Here's the headline on CNBC today "US Must Look at Revenues to Cut Deficit: Geithner."
Senior Citizens will supply much of the revenue that the US needs as you will see.
Americans are polyannish. We have it so good that no one wants to be the first to say that the emperor has no clothes. In fact, the US is heading toward bankruptcy. That is a fact. The county is borrowing funds in excess of what can reasonably be repaid. The silver lining is that the federal government can take money from you to pay its bills--it's called taxes. In order to stave off bankruptcy, the US Government has ultimate flexibility. It can spend less and it can collect more and senior citizens will bear the brunt of both tactics.
The largest expenditures that create such a terrible spending situation are the very expensive social security and Medicare programs. Some senior citizens who don't know better (or just don't want to be bothered with the facts) think that these are self-financed programs. Specifically, some senior citizens think that the money they get from social security is the money they paid in. WRONG. That is senior citizen fantasy. Most retirees get back ALL of the money they paid into social security within three to four years of retirement. If the senior citizen lives longer in their retirement years than three or four years, the money they get comes directly from the paychecks of current workers.
If you don't believe me, prove it to yourself. Order a benefits statement from the social security administration. It shows how much you paid into social security during your working years. Now, calculate how much you get per month from social security. Behold! The $50,000 you paid in is recovered in just over four years from the $1,000 per month you receive! Similarly, Medicare runs at a deficit and is not financed by the premiums that retirees pay. So it's pretty obvious the BIG money for righting America's financial situation is to curtail social security and Medicare benefits. By the way--if this astounds you in any way, please check the news in Europe. Greece, France and others have discovered the same and are in process now of cutting their retirement benefits to their senior citizens.
The federal government will also look to increase taxes and senior citizens will bear the brunt. As retirees reach age 70 1/2, they must begin mandatory distributions from retirement plans. So senior citizens not only pay tax on income they get from various sources but also on money earned years ago and that was never taxed. However, say the tax rate when the money was earned was 28%. Now, when tax rates rise, the money gets taxed at say 32% upon withdrawal. Ouch!
This author is not commenting whether this burden that senior citizens will bear is right or wrong. Some may argue that senior citizens have been having a great ride collecting social security they did not earn, living off the backs of people working two jobs. Others will argue that retirees deserve to get these benefits. These are value judgments that have no right or wrong. What is important is to take care of your own finances in light of the coming changes.
As a senior citizen, you should strongly consider the following:
1. Withdraw money from your retirement plans now using up your current tax bracket before marginal tax rates increase
2. Forget about increases in your social security income. Don't plan on it and be prepared for more of your social security income to get taxed (currently, a portion or all may be tax free, depending on your individual income).
3. If you are fortunate to have a significant estate, remove assets from your estate NOW as the gift tax exemption is the highest it has ever been. If you don't, these assets may be subject to estate tax later, unnecessarily.
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Very interesting. Particularly the point about senior citizens thinking tthat what you put in to Social Security is what you get out. Here in the UK the situation is much the same and I am one among many, I'm sure, who thinks toward retirement with trepidation due to the slashing of benefits by the UK government. Not having enough assets to allow me to rest on my laurels I have turned to building a small part time business that I can easily manage now and in retirement. After working since leaving school I am highly disappointed that I will not be adequately looked after in retirement by the state that I have so long paid insurances to in the belief that it would be the case.
Thanks for your observations I will certainly bear them in mind.
Forget about increases in your Social Security income. Couldn't agree more with your point. I would argue that retiree's should way there options of when to start drawing social security: 62, 65, or 67? Every situation is different, but for those with decent savings and health they might consider waiting until 67 for the increased payments. There's millions of different variables for retirees and the main topics to address are the same for all of them: tax strategy, soc. sec. planning, estate planning including gifting, and expectations of any portfolios.
I agree with Jeff's comments above, the UK is very much in the same boat and seemingly more benefit cuts are on the horizon. Looking toward the future and my retirement is a scary prospect at the moment.
I do believe senior citizens are in a tight spot nowadays. If I was one I'd start taking advise from you beginning by withdrawing money from retirement plans. Great thinking by the way.
In my opinion it's absolutely ridiculous for the government to raise taxes on senior citizens knowing full well that they are one of the most financially vulnerable classes. As a reader of an investment blog, it might seem counter intuitive to believe this, but I really feel like it was a bad decision to renew the Bush tax cuts. I can only hope that if I was in the highest tax bracket I would gladly sacrifice a few percentage points in my annual earnings to make sure that half of the countries grandmother's don't have to drop by the local shelter for food.
Our old folks should enjoy their retirement plan earlier. It is theirs anyway. There is no point to claim it in the future when they are about to retire completely.
Your calculation is absolutely correct, of course. The situation for senior citizens is pretty much the same here in Denmark.
By the way, I really love that you´re quoting my famous fellow countryman Hans Christian Andersen: "no one wants to be the first to say that the emperor has no clothes." Thumbs up!
Best,
Rasmus T.
I feel one of the most neglected variables in applying for social security successfully is that a lot of applicants do not necessarily thoroughly study their own file. This is critical to getting approved.
Or course, retirees can move to less expensive, warmer, tropical countries. I'm down in Nicaragua and there is a growing number of retirees moving down here. Living in countries like these offer incredible savings.
Just responding to your point "Forget about increases in your social security income", I totally agree! Things are going to get worse before they get better. I think Asian countries should advertise residency. As a US citizen who lives in Thailand, I think it's good for these countries economies, and good for senior citizens. Senior citizens can live comfortably on less, and everyone wins in the end.
Some may argue that senior citizens have been having a great ride collecting social security they did not earn, but I would go otherwise and not agree with author.
why are governments always so harsh on the elderly?
I believe that every time the government needs money comes with bankruptcy rumors so the citizens are called to pay more and more taxes.
That's why I strongly believe that senior citizens should enjoy their retirement earlier.
One thing that can put the squeeze on retirees is co-signing for a loan. Don't ever do it, no matter how much you love your kids or grand children. If you lend your name to their car loan or diamond engagement ring purchase, I can gaurantee you'll end up paying it back, because they will miss payments, and your credit will get ruined. So please folks, never cosign a loan for anyone.
The most important thing you left out was the compounding of interest on money which is collected for soc sec tax
think about it
a dollar then is worth more than a dollar today
as for the writer with the tax quotes when money is taken out of ira or other qualified accounts the tax rate today is much lower than when they earned it so its an advantage the average senior is not paying more than fifteen per cent tax not 32%
That’s why I strongly believe that senior citizens should enjoy their retirement earlier. Things are going to get worse before they get better. I think Asian countries should advertise residency.
As a senior citizen, you should strongly consider: That’s why I strongly believe that senior citizens should enjoy their retirement earlier. Things are going to get worse before they get better. I think Asian countries should advertise residency.
It turns out pensioners robbed not only in my country, you have too bad a situation. To retirement need to start preparing early as kindergarten, or do not have time to accumulate a decent retirement!
To retirement need to start preparing early as kindergarten, or do not have time to accumulate a decent retirement!
Nice post i hope all senior citizen will make happy for this if they read it
axel
Its a great and useful tips,this is good news for our seniors citizens.. I learn much about your post I will let my friend read it. Thank you.
The $50k put in is not the same money pulled out. You very nicely avoid the issue of gross inflation of the monetary supply leading to a devaluation of the money itself. Add to this the fact that the US gov unscores inflation on an annual basis by some 7-10% percent, an one sees that the money put in at the beginning of a retiree's work life, in say 1970 is worth many times more then the money he pulls out. Then this sophomoric comparison also takes out the fact that that money put in, is supposed to be earning a percentage and the time-value of money means that that money grows faster and faster in a snow balling effect.
So no, the $50k put in is not the $50k taken out, not by any long stretch of the imagination.