Paying for the "payroll tax" cut

[seraphim]

. This apparently varies by State, so you have to be careful with broad-brush statements. I was pretty sure that teachers in IL do not pay into, nor receive benefits for SS. As I am just now double checking DDs taxes for her (she is a first year teacher here in IL), I looked again at her W2, and she most definitely does not pay into SS.

I found the initial SS contract from 1935 to be an interesting read. The federal government mandated it, in general, gave each state a minimum amount of money to initiate the program, then stepped out. There were no guidelines as how to set up or run the program. Nada.

Details were left to each individual state.

As for paying into SS, I read somewhere on the SSA site(if memory serves) that certain public employees could be classified non-contributing participants, and though they could not collect full benefits, they couldn't lose more than half of their benefits(?). Does that mean they can collect no less than 20% of their working income?

I don't know and can't find clarification.

 

[justplainbll]

My high school buddy who retired from a DOD job 10-12 years ago 'bemoans' the fact he did not have to make FICA contributions.

 

[seraphim]

From the SSA benefit calculator - note the comment about percentages:

. How much income will you need?
Under current law, if you have average earnings, your Social Security retirement benefits will replace about 40 percent of your pre-retirement earnings. The percentage is lower for people in the upper income brackets and higher for people with low incomes.

Your Social Security benefits are the foundation on which you can build a secure retirement. Savings and pensions also are key components of your retirement plan. Most financial advisors say you'll need about 70 percent of your pre-retirement earnings to comfortably maintain your pre-retirement standard of living. They recommend that you prepare for the future with a combination of Social Security, private pensions and personal savings.

Make a note of your benefit estimate, and any pension you may qualify for, and continue your planning with the Retirement Income Estimator (new browser).

[Top]*

 

[justplainbll]

From the SSA benefit calculator - note the comment about percentages:

Your quote is consistent with my experience.

 

[seraphim]

. My high school buddy who retired from a DOD job 10-12 years ago 'bemoans' the fact he did not have to make FICA contributions.

But he still received benefits?

 

[justplainbll]

But he still received benefits?

I understand he is not but maybe a piece from his teacher wife's benefit.

 

[seraphim]

Ok. Thanks.

 

[Chuckanut]

This apparently varies by State, so you have to be careful with broad-brush statements. I was pretty sure that teachers in IL do not pay into, nor receive benefits for SS. As I am just now double checking DDs taxes for her (she is a first year teacher here in IL), I looked again at her W2, and she most definitely does not pay into SS.

-ERD50

Thank you for the update. I thought that the exemption from SS had been done away with years ago as part of the 'plan' to keep it solvent, but I guess I remembered incorrectly.

 

[clifp]

I am not sure if there is a causal relationship, but I've noticed the state pension plans like Ill. which don't participate in Social Security are typically among the worse funded managed.

For instance, IIRC the town that went broke in RI employees weren't covered by SS either. Seems if the government body is not willing to fork over the 7.15% for FICA they maybe bad money managers in general.

 

[arebelspy]

Another confirmation here for it varying by state. The wife and I are teachers in Nevada and we don't pay into SS and will never collect SS.

Hoping Clif's statement isn't true about NV, as we are planning on collecting a pension.

 

[youbet]

I believe those days are long gone for most of us. I have been a teacher and I always paid SS, just like anybody else earning a dollar. I think, at some earlier time, some government entities could opt out of SS if they provided their own pension plan. Today, other than those grandfathered in, I do not believe that is possible.

That's not correct Chuckanut. It's a state by state determination. For example, here in the Midwest, Illinois public school teachers do not participate in SS but Wisconsin public school teachers do.

 

[Chuckanut]

No doubt, I was mistaken.

 

[arebelspy]

No doubt, I was mistaken.

Sorry; didn't mean to pile on. Just wanted to give another data point for a state that hadn't been mentioned yet.

 

[youbet]

As for paying into SS, I read somewhere on the SSA site(if memory serves) that certain public employees could be classified non-contributing participants, and though they could not collect full benefits, they couldn't lose more than half of their benefits(?). Does that mean they can collect no less than 20% of their working income?

No.

Since you have some SS credit from your pre gov't employment history, you should go to the SS web site and read about WEP and GPO as they will affect you. The explanations of benefit limitations for both the employee and for spousal benefits for employees who have worked in careers not covered by SS are contained in these SS provisions.

 

[seraphim]

Thanks youbet.

I went back and retread those pages and now it clicks. Just needed a little prodding.

 

[EvrClrx311]

I wish there was an "opt out" option for Social Security.... though I understand that is impossible the way the current system is implemented:

for 1) Most people opting out wouldn't actually invest that money for retirement and 2) The current system relies on me to pay for those already retired (I understand how it got like that... but it really blows my mind how the system mimics a Ponzi scheme). If it were voluntary... like other investments, it would fall apart as quick as Madoff's did.

People who start off their careers making pretty high incomes shouldn't need money set aside for them in retirement... tax us and call it just that, a social program. I don't need or want Social Security for myself.

Though I won't 'really' need it...when I turn 62-67* my mind will change and I'll get grumpy when people want to mess with this system I was forced to plan on for my retirement. By that time, I'll need the extra few grand a week to pay for my flying RV upgrades...

*more like 72-77 by the time I get there

 

[REWahoo]

I wish there was an "opt out" option for Social Security....

Don't forget there are many other SS benefits other than a monthly check once you retire:

1) A retirement income for Joe starting as early as age 62;
2) A retirement income for Joe's wife, as early as her age 62, even if she has never had earned income;
3) A full medical system at age 65 (Medicare) for the remainder of his life;
4) A full medical system for his wife at age 65, even if she has never had earned income;
5) Disability benefits for Joe in the event of injury today;
6) Disability benefits for his wife even if she has never paid into the system;
7) Dependent benefits for a disabled, minor, or dependent children, even after Joe's death;
8) Dependent benefits for his dependent parents;
9) Child care benefit for Joe's wife to care for any children at home under age 16 in the event of Joe's death, disability, or drawing of his retirement benefit;
10) Death benefit for Joe's widow.

Social Security Benefits You Didn’t Know You Had​

 

[MichaelB]

I know someone who "opted out" of SS. He always worked for a family business. It was successful, owned by his father and uncle. They always paid him in cash, no records. His wife didn't work then - she was too busy raising 6 kids. He died, she survived him, went to work late in life and barely gets by.

 

[EvrClrx311]

Don't forget there are many other SS benefits other than a monthly check once you retire:

Social Security Benefits You Didn’t Know You Had​

this is true...

 

[EvrClrx311]

I know someone who "opted out" of SS. He always worked for a family business. It was successful, owned by his father and uncle. They always paid him in cash, no records. His wife didn't work then - she was too busy raising 6 kids. He died, she survived him, went to work late in life and barely gets by.

I guess what I meant was that the social insurance inherent in SSA is important. I get that we need to support people who REALLY need it... the main benefit (that check you receive when you retire) is unnecessary for some people. In fact, it only works to dilute (however small) our ability to accumulate wealth.

I have term life insurance to cover an unfortunate situation like what you described above... and plan to keep updating it as necessary until I reach FI/RE... at that point, my absence wouldn't become a burden on my family or their way of life (financially that is).

Again, I understand that not everyone has the means, desire or knowledge to protect themselves financially... but it would be nice if those of us who did could opt out - so that our country could slowly reduce SSA overall percentage of the governments yearly obligation. I understand that is impossible the way the current system is written. I don't mind paying taxes to help out... I just don't agree with the system as a whole.

The underlying message I was trying to convey is that Social Security is forced on us... early in our careers we hate it (if we understand it at all), but by the time we retire it's too late to change because then it would be "unfair" for us, our generation. It has grown into something so big that it can't be removed... and if it is mishandled it can really get our country into trouble.

 

[MasterBlaster]

SS as Pension...

or SS as welfare and social insurance....

When you decide what exactly it is, let the rest of us in on it.

 

[MichaelB]

The underlying message I was trying to convey is that Social Security is forced on us... early in our careers we hate it (if we understand it at all), but by the time we retire it's too late to change because then it would be "unfair" for us, our generation. It has grown into something so big that it can't be removed... and if it is mishandled it can really get our country into trouble.

Of course, when we are all born we don't know which of us will not need SS and which will. It is like insurance.

SS as Pension...

or SS as welfare and social insurance....

When you decide what exactly it is, let the rest of us in on it.

We've had this discussion before. Pension and social insurance. It is not welfare the way welfare is structured in the US.

 

[RetireBy90]

I would suggest one of the top reasons we can't remove it, would be because we are not willing as a people, to allow those that make choices that don't work out to bear the results. If you were allowed to opt out and then for whatever reason couldn't make it in your golden years, this society would not allow you to go without. So, in order to pay for this social program, some sort of tax is needed. If we cut the special taxes for SS and Medicare, other taxes would have to increase to make up for it.

IMHO

 

[EvrClrx311]

Of course, when we are all born we don't know which of us will not need SS and which will. It is like insurance.

We've had this discussion before. Pension and social insurance. It is not welfare the way welfare is structured in the US.

My "opt out" comments are geared entirely towards the Pension side of it. I do understand that it is all rolled into the same package, but the Pension-like side dwarfs everything else.

If the government wants to tax me 0.2-0.3% to cover the social insurance side the program, I can definitely support that. I just wish they would disassociate the two... insurance and investments aren't efficient (for me) when mangled together, though I'm sure there are some proponents of whole life who would beg to differ.

In its current state, I look at social security as a tax and drain on my life long wealth accumulating potential... I'd like to think in 20 or even 60 years years I'll still feel that way... the pension side of it is nothing more than a Ponzi Scheme.

I would suggest one of the top reasons we can't remove it, would be because we are not willing as a people, to allow those that make choices that don't work out to bear the results. If you were allowed to opt out and then for whatever reason couldn't make it in your golden years, this society would not allow you to go without. So, in order to pay for this social program, some sort of tax is needed. If we cut the special taxes for SS and Medicare, other taxes would have to increase to make up for it.

IMHO

and that is the reason this is all just hypothetical. As I stated before, I understand that my desire to have an "opt-out" option, though it would work for me, is not possible to implement for everyone. It would cause more damage than good at this point... because people would surely "take advantage" of it and get themselves into a poor situation financially by not protecting their interests through other insurances.

 

[MichaelB]

My "opt out" comments are geared entirely towards the Pension side of it. I do understand that it is all rolled into the same package, but the Pension-like side dwarfs everything else.

If the government wants to tax me 0.2-0.3% to cover the social insurance side the program, I can definitely support that. I just wish they would disassociate the two... insurance and investments aren't efficient (for me) when mangled together, though I'm sure there are some proponents of whole life who would beg to differ.

In its current state, I look at social security as a tax and drain on my life long wealth accumulating potential... I'd like to think in 20 or even 60 years years I'll still feel that way... the pension side of it is nothing more than a Ponzi Scheme.

Well, a Ponzi Scheme is a criminal effort to steal from others, and SS is not that. We only know how much we will get back of what we put in later in life. If we didn't earn as much as we thought or hoped, or something else happened, it worked. If we did well, like insurance, we were covered and had the good fortune to not have to collect.

Most would probably agree it would be better if the liabilities were funded.