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If you plan to rely only on your social security check for your retirement, you may want to reconsider your decision. Here's why.
UNITED STATES TODAY & # 39; HUI
For better or for worse, social security is the most popular social program in our country.
Every month, 63 million benefit checks are issued, and more than one-third of these beneficiaries are lifted out of poverty thanks to this guaranteed monthly payment.
Although Social Security was designed to be a financial base for retired workers in the mid-1930s, it has become much more, the program also providing long-term disability benefits and benefits. from survivors to immediate families of deceased workers.
But as long as the program has saved lives, social security is far from perfect. There are certain "rules" in the program and I'm pretty sure we can all agree that we hate and prefer to see it disappear.
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Here are three of these rules.
1. Taxation of social security benefits (above certain income thresholds)
Not that I classify them in any particular order, but if any aspect of social security was more hated than any other element of the program, it would almost certainly be the imposition of social security benefits. In fact, a survey conducted by the nonprofit organization The Seniors Center, based in Washington, DC in March 2017, revealed that 91% of US retirees in majority wanted the tax to be set aside.
(Photo: Getty Images)
Taxation of paid benefits is applied at the federal level when an individual's adjusted adjusted gross income, plus one-half of his benefits, exceeds $ 25,000 (or $ 32,000 for a couple filing jointly). Established in 1984, following the adoption of the 1983 amendments, this measure allowed the imposition of up to 50% of the benefits of a person or a couple. In 1993, a second pillar was introduced, allowing up to 85% of benefits to be imposed if a single taxpayer or a jointly reporting couple exceeds $ 34,000 or $ 44,000 of earned income, respectively. Although This is not a case of double taxation, but it seems that many social security beneficiaries do.
Worse still, the income thresholds associated with this tax have never been adjusted for inflation. Thus, over the years, more and more seniors are taxed on their program income. At the last audit, the League of Older Citizens (TSCL) estimated that 51% of senior households pay taxes on their social security benefits.
The cherry on the cake, 13 states also tax social security benefits to varying degrees. If you had to pay taxes on your benefits, you would actually have a valid double taxation grievance.
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2. Use the CPI-W to calculate the COLA
Another social security rule that we would very much like to be interested in is the use of the Consumer Price Index for urban wage earners and office workers (CPI-W) as an inflationary factor in the program for its adjustments. of the cost of living (COLA). Think of COLA as the "stimulus" that beneficiaries receive each year in order to keep up the rising cost of goods and services (ie, inflation).
The problem is simple: the CPI-W does a very poor job of measuring the costs that matter to retired workers – which, let me remind you, represent 70% of the current beneficiaries. Indeed, as the name implies, the CPI-W follows the spending habits of urban workers and office workers, who in almost all cases are not beneficiaries of social security. To summarize for skimmers: the program offers mainly benefits to the elderly, but has an inflation index tracking index indexed to urban workers and office workers of working age.
Since working-age Americans and seniors spend their money very differently, the result is that seniors quickly lose their purchasing power through their social security dollars. Expenditures that matter most to retirees, such as housing and medical care, receive less weight, while less important expenditures such as recreation, transportation, education and clothing weigh more in the calculation of the COLA. Since the year 2000, TSCL finds that the purchasing power of social security dollars for the elderly has decreased by 34%.
(Photo: Getty Images)
3. Submit young tax filers to the retirement income test
Passing the earnings test in retirement is another common complaint among young tax filers.
In 2019, young tax filers who will not reach retirement age this year will only be able to earn $ 17,640 a year ($ 1,470 per month) without any repercussions. For every $ 2 of earnings above this mark, $ 1 in benefits is retained. If you reach your full retirement age this year but you have not reached it yet, the income threshold is $ 46,920, or $ 3,910 a month. In this case, $ 1 of benefits can be withheld for every $ 3 of income earned above this bar.
Even if you recover your retained benefits in the form of a higher monthly payment once you reach the retirement age, the retirement income test is a parasite because it punishes the people who file an earlier application who are still working and who may be looking to double their incomes. their income streams. This can also inadvertently affect early depositors who have no choice but to claim promptly.
(Photo: Getty Images)
Sorry, but none of these rules disappear so soon
Unfortunately, although we can all agree that these social security rules should be set aside, there is virtually no chance of changing them anytime soon.
Despite our dislike of taxing benefits, the program simply could not do without the income it provides annually. According to the 2018 report of social security officers, the taxation of benefits generate revenues of $ 561.2 billion between 2018 and 2027. If this tax were simply stopped, the already precarious financial situation of Social Security would deteriorate further, potentially leading to sharp reductions in benefits in the future.
With respect to CPI-W, the move to an inflationary measure perceived to be more specific would require congressional bipartite cooperation – which, as we all know, is a fairy tale. OK, it may be a little cynical, but Democrats and Republicans have proposed a "cure" for the inflationary bond of Social Security, and their suggestions could not be further apart. Without the 60 votes required in the Senate to change social security, no inflationary measures will be taken.
And the test of retirement earnings will not disappear either. Indeed, to avoid anticipated claims, the SSA wishes to encourage people to save more, to invest for the future and to claim their benefits (ideally) at the latest at the retirement age.
It is perfectly correct to hate these three rules of social security. Just be aware that no amount of hate will make them leave.
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