3 social security rules that are not left out – The Fool Motley

Social Security is the savior of a program aimed at retired workers in our country. The mere fact that social security provides a monthly benefit to more than 43 million retirees retains about 15.3 million of these retirees above the federal poverty line, according to a recent analysis by the Center on Budget and Policy Priorities. This is simply indispensable for older beneficiaries.

But as much love as social security receives, it also receives its share of public vitriol. Some aspects of the program are, for lack of a better word, hated. And while the American public and most retirees would probably like these hated social security rules to go away, this just will not happen. Here are three of those disgusting rules that you'd better get used to.

1. The taxation of social security benefits is here to stay

Among the many changes made to the 1983 amendments are the implementation of the taxation of social security benefits for single taxpayers and couples jointly depositing income above certain income thresholds.

If the adjusted gross income (AGI) of an isolated taxpayer, plus half of its benefits, exceeds $ 25,000 ($ 32,000 for a couple filing jointly), it will be subject to federal income tax. ordinary income up to half of his benefits. The Clinton administration added a second level of taxation in 1993 to taxpayers earning over $ 34,000 and couples over $ 44,000. This second level makes it possible to tax up to 85% of social security benefits at the federal rate. In addition, 13 states also tax social security benefits to varying degrees.

The American public absolutely hates this tax and thinks the middle class retirees would be in much better financial shape if it was repealed.

Worse, the earnings thresholds described above have not been adjusted for inflation since their introduction in 1983 and 1993, respectively. This means that over time, the taxation of benefits has increased from about 1 in 10 households in 1983 to about 56% of homes for seniors, according to the Senior Citizens League.

The reason this tax does not disappear and these income thresholds are not adjusted for inflation is simple: social security is facing a shortfall of more than $ 13 trillion between 2034 and 2092, and the program needs every penny of income that it can get. Although the taxation of benefits received represents "only" 37.9 billion dollars in 2017 (less than 4% of all social security income), its importance is expected to grow over time, especially with the real possibility that interest income will disappear over the next two decades.

There is virtually no way for Congress to revoke the taxation of social security benefits.

2. The Retirement Earnings Criterion for Expected Claimants Goes Nobody

A second social security rule that is often hated is the Retirement Income Test, or RET. The RET allows the Social Security Administration (SSA) to withhold all or part of a beneficiary's payment based on its income. It should be emphasized that the RET is applicable only to beneficiaries who have not yet reached the retirement age (ie the age at which they are eligible to receive their full retirement benefit, determined by their year of birth). If an elderly beneficiary has reached or reached the age of retirement, the retirement income criterion does not apply to him.

In 2018, an early claimant, for example aged 62 to 66, who will not reach retirement age this year, will be able to earn up to $ 17,040 per year ($ 1,420). per month). For every $ 2 of earnings above this level for people currently receiving Social Security benefits, the SSA may withhold $ 1 in benefits, up to the total amount you should have paid for the benefit. ;year.

There is a separate category for early applicants who will reach retirement age in the current year but have not yet done so. If you fall into this category in 2018, you can earn up to $ 45,360 ($ 3,780 per month) without SSA source deduction. But for every $ 3 of earnings above this amount, the SSA will retain $ 1 in benefits.

On the bright side, the benefits are not lost. They are returned to the recipient in the form of a higher monthly payment once they reach the retirement age. But the other side of the coin is that RET prevents early-stage claimants from doubling their income if they are still working. This extra income could be advantageous if they are trying to pay off a mortgage, student loan or other form of debt before retirement.

Given that the federal government would prefer that the American public wait longer before claiming social security benefits rather than claiming as soon as possible at age 62, it is unlikely that we will have the slightest chance of deleting RET.

3. Everyone hates the CPI-W, but nobody wants to do anything about it

Finally, both the American public and your elected officials in Washington tend not to like the inflationary power of social security that determines its annual adjustment of the cost of living (COLA). This tie is officially the consumer price index for employees and clerks in urban areas (CPI-W).

The CPI-W includes eight broad categories of expenses, with innumerable subcategories, which measure the price change for a predetermined basket of goods and services. More specifically, only the average readings of the third quarter of the previous year (July to September) and the third quarter of the current year are examined to determine COLA. If the average reading of the CPI-W increases, beneficiaries receive an "increase" proportional to the percentage increase, rounded to the nearest 0.1%.

Sounds simple, right? Well, the problem with the CPI-W is that it does not do a very good job of monitoring people that the social security program is designed to protect: the elderly. As the name suggests, the CPI-W measures the spending habits of urban workers and office workers who, as might be expected, spend their money very differently from seniors. This results in significant expenditures for older beneficiaries, such as medical care and housing, which are less valued than they should, while lower costs, such as education, clothing and transportation, have additional weighting. Ultimately, seniors do not receive enough COLC to cope with the inflation they face.

Although Republicans and Democrats agree that the CPI-W does not do its job, no party has the capacity to replace it. This is because the GOP and the Democrats have solutions that lie on either side of the spectrum. In addition, it would take 60 votes in the Senate to change social security, and there is no chance of bipartisan support on this issue in Washington.

In short, CPI-W is not going anywhere.