My Social Security Age evaluation based on my circumstances, your situation is likely different

[TheWizard]

I do realize no one in charge is reading this but a few things that strike me as being needed to be rectified.
1- We were forced to pay SS tax to fund an account with our name attached so that each name would have some type of retirement fund. (I'm not here to argue if it will be enough to retire on). So regarding the "up to 85%" issue how is it right that we will be taxed on what we were forced to pay into our individual accounts. Said another way, we will be taxed on our taxes paid when we start to draw out our own money.
2- I paid SS on every dime I made. How is it correct that those making over $176,000.00 a year that they only pay SS up to that level and no more?
3- the income threshold amounts for individuals/couples have remained stagnant since inception. Shouldnt they have been/be adjusted for inflation. Don't quote me on numbers but 44k for a couple in 1986 is laughable in 2026.

Rehtorical.....I needed to vent.

Regards

1) will let someone else explain why you are taxed in retirement on payout from CONTRIBUTIONS made to FICA.

2) folks making well over $176k per year get same SS benefit in retirement as folks earning just $176k per year. That's why...

3) the income thresholds of $32k and $44k for taxation of SS benefits were DESIGNED to stay fixed so that eventually everyone would have 85% of their SS taxed. It's a FEATURE, not a bug...

 

[Koolau]

2- I paid SS on every dime I made. How is it correct that those making over $176,000.00 a year that they only pay SS up to that level and no more?

There is a "logical" answer to all your questions - though there is logical refutation to those logical answers. But for #2, it's a matter of "degrees" but just think how little one gets back even at the highest SS payout based on $176K that gets taxed for SS.

I take no position on that as I too always paid on every dime of salary. My gut tells me we'll eventually "save" SS (partially) by raising that $176K limit - or doing away with the limit.

I guess I look at SS as a net positive. Trying to make any humongous gummint program "fair" is likely a fool's errand. Besides "What is fair?"

We're happy to let you vent here. We've all done it.

 

[mcso]

1- so 6.73% is deducted pre-tax so my income is reduced said amount. Yet I will pay 22% (my tax bracket) on up to 85% of my SS? Is that mathematically adventagious to me or the feds? Seems like the feds.

2-I did know know earning over 176k doesn't increase one's SS. In other words, if one makes 1 million they only can collect SS amount on what was taken under 176k? That negates my argument.

3- said structure was designed to stay fixed. Ok, it was structured/deaigned that way. My point is that it should have increased as inflation has. What would 44k in earned income be in 2026? I believe what your saying is the structure was meant to slowly take more and more of what we paid in over the years. That still doesn't sit well with me. Designed that way or not.

 

[TheWizard]

But wait, there's more!
Take the example of a single fellow who pays the max into SS/FICA starting at age 22 but then passes away at age 61!
How much does he get back from 39 years of contributions??

 

[mcso]

But he and his beneficiaries aren't upset with his lack of ROI, he is dead and his family doesn't exist. And yes, I would rather gripe about it than be dead. But that doesn't minimize my angst with being taxed on my paid in taxes.

 

[Al18]

SS isn’t a tax. You are contributing to a retirement plan.

You are taxed on up to 85% of your SS benefits. The rest isn’t taxed because it’s return of capital.

 

[mcso]

Let's say that SS isn't a tax.....then it is a "contribution to a retirement plan" I am required by law to pay. Symantics. If I have not made my point at this juncture I don't believe anything I can add would help me make my point.
Be well and live long.

 

[TheWizard]

SS isn’t a tax. You are contributing to a retirement plan...

Well sort of.
I had a 403(b) retirement plan at my former employer with a good match, all tax deferred.
But the entire amount of my accumulation, after I was 100% vested in a few years, was available as a Death Benefit in the event of my early demise.
By age 45 or 50, I had a million $$ in there, all tax-deferred.

I'm sure the death benefit would have been taxable had I passed early but that didn't happen.
SS has nothing similar...

 

[pb4uski]

I do realize no one in charge is reading this but a few things that strike me as being needed to be rectified.
1- We were forced to pay SS tax to fund an account with our name attached so that each name would have some type of retirement fund. (I'm not here to argue if it will be enough to retire on). So regarding the "up to 85%" issue how is it right that we will be taxed on what we were forced to pay into our individual accounts. Said another way, we will be taxed on our taxes paid when we start to draw out our own money.
2- I paid SS on every dime I made. How is it correct that those making over $176,000.00 a year that they only pay SS up to that level and no more?
3- the income threshold amounts for individuals/couples have remained stagnant since inception. Shouldnt they have been/be adjusted for inflation. Don't quote me on numbers but 44k for a couple in 1986 is laughable in 2026.

Rehtorical.....I needed to vent.

Regards

You're misinformed but a lot of people don't understand these things.

1. The SS taxes that you paid did not fund an account with your name attached. The SS taxes that you paid entitled you to certain SS retirement benefits beginning at 62.

The 15% that you get tax free is supposed to represent the portion of SS that you receive that you paid SS taxes to get so you are not getting taxed on the taxes that you paid. The 85% was developed by SSA actuaries for a congressional committee in the early 1990s.

If a rigorous effort is made to identify how much of the average beneficiary's benefit was directly paid for by the beneficiary, the general answer is about 15%. Or to say it the other way, about 85% of the average Social Security benefit represents an amount in excess of that contributed to the program by the average worker.

Estimates by the Office of the Actuary of the Social Security Administration indicate that workers now entering covered employment in aggregate will make payroll tax payments totaling no more than 17 percent of the benefits that they can expect to receive. The self-employed will pay no more than 26 percent on average. Therefore, if social security benefits were accorded the same tax treatment as private pensions, only 17 percent of the benefit would be exempt from tax when received, and 83 percent would be taxable

2. While it is true that higher earners only paid FICA taxes up to the cap, it is still equitable because their SS retirement benefits are based only on the earnings that they paid SS tax on. In other words, their SS benefits are not based on the additional income that they earned above the cap.

3. Not adjusting the income threshold amounts for inflation was intentional. When thay passed those reforms in 1983 and 1993 they wanted to make 85% of SS taxable but didn't have the votes to do so. The phase-in, where taxable social security graded from 0% to 85% based on ohter sources of income was a compromise to get the votes that they needed. However, by not adjusting the income requirments for inflation eventually everyone will be taxed on 85% of their SS, which was their ultimate goal.

https://www.ssa.gov/history/taxationofbenefits.html

 

[pb4uski]

SS isn’t a tax. You are contributing to a retirement plan.

You are taxed on up to 85% of your SS benefits. The rest isn’t taxed because it’s return of capital.

The second part is right, but the first part is technically incorrect. SS is a tax and is NOT contributing to a retirement plan.

Flemming v. Nestor (1960)​

Ephram Nestor was a Bulgarian immigrant who had paid into Social Security for 19 years. He was deported in 1956 for having been a member of the Communist Party in the 1930s. Upon his deportation, the government terminated his Social Security benefits. The Supreme Court ruled against Nestor. They famously declared that Social Security is not an "accrued property right." Unlike a private pension, Social Security is a tax-funded social insurance program. The Court ruled that Congress has the right to alter, amend, or even stop payments if they have a "rational justification" for doing so.

 

[pb4uski]

If I have not made my point at this juncture I don't believe anything I can add would help me make my point.
Be well and live long.

You've made your point, but WADR, you're just wrong. Be well and live long.

 

[pb4uski]

But wait, there's more!
Take the example of a single fellow who pays the max into SS/FICA starting at age 22 but then passes away at age 61!
How much does he get back from 39 years of contributions??

Same would apply to a married fellow if his spouse's PIA is more than 50% of his PIA.... nobody gets any benefit from his 39 years of taxes (not contributions).

 

[mcso]

I thank those who have contributed. I was ignorant regarding the 85 % matter. Because of your contributions I now understand and it has calmed me somewhat. Hard to believe I haven't been exposed to said information in the past if not even by accident. I'll have to run my numbers just out of morbid curiosity. When I log into my online SSA account under my name and SS number I can see not only total paid into SS but also what my employers have. If any of you don't have an online account I would encourage you to do so. One has access to all kinds of info including lifetime work history by year and yearly wages. Interesting and humorous to look back.

 

[pb4uski]

An interesting exercise is to take your SS benefit from when you claim until you are 82-1/2 (roughly the average longevity for SS). Then take the Social Security taxes that you paid from your SS statement and divide it by that number. That gives you the percentage that you paid in. Mine is around 18%.

But... if I adjust the benefits received denominator assuming 2% COLAs from when I start until I am 82-1/2 then what I paid in is about 14%.

Further, if I refine the numerator of SS taxes paid by multiplyng it by 92.3% since that is the percentage of SS taxes that relate to retirement benefits (the other 7.7% fund survivor and disability benefits) then the percentages are 15% where the denominator is not COLA adjusted and 13% where the denominator is COLA adjusted.

So excluding 15% from tax and paying tax on 85% seems in the ballpark for me.

Lower earners will have a ratio of more than 85% since the benefit formula is skewed to lower earners and higher earners will be less than 85%. I can see that if I run the same calculations for DW who qualified for SS with 40 quarters but had much lower earnings because she was a SAHM and worked part time, paying taxes on only 85% is a screaming deal for her.

 

[old medic]

One has access to all kinds of info including lifetime work history by year and yearly wages. Interesting and humorous to look back.

Not sure about that.... 1986 made just under $10K married with a newborn.

 

[socca]

Lately I’ve been considering whether I should start receiving SS now (age 63) rather than wait until age 70. In 2032 (when I turn 70) Congress will be forced to fix SS. If part of the future SS fix involves a major reduction in my after-tax SS benefit, then perhaps I should start SS now and invest the proceeds. As a high net worth / high income future retiree, it seems like the typical politician would view me as a tempting source of funds to help “save” SS. The NIIT is a good example of this type of thinking. I’ve looked at some SS fix proposals online and haven’t seen a NIIT-like tax proposed. Anything is possible, I guess.

 

[camfused]

^^^

 

[pb4uski]

Lately I’ve been considering whether I should start receiving SS now (age 63) rather than wait until age 70. In 2032 (when I turn 70) Congress will be forced to fix SS. If part of the future SS fix involves a major reduction in my after-tax SS benefit, then perhaps I should start SS now and invest the proceeds. As a high net worth / high income future retiree, it seems like the typical politician would view me as a tempting source of funds to help “save” SS. The NIIT is a good example of this type of thinking. I’ve looked at some SS fix proposals online and haven’t seen a NIIT-like tax proposed. Anything is possible, I guess.

I'm not sure if you are aware of this, but opensocialsecuritycom has an option where you can include a haircut to SS beginning in the year you designate and it includes those adjustments in its expected present value calculations. Below are the default assumptions respect to reductions but you can change them to whatever you believe.

 

[socca]

I'm not sure if you are aware of this, but opensocialsecurity.com has an option where you can include a haircut to SS ...

Thanks - Open SS recommends starting SS immediately if benefits are reduced in 2033. I don’t view this as a likely scenario. I do expect politicians to wait until the last possible moment to fix SS although solving the problem yesterday would have required a less drastic solution.

My SS benefits statement says I get an additional $700 / mo. if I wait until age 67; an additional $1,500 / mo. arrives if I wait until age 70. This additional income would have no effect on my personal financial situation.

A website pointed out that most investors have trouble beating SS’s built-in 8% annual delayed-retirement credit + annual COLA. I probably wouldn’t be able to do this given my preferred investment strategy. I’m currently leaning toward waiting to start SS and collecting SS’s “investment return”.

 

[pb4uski]

Many people confuse the 8% annual delayed retirement credits with an 8% return. It really doesn't work that way. You have to live to ~83 and change just to get a 0% return, but it gets better very quickly.

Below are real returns assuming COLA of 0%... so nominal returns would be below +2-3% for inflation:

 

[RetiredHappy]

I don't have a haircut of SS built into my income model. If we get a haircut, we will adjust our expenses accordingly, if needed.