Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
CBO releases new estimates on Obamacare repeal bill; 23 million would lose insurance coverage
I can buy you a silver shag wig and spray paint the initials "H" "C" on it, and you can wear it while you pretend to be in the White House spreading anti-conservatism!!! Sorry for delay in responding... I just got back from bench pressing 450lbs. with Scott Minerd! I will send you my address, and you can come over and we can discuss politics since you never want to stick to investing! I talk LOUD!!!
https://en.wikipedia.org/wiki/Master_chief_petty_officer Another government employee, beneficiary of socialism and our tax dollars, complaining about socialism, the government and paying too much taxes. It's like the cop who complains about the policeman's union, without which he'd have no pension, healthcare or retirement benefits.
Was waiting for you to chime in....if you can read, I offered solutions to the problems facing households today! I BEGGED the government NOT to pay me while i prevented the Taliban from invading your backyard!!! It was my moral Right to serve and protect our way of life!!! You can always join the "resistance" if their way of life is more appealing!!! My kind knows it "costs" to defend Democracy (planes, ships, tanks, people)!!! Enjoy!
I guess the windfall ended up in the social security's coffers since I worked two jobs most of my life and I will see little or no SS benefit as a result of my government pension "offset".
Why? Did you not meet the substantial earning test in that 2nd job? Or is "most of your life" still just a short period of years?
I understand it. My question was about your years of substantial earning as this is what is used to determine your reduction. If most years your salary on which you paid in SS met the substantial earnings test you might not be reduced much.
The cited Connecticut doc does a fair job of explaining how the amount of SS benefit is reduced, but not the underlying principle.
Social security is a progressive system - the higher your "average income monthly earnings" (AIME), the lower the percentage of AIME is paid to you. But if you're working two jobs, and only one of them is counted toward AIME, it looks like you're a low income worker even if you're not. As a result, you get a higher percentage of AIME for benefits.
Without getting into the details of the SS calculation, you can see the same problem when you look at progressive state income taxes. Say there are two states, A and B, that both charge 0% tax on the first $30K of income, and 2% on the next $30K.
If you earn $60K in state A, you'll pay 1% of your income (0% on the first $30K, 2% on the second $30K. Same if you live in state B. But if you split your time 50/50 between the states, you'd be gaming the system. State A would see $30K of income ($0 taxes), state B would see $30K of income ($0 taxes).
The states are on to this. What they do is look at how long you lived in the state, annualize your income, and compute the appropriate percentage. So State A will see $30K over 1/2 year, annualize to $60K, recognize that your tax rate should be 1%, and apply that 1% rate to the $30K you earned in state A. Likewise, state B will tax you 1% on $30K. So you wind up paying the same amount (combined) as if you'd lived in either state for the whole year.
Same idea with SS. You "live" in two regimens - one that doesn't assess FICA or pay SS benefits, the other that does. To SSA it looks like you're a low earner because of this split income (like the $30K looks too low to state A and to state B). Like the states annualizing income, the windfall elimination provision attempts to adjust payout percentages accordingly.
We can discuss how well its formula does this, but that's the idea.
The real problem seems to be for those who choose teaching as a profession, but never reach retirement age to be considered part of their state retirement.
For a state that opts out of Social Security, at the very least, one would expect that they offered teachers sufficient retirement benefits for each year of work. But that’s far from the case under current systems, which prioritize backloading benefits for full-career workers over providing adequate benefits for all.
and,
...states aren’t locked into keeping their teachers out of Social Security.While not sufficient as a stand-alone benefit, Social Security could provide teachers with a floor of secure, inflation-protected, and portable benefits – something many teachers don’t have and genuinely need.
@Anna, I have not sat down with SS on my work record so I don't have hard facts to share at this point. Just experiences for other co-workers (with similar SS work history).
The worst case for how much one loses because of the windfall elimination provision is 5/9 of one's benefits. That only happens if one has a relatively small SS benefit to begin with (below the first "bend point" where one gets 90% of average income monthly earnings).
No question that's a big percentage cut. Still that means one is getting nearly half of the "full" amount. The only way that amounts to virtually no SS benefit is if the unreduced amount is also virtually nil.
Arithmetic lesson: nothin' from nothin' leaves nothin' ---
Most traditional (DB) pensions, not just those of teachers or public employees, are back loaded.
Prior to ERISA (1974) "a three-decade stint in one job was the rule in order to be 'vested' in a corporate pension program. ... Under ERISA, employers offering pension plans were required to take on some form of earlier vesting, 'with most opting for full vesting after 10 years'". http://www.csmonitor.com/1981/1201/120132.html
Even if one's pension does vest, the amount is often based on the last few years' wages, so switching jobs means a getting a vested pension that is calculated on a lower base. In "traditional DB plans, large benefit accruals are back-loaded to later in an employee’s career; workers who leave an employer with a traditional DB plan mid-career could miss out on a disproportionate amount of benefits" https://bipartisanpolicy.org/blog/defined-benefit-plans-whered-they-go/
This back-loading is one of the dirty little secrets people never mention when they talk about the good old days of pension plans.
Personally, when I made my first employer change, I could have hung around one more year for my pension to vest. But I looked at how much my top salary that next year would be worth in 20, 30, 40 years. I figured that the present value of the pension I was giving up was peanuts, especially compared to the raise I'd be getting by leaving.
Comments
Sorry for delay in responding... I just got back from bench pressing 450lbs. with Scott Minerd! I will send you my address, and you can come over and we can discuss politics since you never want to stick to investing! I talk LOUD!!!
Who is stopping you??? Freedom is beautiful... AND FREE!!!
Another government employee, beneficiary of socialism and our tax dollars, complaining about socialism, the government and paying too much taxes. It's like the cop who complains about the policeman's union, without which he'd have no pension, healthcare or retirement benefits.
please please keep it up, this is the best comedy of the day
Page 3 of this document (linked below) does a pretty good job of explaining this "offset".
ct.gov/trb/lib/trb/formsandpubs/RetiredFall2002.pdf
A history lesson on Teachers and Social Security:
educationnext.org/arent-teachers-covered-social-security/
Social security is a progressive system - the higher your "average income monthly earnings" (AIME), the lower the percentage of AIME is paid to you. But if you're working two jobs, and only one of them is counted toward AIME, it looks like you're a low income worker even if you're not. As a result, you get a higher percentage of AIME for benefits.
Without getting into the details of the SS calculation, you can see the same problem when you look at progressive state income taxes. Say there are two states, A and B, that both charge 0% tax on the first $30K of income, and 2% on the next $30K.
If you earn $60K in state A, you'll pay 1% of your income (0% on the first $30K, 2% on the second $30K. Same if you live in state B. But if you split your time 50/50 between the states, you'd be gaming the system. State A would see $30K of income ($0 taxes), state B would see $30K of income ($0 taxes).
The states are on to this. What they do is look at how long you lived in the state, annualize your income, and compute the appropriate percentage. So State A will see $30K over 1/2 year, annualize to $60K, recognize that your tax rate should be 1%, and apply that 1% rate to the $30K you earned in state A. Likewise, state B will tax you 1% on $30K. So you wind up paying the same amount (combined) as if you'd lived in either state for the whole year.
Same idea with SS. You "live" in two regimens - one that doesn't assess FICA or pay SS benefits, the other that does. To SSA it looks like you're a low earner because of this split income (like the $30K looks too low to state A and to state B). Like the states annualizing income, the windfall elimination provision attempts to adjust payout percentages accordingly.
We can discuss how well its formula does this, but that's the idea.
https://fas.org/sgp/crs/misc/98-35.pdf
@Anna, I have not sat down with SS on my work record so I don't have hard facts to share at this point. Just experiences for other co-workers (with similar SS work history).
No question that's a big percentage cut. Still that means one is getting nearly half of the "full" amount. The only way that amounts to virtually no SS benefit is if the unreduced amount is also virtually nil.
Arithmetic lesson: nothin' from nothin' leaves nothin'
---
Most traditional (DB) pensions, not just those of teachers or public employees, are back loaded.
Prior to ERISA (1974) "a three-decade stint in one job was the rule in order to be 'vested' in a corporate pension program. ... Under ERISA, employers offering pension plans were required to take on some form of earlier vesting, 'with most opting for full vesting after 10 years'".
http://www.csmonitor.com/1981/1201/120132.html
Vesting period dropped to five years in 1988, but that still means that many people are completely out of luck.
http://www.nytimes.com/1988/10/15/opinion/l-pension-vesting-change-653188.html
Even if one's pension does vest, the amount is often based on the last few years' wages, so switching jobs means a getting a vested pension that is calculated on a lower base. In "traditional DB plans, large benefit accruals are back-loaded to later in an employee’s career; workers who leave an employer with a traditional DB plan mid-career could miss out on a disproportionate amount of benefits"
https://bipartisanpolicy.org/blog/defined-benefit-plans-whered-they-go/
This back-loading is one of the dirty little secrets people never mention when they talk about the good old days of pension plans.
Personally, when I made my first employer change, I could have hung around one more year for my pension to vest. But I looked at how much my top salary that next year would be worth in 20, 30, 40 years. I figured that the present value of the pension I was giving up was peanuts, especially compared to the raise I'd be getting by leaving.