Retirement Targets

[qwerty]

You may not realize this, but high earners already pay in more to social security than they get back.

That's because the social security benefit formula replaces a much higher percentage of income for the first X dollars made of average annual income. As average annual income goes up, the SS benefit pays a lower and lower percentage back, even though all that income is taxed at the same rate (12.4%, half paid by employer, half by employee).

More explanation here: https://www.fool.com/investing/2020/11/18/how-much-of-your-pre-retirement-income-will-social/

I was just going to explain bend points but the article does a good job.



The current bend points are $1115 and $6721 (monthly income-so $13,380 and $80,652 annual). So, the first $1115 you earn, 90% is replacement in SS ($1004). The next $5606 you earn, only 32% is credited ($1794) and all earnings over $6721 only receive 15% replacement credit.
Someone making $25,000 annual then has a SS replacement amount of $15,760 (63.1% replacement rate) while someone making 4X at $100,000 annual will score not 4X but only $36,471 (36.4% replacement). The more income past the second bend point, the closer to 15% you will get.

It is intended to be SUPPLEMENTAL income, thus the very poor need that higher replacement rate. The vast majority of income (above $6721/month) is only replaced at 15% rate. I have never earned above the max SS income level, thus I have never worried or figured out at those levels.

Or you can look at it as first $25k annual income you get 63% replaced. Next $50k, you get 32% replaced, above $80k, you only get 15% replaced.

Note: edited to fix my screw up of mixing monthly/annual amounts.

 

[Cyhig]

So, the government hid his money under a rock and didn't get any returns from sale of instruments backed by those funds? They have his money for over 50 years (40 working and another 10+ in retirement). I know the government is ultra conservative, but they do get SOME return on assets.

Hence why it’s a Ponzi scheme

 

[Cyhig]

You’ve assumed no interest earned on the contributions. Factor in interest and the analysis looks a lot different.

Yes - a modest 3% interest. Government uses your money to invest in their own securities.

How is this not a Ponzi scheme?

 

[Cyhig]

I'm not sure this is true. We've seen a decline in life expectancy.


According to data published by the CDC’s National Center for Health Statistics (NCHS), life expectancy at birth in the U.S. dropped to 76.1 years in 2021—the lowest it has been since 1996—from 77 years in 2020

Yes. But also remember the baby boomers were able to start SS benefits at a younger age as well. They didn’t have to wait until age 70 to receive full benefits. A person born during the baby boom (1943-1954) were eligible to receive ss as early as 62 years of age (75% benefit). They reached 100% benefit at age 66

 

[ricochet]

Yes - a modest 3% interest. Government uses your money to invest in their own securities.

How is this not a Ponzi scheme?

The government isn’t investing your money anywhere. Your money is being paid to people collecting benefits today. When you collect benefits the money you are paid will be coming from people still working. For a while there was a surplus and that did get stored in government securities but the goal wasn’t to make money. In a “perfect” system the tax percentage would move up and down each year depending on how much money needs to be payed out. If nothing is changed it will become the opposite and payouts will go up and down depending on how much revenue is collected.

 

[clonechemist]

I was just going to explain bend points but the article does a good job.

View attachment 117391

The current bend points are $1115 and $6721. So, the first $1115 you earn, 90% is replacement credited to SS ($1004). The next $5606 you earn, only 32% is credited ($1794) and all earnings over $6721 only receive 15% replacement credit.
Someone making $25,000 then has a SS replacement amount of $5540 (22.2% replacement rate) while someone making 3X at $75,000 will score not 3X but only $13,040 (17.4% replacement). The more income past the second bend point, the closer to 15% you will get.

It is intended to be SUPPLEMENTAL income, thus the very poor need that higher replacement rate. The vast majority of income (above $6721) is only replaced at 15% rate. I have never earned above the max SS income level, thus I have never worried or figured out at those levels.

Just to clarify, the bend points you’re quoting (1115 and 6721) are in terms of average MONTHLY income.

It seems like the example incomes you then quote (25k or 75k) are average ANNUAL incomes.

If someone averages 75k income for their career, they will get much better than 17.4% of income replaced by SS.

 

[CyclonePigskin]

I copied and am posting an article below from Successful Farming that summarizes key details regarding how Social Security benefits are calculated.

Combined employer/employee payments into the SS trust fund for someone earning $20,000 equal $2,480; at $59,000, $6,200; at $150,000, $18,600. These represent levels someone in my demographic (retired and taking SS) might have earned and have paid (including employer match) into the SS trust fund through a working lifetime.

That SS benefits are paid based on the highest 35 years of earnings was something I watched as I approached retirement. While it is not true for everyone, in many people’s working lifetime they earn more, and pay more into SS in later years than before, during or in the early years after college,This was true in my life, and I watced annual SS statement of how my retirement benefits would increase as the higher earnings and higher payments into SS later in my working life rolled the earlier, lower earnings and paymns out of the 35 year calculaton.

​

​

Social Security for Farmers​

Tax benefits depend upon how you have filed over the years.
By
Shawn Williamson

Published on January 25, 2017


According to the Social Security Administration, nine out of 10 Americans over 65 receive Social Security benefits, and for over half of them, it makes up more than half of their income.

It's important to understand this benefit if you're in a business without a pension plan, like farming. In fact, over 1 million of those receiving Social Security benefits are farmers.

First of all, to qualify for Social Security, you have to have either wages or net profit to earn credits. One credit is earned for each calendar quarter you have the minimum required wages or profit. If you don't have at least 40 credits earned in the system, you'll get no Social Security retirement benefit (unless you are married to someone with enough credits or used to be married to that someone for at least 10 years.)

If your farm operation is an S-corporation or a C-corporation, you're probably paying yourself some wages. That's good. You get a credit for each quarter you pay yourself at least $1,300. If you are an LLC or Schedule F, you earn credits based on your farm net income. Profit in excess of $5,200 for the year gets you four credits. No profit yields, of course, no credits.

Getting to 40 credits makes you eligible for some benefits, but how much you'll receive is based on the 35 highest years of earnings. Mathematically, this means that you keep adding to your benefits until you have worked at least 35 years. Also, if you are making more now than you did decades ago, you'll keep improving your benefit as recent higher earning years are replacing the old McDonald's wages from 1983.

If you spend your life as a Schedule F farmer, you will have to put up 35 years of profits in order to maximize your Social Security. What is the maximum benefit, and how do you get it? According to the Social Security administration, if you worked until age 70 and retired in 2016, the maximum benefit is $3,576 per month. You'll get that maximum benefit if you have been earning the maximum wages or profit that is subject to Social Security tax each year - $127,200 for 2017.

Most employees have 6.2% of Social Security tax and 1.45% of Medicare tax withheld from their pay, and their boss pays the other half. However, self-employed farmers get to pay both halves via something called self-employment tax, which is 15.3%. You do get to escape 12.4% of that 15.3% on any wages or profits you earn above the current $127,200 limit. The Medicare tax of 2.9% applies to every dollar, no matter how much you make. As you can see, getting the maximum monthly benefit takes a lot of years of work and a good bit of earnings.

 

[NWICY]

Curious- are you GenX or millenial? Reason I ask is most millennials I am around legitimately don’t care/don’t think about SS. I almost wonder whether they should pick an age (45 and under?) and say you’re not getting it. Again, most I’ve talked to wouldn’t bat an eye, but that’s why I asked the question.

I think that is pretty easy to say as long as you have a good job and are socking a fair amount away for retirement, there are a lot of people who never hit that financial success even though they are working everyday.
I believe this message board leans pretty heavy towards people who have had a fair amount of success in life. Some through their choice of majors thru ISU and others just thru their own drive and initiative.

 

[Jayshellberg]

SS is not a Ponzi scheme as some have insinuated. It’s a pay-as-you go system where collected funds (e.g. payroll taxes) are immediately paid to qualified recipients, primarily the elderly. Around 2034, collected funds will only by sufficient to pay approximately 78 percent of the promised benefits. Hence, should the government do NOTHING, a person who should receive $1,000/month in 2034 wound only receive $780. Under a Ponzi scheme, which is essentially fraud, that person wound receive zero.

Fortunately, there is time for the government to make changes that would eliminate the projected shortfall that will occur in 2034. Examples include eliminating the income cap on which SS is taxed, increasing the retirement age, altering the inflation formula used to calculate benefits, and increasing the payroll tax. The problem is that Republicans and Democrats strongly disagree on the best way to fix the system. Consequently, they keep “kicking the can down the road.”

For those younger individuals, I am confident they will receive something if they are fortunate to live to the age where they qualify for benefits. In other words, they system is NOT going away. However, these individuals will likely have to wait longer to receive their benefits and/or the benefits will not be as great as previously promised.

 

[CycloneSpinning]

I think that is pretty easy to say as long as you have a good job and are socking a fair amount away for retirement, there are a lot of people who never hit that financial success even though they are working everyday.
I believe this message board leans pretty heavy towards people who have had a fair amount of success in life. Some through their choice of majors thru ISU and others just thru their own drive and initiative.

Yeah, later on I thought of all the people in my hometown…and they could definitely use social security I imagine. It’s just the people I happen to be around now that don’t need it.

 

[Thp427]

Social security was never really intended to support everyone. When Bismark started it in Germany 130 years ago the average life expectancy was 40. 40. This program was made to support the RARE person that lived to be "elderly", and most people did not. It was not a burden on the country to support only those that exceeded the typical life expectancy by decades.

While life expectancy was higher in the US when we started a similar program, it was still not 65 - and there has not been adequate upward adjustment in age as to which the benefits start as the life expectancy has increased. The system was doomed to fail as life expectancy over the last century has improved.

 

[CycloneSpinning]

Social security was never really intended to support everyone. When Bismark started it in Germany 130 years ago the average life expectancy was 40. 40. This program was made to support the RARE person that lived to be "elderly", and most people did not. It was not a burden on the country to support only those that exceeded the typical life expectancy by decades.

While life expectancy was higher in the US when we started a similar program, it was still not 65 - and there has not been adequate upward adjustment in age as to which the benefits start as the life expectancy has increased. The system was doomed to fail as life expectancy over the last century has improved.

Had no idea about that German system. 40 as life expectancy is definitely crazy by the way. Talk about perspective.

But yeah, I also heard that when SS was set up, the life expectancy here was below 65.

 

[drmwevr08]

I'm not sure this is true. We've seen a decline in life expectancy.


According to data published by the CDC’s National Center for Health Statistics (NCHS), life expectancy at birth in the U.S. dropped to 76.1 years in 2021—the lowest it has been since 1996—from 77 years in 2020

This is mostly changed by people that don't make it to retirement. If they make it they usually actually live longer.

 

[SEIOWA CLONE]

I can see Land Grants point about the psychological effect that everyone gets SS after they have paid into the system, but other than that, I also see it as a waste of dollars that could be going to people that need it more if we are going to continue to allow multimillionaires to also receive the money. Remember a lot of this group are the ones wanting to do away with the SS entirely.

Its a program that is never going to go away, there would be a French Style Revolution if it did, so some type of fix must be made to make sure the system is strong well into the future. Removing the cap on the top is going to cause the least amount of pain on the largest group of people. Many of those people do not need an extra $2500 to $4500 a month, and will be fine without it.

 

[SEIOWA CLONE]

Then paying in to SS absolutely is a tax.

What does it matter if its tax or something else? Some people want to argue crap like this, and we get nowhere. This forum went round and round last year on if $200,000 dollars a year income makes you wealthy or not, even though making that much means you make more then 88% of the households in the entire country.

My brother paid into SS his entire life, he died before he collected a dime, his two daughters got death benefits of somewhere around $6000 apiece. How many others out there just like him, is it fair that he paid in all those years and got little to nothing back, no its not, but that is the system we have. Some pay and get nothing, while others draw for 30 years. It is what it is, and we need to fix it by coming up with a plan that hurts the fewest Americans while helping the most Americans. If that means taking the cap off the top, so be it, if that means that we have multi-millionaires that paid into the system and do not get to collect, I am fine with that. Why do we continue to make laws to help the wealthiest in our society while forgetting about those in the middle and on the bottom?

 

[SEIOWA CLONE]

Yes. But also remember the baby boomers were able to start SS benefits at a younger age as well. They didn’t have to wait until age 70 to receive full benefits. A person born during the baby boom (1943-1954) were eligible to receive ss as early as 62 years of age (75% benefit). They reached 100% benefit at age 66

Every person that paid into the system can start collecting at age 62 at the reduced amount, the only thing they have done is added years to those born later to collect the full SS. I believe I would have to be 67.5 or 68 years of age to collect my full SS, but I plan on collecting it at age 62. Saw to many people struggling to make ends meet and then pass away before they could collect the full amount.

 

[Cyhig]

What does it matter if its tax or something else? Some people want to argue crap like this, and we get nowhere. This forum went round and round last year on if $200,000 dollars a year income makes you wealthy or not, even though making that much means you make more then 88% of the households in the entire country.

My brother paid into SS his entire life, he died before he collected a dime, his two daughters got death benefits of somewhere around $6000 apiece. How many others out there just like him, is it fair that he paid in all those years and got little to nothing back, no its not, but that is the system we have. Some pay and get nothing, while others draw for 30 years. It is what it is, and we need to fix it by coming up with a plan that hurts the fewest Americans while helping the most Americans. If that means taking the cap off the top, so be it, if that means that we have multi-millionaires that paid into the system and do not get to collect, I am fine with that. Why do we continue to make laws to help the wealthiest in our society while forgetting about those in the middle and on the bottom?

Because it is a tax. It’s not an investment portfolio. The difference is substantial:
People have direct access to all funds in their investment portfolio. Most retirement accounts require a person to be 59.5 years before withdrawing money to avoid paying much higher taxes on those funds

But since SS is paid into the government and paid out by the government, it is much more like a tax. There is no guarantee people who are currently paying into the program will ever see a dime when they reach retirement age. Rather it’s a government program to assist elderly/disabled people. How is that any different than people contributing funds (tax) to help fund roads, food stamps, Medicare/Medicaid, or any other government program designed to assist people in need of certain services? All of these programs ensure a higher quality of life

Businesses have to pay 50% of their employee’s SS contribution. Businesses classified their portion as a payroll tax.

This is 100% a tax. And if people view it as a tax, they would then invest into their own retirement account more appropriately, thus becoming less reliant on government assistance

 

[Bestaluckcy]

Every person that paid into the system can start collecting at age 62 at the reduced amount, the only thing they have done is added years to those born later to collect the full SS. I believe I would have to be 67.5 or 68 years of age to collect my full SS, but I plan on collecting it at age 62. Saw to many people struggling to make ends meet and then pass away before they could collect the full amount.

Strongly encourage people to weigh the benefits to a surviving spouse when evaluating the age to collect the benefits. By taking at age 62 vs waiting for full retirement age, or 70, you may be severely hampering your spousal benefits. I waited until age 68 because I considered it a better alternative than paying an insurance company to cover these risks.

 

[KnappShack]

Strongly encourage people to weigh the benefits to a surviving spouse when evaluating the age to collect the benefits. By taking at age 62 vs waiting for full retirement age, or 70, you may be severely hampering your spousal benefits. I waited until age 68 because I considered it a better alternative than paying an insurance company to cover these risks.

By the time I'm there I'll have to wait until something like 75 for full retirement age at 75% of what's estimated now.

I love America

 

[clonedude]

Gotta love the people on here that are like... "I've got 7 million in the bank, but it's BS that I'm paying into SS and won't get any benefit from it! I've worked hard sitting at my desk on CF all day, I deserve more!".

If you don't get any benefit out of knowing you're helping people that need it, while you're sitting on 7 million and living the high life... then I got nothing for you.

I'm completely irreligious, but I get a LOT of 'benefit' from knowing I'm helping others, and I don't just call them lazy unworthy people. I see people living in tents on the street... and I don't look down on them.... I want to find solutions that help them. But hey... that's just how I roll.