Author Topic: R U concerned that your "baddassity" might means-test away your SS & Medicare?  (Read 10128 times)

swampwiz

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I was reading this:

https://finance.yahoo.com/news/medicare-crisis-almost-185009238.html

The article says that means-testing will have to put in place.  So what this seems to mean is that folks who had splurged during their earning years will get the full benefit, but the "badasses" who scrimped & saved and have a nice nest egg will get the benefit reduced away.  As for myself, I had a feeling this would eventually come out, so I didn't bother building a big enough nest egg (of course if my stock market investments soar, I won't be sad!) just so I could be assured of getting the complete benefit.

brute

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Meh, I plan on having enough set aside that I can not only support myself, but donate to charities that I care about when I'm retired. I'm not counting on anything from Uncle Sam.

nereo

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I was reading this:

https://finance.yahoo.com/news/medicare-crisis-almost-185009238.html

The article says that means-testing will have to put in place.  So what this seems to mean is that folks who had splurged during their earning years will get the full benefit, but the "badasses" who scrimped & saved and have a nice nest egg will get the benefit reduced away.  As for myself, I had a feeling this would eventually come out, so I didn't bother building a big enough nest egg (of course if my stock market investments soar, I won't be sad!) just so I could be assured of getting the complete benefit.

So let me see if I understand your logic correctly - because you thought that someday they might means-test SS benefits, you decided to forego financial independence by building a large nest egg in the hopes that benefits for those who score low during means-testing will be sufficient and won;'t be cut either?
That does not seem like a very good plan to me.

In response to your topic subject, no I am not concerned, for two reason: 1) given the time-frame between when I will hit FI and when I can take SS & Medicare disbursements any benefits I receive will be a nice boost, but not necessary, and 2) even the most conservative projections put the shortfall of SS around 30%. I find it highly improbable that those with more assets will be asked to shoulder that entire shortfall - more likely most of it will come from a combination of raising SS, raising the age requirements, better actual revenue and reduced payouts overall.

FWIW I'm fine with using some means testing to strengthen our security net - those with several million in investments do not need SS as much as those with less than $100k.  Whether that's 'fair' is more contakerous issue.

The math and risk aversion might lead those closer to retirement age to slightly different conclusions, but I would never advise against saving more in the hopes that you might retain more of your future benefits due to uncertain law changes many years in the future.

DreamFIRE

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That's just another person's opinion - nothing new.  It's pretty vague - cutting benefits for "wealthy" seniors, defined how?  By a large amount of income, by a large amount of investments, a large net worth?  $1M stash?  $2M?  $5M?  $100K/yr income?

There are ways to shore up those programs without cutting benefits for current seniors and those nearing retirement, and also without increasing the eligibility age of those nearing retirement.   For younger people (say under 50), I think adjustments will need to be made to the eligibility age and means testing in the long run.
« Last Edit: July 13, 2018, 08:53:52 AM by DreamFIRE »

DS

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M I ?

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trollwithamustache

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Its a reasonable concern for Social Security. Means testing is a simple and politically acceptable way (make the multi millionaires pay more!) proposal to help fix the system.

Medicare it would seem much less so likely... so much of our politics is pushing towards a single payer or national healthcare system and kicking people out of that system just doesn't seem to be part of the politics.

Do note, I also like the idea of going part time very early in my career, so I plan to keep working in the consulting business for a long time, making a trickle of contributions to both systems, thus "staying in then system" so I don't super worry about these risks.

mm1970

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I was reading this:

https://finance.yahoo.com/news/medicare-crisis-almost-185009238.html

The article says that means-testing will have to put in place. So what this seems to mean is that folks who had splurged during their earning years will get the full benefit, but the "badasses" who scrimped & saved and have a nice nest egg will get the benefit reduced away.  As for myself, I had a feeling this would eventually come out, so I didn't bother building a big enough nest egg (of course if my stock market investments soar, I won't be sad!) just so I could be assured of getting the complete benefit.

Or folks who were injured at work, or had cancer, or had children with disabilities, or got laid off in their 50's, or went through a nasty divorce, or lost their house in a fire...will get full benefits.

And folks who stayed healthy and employed, or happened to get lucky and work for Google, or married well, or had rich parents, or bought the right house at the right time ... will get reduced benefits.


Sweeping generalizations benefit nobody.

Mr. Green

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Both programs are already means tested, and have been for a long time. SS benefits drop as one's lifetime earnings increase and Medicare premiums go up as I come goes up.

DreamFIRE

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The article says that means-testing will have to put in place.  So what this seems to mean is that folks who had splurged during their earning years will get the full benefit, but the "badasses" who scrimped & saved and have a nice nest egg will get the benefit reduced away.

Think of it as waiting for those two marshmallows you were promised, but then you end up getting only one, but the person who already ate one gets another marshmallow, and your reward is watching them eat it.

DreamFIRE

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Both programs are already means tested, and have been for a long time. SS benefits drop as one's lifetime earnings increase and Medicare premiums go up as I come goes up.

The government considers SS benefits to actually be "earnings tested" rather than "means tested."  It doesn't actually matter how much income you have during retirement or your stash or net worth during retirement.

SS benefits actually increase as your  lifetime earnings (top 35 years of income) increase up to a maximum benefit, however, there are bend points where the benefit increases at a slower rate as lifetime earnings increase.

Medicare doesn't factor in your stash or net worth.  So changes could be made to cut SS and Medicare benefits for those with $2M+ or cutting SS benefits for those making over $50K in other retirement income, just as an example, especially for younger people with more years ahead of them before reaching eligibility age, say those currently under 50, while increasing their eligibility age to 70, more so for even younger workers.
« Last Edit: July 13, 2018, 10:13:41 AM by DreamFIRE »

jim555

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Medicare premiums go up with more income, it is already means tested.  Social Security is already slanted towards to the lower payout group with the design of the bend points.  The higher income group subsidize the lower income group. 

nereo

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Both programs are already means tested, and have been for a long time. SS benefits drop as one's lifetime earnings increase and Medicare premiums go up as I come goes up.

The concern is that SS distributions will be means tested based on some assessment of assets.
Currently your benefits are calculated on your averaged income highest earning 35 years, but as you indicated benefits do not increase linearly with income, and higher earners pay substantially more into the system than they get out compared to earners who made minimum wage for 35 years. However, higher earners still get higher SS distributions, often substantially so.

In short, it's based on earnings, which is  not the same as means testing where individuals with millions in assets might have their distributions reduced or eliminated entirely, regardless of their lifetime contributions (the averaged 35 year work history).

THe justification for doing this is that if you have, say $10MM in liquid assets you're less concerned with a monthly reduction of a few hundred$ than someone who has little or no savings. Proponents argue this is among the least painful ways of meeting the shortfall.  Critics call it a penalty on being successful. As Warren Buffett points out, he currently collects SS each month even though he has no need for the extra ~$2k each month. 

Retire-Canada

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jim555

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I don't think they like to do asset tests, it is difficult to administer while income is clean cut and well defined.  If they did such a thing the rich will create trusts and hide assets in art and schemes.

Americans don't want to prove what they own to the government.  Since almost everyone gets SS they would get huge backlash on such a proposal.
« Last Edit: July 13, 2018, 10:37:28 AM by jim555 »

Retire-Canada

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Several of our old age benefits in Canada are income tested. If my portfolio is kicking out so much money that my mandatory withdrawals bump my income high enough that I start losing benefits I won't be crying about it. I'll be thanking my lucky stars I lucked into a demographic and genetic pool that had the opportunity to save a lot of money and that I was lucky enough to have retired during a successful start year.

What I won't be doing is bitching and moaning that I got ripped off because I won the lottery.

Schaefer Light

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This is why I think that at least a portion of SS should be privatized.  If they do "means-test", it won't hurt the super rich and it won't hurt the poor.  It will hurt people who have saved just enough to retire, i.e. the middle class.

Retire-Canada

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I don't think they like to do asset tests, it is difficult to administer while income is clean cut and well defined.  If they did such a thing the rich will create trusts and hide assets in art and schemes.

+1 - income testing is easy. Trying to determine someone's wealth is hard in any cost effective way that would be realistic for wide swath of the population.

nereo

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This is why I think that at least a portion of SS should be privatized.

It's worth noting that the various retirement accounts (IRAs, 401(k)/403(b) etc) were all introduced as a means of allowing individual workers to control their own retirement investments.

koshtra

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It'll be a cold day in hell when the US congress allows asset tests (more's the pity). Hell, even Norway has had difficulty pulling that off. I'd worry more about lightning strikes out of a clear blue sky (they do happen!) or being decapitated by a drone. Realistic worries.

Maenad

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Think of it as waiting for those two marshmallows you were promised, but then you end up getting only one, but the person who already ate one gets another marshmallow, and your reward is watching them eat it.

Or it's like the person who never got a marshmallow at all gets one. Not all of the poor are leeches. Not everyone with little savings were grasshoppers rather than ants.

And if I have $10 million, I have no problem sacrificing SS payments.

jim555

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And if I have $10 million, I have no problem sacrificing SS payments.
If I am entitled to payments I sure want them, even if I had $100 million.

mm1970

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And if I have $10 million, I have no problem sacrificing SS payments.
If I am entitled to payments I sure want them, even if I had $100 million.
"Poverty exists not because we cannot feed the poor, but because we cannot satisfy the rich."

Retire-Canada

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"Poverty exists not because we cannot feed the poor, but because we cannot satisfy the rich."

Yup. There is plenty to go around if people weren't outlandishly greedy.

Raymond Reddington

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DreamFIRE

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Think of it as waiting for those two marshmallows you were promised, but then you end up getting only one, but the person who already ate one gets another marshmallow, and your reward is watching them eat it.

Or it's like the person who never got a marshmallow at all gets one. Not all of the poor are leeches. Not everyone with little savings were grasshoppers rather than ants.

No, that's not the point of the story.  Think of two people who had the same income in life but each given the choice to spend all his money vs. saving it for a brighter future.  The foolish spender who wasted money like a drunken sailor is like the kid who ate the marshmallow immediately while the saver is like the kid who waited so that he could later receive two marshmallows.  Penalizing savers would be like reneging on the promise of the extra marshmallow and giving it to the kid who already ate one at the first chance he had.

DreamFIRE

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And if I have $10 million, I have no problem sacrificing SS payments.

People like to go with extremes here where it's an easy answer, where it's more of a straw man.  It's easy to say you wouldn't care about your SS benefits if you had $10M or $100M.  But what about $500K, or $1M?  How about $1.5M or $2M?  But what if half of that is wrapped up in your home?

I think we shouldn't go beyond income based means testing.

sisto

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I hope they don't plan to asset test. I don't think it's very realistic. It does however, remind me of the time people got bailed out for getting mortgages they couldn't afford while the rest of us lived below our means.

nereo

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Think of it as waiting for those two marshmallows you were promised, but then you end up getting only one, but the person who already ate one gets another marshmallow, and your reward is watching them eat it.

Or it's like the person who never got a marshmallow at all gets one. Not all of the poor are leeches. Not everyone with little savings were grasshoppers rather than ants.

No, that's not the point of the story.  Think of two people who had the same income in life but each given the choice to spend all his money vs. saving it for a brighter future.  The foolish spender who wasted money like a drunken sailor is like the kid who ate the marshmallow immediately while the saver is like the kid who waited so that he could later receive two marshmallows.  Penalizing savers would be like reneging on the promise of the extra marshmallow and giving it to the kid who already ate one at the first chance he had.

The story is a good illustration of why many are resistant to the idea of means-testing; they feel they are being penalized for behaving responsibly while those who make poor life decisions are 'propped up'.  But as others have noted, these plans also help those who were simply unfortunate and not irresponsible. Interestingly, both arguments make it very unlikely that an aggressive means-test will ever be applied. More likely we'll raise the maximum income for contributions (again).

Eric

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Both programs are already means tested, and have been for a long time. SS benefits drop as one's lifetime earnings increase and Medicare premiums go up as I come goes up.

The government considers SS benefits to actually be "earnings tested" rather than "means tested."  It doesn't actually matter how much income you have during retirement or your stash or net worth during retirement.


This is not true.  SS benefits are taxable, and at a VERY high rate.  So the amount of income during your retirement very much matters.

https://www.ssa.gov/planners/taxes.html

sisto

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Think of it as waiting for those two marshmallows you were promised, but then you end up getting only one, but the person who already ate one gets another marshmallow, and your reward is watching them eat it.

Or it's like the person who never got a marshmallow at all gets one. Not all of the poor are leeches. Not everyone with little savings were grasshoppers rather than ants.

No, that's not the point of the story.  Think of two people who had the same income in life but each given the choice to spend all his money vs. saving it for a brighter future.  The foolish spender who wasted money like a drunken sailor is like the kid who ate the marshmallow immediately while the saver is like the kid who waited so that he could later receive two marshmallows.  Penalizing savers would be like reneging on the promise of the extra marshmallow and giving it to the kid who already ate one at the first chance he had.

The story is a good illustration of why many are resistant to the idea of means-testing; they feel they are being penalized for behaving responsibly while those who make poor life decisions are 'propped up'.  But as others have noted, these plans also help those who were simply unfortunate and not irresponsible. Interestingly, both arguments make it very unlikely that an aggressive means-test will ever be applied. More likely we'll raise the maximum income for contributions (again).

I think raising the maximum income for contributions is likely what will happen. I also think it's the best option.

kpd905

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Would a house be exempt from the asset calculations?

If yes, then people will dump money into a house and do some type of reverse mortgage to pull money out.

If no, then every home owner in a HCOL area will automatically lose access to social security, depending on where they draw the line.

beltim

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Both programs are already means tested, and have been for a long time. SS benefits drop as one's lifetime earnings increase and Medicare premiums go up as I come goes up.

The government considers SS benefits to actually be "earnings tested" rather than "means tested."  It doesn't actually matter how much income you have during retirement or your stash or net worth during retirement.


This is not true.  SS benefits are taxable, and at a VERY high rate.  So the amount of income during your retirement very much matters.

https://www.ssa.gov/planners/taxes.html

The max taxation is that 85% of the benefit is taxable at ordinary income tax rates. That makes it “a VERY high rate” in your book?  What does that make income where nothing is excluded from taxation? 

nereo

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Both programs are already means tested, and have been for a long time. SS benefits drop as one's lifetime earnings increase and Medicare premiums go up as I come goes up.

The government considers SS benefits to actually be "earnings tested" rather than "means tested."  It doesn't actually matter how much income you have during retirement or your stash or net worth during retirement.


This is not true.  SS benefits are taxable, and at a VERY high rate.  So the amount of income during your retirement very much matters.

https://www.ssa.gov/planners/taxes.html

The max taxation is that 85% of the benefit is taxable at ordinary income tax rates. That makes it “a VERY high rate” in your book?  What does that make income where nothing is excluded from taxation?

This is all missing the point being made, which is that SS distributions are not means-tested.  An individual or couple does not have their monthly cheques reduced if they have a substantial amount of savings (and what the article the OP posted suggested might happen sometime in the future).

bluebelle

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I'm a Canadian citizen, so this disucssion doesn't apply to me, and I don't fully understand how SS works (if someone would like to explain it to me, I'm interested).....
To me, the biggest issue is that the rules might change underneath you.....it sounds like something that would need to be phased in over years.  If someone built their retirement plan with the reasonable assumption that they would get X dollars a year from SS, and that went away, you would rightfully be pissed, the rug got pulled out from underneath you.  Especially if you'd paid into it all your working career.

And as others have said, an income (in retirement) test seems more reasonable than an asset test (if real estate is included).

In Ontario Canada, we have two governement plans CPP  (Canadian Pension Plan, which is joinly funded by employees and employers over your working career - it is guaranteed in that it is funded and has a surplus) and OAS (old age security - a pitance of a little over $7000/yr, that is funded out of the current tax base - it is income tested, and clawed back if my income in retirement exceeds $76,000).  I plan to keep my income below the clawback number.   There is also a GIS (guaranteed income suplement) if you have a very low income in retirement.  I think it would still keep you below the poverty line.

As others have said, I don't object to providing help to those that were the working poor all their lives, it's the folks partied their way through their working years and then cry poor in retirement that I have a problem with getting a hand out.  But I don't want to live a  life on that low income just to get a subsidy.

As the boomers age, I don't see how our governments can continue with the plans as they exist, there isn't the tax base to support it.

sokoloff

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SS benefits are taxable, and at a VERY high rate.  So the amount of income during your retirement very much matters.

https://www.ssa.gov/planners/taxes.html
The max taxation is that 85% of the benefit is taxable at ordinary income tax rates. That makes it “a VERY high rate” in your book?  What does that make income where nothing is excluded from taxation?
My God, those types of income are 100% taxable; that's crazy!

effigy98

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I will just figure out a way to avoid the means test removing my benefits. If it involves burying gold to avoid some crazy tax (by not getting a common benefit), I would do it. If working and I am taxed 50%+, I would just stop working or find work that allows me to avoid this tax (skill trades, under the table, geo arbitrage, etc). I do not believe in getting punished just because I worked hard to learn valuable skills and continue playing the game to work in a good industry.
« Last Edit: July 13, 2018, 02:55:00 PM by effigy98 »

Dee18

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I have read several times that if we just imposed the social security tax on all wages, instead of just the first $128,400 of an individual's income, there would be plenty of money for everyone to receive benefits according to the current formulas.  The fact that Congress is reluctant to do that suggests to me that Congress is looking out for the well to do and means testing for social security is not very likely.  Since people have directly paid into the social security system, I think it's a harder political sell than means testing veterans. (But now I'm puzzled about how my mom gets Tricare since she has significant assets.)

DreamFIRE

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Both programs are already means tested, and have been for a long time. SS benefits drop as one's lifetime earnings increase and Medicare premiums go up as I come goes up.

The government considers SS benefits to actually be "earnings tested" rather than "means tested."  It doesn't actually matter how much income you have during retirement or your stash or net worth during retirement.


This is not true.  SS benefits are taxable, and at a VERY high rate.  So the amount of income during your retirement very much matters.

https://www.ssa.gov/planners/taxes.html

Taxing of partial SS benefits is NOT means testing, that's just.... what would you call it... umm.... oh yeah, "taxes".

What I stated was true, that the government doesn't consider SS to be means tested, and that SS benefits are earnings tested based on the 35 highest income years.

But I got a kick out of someone pointing out to me that SS benefits are partly taxable considering I have commented on this various times before including how more SS benefits are unfairly taxable each year:

Social Security after-tax "net" benefits are already being "cut" and have been for years, but most people aren't aware of how this is being done.

Social Security benefits are indexed to CPI, but seniors living costs tend to increase at a higher rate than the general public's expenses, so their SS benefits really should be indexed to Consumer Price Index for the Elderly, or CPI-E.   As it is, each year acts as a little bit more of a cut to their SS benefits and hurts seniors as their benefit increases do not match their living cost increases.

Also, SS formula for determining how much of your SS benefits are taxed is NOT indexed to inflation, so that threshold has not increased since it was first introduced in 1983.  For a single person, if your income combined with half your SS benefits exceeds $25,000, you have to pay income tax on up to 50% of your SS benefits.  If it exceeds $34,000, you have to pay income tax on up to 85% of your SS benefits.  $25K in 1983 is worth a lot more than $25K in 2018.  Since your retirement distributions and SS benefits will be adjusted with inflation, but NOT the $25,000/$34,000 thresholds, a greater percentage of your SS benefits will become taxable as each year passes (for married filing jointly, the thresholds are $32,000/$44,000.)  It's a built-in tax increase, reducing "net" SS benefits, hurting seniors further.  The greater your combined income and SS/2, the more you will be affected by this up to a max of 85% of your benefits being taxed!  It's absurd, and those thresholds should be increased to reflect inflation since 1983.

https://www.fool.com/retirement/general/2016/05/08/this-33-year-old-social-security-rule-is-wreaking.aspx
http://www.foxnews.com/story/2007/03/25/double-whammy-taxation-social-security-benefits.html
https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html





DreamFIRE

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I have read several times that if we just imposed the social security tax on all wages, instead of just the first $128,400 of an individual's income, there would be plenty of money for everyone to receive benefits according to the current formulas. 

It doesn't look like that alone is enough over the long term, but a few other changes would do the trick:

https://forum.mrmoneymustache.com/welcome-to-the-forum/social-security-will-not-be-bankrupt/msg2031714/#msg2031714

swampwiz

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swampwiz

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Both programs are already means tested, and have been for a long time. SS benefits drop as one's lifetime earnings increase and Medicare premiums go up as I come goes up.

Uh, the rate at which earnings boost up the benefit decreases as income goes up.  There are 3 brackets that work like tax brackets.

robartsd

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In Ontario Canada, we have two governement plans CPP  (Canadian Pension Plan, which is joinly funded by employees and employers over your working career - it is guaranteed in that it is funded and has a surplus) and OAS (old age security - a pitance of a little over $7000/yr, that is funded out of the current tax base - it is income tested, and clawed back if my income in retirement exceeds $76,000).  I plan to keep my income below the clawback number.   There is also a GIS (guaranteed income suplement) if you have a very low income in retirement.  I think it would still keep you below the poverty line.
Sounds to me like CPP and SS are somewhat similar.

Under SS flat rate payroll taxes are paid equally by the employee and employer on earnings up to about $127k. Retirement benefits are based on the inflation adjusted average monthly income subject to SS taxes over 35 years. If you worked longer than 35 years, your lowest income years don't count; if you worked less than 35 years, average in some zeros. At full retirement age, the benefit pay out at about 90% of the first $900, 35% of the next $5000, and 15% of the rest. A spouse can claim a benefit based on 1/2 their partner's if that works out to more than the benefit based on their own earnings. SS also provides some death and disability insurance based on earning histories.

Medicare is also a paid as a flat rate tax on wages but is not subject to an income cap (and very higher earners pay an even higher rate that is not matched by their employers). Medicare pays for medical expenses for senior citizens.

DreamFIRE

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Medicare pays for medical expenses for senior citizens.

Although Part A won't pay for a lot of your expenses, and part B, D,  and a supplemental are required for decent coverage, which results in some hefty premiums for seniors, many who mistakenly thought Medicare meant free health care.  Someone in the ACA thread mentioned monthly Medicare premiums of nearly $1000/mo.

DreamFIRE

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I planned for this in my original FIRE assumptions set in 1986.  Led to oversaving, but the extra helps me sleep better and it is nice to not depend on govt help for secure living.

I don't consider it government help, just a small pay-back for all that I paid in over my career in taxes, which I could have invested for a better return.

Mr. Green

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Both programs are already means tested, and have been for a long time. SS benefits drop as one's lifetime earnings increase and Medicare premiums go up as I come goes up.

Uh, the rate at which earnings boost up the benefit decreases as income goes up.  There are 3 brackets that work like tax brackets.
Correct. The SS benefits you earn on each dollar drop the more you cumulatively earn. That's a means test.

Retire-Canada

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Correct. The SS benefits you earn on each dollar drop the more you cumulatively earn. That's a means test.

Isn't that an income test? A means test would evaluate whether you had $10K in assets of $10M and adjust accordingly.

DreamFIRE

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Correct. The SS benefits you earn on each dollar drop the more you cumulatively earn. That's a means test.

Isn't that an income test? A means test would evaluate whether you had $10K in assets of $10M and adjust accordingly.

It's normally referred to as earnings tested.  A true income means test would base it on current income while receiving benefits, but that is not a factor in determining SS benefits after reaching FRA (although it can affect taxation of benefits).

Mr. Green

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Correct. The SS benefits you earn on each dollar drop the more you cumulatively earn. That's a means test.

Isn't that an income test? A means test would evaluate whether you had $10K in assets of $10M and adjust accordingly.
Tomato. Tomahto. You can't do both. Plus a plain asset test is easy to beat with an irrevocable trust. I'm sure there are other ways too. You can't beat testing someone's means over 35 years of their working life.

sokoloff

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It's not a means test by most (all?) common definitions of the term.

Here's an AARP paper suggesting that there is an option to begin means-testing Social Security.

"Option: Begin Means-Testing Social Security Benefits"

https://www.aarp.org/content/dam/aarp/research/public_policy_institute/econ_sec/2012/option-means-test-social-security-benefits-AARP-ppi-econ-sec.pdf

Retire-Canada

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Tomato. Tomahto. You can't do both. Plus a plain asset test is easy to beat with an irrevocable trust. I'm sure there are other ways too. You can't beat testing someone's means over 35 years of their working life.

Huh? You literally say in your post that you can easily beat a means test then say you can't beat a means test. You are confusing me.

Means testing is asset testing. Means testing is not income or earnings testing.

 

Wow, a phone plan for fifteen bucks!