Did y'all pull SS as soon as you were eligible for full amount? My finance guy is encouraging me to wait as long as possible to get as much as I can. He considers it a sure investment.

Did y'all pull SS as soon as you were eligible for full amount? My finance guy is encouraging me to wait as long as possible to get as much as I can. He considers it a sure investment.

I turn 62 in a few weeks. Applied, approved and will have the 1st deposit on April 8. I'd have to wait until 66 years and 8 months to get full benefits. As it is I'd have to live to 78 in order to break even. Between my wife and I we'd have earned more than $200K before we even started at age 66 and 8 months. If I lived into my 90's is the only way I'd see a significant increase in overall income over starting now. I'll take my chances and can have a lot of money invested before waiting for the full amount. If I die before age 78 I come out ahead by taking it now. It is almost 30% less money starting at age 62, but in my case I get a 5year head start. For those who can start at age 65 it might be a better deal to wait.

If you continue working and earn over a certain amount your benefits are reduced further. I'm think it is around $20K/year. That only applies to those under full benefit age. If I wait until I'm 67 I can earn all I want and still get SS without reduction of benefits.

Very few people will have to pay tax on SS. If you ever worked in a place where they did not take SS out of your pay then you will. This only applies to a handful of government jobs, or for income earned overseas. There are a few school systems that do not deduct SS from wages. Those teachers will have to pay some tax on their SS depending on how many years they worked.

My parents both retired at age 62 and lived well into their 80's and never paid any tax on their SS benefits.

file a federal tax return as an "individual" and your combined income* is
between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
more than $34,000, up to 85 percent of your benefits may be taxable.

file a joint return, and you and your spouse have a combined income* that is
between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
more than $44,000, up to 85 percent of your benefits may be taxable.

https://www.ssa.gov/planners/retire/whileworking.html

I think you better research those 2 statements a bit closer. The limit is 18,240.

And yes your SS can and will be taxed if you don’t watch it.

https://www.ssa.gov/planners/taxes.html

file a federal tax return as an "individual" and your combined income* is
between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
more than $34,000, up to 85 percent of your benefits may be taxable.

file a joint return, and you and your spouse have a combined income* that is
between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
more than $44,000, up to 85 percent of your benefits may be taxable.

My wife and I both started drawing our SS at full retirement age (66). We debated holding off, but you never know how long you will live and it takes many years to recover what you gave up, even at the higher rate.
I'd rather have the extra money while I'm young enough to use it to enjoy life.
My wife is a retired Certified Financial Planner, knows the ins and outs, and took hers at age 66.

Yes, they tax the SS if you make too much money.

I don’t really like taking that government money either. I’ve never taken a nickel before, but it’s mine. Mine is only 1700.00 a month. I’ve been putting money in another plan for the last 31 years.

So they tax us all our lives, get to use the SS money we've paid in for decades interest free, then re-tax us on the money they owe us that they got to use interest free?

Did y'all pull SS as soon as you were eligible for full amount? My finance guy is encouraging me to wait as long as possible to get as much as I can. He considers it a sure investment.

I don’t really like taking that government money either. I’ve never taken a nickel before, but it’s mine. Mine is only 1700.00 a month. I’ve been putting money in another plan for the last 31 years.

[quote=Sakoluvr]Retirement income is a mosaic at best.

Jerry, ever met a politician that didn't love every tax they could dream up...

I maintain that you find a nickle laying on the side walk, in front of you, if you pick it up.. the government still wants their share of it..

you look at Oregon State Tax laws, they "require" every citizen in every state to file an Oregon Income Tax form each year...

That's stupid and they don't or can't enforce it...so why have it on the books?

its to blanket their laws, "just in case" they can figure out a way to tax someone or prosecute them "just in case" they need to,

like using Uncle Bill's address in Washington state as your residence, to avoid Oregon Tax, since Washington State doesn't have an income tax... or at least didn't use to...

all of these politicians burn the midnight oil figuring out ways to get more money out of the working folks of the world...
so they can save the nonworking burden to society bums, and entice them to vote democRAT...

told my representatives many a time, there are still only 100 pennies in a dollar.. and they still think they deserve more of those pennies than you do...

When you turn 65, they're going to start deducting for Medicare Part B, currently $144 a month here. You can opt out of that, but I don't recommend it, as that's the part that pays for your doctor, not hospital bills. There's also Part D for prescriptions, but I have employer coverage, so don't know how much that is.

I'm with you on retiring at 62.I took mine at 62 last year.They want you to keep working until you die so they don't have to pay you a dime back.Good thing I had a job that is paying me retirement too.SS is BS.Such a small amount they expect a person to live off of in their later years.And they tax you on what they give you.Then at 65 you have to pay again for Medicare.

Ok, so here's my questions: your spouse gets your SS. If you claim at 62 is that what she gets or does she get any other number? If I die without ever claiming, what amount is she able to get?

Did y'all pull SS as soon as you were eligible for full amount? My finance guy is encouraging me to wait as long as possible to get as much as I can. He considers it a sure investment.

Ok, so here's my questions: your spouse gets your SS. If you claim at 62 is that what she gets or does she get any other number? If I die without ever claiming, what amount is she able to get?

You can end up getting more overall by starting sooner.
The differences will be minimal.
My wife's Dad tried your strategy and died a few months before he hit the right age.

1st thing is not everybody is the same. If you are single and not independently wealthy, 65 is the minimum so you've got Medicare. At my age 66 years and 2 months for "full retirement age" so if I went a 65 my SS is discounted about $150 a month over full retirement age. If I wait until 66 and 2 I have waived the 14 months of discounted plus 14 months of my state retirement. The total of what I could get at 65 and that of 66 and 2 is about $150 a month you divide that into what I'd waive if I waited till 66 and 2 and it will take to 80 years old to hit the break even point, I am going this spring while I still have my health. MB

SS gets a COL raise this month ..3% I believe

I took mine at 62 also.......why wait ?

CK shows up 3rd Wednesday every month.....

I still have taxes to pay in every April

Cost-of-Living Adjustment (COLA) Information for 2020

Social Security and Supplemental Security Income (SSI) benefits for nearly 69 million Americans will increase 1.6 percent in 2020. ...

2020 SS COLA is just a little over half that at 1.6%

https://www.ssa.gov/cola/

Yep, and part B went up 1% if I remember right. Part D went up a couple bucks too. So basically the COLA only barely pays for the cost increases.

Quit your job and go $100k into debt

Just to keep the numbers simple and anonymous, let's say you'd get $1000/month at age 62, and $1500 at 66. You are about to turn 62.

If you wait, you get nothing for those four years.

If you start taking SS now, you'll receive $48,000 before turning 66.

It will take you 96 months (eight years) after turning 66 to make up the $48,000 you did not receive. So you really don't get any "more" until you pass age 74. The real difference then is 12 years to "break even" not four.



In my case, I started taking SS the moment I was eligible. I used that money to pay all my bills and become debt free within the first couple years. My SS is now my pocket money for the month because I also get my Air Force pension. I would have "broken even" in 2021 but I already am drawing more than I can spend, so for me, taking SS as soon as eligible was the smart choice.

Your situation will certainly be different, so consider carefully.

If you were born in 1956 your full retirement age is 66 and 4 months

Remember, the earliest a person can start receiving Social Security retirement benefits will remain age 62.

If you start receiving retirement benefits at:

age 62, you will get 73.3 percent of the monthly benefit because you will be getting benefits for an additional 52 months.
age 65, you will get 91.1 percent of the monthly benefit because you will be getting benefits for an additional 16months.

If you start receiving benefits as a spouse at your full retirement age, you will get 50 percent of the monthly benefit your spouse would receive if their benefits started at full retirement age. If you start receiving benefits at:

age 62, you will get 34.2 percent of the monthly benefit instead of 50 percent because you will be getting benefits for an additional 52 months.
age 65, you will get 44.4 percent of the monthly benefit instead of 50 percent because you will be getting benefits for an additional 16 months.

How Your Social Security Benefit Is Reduced:

Wage Earner .... Spouse

62 73.3% 34.2%
62 + 1 month 73.8 34.4
62 + 2 months 74.2 34.6
62 + 3 months 74.6 34.8
62 + 4 months 75.0 35.0
62 + 5 months 75.4 35.2
62 + 6 months 75.8 35.4
62 + 7 months 76.3 35.6
62 + 8 months 76.7 35.8
62 + 9 months 77.1 36.0
62 + 10 months 77.5 36.3
62 + 11 months 77.9 36.5
63 78.3 36.7
63 + 1 month 78.8 36.9
63 + 2 months 79.2 37.1
63 + 3 months 79.6 37.3
63 + 4 months 80.0 37.5
63 + 5 months 80.6 37.8
63 + 6 months 81.1 38.2
63 + 7 months 81.7 38.5
63 + 8 months 82.2 38.9
63 + 9 months 82.8 39.2
63 + 10 months 83.3 39.6
63 + 11 months 83.9 39.9
64 84.4 40.3
64 + 1 month 85.0 40.6
64 + 2 months 85.6 41.0
64 + 3 months 86.1 41.3
64 + 4 months 86.7 41.7
64 + 5 months 87.2 42.0
64 + 6 months 87.8 42.4
64 + 7 months 88.3 42.7
64 + 8 months 88.9 43.1
64 + 9 months 89.4 43.4
64 + 10 months 90.0 43.8
64 + 11 months 90.6 44.1
65 91.1 44.4
65 + 1 month 91.7 44.8
65 + 2 months 92.2 45.1
65 + 3 months 92.8 45.5
65 + 4 months 93.3 45.8
65 + 5 months 93.9 46.2
65 + 6 months 94.4 46.5
65 + 7 months 95.0 46.9
65 + 8 months 95.6 47.2
65 + 9 months 96.1 47.6
65 + 10 months 96.7 47.9
65 + 11 months 97.2 48.3
66 97.8 48.6
66 + 1 month 98.3 49.0
66 + 2 months 98.9 49.3
66 + 3 months 99.4 49.7
66 + 4 months 100.0 50.0

*If your birthday is on the 1st of the month, we figure your benefit as if your birthday were in the previous month.
Related Information

If you can wait a few years or longer, you can boost your benefits—and your spouse's.

Key takeaways

If you claim Social Security at age 62, rather than waiting until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits.
For every year you delay past your FRA up to age 70, you get an 8% increase in your benefit. So, if you can afford it, waiting could be the better option.
Health status, longevity, and retirement lifestyle are 3 variables that can play a role in your decision on when to claim your Social Security benefits.

When it comes to Social Security, it can be tempting to take the money and run as soon as you're eligible—typically at age 62. After all, you've likely been paying into the system for all of your working life, and you're ready to receive your benefits. Plus, guaranteed monthly income is nice to have.

Health status, longevity, and retirement lifestyle are 3 key factors that can play a role in your decision on when to claim your Social Security benefits. You may not be able to predict the true impact of these variables, but you can rely on the simple fact that if you claim early versus later, you will likely have lower benefits from Social Security to help fund your retirement over the next 20–30+ years.

If you start taking Social Security at age 62, rather than waiting until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits with lesser reductions as you approach FRA. Remember, FRA is no longer age 65. It now ranges from 66 to 67, depending on your date of birth (see your full retirement ageOpens in a new window). And your annual cost-of-living adjustment (COLA) is based on your benefit. So if you begin Social Security at 62, and start with reduced benefits, your COLA-adjusted benefit will be lower too.

Waiting to claim your Social Security benefit will result in a higher benefit. For every year you delay past your FRA, you get an 8% increase in your benefit. That could be at least a 24% higher monthly benefit if you delay claiming until age 70. But, make sure to evaluate your decision based on how much you've saved for retirement, your other sources of income in retirement, and your expectations for longevity.

While many people could benefit from waiting to age 70 to take Social Security payments, others may need this source of guaranteed income sooner to help pay their bills, or may anticipate that they may not live long enough to reap the rewards of delaying.
For illustrative purposes only. Note: All lifetime benefits are expressed in today's dollars, and life expectancy of 89. The numbers are sensitive to, and would change with, the discount rate (the rate used when discounting the future benefit payments for each claiming age) and life expectancy assumptions.
The downside of claiming early: Reduced benefits

Consider the following hypothetical example. Colleen is 62 as of 2019. If Colleen waits until age 66 and 6 months (her FRA) to collect, she will receive approximately $2,000 a month. However, if she begins taking benefits at age 62, she'll only receive $1,450 a month. This "early retirement" penalty is permanent and results in her receiving up to 28% less year after year.

However, if Colleen waits until age 70, her monthly benefits will increase another 28% over what she would receive at her FRA, to a total of $2,560 per month.1 If she were to live to age 89, her lifetime benefits would be about $114,000 more, or at least 24% greater, because she had waited until age 70 to collect Social Security benefits.2 (Note: All figures are in today's dollars and before tax; the actual benefit would be adjusted for inflation and would possibly be subject to income tax.)
Spouses and Social Security

Several Social Security claiming strategies were eliminated in 2015 including the ability to file a "restricted application for spousal benefits," which allowed you to claim benefits based on your spouse's work record and then switch to claiming on your own work record at a later date. This strategy is no longer possible if you turned age 62 after December 31, 2015.

Claiming before your FRA on a spouse's record means you'll lose even more than claiming on your own record—the benefit reduction for a spouse is up to 35% while the reduction for claiming your own benefit is up to 30%. For instance, if you're the spouse of Colleen in the above example and you are the same age, you'd be eligible for only $675 a month at age 62, 33% less than the $1000 a month you would get at your FRA of 66 and 6 months.

Read Viewpoints on Fidelity.com: Social Security tips for couples

Not married? Read Viewpoints on Fidelity.com: Social Security tips for singles or Social Security and divorce

Your decision to take benefits early could outlive you. If you were to die before your spouse, they would be eligible to receive your monthly amount as a survivor benefit—if it's higher than their own amount. But if you take your benefits early, say at age 62 versus waiting until age 70, your spouse's survivor Social Security benefit could be up to 30% less for the remainder of their lifetime.

Retirement and SS are different objects. You can retire and wait for SS. Early SS funds are reduced and taxed. Consider funding the daily retirement with savings until the 66+2. Cash flow will be better an you get the SS COLA on a larger number. Once SS starts you will be in good condition for start of RDM at 70. A (Pension+SS+ RDM) is a plan for success.


My only suggestion is start the whole journey with a new truck and RV and go out and enjoy your self.

I really don't understand the break even point calculation.
Most people say the number is 80, but does this include the missed interest on your 401K? Naturally since you dont drawl on SS you have to use savings, and that savings could be compounding.
So I think the break even point is over 80, and the average life span in the US is 76. So I am thinking taking the cash at 62.

Yep, and part B went up 1% if I remember right. Part D went up a couple bucks too. So basically the COLA only barely pays for the cost increases.

Did the new truck 3 years a go, looking at ravel trailers now. Employer would like me to work part time for 3 months or so this spring ,will look at waiting 3 months more on the SS. MB

Seems one question is what you are going to spend the money on, if you defer SS benefits and live in to your 90s, the financial wizards will say you’ve come out ahead. But you’re not gonna spend that extra money on a sheep hunt, and how much can you spend sitting in your rocker renting movies on iTunes?
Obviously if you rely solely on SS it’s a different equation, but you might decide to spend the money while you can, on stuff that’s fun. And you can have more fun spending money in your 50s and 60s than you can in your 90s.

We pay a hell of a lot of tax. The dindu nuffins get all kinds of free Cshit. Seems fair, don’t it???

Something that is often not considered seriously nor made allowances for is "Murphy" doesn't give retirees on a fixed income a free pass nor senior citizen discounts.

What may be enough income to meet daily needs, responsibilities, emergencies and some wants now may not be enough in the future as most everything generally gets more expensive

We pay a hell of a lot of tax. The dindu nuffins get all kinds of free Cshit. Seems fair, don’t it???

That’s why I’m still working. Every year adds more to my pension, 2.3%. Hope to improve it some in the next two years.

Maybe I am not thinking about this fully, so let me know if this is BS.

My estimated benefit is about 20K per year. So if I take that at 62, I get 100K by 67 from SS. That is 100K that I don't remove from my 401K to live on.

With 62 start, I break even at 80, than I start to lose compared to 67 start date. That is done by comparing issued funds.

But that 100K, 5years X 20K, was saved in my 401K. So that 100K sits in my stock account until I'm 80, so in 13 years of compounding, I think it will double. Again this is very rough estimate but I think withdrawing 100K and missing 13+ years of compounded growth is huge. That 100K should double in 13+ years to the break even point at 80. So I would have an extra 100K in savings by spending SS money instead of savings. So maybe the break even point is 85 when you look at loss of income from that 100K.

tax on ss? I assumed i am done with it.

You wouldn’t be taking the 100,000 out at once. A little each month??

I find extreme humor in you being so fiscally stupid to post the question you initially did... but then post this as a self esteem booster...

I hope it worked, because your still dumb as fug to think you wouldnt be taxed on income old man.

PS - there is only a 1% slant of blacks to white receiving “social welfare”... that simple figure of 1% might be hard for someone your age that doesnt comprehend income tax to understand, so to better explain it to you... essentially your just as likely to get welfare as the “dindu notin”

It seems many here are only thinking about spending money on the fun things. My father in law did that too. Bought Cadillacs even had a bumper sticker on them saying he was spending his children's inheritance. Funny! He and his wife went on many cruises and trips all over the world etc when they were in their 60s and early 70s. Then, when they hit their late 80s & 90s and had dementia and needed assisted living and nursing homes they ran out of savings and, yet, while their expenses exceeded their SS and pension income they made too much to qualify for Medicaid. So, his children who had their own retirement and expenses had to all chip in and bail them out. But hey, he had those Cadillacs and trips that they couldn't remember having. The fun things are nice but are so damn unimportant compared to those things that actually do matter when you are old and no longer able to meet expenses. Maybe you have kids who'll look after you and maybe you don't or they won't. I'd rather be smart and make sure my income and savings are enough to last as long as I might need it.

Since I have a Ford pension, I wind up claiming nearly 30% (maybe a little less) of my SS as taxable income.

I paid SS taxes my whole life and now I’m paying income tax on that same friggin’ money.

They dont need SS per LBJ,s great society programs for their entire life.

All thought out back then.

All for their votes......

Curse on those still alive who voted for him in 64......

He fuuucked the working man, but good!

Everybody does that to the working man!

Background

Since a pair of 1938 Treasury Department Tax Rulings, and another in 1941, Social Security benefits have been explicitly excluded from federal income taxation. (A revision was issued in 1970, but it made no changes in the existing policy.) This changed for the first time with the passage of the 1983 Amendments to the Social Security Act. Beginning in 1984, a portion of Social Security benefits have been subject to federal income taxes.

The three Treasury Rulings (see below) established as tax policy the principle that Social Security benefits were not subject to federal income taxes. This was special treatment for Social Security benefits since most private pensions are partly taxable. In most private pensions, an amount of the pension equal to the contributions made by the worker are tax-free. The amount of such private pensions which exceeds the amount of the worker's contributions, is usually subject to federal income taxes.

A slightly different, and more complicated, way of saying essentially the same thing is that the portion of pension benefits not subject to taxation is that on "after-tax income." For a worker, his entire pay is subject to federal income taxes, including that part that is subject to Social Security payroll taxes, and so, in the sometimes confusing parlance of tax policy, this is said to all be "after-tax income." His employer, however, is allowed to deduct his portion of the Social Security payroll tax from his taxable income. So Social Security payments made by the employer are considered "before-tax income" (and hence, not taxable). So the value of the "before-tax income" received by the beneficiary (i.e., the employer's contribution) is potentially taxable. Or to say it the other way, only that portion of the worker's "after-tax income" on which he paid payroll taxes, is not taxable.

Yet another way of describing this idea is to use "exclusion ratios," which is how the Treasury Department defines the taxable portion of a pension benefit. In all of these ways of describing it, the basic idea is the same: the pension recepient is generally liable for taxes on that portion of his benefits that he did not himself contribute.

Treasury's underlying rationale for not taxing Social Security benefits was that the benefits under the Act could be considered as "gratuities," and since gifts or gratuities were not generally taxable, Social Security benefits were not taxable. It is likely that Treasury took this view owing to the structure of the 1935 Act in which the taxing provisions and the benefit provisions were in separate Titles of the law. Because of this structure, one could argue that the taxes were just a form of revenue-raising, unrelated to the benefits. The benefits themselves could then be seen as a "gratuity" that the federal government paid to certain classes of citizens. Although this was clearly not true in a political and moral sense, it could be construed this way in a legal sense. In the context of public policy, most people would hold the view that the tax contributions created an "earned right" to subsequent benefits. Notwithstanding this common view, the Treasury Department ruled that there was no such necessary connection and hence that Social Security benefits were not taxable.

On the other hand, the fact of the matter is that Social Security beneficiaries do not fully fund their benefits through their payroll taxes. Benefits are funded from three sources: the employee's payroll tax, the employer's matching payroll tax, and interest earned by the Trust Funds. Only one part of this funding could be said to have been directly paid by the beneficiary. Also, technically speaking, benefits are computed based on the workers' earnings, not on the amount of taxes they pay.

So the beneficiary's own contributions do not account for the employer's matching contribution or the interest earned on both. Nor does it account for the benefits received in excess of total contributions. That is, due to the fact that the Social Security program operates in part on the insurance principle, most beneficiaries receive far more in benefits than either they and/or their employers contributed to the system.

If a rigorous effort is made to identify how much of the average beneficiary's benefit was directly paid for by the beneficiary, the general answer is about 15%. Or to say it the other way, about 85% of the average Social Security benefit represents an amount in excess of that contributed to the program by the average worker.


The 1979 Advisory Council and the Greenspan Commission

The 1979 Advisory Council was charged with studying the financing and benefit provisions of the Social Security program. The Council wrote extensively on the issue of taxation of Social Security benefits:

"The present tax treatment of social security was established at a time when both social security benefits and income tax rates were low. In 1941 the Bureau of Internal Revenue ruled that social security benefits were not taxable, most probably because they were viewed as a form of income similar to a gift or gratuity.
The council believes that this ruling was wrong when made and is wrong today. The right to social security benefits is derived from earnings in covered employment just as is the case with private pensions.
The council believes that the current tax treatment of private pensions is a more appropriate model for the tax treatment of social security, Pension benefits from contributory private pension plans (including those for government employees) are now taxed to the extent that the benefits exceed the employee's accumulated contributions to the plan. Cumulative retirement benefits up to the employee's own total contributions are not taxed because the income from which the contributions were paid was taxable. That part of the benefit representing the employer's contribution and interest income on both the employee's and the employer's contributions is taxed when received.
Estimates by the Office of the Actuary of the Social Security Administration indicate that workers now entering covered employment in aggregate will make payroll tax payments totaling no more than 17 percent of the benefits that they can expect to receive. The self-employed will pay no more than 26 percent on average. Therefore, if social security benefits were accorded the same tax treatment as private pensions, only 17 percent of the benefit would be exempt from tax when received, and 83 percent would be taxable. . . Rough Justice would be done, however, if half the benefit (the part commonly if somewhat inaccurately attributed to the employer contribution) were made taxable."

This recommendation by the Advisory Council encountered widespread resistance in the Congress. In an effort to make the idea more palatable, it was suggested that exclusionary thresholds could be added so that beneficiaries of low to moderate incomes would not be affected. This was similar to the procedure in use for the taxation of unemployment compensation benefits, which began in 1978.

Thus, the proposal as it emerged was for 50% of Social Security benefits to be subject to federal income tax, with threshold exclusions set at the same levels as those used for Unemployment Compensation (U.C.).

Following the 1979 Advisory Council, the National Commission on Social Security Reform (informally known as the Greenspan Commission after its Chairman) was appointed by the Congress and the President in 1981 to study and make recommendations regarding the short-term financing crisis that Social Security faced at that time. Estimates were that the Old-Age and Survivors Insurance Trust Fund would run out of money, possibly as early as August 1983. This bipartisan Commission was to make recommendations to Congress on how to solve the problems facing Social Security. Their report, issued in January 1983, was the basis for Congress' consideration of the Social Security reform proposals which ultimately resulted in the 1983 Social Security Amendments.

In its Report, the Commission recommended that Social Security benefits be taxable: "The National Commission recommends that, beginning with 1984, 50% of OASDI benefits should be considered as taxable income for income-tax purposes for persons with Adjusted Gross Income (before including therein any OASDI benefits) of $20,000 if single and $25,000 if married. The proceeds from such taxation, as estimated by the Treasury Department, would be credited to the OASDI Trust Funds under a permanent appropriation."

This was essentially the Advisory Council recommendation as it had come to be modified in subsequent debate. (With the change that the thresholds are computed before adding in the Social Security benefit--the opposite of the way it was done in U.C.)

The Commission estimated that its proposals would effect only about 10% of Social Security beneficiaries and that it would result in $30 billion in revenue to the Trust Funds in the first seven years.


1983 Amendments

Congress passed and President Reagan signed into law the 1983 Amendments. Under the '83 Amendments, up to one-half of the value of the Social Security benefit was made potentially taxable income. The specific rules adopted in 1983 were:

If the taxpayer's combined income (total of adjusted gross income, interest on tax-exempt bonds, and 50% of Social Security benefits and Tier I Railroad Retirement Benefits) exceeds a threshold amount ($25,000 for an individual, $32,000 for a married couple filing a joint return, and zero for a married person filing separately), the amount of benefits subject to income tax is the lesser of 50% of benefits or 50% of the excess of the taxpayer's combined income over the threshold amount. The additional income tax revenues resulting from this provision are transferred to the trust funds from which the corresponding benefits were paid. Effective for taxable years beginning after 1983.

When considering the 1983 Amendments, the Report by the House Ways & Means Committee argued as follows: "Your Committee believes that social security benefits are in the nature of benefits received under other retirement systems, which are subject to taxation to the extent they exceed a worker's after-tax contributions and that taxing a portion of social security benefits will improve tax equity by treating more nearly equally all forms of retirement and other income that are designed to replace lost wages. . ."

The Senate Finance Committee Report offered these additional observations: ". . . by taxing social security benefits and appropriating these revenues to the appropriate trust funds, the financial solvency of the social security trust funds will be strengthened. . . . By taxing only a portion of social security and railroad retirement benefits (that is, up to one-half of benefits in excess of a certain base amount), the Committee's bill assures that lower-income individuals . . . will not be taxed on their benefits. The maximum proportion of benefits taxed is one-half in recognition of the fact that social security benefits are partially financed by after-tax employee contributions."

The Senate Report thus acknowledged that one motivating factor in introducing this change was to raise revenue for the Trust Funds. This was part of a much larger package of program changes designed to address the financial solvency of the program. One might fairly say that cutting benefits and raising revenues was the purpose of the 1983 Amendments, and the adoption of Social Security benefit taxation was simply one provision among many to facilitate these aims. It is also important to note that funds raised under this provision do not go into the General Fund of the Treasury but into the Social Security Trust Funds. This emphasizes again that the purpose of introducting this provision was to raise revenue to help restore Social Security's financial solvency. (The Committees estimated the six-year savings from this provision at $26.6 billion, and estimated that this provision would supply almost 30% of the total additional long-range funding provided by the Amendments.)

We should also take note of the rationale for the exclusionary thresholds in the law. The Congress intended that the taxation provisions should not affect "lower-income individuals." The $25,000 and $32,000 thresholds were included to accomplish this. So the thresholds are not based on any feature of the Social Security program--they are pure tax policy. Since the thresholds in the 1983 law were intentionally not indexed, over time, they would lose some of their threshold effect as increases in real income or in inflation would tend to pull more and more people into tax liability. Indeed, by the time the law was first amended in 1993, about 18% of Social Security beneficiaries had some tax liability (compared to about 10% when the law was originally enacted).

The idea that only one-half of the benefits would be subject to taxation did have some basis in the Social Security program. It was based on the simple notion that the employee had made only one-half the contributions used to fund his benefit (the other half having been paid by the employer). Since in private pensions, benefits in excess of the employee's own contributions are taxable, one could argue that 50% of Social Security benefits should be subject to taxation. As Ways and Means Committee member Wyche Fowler (D-GA) explained the provision on the House floor: " . . . although employees pay income taxes on their income subject to the payroll tax, employers do not because they can claim a business expense deduction for their payroll tax payments. Therefore, it is argued that requiring Social Security beneficiaries to pay taxes on their benefits--the part provided by employer contributions--is appropriate at the time of receipt."

Even so, this rough-approximation did not really give Social Security benefits the same tax treatment as private pensions--because the real "non-contributed" portion is about 85% of the average benefit, not 50%. During consideration of the bill in the two houses some unsuccessful amendments were advanced to make the Social Security provision more precisely like those governing private pensions, but ultimately the idea of a 50% portion prevailed.

The idea of taxing benefits, like many of the individual features of the omnibus bill, was not universally popular. Some complained that it introduced a form of "means test" in that beneficiaries of lower incomes were not subject to the provision (due to the thresholds). It was also argued that this introduced General Revenue financing into the system, and that it watered-down the equity of those beneficiaries who had to pay taxes.

Ultimately, the 1983 Amendments were passed in the House on the evening of March 9, 1983 by a vote of 282 to 148. On the evening of March 23rd, the Senate passed its version of the bill by a vote of 88 to 9. Both bills contained virtually identical provisions for the taxation of benefits, with only one change in the Senate bill: requiring that tax-free interest income be used in the computation to determine if the thresholds were exceeded. In the Conference, which took place on March 24th, the House accepted the Senate provision. Immediately following the conclusion of the Conference, at 10:25 p.m. that night, the Congress reconvened to consider the Conference Report. The House quickly adopted the Conference Report by a vote of 243 to 102. In the Senate, the debate went on through the night and finally, in the early morning hours of March 25th, the Senate voted 58-14 for final passage. (See detailed Summary of the 1983 Amendments.)


1993 Changes in the Law:

In 1993, as part of Omnibus Budget Reconciliation Act, the Social Security taxation provision was modified to add a secondary set of thresholds and a higher taxable percentage for beneficiaries who exceeded the secondary thresholds. Specifically, the 1993 did the following:

Modified for a taxpayer with combined income exceeding a secondary threshold amount ($34,000 for an individual, $44,000 for a married couple filing a joint return, and zero for a married person filing separately), so that the amount of benefits subject to income tax is increased to the sum of (1) the smaller of (a) $4,500 for an individual, $6,000 for a married couple filing a joint return, or zero for a married person filing separately, or (b) 50% of the benefit, plus (2) 85% of the excess of the taxpayer's combined income over the secondary threshold. However, no more than 85% of the benefit amount is subject to income tax. The additional income tax revenues resulting from the increase in the taxable percentage from 50% to 85% are transferred to the HI Trust Fund. Effective for taxable years beginning after 1993.

Note that these were secondary thresholds and taxable percentages. Thus they did not increase the number of beneficiaries subject to taxation. Rather, they raised the potential tax liability for a subset of those already subject to the tax (those with higher earnings). Prior to this change, 81.8% of Social Security beneficiaries had no potential tax liability for their Social Security benefits. This was not changed, in any way, by the 1993 law. However, of the 18.2% already subject to potential taxation, 10.6% saw their potential tax liability increase, while the remaing 7.6% suffered no change.

The changes introduced by the 1993 amendments were designed to make the treatment of Social Security benefits more closely approximate private pensions--albeit, only for higher-income beneficiaries. To this end, the taxable percentage was set at 85% for these higher-income beneficiaries. New thresholds were added, but only to differentiate those subject to the higher percentage from those still subject to the 50% figure.

In explaining the rationale for these changes, the House Budget Report stated:

"The committee desires to more closely conform the income tax treatment of Social Security benefits and private pension benefits by increasing the maximum amount of Social Security benefits included in gross income for certain higher-income beneficiaries. Reducing the exclusion for Social Security benefits for these beneficiaries will enhance both the horizontal and vertical equity of the individual income tax system by treating all income in a more similar manner."

Under the House version of the bill, however, the increased revenues from the new percentage taxable was to go to the General Fund of the Treasury. Under the Senate version, the increased revenues were to go into the Medicare HI Trust Fund. The Senate position prevailed.

Under the House bill, there were no changes in the existing thresholds--everyone with countable income over the 1983 thresholds would be subject to the 85% rate. Under the Senate version, new secondary thresholds were proposed at $32,000 and $40,000--with the old rules applying for those over the old thresholds but under these secondary thresholds. For those over the new thresholds, the 85% figure would come into play. The Senate version prevailed here as well, except that the Conference agreed to boost the secondary thresholds to $34,000 and $44,000.

Thus, under present law, almost all Social Security beneficiaries still enjoy more favorable tax treatment of their benefits than is the case for recipients of private pensions.

My BIL was going to wait until 70 years old to draw SSI.He died at age 69.

He gambled and lost, left that money on the table. I took mine at 66. I’ve gotten almost a years worth. I’m waiting to see how much it jack’s our taxes up.

I paid in from 71 to 89. I’d be curious to know how much I paid in. It probably won’t take 4 to 5 years to get my money back.

Just to keep the numbers simple and anonymous, let's say you'd get $1000/month at age 62, and $1500 at 66. You are about to turn 62.

If you wait, you get nothing for those four years.

If you start taking SS now, you'll receive $48,000 before turning 66.

It will take you 96 months (eight years) after turning 66 to make up the $48,000 you did not receive. So you really don't get any "more" until you pass age 74. The real difference then is 12 years to "break even" not four.
.

I would love taking SS at 62, but what scares me is now is losing the company health insurance. Not only would my income decrease, I now have to pay about $1000 a month for insurance for me and my wife. Any insight from those who have been through this?

What if you are still working, making 80,000 plus, you can’t take your SS early, can you? That’s why I waited.

Bingo.

They made me an offer I couldn't refuse, when I was 58, with 40 years in the can. I was averaging over 80k, my base was about 67k, and it wasn't fun anymore. No brainer to take a cut and get my life back, epecially with paid insurance included.

Jackpot!

People that retire at 62 must have a hell of a 401 plan or other income!

I guess the goal is to have 12X salary or more. And I guess that depends on the salary and living style.
So with 80K salary, a nest egg of about a million would have an infinite income of 40 to 50K. Then put in SS of 20K and you have 60-70K sitting at home in a hopefully lower tax bracket. Those are all rough numbers.
Again what I read, the magic goal is to have 75% of your salary in retirement income. Naturally that will shift if you make 40K or 100K. Lot more fat in 100K income, but maybe that high roller is used to prime rib. Naturally the goal at retirement age is to have no debt, so 3/4 salary with no bills looks pretty good.
Another rule of thumb is to have 25X the amount you want to withdrawal annually. So if you want 40K, then you want 1,000,000 in a 401K. You can also give yourself a cost of living increase, and most likely the money will last forever. Even a 5% withdrawal should last forever.
This is on my radar and I am in fine shape, but very afraid to walk away from a large income myself. I am thinking of calling 60 quits.

Better plan accordingly for long term health too. It can hit either spouse.
LTC costs, like nursing homes and home health care WILL wipe out savings (unprotected assets) in short order.

See an elder care attorney BEFORE making a retirement decision.

Yep. I guess we like it!!!