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http://www.pbs.org/newshour/making-sense/obama-trying-cut-so...

President Barack Obama’s 2015 budget includes this provision:

…the Budget proposes to eliminate aggressive Social Security claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.

No one seems to know what this means or whether it will take an act of Congress to enact whatever it’s referring to.

...

My guess is that the administration is going after the ability of married and divorced workers to receive full spousal benefits (equal to half of their spouse’s full retirement benefit provided he or she has filed for retirement benefits) between full retirement age and 70 while permitting their own retirement benefit to grow due to the delayed retirement credit.

Most likely, the administration will let high-income households collect a full spousal benefit, but somehow, deduct it from their retirement benefit once they start collecting it. This would add yet another level of unbelievable complexity to a system that could not be more complex and incomprehensible.


Because of our age difference, file and suspend is not much of an issue, particularly since we want to have time to convert our TIRAs to Roths. But along with this budget's proposal to force Roth RMDs, make recipients of inherited IRAs dissolve within 5 years instead of over lifetime, and last years budget proposing a limit to max value of retirement funds, there is a clear trend from the Obama camp to make it harder to save for retirement.

While it is easy to say that this will only affect high income earners, other than a couple of years of insanely good bonuses from what is essentially a start up, we do not fit in that camp. Instead, we educated ourselves, took decent jobs that have most certainly required personal sacrifice, saved hard and invested well. We have not raised our standard of living in over 20 years, instead putting increases in pay into investments. This was the same path to early retirement that my teacher parents with 6 kids took. It is not an impossible dream that requires you to be born with a silver spoon in your mouth.

Looking ahead to the next generation, to me the writing on the wall is clear....defend your sacrifice from the grasshoppers that want to consume your food stores. But the question is, how is that done?

IP
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inparadise posts,

My guess is that the administration is going after the ability of married and divorced workers to receive full spousal benefits (equal to half of their spouse’s full retirement benefit provided he or she has filed for retirement benefits) between full retirement age and 70 while permitting their own retirement benefit to grow due to the delayed retirement credit.

Most likely, the administration will let high-income households collect a full spousal benefit, but somehow, deduct it from their retirement benefit once they start collecting it. This would add yet another level of unbelievable complexity to a system that could not be more complex and incomprehensible.

</snip>


Cry me a river.

Married folks don't pay any extra into SS for spousal benefits and singles like me end up subsidizing this largess.

The Social Security Administration closed the one loophole I could take advantage of when they ended the "Withdrawal of Application" strategy a few years ago.

http://retireearlyhomepage.com/cheap_annuity_no_more3.html

I don't have a problem with closing other loopholes that largely benefit high income earners. If you believe we have to do something about entitlements, I'd end the loopholes before cutting the $1,300/month benefit of the average SS beneficiary.

intercst
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You quoted the article I linked, not my words. My point, and I think it is a valid one, that a pattern is being established with all the restrictions on retirement savings that the Obama gov't wants to impose. What comes next? The writing is on the wall, and for people like you who decided against having kids, I can see why you could care less about the future, but I want to know how to advise my kids to position them best for FI.

... singles like me end up subsidizing this largess.

And couples like us provide the next generation who pays into SS for you to use when you are older. I suspect our costs in producing and educating the next generation are higher than your reduced SS, particularly when you add in the total payments we also made into the system. We sure could have retired a whole lot earlier, even without SS, had we not provided some well qualified soldiers to fund the next few decades of SS benefits.

It is rarely a good idea to look at anything in isolation of related factors.

IP
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And couples like us provide the next generation who pays into SS for you to use when you are older. I suspect our costs in producing and educating the next generation are higher than your reduced SS, particularly when you add in the total payments we also made into the system. We sure could have retired a whole lot earlier, even without SS, had we not provided some well qualified soldiers to fund the next few decades of SS benefits.

But that doesn't explain the rationale for providing you with additional SS benefits, does it?

My understanding was that spousal benefits were designed to provide financial protection to a spouse who spent her life raising a family rather than working at a job and making FICA contributions.

I don't think the intention was ever to express gratitude to those who had children. At any rate, your argument doesn't hold up, does it? The spousal benefits are provided to married people, regardless of whether they produced any children. And they're denied to non-married people, regardless of whether they had any children.
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spousal benefits were designed to provide financial protection to a spouse who spent her life raising a family rather than working at a job and making FICA contributions.

And that is exactly what I have done, of course after spending many years putting into SS on my own.

The spousal benefits are provided to married people, regardless of whether they produced any children.

And as I said, no data point should be looked at in isolation. Think of all those who have suffered the "marriage penalty" from having two married people fully employed and disadvantaged tax wise from a two earner couple POV. It is so totally a straw man to say that YOU HAVE BENEFITED FROM SS BECAUSE YOU ARE A COUPLE producing future earners, as opposed to you have been taxed excessively because you are a two income couple. A datum point without reference is meaningless.

IP
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Think of all those who have suffered the "marriage penalty" from having two married people fully employed and disadvantaged tax wise from a two earner couple POV.

Or you could think of all those people who benefitted from favorable tax treatment by being part of a couple.

But it doesn't make any difference. There certainly has never been a "marriage penalty" as far as SS contributions are concerned. And having been married doesn't leave you at any financial disadvantage as compared to non-married people. So there doesn't seem to be any logical reason for granting married couples additional SS benefits.
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Hello IP

Looking ahead to the next generation, to me the writing on the wall is clear....defend your sacrifice from the grasshoppers that want to consume your food stores. But the question is, how is that done?

It is simple,but not easy. Buy no or low dividend stocks in a taxable

account to pass on to your children,cost basis steps up no cap gains.

Have kids do the same,presto intergenerational wealth.

The limits are large at present, and can be larger with proper

estate planning.

Good luck

JIm
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JimKredux writes,

It is simple,but not easy. Buy no or low dividend stocks in a taxable

account to pass on to your children,cost basis steps up no cap gains.


Absolutely!

You can have $100 million in Berkshire Hathaway stock and still qualify for Medicaid under Obamacare.

intercst
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My understanding was that spousal benefits were designed to provide financial protection to a spouse who spent her life raising a family rather than working at a job and making FICA contributions.

I think you are correct. I say that if married couples want this extra benefit they should be paying a higher social security premium in their working years.
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It is simple,but not easy. Buy no or low dividend stocks in a taxable

account to pass on to your children,cost basis steps up no cap gains.

Have kids do the same,presto intergenerational wealth.


Thanks for addressing my question, Jim, and staying on topic. Our assets are already set in a mix of Roth and TIRAs, and we have already decided to max out the conversion to Roth while we wait to take SS, at least up to the 15% bracket and possibly even higher. That way even if the kids wind up having to clear the Roths in 5 years, the taxes will have been taken care of. We are not talking a huge amount of money from an inheritance POV, but enough to really kill you tax wise if you can't control when you get taxed on it.

But our kids both already have Roth accounts, and will no doubt have 401Ks. I'm thinking there is a certain tax level at which these are a good idea still, particularly with match from employer for 401K. Since they had Roths available to them from the start, unlike us, they should not wind up in the same position as we are with most of our funds in TIRAs, and it should be easier for them to convert their 401Ks to Roths when they change jobs, or indeed hopefully have a Roth IRA.

But what is the magic tax level? Is there a calculator out there that will give you a clue if you should be putting your funds in a Roth, taking the tax break for the TIRA or leaving it in taxable funds?

IP
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Cry me a river.

Married folks don't pay any extra into SS for spousal benefits and singles like me end up subsidizing this largess.<?i>

It was also not the intent of ACA to allow wealthy people to game the system by reducing your taxable income to the point that they get subsidized health insurance while they harvest income from their qualified dividend earnings.

We of course are subsidizing their ability to game the tax code and ACA but apparently that is OK to do but it is not OK for others to try and maximize their own benefits under SS.

I don't have a problem with closing other loopholes

Then let's start by closing the ACA loophole for wealthy early retirees first. They certainly are contributing less to society than those still working.
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Dear IP.

I can't tell you the magic tax percentage answer, I can only tell you

what I am doing, I am shooting for 1/3 in each basket, tax deferred, tax

free and taxable. At retirement my tax situation and the rates that will

apply may be different than today, and this way I can manage withdrawls

to maximize spendable income. I am leaning slightly more towards Roths

at this point, my projections are actually closer to 30/30/40 which I

guess is a commentary on my own personal beliefs about future tax rates.


Hope this helps JK
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Just catching up on my Kiplinger Letters after 3 week trip. They say not to worry about budget proposals because none will be passed.

Probably right, although we need some sensible bipartisan action from Congress. I don't see anything happening in the current political climate. A pox on both their houses!
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The spousal benefits are provided to married people, regardless of whether they produced any children. And they're denied to non-married people, regardless of whether they had any children.

But isn't it a wash with the marriage tax penalties? That is, a couple filing don't have twice the deduction limits/amounts as a single.

Personally, the whole tax code needs to be thrown out and start fresh. What business is it of the government if I save for retirement, have kids or not, own a home or not, etc., etc., etc. IMHO, need a flat tax or sales tax with no deductions what so ever.

You could argue about making some stipulation for poverty level like first $20k earned is tax free or have a EBT card used to pay for the first $10k in sales tax.

JLC
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But how about a Presidential order to muck up social security.
So few young people believe they will ever see social security so if you change the SS rules as ofter as the ACA is being changed, what happens to What little confidence is left in the system?
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Hope this helps JK

Yes, options are wonderful.

IP
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They say not to worry about budget proposals because none will be passed.

I agree about the near future, however, with a 19 and 16 year old, I am looking at the distant future. To me the worry is the grasshoppers broadly looking at the ant's food stores while salivating. They may not yet be ready for a coup, but it is on the horizon, and I would say well within our kids' horizon.

And yet, I can not bring myself to tell our kids to be grasshoppers.

IP,
wondering if in a democracy that is the best group to be in
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IMHO, need a flat tax or sales tax with no deductions what so ever.

I would so love this, as long as it did not include non-discretionary spending like medical expenses. Even at our advanced stage of planning I would be in favor of this approach, given what this simplified approach would mean for our kids, even if we've already paid the taxes to convert our TIRAs to Roths.

What business is it of the government if I save for retirement,...

This would only not be their business if there were not a safety net for those who do not save. Recently article after article talks of the retirement savings "crisis," so I would think that the gov't would be encouraging as much savings as possible. Then again, as much as they talk up "family values," there is not much follow through on that end either. But what matters is what you keep, rather than what you make. If you tax spending instead of savings, you will encourage saving.

IP
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IMHO, need a flat tax or sales tax with no deductions what so ever.
-------------------------
I would so love this, as long as it did not include non-discretionary spending like medical expenses.


Now you are just complicating a simple system.

PSU
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Now you are just complicating a simple system.

Not by much. There is discretionary spending, and there is required spending. One would think they would be easily differentiable.

IP
not requiring rocket science
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It doesn't matter. This entire discussion is a waste of time. Nothing that we discuss here or decide upon here will make any difference. None of this will have any effect on the Federal budget or tax law.
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This entire discussion is a waste of time. Nothing that we discuss here or decide upon here will make any difference.

Really? A bit of a fatalist, aren't you. Personally, I don't view being aware of what may be coming down the road as a "waste of time." Knowing that the times they may be a changing is worthwhile, IMO. It at least clues you in to paying attention to things that may be thrown at you down the road, and have you prepared with how you will react when the sh!t hits the fan. Me, I'm not so much willing to wait until something happens before figuring out how to react. YMMV.

IP,
preferring to think ahead
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I agree about the near future, however, with a 19 and 16 year old, I am looking at the distant future. To me the worry is the grasshoppers broadly looking at the ant's food stores while salivating. They may not yet be ready for a coup, but it is on the horizon, and I would say well within our kids' horizon.

And yet, I can not bring myself to tell our kids to be grasshoppers.


Think that one through for a minute. Whether you realize it or not, you are taking the grasshopper viewpoint on this issue. The Social Security trust funds are expected to become insolvent right in the middle of your kids' peak earning years. When that occurs, the certain result will be tax hikes and benefit cuts. If nothing is done until then, it will not be a pleasant time.

The Ant might say let's start making small changes now, and by closing loopholes we can avoid much bigger, more painful sacrifices later on and that will especially benefit people who are teenagers right now.

The Grasshopper might say "I want my loopholes! And if the system collapses later, tough! I want mine right now!"
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The Ant might say let's start making small changes now, and by closing loopholes we can avoid much bigger, more painful sacrifices later on and that will especially benefit people who are teenagers right now.

The Grasshopper might say "I want my loopholes! And if the system collapses later, tough! I want mine right now!"


Fine. But what I am saying is lets figure out the probable course of action for the future, and figure out how to best position oneself for that course of action, rather than sticking our head in the sand and pretend that changes are not on the way.

If I am guilty of anything, it is trying to plan ahead before changes are even made.

IP
who has typically lived her life that way from day one, as exhausting as that may be
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Not by much. There is discretionary spending, and there is required spending. One would think they would be easily differentiable.

One of the proposed tax systems out there is the Fair Tax which is a federal sales tax. You responded to the earlier post about sales tax with no deductions by saying "not include non-discretionary spending like medical expenses". The Fair Tax includes medical expenses. Now you've created one exception. Someone else might say housing is a necessity of life. So exceptions are added for mortgage interest and rent. Rent is taxed under Fair Tax. Another person says food and clothing is also a necessity. So you pass more exceptions for food and clothing. Then someone objects to the broad addition of food and clothing by saying chips, soda and bikinis are not necessary. So large lists for food and clothing are created defining what is non-taxable (underwear, shoes and fruit) and what is taxable.

Soon the one exception, medical expenses, is expanded significantly to a large list of other exemptions and you then have just as complicated system as we have today.

PSU
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You responded to the earlier post about sales tax with no deductions by saying "not include non-discretionary spending like medical expenses".

Louisiana (and I"m sure many states) had exemptions from state sales taxes many such "necessary" items. One of the big things was groceries. Fair enough. But how in the heck did pantyhose get on the groceries list?

JLC
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A Flat Tax takes care of all of this by giving an exemption for the first so much amount of money, whatever the politicians want it to be, this takes care of the poor, near poor, and lower middle class completely. Of course, they already pay little or no federal income tax anyway, but that wouldn't change under a Flat Tax. Yes, they would pay sales tax to the state, property tax, and whatever else local and state governments want to hit them with, but no federal income taxes. Yes, they would have to pay SS and Medicare just like everyone does now. Easy as pie. Will DC every do it? Heck no, because money talks and good ideas just thrown in the $hitcan. Welcome to the real world, where idiocy rules supreme among the Dems and the Repubs.
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Soon the one exception, medical expenses, is expanded significantly to a large list of other exemptions and you then have just as complicated system as we have today.

I understand what you are saying. However, this sort of taxation on non-discretionary medical expenses could very easily ruin someone even faster than just the medical bills themselves. There is very little way to predict or control your emergency expenses in the medical area. You can choose to live in an apartment or a luxury home, buy mac and cheese or filet, but if you need a triple bypass?

The emergency nature of these bills, not to mention the sheer size of them, requires a different treatment.

I wonder how quickly the affluent would simply jet over to some exotic destination to have their medical needs taken care of...or indeed, simply spend their money overseas altogether. How would they be taxed if they were expats?

I agree this flat tax will never happen....at least not as a replacement for the current system, though probably eventually in addition to.

IP
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I understand what you are saying. However, this sort of taxation on non-discretionary medical expenses could very easily ruin someone even faster than just the medical bills themselves. There is very little way to predict or control your emergency expenses in the medical area. You can choose to live in an apartment or a luxury home, buy mac and cheese or filet, but if you need a triple bypass?

Medical care is non-discretionary but some medical expenses are not. Housing is non-discretionary but some housing expenses are not. Food is non-discretionary but some food expenses are not. Clothing is non-discretionary but some clothing expenses are not. Determining what medical, food, housing and clothing expenses are non-taxable and taxable is what complicates any proposed tax system if you are going to have exceptions. When you start granting exceptions, then lobbyists and Congress messes things up.

PSU
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Now all you are doing is repeating yourself, but other than what seems to be coming up with a system for exceptions is hard, I have no clue what point you are trying to make. Mine is that I don't see this "simple" tax working without certain exceptions. Pointless either way, since I don't see it happening.

IP
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ResN says: Yes, they would have to pay SS and Medicare just like everyone does now. Easy as pie
-----------------------------------------------------------------------.

Not exactly, the SS wage base ends at 117K (2014) and S corp and LLC flow through income is not subject to employment taxes.

We have a flat tax now for all income over $457,600. The flattening of the tax code (ya know to protect the job creators) over the last thirty years has led to income inequality.

busman-not trying to defend the tax code but a flat tax would screw most Americans
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Now all you are doing is repeating yourself, but other than what seems to be coming up with a system for exceptions is hard, I have no clue what point you are trying to make. Mine is that I don't see this "simple" tax working without certain exceptions. Pointless either way, since I don't see it happening.

I'm making the slippery slope argument - once you grant one exception, you'll find yourself adding more and more exceptions.

Also you would need to define what is or is not discretionary. We could probably agree that heart bypass surgery is non-discretionary and liposuction is discretionary. What about other medical procedures are could be defined either way depending on the person?

PSU
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