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Finally: Somebody in Congress Wants to Fix Social Security

Category: Financial and taxes in retirement

February 10, 2019 — If you have been reading this Blog for awhile you know that fixing Social Security is one of our pet issues. In 2034, if nothing is done, the system will start to fail the millions of Americans who are counting on Social Security for their retirement. Yet prior to last week, no politician we know of had done anything to get the reform process going.

“The Social Security 2100 Act” was introduced into the U.S. House of Representatives and the Senate in late January. Representative John B. Larson, a Democrat from Connecticut, is the sponsor, and he has 200 lawmakers supporting it. As written, the bill has several interesting features, most of which we approve. It would be the most significant reform of Social Security since 1983.

  • Across the board benefit increase of about 2%. While this might be controversial, it would help many of the 63 million Americans who now rely on Social Security get by in retirement. Some 80 million are expected to receive it in the next 10 years. For someone with a full retirement age of 66 and receiving the maximum benefit, the increase would be about $78/month.
  • Increase the annual cost of living amount. This feature attempts to recognize that older Americans are paying more for their health care.
  • Decrease the amount of Social Security benefits subject to federal income taxes. About 12 million beneficiaries would see those taxes go down.
  • Increase payroll taxes. The amount of payroll subject to Social Security would rise from 12.4% to 14.8% over a 24 year period. This is obviously the most controversial and costliest, part of the bill. For a person making $50,000 a year the total increase (2.4%) would be $1000/year, half of which would be paid by the employer.
  • Create a donut hole on amount of earnings subject to Social Security withholding. Earnings from the current limit of $132,900 and up to $400,000 would not be subject to Social Security withholding. Earnings over that amount would be taxed. This is the most creative feature of the bill – only the wealthiest of the wealthy would see this increase.

What is the reaction?

That depends a lot on your political party and interests. Most Republicans up to this point have argued that benefit cuts and increased retirement ages are the way to fix the problem. Presidential candidate Donald Trump promised he would “not cut Social Security”. Democrats are enthusiastic about the new bill, and with over 200 co-sponsors in the House, there is enthusiastic support from that side. Fox News reported on the bill but did not editorialize much, other to say what pretty much everyone else agrees with, that the bill has very little chance of passing in the Republican controlled Congress. AARP, on the other hand, doesn’t think the benefit increase is enough.

Some independent experts think that the bill seems like a good idea. That is mainly because the changes would put Social Security on a sound footing. As reported by the New York Time, Stephen C. Goss, the chief actuary of Social Security, believes it would make Social Security “able to pay all scheduled benefits in full on a timely basis” — for 75 years”.

Our bottom line.

We salute Rep. Larson and his colleagues for introducing this bill, which might fix a problem lawmakers have been sweeping under the rug for decades. There will be costs involved, but the plan seems reasonable. We encourage all of our Members to follow this issue and let your elected representative know your position on it.

Comments? Do you see a different plan that might work, or is this one OK? We want to see constructive comments, and hope not to get into political blame. Thanks

Further Reading:

Posted by Admin on February 9th, 2019

22 Comments »

  1. The bill is probably a good starting point to get the debate going. What I like: changing the index used to compute the cost of living increase to reflect how the elderly spend their money (the increasing cost of health care and prescription drugs); reducing/eliminating taxation of SS benefits (I never understood why Federal and state governments would tax a benefit meant to keep the elderly out of poverty); gradually raise SS earnings taxes over time.

    What I don’t like or understand: The 2% across the board increase. Would this be a one-time thing for those currently receiving benefits or some kind of permanent adjustment to the SS benefits formula? If just a one-time thing, there is a question of fairness for those not currently eligible for benefits. There is also a question of fairness regarding the donut hole proposal. Because SS was created to keep the elderly and disabled out of poverty, I would favor keeping the current formula that provides an upper limit on wages subject to SS taxes AND impose a means test for the wealthy who would receive something from SS but not the full entitlement under the current formula. They contributed to SS so they should receive something back but they don’t need SS to keep them out of poverty. Maybe a return of their contributions would be the right way to do this.

    Let’s get this discussion started in Congress. Although I and my spouse are covered by pension plans and we don’t have to rely on SS, none of our children have pension plans. It is shocking how many people have little or no savings and either have no 401k plans or don’t make effective use of them. Many are going to be relying almost entirely on SS benefits to survive in their old age. This is a huge crisis in the making and we need to be thinking about how to address it now before it is too late.

    by LS — February 10, 2019

  2. I am still working and self employed. I don’t have a company pension and do contribute to retirement savings on my own so the future of SS for me is a concern. This bill is a great starting point to get the ball rolling.

    by DS — February 10, 2019

  3. What a great start. I am self employed in the construction industry and even though I have retirement savings acct. SS will be important to me and millions of others.
    I found it amazing that the previous administration spent millions of dollars on a SS Reform report and did nothing with it. It is about time that someone is doing their job and trying to do the right thing for the American people and not just worried about their own hides.
    I for one will be happy to pay a little more on my end to ensure the SS program will be solvent in the future. Now if we can just figure a way to put Congress on SS instead of their private pension then it will get fixed

    by DS — February 10, 2019

  4. Also, a 2% increase of benefits for people receiving less than $1000 per month doesn’t amount to much of a difference. I believe everyone should receive at least $1200 per month so that they won’t have to rely on other govt assistance such as SNAP….

    by Babyboomer1955 — February 10, 2019

  5. Sorry Admin, but “the plan seems reasonable” – really?

    The legislation as understood would phase in a combined Social Security payroll tax rate that would reach 14.8 percent, up from today’s 12.4 percent. Thus the 200 co-signers are now proposing a top marginal tax rate of 65-66+ percent (i.e. top federal income tax rate 37 %, Medicare payroll tax 2.9 %, and top state income tax rate {i.e. California’s, 13.3%}).

    14.8 + 37 + 2.9 + 13.3 = 68%?

    In contrast to the side whose continuing rhetoric claims that the tax increases would only fall on plutocrats, the payroll tax is paid in on every paycheck by every single person with a job. The bill’s sponsors seek to hike this tax because they know that there’s just not enough money in their “wealthy-only” ‘tippy-top’ tax increases rhetoric.

    But even combined tax rates as excessive as actually shown above aren’t even close to enough to pay for all the proposed expansions to social programs those on the specific side are pushing. This tax hike would ONLY be enough to shore up ONE broken program, Social Security, but it doesn’t fix the flood of red ink in Medicare, let alone pay for the estimated $42.5 trillion price tag of democratic socialism.

    Take a guess what might happen to the economy if it’s actually better for rich folks to not work at all due to confiscatory high taxes and live well somewhere else.

    Editor’s comment: To each his own. For those interested in finding out facts about how this bill would affect the health of Social Security we recommend this analysis from the Social Security’s Chief Actuary.

    by Rich — February 10, 2019

  6. DS – Since 1983, all new members of Congress have paid into Social Security. They also have the option to participate in the Federal Employees Retirement System (FERS) to which they must also contribute. They also have a 401k type plan to which they can contribute (Thrift Savings Plan) which also has some Government matching.

    by LS — February 10, 2019

  7. Well something has to be done with SS but this plan, while a start looks like a giant band aid. I’d suggest a multi prong attack; Reduce the number of people collecting SS by allow people to delay taking SS beyond 70 and continue to increase the amount they will eventually collect each year they wait and for those who continue to work after full retirement age dont allow people to collect ss without a penalty and continue to withhold SS contributions. Have no limit on the wages subject to withholding, forget the donut hole. Allow high income people the option of taking a tax deduction equal to the amount they would collect in SS rather than taking SS (and remove the Alt Min Tax for them) , require those who collect SS disability to have the disability recertified every 2 years and to accept training for a different job so they can return to a job (and get off disability) even if not the one they were doing prior to the disability, and finally, plan to eventually phase out SS entirely by replacing SS for those under 28 with 80% of the SS withholding and employer part going into a self directed IRA type investment, the other 20% would go to a disability / life insurance program to cover those items that SS now does. Workers older than 28 would have the option to move into that new program with 80% of the funds they already contributed to SS being returned to the new account over several years. any shortfalls to SS while the program lasts will be covered by general funds.

    by Jean — February 10, 2019

  8. I think the doughnut hole thing is a bit nuts. Why? Just complicates things. Also do not believe Social Security benefits should be taxed. Seems like double taxation to me.

    by Linda — February 10, 2019

  9. I think the bill sounds like a reasonable place to start. Stretching the SS payroll tax increase over 24 years makes it less painful for those still working. And, if you think about it, $500 a year isn’t that much additional to contribute. It is money employees will get back when they retire, so it isn’t like Congress is asking everyone to just throw $500 a year away…

    As many others who commented before me are saying, it doesn’t fix everything, but we have to start someplace. If we sit back and just reject every plan on the basis that it doesn’t address this and that and something else, nothing will ever get fixed. Kind of like “Rome wasn’t built in a day” or how do you eat an elephant? (One bite at a time)

    The system didn’t get broken overnight and realistically, we can’t expect it to get fixed overnight either.

    by Brenda McGuire — February 13, 2019

  10. What was done before in raising the full retirement age was a good first step. There might be a few more options: eliminate the possibility of taking SS at age 62 unless you are disabled, or unemployed. And the spousal benefit. Never quite understood why if there was only one spouse working and thus one paycheck contributing to SS, there should be 1 and 1/2 benefits paid out. Particularly if as they say, all benefits will have to be reduced for all eventually. But cutting the benefits of those people who paid into the system for years and put money away each year into IRA’s, SEPS, Keoghs, etc instead of going on vacations, dining out, etc. should not be penalized with reduced benefits because they have saved enough for a comfortable retirement. .

    by suse — February 13, 2019

  11. I think all income levels should be taxed for SS. No exceptions, no donut holes. I like the COLA adjustment but should include the cost of groceries as well as health care. As I recall groceries, and fuel are not included in COLA. Although I may be mistaken. And no Federal income tax should be allowed on SS benefits….none. As the life expectances have progressively gone higher, I believe the minimum age for receiving SS should go higher. 62 as a minimum age should be raised to say 65, as well as all other age categories.

    by Jim Raney — February 14, 2019

  12. I think it is a good start, but I am not sure why we need the donut hole. I think that no matter what you earn you should be paying the social security tax.

    by George Sfiridis — February 14, 2019

  13. This solution has been brought up numerous times in the past. First time I heard it was from Ross Perot many years ago. The SS tax should be applied to 100% of everyone’s salary. No cap. If I had to pay on 100% of my earned income, so should everyone else. Period. That is the only fair approach, and that should keep SS solvent.

    by Helen Dawson — February 14, 2019

  14. I don’t want to get political, but a point of clarification.
    The earnings cap is directly aligned to maximum monthly payout. Just like the more a person paid in over their lifetime the higher their monthly payout. The maximum payout for 2019 at full retirement age is $2757.
    Remember, if you tax high earnings and they don’t receive some what the same benefits you feel your entitled to, we would create an entitlement program, and the argument I should receive what I paid in goes out the window. Thus the need for the donut hole.

    by Bruce — February 15, 2019

  15. It won’t affect our family. We will get increases in SS and our kids will be paying for it.
    The Ponzi scheme continues

    by Sal — February 15, 2019

  16. Since when do we have “Editor’s comments” It seems someone has an agenda.
    BTW. Suse: Good comment.

    by Goombah — February 15, 2019

  17. It seems to me the debate should be centered around, should the federal govt provide a national pension system to its citizens? SS was meant to be one leg of a three legged stool for retirement security. Alas the pension leg is essentially gone and the retirement savings leg has been ignored by many people ( yes I know for many legitimate reasons). The lack of retirement preparation seems that suggest that people want the govt to guarantee retirement income. Let’s call a spade a spade, or in this case, government run pension system. Let the political fireworks begin!

    by Mike L — February 20, 2019

  18. Regarding several comments, I believe it has been Congress that did not want to get involved with fixing Social Security, rather than the previous Administration. Why blame just Obama when no other president offered real changes? Thank God the GOP controlled Congress was not able to privatize Social Security, as they so desperately wanted to do. After the stock market crash of 2008, where would most recipients be if they had been in control of their own investments?

    I will receive my first check next month after having turned 66. I am one of the lucky ones because my husband and I have investments, three pensions and social security. We entered retirement with little to no debt and have lived below our means. I am not sure I could have worked to age 70, as my job as a teacher required standing for hours at a time.

    As for the comments about people needing to be constantly recertified for SSDI, or disability related benefits, I have to really take issue. Many adults such as those with intellectual disabilities, autism spectrum disorder, traumatic brain injury etc collect benefits on their parent’s records once their parents start receiving their social security. Making these folks recertifiy lifelong disabilities is too onerous and expensive for the families and would cost taxpayers needless money because of the need for ongoing evaluations of documentation. SSDI is not just paid to people who submit claims about injuries that prevent them from working.

    by Barbara. — February 20, 2019

  19. Mike L

    I agree with you. Pensions are largely gone and the people lucky enough to have them do not seem to understand the needs of those who were not so fortunate. It is easy to preach that everyone should save and invest, but in spite of that, many people are not able to. Others need their money now just to live. A pension plan usually takes a percentage out of ones paycheck and invests it or in many cases is not taken out of the paycheck and provided by the employer. Those who never had to save for their retirements have no clue how hard it is. The government allowed employers to eliminate pension plans which was one of the legs of the three legged plan. Social Security is going to be the mainstay of many people now and in the future. I am convinced that even if higher taxes were needed to pay for a health insurance program and a pension then one could breathe easier at the most vulnerable times of their lives knowing that these programs will be there for them. In the USA people should be able to age with dignity.

    by Jennifer — February 21, 2019

  20. From Maimi:
    I think Social Security should be changed so spouses who stay at home to take care of children don’t end up with zeros for all those years in their earnings record.

    Louise responded:
    Maimi, I am not in your shoes as far as raising children. I have none. I can see how it can be unfair to gain nothing in SS while raising children. Maybe SS administration could consider merging a husband and wife’s SS income so each gets 50% put into each year the one spouse stays at home. Not sure I would agree to 18 years of child raising but if they would consider up to 6 years that might be fair. Once that time limit was up, then the stay at home spouse should consider a job and add to their own SS account. Also, if the SS administration would agree to this, I would hope it would be mandatory and not an option. Some spouses might pressure the stay at home spouse to opt out. This would be another benefit of marriage and not living together.

    Just know that your children will have good memories of you staying home with them. My Mom stayed at home for a while then worked after that. I still remember things from when I was a little kid. Your children will not have those memories with your ex’s new model.

    by Admin — April 25, 2019

  21. How your representatives voted in these issues: https://retiredamericans.org/wp-content/uploads/2019/06/AFRA-Voting-Record-2018-UPDATE-2.pdf?link_id=1&can_id=f3a21a612b76369bf92e850acb9fbe40&source=email-is-your-representative-looking-out-for-your-interests&email_referrer=email_562026&email_subject=is-your-representative-looking-out-for-your-interests

    by Mike — June 13, 2019

  22. The NY Times gets on the bandwagon with us on this one: “Social Security is Looking at Its First Shortfall“.
    Welcome aboard

    by Admin — June 13, 2019

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