Last week tgif2minutes.com explored a basic statement directly from Social Security’s SSA.gov summarizing that taxes will mostly likely need to go UP TODAY to afford Social Security in the mid 2030’s and for future generations – which is only 15 years away.
This week’s edition will present several possible changes that could take place along the path to higher taxes in order to preserve the Social Security that American workers pay into dearly and expect to receive someday.
- Currently, “only” the first $142,800 of wages are taxed for the social security part of payroll taxes. Each worker pays a tax of 6.2% on up to $142,800 PLUS the employer pays 6.2% of $142,800 and this amount combined goes to fund Social Security.
- Please note, that self-employed workers, in addition to their other expenses and taxes pay both the employee tax AND the employer tax, or a total of 12.4% of $142,800 to social security.
- This “wage base amount” may need to go UP to something over $200,000, taxed at 6.2% (or more) which would be a punishing tax on the wealthy who already subsidize a large part of social security.
- In that case, the “good” news is that the calculation of benefits could then possibly change to reflect a higher benefit amount for workers at the higher pay levels.
- For example, currently workers who make $142k (or the highest allowable average of the highest 35 years of work record) receive the same social security benefit as workers who make $300k or $700k+ (a higher 35-year earnings average). Is that fair?
In short, other changes could (emphasis “could”) include:
- Doing away with the increased benefit amount for those who wait until age 70 to collect Social Security. Currently, the benefit amount goes up by 8% for each year after full retirement age until age 70. The breakeven on this increase benefits an extremely small number of recipients at a much older age and could be first to be chopped.
- For those already collecting social security, taxing 100% of social security benefits. Currently, the maximum amount of social security that is taxable is 85% of the benefit and for certain taxpayers at lower income levels only 50% of social security is taxable.
- Eligibility age for social security could increase from the current age of 62 (for reduced social security) and age 66-67 (full retirement age). Up to what age is unknown. This type of change would likely be phased in over several decades.
Is your head spinning yet? National social security and financial planning experts sounded in* for this edition of TGIF 2 Minutes. This topic is real and is not going away. The “spin factor” is real as well. One positive spin is that for a retired person affected by several of these changes, she or he has a “high class problem”. But the amount of present taxes needed to be raised will make it more difficult to achieve “high class” in the first place. Stay tuned.
*Thank you to Mary Beth Franklin of InvestmentNews and Brett Danko, Founder and Principal of Main Street Financial Solutions LLC.