Means Testing Social Security: What We Know Right Now

Means testing could take the form of more income taxes, a reduction in benefits, a surtax or some other method.

Posted on

Anyone who has done a good job saving for their retirement on their own should consider the chance that Social Security benefits will be means tested in the future. Means testing of benefits already takes place in the form of taxation. It would not be a big stretch to propose only providing monthly benefits to retirees who have less than a certain amount of non-Social Security annual income. Means testing could take the form of more income taxes, a reduction in benefits, a surtax or some other method.

One proposal[1] would reduce SS benefits for individual retirees with more than $55,000 of non-Social Security income. Benefits would be reduced by 1.8% for every $1,000 of income they have over the threshold. The threshold would be doubled for couples drawing Social Security. This proposal would affect 9% of current Social Security recipients. This type of means testing has already impacted Medicare Part B premiums. The Medicare Modernization Act of 2003 required that high-income enrollees pay higher premiums starting in 2007. The premium “adjustments” are based on the retiree’s adjusted gross income. Single retirees whose income exceeds $85,000, and couples whose income exceeds $170,000, are subject to higher premium amounts.

Means testing could also come in the form of an asset based cap. President Obama proposed capping tax-advantaged savings at $3 million in 2013. An excise tax could be levied against those with more than $3 million in retirement accounts. There was a 15% excise tax imposed on excess distributions from qualified retirement plans, tax-sheltered annuities, and IRAs back in the mid-1990s. A similar tax could be reinstated with the proceeds dedicated to the Social Security trust fund.

We can all agree that changes need to be made to the Social Security system to restore long-term solvency. Whether means testing becomes one of the system changes is anybody’s guess at this time. Those who have done a good job saving for retirement will need to consider the possibility of means testing as a factor when deciding when to start their benefits.

[1] Source – AARP Public Policy Institute, Perspectives 22, June 2012, By David John, The Heritage Foundation & Virginia Reno, National Academy of Social Insurance


Will Your Money Last Through Retirement?

No one wants to run out of money. But without goals and a solid plan,
how can you know for sure whether you’re on the right track?

Will I be able to maintain my current lifestyle?

What will my monthly income be in retirement?

Can I protect my hard-earned savings and still
have the income I want?

Rodgers & Associates answers questions like these every day.

Get Personalized Answers
2025 Lititz Pike, Lancaster, PA 17601
Phone: 717-560-3800, Toll-Free: 888-876-3437