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Perhaps some of the SS income can be poached from the Supplemental Security Income. SSI is funded from the U.S. Treasury general funds. Perhaps rework the qualifications for SSI, which now is distributed to people who have little or no income or resources, a disability, blindness, or attained the age of 65 or older.
IF SS is cut, it could put many elderly into qualification for SSI anyways, making up the difference since a person can collect both SSA and SSI at the same time.

Also, if SS ends up being exempt from tax in the future, then a cut to SS benefits is less of a hit to the pocketbook, right? And if pensions are exempt from income tax as well, then cuts to SS would also be lessened to those persons as well.
There are two problems with exempting SS income from Federal Income tax. The first is that it has been reported that SS would move *closer* to insolvency, and the move would cost the general fund over $94 Billion per year. The second is that such a move would be seen as a giveaway to higher earners, since lower earners already do not pay income taxes on SS .

Watch it happen, anyway.
 
There are two problems with exempting SS income from Federal Income tax. The first is that it has been reported that SS would move *closer* to insolvency, and the move would cost the general fund over $94 Billion per year. The second is that such a move would be seen as a giveaway to higher earners, since lower earners already do not pay income taxes on SS .

Watch it happen, anyway.
I'm at a loss how this affects the general fund. SS is a tax that goes to SS trust fund, not paid through general funds. Paying taxes to the general fund on SS income, money out of the SS trust to go directly to the general fund seems counterproductive to me.

Second, the demographics of those who pay taxes on SS are those who have paid a lifetime of taxes and won't be banking/investing those dollars but instead spending those dollars. Let the redistribution of SS income come from individual spending, not taxing.
 
One party (don't know which) will be in "power" when the cuts come. Does anyone really believe they will pull the trigger on the cuts or miraculously find a way to keep payments going.

Seniors vote. Angry seniors vote even more. Broke, angry seniors vote more than that. Any questions?
 
"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years." -Alexander Fraser Tytler
 
"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years." -Alexander Fraser Tytler
That's a major advantage of being old. I hope to be gone by the time the story plays out but YMMV.
 
There are two problems with exempting SS income from Federal Income tax. The first is that it has been reported that SS would move *closer* to insolvency, and the move would cost the general fund over $94 Billion per year. The second is that such a move would be seen as a giveaway to higher earners, since lower earners already do not pay income taxes on SS .

Watch it happen, anyway.
You have to be REALLY poor to not pay on SS...

It has never been adjusted for inflation... if adjusted then the single exemption would be almost $76K and married over $97K...

A stealth tax that is hitting lots of people..
 
I am curious if anyone knows: Does the tax paid on SS go to SS or just to general fund? My assumption: It just like any other 1040 tax and goes to general fund. I assume it has no effect on SS "fund." So changing taxes on SS should not affect SS payouts. I could be wrong. I was once. :cool:
 
I am curious if anyone knows: Does the tax paid on SS go to SS or just to general fund? My assumption: It just like any other 1040 tax and goes to general fund. I assume it has no effect on SS "fund." So changing taxes on SS should not affect SS payouts. I could be wrong. I was once. :cool:
It seems it does go into the SS trust fund.

Taxation of Social Security benefits​

Office of the Chief Actuary
Components of income and cost
Trust fund data
Under legislation enacted in 1983, the Social Security Trust Funds receive income based on Federal income taxation of benefits. The funds receive taxes on up to 50 percent of benefits from single taxpayers with incomes over $25,000 and from taxpayers filing jointly with incomes over $32,000.
Legislation enacted in 1993 extended taxation of benefits. The legislation increased the limitation on the amount of benefits subject to taxation from 50 percent to 85 percent for single taxpayers with incomes over $34,000 and for taxpayers filing jointly with incomes over $44,000. All additional tax income resulting from the 1993 legislation is deposited in Medicare's Hospital Insurance Trust Fund.
 
There's an informative article in the NY Times about Social Security, the future shortfall, and the incoming administration's proposal's potential effects. I'm hoping the following link will avoid a paywall:


I learned a couple of interesting things in the article, for example, how growing income inequality has lowered the percentage of total wages in the country subject to payroll taxes.

"In 1983, the payroll tax was imposed on about 90 percent of the United States’ wage income. But it had shrunk to about 82.5 percent by 2000, which is about where it has remained in recent years."

Also, there is a surplus in the disability trust, and legislation could conceivably move some of that surplus to help pay for Social Security benefits, thereby reducing the shortfall.

"Though the retirement fund’s surplus is projected to run dry in 2033, the disability trust — for people with limited or no ability to work — is fully funded through at least 2098."
 
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You have to be REALLY poor to not pay on SS...

It has never been adjusted for inflation... if adjusted then the single exemption would be almost $76K and married over $97K...

A stealth tax that is hitting lots of people..
$25K for a single person, $32K for married filing jointly, and then you pay on SS. There are millions and millions of retirees living on less than 25K/32K.

Those numbers look like they are designed to give people incentive to divorce. I mean, seriously, you can exempt $50K if you live together, but only $32K if you are married? No wonder no one marries any more.
 
$25K for a single person, $32K for married filing jointly, and then you pay on SS. There are millions and millions of retirees living on less than 25K/32K.

Those numbers look like they are designed to give people incentive to divorce. I mean, seriously, you can exempt $50K if you live together, but only $32K if you are married? No wonder no one marries any more.
Maybe I shouldn't show this to DW. ;)
 
There's an informative article in the NY Times about Social Security, the future shortfall, and the incoming administration's proposals potential effects. I'm hoping the following link will avoid a paywall:


I learned a couple of interesting things in the article, for example, how growing income inequality has lowered the percentage of total wages in the country subject to payroll taxes.

"In 1983, the payroll tax was imposed on about 90 percent of the United States’ wage income. But it had shrunk to about 82.5 percent by 2000, which is about where it has remained in recent years."

Also, there is a surplus in the disability trust, and legislation could conceivably move some of that surplus to help pay for Social Security benefits, thereby reducing the shortfall.

"Though the retirement fund’s surplus is projected to run dry in 2033, the disability trust — for people with limited or no ability to work — is fully funded through at least 2098."
What really grinds my gears is that all that Congress had to do was to bump the salary cap on SS contributions ten years ago, and we would not be having these conversations. Now, they STILL won't consider that. It is crazy. Why should Frank Factoryworker pay SS on 100% of his earnings while high earners get a pass? And I say this as someone who exceeded the limit for 35 years.

Do you want to know the answer? Here it is. If there was no cap for contributions to SS, the companies that pay their C-suite people millions per year would have to pay a lot more into SS. There is your reason. SS is a two-sided contribute, half from the employee and half from the company.

The proposal to exempt SS from taxes is yet another example of our "leaders" being totally out of touch with reality. The proposal strongly favors people in the highest tax brackets, and does nothing for lower earners.

Maybe some of the people on here don't know anyone who is attempting to survive solely on SS, but I know a bunch of people in that situation. The percentage of people relying solely on SS is going up every year, because people reaching retirement age now are the first wave of those for whom defined benefit plans either never existed, or were taken away during their careers. Not everyone gets a pension, and not everyone gets a cushy 401K with huge matching, in fact, the *vast* majority workers are in 401K plans with really bad investment options, and no matching at all. I myself never had a 401k to which my employer contributed more than 3% of my salary, regardless of what I contributed, and I worked for four tech companies, three of which are household words.
 
What really grinds my gears is that all that Congress had to do was to bump the salary cap on SS contributions ten years ago, and we would not be having these conversations. Now, they STILL won't consider that. It is crazy. Why should Frank Factoryworker pay SS on 100% of his earnings while high earners get a pass? And I say this as someone who exceeded the limit for 35 years.

Do you want to know the answer? Here it is. If there was no cap for contributions to SS, the companies that pay their C-suite people millions per year would have to pay a lot more into SS. There is your reason. SS is a two-sided contribute, half from the employee and half from the company.

The proposal to exempt SS from taxes is yet another example of our "leaders" being totally out of touch with reality. The proposal strongly favors people in the highest tax brackets, and does nothing for lower earners.

Maybe some of the people on here don't know anyone who is attempting to survive solely on SS, but I know a bunch of people in that situation. The percentage of people relying solely on SS is going up every year, because people reaching retirement age now are the first wave of those for whom defined benefit plans either never existed, or were taken away during their careers. Not everyone gets a pension, and not everyone gets a cushy 401K with huge matching, in fact, the *vast* majority workers are in 401K plans with really bad investment options, and no matching at all. I myself never had a 401k to which my employer contributed more than 3% of my salary, regardless of what I contributed, and I worked for four tech companies, three of which are household words.
This approach means SS would be even MORE of a "welfare" plan than it already is. It was supposed to be a kind of "forced" retirement plan - not welfare.

SS was originally designed to insure that most people would never become totally destitute. It was not designed to provide even a "good" retirement. Just one where a person who had w*rked a life time would not be out on the street eating from garbage cans. It really was considered subsistence at the time.

Today's SS is "livable" for most people - espcially a couple - who already own a home and know how to live frugally. It was originally "assumed" that people would also save something for their old age.

My mom and dad never got more than $1500/month total (ca 2000) and they lived okay on SS with their savings of around $200K. Their financial issues only began when they needed nursing home care.
 
If no action is taken and the fund runs out of money, I think cuts have to be across the board.

If action is taken, most likely those collecting will be grandfathered in. And maybe those of age but not yet collecting will also be grandfathered in.

I just turned 63 myself and I'm not collecting yet, but possibly I'll start at 65 once I'm on Medicare and ACA subsidies aren't a factor for me.
Got a pension next year at 65. Looking heavily in possibly taking SS at 66, but still have a year to decide.
 
I started collecting at 62 and I will say that that was part of my thinking. I would be best protected by already being in the system. I also thought that Congress would have addressed this by now. Nobody knows . . .
 
$25K for a single person, $32K for married filing jointly, and then you pay on SS. There are millions and millions of retirees living on less than 25K/32K.

Those numbers look like they are designed to give people incentive to divorce. I mean, seriously, you can exempt $50K if you live together, but only $32K if you are married? No wonder no one marries any more.
Yeah we have been holding off being married due to the managing of the ACA. Turning 65 next year, so that concept goes away. Did run some tax scenarios for next year and always cheaper to stay single, but the differential is way less than the ACA differential.
 
This approach means SS would be even MORE of a "welfare" plan than it already is. It was supposed to be a kind of "forced" retirement plan - not welfare.

SS was originally designed to insure that most people would never become totally destitute. It was not designed to provide even a "good" retirement. Just one where a person who had w*rked a life time would not be out on the street eating from garbage cans. It really was considered subsistence at the time.

Today's SS is "livable" for most people - espcially a couple - who already own a home and know how to live frugally. It was originally "assumed" that people would also save something for their old age.

My mom and dad never got more than $1500/month total (ca 2000) and they lived okay on SS with their savings of around $200K. Their financial issues only began when they needed nursing home care.
Yes, SS was not really meant to be a "retirement", but for better or worse, it is all many people have these days. My grandmother in the 1960's lived in a small town on social security of under $1200/year (yes per year), but she didn't have a car, lived in what was basically a tiny house with a basement, for heat she had a gas stove unit in the middle of the house and nothing else. Her only luxury was that she had a phone, party line, of course. She came from the era where your electric bill was called your "light bill", because the only electricity she used was for lights, and a fan in summer, plus a very "fancy" as she put it, transistor radio. No furnace, no A/C, no TV, her washing machine ran on a gasoline motor that had a kickstarter, no dryer of course, and no one had ever seen a dishwasher that wasn't human. My sister used to have my grandmother's iron that she heated on the stove. It was literally a hunk of iron. That is the level of living that SS was originally designed to support.

A couple who BOTH worked for 35 years, had high paying jobs, and own a home free and clear, are fine with the SS they get. But a third of SS recipients are single. The average SS for a single is about $1900/mo, for a married couple it is about $2700/mo.

79% of people over 65 "own" a home, but "ownership" doesn't mean "paid off". 25% of "homeowners" over 65 have a mortgage. So ~46% of SS recipients either rent or have house payments. Some live with family or whatever, I suppose.

With inflation, $1500 in 2000 is $2745 today. Your parents were right at "average" for a couple. But given that housing, utilities, insurance, and health care prices have outstripped inflation since 2000, they would be faring worse today.
 
I'm at a loss how this affects the general fund. SS is a tax that goes to SS trust fund, not paid through general funds. Paying taxes to the general fund on SS income, money out of the SS trust to go directly to the general fund seems counterproductive to me.

Second, the demographics of those who pay taxes on SS are those who have paid a lifetime of taxes and won't be banking/investing those dollars but instead spending those dollars. Let the redistribution of SS income come from individual spending, not taxing.
Income taxes on SS income, $49b in FY2022 goes to the SS Trust Fund and not the general fund. That is why if they eliminate taxes on SS income then the trust fund will be depleted sooner.

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I think if politicians continue to be self-serving then nothing will be done and the 21% cut will come for everyone (which is fair).
Maybe they will change the taxability to 100% instead of 85% to make "richer" people pay.

OP - Regardless of what will be done, should there be any legislation change like grandfathering current collectors, it will be discussed and in the news a lot, so if it looked likely then I'd claim. Otherwise I'm waiting to age 70 to do Roth conversions.
I'm not sure it's "fair" to put low income elderly out of their homes or unable to buy food. I had an aunt who had a very low SS benefit even though she had worked hard all her life until she became disabled. She only was able to even stay in a dilapidated mobile home because of under-the-table gifts from one of her sisters. Whereas many of us here on this forum do not need SS benefits at all to live a comfortable life.
 
One party (don't know which) will be in "power" when the cuts come. Does anyone really believe they will pull the trigger on the cuts or miraculously find a way to keep payments going.

Seniors vote. Angry seniors vote even more. Broke, angry seniors vote more than that. Any questions?
NOTHING will unite voters anywhere near retirement age like a cut to Social Security benefits would.

My prediction is that, like everything else Congress does, they'll wait until the last minute (meaning not much before elections in November 2034, assuming the fund is predicted to run out in 2035).

However, another possibility is that one party or the other who controls both houses of Congress and maybe the White House will decide earlier to score a big win by fixing the problem when they are in power and can dictate the terms.

The risk with that is that the "fix" might be more smoke and mirrors than a true fix, and will just kick the can down the road some more.
 
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