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Another thing to consider is the tax torpedo, explained below. This is the argument against filing early for those who have the funds to have a large withdraw. But I don't really think $25,000 is a whole lot of money to be earning through withdraws, other earnings etc.
But those with more income could have a portion of their Social Security taxed as they pass certain thresholds. Social Security isn't taxed when provisional income is less than $25,000 for individuals ($32,000 for married couples filing jointly). When income is between $25,000 to $34,000 ($32,000 and $44,000 for married filing jointly), 50 percent of Social Security income is taxable. When provisional income is above those amounts, 85 percent of Social Security is taxable.
Provisional income is calculated by taking your modified adjusted gross income and adding half of the Social Security benefits received."Another shocker is that it's all your sources of income, even income from tax-free bonds," said CFP Nancy Hecht of Certified Financial Group. The tax torpedo typically comes at age 70½ , when the required minimum distribution from tax-deferred 401(k) plans and individual retirement accounts kicks in.
That really burns my ass, Dave. Every provision for the rich is adjusted for inflation, but for the one decent benefit the poor get, there is no adjustment. For 35 f**king years, those limits have remained the same 25K-34K, 32K-44K virtually guaranteeing that eventually ALL social security will become taxable.
it really effects everyone. i would not call earning more than 44k in nyc rich .
the good news is the poor do get bigger benefits vs their income because the inflation adjusting on older earnings are adjusted differently by inflation to determine their benefit .
the percentages applied to lower income is less than higher incomes .
What most people don’t know is that our employment tax dollars don’t all buy the same amount of future benefit. Some of our employment tax dollars buy six times as much in benefits as others.
According to the most recent Trustees Report, for instance, the first $767 of “average indexed monthly earnings” (a complex formula that adjusts earnings over time) is credited at a 90 percent rate, assuring the lowest wage workers of a retirement benefit nearly equal to their earned wage.
Wages of more than $767 a month but less than $4,624 a month are credited at a 32 percent rate. This means retirement benefits increase at a much lower rate. The benefit pinching, however, does not end there.
More means less
For wages of more than $4,624 a month up to the wage base maximum ($113,700 for 2013), the crediting rate is only 15 percent. Thus, all the wages earned — and employment taxes paid — over that $55,488-a-year “bend point” gain benefits at only one-sixth the rate of the lowest wage earners.
In effect, the Social Security benefits formula functions as a sharply graduated benefits “tax,” reducing the benefits that accrue to higher wages by 85 percent. The higher your means, the lower your benefit.
Last edited by mathjak107; 05-23-2018 at 09:19 AM..
The higher your means, the lower PERCENTAGE your benefit. It is still larger. Lets take that one more step. The more you make, generally, the more likely you are to have a career vs a job. If you ascend in the organization you make more money etc, etc so for many, the career last’s longer with higher salaries over time. Many management level people work to 65 ifnthe stress is not bad because the money & benefits are so lucrative. One can easily have 40+ years of more than max earnings for which there is ZERO return on those max premiums beyond the top 35 years. So the percentage return based on contributions drops even lower every year they work. They could easily be adding $50,000 more to the SS fund that there is no benefit payback on, which is equal to 10-14 years of the premiums that the average SS recipient paid in! Means tested indeed!
So I find it kind of telling that people that may have at most contributed $4000 a year to FICA & MED, and have less than 35 years of payments whine about wanting to get as much as possible, where the high earners that are now contributing over $10000 a year, will see none of that returned as an increase. And one only has to make over about $130k/yr with normal deductions to be in that class.
Socialist inSecurity is a Ponzi scheme. Like all Ponzi schemes, it will fail and collapse. They will do everything they can to prop it up for as long as it can. But it is mathematically impossible to maintain a scheme like SS. So, expect cuts to benefits while calls to raise payroll taxes are bitterly opposed by working voters, because they have their own futures to plan for.
I wish more than anything I could opt-out right now. Give up and and all claims to the ~$250,000 that's been stolen from me and renounce all rights to ever collect a dime. In return, I can stop "contributing", and add that 12.4% of my salary to my own accounts where the money is mine, not spent on others today with the promise that someone else's money will be handed to me tomorrow. I'd retire earlier and better than under the current, broken system.
it really effects everyone. i would not call earning more than 44k in nyc rich .
Nor did I imply WAS. I just contrasted that the limits where Social Security benefits become taxable have been static for 30 years. BUT comparable cutoffs/exclusions that effect huge incomes, like the Altenate Minimum tax, and estate taxes, and capital gains on home sales are continuously adjusted for inflation so as not to capture more and more people.
Taxing SS benefits was meant to tax those with high income. What may have been high income in 1983, sure as s^it is not high income in 2018.
exactly! ... those income numbers are from the good ole days
Because the thresholds ($25,000 for single taxpayers and $32,000 for joint returns) above which taxes are levied are not adjusted for wage growth or even for inflation, rising benefit levels mean that taxation reaches further and further down the income distribution.
Nor did I imply WAS. I just contrasted that the limits where Social Security benefits become taxable have been static for 30 years. BUT comparable cutoffs/exclusions that effect huge incomes, like the Altenate Minimum tax, and estate taxes, and capital gains on home sales are continuously adjusted for inflation so as not to capture more and more people. Taxing SS benefits was meant to tax those with high income. What may have been high income in 1983, sure as s^it is not high income in 2018.
The selection of nominal-dollar thresholds was deliberate, so that eventually the tax treatment of Social Security income would be similar to that of pensions and annuities (Senate Finance Committee 1993).
Socialist inSecurity is a Ponzi scheme. Like all Ponzi schemes, it will fail and collapse. They will do everything they can to prop it up for as long as it can. But it is mathematically impossible to maintain a scheme like SS. So, expect cuts to benefits......
How silly. EVERY investment vehicle, insurance plan, the stock market etc are all Ponzi schemes by that definition. They all depend on growth of a pool of continuous contributions in order to survive.
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