Tag Archives: Social Security

Social Security should be expanded, not cut – latimes.com. Now read the real state of Social Security

5 Jun

I am now convinced that it is possible to spin news in just about any way you like. Here is an excellent example of spinning left to build your case absent consideration of the facts. Read the following from the L A Times.

Fear-mongers and other critics of Social Security were silenced — momentarily — by the release last week of the annual trustees’ report for the programs. The report showed not only that it’s looking pretty good in the near term, but in the long term it’s more important to the sustenance of millions of Americans than ever before.

But policymakers and pundits have taken the wrong lesson from these findings. The argument they most often put forward is that Social Security is so important it must be “saved,” typically by cutting benefits to bring its outflow in line with its income.

But the right conclusion is that it should be expanded. This is the proper moment to do so, because the shortcomings of the rest of our retirement system have never been so obvious.

Social Security is still recording a surplus of income over expenses, and even looking ahead 75 years, its projected actuarial deficit is manageable within a growing economy. In fact, its trustees say the program’s share of national wealth will stabilize as the baby boom generation moves into and — what’s a polite way of saying this? — out of retirement.

Social Security should be expanded, not cut – latimes.com

The Trust is not recording a surplus in the true sense and even if it was, a more detailed analysis of the Trustee’s Report is required. Rather the situation is like being unable to make the monthly payment on your credit card but continuing to charge new purchases because you haven’t reached your charge limit. The Trust used to create a surplus because incoming taxes exceeded the benefits paid; no more. Now to pay benefits the Trust uses all incoming taxes plus a portion of the interest. And where does the interest come from? It comes from the Treasury of the Federal Government, a government that continues to spend more than it take in. Does that sound like a sound financial plan? Should we ignore (the Trusts) “become depleted and unable to pay scheduled benefits in full on a timely basis in 2033.” So for seven years interest on bonds adds to the Trust and then it’s down hill and in twenty years both incoming taxes and interest are insufficient to pay full benefits.

I will leave it to you to draw your own conclusion about the financial state of Social Security.

Now here is the exact text of The Trustees 2013 report.

Conclusion

Under the intermediate assumptions, the Trustees project that annual cost for the OASDI program will exceed non-interest income in 2013 and remain higher throughout the remainder of the long-range period. The projected combined OASI and DI Trust Fund asset reserves increase through 2020, begin to decline in 2021, and become depleted and unable to pay scheduled benefits in full on a timely basis in 2033. At the time of reserve depletion, continuing income to the combined trust funds would be sufficient to pay 77 percent of scheduled benefits.

However, the DI Trust Fund reserves become depleted in 2016, at which time continuing income to the DI Trust Fund would be sufficient to pay 80 percent of DI benefits. Therefore, legislative action is needed as soon as possible to address the DI program’s financial imbalance. In the absence of a long-term solution, lawmakers could choose to reallocate a portion of the payroll tax rate between OASI and DI, as they did in 1994.

For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.66 percentage points1 (from its current level of 12.40 percent to 15.06 percent); (2) scheduled benefits during the period would have to be reduced by an amount equivalent to an immediate and permanent reduction of 16.5 percent applied to all current and future beneficiaries, or 19.8 percent if the reductions were applied only to those who become initially eligible for benefits in 2013 or later; or (3) some combination of these approaches would have to be adopted.

The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes and give workers and beneficiaries time to adjust to them. Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 58 million beneficiaries and 163 million covered workers and their families in 2013. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.

Following are the numbers from the Trustee Report. Note the status of the disability trust. The “Reimbursement from the General Fund” represents the payment to make up for the loss due to the payroll tax holiday. 20130605-204517.jpg

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Social Security disability … helpful and helpless

19 Apr

2013

If you are lower income and have limited work skills and you have a bad back or lose your job why wouldn’t you apply for disability Social Security especially when if you are denied benefits, Social Security will pay your lawyers to appeal the denial?

Once you are receiving this benefit which averages about $1,100 per month, what incentive do you have to find work especially when you will also receive Medicare after 24 months? Just as Medicare does virtually nothing to monitor claims, Social Security does next to nothing to help those on disability to leave the program.

The disability trust will be unable to pay full benefits beginning in 2016.

Government bureaucracy does what it always does, people do what is in their best interest and that combination of flawed incentives and disincentives always leads to abuse and dependency. It is so difficult, perhaps impossible to put these types of social programs in place so that they help those truly in need while remaining efficient and affordable.

We are once again heading down that road with health care while still trying to cope with Social Security and Medicare. If politicians and bureaucrats can’t design and then efficiently manage these programs (they have no incentive to do so), then we should at least do what no one wants to hear … put the correct level of taxes in place to pay for our promises.

Hundreds of state, county and municipal pension funds are dangerously underfunded, the result of generous promises and the failure to fund those promises. The result is hard times for plan participants and for taxpayers. A similar scenario plays out on the national stage.

Will we ever learn to get this right?

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Let’s re-think this thing called Social Security

9 Apr

2013

I keep rethinking the issue of Social Security. One part of me says Americans should not rely so much on this program and the other says, get real, Social Security is essential to nearly all Americans; that is not going to change because the vast majority cannot or do not save adequately for retirement and never will. All this is one of the consequences, good or bad, of government entitlements, sooner or later they are irrevocably relied upon.

The far right’s idea that private accounts or some other such thing will do the trick is nonsense. The far left’s idea that everything is just fine and we can go on our merry way is likewise foolish.

So what to do, what to do?

We face the facts and recognize that pie in the sky fixes are not the answer and that we not only need to preserve Social Security, but to improve it. In fact, I will go so far as to say, we should find a way to actually increase the benefits for the next generation. No, I don’t like more and more big government, but ignoring reality might be far worse. Unless we find a way to change human nature, I think we are stuck with what we have.

One of the key concepts we must decide is how far toward a welfare program do we want to push Social Security. Simply put, up until now the wage base for the Social Security tax was also the wage base for the calculation of the benefit. Today there is a body of thinking that says we should raise the wage base for taxation, but not for the benefit calculation. This means that higher income people pay more and receive less and that lower income people no longer are funding their own benefit (in theory), but are being subsidized by others, a move that may serve to discourage even those individuals inclined to save for retirement.

What do you think, should we change the very concept of Social Security?

Social Security is so complex and provides so many benefits beyond simply a pension, that it is hard to deal with. Some people receive a benefit when they never worked, multiple wives and ex-wives can receive a full spousal benefit as long as they were married for ten years, disability can start at any age, 100% survivor annuity benefits are generous by pension standards, etc.

As much as it pains me, I have come to a way of thinking that Social Security must be a form of forced savings meaning gradually raise the benefit, by gradually raising the tax employees and employers pay. Before you anti-tax folks throw me under the bus, give me your thoughts on an alternative that actually works in the real world for the average American, the under educated, under informed, undisciplined, lower income, unreliable, irresponsible American. And don’t tell me tough luck for them, as we all know it doesn’t work that way.

A recent editorial in the New York Times makes several suggestions:

To ensure that the system is paying proper COLAs, Congress should instruct the Bureau of Labor Statistics to develop a statistically rigorous index of inflation among retirees.

Raise the level of wages subject to Social Security payroll tax to about $200,000 from the current $113,700.

A sensible change is to raise the payroll tax rate, currently 6.2 percent for both workers and employers. The rate has not been raised since 1990. A one percentage point increase could be phased in over 20 years and still raise enough revenue to close about half of the funding gap.

The Times also throws in this little tidbit:

… trimming benefits for upper-income recipients, who live longer and draw larger benefits, could close about 10 percent of the system’s long-term funding gap.

The above suggestions merely attempt to keep Social Security going as is. Is that what we want and need?

I have long said that the COLA needs revision. The Times idea makes sense, the COLA should be geared to what retirees spend money on. However, the COLA also needs other changes in my view. For example, the COLA should not begin the first year after retirement, but at some later date. It should not be fully automatic, but subject to review as to each years impact on long term liabilities and funding requirements. Finally, it should be paired back for the highest income levels. That is, only make adjustments every two or three years, not every year.

The payroll tax percentage must be raised gradually over several years and that increase must be sufficient to increase the basic retirement income benefit available at normal retirement age (not applicable to ancillary benefits). Such increase should be skewed more to employers rather than the employees. For example, say the increase is 1.5% over many years. Employers should pay 1% and the workers .5%. Why, simply because employers have gained over the years through the elimination of retirement plans and in larger employer cases the elimination of retiree health benefits, plus it is in the best interest of all employers for workers to retiree with adequate incomes.

I don’t buy the idea that the taxable wage should be raised without an accompanying increase the the wage base used for the benefit calculation. However, there is a middle ground. Increase the wage base while at the same time revise the benefit accrual formula so that the additional benefit based on higher wages accrues at a lower rate than for the bulk of income (say the current wage base as indexed).

While we hear a great deal of angst over Social Security, it is usually related to lower income and the poor. The unfortunate fact is that the middle class, and upper middle class will come more and more to rely on this program. We have made available more tax advantaged retirement vehicles than we need and still retirement saving is inadequate.

We know we have a coming crisis not only with Social Security, but with retirement income in general. What are we going to do about it?

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Reasonable prospective changes in Social Security – the liberal propaganda machine is unfair to all Americans

14 Mar

2013

The most liberal Democrats see the 75 year salvation for Social Security in simply removing the payroll cap on taxable income (while leaving the benefit calculation at the capped level). What could be easier, just raise taxes and lower spendable income for all upper middle class Americans? In the process we change Social Security into a senior welfare program and make the next generation even more dependent by lowering its ability to save for retirement.

A reasonable alternative is to slightly modify the cost of living calculation going forward. No benefits are cut. This and future generations share in the changes and federal revenue is increased in the process. The hold harmless provision in the Medicare law still protects the vast majority of beneficiaries from premium increases that exceed the Social Security COLA.

In the coming months the liberal propaganda machine will be gearing up in fear that there may actually be compromise on this issue. Left, right or middle nobody wants to harm seniors or ignore those who depend heavily on Social Security. Nobody wants to destroy Social Security. However, America is about more than seniors. We have a responsibility to all ages and all generations. It is reprehensible in the name of politics (think senior voting block) to further burden the middle class and those aspiring upward mobility with more taxes, especially when there are viable alternatives to spread the burden across generations.

As you listen to the political rhetoric and propaganda from the AARP and groups such as the Center for American Progress, keep the facts in mind and remember this is a Country with obligations to our young and our old.

We seniors had our chance, we have no right to diminish the opportunities of following generations.

From a WSJ article 3-12-13

Democrats, particularly more liberal ones, are worried about two positions Mr. Obama staked out in past budget talks. During the 2011 debate over raising the nation’s borrowing limit, he proposed a switch in the way the government calculates inflation, to a process called “chained CPI,” that would reduce benefits people receive under Social Security.

If adopted, chained CPI likely would be applied to a number of programs and to the tax code, cutting projected deficits by $230 billion over 10 years, the administration has said. A hypothetical Social Security beneficiary who retired at age 62 in 2002 with a monthly benefit of $1,000 would receive $1,309 a month now under the current cost-of-living adjustments, but $1,263 if the chained CPI approach had been in effect.

NOTE: The difference in the monthly benefit after ten years of inflation adjustment is only $46 a month on average.

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Funding pension (and Social Security) promises when the promise is too generous

11 Jan

Consider this item about Illinois public pensions contained in a Wall Street Journal article January 8th. The story is about trying to deal with the underfunded pension trust. Illinois has only 45% of the money needed to meet the pension promises.

Two competing plans are working their way through the legislature. The House is debating a six-year freeze in the cost-of-living increase for retirees and an increase in employee contributions, among other changes. The Senate last year passed a bill requiring those in the pension system to choose between a diminished cost-of- living increase and retiree health benefits.

Why does the Illinois pension trust have only 45% of the money needed to fulfill promises … because the state failed to make adequate contributions to the fund. One must assume that competing expenses made funding impossible. This also means that unaffordable promises, such as in the form of annual cost of living adjustments, were made.

Shouldn’t a state or any other entity be required to meet its commitments? The easy answer is yes. The tougher question is how. In this case and many others you have generous (especially when compared with non-government workers) benefit obligations negotiated between politicians and public employee unions and the failure by both parties to address or be concerned about the long term cost of the obligation. The union solution is to simply raise some taxes to help fund the plan.

The result of this type of behavior is workers and taxpayers left with the short end of the stick. In reality of course taxpayers pay no attention to these matters while they are happening and may even support the union demands. Workers quite naturally welcome every benefit improvement they can get.

Now, if you think none of this affects you, think again, think Social Security. In a relative few years without changes Social Security will only pay 75% of the “promised” benefit, analogous to a 25% funding shortfall. Why? Because the promises, in part the COLA formula, are more generous than the funding will support. The solution is the same as in Illinois, trim benefits or increase the funding; think higher FICA payroll taxes.

In the final analysis the proverbial free lunch never exists. Now we are faced with deciding who assumes the burden of paying for lunch. Shall it be current beneficiaries who also benefited from lower than required taxes in the past or current taxpayers who must pay more to fund both the promises to current beneficiaries and to themselves?

Why not ask your representatives in Congress, they created the promises.

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Social Security Trust invests in Spanish debt – just kidding

8 Jan

From the January 4, 2013 Wall Street Journal

MADRID—Spain has been quietly tapping the country’s richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds, raising questions about the fund’s role as guarantor of future pension payouts.

Now the scarcely noticed borrowing spree, carried out amid a prolonged economic crisis, is about to end, because there is little left to take. At least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt, according to official figures, and the government has begun withdrawing cash for emergency payments.

Does the above sound familiar?

It should because this is exactly what the U.S. Social Security Trust does (or did – there is no longer excess revenue from payroll taxes to invest in Treasury bonds). Granted, the United States is not Spain (yet) and our national debt is eons less risky than Spain’s, but keep in mind that the promises of Social Security are directly and solely linked to the payment of interest and in a few years, the redemption of Treasury bonds that the Trust purchased from the U.S. government. The government immediately spent the proceeds of those sales on all kinds of stuff – you know, like the community grants of $17 billion included in the “Sandy relief” $60 billion legislation.

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Social Security payroll tax

29 Dec

News reports say it is likely the 2% tax reduction on Social Security payroll taxes is likely to go away in 2013 . . . and the angst begins.

When the government tried lump sum stimulus payments much of the money was saved rather than spent. Instead, brilliant minds said if we give them a little at a time most people won’t notice it, won’t save it and hence it will be spent. In fact, it was spent so efficiently it has become what some are calling a necessity to pay for essential expenses like food for some households.

This slight of hand cost the government $200 billion over the last two years; money that was borrowed to replace money that was diverted from the Social Security Trust.

Two years ago Americans paid this tax and lived on their net income, now they will be asked to do so again. We are back to where we started only now some can no longer live on their net income because they have come to rely on that extra $19.23 (on average) a week. What a cruel hoax by politicians.

Americans could have avoided the stress of the tax going away by better planning. Isolate that money and use it not for recurring expenses, but for one time essentials or for emergency bills over the last two years, (or heaven forbid, save it) but you see the hoax of burying it in the net pay was hardly noticed at all.

This reminds me of the time I was explaining health insurance payroll deductions to a group of employees in a company we had acquired. When I told them the amount of the deduction there was a near riot. We don’t pay anything now, our coverage is free they shouted. At that point the owner of the company intervened and said, “Hey guys, the deduction this guy is telling you about is $20 less than what you are paying now” … not a clue.

If Americans can’t afford the 2% payroll tax, how can we afford Social Security? Indeed, how can we afford any of the promises made by our politicians? If property taxes are a burden as they are in many states, how can we afford pensions and other benefits for public employees that are far more generous than what average Americans receive? If average Americans are struggling to get buy, if sixteen million Americans are underfed how can we afford to send millions to fund projects in other countries albeit a small portion of the federal budget?

What we fail to realize and what politicians like to ignore is that sooner or later, one way or the other everything has to be paid for by all Americans, not just the wealthy, not just the millionaires and billionaires.

The fact is that entire Social Security payroll tax is insufficient to fund the promises of Social Security. From the Trustees report:

For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period, lawmakers could: (1) increase the combined pay- roll tax rate for the period in a manner equivalent to an immediate and permanent increase of 2.61 percentage points (from its current level of 12.40 percent to 15.01 percent)

The so-called tax holiday should never have happened in my view. The short-term benefit did not outweigh the longer term consequences as we are about to realize.

Our fundamental problem is that as individuals and as a nation we seem incapable of strategic thinking and long-term planning or of anticipating the consequences of our short-term actions often because the truth hurts (and doesn’t get politicians elected).

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The truth about entitlements and the deficit. Why Americans don’t want the truth about Social Security and Medicare and why politicians won’t tell you.

7 Dec

Writing in the December 2 Washington Post, Robert Samuelson does an excellent job explaining why Social Security and Medicare must be on the table in budget and deficit talks. Following are some facts to consider.

While Democrats hammer Republicans for not being specific about their proposed spending cuts especially regarding our sacred entitlements, the truth is “you can’t handle the truth.” Telling the truth about what needs to be done brings the wrath of the likes of the AARP, unions and no nothing seniors who believe they paid for their Social Security and Medicare. Telling the truth may also mean unemployment for the candid politician.

Nobody is talking about cutting anyone’s existing benefits. In fact, all suggested changes to date have far less impact on seniors than what is happening to working American’s retirement and benefit programs and has for years; working Americans at all income levels. Many young families earning no more or less than a typical senior pay hundreds of dollars more a month for health insurance than do seniors and have higher out-of-pocket costs as well. The Medicare Part B deductible actually went down in 2012 and modestly increased from the 2012 level for 2013. Given the fiscal problems of the program does that make sense? A couple on Medicare with an income up to $170,000 is protected from paying a higher premium if the Social Security COLA does not at least equal the premium hike. No such protection is afforded a working family earning far less.

Liberals claim they want to protect and help working people when in fact their intransigent position on entitlements merely adds to the average American’s burden now and in the future.

The truth:

Forty-six percent of federal spending (excluding interest payments) goes toward Social Security, Medicare and Medicaid. That is more than twice the spending on defense. How do you deal with budgets and deficits while ignoring nearly half of your spending?

Social Security, despite claims to the contrary, does impact the deficit. Benefits exceed incoming taxes which means that payments come from interest paid by the Treasury and eventually from redeeming Treasury bonds. The Treasury does not have that cash and must borrow more to pay the Social Security obligation … until all the bonds are gone (no more are being purchased). The Congressional Budget Office estimates the gap between taxes and benefits to average 10 percent over the next decade and to be 20 percent by 2030. A politician who makes the claim that Social Security does not impact the deficit is simply ignorant or lying.

As Samuelson points out, if modest cuts to Social Security future benefits are unfair to the elderly, doing nothing is unfair to the young.

Then we have the argument and perception that seniors are poor. I recently tried to book a trip in Europe for mid 2013. I tried three different travel companies catering to older Americans ranging from modest to five-star costs; nearly every date I tried was already sold out. But more significant look at these figures from the Samuelson article.

The Administration on Aging reports that in 2010, 25.9 percent of households headed by someone 65 or older had incomes exceeding $75,000; 19.4 percent had incomes from $50,000 to $74,999; and 18.8 percent had incomes from $35,000 to $49,999.

That means that 64% of seniors have incomes close to or exceeding the average household income of all Americans AND they are not faced with expenses such as college and retirement savings, child rearing and more.

Many people commenting on this blog and elsewhere insist they paid for their benefits; not true. Based on an estimate from the Urban Institute’s C. Eugene Steuerle and Caleb Quakenbush, a couple with average wages retiring in 2010 would receive $966,000 in Social Security and Medicare benefits against taxes of $722,000. Current Social Security and Medicare taxes pay the benefits for the current senior generation and are not saved for use by the taxpayer.

The last I checked Shangri-La was still a mythical place.  Today’s progressives seem bent on proving that is not the case.

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Reid takes Social Security off the table; do these guys understand compromise? Hope for a balanced rational fiscal cliff deal fades as liberals push for tax side of the equation

23 Nov

Harry Reid - Caricature

I’ll protect everyone who is old at all cost.

Paul Krugman says its unfair and wrong to raise the Social Security and Medicare eligibility age; Sen. Harry Reid says any adjustment to the Social Security COLA calculation is off the table. It appears what’s left is higher and higher taxes to preserve a 20th century benefit in the 21st century.

While I can understand the age position, the COLA position is just stupid and short-sighted leaving the Country with ever-increasing liabilities requiring higher and higher taxes on everyone. We already spend a disproportionate amount of national resources on us old folks and yet even long-term, gradual and practical changes offend the sensibilities of the left.

Here is an excerpt from a Huffington Post article. Note the section I put in bold below, look at the logic used. What they are saying is that if you only get a raise on your job of 3%, but you were expecting 4%, you suffered a pay cut. Nonsense; you may have received less than anticipated but no pay was cut. But even more absurd is the dollars involved; $1,000 less a year after twenty years in the future, that’s $50.00 a year each year (that you don’t even have now) and that’s something to risk the fiscal solvency of the Country over? No wonder we are in the shape we are.

Most of the people now collecting Social Security will not be here in twenty years and younger people will have ample time to plan ahead for this very modest adjustment. What is the government paying for via lost revenue through a myriad of tax favored retirement vehicles if not to help people plan for retirement beyond Social Security?

The whole idea of an automatic COLA disconnected from affordability or economic conditions as well as under funded is abominable. What business can stay solvent providing raises to workers each year regardless of revenue or profit? Minor adjustments to the Social Security COLA over decades are virtually painless. There are other alternatives as well as I have previously mentioned. No COLA for anyone during the first five years of collecting a benefit, no COLA applied before the full retirement age, a COLA only every other year for anyone entitled to the maximum Social Security benefit and no COLA at all for beneficiaries subject to the supplemental Medicare Part B premium.

Our politicians are nothing but enablers to Americans who fail to plan and provide for their own economic well-being. This is not to say we ignore those truly in need, but setting policy to the lowest common denominator is going to sink us just as it is sinking Europe and who suffers most; the average citizen.

“I’ve made it very clear. I’ve told anyone that will listen, including everyone in the White House, including the president, that I am not going to be part of having Social Security as part of these talks relating to this deficit,” Reid, D-Nev., told reporters.

Reid’s edict would appear to take a key proposal off the table as an ingredient for a deal on avoiding the “fiscal cliff,” the year-end combination of expiring President George W. Bush-era tax cuts and harsh across-the-board spending cuts.

At issue is the inflation adjustment used by the government to calculate cost-of-living adjustments for Social Security and other federal programs. A less generous inflation measure that takes into account consumers finding alternatives when prices go up could reduce deficits by more than $200 billion over the next decade.

It’s a no-brainer for many budget wonks because it means gradual, less noticeable curbs to the growth of benefits. It also means about $70 billion more tax revenues over 10 years because automatic rises in tax brackets to account for inflation would be smaller.

That new inflation index, known as chained Consumer Price Index, is a magic elixir for budget writers. But it’s anathema to many liberals, who say that moving to the new cost-of-living measure could cut average retiree benefits by about $600 a year a decade after taking effect and mean a cut of about $1,000 a year after 20 years.

Note the poll to the right, vote and then see the results to date >>>>>>>>

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New limits for pension plans, IRAs and 401(k) plans for 2013. New wage base and maximum benefit for Social Security

29 Oct

IRS Announces 2013 Official Indexed Figures for Retirement Plans and Other Employee Benefit Plans

The Internal Revenue Service (IRS) issued Information Release 2012-77 on October 18, 2012, providing the 2013 official indexed figures for retirement plans and other employee benefit plans.

Annual dollar limit for pretax contributions to Section 401(k), 403(b), and 457 plans: $17,500 (The 2012 limit was $17,000)

Annual dollar limit on catch-up contributions for age 50 and over remains unchanged: $5,500. An individual age 50 or over may contribute a total of $23,000 annually.

Section 414(q) pay threshold for highly compensated employees remains unchanged from 2012: $115,000

Section 415 limit for defined benefit plans: $205,000 (The 2012 limit was $200,000)

Section 415 limit for defined contribution plans: $51,000 (The 2012 limit was $50,000) maximum employee and employer contribution)

Section 401(a)(17) recognizable pay limit: $255,000 (The 2012 limit was $250,000). Pay above this amount cannot be considered in a qualified pension or 401(k) plan

Social Security

Wage Base: The 2013 Social Security wage base is $113,700. (The 2012 amount was $110,100.) The maximum tax payable is $7,049.40.

FICA/Medicare Tax Rate: The FICA tax rate remains at 7.65%: 6.2% for Social Security and 1.45% for Medicare combined.*

*The Temporary Payroll Tax Cut Continuation Act of 2011 reduced the Social Security payroll tax rate by 2% on the portion of the tax paid by the worker through the end of February 2012. The Middle Class Tax Relief and Job Creation Act of 2012 extended the reduction through the end of 2012. Under current law, this temporary reduction expires at the end of December 2012.

Beginning in 2013, the Patient and Protection Affordable Care Act (Obamacare) increases the Medicare tax rate on wages by 0.9% (from 1.45% to 2.35%) for higher-income individuals. The payroll tax increase applies to wages over $200,000 for single tax filers and $250,000 for couples filing jointly. ($125,000 for a married individual filing separately.) The 1.45% Medicare tax applies to all earnings.

Maximum Monthly Benefit: For someone retiring at full retirement age in 2013, the maximum benefit is $2,533. (The 2012 amount was $2,513.) This equals $30,396 per year or $45,594 for a married couple.

Annual Earnings Test Limit: For individuals under full retirement age, the annual earnings test limit is $15,120. (The 2012 amount was $14,640.) For individuals attaining full retirement age in 2013, the annual earnings test limit for the months prior to attaining full retirement age is $40,080. (The 2012 amount was $38,880.) There is no annual earnings test for individuals who have attained full retirement age.

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Forget the 1% you should be worrying about the 2% (payroll tax)

17 Oct

Taxes

Nearly two years ago I warned people not to use the temporary 2% reduction in Social Security payroll tax for their daily expenses, but rather to increase savings, perhaps their 401(k) plan, by the same amount. That way when the 2% tax break went away the extra savings could be reduced with no impact on take home pay.

I doubt many people took my advice. Sadly these folks are now facing a drop in the take home pay they no doubt have come to rely on. The word from Washington is that there is no appetite in either political party to extend this tax cut for a third year. This means many Americans are going to be in for a shock when they see their first paycheck in January.

A family earning $50,000 will see a $1,000 cut in net pay. A family earning $80,000 will see a $1,600 cut and a family earning a combined income of $150,000 will lose $3,000 in spendable income.

For the simple reason that Americans would become used to the tax cut, this tax holiday was a bad idea and never should have happened. The idea, of course, was that the increased spending power supposedly generated by the tax cut would stimulate the economy. The actual result was that because of the need to make up the lost revenue for the Social Security trust, the Treasury Department made the payments by increasing the federal debt.

Oh what a tangled web we weave.

Don’t forget to vote in the poll at the right of this post. Show everyone where you stand.

10-17-12

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The 2013 COLA is 1.7%

16 Oct

The Bureau of Labor Statistics has announced the September CPI-W at 228.184.

This means the 3rd quarter average is 226.936 as compared with 223.2333 for the 3rd quarter of 2011 for a difference of 3.7027 which equals a 2013 Social Security COLA of 1.658%.

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2013 Social Security COLA will be known October 16

15 Oct

The CPI-W for September, the last key data point to calculate the Social Security COLA for 2013, will be released in a press release on October 16th.

Chances are very good it will be the lowest increase in many years (excluding the zero years).

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Social Security Cares Act – another idea where ideology comes before logic

14 Oct

The good people at the Center for American Progress are great at coming up with ideas, mostly to address one perceived social ill or another. Their latest idea is to add a new benefit to Social Security. This time it’s paid leave for short-term illness, care of a newborn or care of an ill relative. Here is part of their logic for the proposal.

While the phenomenon of workers combining work with care is not new, one thing is now clear: This trend is not going to be reversed but rather will continue to accelerate. In fact, in 2010 half of all births to women under age 30 were to single mothers. If a single mom or one of the breadwinners in a two-earner family must stay at home to care for an ill child, then they may face loss of pay, loss of opportunity to advance in the workplace, or, in the worst cases, loss of a job. While these scenarios are most likely for those workers earning the lowest wages, no worker in the United States is fully protected against these possibilities.

CAP isn’t quite sure how to pay for this idea, but point to the payroll taxes as used by California and New Jersey where paid leave has been added to temporary disability benefits. The problem is only five states have temporary disability benefit laws.

Is this the time to even think about adding new payroll taxes to anyone? Given the state of Social Security and the Congressional record for messing about with it, do we really want to add another entitlement to the program? On the other hand, pragmatism never was a strength of progressives. It's a good thing these folks aren't in charge of anything that actually has to run successfully or affordably in the real world.

Call me old-fashioned (and proud of it), but rather than trying to fix everything we seem to screw up, why not spend some time asking how we got where we are that creates the need for society to pick up the pieces. Let me see if I have this right, the negative scenarios are most likely to occur among workers with the lowest income and among those workers where 50% of births are to single women (actually about 70% among African-American women) and the problem is these folks don't get paid as a result of these births?

There is a problem alright, it's called what happened to the stable traditional family in America and personal responsibility and moral values on the part of both men and women.

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A 25% cut in Social Security benefits is on the way

9 Oct

Ida May Fuller, the first recipient

Ida May Fuller, the first recipient of Social Security. Times have changed.

The fact Social Security is rapidly running out of money is well-known, it’s been known for years. By 2033 the existing bonds in the so-called trust fund will have been cashed in [where the government will get the money to do that is another interesting question] and used to pay benefits and the incoming taxes will be sufficient to pay 75% of the earned benefits. Twenty years is not a long time, many of the people collecting benefits today will still be collecting in 2033.

Here is an excerpt from and October 2, 2012 report from the Congressional Budget Office.

In calendar year 2010, for the first time since the enactment of the Social Security Amendments of 1983, spending for the program exceeded its dedicated tax revenues. In 2011, spending exceeded dedicated tax revenues by 4 percent, and that gap is growing. As shown in the publication’s first group of exhibits—Exhibits 1 through 8—CBO projects that:

Over the next decade, spending will exceed dedicated tax revenues, on average, by about 10 percent. With more members of the baby-boom generation entering retirement, spending will increase relative to the size of the economy, whereas tax revenues will remain a roughly constant share of the economy. As a result, the gap between the program’s spending and tax revenues will grow larger in the 2020s and will exceed 20 percent of tax revenues by 2030.

Under current law, the DI trust fund will be exhausted in 2016, and the OASI trust fund will be exhausted in 2038. It is a common analytical convention to consider the DI and OASI trust funds in combination. CBO projects that, if legislation to shift resources from the OASI trust fund to the DI trust fund was enacted as has been done in the past, the combined trust funds would be exhausted in 2034. However, considerable uncertainty surrounds the various factors that affect the program’s revenues and outlays, and thus the date at which the trust funds would be exhausted.

The resources dedicated to financing the program over the next 75 years fall short of the benefits that will be owed to beneficiaries by 1.95 percent of taxable payroll—up from 1.58 percent a year ago. That means, for example, that if the Social Security payroll tax rate was increased immediately and permanently by 1.95 percentage points—from the current rate of 12.40 percent to 14.35 percent—or if scheduled benefits were reduced by an equivalent amount, then the trust funds’ projected balance at the end of 2086 would equal projected outlays for 2087.

The essence of the problem is that benefits are too generous for the revenue generated via payroll taxes and there are fewer Americans to pay those taxes relative to Social Security beneficiaries. In 1960, there were 4.9 workers for each person getting benefits, by 2035 that ratio will be 1.9 workers for each beneficiary. Just do the simple math and you can see this does not work. This is also an indication that just raising the payroll tax is not the solution.

To make matters worse Americans are too dependent on Social Security in retirement. It was never intended to be the sole source or even primary source of retirement income as it is today for many people. Americans have become complacent about their own retirement planning believing naively that the tax taken from their pay each week is going to take care of them. Ok, I know that’s an oversimplification, but not by much if you consider what Americans have accumulated in retirement savings.

Today the average person within ten years of retirement has enough in their 401(k) account to generate a monthly life annuity of $432; about enough to pay their Medicare and supplemental insurance premiums.

Fixing this problem is relatively easy. A combination of adjustments to the payroll tax, the inflation calculator and how it is applied plus adjustment to the full retirement age would fix the issue and would spread the burden across generations. Such fixes would give people time to adjust and for current beneficiaries would have a minor impact on future increases in benefits not yet paid.

Many proposals have been made, to date all have been ignored. President Obama has done nothing to address the issue in four years, ignoring recommendations from his own commissions in favor of pandering to the AARP. Republicans have talked about fixes, but made no concrete moves.

The fact is politicians are afraid to broach the subject and be honest with people for fear of the backlash from voters. Think of it as the whistle-blower fearful of repercussions for reporting violations of the law. In this case voters are the employer who doesn’t want the problem fixed or even talked about.

Some pundits say fixing Social Security won’t be easy, but then they explain that is true because of the political risks, not the complexity of the program, not because of the money involved, but because of the political risk. So whose fault is that? It is the fault of short-sighted American voters who lap up the promises of politicians while giving no thought to the long-term consequences or viability of those promises. We just started that process again with Obamacare with voters focusing not on the liability incurred by the government committed to subsidize health insurance for tens of millions of Americans with open-ended growth, but rather on parents coverage for 26 year olds and free birth control.

Never mind voter ID, we need a common sense test before people should be allowed to vote; unless of course voting for a candidate because you think he gave you a free phone is the appropriate standard.

The longer we wait to fix this problem the more difficult and painful it will be. What we need is a political leader with the courage do the right thing and an electorate with the foresight to support him or her.

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