Life of Social Security Fund ??

[Accidental Retiree]

I had forgotten about that, and I think it might apply to my Mom. She was in the federal government for something like 41 or 42 years, under the old CSRS system. She did pay a little into SS when she was young, but never got enough quarters to qualify in the first place, but I do remember her saying there was something called a "Windfall Exclusion Provision" or something like that, that tends to screw over some gov't employees, even those who had worked in enough other jobs to get the 40+ quarters or whatever you need for SS.

Anyway, my stepdad did pay into SS, and just started collecting when he turned 70 last year. I'd never really thought about it, but if he died first, my Mom most likely wouldn't get a survivor benefit from him?

Your mom might get something. It depends on the amount of her pension.

My husband will collect at age 70. If he predeceases me, I’ll be eligible for a survivor benefit, which I understand would be his age 70 benefit minus 2/3 of the amount of my government pension.

My pension is small, so I will have some increase over my already decreased (by WPO) own SS.

The following link explains GPO.

https://www.ssa.gov/policy/docs/program-explainers/government-pension-offset.html

 

[marko]

You will also have less time to enjoy it as well.

Here's my personal take. YMMV.

DW and I both took SS at 62. Total of >$4000 per month combined. Over 8 years (62 to 70) that's over $400,000 that we didn't have to withdraw from the portfolio. We got to enjoy that extra cash traveling extensively and doing all sorts of "young people stuff".

The month after I turned 70, my health took a nose dive and several personal family issues suddenly cropped up making sticking closer to home necessary and preferable. We're just not spending as much money as we did a decade ago.

Everyone is different, but I think that the decision needs to go beyond what the Excel sheet defines. Yeah, you got more money...what are you going to do with it!

 

[pb4uski]

People who are self-employed and paying more Social Security Tax are getting more screwed. ....

I suspect that you don't totally understand how the self employment tax really works. In both cases of a regular employee and a self employed individual the total paid in by the employee and the employer is identical and in both cases the employer is getting a tax deduction for the employer's share of taxes paid. Nobody's getting screwed, you just haven't thought it through.

 

[fishfactory]

I think what pc95 is saying is that as a self employed person the net amount they pay to SS after the tax break from being both the employee and employer is more than they pay if employed by another employer.

 

[dknighd]

I'm perhaps silly. I'm assuming our lawmakers will figure it out.

 

[pb4uski]

I think what pc95 is saying is that as a self employed person the net amount they pay to SS after the tax break from being both the employee and employer is more than they pay if employed by another employer.

Yeah, but so what.

The employee, pc95, pays the same as any employee would based on their earnings (in this case Schedule C net income rather W-2 gross earnings).

The employer, pc95's Schedule C, pays the same as any employer would based on the employee's earnings and the employer gets a tax deduction for employer match paid.

It is designed to be equivalent.

While I concede the employer part is less visible to the taxpayer/employee in a W-2 relationship unless the employee happens to be familiar with employer match, it is there nonetheless so there is no reason for any indignation or claims of getting "screwed".

 

[pb4uski]

I'm perhaps silly. I'm assuming our lawmakers will figure it out.

Given the gridlock in DC it might be beyond silly to expect something will get done... but I have my fingers crossed that just before the SHTF and the SSA has to start haircutting benefit payments which will immediately create millions of unhappy voters that something will happen.

 

[FREE866]

I'm 56 now, have long term partner, but she and I are not married. My plan is to wait till 70 because at that time SS will meet like 90% of my expenses, but lately I've been reading that might not be the smartest move. I am in excellent health and am optimistic SS isn't going away so that factors into my decision as well.

 

[Montecfo]

Would be so much better if they act now. Needed changes less severe.

 

[pb4uski]

I'm 56 now, have long term partner, but she and I are not married. My plan is to wait till 70 because at that time SS will meet like 90% of my expenses, but lately I've been reading that might not be the smartest move. I am in excellent health and am optimistic SS isn't going away so that factors into my decision as well.

Yes, your situation add some interesting wrinkles. Is your partner eligible for SS? Is her PIA more than 1/2 of yours? Is there a significant age difference? I assume that she is your heir?

 

[fishfactory]

His point is that what comes out of his pocket for SS is not equivalent, hence he is paying more as a self employed person than as a regular employee.

 

[pb4uski]

True I guess if you don't differentiate between what is coming out of his pocket as the owner and as the employer, but it still isn't in the getting screwed category.

 

[fishfactory]

I think he is just looking at the net leaving his pocket for SS. The "screwed" part is paying more out of pocket for the benefit as self employed and then on top of that potentially seeing cuts to that benefit.

 

[FREE866]

Yes, your situation add some interesting wrinkles. Is your partner eligible for SS? Is her PIA more than 1/2 of yours? Is there a significant age difference? I assume that she is your heir?

I was hoping you would comment pb4 as I really respect your input.




She is 43 so 13 years age difference. As of now, my beneficiaries are my girlfriend, my 2 siblings who are a few years older and my nieces that are 21 and 23. Pretty even distribution.


I just really like the idea that if I hold off till 70 at that point almost all my expenses will be able to be paid with SS so my portfolio will be gravy that I can help my nieces, if they need it.


What do you think?

 

[dknighd]

The interesting thing about SS. Once you claim you are locked in (details vary, you might have 12 months to change your mind).


I'm taking it month by month. Current plan is 70. I'll be 70 before 2033.

 

[NoiseBoy]

The labor force participation rate has ticket up recently to 62.5% and we've seen pretty strong wage growth especially for jobs at the lower end of the pay scale. Both of those factors should have a positive impact on the amount of Social Security taxes that are being collected. Is it possible to "bend the curve" with respect to the date when the trust fund is exhausted, or are we simply past the point of no return with respect to Social Security being able to collect enough in taxes to pay for current benefits (without changes)?

 

[Montecfo]

I think he is just looking at the net leaving his pocket for SS. The "screwed" part is paying more out of pocket for the benefit as self employed and then on top of that potentially seeing cuts to that benefit.

Can see that. But in reality the employee's comp includes both halves of SS. It is like an employer making a pension payment on your behalf.

That money can only come out of what the employer has budgeted for compensation and it certainly accrues economically to the benefit of the employee. Same as with the contractor.

Thus in both cases take home pay is reduced by the same gross SS cost.

So both types of workers are "paying" the full cost, though mental math can obscure this.

 

[dknighd]

The labor force participation rate has ticket up recently to 62.5% and we've seen pretty strong wage growth especially for jobs at the lower end of the pay scale. Both of those factors should have a positive impact on the amount of Social Security taxes that are being collected. Is it possible to "bend the curve" with respect to the date when the trust fund is exhausted, or are we simply past the point of no return with respect to Social Security being able to collect enough in taxes to pay for current benefits (without changes)?

My best guess is that something will need to change. Either SS "benefits" will do down, or taxes will go up, or they may decide SSA can borrow money. Or a mix.

 

[Montecfo]

The labor force participation rate has ticket up recently to 62.5% and we've seen pretty strong wage growth especially for jobs at the lower end of the pay scale. Both of those factors should have a positive impact on the amount of Social Security taxes that are being collected. Is it possible to "bend the curve" with respect to the date when the trust fund is exhausted, or are we simply past the point of no return with respect to Social Security being able to collect enough in taxes to pay for current benefits (without changes)?

Sure. It bends somewhat every year due to these factors. But they are insufficient to carry the day as the problem is structural: too few players compared to those collecting.

And if you notice, the longer term path for labor participation has been downward.

 

[pb4uski]

I was hoping you would comment pb4 as I really respect your input.

She is 43 so 13 years age difference. As of now, my beneficiaries are my girlfriend, my 2 siblings who are a few years older and my nieces that are 21 and 23. Pretty even distribution.

I just really like the idea that if I hold off till 70 at that point almost all my expenses will be able to be paid with SS so my portfolio will be gravy that I can help my nieces, if they need it.

What do you think?

Yes, I can see where that last part where SS at 70 will cover 90% of your spending is comforting and I think it probably makes sense, especially if your retirement is well funded, which I suspect is the case if SS at 70 will cover 90% of your spending.

I often frame the defer SS decision as buying a COLAed life annuity from the SSA as longevity insurance So let's assume that your PIA (SS benefit at age 67 FRA) is $1,000/month for easy calculations. If you claim at 62 you'll get $700/month and if you wait until 70 you'll get $1,240/month. That is a difference of $540/month.

So deferring is economically the same as making 8 years of premium payments of $700/month on a COLAed life annuity starting at age 70. Over that 8 years you will pay a total of $67,200 [$700*12 months*(70-62)].

Starting at age 70 you will beging receiving $540/month more. Your breakeven point is 125 months or a little over 10 years. That is a payout of 9.64% [(540*12 months)/$67,200].

A fixed annuity at age 70 with a premium of $67,200 would pay $477/month or a payout rate of only 8.5% so you are getting more payout AND the payout is COLAed and not fixed. That is what they call a screaming deal if you are in good health.

All of the above excludes the time value of money, but $700 invested per month earning 5% annually would be $82,418 after 8 years. So if you too that $82,418 and bought a fixed annuity the monthly benefit would be $585/month.

I don't know about you but if I was in decent health I would prefer a $540/month COLAed benefit starting at age 70 than an $585/month fixed benefit since after about 4 years the COLAed benefit would exceed the fixed benefit.

 

[fishfactory]

Montecfo, you are correct that the total paid to SS in both cases is the same. But in the case of the self employed, what he sees net leaving HIS pocket as self employed is greater than what leaves HIS pocket as "regular employee" at a corporation.

He is not focusing on the fact that at another employer part of his compensation package is the amount the employer pays for his SS benefit net the tax break. It is behind the scenes, and he doesn't see that on his pay stub/W2 leaving his pocket.

 

[Montecfo]

Fishfactory,

I get that. But perspective can change that.

I could go further. Of course it is in a contractor's interest to make sure negotiated comp covers things like lack of paid holidays, lack of paid vacation, lack of benefits, pension, etc.to tamp down those feelings of getting getting "screwed" versus direct employment.

 

[Chuckanut]

Two points on the 62 vs 70 discussion of when to take SS.

#1 - It's not a binary decision of 62 or 70. You can take SS at 64 and 5 months or 67 and 3 months. In fact there are 90+ points between 62 and 70 where you can turn SS on if you did not start it 62. I like that kind of flexibility. Once you start SS I think there is a 6 month window to pay it back and turn it off. After that you are committed to whatever age you started SS.

#2 - If you can fund your retirement from 62 to 70 out of your own pocket and if you don't care about leaving an estate (both are big IFs for many people), then you will have more money to spend every year starting at 62 by taking SS at 70.

 

[fishfactory]

Montecfo, 100% agree. Instead of just focusing on pay stubs, look at the whole compensation package. That is one reason consulting fees from sole proprietor consultants are elevated - to compensate for lack of benefits from "regular" employment. I think we are all saying the same thing. I was just trying to describe/interpret the "screwed" comment.

 

[FREE866]

Yes, I can see where that last part where SS at 70 will cover 90% of your spending is comforting and I think it probably makes sense, especially if your retirement is well funded, which I suspect is the case if SS at 70 will cover 90% of your spending.

I often frame the defer SS decision as buying a COLAed life annuity from the SSA as longevity insurance So let's assume that your PIA (SS benefit at age 67 FRA) is $1,000/month for easy calculations. If you claim at 62 you'll get $700/month and if you wait until 70 you'll get $1,240/month. That is a difference of $540/month.

So deferring is economically the same as making 8 years of premium payments of $700/month on a COLAed life annuity starting at age 70. Over that 8 years you will pay a total of $67,200 [$700*12 months*(70-62)].

Starting at age 70 you will beging receiving $540/month more. Your breakeven point is 125 months or a little over 10 years. That is a payout of 9.64% [(540*12 months)/$67,200].

A fixed annuity at age 70 with a premium of $67,200 would pay $477/month or a payout rate of only 8.5% so you are getting more payout AND the payout is COLAed and not fixed. That is what they call a screaming deal if you are in good health.

All of the above excludes the time value of money, but $700 invested per month earning 5% annually would be $82,418 after 8 years. So if you too that $82,418 and bought a fixed annuity the monthly benefit would be $585/month.

I don't know about you but if I was in decent health I would prefer a $540/month COLAed benefit starting at age 70 than an $585/month fixed benefit since after about 4 years the COLAed benefit would exceed the fixed benefit.

Thank you for that well thought out breakdown.



Couple thoughts:


-The COLA feature is HUGE for sure


-Re the time value of money if the money I took early grew at say 8% instead of 5% in your example that I guess would buffer the case for taking it earlier right?