Category Archives: Social Security

Social Security Is Failing Because the Program Is Antiquated

My Comments: This is far and away the most coherent overview I’ve read that addresses the problems faced by Social Security going forward. Now we have to convince the politicians that it’s in everyone’s best interest to take remedial action.

Sean Williams | Apr 8, 2017

The data doesn’t lie: a majority of seniors rely on Social Security to meet their month-to-month expenses come retirement. According to the Social Security Administration (SSA), 61% of retired workers currently receiving benefits counts on those benefits to comprise at least half of their monthly income.

But this vital source of retirement income is also causing retired workers, pre-retirees, and tens of millions of working Americans grief. The latest annual report from the Social Security Board of Trustees estimates that the program will begin paying out more in benefits than it’s receiving each year in revenue by 2020, eventually resulting in the depletion of its more than $2.8 trillion in spare cash by 2034. If this spare cash is completely exhausted, the Trustees have implied that a benefits cut of up to 21% could be needed on an across-the-board basis (i.e., for current and future retirees) in order to sustain payouts through the year 2090. That’s not a comforting outlook for the aforementioned majority of retired workers who count on Social Security each month.

Social Security’s biggest problem is that it’s antiquated

If there’s one thing Social Security isn’t short of, it’s finger-pointing as to why the program is headed down an unsustainable path. Some blame the baby boomer generation for their poor saving habits and early Social Security claims, which are expected to weigh heavily on the worker-to-beneficiary ratio. Others point to lengthening life expectancies, or the political divide in Washington. There’s no shortage of blame to go around.

However, the real blame for Social Security’s seemingly imminent budgetary shortfall can probably be placed on lawmakers who’ve chosen to allow an antiquated program to take care of our nation’s retirees.

Social Security was signed into law more than 81 years ago in Aug. 1935. When the first payment was made in 1940, senior citizens weren’t living anywhere near as long as they are now. Additionally, the costs that comprised a good chunk of today’s expenditures for retired workers (housing and medical care) weren’t outpacing inflation by much, if anything, in the 1940s.

The last significant overhaul to the Social Security program came during the Reagan era with the passage of the Amendment of 1983. These Amendments introduced the taxation of Social Security benefits, and increased the full retirement age (the age at which an individual becomes eligible to receive 100% of their monthly benefit) in the decades to come, to name a few of the changes.

While there have been some changes to the Social Security program since 1983, there’s been no major overhaul to the extent of the 1983 Amendments.

Now, here’s what today’s seniors are left with.

1. The taxation thresholds haven’t been adjusted for inflation in 34 years

The first issue is that the income thresholds that define what portion of Social Security benefits are taxable haven’t been updated in 34 years to account for inflation! When first introduced in 1983, individuals with earned income over $25,000, and joint filers with earned income above $32,000, could have 50% of their Social Security benefits taxed by the federal government. A decade later, the Clinton administration added another tax tier, allowing 85% of Social Security benefits to be taxed if a recipient’s annual income topped $34,000, or $44,000 for joint filers.

In 1983 and 1993, these taxation changes affected around 1-in-10, and nearly 1-in-5 households with seniors. By 2015, according to The Senior Citizens League, 56% of seniors owed at least some tax on their Social Security benefits. Had these thresholds kept pace with inflation, individual tax filers wouldn’t be hit until $57,107 (in 2015 dollars), and couples until $73,097.

2. The full retirement age hasn’t kept pace with life expectancy increases

Another issue with the Social Security Amendments of 1983 is that they phased in a two-year full retirement age increase over what amounted to a four-decade period. Beginning in 2017, the full retirement age will rise by two months per year, ultimately moving from age 66 to age 67 between 2016 and 2022 (the full retirement age of 67 applies to anyone born in 1960 or later). In other words, between 1983 and 2022, the full retirement age will have increased just two years.

However, actual life expectancies since 1983 have risen at a quicker pace. Data shows that the average life expectancy in 1983 was 74.6 years, compared to 78.8 years in 2015 according to the Centers for Disease Control and Prevention, an improvement of 4.2 years in 32 years. A slower-growing full retirement age means retired workers are potentially collecting Social Security for a longer period of time than ever before, which is weighing on the program.

3. More income than ever is escaping Social Security’s payroll tax

It’s probably also fair to say that quite a bit of wealthy Americans’ income is escaping Social Security’s payroll tax. As a refresher, Social Security’s payroll tax, which totals 12.4% and is often split down the middle between you and your employer, covers earned income between $0.01 and $127,200 as of 2017. This means earned income above and beyond $127,200 is free and clear of the payroll tax.

However, a quick look at the SSA’s wage distribution statistics from 2015 shows that 137,545 people earned at least $1 million. These individuals would have paid an aggregate of about $16.3 billion in payroll taxes in 2015 (based on the cap of $118,500 that year). However, these millionaires earned an aggregate of $340.8 billion in income in 2015. That’s over $324 billion dollars that escaped taxation because the maximum taxable earnings cap has been stuck growing at a snail’s pace (it’s tied to the Average Wage Index). And remember, I’m not including earned income between $118,500 and $999,999 in these figures, either. In other words, the program could be bringing in a lot more money for future generations of retirees if the payroll tax cap were adjusted.

4. Social Security’s COLA is inadequately taking into account the high expenditures seniors face

Lastly, the cost-of-living adjustment (COLA) that seniors receive most years (i.e., their inflation-based raise) isn’t coming anywhere close to reflecting the true inflation they’re dealing with when it comes to housing costs and medical care inflation. A quick review of medical care inflation and Social Security’s COLAs over the past 35 years shows that medical care inflation was higher in 33 of 35 years. This makes it practically impossible for seniors to make do with what they’re being paid since more of their income is going to pay for their medical care with each passing year.

Lawmakers are attempting to make a program that was developed in the 1930s and tinkered with heavily in the 1980s work for seniors in 2017 — and it’s clearly not working. Change can only come from Washington, but that’ll only happen once lawmakers realize that a good portion of the program, both from the revenue and benefits sides of the equation, needs to be refreshed for today’s senior citizens.

Avoid These 6 Social Security Claiming Mistakes

My Comments: I’ve yet to find anyone who fully understands Social Security. Especially among working class Americans whose future standard of living will depend to some degree on the benefits they receive from Social Security. And I readily admit to being one of those people.

Sometimes, it’s just helpful to understand the mistakes to be made before your make them.

By Dana Anspach | Updated August 30, 2016

You could miss out on thousands in Social Security benefits by making one, or several, of the following six Social Security claiming mistakes.

1. Don’t Know About the Earnings Limit

If you claim benefits before you reach your full retirement age (which varies by year of birth) and you earn in excess of the earnings limit (which is adjusted upward along with inflation each year) then your Social Security benefits will be reduced.

People who think they can be fully employed and collect their Social Security benefits are often caught off guard when the Social Security office tells them they made too much money and they have to repay some of the benefits. Once you reach full retirement age, you can earn as much as you’d like with no reduction in benefits.

2. Think You Can Stop and Start

You can not turn off your Social Security benefits easily. If you change your mind about claiming within 12 months of filing, you can repay all your benefits and things will reset as if you had never claimed. But you cannot simply stop your benefits and then choose to start again later. Many people take Social Security benefits early, thinking if they find a job they can stop benefits for awhile, and start again later. Nope, you can’t do it. Best to develop a thoughtful plan about when to start benefits.

3. Unaware of Spousal Benefits

As a couple, if you coordinate the claiming of your Social Security benefits, you can often get more than if you each make your own independent decision.

Most people look at when they should start their own benefits, but they don’t realize that depending on the differential in age and benefit amounts between them and their spouse, and if one of them were born January 1, 1954 or earlier, they might be able to claim a spousal benefit, while letting their own benefit continue to grow or vice-versa.

Married couples miss out on thousands by not using this type of spousal benefit.

4. Underestimate Potential Survivor Benefits

As a married couple, whichever of you receives the higher benefit amount – that is the amount that will continue for the longest spouse to live. This means it is important to maximize the benefit of the highest earner, as it can provide a powerful form of life insurance: inflation-adjusted income for as long as a surviving spouse needs it. Don’t claim early without considering the impact that may have on a long-lived spouse.

5. Taxes? What, Taxes?

Yes, your Social Security benefits will be taxed. There is a formula in the tax code that determines how much of your benefits will be taxed; somewhere between 0 and 85% of benefits received could be counted as taxable income. When you carefully determine which accounts to draw retirement income from in which order, and coordinate this decision with when you take Social Security, you can reduce the amount of taxes you pay over your retirement years. Unfortunately, many do not take the time to do this kind of withdrawal planning, and so they pay more tax than they would otherwise have to.

6. Don’t Consider How it Protects You From Running Out

In survey after survey, upcoming and existing retirees state their number one fear is running out of money in retirement.

A smart Social Security claiming strategy can help protect against this outcome. Yet people claim with no analysis. Social Security benefits will provide over $1 million in benefits for many couples. Would you make a decision about $1 million with no analysis?

You can use a Social Security calculator, to help you avoid costly Social Security mistakes. It’s great to check out the calculators, and I recommend you play around with them, but coordinating when and how you take retirement withdrawals in a tax-efficient manner requires a great deal of expertise. See What a Good Retirement Planner Will Do For Me, and consider finding one before you claim.

Social Security Taxes

My comments: Social Security is under threat. It’s running out of money. Sort of.

Back in 1983, under President Reagan, Congress made some changes as, like now, the future of the program looked cloudy. They increased the age at which you qualified for full benefits, they increased the percentage of earned income you paid into the system and they raised the threshhold for how much of your earned income was subject to the FICA tax.

This is a good explanation of what it going on now.

By William Perez | October 31, 2016

The Social Security tax is a tax applied to income related to labor. All employees and self-employed entrepreneurs pay into Social Security through the Social Security tax, which is also known as Old-Age, Survivors, and Disability Insurance (OASDI).

The Social Security tax functions very much like a flat tax. A single rate of 12.4% is applied to wage and self-employment income earned by a worker up to a maximum dollar limit.

Half of this tax is paid for by the employee in the form of payroll withholding. The other half of this tax is paid for by the employer. Self-employed persons pay both halves of the Social Security tax since they are both the employee and the employer.

Social Security tax rates

Employees pay 6.2% of their wage earnings, up to the maximum wage base.

Employers pay 6.2% of their employee’s wage earnings, up to the maximum wage base.

Self-employed persons pay the combined rate of 12.4% of their net earnings from self-employment, up to the maximum wage base. This is calculated as part of the self-employment tax on Schedule SE.

The Math Behind the Social Security Tax

All wages and self-employment income up to the Social Security wage base in effect for a given year is subject to the Social Security tax.

Social Security Wage Base by Year
2017 $127,200
2016 $118,500
2015 $118,500
2014 $117,000
2013 $113,700
2012 $110,100
2011 $106,800
Source: Social Security Administration, Contribution and Benefit Base

Earnings up to the Social Security wage base amount have the Social Security tax applied. Earnings over the wage base amount do not have the Social Security tax applied.

The math works like this:
• If wages are less than $127,200 in the year 2017, then wages times 6.2% is the amount the employee pays and wages times 6.2% is the amount the employer pays.
• If wages are more than $127,200 in the year 2017, then 127,200 times 6.2% is the amount the employee pays and this is also the same amount the employer pays.

What is the Social Security Tax For?

Unlike income taxes, which are paid into the general fund of the United States and can be used for any purposes, Social Security taxes are paid into special trust funds that can be used only to pay for current and future Social Security retirement benefits, benefits for widows and widowers, and disability benefits.

Historical information about Social Security Taxes

Special Rate Reduction for 2011 and 2012

Back in the years 2011 and 2012, the Social Security tax rate paid by employees is 4.2% instead of the normal 6.2%. Employers still pay the full 6.2% rate. Thus for 2011 and 2012, the combined Social Security tax rate is 10.4%. Self-employed persons will pay this 10.4% combined rate on their earnings. This special payroll tax holiday was enacted as part of the Tax Relief Act of 2010, then extended through February 2012 by HR 3765, and then further extended through the end of 2012 by HR 3630.

The reduced Social Security tax rate was not renewed for 2013 as part of the American Taxpayer Relief Act. For 2013, the Social Security tax reverts to its normal tax rate of 6.2% for employees, 6.2% for employers, and 12.4% for self-employed persons.

Thus for 2011 and 2012, we substitute 4.2% for 6.2% in the above math formulas for the amount paid by the employee. At the maximum wage base of $106,800 for 2011, this translates into a tax savings of $2,136, as follows:
• Social security tax at the normal rate: 106,800 times 6.2% = $6,621.60
• Social security tax at the reduced rate for 2011: 106,800 times 4.2% = $4,485.60

At the 2012 maximum wage base of $110,100, this translates into a tax savings of $2,202, as follows:
• Social security tax at the normal rate: 110,100 times 6.2% = $6,826.20
• Social security tax at the reduced rate for 2012: 110,100 times 4.2% = $4,624.20

You can plug in your own salary level to determine your own personal savings from the payroll tax holiday. If your earnings from wages and self-employment are less than the wage base, simply multiply your earnings by 2% to find your savings. If your earnings are more than the wage base, you receive the maximum savings of $2,136 (for 2011) and $2,202 (for 2012).

What Happens to the “Missing” Social Security Funds from the 2-Year Tax Rate Reduction?

To prevent Social Security from losing tax revenue, Congress mandated that revenues be transferred from the general fund to the Social Security trust funds to make up for the tax reduction. This is provided for in section 601 of the Tax Relief Act, which reads in part, “There are hereby appropriated to the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401) amounts equal to the reduction in revenues to the Treasury by reason of the application of subsection (a). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted.”

Attention, Seniors: A New Social Security COLA Bill Was Just Introduced in Congress

My Comments: This might be good news if it wasn’t so unlikely to happen.

Sean Williams | Mar 18, 2017

According to the January snapshot provided by the Social Security Administration, nearly 41.4 million retired workers are receiving a monthly benefits check from Social Security totaling an average of $1,363. While that may not sound like a lot, Social Security benefits comprise more than half of all monthly income for 61% of retired workers, based on SSA data. Without Social Security, it’s very likely that the poverty rate for seniors would soar, and many would struggle to make ends meet.

But as many of you also probably know, Social Security is beginning to run into some roadblocks. Two major demographic shifts — the ongoing retirement of baby boomers which is lowering the worker-to-beneficiary ratio, and the lengthening of life expectancies over the past five decades — are weighing on this vital program. According to the 2016 report from the Social Security Board of Trustees, the program will have exhausted its more than $2.8 trillion in spare cash by the year 2034, at which point a benefits cut of up to 21% may be needed on an across-the-board basis.

Congress can’t forget about current retirees

It’s pretty clear from this data that Congress needs to act with some degree of expediency to ensure that Social Security offers a financial foundation during retirement for the many generations of workers to come. However, Congress also has to be careful not to forget about the tens of millions of seniors already receiving Social Security.

One of the more contentious battles in Washington is in regards to what should be done (if anything) about Social Security’s cost-of-living adjustments, or COLA.

Right now, Social Security’s COLA is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). As with any of the CPI variants, it takes into account the price movements of a pre-determined basket of goods and services and compares that year-over-year data.

For Social Security, the average CPI-W reading from the third quarter of the previous year serves as the baseline figure, while the average reading from the third quarter of the current year serves as the comparison. Any decrease in year-over-year prices means a 0% COLA for the following year. Thankfully, Social Security benefits cannot be decreased due to deflation, albeit beneficiaries have had three years of no COLA, and a minuscule 0.3% COLA over the past eight years. Any increase in the year-over-year CPI-W is passed along and rounded to the nearest 0.1% in the following year.

A new Social Security COLA bill was just introduced

The debate in Washington involves whether or not the CPI-W is the best measure to tie Social Security’s COLA to. According to one Congressman, it’s not.

Earlier this month, Rep. John Garamendi (D-Ca.) introduced the CPI-E Act of 2017 into Congress. The sole purpose of the Act introduced by Garamendi would replace the CPI-W with the Consumer Price Index for the Elderly, or CPI-E, in calculating Social Security’s COLA. The CPI-E strictly measures the spending habits of households with people aged 62 and up. Since roughly two-thirds of all Social Security beneficiaries are seniors, switching to the CPI-E would (presumably) be more accurate in representing their spending habits.

For instance, according to data found in Garamendi’s press release that accompanied his bill, which already has 24 co-sponsors, the CPI-E rose at an average rate of 3.1% between 1982 and 2011 compared to just 2.9% for the CPI-W over the same time span. In other words, seniors could receive a larger COLA most years with the CPI-E.

Why, you wonder? The CPI-E places a considerably larger emphasis on medical care expenditures and housing costs, which for seniors are often much higher than that of working-age Americans as measured by the CPI-W. Likewise, the CPI-W tends to overemphasize the impact of educational, apparel, transportation, and food expenditures, which just aren’t as important for seniors when compared to working Americans.

In recent years, weaker fuel prices at the pump and stagnant food prices have been the main cause of seniors’ weak COLAs. Plus, medical care inflation has outpaced Social Security’s CPI-W-based COLA in 33 of the past 35 years. According to estimates from The Senior Citizens League, had the CPI-E been used in place of the CPI-W over the past 25 years, the average retired worker would have netted an extra $29,600 in payments.

Switching to the CPI-E probably isn’t in the cards

However, before you get too excited, realize that the chances of this bill succeeding in a Republican-led Congress are slim-to-none.

For starters, the CPI-E has its shortcomings, too. For example, the CPI-W factors in more households than the CPI-E, meaning that it’s providing more data points and presumably a more accurate picture of what Americans are spending their money on.

Also, the CPI-E fails to take into account the rising costs associated with Medicare Part A. Medicare Part A covers in-patient hospital stays, surgical procedures, and long-term skilled nursing care. Even if the CPI-E Act of 2017 were to pass and be signed into law, seniors would likely still fail to keep pace with the true medical care inflation they’re facing.

There’s also that not-so-tiny problem about Social Security running out of spare cash between now and 2034. Switching to the CPI-E without any additional revenue generation would mean depleting the Trust’s spare cash at an even faster rate.

And, of course, the CPI-E is the complete opposite of what Congressional Republicans are angling for. Rep. Sam Johnson’s (R-Tx.) Social Security Reform Act of 2016, introduced in December, called for a switch to the Chained CPI, which Republicans seem to prefer over the CPI-W. The Chained CPI factors in a consumer behavior known as “substitution,” which the CPI-W does not. The Chained CPI assumes that consumers will trade down to lower-priced goods and services if the goods and services they currently buy become too pricey. Thus, the Chained CPI grows at a slower pace than the CPI-W, which could place seniors in a bigger hole to medical care inflation.

Clearly, this isn’t the last we’re going to hear about the COLA debate on Capitol Hill. But, don’t expect COLA reform to happen anytime soon.

The Big Problem With Democrats’ and Republicans’ Social Security Proposals Is They’re Both Right

My Comments: We long ago decided as a society that letting huge swaths of our population, the elderly, suffer and die early was not in our best interest. This premise has been part of the fabric of every society for millions of years.

In the 1930’s it was decided that it was not enough to hope it would happen, but that society should formalize the premise at the Federal level. What resulted was the Social Security Administration and today we have over 41 million people getting financial help every month.

There are now those in leadership positions at the Federal level that want to make fundamental changes. Many feel the burden on society that benefits elderly members of that same society are onerous. Never mind we’ve long accepted the premise of looking after the elderly. Perhaps it’s a matter of degree, but whatever the case, a vigorous debate is necessary.

So, sometime in the next 20 years, structural changes will be made to Social Security in this country. Demographics will demand it, along with the many millions of Americans who have been paying into the system their whole working life. That is, unless we are now willing to ignore the elderly, push them out into the streets, and wait for them to die.

Sean Williams \ Mar 11, 2017 at 9:35AM

The importance of Social Security for America’s retirees simply can’t be overstated.

As of January, the Social Security Administration’s (SSA) monthly snapshot showed that nearly 41.4 million retired workers were receiving monthly payments averaging $1,363. This may not sound like a lot of money, but the SSA’s data from 2016 shows that 61% of all retired workers receiving benefits relied on their monthly Social Security checks to account for at least half of their income. Without this money, there would presumably be a considerable poverty problem among seniors.

Both solutions work — that’s the problem

But America’s most sacred social program is caught in a tailspin. Two ongoing demographic shifts — the retirement of baby boomers and the steady lengthening of life expectancies over the past couple of decades — are expected to push Social Security to the brink, so to speak. While the program is in no danger of going bankrupt (as long as people are working, payroll taxes will be collected, and payments made to beneficiaries), the current payout rate may not be sustainable.

According to the Social Security Board of Trustees report from 2016, the more than $2.8 trillion in spare cash currently held by Social Security should be depleted by 2034, at which point an across-the-board benefits cut of up to 21% may be needed to sustain the program through 2090. While there are numerous proposals on the table to fix Social Security, doing nothing and cutting benefits when the Trust burns through its spare cash is essentially the least favorite “fix” among the public.

Perhaps the greatest irony here is that solutions aren’t the issue. Well over a dozen separate fixes for Social Security have been proposed. The crux of the problem is that Democrats and Republicans on Capitol Hill can’t agree on a plan.

The way I see it, the real issue with the Democrat and Republican proposals is that they’re both right, which makes compromising extremely difficult. While both approaches clearly have downsides, both the Democrat and Republican solutions would extend the life of Social Security for retired workers. In other words, both plans work.

How Democrats would fix Social Security

Let’s begin by taking a generalized look at the three ways Democrats often propose to fix Social Security. We won’t be looking at any bill in particular; just the general concepts that most lawmakers in the Democratic Party tend to agree on when it comes to Social Security reform.

1. Raise the payroll tax earnings cap

Pretty much every Democratic proposal involves increasing Social Security’s payroll tax cap. As it currently stands, 12.4% of your pay between $0.01 and $127,200 is taxed as 12.4%. However, most Americans don’t pay the full 12.4%. They’re responsible for half (6.2%), with their employer picking up the tab for the other half (6.2%). Any earned income above and beyond $127,200 in 2017 is free and clear of the payroll tax.

As the argument goes, since roughly 90% of Americans are paying into Social Security with every cent they earn, it’s not fair that the wealthy are only paying tax on a smaller percentage of their income. Select payroll tax proposals have suggested providing a moratorium between the wage-indexed cap ($127,200) and, say, $250,000, then taxing all earned income above $250,000 at the 12.4% rate, or removing the maximum earnings cap completely. Removing the cap completely would go a very long way to narrowing Social Security’s more than $11 trillion budgetary shortfall.

2. Tie COLA to the CPI-E
Second, Democrats would like to stop using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as the determinant of the annual cost-of-living adjustment (COLA) and replace it with the Consumer Price Index for the Elderly (CPI-E). The CPI-E strictly factors in the spending habits of households with persons aged 62 and up, meaning it would emphasize medical and housing expenditures more, and de-emphasize less important expenditures, such as education, entertainment, apparel, and transportation.

The Senior Citizens League has estimated that if the CPI-E were used in place of the CPI-W, seniors would have been paid an aggregate of $29,600 more over the past 25 years.

3. Give low-income workers a raise
Lastly, Democrats would like to see low-income retirees earn more. While there are minimum monthly benefits in place, this doesn’t mean seniors are necessarily earning enough annually to move above the national poverty income threshold. Democratic solutions to fix Social Security often include measures to boost payouts to low-income workers, women, and/or older Americans (i.e., those in their 80s or 90s).

Obviously, this plan isn’t perfect. It requires the rich to pay more without compensating them any more when they retire and begin claiming benefits. It also boosts payouts by using the CPI-E and giving low-income workers a raise, which is counterproductive to the current budgetary shortfall for Social Security.

The Republican solution for Social Security

Just like the Democrats, Republicans have a three-pronged approach to solving Social Security’s budgetary woes. Once again we’re not focusing on any specific bill here; we’re just examining the basic tenets of most Republican Social Security proposals.

1. Raise the full retirement age
Hands down the most popular solution for Republicans in Washington involves raising the full retirement age. Your full retirement age, which is determined by your birth year, is the age at which you become eligible to receive 100% of your monthly payout. Claim benefits before reaching this age, and your monthly payout is permanently reduced. Wait until after your full retirement age to claim benefits, and your monthly payout is even higher.

The various Republican proposals have suggested increasing the full retirement age from 67, which will be reached in 2022, to 68, 69, or even age 70. Raising the full retirement age would presumably coerce healthy seniors to remain in the workforce, ultimately adding more payroll tax revenue into the program. It would also account for lengthening life expectancies.

2. Tie COLA to the Chained CPI
Republicans also have a strong tendency to want to abandon the CPI-W. However, their proposal usually involves switching to the Chained CPI, not the CPI-E.

The difference between the Chained CPI and the CPI-W is that the Chained CPI takes into account a buying habit known as “substitution.” In other words, if the price of a good or service increases in cost by a lot, the Chained CPI assumes the consumer will trade down to a less expensive good or service. The CPI-W does not factor in consumer substitution. As a result, the Chained CPI would result in lower annual COLAs than the CPI-W, which according to Republicans would more accurately represent the inflation that seniors are facing.

3. Means-test for benefits
Finally, Republicans often suggest means-testing seniors for benefits. In short, means-testing would be an arbitrarily chosen annual income level at which well-to-do retired workers would receive a reduced benefit, or perhaps no benefit at all.

As a completely arbitrary example, if a Social Security-eligible senior were earning $200,000 a year, he or she might be deemed ineligible for benefits based on means-testing since the income provided by Social Security is essentially not needed to live comfortably and pay bills. Republicans believe means-testing will save money by eliminating unnecessary payouts.

The Republican plan isn’t perfect, either. Raising the retirement age and relying on the Chained CPI means a benefits cut for future retirees, along with lower annual COLAs. Seniors would either need to wait longer to file their claims, or be willing to accept a steeper reduction in monthly payouts.

While neither party’s plan is perfect, they both make fiscal sense and achieve the task of getting Social Security back onto stable ground. The real question at this point is whether Democrats and Republicans can work together on a joint plan when both of their current plans make sense. Only time will tell.

Social Security Taxes

My comments: Social Security is under threat. It’s running out of money. Sort of.

Back in 1983, under President Reagan, Congress made some changes as, like now, the future of the program looked cloudy. They increased the age at which you qualified for full benefits, they increased the percentage of earned income you paid into the system and they raised the threshhold for how much of your earned income was subject to the FICA tax.

This is a good explanation of what it going on now.

By William Perez October 31, 2016

The Social Security tax is a tax applied to income related to labor. All employees and self-employed entrepreneurs pay into Social Security through the Social Security tax, which is also known as Old-Age, Survivors, and Disability Insurance (OASDI).

The Social Security tax functions very much like a flat tax. A single rate of 12.4% is applied to wage and self-employment income earned by a worker up to a maximum dollar limit.

Half of this tax is paid for by the employee in the form of payroll withholding. The other half of this tax is paid for by the employer. Self-employed persons pay both halves of the Social Security tax since they are both the employee and the employer.

Social Security tax rates

Employees pay 6.2% of their wage earnings, up to the maximum wage base.

Employers pay 6.2% of their employee’s wage earnings, up to the maximum wage base.

Self-employed persons pay the combined rate of 12.4% of their net earnings from self-employment, up to the maximum wage base. This is calculated as part of the self-employment tax on Schedule SE.

The Math Behind the Social Security Tax

All wages and self-employment income up to the Social Security wage base in effect for a given year is subject to the Social Security tax.

Social Security Wage Base by Year
2017 $127,200
2016 $118,500
2015 $118,500
2014 $117,000
2013 $113,700
2012 $110,100
2011 $106,800
Source: Social Security Administration, Contribution and Benefit Base

Earnings up to the Social Security wage base amount have the Social Security tax applied. Earnings over the wage base amount do not have the Social Security tax applied.

The math works like this:

  • If wages are less than $127,200 in the year 2017, then wages times 6.2% is the amount the employee pays and wages times 6.2% is the amount the employer pays.
  • If wages are more than $127,200 in the year 2017, then 127,200 times 6.2% is the amount the employee pays and this is also the same amount the employer pays.

What is the Social Security Tax For?

Unlike income taxes, which are paid into the general fund of the United States and can be used for any purposes, Social Security taxes are paid into special trust funds that can be used only to pay for current and future Social Security retirement benefits, benefits for widows and widowers, and disability benefits.

Historical information about Social Security Taxes

Special Rate Reduction for 2011 and 2012

Back in the years 2011 and 2012, the Social Security tax rate paid by employees is 4.2% instead of the normal 6.2%. Employers still pay the full 6.2% rate. Thus for 2011 and 2012, the combined Social Security tax rate is 10.4%. Self-employed persons will pay this 10.4% combined rate on their earnings. This special payroll tax holiday was enacted as part of the Tax Relief Act of 2010, then extended through February 2012 by HR 3765, and then further extended through the end of 2012 by HR 3630.

The reduced Social Security tax rate was not renewed for 2013 as part of the American Taxpayer Relief Act. For 2013, the Social Security tax reverts to its normal tax rate of 6.2% for employees, 6.2% for employers, and 12.4% for self-employed persons.

Thus for 2011 and 2012, we substitute 4.2% for 6.2% in the above math formulas for the amount paid by the employee. At the maximum wage base of $106,800 for 2011, this translates into a tax savings of $2,136, as follows:

  • Social security tax at the normal rate: 106,800 times 6.2% = $6,621.60
  • Social security tax at the reduced rate for 2011: 106,800 times 4.2% = $4,485.60

At the 2012 maximum wage base of $110,100, this translates into a tax savings of $2,202, as follows:

  • Social security tax at the normal rate: 110,100 times 6.2% = $6,826.20
  • Social security tax at the reduced rate for 2012: 110,100 times 4.2% = $4,624.20

You can plug in your own salary level to determine your own personal savings from the payroll tax holiday. If your earnings from wages and self-employment are less than the wage base, simply multiply your earnings by 2% to find your savings. If your earnings are more than the wage base, you receive the maximum savings of $2,136 (for 2011) and $2,202 (for 2012).

What Happens to the “Missing” Social Security Funds from the 2-Year Tax Rate Reduction?

To prevent Social Security from losing tax revenue, Congress mandated that revenues be transferred from the general fund to the Social Security trust funds to make up for the tax reduction. This is provided for in section 601 of the Tax Relief Act, which reads in part, “There are hereby appropriated to the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401) amounts equal to the reduction in revenues to the Treasury by reason of the application of subsection (a). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted.”

Your Local Social Security Office: Who Can Help

SSA-image-3My Comments: There are a lot of good people working for the Social Security Administration. It’s just that some of them are not equipped to answer your questions. This leads to frustration and sometimes making the wrong choices. Here’s an article that might be helpful if you have questions of them and need the right answer.

Devin Carroll | February 17, 2017

I help a lot of clients with Social Security. One thing they all have in common is that they’ve called their local Social Security office at least once. Most of these calls have ended in frustration. It doesn’t have to be that way. If you know who to ask for, you’ll get the help you need.

I often consult with individuals throughout the nation regarding Social Security issues. For some, it’s simply determining how their filing strategy fits in with their overall retirement plan and making sure they haven’t missed anything. For others, I help solve complex Social Security problems. Many that I help would never call me if they would have received a satisfactory answer and solid advice when they called their local Social Security office. So I may be hurting myself slightly, but I can’t stand to see any more bad, and sometimes non-reversible, decisions made as a result of incorrect guidance from the Social Security Administration.

I’m going to tell you who to ask for the next time you call.

The Hierarchy at the Social Security Office

If you’ve ever been to your local Social Security office, you’ve probably seen a maze of cubicles and possibly more employees than you expected. All these people have a role and handle very specific areas of Social Security benefits. Within each Social Security office there is a hierarchy of representatives. Not all are created equal. For retirement and disability benefits, the Social Security employee will most likely have one of the following titles.

Service representatives have the responsibility of handling general inquiries, fixing simple post-claim issues and answering the phones. Simply put, they are generalists. Although this is the first position for a new hire, I wouldn’t automatically discount their experience. Some service representatives begin—and end—a long Social Security career with the same title. Just understand, the service representative that answers your call may be a six-month employee or a 25-year employee.

Claims Representative

The claims representative is there for one reason: to assist individuals in filing claims to benefits under Social Security programs. Unless you are ready to process your claim, you’ll have little interaction with this representative.

Technical Expert

The technical experts handle the complex cases and do the stuff that’s too complicated for the others. Those I’ve come in contact with have exhibited a deep understanding of the rules and provisions of the Social Security programs. But you won’t find them answering the phones or meeting with just anyone. Normally, you have to be referred by a service representative or a claims representative to get in front of the technical expert.

How to Get Help

The next time you call (or visit) your local Social Security office, you’ll speak to a service representative. Give them a chance and they may be able to help you. However, if you have ANY doubt about what you’re being told, it’s time to escalate. Ask them to let you speak to a technical expert. It may take a while, but eventually you’ll be able speak to the most knowledgeable person in the office.

Source: http://www.investopedia.com/advisor-network/articles/021717/your-local-social-security-office-who-can-help/#ixzz4ZLjiVeHc