Article - 35% of Millionaires won't be able to retire

[Andre1969]

Why we don't eliminate the wage cap and make it open-ended is beyond me. The argument is that it becomes 'unfair' to higher earners, and yes, I was a higher earner and reached my cap sometime each February. I wouldn't have cared if it went all year.

The fact is there are a lot of taxes placed upon high earners that nobody seems to care about. I just never could understand this one.

I'm wondering if high earners would find some kind of way out of it? For instance, companies might start compensating their high earners with stock options or some other type of payment that doesn't fall into W2 wage/SS type of income.

I seem to recall the current income cap is designed to capture something like 90% of all W2 wage income anyway. So even though it seems like there's a lot of un-taxed income they could go after, it's not enough to make that much of a difference.

I also believe the rationale is that, the wealthier you are, the less reliant you're going to be on SS. So in a sense, it's a regressive tax. Not in the traditional sense, but basically, the more you pay into it, the less benefit you get, in proportion to what you're paying out. So, as a result, we get the tax cap, to make it more fair.

Of course, what is and isn't "fair" depends on whomever is the "winner" and "loser" in whatever transaction we're throwing that value judgement up against.

 

[Fermion]

I also used to reach the cap in February and would never have noticed or cared if I didn't. The way I see it, if you just create another bend point so that people get a little something back, it will be palatable to most who are over the current limit.

Reaching the cap in Feb....dang. I mean that is high income. That is like CEO of a medium company income.

 

[Car-Guy]

Remember when your SS contribution was labeled "FICA" on your pay stub? It stood for Federal Insurance Contributions Act, which always steamed me because no insurance company would be permitted to run on a pay-as-you go basis. Regulators would declare it insolvent.

If a private annuity company were able to change the rules like the government has and probably will again and run their business like SS, we'd be calling it fraud, a Ponzi scheme, etc.

Does the government make the investment decisions? Just curious- a large % of the population just isn't equipped to make those decisions, some through lack of interest, some through lack of smarts.

You just described "most (well many anyway)" of our leaders. To hear some of what comes out of their mouths is not only stupid but scary... And I'm being very kind.

 

[Car-Guy]

Reaching the cap in Feb....dang. I mean that is high income. That is like CEO of a medium company income.

Wow that is early, it took me until March (and mid to late March at that) But that was 10+ years ago.

 

[Gumby]

Reaching the cap in Feb....dang. I mean that is high income. That is like CEO of a medium company income.

I was a lawyer in a big law firm in NYC. Our prior year annual bonuses, which could be a third or more of our total income, were paid out in February. Otherwise, it would have been somewhere in April/May.

 

[Fermion]

I was a lawyer in a big law firm in NYC. Our prior year annual bonuses, which could be a third or more of our total income, were paid out in February.

Ah that makes sense. I was picturing the current cap of $160,000? and multiplying that out to a million+ dollar a year salary lol. I mean I am sure there are some on this forum who do make that per year (and whine about eggs going up $0.50 lol)

 

[athena53]

I saw an interesting (if misguided) post on another board about 15 years ago from someone who said they'd have it made once they'd accumulated $1 million. Invest it at 8% and live off the $80K/year in perpetuity. Easy-peasy.

I had to point out that (1) no traditional investment produces a steady 8% return every year, (2) anything that does average 8%/year is probably too volatile a place for 100% of your retirement funds and (3) $80K/year might look pretty sweet but not after it's eroded by 20-30 years of inflation.

Unfortunate that the teaching of compound interest math isn't compulsory for HS graduation.

 

[braumeister]

I also used to reach the cap in February and would never have noticed or cared if I didn't. The way I see it, if you just create another bend point so that people get a little something back, it will be palatable to most who are over the current limit.

That's wonderful. I only reached the cap in nine of my working years, all before 1980, yet I am getting a great SS benefit. Gotta love those bend points!

 

[marko]

Unfortunate that the teaching of compound interest math isn't compulsory for HS graduation.

Unfortunate that basic finance like balancing a check book, how loan interest works and the benefits of paying your bills on time isn't compulsory nowadays. (Yes, I'm sounding like a grumpy old man!)

These were things we learned in 6th and 7th grade! By high school they'd bring in a guy from a Brokerage who explained the basics of investing, how to read a balance sheet and so on.

 

[Gumby]

I didn't learn any of that until I was 21 and gone from home. I just figured it out on my own.

 

[MichaelB]

Our prior year annual bonuses, which could be a third or more of our total income, were paid out in February.

That’s how I was paid. We didn’t call it bonus, though. It was variable salary - as in, your salary package is $100k, you get $4k monthly and at year end another $52k paid on a variable scale of 0 - 300%, based on achievement.

This is what allowed us to save, and eventually retire early. We based our budget on my fixed guaranteed income, and if the variable income part paid out, most of it went into the bank.

 

[Gumby]

That’s how I was paid. We didn’t call it bonus, though. It was variable salary - as in, your salary package is $100k, you get $4k monthly and at year end another $52k paid on a variable scale of 0 - 300%, based on achievement.

This is what allowed us to save, and eventually retire early. We based our budget on my fixed guaranteed income, and if the variable income part paid out, most of it went into the bank.

The wisdom back then was that you should "live on your base and bank your bonus". I always did, but very few others followed my example.

 

[marko]

I also believe the rationale is that, the wealthier you are, the less reliant you're going to be on SS. So in a sense, it's a regressive tax. Not in the traditional sense, but basically, the more you pay into it, the less benefit you get, in proportion to what you're paying out. So, as a result, we get the tax cap, to make it more fair.

Of course, what is and isn't "fair" depends on whomever is the "winner" and "loser" in whatever transaction we're throwing that value judgement up against.

But that’s my point. As a very high wage earner, my FICA payments were a drop in the bucket (until they'd stop in February). I didn't care if they kept going and I didn't know anyone else who did.

And since when have law makers been (openly) concerned about fairness to high wage earners? My state just passed an extra 4% tax on those making over a million a year.

 

[Samsung4321]

Sorry, this is OT for this thread, but I really, really want to watch this series and especially this episode (I am planning to gradually travel the whole length of the Amazon), but it says on the site that the episode is not available. I suppose this is something you need an extra BBC subscription for?

Google knows:
"earth's great rivers amazon"

https://www.dailymotion.com/video/x71wszd
720p, better in 4Kp.

 

[NW-Bound]

When I entered in my income data from SS.gov into the program anypia.exe to compute my benefit, scratched my head when I thought that I made more than that.

Then, I realized that SS.gov record showed the capped income. And I exceeded that limit in 1982, shortly after grad school.

And then, that income went to the poverty level for a few years in my 40s, when I was working for free to save my own business. It rebounded only when I gave up the dream of being on my own, and went back to work for hire, but only for part-time contract work until I called it quit for good at 55.

Oh well, my income history reminds me how blessed I am to still be doing OK today. Could have been worse. I could have died from that dreadful disease I had, or recovered to end up in a poor house. A lot of bad things can conspire to send a guy spiraling into the abyss.

 

[Samsung4321]

Does the government make the investment decisions?

No.

Just curious- a large % of the population just isn't equipped to make those decisions, some through lack of interest, some through lack of smarts.

Individuals can delegate investment decisions the large pooled funds like:
https://www.australianretirementtrust.com.au/
which have middle of the road 'balanced' MySuper accounts and numerous other accounts including 'direct' share investment accounts.

Small pooled funds are similar but often for a specific group of more than 6 individuals such as family or enterprise.

Self Managed Superannuation Funds (SMSF) have less than 6 beneficiaries and one or more individuals or a company as trustee(s) who are responsible for compliance and investment in pretty much whatever is not related to any trustee or beneficiary ("arm's length"). I have two and can invest in global bonds, shares, property, ...

Serious question: who are these "trustees"? I hear about them but they never seem to be identified.

I am, wife is, my company is.

It would be similar to the administration of 401k and 403b here.

Like 401K traditional and Roth hybrid; 15% tax on contributions, 15% tax on earnings, 10% tax on capital gains - until retirement phase then no tax on earnings, gains or withdrawals.

The main difference is that Australian accounts are said to be portable. This would mean that the trustee you choose is not associated with your current employer. I could be wrong.

Correct, individual can roll cash between funds like changing bank.

 

[Pellice]

Google knows:
"earth's great rivers amazon"

https://www.dailymotion.com/video/x71wszd
720p, better in 4Kp.

Thank you! Hope to watch tonight!

 

[NW-Bound]

No.
Individuals can delegate investment decisions the large pooled funds like:
https://www.australianretirementtrust.com.au/
which have middle of the road 'balanced' MySuper accounts and numerous other accounts including 'direct' share investment accounts.

Small pooled funds are similar but often for a specific group of more than 6 individuals such as family or enterprise.

Self Managed Superannuation Funds (SMSF) have less than 6 beneficiaries and one or more individuals or a company as trustee(s) who are responsible for compliance and investment in pretty much whatever is not related to any trustee or beneficiary ("arm's length"). I have two and can invest in global bonds, shares, property, ...

I am, wife is, my company is.

Thanks for the info. Looks like Australia gives its citizenry a lot more freedom in managing their retirement funds than any other nations.

There was a time when there was talk of privatizing SS in the US. I imagine it could be like the Australian system. Nope. Detractors said the people could not be trusted with their SS money, and the gummint should even take over 401k and IRA too.

By the way, that basic means-tested pension of $A 40K is awfully good, and exceeds the earned SS of more than 50% of US retirees I would venture.

How many Australian retirees are drawing the above? How does the Australian government afford it? It's mind boggling.

 

[W2R]

Oh well, my income history reminds me how blessed I am to still be doing OK today. Could have been worse. I could have died from that dreadful disease I had, or recovered to end up in a poor house. A lot of bad things can conspire to send a guy spiraling into the abyss.

We're extremely glad you did not die from that dreadful disease, too! Or any other dreadful disease or condition. As for the poor house, you're smart enough that you'd have figured a way out of there by now IMO.

 

[NW-Bound]

We're extremely glad you did not die from that dreadful disease, too! Or any other dreadful disease or condition. As for the poor house, you're smart enough that you'd have figured a way out of there by now IMO.

Thanks.

When you are suddenly faced with a serious probability of death, your perspective on life really changes. I was never materialistic, but became less so. Fast car, fancy clothes? Nah. I was happy to be alive, and fully functional. Everything else is secondary.

I could have died before 60. And now, I am on Medicare, and even get to plan taxes for RMD. How about that?


PS. Back on the title of the thread "35% of millionaires won't be able to retire", how many of them just die before retirement?

 

[Andre1969]

But that’s my point. As a very high wage earner, my FICA payments were a drop in the bucket (until they'd stop in February). I didn't care if they kept going and I didn't know anyone else who did.

I knew a guy who regularly made over the SS earnings cap, but not by a huge amount. He said that it was a sigh of relief when hit that cap, because that 6.2% made a noticeable difference in his pay.

 

[Samsung4321]

There was a time when there was talk of privatizing SS in the US. I imagine it could be like the Australian system. Nope. Detractors said the people could not be trusted with their SS money, and the gummint should even take over 401k and IRA too.

There are heavy tax penalties when a Super Fund becomes non-compliant such as early withdrawal or non-arms length transactions such as trustees buying a home using super money. But that is rare.

Rather the problem is that retirees tend to not spend and lead 'needlessly frugal lives'. I am one such but quibble about the adverb 'needlessly' because I don't feel in need to spend to attain an early death.

that basic means-tested pension of $A 40K is awfully good, and exceeds the earned SS of more than 50% of US retirees I would venture.

How many Australian retirees are drawing the above? How does the Australian government afford it? It's mind boggling.

Total revenue: $497b
Total expenses: $589b
https://www.aph.gov.au/About_Parlia...ations/Chart_packs/2021-22_Budget_at_a_glance
(Could add Aged Care Services: $24b which is not part of Age Pension.)

Age Pension: $55b
https://www.aph.gov.au/About_Parlia...ary/pubs/rp/BudgetReview202223/SocialSecurity

"As at 26 March 2021, around 2.6 million people received Age Pension, [full or part] equating to over 3 in 5 (62%) of the population aged 65 and over."
https://www.aihw.gov.au/reports/australias-welfare/age-pension#many

 

[athena53]

I knew a guy who regularly made over the SS earnings cap, but not by a huge amount. He said that it was a sigh of relief when hit that cap, because that 6.2% made a noticeable difference in his pay.

Ah, I LOVED those paychecks!

It's always fun to point out to the people who are under the delusion that their SS is all coming from a little bank account in DC with their contributions in it that any proposed solution that involves removing the wage cap without any commensurate increase in benefits to high earners just makes it more of a welfare system.

 

[explanade]

But that’s my point. As a very high wage earner, my FICA payments were a drop in the bucket (until they'd stop in February). I didn't care if they kept going and I didn't know anyone else who did.

And since when have law makers been (openly) concerned about fairness to high wage earners? My state just passed an extra 4% tax on those making over a million a year.

Some people are ideologically opposed to SS.

So anything to strengthen it is probably a nonstarter.

 

[scrabbler1]

Ah, I LOVED those paychecks!

It's always fun to point out to the people who are under the delusion that their SS is all coming from a little bank account in DC with their contributions in it that any proposed solution that involves removing the wage cap without any commensurate increase in benefits to high earners just makes it more of a welfare system.

Thank you! +1