(S)ocial (S)lavery
Planning on social security?
"At full retirement age, (in my case 66) you could go to the SS office and then pay it back, rehash your benefit, and it would be as if you waited."
I don't have first hand knowledge of this, but from posts on other forums I understand this is very difficult to do (paperwork wise) and may be going away.
I don't have first hand knowledge of this, but from posts on other forums I understand this is very difficult to do (paperwork wise) and may be going away.
It's hard to know what SS will be in the future. I have spent some time calculating how things are at present, and the results were interesting to me, so I'll share them here.
Since SS is currently calculated by using your best 35 earning years, I made these calculations by assuming that someone had contributed the maximum to SS over the past 35 years, and calculated the benefit that would result using resources from the SS website. All of the numbers are in 2009 dollars, using the SSA adjustment, not the BLS CPI.
As firefighter pointed out, the first $319,600 in taxed earnings produces the highest return. The next $1,606,500 in taxed earnings produces a lower level of return, while the last $1,400,280 in taxed earnings produces the lowest level of return.
Currently we pay a 6.2% tax on earnings to fund SS, so on the first $319,600, you're paying $19,816 in tax, that results in an annual benefit of $8219. From one perspective, you're getting a return of about 41.5% per year on your first $19.8k of contributions, and in theory SS is adjusted for inflation. Seemingly this is an absurdly good return. The next two brackets break down as:
Earnings: $1,606,500
SS Taxes paid: $99,603
Annual Benefit: $14,688
Benfit/Contributions: 14.75%
Earnings: $1,400,280
SS Taxes paid: $86,817
Annual Benefit: $6001
Benfit/Contributions: 6.9%
All of these seem like relatively good investments to me (so long as SS pays out at 100% of current levels at age 67). For comparison realize that a 67yo Female buying a commercially available immediate annuity might get around 7.2% in Benefit/Contribution-- with no COLA, no spousal benefits, etc...
Still, as you contribute more to SS, the relative return of your contributions decrease.
Keep in mind, because of the wage base your annual contributions to SS are capped, so if you earn $3.3m in one year you don't max out your SS benefit. Maxing out the SS benefit requires you to earn money over a 35 year period.
Lastly, many people say things like "I'll have too many zeros averaged in to get any significant benefit." A zero doesn't help your benefit, but all other things being equal, the number of zeros doesn't make a difference. For example, if you earn $80k/year for 4 years and never work again you'd have 31 zeros, but you'll get the same benefit as someone who earns $40k for 8 years and has only 27 zeros.
Since SS is currently calculated by using your best 35 earning years, I made these calculations by assuming that someone had contributed the maximum to SS over the past 35 years, and calculated the benefit that would result using resources from the SS website. All of the numbers are in 2009 dollars, using the SSA adjustment, not the BLS CPI.
As firefighter pointed out, the first $319,600 in taxed earnings produces the highest return. The next $1,606,500 in taxed earnings produces a lower level of return, while the last $1,400,280 in taxed earnings produces the lowest level of return.
Currently we pay a 6.2% tax on earnings to fund SS, so on the first $319,600, you're paying $19,816 in tax, that results in an annual benefit of $8219. From one perspective, you're getting a return of about 41.5% per year on your first $19.8k of contributions, and in theory SS is adjusted for inflation. Seemingly this is an absurdly good return. The next two brackets break down as:
Earnings: $1,606,500
SS Taxes paid: $99,603
Annual Benefit: $14,688
Benfit/Contributions: 14.75%
Earnings: $1,400,280
SS Taxes paid: $86,817
Annual Benefit: $6001
Benfit/Contributions: 6.9%
All of these seem like relatively good investments to me (so long as SS pays out at 100% of current levels at age 67). For comparison realize that a 67yo Female buying a commercially available immediate annuity might get around 7.2% in Benefit/Contribution-- with no COLA, no spousal benefits, etc...
Still, as you contribute more to SS, the relative return of your contributions decrease.
Keep in mind, because of the wage base your annual contributions to SS are capped, so if you earn $3.3m in one year you don't max out your SS benefit. Maxing out the SS benefit requires you to earn money over a 35 year period.
Lastly, many people say things like "I'll have too many zeros averaged in to get any significant benefit." A zero doesn't help your benefit, but all other things being equal, the number of zeros doesn't make a difference. For example, if you earn $80k/year for 4 years and never work again you'd have 31 zeros, but you'll get the same benefit as someone who earns $40k for 8 years and has only 27 zeros.
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Mo-
Your analysis is correct, and I suspect you already knew
this, but your example at the end is problematic. Just so others don't get confused by your example at the end,
I wanted to point out that if you only work 4 or 8 years
and have all the rest zeros, you will likely get NO
benefit... Aside from disability, you need 10 years
(40 quarters) to qualify. The essence of what you're
saying is correct, but that example is lacking.
Can we substitute the following?
Perhaps
"80k for 12 years, all the rest zero =
40k for 24 years, all the rest zero"
Thanks,
FF
Your analysis is correct, and I suspect you already knew
this, but your example at the end is problematic. Just so others don't get confused by your example at the end,
I wanted to point out that if you only work 4 or 8 years
and have all the rest zeros, you will likely get NO
benefit... Aside from disability, you need 10 years
(40 quarters) to qualify. The essence of what you're
saying is correct, but that example is lacking.
Can we substitute the following?
Perhaps
"80k for 12 years, all the rest zero =
40k for 24 years, all the rest zero"
Thanks,
FF
@FF, you're correct. My example wasn't a great choice, just an attempt to illustrate a point about the number of zeros.
I suspect that most people, even in the ERE crowd, will earn enough credits to qualify. Since it only takes $1120 in earnings to get a credit. Thus anyone earning $4500 in a year gets the full 4 credits.
I suspect that most people, even in the ERE crowd, will earn enough credits to qualify. Since it only takes $1120 in earnings to get a credit. Thus anyone earning $4500 in a year gets the full 4 credits.
Here's a question open to all who have an interest in the SS benefits issue:
From Q3 2001 to Q1 2005, FICA taxes were withheld from my paycheck. Recently, it has been acknowledged that these earnings were FICA exempt. I can have the FICA contributions refunded to me (about $11k), with interest, but I lose the value of the contributions if I do so. Meaning, I lose the credits and the value of the contribution to my ultimate SS benefit.
If I take the refund, I'll be knocked back down to 34 credits, and my benefit will go down by at least $130 per month.
So, what do you think-- take the refund, or not?
From Q3 2001 to Q1 2005, FICA taxes were withheld from my paycheck. Recently, it has been acknowledged that these earnings were FICA exempt. I can have the FICA contributions refunded to me (about $11k), with interest, but I lose the value of the contributions if I do so. Meaning, I lose the credits and the value of the contribution to my ultimate SS benefit.
If I take the refund, I'll be knocked back down to 34 credits, and my benefit will go down by at least $130 per month.
So, what do you think-- take the refund, or not?
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