An outdated Social Security rule that desperately needs to change
Show Caption
Hide Caption
Social Security delays rule blocking access for vulnerable Americans
The Social Security Administration reversed its decision on in-person identity checks, deciding to allow phone applications amid criticism and office closures.
Straight Arrow News
The federal government doesn't just magically print money and use it to fund Social Security. Rather, the program is financed primarily through payroll tax revenue.
When you collect your paycheck and notice a line item for FICA, that's the money you're paying into Social Security. And while you may not enjoy doing that, you probably will enjoy getting to collect a monthly benefit once you retire.
But payroll taxes aren't the only revenue stream for Social Security. The program also gets money by taxing benefits.
President Trump has stated that he'd like to put an end to taxes on Social Security. But that could cause the program to lose out on critical revenue. So a better approach may be to simply update the rules that determine when those benefits are taxed.
The current system is flawed
A lot of people think it's unfair that seniors have to pay taxes on their Social Security. In fact, some might call it a form of double taxation, since workers are first paying taxes on their wages and are then being taxed on the retirement benefits they're supposed to get in return.
But the fact of the matter is that Social Security needs revenue. So getting rid of taxes on benefits may not be the most prudent thing to do. A more reasonable solution, however, could be to update the income thresholds at which taxes on those benefits apply.
The problem is that the aforementioned thresholds were established decades ago and have not been adjusted for inflation — even though Social Security benefits themselves have had almost yearly boosts over the past few decades thanks to automatic cost-of-living adjustments, or COLAs.
Right now, seniors pay taxes on Social Security benefits once their combined income exceeds $25,000 in the case of individuals, or $32,000 in the case of joint filers. Combined income is calculated based on adjusted gross income, tax-exempt interest income you collect, and 50% of annual Social Security income.
But as you can see, these thresholds are very low.
The average Social Security recipient today collects about $1,979 a month, or $23,748 per year. When we cut that in half, it amounts to $11,874 in Social Security. An individual who withdraws more than $13,126 from their retirement savings annually would be subject to taxes on their Social Security if they receive the average monthly benefit.
Put another way, it's feasible that someone collecting about $24,000 a year in Social Security plus another $13,000 from savings for a total of about $37,000 in actual income would face taxes on their monthly benefits. That hardly seems right.
A change needs to be made
It may not be reasonable to eliminate taxes on Social Security benefits altogether. But it's also not so reasonable to impose taxes on benefits for retirees with modest or minimal incomes.
If Social Security benefits are eligible for annual COLAs, then the combined income thresholds should be adjusted for inflation, too. That's really the only fair way to go about things.
Of course, lawmakers have their hands full on the Social Security front trying to prevent benefit cuts. So they may not be too eager to mess with the combined income thresholds anytime soon. But it's very much an outdated rule that sorely needs an update.
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
The $
22,924 Social Security bonus most retirees completely overlook
Offer from the Motley Fool: If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
View the "Social Security secrets" »
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
15 minutes ago
- Yahoo
Investing in Cedar Woods Properties (ASX:CWP) three years ago would have delivered you a 108% gain
By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Cedar Woods Properties Limited (ASX:CWP), which is up 80%, over three years, soundly beating the market return of 22% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 62%, including dividends. Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price. Cedar Woods Properties was able to grow its EPS at 29% per year over three years, sending the share price higher. This EPS growth is higher than the 22% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 11.71 also reflects the negative sentiment around the stock. You can see below how EPS has changed over time (discover the exact values by clicking on the image). We know that Cedar Woods Properties has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts. What About Dividends? When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Cedar Woods Properties the TSR over the last 3 years was 108%, which is better than the share price return mentioned above. This is largely a result of its dividend payments! A Different Perspective We're pleased to report that Cedar Woods Properties shareholders have received a total shareholder return of 62% over one year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 13% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Cedar Woods Properties , and understanding them should be part of your investment process. Of course Cedar Woods Properties may not be the best stock to buy. So you may wish to see this free collection of growth stocks. Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
an hour ago
- Yahoo
Trump is losing support from men as approval rating drops below 50%
Men are cooling on Donald Trump after making up a significant chunk of the president's 2024 voting bloc. According to a new poll by CBS/YouGov, Trump's approval rating is tanking with men during his second term. It found that 47 percent of men approve of Trump's job, and 53 percent do not. Last October — just before Trump's second electoral victory — a similar CBS/YouGov poll found that 54 percent of men supported Trump and 64 percent said they thought he would be a strong leader. The drop overall reflects a broader disapproval with Trump's second term; DecisionDeskHQ's polling averages showed that the president's overall approval rating was down by about 12 points since January, a drop from 56 percent then to 44 percent this week. According to the new CBS/YouGov poll, 47 percent of men said Trump was focusing "too much" on deportations, while 33 percent said he was showing the "right amount" of focus. In another metric, 65 percent of men said Trump has not done enough to lower prices, and only 29 percent said they felt he had. On February 7, Trump had a 60 percent approval rating with men, but his numbers began to slip in the months that followed, according to the poll. By the end of the month, his favorability had dropped to 56 percent, and by April 11 — just a week after he unveiled his tariff plan — men's approval of the president fell to 49 percent. Trump won big with men in 2024. According to Pew Research, men favored Trump by 12 points in 2024. Men under 50 split their votes almost evenly between former Vice President Kamala Harris and Trump. In 2020, men under 50 backed former President Joe Biden over Trump by 10 points. According to the CBS/YouGov polling data, the big issues driving down Trump's approval with men are his performance on the economy, his seeming inability to curb inflation, and his intense focus on immigration issues. By mid-April, Trump's approval rating among men on the economy dropped to minus 10 points, his approval regarding inflation fell to minus 20, and his immigration approval — one of his strongest areas among men — dropped to just plus six points, The poll found that 49 percent of men believe that the economy is getting worse, and 65 percent said that Trump wasn't doing enough to lower prices for goods and services. Another 60 percent said they believe Trump is focusing too much on tariffs, and 57 percent believe his policies are directly increasing the cost of their groceries. They aren't wrong about their grocery bills; Consumer Price Index data shows that annual inflation rose by 2.7 percent in June, up from 2.4 percent in May. They're also not wrong about Trump's tariffs, according to Yale's Budget Lab. Americans are currently facing an average tariff rate of 18.7 percent, which is the highest it has been since 1933. The three key issues driving down Trump's approval rating were the major issues that attracted men to Trump in the first place, according to the poll. That could spell trouble for Republicans come the midterm elections if they do not adjust their focus and messaging before the election. Trump's dipping approval comes at a difficult time for him, as even some stalwart supporters among his voter base and within his party are questioning him over his handling of the alleged "Epstein client list." The president promised to be transparent about what the government knew of disgraced New York financier and child sex trafficker Jeffrey Epstein — a man who had a long and well-documented friendship with Trump. After U.S. Attorney General Pam Bondi told the public she had the so-called client list on her desk, the administration backtracked and insisted no such file existed, and confirming previous rulings that Epstein died by suicide in his New York jail cell while awaiting trial. Trump has reacted with dismissal and annoyance toward Republicans — and his own voters — who have asked him questions about his administration's position on the Epstein documents. Since then, Trump has faced questions and criticism from his voting base and within the conservative cultural sphere that helped sell his vision for America to the public — especially men.
CNBC
an hour ago
- CNBC
CNBC Daily Open: A week when everything happens
Choose a comfortable seat and grab your popcorn. These five days will basically be the Olympics for market watchers: And looming over all those financial and macroeconomic events is U.S. President Donald Trump's August 1 deadline for his new tariffs. As Kim Forrest, founder at Bokeh Capital, said, "What isn't happening in this week?" Here's the ideal scenario for investors. The Magnificent Seven companies reporting earnings this week and the U.S. economy secure gold at their respective events. (The Fed is expected to keep rates unchanged — whether this qualifies the central bank for a medal is up for debate). Big trading partners of the U.S., such as South Korea and India, secure a deal with the White House and join the European Union and Japan at the podium, while Beijing extends its tariff suspension with Washington. If those events happen, U.S. stocks will probably have legs clear hurdle after hurdle — and the S&P 500 can continue topping record announces a trade agreement with the European Union. Most European goods, including cars, exported to the U.S. will face a 15% tariff, Trump said Sunday. The bloc also agreed to purchase $750 billion worth of U.S. energy, he added. The Fed is ready to start lowering rates, Trump said. On Friday, the U.S. president said Fed Chair Jerome Powell told him "the country is doing well," which Trump took to mean "he's going to start recommending lower rates." Futures markets disagree. Perfect week for the S&P 500. The broad-based index rose Friday to close at a high — its fifth record in a row last week. The Nasdaq Composite and Dow Jones Industrial Average also advanced. The Stoxx Europe 600 lost 0.29%. Palantir joins rank of top 20 most valuable U.S. companies. After rising more than 2% on Friday to hit a market cap of $375 billion, Palantir bumped Home Depot out of the list. The software provider has more than doubled in value this year. [PRO] Keep an eye on these overbought stocks. Using CNBC Pro's stock screener tool, the team has identified 18 stocks that might be trading at levels higher than their fair value, based on their 14-day relative strength index. Under Trump, Uncle Sam is becoming an active investor The Trump administration has taken direct stakes in companies on a scale rarely seen in the U.S. outside wartime or economic crisis, pushing a Republican Party that traditionally championed free-market capitalism to embrace state intervention in industries viewed as important for national security. More interventions could be on the horizon as the Trump administration develops a policy to support U.S. companies in strategic industries against state-backed competition from China.
