Can Taxing the Wealthy Save Social Security?

Social Security Changes For 2016/2017 Must Watch

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According to the most recent annual report from Social Security"s Trustees, the Old Age and Survivors Insurance (OASI) Trust Fund is set to exhaust itself some time in 2034. Once we hit that barrier, the program won"t disappear entirely, but benefits will likely need to be reduced by 25%.

That might sound like a modest cut, but it"s important to consider that for 22% of retired married couples -- and 47% of retired singles -- Social Security accounts for an astounding 90% or more of household income. Such cuts could mean serious sacrifices for future generations.

There are lots of suggestions on the table to remedy the situation. Over the past month, I"ve evaluated the effectiveness for some of the most popular options from both Republicans and Democrats. Today, I"m zeroing in on the one solution that has the greatest demonstrated leverage: raising taxes on the wealthy.

How much more would wealthy households have to pay in new Social Security taxes?

Under its current structure, every working individual pays in to Social Security via FICA taxes. An employee is responsible for forking over 6.2% of his/her salary to the program, while their employer is obligated to pay an equal amount.

However, there are maximum limits on taxable income -- often dubbed the "tax max." In 2016, the tax max is $118,500. In other words, at this income level, an individual will owe about $7,350 in taxes to support Social Security. But an individual who makes $200,000 will only owe $7,350 as well. So will someone earning $2 million. The tax simply stops being applied after the tax max.

If the tax max were eliminated, the individual earning $200,000 would owe $5,050 more than they currently do. And the household with $2 million would owe a whopping $117,000 more. That"s not chump change -- for the household or Social Security in general.

Would eliminating the tax max actually make a difference?

Proponents of eliminating the tax max point out that by doing so, a huge swath of Social Security"s shortfall could be addressed. According to the American Association of Actuaries, eliminating the tax max would address 88% of the program"s long-term deficit.

In other words, this alone wouldn"t solve Social Security"s problems, but it would take a huge bite out of it.

There are, however, a number of second-order effects that opponents of the move are worried about. A 2014 report from the Heritage Foundation laid out the reasoning as such:

Higher-income workers generally have more flexibility to work less when marginal tax rates rise. But when workers cut back on work and receive less take-home pay, they also tend to cut back on savings and investment. Less work, lower incomes, smaller savings, and less investment are harmful to economic growth, which in turn, is detrimental to tax revenues.

Is there a precedent for raising the tax max?

For much of Social Security"s history, the tax max was updated on an ad-hoc basis. Starting in 1975, increases were made yearly, based on average increases in wages. Here"s what those increases look like, in both real dollars, and inflation-adjusted dollars.

Eliminating the tax max would be dramatic in a historical sense. President Obama proposed a plan where families would avoid Social Security taxes for all the money they earn between the tax max ($118,500 in 2016) and $250,000, and then start paying taxes again once that threshold is breached. No serious action, however, was ever taken based on the proposal.

If Social Security"s shortfall is ever truly dealt with by politicians, it is likely that a substantial increase in the tax max would be coupled with other changes -- probably aimed at reducing benefits. The most popular tends to be a gradual increase in the full retirement age.

There"s no way to predict what will happen with the program. But it"s clear that the most important thing you can do to prepare for retirement is to assume that your benefits will be reduced by 25% at least. If that motivates you to save and invest more now, it"ll only be beneficial in the long run.

Source: http://www.fool.com/retirement/2016/07/11/can-taxing-the-wealthy-save-social-security.aspx

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Hispanic Heritage is at the Heart Of Social Security"s Mission

Planning Social Security Retirement? We use Social Security Calculator to get maximum benefits.

From September 15 to October 15, people across the country will join in celebrating the many contributions of Hispanic Americans during National Hispanic Heritage Month. Social Security is no stranger to celebrating Hispanic heritage and culture.

Social Securitys website is a trailblazer when it comes to providing information and services in Spanish. Our site offers the same great service in Spanish on your tablet or laptop when youre on the go. Try it out at"http://www.segurosocial.gov" www.segurosocial.gov. There, you can learn all about our programs and online services and view more than 100 Spanish-language public information pamphlets, leaflets, and fact sheets.

We offer several of our most popular online services in Spanish, as well. One of the most personalized features of the site is the Spanish-language Retirement Estimator at"http://www.segurosocial.gov/calculador" www.segurosocial.gov/calculador. The Retirement Estimator allows visitors to receive an instant estimate of future retirement benefits. Try out different scenarios, like changing your future wage estimates or retirement dates, and see how your future benefits could change. The Retirement Estimator is an indispensable, personalized tool for planning your financial future, and you wont find it anywhere else.

When youre ready to retire, you can apply online for retirement benefits all in Spanish and in as little as 15 minutes! Once you complete the online application for benefits, in most cases, thats all there is to it. There are no papers to sign or documents to provide. Give it a try when youre ready to retire at"http://www.socialsecurity.gov/espanol/soliciteporinternet" www.socialsecurity.gov/espanol/soliciteporinternet. If you need to visit an office and speak with someone in Spanish, we have free interpreter services available if there is not a Spanish-speaking representative working in the office. To learn about our interpreter services, visit"http://www.socialsecurity.gov/espanol/interpreter.htm" www.socialsecurity.gov/espanol/interpreter.htm.

In addition, our national toll-free number (1-800-772-1213) provides automated prompts in Spanish. Toward the beginning of the call, youll be asked to continue in English or Spanishto get service in your language of choice.

So, whether youre on a computer or tablet, calling us on our national 800 number, or visiting one of our offices, Social Security remains committed to providing quality service to you and all of our customers.This National Hispanic Heritage Month, visit"http://www.segurosocial.gov" www.segurosocial.gov to learn about Social Securitys resources for Spanish speakers.

Source: http://www.prescottenews.com/features/columnists/item/26148-hispanic-heritage-is-at-the-heart-of-social-security-s-mission

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Why Social Security Suddenly Changed Its Benefits Withdrawal Rule

Social Security vs. Private Retirement
Robert A. Di Ieso, Jr.

Q: I retired in 2009 to care for an ailing parent who has since passed away. I took Social Security at age 62, when the law allowed claimants to pay back their Social Security and receive the highest benefits at age 70. Since that time the law has changed and repayment can only be made in the first year. Do you know of any proposal to change the current rules for those who signed up under the old law? Sandra

A: As Sandra correctly notes, Social Security changed its benefits withdrawal policy in December 2010, after she had retired under its prior rulesand its one of the most unusual policy shifts that the agency has enacted. Consider that Social Security, which often gets dinged for slow response time, made this change lightning fast. Whats more, the new policy seems to have little to do with the needs of beneficiaries like Sandra and everything to do with the agency being surprisedand perhaps chagrinedthat people were paying attention to its often arcane rules and actually taking advantage of them.

Under the old policy, people who had begun receiving benefits could, at any time, pay back everything theyd received and effectively wipe clean their benefit history. By resetting their benefit record this way, people who took reduced retirement benefits early would be able to file later for much higher monthly payments. For people born between 1943 and 1954, for example, retirement benefits at age 70 are 76% higher than those taken at age 62.

Few people paid much attention to this rule until a growing group of financial planners and Social Security experts began highlighting the possible gains of withdrawing benefits and delaying claiming. As the word spread, journalists began to write about these rules for an even wider audience.

Social Security, which previously had no problem with the rule when few were using it, changed its mind as more and more people began withdrawing their benefits. Suddenly, without an extended period for evaluation or debate, the agency issued a final rule limiting the benefit withdrawal optionand it took effect immediately. If the public wanted to comment, it would be able to do so only after the rule was changed. By comparison, the decision to raise the official retirement age in the program from 66 to 67 was enacted in 198337 years before it will take effect in the year 2020.

Heres what the agency said at the time it changed its rules on withdrawing benefits:

The agency is changing its withdrawal policy because recent media articles have promoted the use of the current policy as a means for retired beneficiaries to acquire an interest-free loan. However, this free loan costs the Social Security Trust Fund the use of money during the period the beneficiary is receiving benefits with the intent of later withdrawing the application and the interest earned on these funds. The processing of these withdrawal applications is also a poor use of the agencys limited administrative resources in a time of fiscal austerityresources that could be better used to serve the millions of Americans who need Social Securitys services.

Further, in making the shift to a one-year withdrawal period, the agency explained that the policy was designed to reduce the value of the option so few people would use it. Today, by the way, the agency supports delaying retirement much more than it used to.

Of course, telling people to delay claiming is of little help to people like Sandra, who retired under the old rule and was caught by the sudden policy shift. Is there any likelihood that the rule could be changed to accommodate this group? Not really, says James Nesbitt, a Social Security claims representative for nearly 40 years who is now providing benefits expertise for High Falls Advisors in Rochester, NY. Unfortunately, he says, this change did not contain any grandfathering provision. I am not aware of any pending actions within Congress or Social Security that would extend grandfather rights to those who were disadvantaged by this change.

Philip Moeller is an expert on retirement, aging, and health. His book, Get Whats Yours: The Secrets to Maxing Out Your Social Security, will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

More on Social Security:

How to protect your retirement income from Social Security mistakes

Heres how Social Security will cut your benefits if you retire early

Will Social Security be enough to retire on?

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Source: http://time.com/money/3592414/social-security-rule-change-benefit-withdrawals/

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