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Motley Fool: 7 Ways GOP's Proposed Social Security Changes Will Hit Your Wallet

Motley Fool: 7 Ways GOP's Proposed Social Security Changes Will Hit Your Wallet

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By    |   Wednesday, 04 January 2017 08:02 AM

The Motley Fool warns savvy Americans to grab hold of your wallet as lawmakers seek to overhaul Social Security, the decades-old program that provides benefits to some 60 million retirees and disabled.

Rep. Sam Johnson of Texas, the chairman of the House Ways and Means subcommittee on Social Security, introduced legislation just before the end of the congressional session late last year that he said would "permanently save" the program. He said the bill would increase benefits for lower-income workers, the AP reported.

About 168 million people work and pay taxes toward the inevitable monthly Social Security benefits. About 42 million of the beneficiaries are retirees and their families. The trustees who oversee Social Security say it has enough money to pay full benefits until 2034, and then Social Security will collect only enough taxes to pay 79 percent of benefits.

Unless Congress acts, millions of people on fixed incomes would get an automatic 21 percent cut in benefits.

"Americans want, need, and deserve for us to finally come up with a solution to saving this important program," Johnson said. His plan would gradually increase the retirement age and slow the growth of benefits for higher-income workers.

With Donald Trump as president, congressional Republicans plan to take a wrecking ball to the eight years of President Barack Obama's policies, from the health care law to environmental regulations. Medicare, a program created under another Democrat, Lyndon B. Johnson, is in the crosshairs of Speaker Paul Ryan, R-Wis., and Trump's pick for Health and Human Services secretary, Rep. Tom Price.

Ryan and Price favor privatizing the program, arguing that a voucher-system is necessary to ensure Medicare's long-term solvency.

Here are seven key ways the proposed Social Security changes could impact your pocketbook, according to The Fool:

1. Lift the retirement age

The GOP proposal would increase the age to receive full Social Security retirement benefits from 67 to 69. 

2. Change how benefits are calculated

 “Lower-income workers' benefits would slightly increase. So would those of people who have paid into Social Security for 35 or more years. On the other hand, workers with above-average earnings would see their benefits decrease slightly.”

3. Change how cost-of-living adjustments are calculated

 “This new calculation would use what's called a chain-weighted consumer price index (CPI). The chain-weighted CPI typically grows more slowly than the traditional CPI used to calculate Social Security COLAs, so the net impact would likely be lower yearly increases. And for retirees with modified adjusted growth incomeover $85,000 for single tax filers and above $170,000 for joint tax filers, there would be no COLAs at all.”

4. Eliminate the earnings test

“Currently, workers who retire earlier than the normal retirement age receive lower Social Security benefits if their earnings are above a specified amount. This reduction in benefits lasts until the workers reach the full retirement age. With the proposed legislation, this earnings test will go away effective January 2019.”

5. Gradually eliminate federal taxes on benefits

“Under current law, up to 85% of your Social Security benefits might be subject to federal taxes depending on how much you make. With the proposed GOP changes, the federal taxes on Social Security benefits will be eliminated -- eventually.”

6. Allow lump-sum payment of delayed retirement credit

“Currently, individuals who postpone taking Social Security benefits past the normal retirement age are eligible to receive higher payments when they do begin receiving benefits. The proposed changes would allow these individuals to opt to receive a one-time lump-sum payment instead of receiving the higher payments over time.”

7. Cap nonworking spouse benefits

“Under current law, it's possible for the nonworking spouse of a high-income retiree to receive more in Social Security benefits than a lower-income person who paid into Social Security his or her entire working life. The GOP's plan proposes to place a cap on the benefits of nonworking spouses.”

Meanwhile, Laurence Kotlikoff, an economics professor at Boston University and author, warns Americans to keep a sharp eye on the developments.

"Social Security, with its hundreds of thousands of rules, is arguably the most complex institution yet devised by man. It's basic benefit formula, if you express it mathematically, depends on 10 highly non-linear functions, one of which is in four dimensions," Kotlikoff wrote on Forbes.com.

“This complexity provides great cover for Congress to gradually, subtlety, and substantially cut benefits,” he said.

He essentially said Johnson's plan is a mixed bag.

“Unfortunately, as shown in table VI F1 of this year’s Social Security Trustees Report, Social Security’s 75-year red ink is only 36 percent of its $32 trillion infinite horizon long-term fiscal gap. This is the amount of money the system is short, not in 75 or 100 years, but today — this minute,” he said.

"What's really needed to fix Social Security is to freeze the existing system, pay off, over time, all of its accrued benefits to current and future retirees and set up a modern Social Security system that operates in parallel with the old system as it phases out and that has simple rules that can fit on a postcard."

(Newsmax Wire Services contributed to this report).

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Motley Fool warns savvy Americans to grab hold of your wallet as lawmakers reimagine Social Security.
social security, gop, wallet, motley fool
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2017-02-04
Wednesday, 04 January 2017 08:02 AM
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