Q: Should I expect an increase in my monthly Social Security benefits in 2012? What are the prospects for Social Security in the long-term?
A: Next year, recipients of Social Security will receive their first Cost of Living Adjustment (COLA) since 2009. As moderate inflation has made a comeback, the federal government has decided to boost Social Security benefits by 3.6% for 2012. This means an average increase of $39 per month for 55 million Social Security recipients.
The Cost of COLA
Since Medicare premiums are automatically deducted from Social Security checks, a COLA increase in Social Security also means that Medicare premiums will increase by $3.50 per month, eating up some of the COLA adjustment.
The Social Security wage base will rise to $110,100 for 2012. Currently, the federal government levies payroll tax on the first $106,800 of income; next year, that ceiling rises by $3,300. This means about 10 million more high-earning Americans will be subject to the payroll tax, which could vary anywhere from 3.1% to 6.2% in 2012 depending on legislative action.
Saving Social Security
Whether or not the bipartisan and Joint Select Committee on Deficit Reduction (the “supercommittee”) will make cuts to Social Security is uncertain. The deadline for the long-term budget reform plan from Congress falls on November 23, and the Committee has been meeting more or less in secret.
Proposals to address Social Security’s long-term shortfall abound, from simple fixes to radical reforms. Hopefully, we will see one of these ideas, a mix of these ideas or an entirely fresh idea win out in the battle to save the program for all its participants.
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President Obama’s fiscal commission has suggested raising the payroll tax cap. In this proposal, the cap would gradually increase between now and 2050 so that 90% of wages earned in America would be subject to Social Security tax by the middle of the century. Under this plan, the taxable maximum would be $190,000 by 2020.
President Obama’s fiscal commission has suggested raising the payroll tax cap. In this proposal, the cap would gradually increase between now and 2050 so that 90% of wages earned in America would be subject to Social Security tax by the middle of the century. Under this plan, the taxable maximum would be $190,000 by 2020.•Rep. Paul Ryan (R-WI), Chair of the House Budget Committee, has authored the GOP’s “Path to Prosperity” plan. The “Ryan roadmap” would encourage workers under age 55 to direct some of their payroll taxes into personal retirement accounts. The proposal would also set the age for Social Security eligibility at 67.
Rep. Paul Ryan (R-WI), Chair of the House Budget Committee, has authored the GOP’s “Path to Prosperity” plan. The “Ryan roadmap” would encourage workers under age 55 to direct some of their payroll taxes into personal retirement accounts. The proposal would also set the age for Social Security eligibility at 67.•The conservative Heritage Foundation suggests a 5-year strategy in its Saving the American Dream proposal, which calls a reduction in Social Security benefits for the richest 9% of retirees, a $10,000 tax exemption for all who work past the federal retirement age, and the near-term elimination of taxation of Social Security income.
The conservative Heritage Foundation suggests a 5-year strategy in its Saving the American Dream proposal, which calls a reduction in Social Security benefits for the richest 9% of retirees, a $10,000 tax exemption for all who work past the federal retirement age, and the near-term elimination of taxation of Social Security income.•Fixes suggested in a 2010 report issued by the U.S. Senate Special Committee on Aging included a 3% cut in benefits, taking the payroll tax to 7.3% and hiking the full retirement age to 68 or older.
Fixes suggested in a 2010 report issued by the U.S. Senate Special Committee on Aging included a 3% cut in benefits, taking the payroll tax to 7.3% and hiking the full retirement age to 68 or older. Count on Your CPA
With Social Security’s future still a question mark, you may be thinking about where your retirement income will come from in the years ahead. A chat with the financial professional you know and trust may be worthwhile before 2012 arrives. You may contact me at (409) 892-0233 or (409) 883-5306. My email address is brad@ekc-cpa.com.
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