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I am 25 and listening to all the politicians talk about medicare/welfare and life lines to people and the elderly gets me wondering. In the future will i be punished for doing the right thing. For saving for retirement. means testing for SS is being talked about. I just have a feeling that the honest person who puts money away for retirement no matter how much they make is being viewed as the enemy. I just have this feeling that coming from talking to friends and people around me and asking then about the stock market and 401ks and more then 75% saying they don't have one and they can't afford it. Yet they are out with me at the bar which comes to at least $40 each after food and drinks at a nice place.

I can't begin to think that here is the next senior in 40 years that is crying about he paid into a system for 40 years and now we have to take care of him.
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Yet they are out with me at the bar which comes to at least $40 each after food and drinks at a nice place.

Most of the time when people say that they cannot afford something, they mean that they cannot afford it because they have already bought something else.
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I can't begin to think that here is the next senior in 40 years that is crying about he paid into a system for 40 years and now we have to take care of him.

It is best to keep in mind that, all things being equal, it is MUCH better to take care of others than to be forced to have others take care of you. I'm not sure that it WILL come to that (I remain optimistic for your future), but always remember that in the land of the blind, the one eyed man is king.

Hockeypop
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Social security is already means tested even though they might not call it that.

One way is that the way the payments are calculated is greatly tilted to favor lower income people.

For example a person making $75K a year through their career will pay triple the social security taxes than someone making $25K a year but when they retire the person making $75K a year will only get about double the social security check each month. A person making $150k a year would only get about 25% more than the person making $75K a year even though they would have paid twice as much.

A quick Google found this simple chart;

http://www.vaughns-1-pagers.com/economics/ssa-monthly-paymen...

To make this stealth means testing even more extreme the lower income people will likely not have to pay any taxes on their social security check but higher income people will likely have to pay taxes on 85% of their social security check so that in the above example the person who was making $150K a year might get a social security check that is 25% larger than someone who made $75K a year, but they will likely have higher retirement income so after they pay taxes on 85% of their social security check they might easily have less after tax social security income than the person who made half as much. For an explanation of how social security is taxed see this link;

http://www.bogleheads.org/wiki/Taxation_of_Social_Security_b...
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My parents, both in their 80's, had company retirement plans and are doing fine. My generation relies on the 401K and saving every dime we can. I will benefit from SS.

For you my friend I'm afraid what you may face but your next generation is smart in many ways and will have to solve the ills of my generation.
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Social security is already means tested even though they might not call it that.



yup.

i'm in the first group, and think it entirely fair.

not in the second group, but think it mostly fair.
(where it can really bite is when you get to 70 and have RMD on large IRA)
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A person making $150k a year would only get about 25% more than the person making $75K a year even though they would have paid twice as much.

Why would a person making $150K a year pay twice as much as one making $75K?
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...A person making $150k a year would only get about 25% more than the person making $75K a year even though they would have paid twice as much.

Why would a person making $150K a year pay twice as much as one making $75K?
....


My mistake, in the first link of my post the top salary was $150K so I thought that that was the top of the range the SS taxes applied. In looking into this it is really about $106K. I'm not sure why the first link showed higher values up to $150k
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I'm not sure why the first link showed higher values up to $150k

The table in your link was making assumptions on benefits based on income in the years close to retirement age. Your benefits are based on the average of your 35 highest earning years. So the estimate is made assuming that a person earning just enough to make the maximum contribution in the near retirement years probably didn't do that for 35 years. A person making $150K a year will have made the maximum contribution for most of those 35 years and will thus have contributed more over those years than one earning $110K.

Your overall point is well taken and often forgotten in the discussions on these boards. There is a certain sense of outrage that Social Security taxes are capped. What's generally ignored is that the benefits are capped as well.

Furthermore, the benefits are progressive in that they replace a larger percentage of a lower earner's income than a higher earner's.

This was, of course, the original design of Social Security. It was meant to benefit everyone rather than to function as a welfare program.
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I am 25 and listening to all the politicians talk about medicare/welfare and life lines to people and the elderly gets me wondering. In the future will i be punished for doing the right thing. For saving for retirement. means testing for SS is being talked about.

It's a poor way to go through life, envying what others get. My ex used to whine about exactly what you just said. That it was "unfair" that we were saving, and therefore wouldn't be able to take advantage of whatever the Government Program Du Jour was in her mind that only people who didn't have income and/or savings could "get".

What a silly thing to say. If life is so sweet without any savings, feel free to join the unwashed masses without savings. Somehow I doubt you'd trade a hefty retirement savings (with or without SS added onto it) for just SS. Since you can't control what Congress does or doesn't do about taxes, I'd worry about what you can or can't do about saving.

As you apparently have been, and good for you! Just stop feeling like you're being "punished" for that savings. Cry all the way to the bank, if you must to feel better.

--FY
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alchook: "There is a certain sense of outrage that Social Security taxes are capped. What's generally ignored is that the benefits are capped as well."

Agreed.

"Furthermore, the benefits are progressive in that they replace a larger percentage of a lower earner's income than a higher earner's."

Point taken, but I believe that would be regressive, not progressive.

"It was meant to benefit everyone rather than to function as a welfare program."

It has always been a welfare program. Taxes are payed to those with earned income and often (though nto always) to people wit little or no earned income.

Regards, JAFO
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Point taken, but I believe that would be regressive, not progressive.

Maybe.

But upper income people are charged more for their benefits than lower income people. In other words, upper income people are paying higher taxes.

I think that's progressive.

It has always been a welfare program.

Well, no.

It would be a welfare program if the benefits flowed only to the poor. The difference is that everyone gets SS benefits.

The expression has been, "Programs for the poor are poor programs."
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means testing for SS is being talked about.

I've never understood how that would work.

It seems there are two ways to means test. First, you can deny benefits to high income retirees.

The problem is that while working, most of us don't have a huge amount of control over our incomes. It is what it is. When you retire, though, you have a great deal of control over your income and can manipulate it any number of ways. So basing social security on income would seem to be pretty difficult.

You could, I suppose, put some sort of wealth limit on it, but I'm not sure that would work either. A person with a $1M retirement fund looking at a conservative 4% safe rate of withdrawal is worth about $40K a year, not exactly in the upper income brackets, and I doubt the government is going to get away with calling people making $40K a year wealthy.

Still, not many people retire with even that much socked away. The savings generated by eliminating them from the rolls would be pretty minimal.

More likely, you'll see either tax increases or a generalized cut in benefits.
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Watty56 posts,

To make this stealth means testing even more extreme the lower income people will likely not have to pay any taxes on their social security check but higher income people will likely have to pay taxes on 85% of their social security check so that in the above example the person who was making $150K a year might get a social security check that is 25% larger than someone who made $75K a year, but they will likely have higher retirement income so after they pay taxes on 85% of their social security check they might easily have less after tax social security income than the person who made half as much. For an explanation of how social security is taxed see this link;

http://www.bogleheads.org/wiki/Taxation_of_Social_Security_b......

</snip>


I favor taxing 100% of all Social Security benefits. That will prevent people from complaining that their monthly benefit is partially taxed.

intercst
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alchookL

AC: {"Furthermore, the benefits are progressive in that they replace a larger percentage of a lower earner's income than a higher earner's."}

<<<Point taken, but I believe that would be regressive, not progressive.>>>

"Maybe.

But upper income people are charged more for their benefits than lower income people. In other words, upper income people are paying higher taxes.

I think that's progressive."


First, you were previusly discussing benefits, now you are discussing taxation.

Also, the tax rate is flat until the income and then goes to zero, so I would suggest that the taxation is also regressive.

<<<It has always been a welfare program.>>>

"Well, no.

It would be a welfare program if the benefits flowed only to the poor. The difference is that everyone gets SS benefits."


So only the poor collect welfare? TARP was not welfare? What then is corporate welfare (which often goes tot he wealthy and well-off)?

"Welfare may be funded by governments out of general revenue, typically by way of redistributive taxation."
http://en.wikipedia.org/wiki/Welfare

[Kind of like those with earned income paying taxes to support those without earned income {like many, but not all, SS recipiients.}]

"Social insurance-type welfare schemes are funded on a contributory basis by the members of the scheme. Contributions may be pooled to fund the scheme as a whole, or reserved for the benefit of a particular member." Id.

[Social security taxes are nor reserved for the benefit of the taxpaying member. "Many people believe that Social Security is an "earned right." That is, they think that because they have paid Social Security taxes, they are entitled to receive Social Security benefits. The government encourages that belief by referring to Social Security taxes as "contributions," as in the Federal Insurance Contribution Act. However, in the 1960 case of Fleming v. Nestor, the U.S. Supreme Court ruled that workers have no legally binding contractual rights to their Social Security benefits, and that those benefits can be cut or even eliminated at any time."

http://www.cato.org/pub_display.php?pub_id=5776 ]

It is clearly not an real insurance program because an insurance contract would create legal rights not so easily dismissed, altered or eliminated.

See the USA government's own website - http://www.ssa.gov/history/nestor.html

"like all federal entitlement programs, Congress can change the rules regarding eligibility" Id.

"The expression has been, "Programs for the poor are poor programs." "

I have never heard that expression before and I fail to see its relevance to the discusssion at hand.

Regards, JAFO
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First, you were previusly discussing benefits, now you are discussing taxation.

I don't know how to discuss one without the other.

The ratio of taxes paid for benefits received increases with income.

"The expression has been, "Programs for the poor are poor programs." "

I have never heard that expression before and I fail to see its relevance to the discusssion at hand.


Really?

I've never heard a detailed discussion of Social Security without it.

Social Security was developed so that growing old didn't have to mean poverty. One way to accomplish that would have been to provide payment only to the poor. A welfare program.

FDR didn't want that. His intent was to have everyone involved in Social Security. If the program were limited to the poor no one but the poor would have an interest in it, and there would be a good chance that it would eventually be allowed to wither on the vine. "Programs for the poor are poor programs."

Putting everyone into the program is what's made it the third rail of politics.
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You could, I suppose, put some sort of wealth limit on it, but I'm not sure that would work either. A person with a $1M retirement fund looking at a conservative 4% safe rate of withdrawal is worth about $40K a year, not exactly in the upper income brackets, and I doubt the government is going to get away with calling people making $40K a year wealthy.

Still, not many people retire with even that much socked away. The savings generated by eliminating them from the rolls would be pretty minimal.

More likely, you'll see either tax increases or a generalized cut in benefits.


true....

looking at net-assets, would be something of a nightmare for the IRS .. do you count houses? do you want IRS in the business of appraising houses? Does primary residence count differently from vacation home?

how hard would it be to hide assets from IRS?

but ..something they could easily do .. lower the RMD for IRA age down from 70 to whenever you start taking SS ..

and since the uber-wealthy probably have relatively little in their IRA, it would mostly hit the old middle class ..perfect for both parties

( JFG, i looked to see what an RMD would have done to my taxes last year -- and extra $450 .. not that onerous for me, and multiplied times all the under 70 retirees ..could be significant money
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0x6a74 writes,

but ..something they could easily do .. lower the RMD for IRA age down from 70 to whenever you start taking SS ..


The original IRA legislation had a 15% penalty for "excessive" IRA withdrawals (those over $160,000/year.) The idea was that IRAs were a retirement account, not a tax evasion vehicle for the wealthy.

http://money.cnn.com/magazines/fortune/fortune_archive/1997/...

That champion of the common man, Texas Senator Phil Gramm eventually passed legislation ending the so-called "success tax" in 1998.

It's probably time to bring it back if we're serious about cutting deficits.

intercst
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...and I doubt the government is going to get away with calling people making $40K a year wealthy.

Don't be pessimistic, they've been calling $200k/year earners millionaires for the past couple of years.

JLC
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The original IRA legislation had a 15% penalty for "excessive" IRA withdrawals (those over $160,000/year.) The idea was that IRAs were a retirement account, not a tax evasion vehicle for the wealthy.


how exactly did that work?

15% on withdrawals over 160K? 15% on accounts over 160K
( to me, the latter sounds onerous.. the former would rarely apply )



http://money.cnn.com/magazines/fortune/fortune_archive/1997/......
http://money.cnn.com/magazines/fortune/fortune_archive/1997/...


link well worth reading, but couldn't find an answer to my question.




( uh ....gonna be alot years before Congress has any concern for 'common man' )
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how exactly did that work?

15% on withdrawals over 160K? 15% on accounts over 160K
( to me, the latter sounds onerous.. the former would rarely apply )


It was above a $160,000 annual withdrawal based on substantially equal periodic payments over your lifetime. Effectively, the portion of an RMD above $160,000 would have a 15% penalty.

AS you said, only a handful of people would fall into this category.

intercst
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15% on withdrawals over 160K? 15% on accounts over 160K
( to me, the latter sounds onerous.. the former would rarely apply )
-----------
It was above a $160,000 annual withdrawal based on substantially equal periodic payments over your lifetime. Effectively, the portion of an RMD above $160,000 would have a 15% penalty.

AS you said, only a handful of people would fall into this category.




don't know about "substantially equal periodic payments", but an age 70+ RMD of 106K would mean an IRA at about 4.5mill ... very rare, i'm sure.
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