About 1 in 10 Social Security recipients will receive a double December payment, with their second monthly check arriving on December 29.
That’s because of a quirk in the system for the Social Security Administration’s Supplemental Security Income (SSI) program, which provides support for disabled people and older Americans with low incomes.
Typically, SSI recipients receive their payments on the first of each month, which means the program’s 7.5 million enrollees received their December payment on December 1. But because January 1 is a holiday, SSI recipients are getting their January check on the last weekday before the New Year, with deposits landing on December 29.
SSI recipients will get another bonus with their December 29 payment: Their 2024 cost-of-living adjustment will be included in the check.
The 2024 cost-of-living adjustment, or COLA, is set for a 3.2% increase, marking the smallest increase in three years. That’s because the COLA is based on the inflation rate, which has been rapidly cooling in the face of the Federal Reserve’s regime of interest rate hikes.
The average SSI check will rise to $943 per month in 2024l, up from $914 per month in 2023, according to the Social Security Administration.
Social Security payment schedule 2024
While the new COLA increase takes effect with December benefits, those payments will reach most recipients in January, with the exception of SSI recipients, according to the Social Security Administration.
With the increase, the average retirement benefit check will go up about $60 per month, rising to $1,907 from this year’s $1,848, the agency said.
Here is the payment schedule for the first 2024 checks reflecting the new COLA.
Dec. 29, 2023: The benefits hike for the nation’s 7.5 million SSI recipients will begin on this day. Typically, SSI payments are issued on the first of each month, but because January 1 is a holiday, recipients will get their payments on the Friday before January 1.
Jan. 3, 2024: If you started claiming Social Security before May 1997 or if get both Social Security and SSI benefits, you’ll get the new COLA in a Dec. 29, 2023 check and your Social Security payment on January 3.
Jan. 10,2024: If your birthday falls between the 1st to the the 10th day of your birth month, this is when you’ll get your first benefit check with the new COLA. For instance, if your birthday is June 1, you’ll get paid on this day.
Jan. 17, 2024: If your birthday falls between the 11th to 20th day of your birth month, you’ll get your higher payment on this day.
Jan. 24, 2024: If your birthday falls between the 21st to 31st of your birth month, your benefit check will reflect the new COLA on this day.
Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.
Thanks for reading CBS NEWS.
Create your free account or log in for more features.
Social Security recipients could face some big changes in 2024, thanks to inflation and tax-related adjustments that will impact everything from monthly benefits to how much recipients owe in taxes. For one, the top benefit in 2024 will approach $5,000 per month.
The old-age and disability program provides monthly payments to more than 70 million people, ranging from children to retirees. Those benefits are credited with keeping millions of Americans from slipping into poverty, with monthly checks adjusted each year to keep up with inflation. In 2024, benefits will increase by 3.2%.
Many of the changes in 2024 are related to cost-of-living adjustments which will not only boost recipients’ monthly income, but potentially subject more of their earnings to taxes, experts say. That can be a surprise to some Social Security beneficiaries who mistakenly believe their checks are tax-free.
“There is a wide misperception, and it’s not helped by social media at all, that Social Security recipients don’t pay taxes, and that’s not at all the case,” said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.
Understanding your tax liability for Social Security payments is important because otherwise a senior citizen might not have saved enough for their golden years, Johnson added. “You might have to save 20% more than you thought you might need, or 25% more,” she said.
Here are some of the changes to expect in 2024.
Top Social Security benefit will hit almost $5,000 per month
The Social Security Administration announced its annual COLA in October, pegging the 2024 change on the most recent inflation data. Seniors and other recipients will get an increase of 3.2%, a much smaller boost than the 2023 and 2022 increases of 8.7% and 5.9%, respectively.
The average benefit will rise to $1,907 per month in 2024 from $1,848 this year.
But retirees who receive the maximum Social Security payout will see much higher earnings, with their monthly checks jumping to $4,873 in 2024, according to the agency. That’s an additional $318 per month in each paycheck compared with the current year.
So who gets the top payout? Not many people, noted Johnson.
“They only way to get it is if you’re [Apple CEO] Tim Cook and you have been paying the maximum” into your payroll taxes, she joked. “It’s like the 1% to 2%.”
The Social Security Administration says that the top benefit is received by people who have earned the maximum taxable earnings since age 22, and then waited to claim their benefits at age 70. Workers pay Social Security tax up to a maximum income level, which was $160,200 in 2023. Earnings above that threshold aren’t taxed for Social Security.
And while people can claim their Social Security benefits as early as 62 years old, they can increase their monthly checks if they delay claiming, with the maximum payout going to those who wait until they turn 70 years old to claim.
Higher benefits? You may owe more in taxes
More Social Security beneficiaries could see a higher tax bill in 2024 because of a quirk in the Social Security system.
Beneficiaries must pay federal income taxes on their benefits if they earn above a relatively modest threshold. This threshold hasn’t changed since 1984, even though inflation and benefits have risen considerably since then.
More seniors are subject to income tax on their retirement income each year because their benefits generally rise each year with the COLA. And many have incomes from sources other than Social Security, such as IRAs or 401(k)s, which can cause more of their Social Security benefit to face taxes.
Here are the thresholds:
Individual taxpayer: Between $25,000 to $34,000, you may have income tax on up to 50% of your benefits. Over $34,000, and up to 85% of your benefits may be taxable.
Joint filers: Between $32,000 to $44,000, you may pay taxes of up to 50% of your benefits. Above $44,000, and up to 85% of your benefits may be taxable.
Fewer than 10% of Social Security recipients paid taxes on their benefits in 1984, but that’s risen to about 40% currently, according to the Social Security Administration.
“We are dealing with the tax side of inflation here, and inflation can drive up your taxes” because the threshold hasn’t changed in almost 40 years, Johnson noted.
Workers may pay more in taxes too
Some workers may also face higher taxes for Social Security in 2024. That’s because the IRS adjusts the maximum earnings threshold for Social Security each year to keep up with inflation.
In 2023, workers paid Social Security taxes on income up to $160,200. For an individual, the tax rate is 6.2% of earnings, with their employer paying another 6.2% into the program.
But that threshold will rise to $168,600 in 2024, which means higher earners are likely to face higher Social Security taxes next year.
Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.
Younger generations in the U.S., including millennials and Gen Zers, are much more likely to believe that the Social Security system needs reforming than those in their 60s and 70s, according to a recent survey conducted by Redfield & Wilton Strategies on behalf of Newsweek.
A majority of 63 percent of Americans “strongly agreed” (28 percent) or “agreed” (35 percent) that the Social Security system needs to be reformed, according to the Redfield & Wilton Strategies/Newsweek poll. Only 10 percent “strongly disagreed” (5 percent) or “disagreed” (another 5 percent).
The poll was conducted on December 8 among a sample population of 1,500 eligible voters in the U.S.
Some 40 percent of respondents said they believe that the Social Security program currently pays out more to retirees than it is receiving in Social Security tax payments, while 26 percent disagreed with this statement.
Shoppers walk around Twelve Oaks Mall on November 24, 2023 in Novi, Michigan. A majority of millennials think that the Social Security program is making more payments than it receives taxes, according to an exclusive Newsweek poll. Emily Elconin/Getty Images
Millennials (those aged between 27 and 42), Gen Zers (those aged between 18 and 26), and Gen Xers (those aged between 43 and 58) were more likely than boomers (those older than 59 years old) to think that Social Security should be reformed.
According to the poll, 56 percent of Gen Zers, 76 percent of millennials and 69 percent of Gen Xers believed the system should be reformed, against 50 percent of boomers.
There were also overwhelmingly more millennials (52 percent) thinking that the system isn’t getting as many tax payments as it was handing out benefits to retirees than any other generations, including Gen Z (39 percent), Gen X (25 percent) and boomers (39 percent).
“In general, millennials and plurals—our name for Gen Z—are skeptical that Social Security benefits as robust as those retirees like me currently enjoy will be available to them when they retire,” Morley Winograd, author of three books on the millennial generation, told Newsweek.
“They have been told by Republicans in Congress, seconded by deficit hawks in think tanks, that the money will run out before they can claim it,” he said. “None of that is true. But, luckily, the younger generation’s skepticism of experts and politicians will help prevent the kind of unnecessary tinkering with future, never present, Social Security payments that some older folks advocate.”
While boomers are the richest generations on the planet, millennials remain burdened by the debt “many of them incurred by paying excessive and economically unjustified tuition prices when we decided to make them the first generation in American history to have the majority of the burden of paying for higher education fall on them and their parents,” Winograd said.
Social Security is currently facing an uncertain future as it is expected to face a 23 percent across-the-board benefit cut in 2033, according to the Committee for a Responsible Federal Budget, unless something changes until then. For an average newly retired couple, that means $17,400 less.
Fixing the Social Security system is becoming an increasingly urgent issue, according to Richard Johnson, director of the Program on Retirement Policy at the Urban Institute, a Washington-based think tank, told Newsweek.
“By law, Social Security payments cannot exceed the program’s resources. The program now pays out more in benefits than it collects in revenue,” the expert said.
While the Social Security’s trust fund is currently making up the difference, this trust fund is widely expected to run out by 2034. “When that happens, Social Security will be able to pay less than 80 percent of promised benefits,” Johnson said, citing the conclusion reached by several experts.
“Unless policymakers fix Social Security’s finances in the next 10 years, millions of retirees and people with disabilities would plunge into poverty.”
For Johnson, the solution might involve cutting benefits or increasing taxes—a change that would be unpopular among retirees, but necessary. “Fixing Social Security sooner rather than later would share the pain of any benefit cuts or tax increases among more people, reducing the pain for later generations,” Johnson said.
Winograd is a little more positive on the outlook of the program, saying that a resilient U.S. economy could keep Social Security afloat.
“Whether or not Social Security is able to maintain its current levels of payments or not depends on what assumptions you make about the performance of the U.S. economy in the future—an impossible thing to predict with any degree of accuracy,” Winograd said.
“But, for instance, if the economy were to grow at the 5.2 percent rate GDP grew in the third quarter of this year, there would be no problem with Social Security benefits in the foreseeable future,” he said.
“Of course, this is a difficult rate to sustain, but with disruptors like AI now starting to change the productivity rates of the U.S. economy in ways as profound as the internet and personal computing did in the go-go 1990s, there is no reason to believe that the U.S. economy won’t continue to outperform the expectations of most economists, who are still waiting to see if the recession they forecasted for last year and the year before arrives,” he added.
“And, besides, if the system does turn out to need more money, it can be quickly and equitably raised by simply removing the income cap on paying Social Security taxes, which is one of the more egregious regressive elements of our current tax laws and very unpopular with young voters now flooding the electorate.”
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
More than $100 million is lost each year due to Social Security scams, new figures from the Federal Trade Commission show.
Already in 2023, the FTC has received reports of 164,413 government imposter scams, with social security scams being the most common of all. The Social Security Administration saw 38,852 reports, with a total of $101.58 million lost to government-impersonating fraudsters.
And according to Drew Powers, the founder of Powers Financial Group, and a registered investment advisor in Naperville, Illinois, this likely doesn’t fully reflect the true prevalence of scams affecting seniors.
“Elder financial abuse is a huge problem,” Powers told Newsweek. “Whatever the reported figure may be, the actual figure is likely much higher.”
Instructor Lee Huber (L) helps 83-year-old Edward Jelen as he works on his laptop computer during an “Introduction to Microsoft Word” computer class at the State of Illinois building July 23, 2003 in Des Plaines, Illinois. Senior citizens are at an increased risk of losing money to Social Security schemes. Tim Boyle/Getty Images
How AI Could Affect Social Security Scams
Artificial intelligence poses a grave risk to seniors as they reach Social Security eligibility age, experts say.
The advancement of AI is already worsening the situation for seniors, who have historically dealt with an onslaught of attacks by scammers looking to take advantage of their government benefits.
“Seniors are at high risk for identity theft and fraud. The FBI‘s most recent Internet Crime Report shows that Americans over 60 lost $1.7 billion to fraud last year, the highest loss amount reported out of any age group,” Hari Ravichandran, chief executive officer and founder of online safety company Aura, told Newsweek. “Scammers are getting more and more sophisticated in how they use AI to impersonate voices and caller IDs, websites and emails, pretending to be trusted authorities and our loved ones – making this risk grow even more acute and urgent.”
Because AI makes scams harder to detect, seniors are frequently led astray by messages that mimic the tone and style of legitimate organizations, including the Social Security Administration. Despite the craftiness of these tricks, Powers says scams still generally follow the same method.
Scams Follow the Same Pattern
Seniors can protect themselves by recognizing those patterns.
“All scams follow the same patterns. An urgent opportunity or an urgent emergency, both triggering panic in the victim,” Powers said. “The best advice for seniors is to take a step back, compose themselves out of panic mode, and then take all possible steps to confirm the opportunity or emergency with others.”
Some of these advanced scams are indicative of the digital age, routinely popping up on platforms like TikTok.
The social media site is home to many fraud techniques such as celebrity impersonation scams, investment scams, fake giveaways and more,” Raj Dasgupta, the senior director of global advisory at BioCatch told Newsweek.
And since seniors are likely to be more confused by the way TikTok functions, this ups the likelihood of them falling victim to a scam on the app.
“Since those who have Social Security are likely to be retired, they may not have a steady source of income and may be eager to indulge in the false opportunity in hopes of improving their financial situation, which may lead to the opposite after falling for scams like this one,” Dasgupta said.
However, for most seniors, that fear of losing potential money can make them more susceptible to these ploys.
“There’s always an emotional element with these scams, with a sense of urgency deployed,” Dasgupta said. “Something like fear can make the elderly feel very vulnerable. Wanting something bad enough can also be a huge reason why people fall for these scams.”
How To Avoid Scams
Luckily, despite the growing capabilities of AI, there are still foolproof ways to avoid getting your Social Security payments taken away.
“Beware of schemes that sound too good to be true,” Dasgupta said. “Don’t click links. Instead, go straight to the source and connect with that authority independently.”
You should also stay cautious if someone asks you to tell them your personal information over the phone, as this is almost always a red flag, Dasgupta said.
There are also ways to look out for identity theft, including by checking your credit report on a regular basis on sites like annualcreditreport.com.
“If you don’t recognize an account on your report, you might have been a victim of identity theft,” Dasgupta said.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Former President Donald Trump rejected assertions that he’ll have to make changes to Social Security if he wins in 2024 because America is sitting on a pot of gold.
Social Security’s future has been called into question for years given the significant costs associated with the program. The fund has been dipping into reserves when the revenue it collects falls short of the amount it pays out and it’s projected to dry up in 2033 if no action is taken.
Politicians are unlikely to let the fund run out given the program’s popularity, but Social Security’s insolvency problem has 2024 candidates flirting with the “third rail of American politics.”
“You don’t have to touch Social Security,” Trump said. “We have money laying in the ground far greater than anything we can do by hurting senior citizens with their Social Security.”
Former U.S. President Donald Trump speaks to supporters during a political rally while campaigning for the GOP nomination in the 2024 election at Erie Insurance Arena on July 29, 2023, in Erie, Pennsylvania. On December 5, Trump told Fox News’ Sean Hannity that he would use oil revenue to fund Social Security. Jeff Swensen/Getty Images
Trump’s plan to help save Social Security involves tapping America’s oil supply in a similar way that Saudi Arabia does. “It will take care of everything,” Trump said.
Saudi Arabia is the largest exporter of petroleum and made over $202 billion in oil exports in 2021, according to the Organization of the Petroleum Exporting Countries (OPEC). Oil revenue helped start Saudi Arabia’s Public Investment Fund (PIF), which is being used to invest in companies and industries outside of oil in the hopes of diversifying the economy.
“We have more oil and gas than they do,” Trump said. “We can be rich again.”
The U.S. Energy Information Agency reported that the U.S. is the largest producer of oil and in 2021, the U.S. exceeded Saudi Arabia’s oil production by about 10 million more barrels per day.
At the start of the town hall, Trump told Hannity he will open up oil drilling in the United States on day one of his presidency if he wins in 2024.
Trump isn’t the only candidate talking about Social Security. At the Republican presidential primary debate on November 8, Haley advocated for raising the retirement age for younger people, including her own children. She would keep payments in place for people nearing retirement age and said payments need to better reflect life expectancy.
On Tuesday, Trump criticized DeSantis and Haley for wanting to “play around” with Social Security and DeSantis for shifting his position on changing the retirement age.
Newsweek reached out to DeSantis via email for comment but did not receive a response prior to publication.
In 2013, DeSantis voted for a failed Republican resolution that would have raised the age to qualify for Medicare and Social Security to 70. In July, he told Fox News he was open to changing Social Security for people who were in their 30s or 40s. However, in November’s debate, DeSantis said raising the age made little sense given that life expectancy in the United States is declining.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Un anuncio en español reproducido en las estaciones de radio del sur de la Florida retrata la conversación de una madre e hija que lamentan el alto costo de vida en la Florida.
La madre dice, “y ahora que tu padre quiere retirarse, no sabemos si tendrá Seguro Social”. La hija pregunta por qué.
“Ron DeSantis, el gobernador, él es la razón de que nuestros costos suban y no hace nada. Incluso quiere recortar el Seguro Social y el Medicare. ¡Y ahora quiere ser presidente! ¡Es una barbaridad!”.
El anuncio salió el 8 de noviembre y viene de DeSantis Watch, un proyecto crítico de DeSantis de las organizaciones de investigación Progress Florida y Florida Watch.
El Seguro Social es una fuente de ingreso mensual para estadounidenses mayores que están retirados o que han reducido sus horarios de trabajo. La mayoría de trabajos sacan impuestos de Seguro Social de los cheques de los trabajadores para que ellos puedan tener sus beneficios mensuales más tarde en la vida.
Medicare es un seguro médico federal para personas mayores de 65 años y para ciertas personas jóvenes con discapacidades. Hay diferentes partes de Medicare; el Medicare original paga las visitas al doctor y las estadías en el hospital (los beneficiarios generalmente tienen copagos). Y Medicare Advantage es un plan aprobado por Medicare ofrecido por compañías privadas como una alternativa al Medicare original para la cobertura de salud y medicamentos.
PolitiFact verificó el récord congresional de DeSantis, sus comentarios actuales como gobernador y al buscar la nominación presidencial republicana del 2024. El anuncio contiene un elemento de verdad, pero ignora hechos importantes.
Como representante de los Estados Unidos antes de convertirse en gobernador, DeSantis apoyó propuestas congresionales para reducir los gastos del Seguro Social y el Medicare, incluyendo elevar la edad para obtener elegibilidad completa. Pero esas propuestas fueron declaraciones simbólicas de una preferencia política; aunque hubieran sido aprobadas, las propuestas no se hubieran convertido en ley.
Como gobernador y candidato presidencial, DeSantis ha dicho que él está dispuesto a cambiar las reglas del Seguro Social para las generaciones jóvenes, pero no las cambiaría para los beneficiarios actuales. Su postura sobre Medicare no es clara.
El historial congresional de DeSantis
Anders Croy, el director de comunicaciones de Florida Watch y DeSantis Watch, dirigió a PolitiFact a los votos congresionales de DeSantis en el 2013, 2014 y 2015 por tres propuestas de presupuesto no vinculantes. Estas resoluciones pedían aumentar la edad de jubilación y frenar el gasto futuro del Seguro Social. La Cámara de Representantes no aprobó estas propuestas, pero aun si hubieran sido aprobadas, no se hubieran convertido en ley.
Croy también dijo que en 2017, DeSantis votóporotra propuesta de presupuesto no vinculante que propuso recortar $473,000 millones a la base de gasto de Medicare por más de una década. Esta provisión — la cual no promulga una ley — también necesitaba la aprobación de leyes adicionales para tomar efecto.
Pero es debatible si esas medidas equivalen a recortes en los programas.
Marc Goldwein, vicepresidente senior del Comité para un Presupuesto Federal Responsable, le dijo a PolitiFact en 2018 que para que estas resoluciones hubieran conducido a recortes, los detalles de otras propuestas tendrían que haberse convertido en ley.
¿Cuál es la postura actual de DeSantis sobre el Seguro Social y Medicare?
El anuncio dice que DeSantis “quiere” recortar el Seguro Social y Medicare, dando la impresión de que esta es su postura como candidato presidencial.
Aunque DeSantis ha dicho en entrevistas y apariciones públicas que el programa de Seguro Social necesita un cambio, él también ha dicho que apoya dejarlo como está para beneficiarios actuales. Él ha dicho que está dispuesto a cambiar los requerimientos de elegibilidad para los estadounidenses jóvenes que actualmente están entre los 30 y 40 años de edad.
“Cuando la gente dice que vamos de alguna forma a recortar a los adultos mayores, eso es totalmente no verdadero”, DeSantis dijo en julio en Fox News. “Hablando de hacer cambios para las personas en sus 30 y 40 para que el programa sea viable, eso es algo muy diferente”.
Cambios al Seguro Social, como aumentar la edad de jubilación, posiblemente significa recortes de beneficios, dijo Andrew D. Eschtruth, un director asociado del Centro de Investigación de Jubilación del Boston College.
Si se les prometen beneficios a una persona de una edad específica y luego, cuando ellos se vuelven elegibles para recibirlos, la edad requerida incrementa, esas personas pierden los beneficios esperados para ese periodo, dijo el.
DeSantis no ha especificado si o cómo cambiaría el Medicare.
La afirmación del anuncio viene durante la campaña presidencial de DeSantis para presidente y puede dar la impresión engañosa de que está haciendo campaña en una plataforma para realizar amplios recortes al Medicare y el Seguro Social.
Calificamos esta afirmación como Mayormente Falsa.
Boebert told Oren “Hank” McKnelly, an executive counselor for the SSA, that the agency was allowing “delinquent employees to sit on their sofas at home” instead of “actually getting to work and doing their jobs” as she took aim at telework policies during a House Oversight Committee hearing.
“This is absolutely unacceptable,” said Boebert, who is known for her bizarre behavior in – and outside of – Washington.
McKnelly, who was testifying before the committee, swiftly checked Boebert and broke down how SSA employees’ performances are monitored as they work from the office or at home.
“So real time understanding of what actions are being processed at any particular given time,” noted McKnelly, who added that employees are required to be “accessible” during work hours to supervisors, clients and colleagues.
Boebert pressed further on employee productivity before McKnelly shut the Republican down.
“Because we’ve been historically underfunded for a number of years now,” McKnelly replied.
“I don’t think you’re underfunded. You’re funded at the Nancy Pelosi levels, at the democrat levels. We just continued that same funding,” said Boebert, adding that it’s at “pandemic-level spending.”
“So I’d say we’d have an increase of over eight million beneficiaries over the last 10 years. At the same time, we experienced our lowest work staffing levels at the end of FY 22. That’s a math problem,” he replied.
“I mean, that is a problem. If you have those workloads increasing and you don’t have the staff to take care of those workloads, you’re going to have the backlogs that you’re talking about, representative.”
President Joe Biden said Republicans intend to chop Social Security.
“Their plan would cut Social Security benefits,” Biden said Nov. 27 during a White House event. “I thought (Republicans) agreed not to do this a couple times. But they’re back at it. Average benefit cut would be 13%.”
Almost 67 million Americans this year will receive Social Security payments, totaling about $1 trillion. Many older Americans rely on the benefits to pay their basic living expenses. People can start receiving Social Security retirement benefits at age 62, but full benefits kick in when they turn 67.
Social Security is funded through the payroll tax; that revenue is put into trust funds to pay for current beneficiaries. These trust funds could be depleted as early as 2032 if further action is not taken. That could mean that in about a decade, monthly checks could be reduced by about 23%.
But because of its widespread support among older Americans — who usually have the highest voter turnout — Social Security has long been known as the “third rail of politics.” Many politicians in both parties are reluctant to broach major structural changes.
In his 2023 State of the Union address, Biden seemed to cow Republican lawmakers in the audience into pledging not to cut benefits. That nationally televised faceoff set the table for Biden’s criticism on Nov. 27.
The White House told PolitiFact that Biden was referring to a budget proposed in June by the Republican Study Committee, a group of conservatives in the House GOP.
That proposal opens the door to Social Security cuts, but its effects are far less clear or specific than Biden portrayed. Republicans said it would not affect people who are near retirement or have retired, which Biden left out. He also omitted important context about what could happen to Social Security under his own plan.
The Republican Study Committee did not answer an inquiry for this article.
What the Republican Study Committee proposed
In its 167-page fiscal year 2024 budget proposal, the Republican Study Committee backed some changes to Social Security’s structure that it said would preserve the program’s fiscal health.
The group said it would “make modest changes” in the benefit formula for “individuals who are not near retirement” and are on the income scale’s higher end. It also said it would make “modest adjustments” to the retirement age for full benefits “to account for increases in life expectancy.” And the budget said it would phase out “auxiliary benefits” for high earners.
Would the proposal “cut Social Security benefits,” as Biden said?
The proposal would cut benefits, at least for some people.
In its proposed budget, the Republican Study Committee emphasized that its proposal “does not cut or delay retirement benefits for any senior in or near retirement,” and Biden did not repeat this caveat.
However, the flip side of the group’s pledge is that younger Americans would see reductions under the group’s plan.
In an analysis of the proposal for PolitiFact, the Committee for a Responsible Federal Budget — a fiscally hawkish group that tracks budget matters — said it is “generally true that an increase in the full retirement age is roughly equivalent to an across-the-board cut in benefits.”
For instance, if people want to retire at 67, but the age for receiving full benefits is raised to 69, they can still choose to retire at 67, but if they do, they will have to accept a lower monthly payment than before the age was raised.
Future beneficiaries’ payments could be cut further depending on their income and other factors.
Would the “average benefit cut” be 13%, as Biden said?
Biden’s 13% figure is speculative, but plausible.
The White House told PolitiFact that the 13% figure originated in a table the liberal Center for Budget and Policy Priorities published.
In the table, raising the retirement age from 67 to 69 would reduce an “illustrative monthly benefit” from $1,000 to $867, which is a 13.3% cut.
The paper was last updated in 2020, but Paul Van de Water, a senior fellow at the Center for Budget and Policy Priorities, said the math it uses is “still applicable.”
However, the Committee for a Responsible Federal Budget urged caution.
“There both isn’t enough detail to say what the full (Republican Study Committee) plan is, and there also isn’t a comprehensive assessment of the full plan to say what the average cut would or wouldn’t be,” the group told PolitiFact.
Is this the Republican plan, as Biden suggested?
Whether this can be characterized as the Republican plan is more debatable.
The Republican Study Committee’s membership includes about 80% of the House Republican Conference, which holds a narrow majority in the chamber. But this doesn’t mean the Republican Study Committee’s plan is an official plan for all Republicans — nor would it be a slam dunk to pass.
It’s one proposal from one faction, albeit a sizable one, within the House Republican Conference. Given the political sensitivity of Social Security and that one-fifth of House Republicans aren’t bound by the Republican Study Committee’s plan, it could face trouble on the floor, if it gets that far.
Also, Democrats control the Senate narrowly, and it’s not clear that the Republican minority in the chamber would close ranks behind such a plan.
What is Biden leaving out?
In contrast to the changes the Republican Study Committee envisions, the White House in February said Biden would “commit to taking cuts to Social Security … off the table.”
A status quo approach like this, however, would also lead to significant benefit cuts if nothing changes.
This is a point the Republican Study Committee makes repeatedly in its proposal, describing the prospect of what it calls “Biden’s 23% across-the-board cuts” “devastating.” That figure stems from projections by the trust funds’ trustees.
“As President Biden criticizes proposals that would prolong the life of the Social Security trust fund, his current approach of doing nothing would lead to 23% benefit cuts for all participants, including current seniors,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “We are running out of time, and serious leaders should offer their own solutions, not try to score cheap political points against those who do.”
Our ruling
Biden said of Republicans, “Their plan would cut Social Security benefits. … Average benefit cut would be 13%.”
A Republican Study Committee proposal from June would result in cuts to beneficiaries from a combination of a higher retirement age and formula changes, though the proposal said current retirees and those nearing retirement age would be exempted. Experts found the 13% cut Biden cited to be speculative, but plausible — but there isn’t enough detail to really know.
Also, this is one Republican faction’s plan, not something universally adopted by the party, and it’s far from guaranteed to be passed in the House, let alone in the Senate. And Biden’s framing also ignores that his own policy, which is essentially to continue the status quo, threatens even bigger across-the-board reductions by the early 2030s.
A senior couple dealing with unexpected Social Security taxes, commonly referred to as the Social Security tax torpedo.
While retirees may be chagrined to discover that taxes don’t end when they leave the workforce, an unseen threat looms behind the U.S. tax code. The Social Security tax torpedo is as destructive as it sounds, blowing up the budgets of unsuspecting retired folks eagerly awaiting their first Social Security check. Having a clear understanding of your Social Security taxes could help you dodge this torpedo in retirement. Here’s what you need to know.
A financial advisor can help you create a financial plan to minimize your taxes in your golden years.
What Is Social Security Tax Torpedo?
The Social Security tax torpedo is a spike in taxes retirees can experience after receiving Social Security income. Specifically, 50% to 85% of your Social Security check may be taxable, depending on your income level and life circumstances. In addition, your Social Security income can increase your marginal tax rate, meaning the top portion of your income enters the next tax bracket. As a result, unsuspecting retirees can pay heavier taxes than anticipated, and their Social Security benefits provide less of a financial boost than expected.
Tax Torpedo Implications
The government bases your taxes in retirement on your modified adjusted gross income plus any nontaxable interest (usually from municipal bonds) and half of your Social Security benefits. The resulting sum is called your ‘combined income,’ which incurs different taxes depending on the amount and the filer’s status.
For instance, single filers with a combined income of $25,000 to $34,000 pay taxes on 50% of their benefits. An income above this amount results in taxes on 85% of the benefits. Likewise, those married filing jointly with combined incomes between $32,000 and $44,000 will pay taxes on 50% of their benefits. Any amount above this incurs taxes on 85% of the benefits.
Remember, the tax torpedo doesn’t mean you will lose 85% of your Social Security income taxes. Instead, you’ll owe your regular income tax rate on 85 cents of every dollar you receive from Social Security. In addition, your income tax rate isn’t the same across all your income because of how tax brackets work. The US tax code incurs progressive taxes on your income the higher it is.
For example, say you’re a single filer in 2023 with a total taxable income of $50,000 (putting you in the 22% tax rate for the income above $44,725). Your combined income is $35,000, and you receive $15,000 in Social Security benefits. You’re over the $34,000 combined income limit, meaning you’ll pay taxes on 85% of your Social Security benefits.
This situation means applying your top marginal tax rate (22%) to 85% of your Social Security benefit ($12,750). So, your tax burden from Social Security is a $2,805 expense. If your combined income was $34,000 or less, only half your Social Security would be taxed, a $1,650 expense.
How to Avoid the Social Security Tax Torpedo
A senior calculating his taxes to avoid the Social Security tax torpedo.
Losing your hard-earned Social Security benefits to Uncle Sam isn’t a foregone conclusion. Here’s how to sidestep the Social Security tax torpedo while maximizing your financial wellness and quality of life:
Use a Roth IRA
Roth IRAs are retirement accounts where contributions are made with after-tax dollars, meaning you don’t get a tax deduction when you contribute. However, the distributions during retirement are tax-free. As a result, your Roth IRA income doesn’t count towards your taxable income, reducing the likelihood that you’ll pass the threshold that determines whether 50% or 85% of your Social Security benefit is taxed.
Live in a Tax-Friendly State
Thirteen states tax your Social Security check, adding to the federal tax burden. As a result, you can save on taxes by avoiding residency in the following states:
Colorado
Connecticut
Kansas
Minnesota
Missouri
Montana
Nebraska
New Mexico
North Dakota
Rhode Island
Utah
Vermont
Washington
Give Your IRA Income to Charity
Qualified charitable distributions (QCDs) allow you to donate money directly from your traditional IRA to charity. The government doesn’t count the first $100,000 of donations as taxable income. While doing so won’t directly affect your Social Security tax, it will lower your overall taxable income, potentially reducing the portion of your Social Security benefits subject to taxation. Remember, this advantage is solely for traditional IRAs.
Buy a Qualified Longevity Annuity Contract (QLAC)
A QLAC is a specialized annuity that provides a guaranteed income stream later in life. You can transfer $130,000 from a traditional IRA or 401(k) to a newly opened QLAC, reducing the required minimum distributions (RMDs) you’ll take from your retirement account. This way, the distributions from your 401(k) or IRA won’t increase your annual income as much, mitigating Social Security taxes.
Your QLAC has a delayed RMD age compared to traditional retirement accounts. While the government requires RMDs from a 401(k) or IRA at age 73, you can delay distributions from your QLAC until you’re 85. Remember, you will owe taxes from QLAC distributions the year you receive them.
Compare Your Income Level to Tax Brackets
Understanding the income thresholds for different tax brackets can help you plan withdrawals from retirement accounts. By staying within lower tax brackets, you may reduce the portion of your Social Security benefits subject to taxation.
Delay Social Security
Taxes on Social Security income can’t apply until you receive your benefits. Therefore, delaying Social Security can help you avoid additional taxation through your 60s. If you can work or survive on other income until age 70, you’ll reap two benefits: first, you’ll maximize your Social Security payment amount. Second, you’ll avoid paying taxes on Social Security. Plus, if you live on a traditional IRA or 401(k) during that time, you’ll reduce your RMDs, giving you more control over your income level in your 70s.
Bottom Line
A senior surprised by unexpected taxes commonly known as the Social Security tax torpedo.
Understanding and proactively addressing the possibility of a Social Security tax torpedo can increase your net income during retirement. By utilizing tools like Roth IRAs, charitable donations, and QLACs, you can create a more tax-efficient retirement.
Additionally, being mindful of how your income level relates to tax brackets and considering delaying Social Security can provide further avenues to optimize your financial well-being and quality of life in retirement. Consulting a financial advisor can be instrumental in tailoring these strategies to your specific circumstances, helping you maximize your hard-earned retirement benefits.
Tips for Avoiding the Social Security Tax Torpedo
Consulting a financial advisor is a crucial step in planning for retirement and avoiding the Social Security tax torpedo as you can get personalized guidance tailored to your specific financial situation, goals, and preferences. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Planning during your working years makes a tax-efficient retirement more doable. However, if you’re already retired, you can still lower your taxes and set yourself up for a brighter financial future.
Soon after House Republicans voted in Rep. Mike Johnson, R-La., as House speaker, a number of Democratic lawmakers in Wisconsin took to X to lament the pick.
This included state Rep. Francesca Hong, D-Madison, who tweeted soon after the vote: “House Republicans voted in an anti-abortion insurrectionist who opposes Social Security benefits as their speaker today. Shameful.”
While Hong makes several claims in her tweet, the last one caught our attention, and we decided to look into the new speaker’s views on Social Security benefits.
Social Security is a government program primarily funded through payroll taxes to provide financial support to retirees, disabled individuals and survivors of deceased workers.
Does Johnson oppose such benefits?
Johnson once said debt from entitlement programs is an “existential threat” to government
When asked to back up the claim, Hong pointed to Johnson’s leadership on the conservative Republican Study Committee, which he chaired from 2019 to 2021.
In 2020, while Johnson chaired the caucus, the committee released a budget plan that urged Congress to adopt changes to Social Security and its benefits.
These included measures to raise the retirement age and scale back cost-of-living adjustments to benefits for higher-income people. Those changes, among others, would have cut spending on Social Security by $756 billion over a decade, according to the budget plan.
After pointing to the committee’s recommendations to cut Social Security benefits, Hong argued the large cuts are synonymous with opposing the benefits:
“While these changes might be messaged by the committee as ‘cuts,’” they are significant enough slashes to evidence that Republicans like Speaker Johnson are in opposition to the inherent goals of programs like Social Security and Medicare.”
Hong also pointed to a comment Johnson made while speaking at a 2018 event for the American Enterprise Institute, a public policy think tank
When talking about debt accrued from Medicare, Medicaid and Social Security, Johnson said they pose an “existential threat” to the American way of life and the “whole form of government.”
It’s worth noting Social Security is in financial trouble and its funding is expected to be depleted as soon as 2033, according to the Congressional Budget Office. Johnson has endorsed reforming Social Security in a way that would significantly cut back its budget and is openly critical of the program’s spending, but experts say his record doesn’t equate to supporting elimination of the program.
Eric Kingson co-founder of Social Security Works, an advocacy group for entitlement programs, said the committee’s plan takes “significant shots at Social Security” and would scale back benefits, but Johnson’s position doesn’t necessarily go against the program.
The Republican Study Committee’s plan under Johnson’s leadership specifically called for “long-term solvency” for Social Security, which Richard Burkhauser, a political analysis professor at Cornell University argues could be Johnson’s approach toward preventing default of Social Security before 2033.
Our ruling
Hong claimed Johnson “opposes Social Security benefits.”
It’s true Johnson’s endorsed Social Security reform would scale back entitlement benefits for some Americans, which Hong argues should be interpreted as opposition to the program.
But endorsing significant cuts to the program is not the same as opposing the program itself, especially given its precarious financial picture.
Indeed, Johnson hasn’t outright said he opposed Social Security benefits.
We rate this claim Mostly False, which means: “The statement contains an element of truth but ignores critical facts that would give a different impression.”
A Spanish-language ad playing on South Florida radio stations portrays a phone conversation between a daughter and a mother who are lamenting Florida’s high costs of living.
The mom says, “Now your father wants to retire, but we don’t know if he’ll have Social Security.” The daughter asks why.
“The governor, Ron DeSantis, is the reason our costs are going up and he’s doing nothing about it. He even wants to cut Social Security and Medicare,” the mom says. “And now he wants to become president.”
The ad began airing Nov. 8 and comes from DeSantis Watch, a project of the left-leaning research organizations Progress Florida and Florida Watch.
Social Security is a source of monthly income for older Americans who are retired or have reduced their working hours. Most jobs take Social Security taxes out of workers’ paychecks so that the workers can get monthly benefits later in life.
Medicare is a federal health insurance program for people age 65 and older and for certain younger people with disabilities. There are different parts of Medicare; original Medicare pays for doctor’s visits and hospital stays (beneficiaries generally have copays). Medicare Advantage is a Medicare-approved plan offered by private companies as an alternative to original Medicare for health and drug coverage.
PolitiFact checked DeSantis’ congressional record, his comments as governor and and his comments as he seeks the 2024 Republican presidential nomination. The ad contains an element of truth, but ignores critical facts.
As a U.S. representative before becoming governor, DeSantis supported congressional proposals to reduce Social Security and Medicare spending, including by raising the age for full eligibility. But those proposals were symbolic statements of a policy preference; even if passed, the proposals would not have become law.
As a governor and presidential candidate, DeSantis has said he’s open to changing Social Security rules for younger generations, but he’s said he would not change it for current beneficiaries. His current stance on Medicare is not clear.
DeSantis’ congressional record
Anders Croy, Florida Watch and DeSantis Watch’s communications director, directed PolitiFact to DeSantis’ congressional votes in 2013, 2014 and 2015 for three nonbinding budget proposals. These resolutions called for raising the retirement age and slowing future Social Security spending. The House didn’t pass the proposals, but even if it had, they would not have become law.
Croy also noted that in 2017, DeSantis votedforanother nonbinding budget resolution, a motion that does not enact a law, that proposed cutting $473 billion to Medicare’s baseline spending over a decade. This provision also needed the approval of additional laws to take effect.
Whether those measures amounted to cuts to the programs is debatable.
Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, told PolitiFact in 2018 that whether these resolutions would have led to cuts hinged on the particulars of other proposals that would have to eventually become law.
What’s DeSantis’ current stance on Social Security and Medicare?
The ad says DeSantis “wants” to cut Social Security and Medicare, giving the impression this is his stance as he runs for president.
Although DeSantis has said in interviews and public appearances that the Social Security program needs changes, he has also said he supports keeping it as is for current beneficiaries. He has said he is open to changing eligibility requirements for younger Americans currently in their 30s and 40s.
“When people say that we’re going to somehow cut seniors, that is totally not true,” DeSantis said in July on Fox News. “Talking about making changes for people in their 30s or 40s so that the program’s viable, that’s a much different thing.”
Changes to Social Security, such as raising the retirement age, would most likely mean benefit cuts, said Andrew D. Eschtruth, an associate director at Boston College’s Center for Retirement Research.
If people are promised benefits at a specific age and then, when they become eligible to receive them, the age requirement increases, those people lose the benefits for that expected period, he said.
DeSantis has not specified if or how he would change Medicare.
Our ruling
A DeSantis Watch ad claims that DeSantis “wants to cut Social Security and Medicare.”
As a presidential candidate, DeSantis has not said what he wants to do with Medicare. He has said he favors changing Social Security, although not in a way that affects current beneficiaries.
In Congress, DeSantis supported proposals to reduce Social Security and Medicare spending, including raising the age at which people are fully eligible. This could mean people who thought they would be receiving benefits at a certain age end up waiting longer. Whether that is considered a “cut” is debatable, and those measures were nonbinding, which meant they were motions that didn’t enact a law.
The ad comes as DeSantis runs for president and can give the misleading impression that he’s campaigning on a platform to make broad cuts to Medicare and Social Security.
Social Security supports more than 70 million Americans, ranging from retirees to disabled people and children. But it’s also an incredibly complex system, with an operations manual that is 20,000 pages long, covering a tangle of 2,700 rules that can easily trip up claimants and cost them tens of thousands of dollars in lost benefits.
Some of the pitfalls are detailed in a new book, “Social Security Horror Stories,” by Boston University economist Laurence Kotlikoff and personal finance writer Terry Savage. In some cases, the errors aren’t the fault of beneficiaries, but stem from the Social Security Administration’s own missteps. Yet claimants have little recourse for fixing the problem or otherwise protecting themselves.
There’s a lot at stake in improving the system, Kotlikoff told CBS MoneyWatch. Social Security is often a person’s biggest financial asset aside from homeownership, and the steady stream of monthly income keeps millions of seniors from slipping into poverty. But the program can be opaque and, perhaps unintentionally, encourage certain choices that cause people to lose out on tens of thousand of dollars in benefits, Kotlikoff said.
“We probably have about 20% of retirees who are totally dependent on Social Security for their only source of income,” he noted. “This is a big deal. You have to take this seriously, and you have to do your homework.”
Kotlikoff, who has published academic research about Social Security and is the co-author of the best-selling “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” said that the mistakes can range from claiming benefits too early to following the wrong advice, such as claiming both a survivors benefit and retirement benefit at the same time, which can also lead to a loss in future payouts.
He also cautions people against relying solely on the Social Security Administration for advice, because he and Savage have heard from people who were given wrong or misleading advice by SSA employees, leading to costly mistakes that can be difficult to impossible to fix. (For instance, if you decide you claimed too early, you only have 12 months to reverse the decision.)
“People really need to understand that you’re out there on your own,” Kotlikoff said.
The Social Security Administration said in a statement to CBS MoneyWatch that improving its business processes “to serve our customers better remains a top priority.”
Here are four common mistakes that people often make in claiming Social Security, according to Kotlikoff.
Claiming too early
This may be the single biggest issue impacting Americans because Social Security allows people to begin collecting their benefits when they turn 62, or about five years before the full retirement age for most people. By claiming Social Security early, though, your monthly benefits will be shaved by 30%.
People can also wait to claim Social Security until they are 70, when they receive the maximum payout — about 76% higher than at age 62. But only about 6% of Americans wait until they turn 70 to claim Social Security.
Kotlikoff thinks the Social Security Administration may inadvertently nudge people into claiming too early by providing a life expectancy calculator and actuarial tables that give the average number of additional years you could live. He said people should claim Social Security based on the maximum number of years they could live — not the average.
“Taking an actuarial calculation is completely irrelevant to any one person,” he said. “Think about homeowners insurance. People have one house, and they want to go look at the catastrophic outcome which is, it burns downs.”
Added Kotlikoff, “They have one life and they want to look at the catastrophic outcome financially, which is they live to the maximum.”
Claiming too early can cost you $182,000 in lost benefits, Kotlikoff estimated in a research paper published last year.
The “widow’s scam”
Another mistake that can result in lost benefits is what Kotlikoff calls “the widow’s scam,” which usually stems from poor decisions about filing for benefits that can lead to lower payments.
One of the 12 types of benefits offered by Social Security is the survivors benefit, which is paid to widows, widowers and dependents of eligible workers. In the case of widows and widowers, they can file for Social Security payments based on their spouse’s earnings, and claim as early as age 60.
But sometimes people mistakenly file for both survivor’s benefits and their own retirement benefits, although the Social Security Administration will only pay one benefit, whichever is higher.
The problem comes if the survivor’s benefit is higher because by claiming the retirement benefit at the same time, the widow or widower is locking in their retirement benefit at the age when they make that claim. That risks the person losing out on thousands of higher benefits they would have received if they waited until full retirement age, or even age 70, to claim.
“You go into Social Security and you say, ‘Hey, I want my 76% higher check for the next possibly 30 years,’” Kotlikoff said. “And they say, ‘No, look at our records here. You filed for both benefits, you checked off the box.”
In that case, if it’s been more than a year since they claimed their retirement benefits, it won’t be possible to reverse that decision.
The “earnings test” scam
Another Social Security rule that can trip up older Americans is the so-called earnings test, which states that people who claim before their full retirement age and then continue to work will face a heavy tax if they earn above a fairly low income threshold.
In 2023, that “earnings test” is $21,240, which means people who collect Social Security before age 67 will get $1 deducted from their Social Security payments for every $2 they earn above that limit. That often dissuades older workers from continuing to work after they claim, given that they fear losing a chunk of income to this tax.
But what isn’t widely known, Kotlikoff said, is something called the “adjustment of reduction factor,” or ARF, which restores those lost benefits once the claimant reaches full retirement age.
“Know that it’s a good thing to lose money to the earnings test because for every dollar you lose to the earnings test, you get about about roughly $1.20 back in benefits,” Kotlikoff said. “But people aren’t being told that, so they mistakenly think that going back to work just makes no sense because all they’re doing is working for the government.”
Of course, not everyone might be able to hold off, at least on a financial basis, for their benefits to be adjusted when they hit 67. But some people over 60 might make different decisions about working if they were aware of this issue, Kotlikoff noted.
The overpayment trap
This issue impacts about 1 million Social Security recipients a year, and can cause financial hardship and stress, as reported by “60 Minutes” earlier this month.
This happens when Social Security overpays beneficiaries, who typically find out years later when the Social Security Administration sends a letter demanding repayment — even if it was not their fault. Often, the fault sits with the Social Security Administration, as detailed in this 2022 report from the Social Security Administration’s Inspector General that found employees sometimes enter the wrong information into SSA’s systems or incorrectly calculate benefits.
But if this happens, the recipient will have to pay up, as “60 Minutes” detailed. And if you want to appeal, it can take months or years to clear up, with no guarantee that it will be resolved in your favor.
That’s why Kotlikoff urges people to keep careful records of their interactions with the Social Security Administration, as well as the information they send to the agency. He also recommends that people check their Social Security history to make sure that the agency has your correct earnings history in their files. You can do this by creating a “My Social Security” account on the agency’s site, where you can look through your past income to check for accuracy.
In a statement to CBS MoneyWatch, the Social Security Administration said, “We continually strive to improve stewardship of our programs and reduce improper payments. While staffing losses and resource constraints have challenged our service delivery, our payment accuracy rates remain very high.”
The agency also noted it is responsible to taxpayers “to be good stewards of the trust funds,” referring to the financial accounts that hold money for its programs. “Each person’s situation is unique, and we handle overpayments on a case-by-case basis,” it added.
“If you start seeing that you’re getting overpaid, you should set that money aside because they’re going to come back for it at some point,” Kotlikoff said. With 1 million people overpaid every year and about 70 million Social Security recipients, “Your chance of being one of those people is pretty high.”
The simplest answer is yes: Social Security income is generally taxable at the federal level, though whether or not you have to pay taxes on your Social Security benefits depends on your income level. If you have other sources of retirement income, such as a 401(k) or a part-time job, then you should expect to pay income taxes on your Social Security benefits. If you rely exclusively on your Social Security checks, though, you probably won’t pay taxes on your benefits. State laws vary on taxing Social Security. Regardless, it’s a good idea to work with a financial advisor to help you understand how different sources of retirement income are taxed.
Is My Social Security Income Taxable?
According to the IRS, the quick way to see if you will pay taxes on your Social Security income is to take one half of your Social Security benefits and add that amount to all your other income, including tax-exempt interest. This number is known as your combined income (combined income = adjusted gross income (AGI) + nontaxable interest + half of your Social Security benefits).
If your combined income is above a certain limit (the IRS calls this limit the base amount), you will need to pay at least some tax.
The limit is $25,000 if you are a single filer, head of household or qualifying widow or widower with a dependent child. The limit for joint filers is $32,000. If you are married filing separately, you will likely have to pay taxes on your Social Security income.
Calculating Your Social Security Income Tax
If your Social Security income is taxable, the amount you pay in tax will depend on your total combined retirement income. However, you will never pay taxes on more than 85% of your Social Security income. If you file as an individual with a total income that’s less than $25,000, you won’t have to pay taxes on your Social Security benefits in 2021, according to the Social Security Administration.
For the 2021 tax year (which you will file in 2022), single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income was more than $34,000, you will pay taxes on up to 85% of your Social Security benefits.
For married couples filing jointly, you will pay taxes on up to 50% of your Social Security income if you have a combined income of $32,000 to $44,000. If you have a combined income of more than $44,000, you can expect to pay taxes on up to 85% of your Social Security benefits.
If 50% of your benefits are subject to tax, the exact amount you include in your taxable income (meaning on your Form 1040) will be the lesser of either a) half of your annual Social Security benefits or b) half of the difference between your combined income and the IRS base amount.
Let’s look at an example. Say you’re a single filer who receives a monthly benefit of $1,543, which is the average benefit after the cost of living increase in January 2021. Your total annual benefits would be $18,516. Half of that would be $9,258. Then let’s say you have a combined income of $30,000. The difference between your combined income and your base amount (which is $25,000 for single filers) is $5,000. So the taxable amount that you would enter on your federal income tax form is $5,000, because it is lower than half of your annual Social Security benefit.
The example above is for someone who is paying taxes on 50% of his or her Social Security benefits. Things get more complicated if you’re paying taxes on 85% of your benefits. However, the IRS helps taxpayers by offering software and a worksheet to calculate Social Security tax liability.
If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
How to File Social Security Income on Your Federal Taxes
Once you calculate the amount of your taxable Social Security income, you will need to enter that amount on your income tax form. Luckily, this part is easy. First, find the total amount of your benefits. This will be in box 3 of your Form SSA-1099. Then, on Form 1040, you will write the total amount of your Social Security benefits on line 5a and the taxable amount on line 5b.
Note that if you are filing or amending a tax return for the 2017 tax year or earlier, you will need to file with either Form 1040-A or 1040. The 2017 1040-EZ did not allow you to report Social Security income.
Simplifying Your Social Security Taxes
During your working years, your employer probably withheld payroll taxes from your paycheck. If you make enough in retirement that you need to pay federal income tax, then you will also need to withhold taxes from your monthly income.
To withhold taxes from your Social Security benefits, you will need to fill out Form W-4V (Voluntary Withholding Request). The form only has only seven lines. You will need to enter your personal information and then choose how much to withhold from your benefits. The only withholding options are 7%, 10%, 12% or 22% of your monthly benefit. After you fill out the form, mail it to your closest Social Security Administration (SSA) office or drop it off in person.
If you prefer to pay more exact withholding payments, you can choose to file estimated tax payments instead of having the SSA withhold taxes. Estimated payments are tax payments that you make each quarter on income that an employer is not required to withhold tax from. So if you ever earned income from self-employment, you may already be familiar with estimated payments.
In general, it’s easier for retirees to have the SSA withhold taxes. Estimated taxes are a bit more complicated and will simply require you to do more work throughout the year. However, you should make the decision based on your personal situation. At any time you can also switch strategies by asking the the SSA to stop withholding taxes.
The Impact of Roth IRAs
If you’re concerned about your income tax burden in retirement, consider saving in a Roth IRA. With a Roth IRA, you save after-tax dollars. Because you pay taxes on the money before contributing it to your Roth IRA, you will not pay any taxes when you withdraw your contributions. You also do not have to withdraw the funds on any specific schedule after you retire. This differs from traditional IRAs and 401(k) plans, which require you to begin withdrawing money once you reach 72 years old, or 70.5 if you were born before July 1, 1949.
So, when you calculate your combined income for Social Security tax purposes, your withdrawals from a Roth IRA won’t count as part of that income. That could make a Roth IRA a great way to increase your retirement income without increasing your taxes in retirement.
Another thing to note is that many retirement plans allow individuals, aged 50 years or older, to make annual catch-up contributions. You can make catch-up contributions up to $1,000. These must be made by the due date of your tax return. You have until April 15, 2022 to make the $1,000 catch-up contribution apply to your 2021 Roth IRA contribution total.
State Taxes on Social Security Benefits
Everything we’ve discussed above is about your federal income taxes. Depending on where you live, you may also have to pay state income taxes.
There are 12 states that collect taxes on at least some Social Security income. Two of those states (Minnesota and Utah) follow the same taxation rules as the federal government. So if you live in one of those two states then you will pay the state’s regular income tax rates on all of your taxable benefits (that is, up to 85% of your benefits).
The other states also follow the federal rules but offer deductions or exemptions based on your age or income. So in those nine states, you likely won’t pay tax on the full taxable amount.
The other 38 states (plus Washington, D.C.) do not tax Social Security income.
State Taxes on Social Security Benefits
Taxed According to Federal Rules: Minnesota, Utah
Partially Taxed (Exemptions for Income and Age): Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Vermont, West Virginia
No State Tax on Social Security Benefits: Alabama, Alaska, Arizona, Arkansas, California, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming
Don’t miss out on news that could impact your finances. Get news and tips to make smarter financial decisions with SmartAsset’s semi-weekly email. It’s 100% free and you can unsubscribe at any time. Sign up today.
Bottom Line
We all want to pay as little in taxes as possible. That’s especially true in retirement, when most of us have a set amount of savings. But consider that if you have enough retirement income that you’re paying taxes on Social Security benefits, you’re probably in decent shape financially. It means you have income from other sources and you’re not entirely dependent on Social Security to meet living expenses.
You can also save on your taxes in retirement simply by having a plan. Help yourself get ready for retirement by working with a financial advisor to create a financial plan.
Tips for Saving on Taxes in Retirement
Financial advisors can offer valuable guidance and insight into retiree taxes. Finding a qualified financial advisor doesn’t have to be hard. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
What you pay in taxes during your retirement will depend on how retirement friendly your state is. So if you want to decrease tax bite, consider moving to a state with fewer taxes that affect retirees.
Another way to save in retirement is to downsize your home. Moving into a smaller home could lower your property taxes and it could also lower your other housing costs.
When Dave Bernstein, 87, started working at the U.S. Postal Service in February 1970, he was making $2.35 an hour.
To supplement his income, he also took on other work. Years later, Bernstein decided in 1992 to take a voluntary retirement.
“We knew there was going to be a reduced pension because of the early out,” said Phyllis Bernstein, Dave’s wife, who is 84.
But what came next was something the couple did not expect.
While Dave was expecting a monthly Social Security check of around $800, it ended up being just about half that amount – around $415 – even though he had earned the required 40 credits to be fully insured by the program. The benefits were adjusted based on rules for workers who earn both pension and Social Security benefits.
The couple, who reside in Tampa, Florida, have had a different retirement than they envisioned due to the lower income.
Phyllis kept working until she was 82. They have also turned to family for financial support.
Their lifestyle is frugal, with home-cooked meals and cars they kept for 20 years, or “until the wheels were falling off,” the couple jokes.
But their limited resources have made traveling to Australia and New Zealand – Phyllis’ dream – out of reach.
“When he retired, I was working,” Phyllis said. “We just couldn’t do the travel.”
Today, Dave is pushing for the Social Security rules that reduced his benefits to be changed.
His union, the American Postal Workers Union, has endorsed the Social Security Fairness Act, a bill proposed in Congress that would repeal Social Security rules known as the Windfall Elimination Provision, or WEP, and Government Pension Offset, or GPO, that reduce benefits for workers had positions where they did not pay Social Security taxes, also called non-covered earnings.
The legislation has support from other organizations that represent public workers, including teachers, firefighters and police.
The bill has overwhelming bipartisan support in the House of Representatives – 300 co-sponsors – at a time when that chamber has been politically divided. That support recently prompted House lawmakers to send a letter to leaders of the Ways and Means Committee to request a hearing.
The WEP applies to how retirement or disability benefits are calculated if a worker earned a retirement or disability pension from an employer who did not withhold Social Security taxes and qualifies for Social Security from work in other jobs where they did pay taxes into the program.
Social Security benefits are calculated using a worker’s average indexed monthly earnings, and then using a formula to calculate a worker’s basic benefit amount. For workers affected by the WEP, part of the replacement rate for the average indexed monthly earnings is brought down to 40% from 90%.
The GPO, meanwhile, reduces benefits for spouses and widows or widowers of recipients of retirement or disability pensions from local, state or federal governments.
It affects hundreds of thousands, if not millions of public employees that paid into Social Security and essentially are being penalized because they also happen to be public servants.
Edward Kelly
general president of the International Association of Fire Fighters
Under the GPO, Social Security benefits are reduced by two-thirds of the government pension. If two-thirds of the government pension is more than the Social Security benefit, the Social Security benefit may be zero.
The impact of the rules is far reaching, according to Edward Kelly, general president of the International Association of Fire Fighters. Many firefighters work in second jobs in the private sector as cab drivers, bar tenders or truck drivers, where they earn credits toward Social Security.
“They steal their money, because they’re also public employees,” said Kelly, who describes his union members as “passionately angry” about the issue.
“It affects hundreds of thousands, if not millions of public employees that paid into Social Security and essentially are being penalized because they also happen to be public servants, whether they are teachers, cops and, obviously, firefighters,” Kelly said.
The WEP and GPO rules were intended to make it so workers who pay Social Security taxes for their entire careers are treated the same as those who do not.
But under those current rules, some beneficiaries receive lower benefits than they would have if they paid into Social Security for all of their careers, while others receive higher benefits, according to the Bipartisan Policy Center.
Yet repealing the WEP and GPO rules would result in Social Security benefits that are “overly generous” for non-covered workers, research has found.
Part of what may create that advantage is that Social Security benefits are progressive, and therefore replace a larger share of income for lower earners. So someone who only has part of their salary history in Social Security may get a higher replacement rate without considering their pension income.
Fully repealing the WEP and GPO rules may also come with higher costs at a time when the program facing a funding shortfall. The change would add an estimated $150 billion to the program’s costs in the next 10 years, according to the Center on Budget and Policy Priorities.
Another way of handling the disparity may be to create a proportional approach to income replacement. Instead of the WEP, workers’ benefits would be calculated based on all of their earnings and then adjusted to reflect the share of their careers that were in jobs covered by Social Security. A similar approach may be taken with the GPO.
However, a proportional formula may not solve all the inequities in the current system, according to Emerson Sprick, senior economic analyst at the Bipartisan Policy Center, which has prompted to think tank to work on refining its proposal.
An important advantage to reforming the current formulas would be making it easier for workers to understand and plan for their retirements.
“It is definitely extremely complex, and very hard for folks preparing for retirement or in retirement, to understand what it means for their benefits,” Sprick said.
Social Security statements that provide retirement benefit estimates do not take these rules into account.
Consequently, many workers find out their benefits are adjusted when they are about to retire.
shapecharge | E+ | Getty Images
“The young guys don’t pay attention to it because it’s too far out; they’re not worried about it,” Kelly said of the firefighters.
“It’s not until you’re ready to go out the door that you actually start paying attention to what you’re going to have to live off when you actually retire,” he added.
The reductions to their Social Security benefits can be a shock.
For beneficiaries like the Bernsteins who start out with lower benefits, it can be difficult to catch up, even after a record 8.7% Social Security cost-of-living adjustmentw went into effect this year.
“Gas this summer and in the spring at $4 a gallon ate that money up like it wasn’t even there,” Dave Bernstein said.
A man considers delaying Social Security past his full retirement age to increase his eventual benefit.
If you have $1 million in a 401(k) and collect a pension, you may be in a position to delay Social Security until age 70. Doing so can boost your monthly benefit by up to 24%. However, delaying Social Security will mean you’ll have to rely more heavily on your savings for several years and potentially take a large bite out of your nest egg. So is the tradeoff worth it? A financial advisor can review income sources and expenses and help you budget for a comfortable retirement.
Basics of Paying for Retirement
Funding retirement is about having enough income to cover your expenses. You may be ready to retire when your retirement income matches or exceeds your anticipated expenses.
On the expense side, essentials include housing, food and healthcare. Most people also have discretionary expenditures like transportation, entertainment, recreation, education and travel.
People with enough savings can afford to delay Social Security and use their nest egg to cover living expenses and discretionary spending. While delaying Social Security can increase your eventual benefits, it also means depleting savings faster. Making this decision will require you to consider all of your sources of income as well as factors like taxes, market fluctuations and inflation.
Delaying Social Security: The 8% Annual Boost
Your benefit grows by about 8% annually each year you delay Social Security beyond your full retirement age – up until age 70. So, waiting provides a significantly higher income later. On the flip side, if you claim your benefits before reaching full retirement age, you’ll get less.
For instance, if your benefit is $2,000 per month at full retirement age, claiming at 62 would cut it by 30%, leaving you with just $1,400 per month. Waiting until age 70, on the other hand, would boost your monthly check to around $2,480 per month – a 24% increase.
Financial advisors say it likely makes sense for many retirees to similarly delay taking Social Security if they have other income sources.
“The longer you can defer Social Security, the better because your benefit will grow by 8% annually,” said Jeremy Suschak, a certified financial planner (CFP) and head of business development at DBR & Co. in Pittsburgh. “Delaying also makes sense if expenses are low, debts are paid and assets can reasonably cover expenses.”
In addition, there are multiple benefits to having assets in diversified retirement accounts, says Hao Dang, an accredited investment fiduciary (AIF) and investment strategist with Consilio Wealth Advisors in Seattle.
“The location of assets is important for tax, legal and diversification reasons,” Dang said.
“While most distributions from these accounts qualify as taxable income, the eligible age of penalty-free distributions may be different. The rule of 55 for 401(k)s allows for penalty-free withdrawals if you are no longer at your job. IRAs are limited to 59 ½ or older.”
Example: $1 Million Saver Who Delays Social Security for 8 Years
A woman reviews her 401(k) as she considers when the best time for claiming Social Security.
While claiming later increases Social Security significantly, deciding whether or not to delay claiming requires figuring out how you’ll pay your bills in the meantime. Consider a 62-year-old with anticipated retirement expenses of $5,000 per month. Like you, he has $1 million in retirement savings earning a 5% annual return.
He also has a pension that provides $700 monthly, or $8,400 annually. This is approximately the average pension benefit, according to a 2022 Census Bureau analysis of older household income sources.
If he takes Social Security at 62, his $1,400 monthly benefit plus his $700 in monthly pension income will add up to $2,100. With $5,000 in expenses every month, he’ll need to withdraw $2,900 a month from his retirement account. And with inflation, that withdrawal will increase over time to maintain the same lifestyle. With this route, he loses roughly $25,000 of his savings to waiting for Social Security – money that could have otherwise been generating investment returns for the long-term.
But if he delays Social Security until 70, he’ll need to withdraw $4,300 from his 401(k) for eight years, which would lower his balance to just over $800,000 by the time he turns 70. At that point, he’ll start collecting Social Security.
A financial advisor can help you understand the pros and cons of your options.
Limitations: Inflation, Market Returns and Longevity
Deciding when to claim Social Security involves contemplating uncertainty. One big risk is that your investment returns may fall short of your assumptions, which means you’ll either have to withdraw less or accept that your money won’t last as long as you anticipated.
Another possibility: Inflation could outpace long-term projections, requiring you to spend more money to maintain your standard of living. Living longer than expected meanwhile, carries its own set of risks. A longer lifespan means more years of retirement to fund.
Making the Call on Delaying Social Security
A woman weighs her options for claiming Social Security at age 62 or delaying them for several years.
If you have substantial retirement savings and a pension, delaying Social Security can pay off. But first, make sure you can afford to fund expenses from savings. Create a retirement budget accounting for all income sources. See if you can meet spending needs on savings alone for several years.
Next, calculate your increased Social Security benefit from delaying. Weigh if the boost is worth shrinking savings for a few years. Finally, consider other factors like spousal benefits, taxes and unknowns like inflation, market volatility and longevity. To make a plan to minimize your taxes and protect your estate, talk to a financial advisor today.
Social Security Planning Tips
If you’re unsure when the right time is to claim Social Security, start by estimating how much your benefits would be at different ages. SmartAsset’s Social Security calculator can help you project your benefits based on your income and age at which you plan to start collecting.
A financial advisor can help you plan for Social Security. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Each year, about a million people are told they owe the Social Security Administration money because the agency miscalculated their benefits and paid them too much.
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
First, John Eastman on the GA conspiracy case. Then, an investigation into what happens when Social Security mistakenly overpays. And, a look at Hurricane Maria’s impact on Monkey Island.
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
Each month, about 71 million Americans – retirees, disabled workers and others – receive checks from Social Security. But each year, about a million people get something else in the mail – a bill. They’re told they owe the government money, sometimes tens of thousands of dollars, because the Social Security Administration miscalculated their benefits and paid them too much. It can happen to anyone. It can take years, even decades for these unexpected debts to suddenly come to light. It often doesn’t matter if it’s not the recipient’s fault – they still have to pay. Few people realize it, but Social Security’s mistakes are your responsibility.
Last year at Steven and Becky Sword’s home in Chicago, a letter arrived from the Social Security Administration. When Becky Sword read it, she was stunned to discover that she and her husband owed Social Security “$51,887,” and were expected to repay it “within 30 days.”
Anderson Cooper: That letter changed your life.
Becky Sword: Oh, yeah.
Anderson Cooper: Are you scared?
Becky Sword: He’s thinking we’re gonna lose our house. You know, what are we gonna do? I mean, we were very scared.
When we spoke with Steven and Becky Sword in August, Steven was making $16 an hour as a security guard on the overnight shift at a condominium complex. Becky was working days as an occupational therapy assistant in a nursing home. They’re 62-years-old and have worked full-time most of their lives.
But for several years now, Steven’s been dealing with the effects of a pancreatic disease that nearly killed him in 2016.
Anderson Cooper: How long were you in the hospital for?
Steven Sword: About 105 days. It was hard ’cause when I left the hospital, it took me about two months to learn to eat and walk again.
Steven started receiving Social Security disability checks in 2017 as he recovered and returned to work. The agency’s rules are complicated, but Becky faxed Steven’s pay stubs to Social Security so the agency could monitor his earnings and eligibility. She kept the fax receipts…
Anderson Cooper and Becky Sword
60 Minutes
Becky Sword: So I knew they were getting it, you know.
In return, Social Security sent the Swords letters like this one, saying it had increased Steven’s benefits “to give him credit for his 2019 earnings.”
Anderson Cooper: Is the impression you got from that, that they’re examining the pay stubs–
Becky Sword: Uh-huh. Definitely.
Anderson Cooper: And they’re pay attention–
Steven Sword: Uh-huh
Becky Sword: Yeah.
Anderson Cooper: And adjusting accordingly?
Becky Sword: Because they’re increasing it.
Becky Sword and Steven Sword: Yeah.
But the letter the Swords got last year from Social Security said Steven shouldn’t have gotten any money at the time the agency gave him that increase. Steven and Becky owed more than $50,000, the agency said, “because we did not stop his checks” about three years sooner.
Anderson Cooper: Has anyone at Social Security ever, sort of, apologized?
Steven Sword: No.
Steven Sword: They– they take no blame at all.
Becky Sword: They say it’s our fault
Anderson Cooper: They’re saying you should have known that–
Steven Sword: That I’m making too much money.
Anderson Cooper: That– that Social Security–
Steven Sword: But–
Anderson Cooper: Was giving you too much money?
Steven Sword: Yeah.
Anderson Cooper: Even though Social Security didn’t know that they were giving you too much money?
Steven Sword: Yeah. Which is strange because you’re sending in all your pay stubs. Someone has to file that. And to me–
Becky Sword: And when we asked ’em, they said, “Well, they’re not looking at that every month.” And then she even said, “Well, they’re not even looking at it every year.” I would think yearly, at least, they would review it. I could see makin’ a mistake after a few months, but not three years of a mistake. And then they blamed it on COVID. They blamed it on being understaffed. And so to me, right there it’s saying it’s their fault.
The Social Security Administration told us its privacy rules prevent it from commenting on individual cases like the Swords, and no one from the agency would give us an on camera interview. But Kilolo Kijakazi, the acting commissioner of Social Security, gave this testimony before a congressional committee late last month….
Rep. Mike Carey (R-OH-15): How many people are receiving overpayment notices in a year?
Kilolo Kijakazi: For FY 2022, 1,028,389. For FY 2023, 986,912.
Rep. Mike Carey (R-OH-15): Seems like an awful lot.
Terry Savage: Nobody knows this is happening to so many people.
Anderson Cooper: This is not a story Social Security wants to publicize.
Terry Savage: Ohhh no—
Laurence Kotlikoff: No.
Terry Savage and Laurence Kotlikoff
60 Minutes
Terry Savage writes a nationally syndicated column on personal finance. Laurence Kotlikoff, an economics professor at Boston University, created software to help people maximize their Social Security benefits. Together, they’ve been trying to draw attention to what they call, “Social Security horror stories,” caused largely, they say, by the Social Security Administration’s own mistakes.
Laurence Kotlikoff: Their mantra, their rule, is “Our mistake is your mistake.” And you can appeal it or ask for a waiver. The only reason they will waive this– clawback is if you are indigent: really, really poor.
Terry Savage: The worst part of it is they have all the power. Because they say, “If you don’t pay us back, we’re just gonna cut your benefit check.” Imagine: People live on those checks. And all of a sudden you get no check? Or a small amount?
Anderson Cooper: If someone’s been paid too much in Social Security benefits, why shouldn’t they have to pay it back?
Laurence Kotlikoff: Because you relied on it. So you may have decided to– retire early, or to spend the money on your child’s tuition.
Overpayments have existed for decades and caused people a lot of financial pain. But fixing the problem has never been a high priority on Capitol Hill. In 2015, Congress did approve a measure to reduce overpayments by giving Social Security more timely access to payroll data. But eight years later, the agency still hasn’t put the new system in place.
Aging technology and staff shortages have taken a toll on Social Security. Last year, the agency’s workforce hit a 25-year low as the number of people claiming benefits kept going up. When we took a close look at Social Security’s annual reports to congress, we discovered something else has been going up as well: the amount of money the agency has been clawing back from the checks of people with overpayments.
Jean Rodriguez, who’s 73-years-old, told us her retirement checks had been withheld for the past two years. A former school cafeteria worker, she started receiving benefits in 2014. But four years later, she and her husband Glenn were asked to come to the local Social Security office in Virginia Beach, Virginia to speak with a representative.
Glenn and Jean Rodriguez
60 Minutes
Jean Rodriguez: And he says, “We have a small problem.”
Anderson Cooper: How much did he say they had overpaid you?
Jean Rodriguez: $72,000.
Anderson Cooper: That doesn’t sound like a small problem.
Jean Rodriguez: No. It wasn’t. We were both devastated.
Anderson Cooper: What did they tell you happened?
Jean Rodriguez: Somewhere along the line they made a combination of four other people in addition to my numbers.
Anderson Cooper: So they were giving you benefits based not just on your salary, but on four other people’s salary–
Anderson Cooper: All combined?
Jean Rodriguez: Right.
Anderson Cooper: How does that happen?
Jean Rodriguez: Good question. (laugh) Don’t know how they did it.
Anderson Cooper: Did Social Security admit to you that this was their fault?
Jean Rodriguez: Yes, they did.
But the agency said the Rodriguezes had to pay the money back anyway, because they could afford to do so. Jean and Glenn own their home and Glenn gets a pension from the Navy.
Jean Rodriguez: If it was something I knew I did totally wrong they have the right to come after me. But I didn’t know how they calculated it. And then they waited four years to figure it out.
In a statement, the Social Security Administration told us “our payment accuracy rates are high,” yet “even small error rates add up to substantial improper payment amounts.” The agency said it’s “required by law” to recover this money…and added that overpayments are not necessarily the agency’s fault. They can happen “when a beneficiary does not timely report work” or other financial information.
There’s no statute of limitations on how long Social Security can wait to collect an overpayment. Two years ago, Roy Farmer of Grand Rapids, Michigan, got a letter from Social Security asking him whether he had forgotten to pay a debt he didn’t know he had.
Roy Farmer
60 Minutes
Anderson Cooper: This is an alleged overpayment from 20 years ago.
Roy Farmer: Yes, sir.
Anderson Cooper: When you were 11 or 12 years old.
Roy Farmer: Correct.
Roy Farmer grew up in rural Cadillac, Michigan, in a family of six that struggled to make ends meet.
Roy Farmer: We ended up near homelessness a couple of times– at one point, even living, you know, six of us in– in a camper trailer.
He was born with cerebral palsy.
Roy Farmer: I had leg braces. I had to walk with a child-sized version of, like, an old-person walker.
Anderson Cooper: And you had surgeries. You had doctor’s visits. You had it treated.
Roy Farmer: Yeah. And so thankfully they were able to get me to a point where I can live a more or less normal life– with some limitations.
He’s 33-years old now and works full time. But when he was a child, his mother received benefits on his behalf. Social Security told him that when he was 11-years-old, the agency determined he was no longer medically eligible for benefits and his mother received $4,902 too much. His mother died a few years ago, and the agency is insisting he pay back the money because it believes he can afford to do so.
Anderson Cooper: Could you afford $4,902?
Roy Farmer: No, sir. That much is about a sixth of my annual take-home pay.
Like most of the people we spoke to, Roy Farmer couldn’t find a lawyer to help him. There’s little financial incentive for attorneys to take on these cases. It took Farmer nine months to get the documents in his Social Security file. He was looking for the agency’s evidence that he was no longer medically eligible for benefits when he was 11-years-old. But, he says, there was none.
Roy Farmer: And they told me “We probably had it at some point. But we don’t have it now.”
Anderson Cooper: And they admit there’s no evidence you’re at fault, but they’re still coming after you for it.
Roy Farmer: Yes, sir.
Anderson Cooper: People at Social Security have told us– “Look this is a law. This has to be changed through Congress. Our ti– our hands are tied.”
Laurence Kotlikoff: It’s not, Anderson because the law says that– “If equity and good conscience demands” that– the clawback be waived, it should be waived.
Laurence Kotlikoff, the economist who’s written about overpayments, is talking about a specific part of the Social Security Act that says the agency should not recover an overpayment if doing so would be “against equity and good conscience.” The problem, he says, is that Social Security interprets that phrase in a very narrow way.
Anderson Cooper: So the agency itself– Social Security Administration, has a lot of discretion.
Laurence Kotlikoff: Absolutely, yes.
Terry Savage: Oh, sure they do. But…
Laurence Kotlikoff: But financially the long-term picture’s not good. And they’ve trained the staff, “Look, your job is to collect every penny you can, no matter what.”
The Social Security trust fund for retirement and disability benefits is expected to be depleted around 2035 because the benefits being paid out are greater than the payroll taxes coming in. But Kotlikoff and Savage argue that clawing back money from the elderly and disabled isn’t going to make much of a dent in that problem. They say there are some simple things Congress and the Social Security Administration could do to alleviate the stress and financial difficulty caused by overpayments. For example:
Terry Savage: Shouldn’t there be a statute of limitations so that, after 18 months, it’s their mistake, and they have to deal with it? And not the person who mistakenly received and lived on that benefit check?
Anderson Cooper: If it’s more than a year or two
Laurence Kotlikoff: Just waive it. Say, “Our mistake. You’re fine.”
Roy Farmer in Michigan has been waiting four months to appeal his case before an administrative law judge who works for social security.
Jean and Glenn Rodriguez told us they’d been waiting four years.
As for the Swords in Chicago, Steven and Becky told us they were tired of fighting the government and had decided not to appeal the matter any further.
Becky and Steven Sword
60 Minutes
Becky Sword: I just figure we were gonna have to give up our retirement funds.
Anderson Cooper: That’s the only way you can–
Steven Sword: Yeah.
Becky Sword: That’s the only way.
Becky Sword and Steven Sword: Yeah.
Becky Sword: Because they said we’d have to pay it back in three years’ time and we– we’d have to come up with $1,400 a month to pay back and we don’t have that. We don’t have that, you know, kind of money.
When Steven Sword was not working the night shift, and Becky Sword was not working the day shift, they were preparing to hand over most of the $60,000 they’d saved for their retirement to the government agency charged with supporting Americans in their old age.
All the people we interviewed for this story asked the Social Security Administration to waive their debts. Their requests were denied. But after we asked the agency about these cases, Social Security told the Swords, the Rodriguezes and Roy Farmer that they would not have to pay the money back. The agency says it’s now reviewing its policies and procedures regarding overpayments.
Produced by Andy Court. Associate producer, Annabelle Hanflig. Broadcast associate, Grace Conley. Edited by Stephanie Palewski Brumbach.
Anderson Cooper, anchor of CNN’s “Anderson Cooper 360,” has contributed to 60 Minutes since 2006. His exceptional reporting on big news events has earned Cooper a reputation as one of television’s pre-eminent newsmen.
Entitlement reform has long been considered a third rail of American politics, even as the insolvency of Social Security and Medicare creeps closer.
That perception might need some reconsidering. A new poll shows that the vast majority of Americans believe policymakers should make changes as soon as possible to extend the life of America’s two old-age entitlement programs and avoid possible benefit cuts that will hit in the early 2030s if nothing is done.
That poll, which was shared with members of Congress and staffers at a closed-door meeting on Wednesday morning and obtained by Reason, found that only 5 percent of voters say Congress and President Joe Biden should do nothing to address the looming benefit cuts that will hit Social Security when insolvency hits.
“Our polling shows that Americans are seriously worried about the solvency of these entitlement programs,” David Williams, president of the Taxpayers Protection Alliance (TPA), a free market group that sponsored the survey (it was conducted in August and included about 1,000 likely voters). “Congress can no longer continue to ignore the facts that without action, Social Security and Medicare will face deep and automatic cuts.”
Indeed, the poll suggests that many Americans have a better understanding of the crisis facing Social Security and Medicare than most elected officials seem to believe. In the survey, 87 percent of respondents agreed that action is needed to extend Social Security’s solvency and avoid benefit cuts, and 89 percent said the same thing about Medicare.
According to the trustees responsible for overseeing the two programs, Medicare’s main trust fund will be depleted by 2031 and Social Security’s reserves will be gone by 2033. Though those trust funds are largely an accounting fiction, their insolvency will trigger mandatory across-the-board cuts that will affect retirees and anyone who expects to benefit from the programs in the future. The two programs are also the primary drivers of the federal government’s future budget deficits, responsible for 95 percent of long-term unfunded obligations, according to the Treasury’s recent Financial Report. Those looming problems are contributing to the federal government’s declining credit rating and threaten America’s future economic growth.
Despite that, leading politicians on both sides of the aisle continue to promise that inaction is possible. Biden has used fictional Republican plans to cut Social Security to demagogue against the idea that reforms to the program are necessary—most notably by sparring with GOP members of Congress during this year’s State of the Union address. Meanwhile, former President Donald Trump (the leading contender to be the GOP’s presidential nominee in 2024) has repeatedly promised not to touch Social Security, and other prominent figures on the so-called “New Right” have done the same.
Realistically, the only serious approach will require some changes to existing Social Security benefits. That could mean reducing benefits for wealthier retirees or implementing across-the-board benefit reductions that would be phased in over time, allowing younger workers to offset smaller Social Security benefits with private savings. Ideally, workers would be able to opt out of Social Security altogether, so they can save and invest for their own retirement without having to pay payroll taxes.
But none of those options can begin to be considered if a critical mass of elected officials continue to ignore the problem.
The TPA poll released Wednesday offers some insight into how more serious politicians might proceed. The poll found that 71 percent of Americans find means-testing for Social Security benefits—that is, limiting benefits for wealthier recipients—to be acceptable, while 60 percent would approve of cutting other government programs to fund Social Security.
(Source: Taxpayers Protection Alliance, Public Opinion Strategies )
When it comes to Medicare, 66 percent approve of means-testing benefits, and 84 percent are in favor of the always-popular option of reducing rampant fraud and waste within the government-run healthcare system.
Perhaps most importantly, 90 percent of voters say presidential and congressional candidates running for office in 2024 should discuss the financial challenges facing the entitlement programs. They might take note of former South Carolina Gov. Nikki Haley’s rise in the Republican primary field, which has followed her willingness to provide some straight talk about the difficult fiscal situation that the government must face.
(Source: Taxpayers Protection Alliance, Public Opinion Strategies )
Finding solutions to these highly fraught issues that voters will accept is no easy task, but it can’t start until politicians recognize that ignoring the government’s entitlement-driven debt crisis is not a real option.
Many Americans are anxious about their ability to save enough to fund their retirement, yet the problem may not only be with their own ability to sock away money, but the way the U.S. system is designed. That’s according to a new report which give the nation’s retirement approach a C+.
The not-so-great rating places the U.S. retirement system on par with nations such as Kazakhstan, Colombia, Croatia, France and Spain, according to the new Mercer CFA Institute Global Pension Index, which was released Tuesday. Meanwhile, the strength of retirement systems in many other wealthy, developed nations, such as the Netherlands, Iceland, Denmark and Israel, far surpassed the U.S., with all four receiving A ratings.
The U.S. system is based on a two-pronged approach: Social Security and private pension plans such as 401(k)s. But many Americans fall through the cracks, such as the roughly one-half of workers who lack access to a retirement plan through their workplace. Social Security, meanwhile, only replaces about 40% of income for the typical worker when they retire, which means many older Americans struggle financially.
“Retirement savings coverage and institutional quality retirement vehicles remain out of reach for many Americans, creating a significant adequacy gap that needs to be addressed,” said Katie Hockenmaier, partner and U.S. defined contribution research director at Mercer, said in a statement.
The new study ranks the U.S. 24 in adequacy among the 47 countries that are included in the ranking, which Hockenmaier said highlights “the urgent need for action.”
How could the U.S. strengthen its retirement system?
The U.S. could bolster its system by raising the minimum Social Security payment for low-income retirees, with the full minimum payment currently about $1,000 a month, Mercer noted. The nation could also make it tougher to withdraw income from retirement accounts before retirement — something that Americans can do if they encounter hardship, for example.
Mercer also recommends that the U.S. create a requirement that part of a worker’s retirement benefit be taken as an income stream, such as through annuities.
The top-ranked nations for retirement provide good benefits for retirees within systems that are well regulated and secure, according to the study. The Netherlands, for instance, is currently reforming its retirement program, but Mercer said its system “will continue to provide very good benefits, supported by a strong asset base and very sound regulation.”
About 90% of employees in the Netherlands are covered by company-sponsored pension plans, according to the OECD.
Meanwhile, the Social Security system is hurtling toward a crisis in 2033, when its trust fund is slated to be depleted. If that’s not fixed, benefits for all retirees will decline by more than 20%.
Here is the complete lit of retirement system ratings for the nations in the Mercer study. No nations received an “F” rating.
