Tax Social Security like other Defined Benefit Pension Plans?

Sounds like a plan to me.  Forget you paid taxes once on that money when it was contributed to Social Security - Uncle Sam Wants Your Money!!!  Think this is crazy?

The Congressional Budget Office came out with a thick report titled:

In here were potential expenditure reductions and revenue enhancers.  This is the one you are going to love if you are receiving Social Security (or expect to in the near future):

Tax Social Security the Same Way That Distributions from Defined-Benefit Pensions Are Taxed = +438b

Be vigilant, raise hell with your congressional representatives.

Lies, damn lies, DC lies

Saw a poll that a large percent  of folks believe we can balance the budget by cutting out waste and unnecessary spending.  Now to listen to the talking heads on TV you would think this is crazy.  But is it?

There are lies - like when you child says they picked up their room.  There are damn lies.  Like when the wife says that outfit cost half of what it really cost, or he tells the wife they spent the evening at a sports bar watching "sports"  (that was no sports bar  sport and  lap dancing is not a sport).  Then there are DC lies.  The deficit is 1.5 TRILLION for this fiscal year and 42 cents of every dollar spent is borrowed and we are being told it is a Medicare or Social Security spending problem. 

So who is right - the common folks or the DCers?  In 2007 the deficit was under $200 billion.  We can do the math - that is $1.1 trillion less than this year's deficit.  There is no way that Medicare and Social Security account for that huge an increase in spending.   There is only on conclusion - spending is out of control in DC and needs to be reined in (back to 2007 levels).  There is a lot of money being spent irresponsibly as wells as waste and fraud. 

The RepukeCons want to cut $61 billions and the DemoRats less than $10 billion between now and Oct (end of the fiscal year).    DC - we are not that stupid - the deficit is $1.1 TRILLION more than 2007.  Now the "folks" may be wrong that the problem can be fixed solely by reducing spending and elimination of waste  but they are  80% right.  And who knows - we get the government off business's back maybe growth would bridge the other 20%. Once we fix that 80% we can talk about fixing the other 20% (Medicare, Social Security, taking troops out of Europe, Japan, South Korea and closing half of the 800 overseas bases).

Trust the common sense of the folks.  It beats the politician "intelligence" in DC every time.

Let your Senators and representatives know - GET WITH THE DAMN PROGRAM OR WE WILL FIRE YOU.   It doesn't matter which party you are affiliated with - we will FIRE you!!!!

  

The Endgame - We have seen the script

You want to see the likely future outcome and what lies ahead.  You have seen the script - it is Japan and the last 20 years. 

"I think a long-term chart of the Nikkei says it all. There was a massive bubble in stocks and real estate that began in 1982 and climaxed in 1989. While stocks quickly corrected to flush excesses out of the system, the government elected to take the "easy" way out of the debt bubble, lowering interest rates to insane levels in the hopes that inflation would cause the debt bubble to evaporate. Or to say it another way, they stole from savers in order to bail out gamblers who lost their bets."

http://www.financialsense.com/contributors/carl-swenlin/a-bug-in-search-of-a-windshield

To understand the future you need to understand history.   In Japan - by 1990 we had a situation very much like what we see today in the US.  The  monetary authorities here have lowered interest rates to insane levels  (just like they did in Japan).  Instead of flushing the crap out of the system they continue to extend and pretend.  Soon we will be in Phase II - pray and delay.

It is time to demand your elected officials do the right things not the easy things.  It won't be pretty, it won't be easy, but it is the right thing - let the economy flush.

I can't live on Social Security Benefits due at 62

How can I afford to retire now?

I will be 62 soon, but I am a minimum wage earner. Never earned much more than minimum wage. I take home about $1,100 after deductions for FICA/Medicare and health insurance. My Social Security will be only $815 if I retire at 62 and I barely pay my bills as it is. I have no retirement savings. I see no way I can retire at 62. Please advise. Won't I need to wait until I get the maximum benefit to retire?


There is good news and there is bad news. You probably cannot afford to retire at 62 if you need $1,100 a month to pay basic living expenses. So you keep working. Now for the good news - working does not bar you from drawing Social Security benefits starting at 62.


According to WWW.SSA.GOV here is how it works:

　"How earnings affect your benefits:

You can continue to work and still get Social Security retirement benefits. Your earnings in (and after) the month you reach your full retirement age will not affect your Social Security benefits. However, your benefits will be reduced if your earnings exceed certain limits for the months before you reach your full retirement age. (The full retirement age is 66 for people born in 1943-1954 and will gradually increase to 67 for people born in 1960 or later.)

If you are younger than full retirement age, $1 in benefits will be deducted for each $2 in earnings you have above the annual limit ($14,160 in 2010).

In the year you reach your full retirement age, your benefits will be reduced $1 for every $3 you earn over a different limit ($37,680 in 2010) until the month you reach full retirement age. Then you get your full Social Security benefit payments, no matter how much you earn.

If you are younger than full retirement age and some of your benefits are withheld because your earnings are more than $14,160, there is some good news. When you reach full retirement age, your benefits will be increased to take into account those months in which you received no benefit or reduced benefits.

Also, any wages you earn after signing up for Social Security may increase your overall average earnings, and your benefit probably will increase."

The Analysis:

So you can receive benefits and work. In general the minimum wage is $7.25 an hour. A work year is about 2080 hours - so your earnings are around $15,080 a year. You are allowed to earn $14,160 with no reduction in benefits. So you will exceed that by $960. This will result in a decrease in your benefits of $480 a year (or $40 a month on average). So you continue bringing home $1,100 a month from work and get around $775 in benefits each month.

Finally you may be able to save something to fund retirement for that day when you are no longer able to work if you manage your finances carefully. If you are married and your wife is of age she may also receive benefits (spousal benefits if she has no work history).

Taking benefits at 62 may reduce your benefits somewhat at full retirement age around 66 (maximum benefits at age 70), but since you continue to contribute to FICA by working the hit will not be as substantial as might seem since benefits will be adjusted upwards based on your continued contributions.

So to answer your question - should you wait until you can receive maximum benefits to start receiving Social Security benefits. Absolutely not. Apply for benefits as soon as possible and continue working. Handle the extra money carefully and save some for when you finally do quit work. If you don't start and die before you could draw maximum benefits - the money evaporates (it is gone). If it is in your bank account at least your spouse or children can benefit from it. 


I can think of no reason for you to wait. The fact you have no retirement savings is a good reason to start receiving benefits as soon as possible. Of course for others earning more (say $10-12 an hour) the analysis may differ and you probably should talk to an advisor and run the numbers. . .

Retirement doesn't mean no tax planning

Retirement and tax planning


You are over 62 and no longer earning big dollars - drawing SS.  So you no longer need to spend time tax planning - do you? If you answered yes then you may be right if SS is your main source of income and you have little or no money in retirement plans (IRAs or 401Ks) or a future company pension that will activate in 2-3 years. If you have sources of income (now or later) that are taxable - tax planning may be as important or more so than at any point in your life.

Let's say you are married and your spouse still works (that darn taxable income!!!). Maybe you are due a pension. So do you want to activate your pension now or wait? If you have investment or savings where taxes are already paid (or will be taxed at low rates) you may want to use part of that savings and wait to activate sources of taxable income.

Why is that? One reason is SS benefits are not taxable in all or part depending on other taxable income. For a single person the line in the sand is $25,000. Above that line SS income starts to be taxes (up to 85% of your SS income - talk about double taxation because you paid taxes on SS deposits as you worked). You take 50% of your SS benefits and other taxable income. If you are single and that is over $25,000 then part of your SS benefits become taxed. For example if you get $18,000 a year in SS benefits and have less than $16,000 of other income then SS benefits are not taxable. If you are married - the line is $32,000 (not 2 X $25,000).

So if your spouse still works almost surely some of your SS benefits will be taxed. The more money you receive from a pension or take out of your IRA/401K the more of those benefits get taxed. Hence, you may want to postpone taking money out of a 401K or IRA until a later date. If you are below the line ($25,000 single, $32,000 Married) you may want to take enough money out of your 401K or IRA to reach that line. If you don't need the extra money to meet current expenses set up a Roth IRA and do a transfer from your regular IRA (or 401k) in an amount to reach the limit.

　The 70 1/2 tax trap

At 70 1/2 you have no choice except to take money out of your IRA (401k). You will need to refer to the appropriate IRS publication to compute the amount. In general thou it is around 5% of your total IRA/401K account value. So if you have a substantial amount in these retirement accounts you have to figure out - do I pay more if I wait to do the required amounts or is it better to draw down the accounts over the next few years until you are 70 1/2. If you feel incapable of figuring this out you may need the help of a capable financial advisor (just avoid those that want to manage your money for a fee unless you need help in that capacity also).

The point is - if you have substantial amounts - at age 70 1/2 you could face some hefty tax bills unless you plan to minimize that bite. Suppose you have $500,000 of retirement assets and have to withdraw $25,000 at age 70 1/2. If single then probably 85% of your SS benefits will become taxable. If you are married you have to consider combined incomes. Say each of you have $500,000 in retirement assets and each have to take a 5% distribution at 70 1/2. That is a total of $50,000. So surely most of your SS benefits will be taxes.

If possible you want to avoid this tax trap. One way is to die and leave the assets to a beneficiary. Then it becomes their problem. Of course it is probably not the preferred solution.

What should you do?

Without knowing your individual situation I cannot answer that question. If Married you could always get divorced and just live together (that way each of you get a $25,000 line in the sand). Not recommending that - just commenting on it.

My personal situation is such that (I am single) that I am under the $25,000 line. So I am able to transfer some funds to a Roth IRA (I don't need it for current living expense) each year and pay taxes at a 10% Federal Income Tax Rate. I doubt I will totally avoid the 70 1/2 tax trap, but I will have minimized the effect.

But as you should see by now - just because you are retired it does not mean you can quit staying on top of your personal financial situation (and tax planning). Good luck in your efforts. A session with a capable financial planner may be necessary to come up with a personal plan.
　

The pension lie that is Social Security

In truth, almost all pensions are a lie.

The pension that comes to mind for most of us in the US is Social Security. A tax is deducted from our paychecks to fund the pension. By law, when the program takes in more than it pays out (as it did from 1982 thru 2009), it has to loan the excess to the federal government. The federal government is obligated to pay this amount back with interest when the program faces a shortfall. In 2010, it faced a shortfall. It is expected to face a shortfall in 2011. In addition to all its other debt, the federal Government now owes the Social Security Trust Fund (the account to which surpluses are loaned) some $2.5 trillion dollars. Surpluses are projected to return for the next few years but then from 2015 on, the program is expected to face deficits. Social Security payouts will then depend upon government injections but by 2037, the Social Security Trust Fund will be zeroed out. I think we all know where a government already deeply in debt will come up with the money. They will either borrow it, print it, or tax it. We can all debate a fix, but the program is a Ponzi scheme and it is built on lies. In true Ponzi fashion, there are 3 people working to support 1 beneficiary. Forty years ago that ratio was three times as wide and in looking forward, the ration will tighten even further.

http://www.financialsense.com/Contributors/Barry-ferguson/pension-lies-lead-to-riots

Where the money is update 1

I told you that the FED/Govt is going after your savings and retirement funds by keeping interest rates low.  It is official policy to rob those who have behaved responsibly to bail out those who haven't.  This has to stop!!!
I am not alone in thinking this:  http://www.financialsense.com/contributors/daniel-amerman/cheating-investors-as-official-government-policy

But, don't worry they have a plan that is even worse.  It is called inflation and we are starting to see that plan emerge as food and oil prices surge.  The only thing going down is home prices and your income to pay higher prices for every day essentials.

Others see this too:  http://www.safehaven.com/article/20094/food-price-inflation-calculator  IMO, do not lock up your assets in long term bonds, CDs, annuities, etc as in the near future interest rates will soar and you want to wait for those before extending the maturity of fixed rate investments.

The FED/Government policy to get your money evil (pure evil) and it will take your utmost attention and efforts to avoid their traps.