Sunday, August 3, 2014

The Gordian Knot

Most people reading this won't have to worry about the issue of Social Security.  Even though the government takes it out of your check every pay day, there won't be any money in the pot when most folks become eligible.  Recently the social security administration released a statement saying that the program is funded through 2033.  That's a bald faced lie, one they try to justify by postulating a number of "might happen" scenarios and then extrapolating favorable outcomes on all of them.

It's got me thinking, though.

Originally, social security was fairly straightforward.  At age 62, you received a set amount based on the amount you "contributed" over your working life, and the number of years you worked.

But over the intervening decades, politicians have tinkered with it, generally Republicans and always with an eye to getting people to start the program later in life. They can read actuarial tables as well as anyone else.

So, as far as I can tell, here's the way it's set up now.  I welcome corrections if anyone sees any. My sources are a series of letters and phone calls between me and the Social Security Administration, and two little books .   Understanding the Benefits and Retirement Benefits, both published by the SSA, and available free from them.

The first factor to take into consideration is this.  You are not grandfathered against changes until you are actually enrolled in the program.  True, the SSA sets basic guidelines that may have exceptions for people past a certain age, but until you receive your first SSA check, they can at any time make changes that effect you. If you don't take your benefits at age 62, and they change the law two years later to make the earliest age you can receive your benefits age 75, you are screwed.

That being so, why would anyone wait?

Well, when the program first came into effect, you wouldn't have waited. It was straightforward.

But over the years, Congress has looted the social security funds.  They take money out of social security, use it for other purposes, and essential put an "IOU" in the box.  Of  course,  when the day comes that those IOU's have to be repaid, it will be interesting to see what happens. When the Social Security Administration says "we have X amount of money allocated for social security payments" they are counting these congressional IOU's, and maybe they shouldn't be.

In order to stave that day off, members of congress have changed the law to "encourage" people to start taking benefits later in life.  Even the language in the documents has changed. Now age 66 is called "full retirement age" and any age earlier than that is considered "early retirement."

There are a lot of penalties attached to "early retirement."

Once upon a time, social security payments to an elderly person were not taxable. Now, if you take retirement at say, 62, your checks are taxed. Since this is money you earned and payed into the system, however involuntarily, you have already been taxed on it once. Now you are taxed on the same money again.

Once upon a time, if you wanted to work a little job and earn some extra money, that extra money was not taxed, within limits. Millionaires couldn't make zillions and not be taxed, but Joe the Ragman could work at a gas station and make a few hundred a month tax free.  Now, if you take benefits before age 66, and you work a job, all the money you make is subject to regular taxation. So what's the point of working the small job?

Here's another kicker. You pay taxes on your money you earn if you are taking social security at 62-65. The money you earn also reduces your social security benefit. For every $2.00 you earn above the annual limit (now $15,000), (gross income), social security deducts $1.00 from your social security check.  However, if you are good little senior citizen, and wait til 66 to apply, you can earn $40,000 a year and it will not be taxable income, nor will it reduce your social security benefits.

So you say, well, to hell with that. And you don't work.  You're not over the hurdle.

  • If you are single, receiving benefits before age 66, and file a single return that shows $25,000 a year gross income, from all sources including social security, your income is taxable, including social security. You can either make quarterly estimated payments or you can have taxes withheld from your other sources of income to cover it.
  • If you are married, sitting on your rear at home, and doing nothing else, but your wife works, then "if you are married and file a joint return, with more than $32,000 gross income, then your income (social security) is taxable."

What's the big deal about age 62 vrs 66.

Well, if your social security benefit is $1,376 a month, and you get it at 62, then you will be getting payments 4 years earlier than at 66.  That's 4 years X 12 months X $1,376 a month.  Total amount:
that's $66,048.

Now , if you wait until you are 66, you would get "full" retirement, which would be $1,756.00.

So , $1,756 - $1,376 =  $380.00

$66,048 /  $380.00 = 173 months, or 14.41 years.  That's how long you would have to keep getting your social security for it to be to your advantage to wait.  If you figure you will make it to 80 years old, maybe it's worth it. But remember , you are going to be getting paid more money, later so it will be in dollars with decreased purchasing power.

In 1960, a candy bar cost ten cents.  Today the same candy bar is $1.00 at Walmart.
A coke in a can at a gas station cost ten cents in 1960. Today it costs about a dollar.
Gasoline in 1969 was fifteen cents a gallon for regular. Gasoline yesterday was $3.44 a gallon.

There are other factors besides inflation which influence prices, but you see my point.

And overriding all of this is the fact that until you get that first check, the weasels in D.C. can change the law. I could wake up tomorrow and see the news article "Congress raises minimum age for social security benefits to 85."  

I'm giving serious consideration to going ahead and applying. The big elephant in the room is that last point. It's about how far you trust the politicians. In my case, not at all. Not a groat, not one whit.


  1. Get it while you can no matter what it is. I wouldn't wait because we have no clue what is going to happen even next year but it's a good bet it won't be to our benefit especially if you own real property. If I could I would apply for every welfare benefit I could but I imagine that like me you have too much net worth to able to but I figure those of us not tied to the government umbilical cord through EBT, food stamps or easy job creation and pensions need to get ours as well. When it all comes crashing down the money will be worthless anyway then we will all be in the same boat so use it while you can.

    1. I've never looked at social security as a government benefit. I look at it as an enforced, involuntary loan.

      For every dollar I ever earned, the U.S. government took 6.2% of my gross out of the check for social security. On top of that, they took 1.45% for medicare. So, before federal and state income tax, I lost 7.65% of my gross. I'd like to get some of it back.

      I agree with you wholeheartedly about taking every single opportunity to get some of the money the federal government steals, back. But as you say, owning land and other assets precludes most people from having any avenue of doing so.

    2. I agree it isn't welfare for those of us who have done nothing but pay in and will more than likely never get it all back but SS has been used for welfare in far too many cases as well. If you are going to get your money back you need to start taking it as soon as possible. I am about 100% I will never see any they took from me and I certainly will never see the amount they took in buying power that's for sure.

    3. Well, I think you should keep working because I need your social security payments to cover my checks. >:-(

    4. Spoken like a true Babyboomer who was employed before Affirmative Action kicked in :)

    5. "There is no us. There is only me."
      Arnold Schwarzenegger in "Predator."

  2. Harry - Check this out :

    Educate Inspire Change has some iffy postings, but occasionally has a goodie. This one is an eye opener.

    1. I will take a look at the videos, Dani. Thanks for the heads up.

  3. Harry,

    That was informative. I turned 64 four months ago and have been toying with the idea of drawing my check early. I didn't know the devils would penalize me for it.


    1. Moe, it's really complicated. There are all those factors to consider. I'd get the books and check them out, they are pretty basic but they do help. I'm thinking the same thing, maybe now is the time to go ahead before they do something really stupid in D.C. But, it will increase my tax burden and I need to be really sure it isn't going to put me in a higher overall bracket. I guess it's time to buy lunch for my tax accountant again and see what she thinks. Here's some other things that might help. They say you should apply a minimum of three months before you want to start receiving your social security check. They don't pay you for the month you start unless you were born on the first or second of the month. You are always paid one month in arrears, so let's say you want to start getting your checks in May. Then you need to apply in Feb, and you will get your check in May.

  4. Go for it! I went out at 62, that was nine years ago. At that time the difference between retiring at 62, and waiting until 66, was right at $200.00, not worth the extra years of working to me. Inflation is slowly chipping away at our retirement funds and is something to be concerned about. It's the main topic when Geezers gather! If prices keep rising, I may need to find a tasty way of fixing "Kibbles & Bits."

    1. Scooney, I'm leaning that way. My main concern is I have a little income from investments, my wife is still working and making "good money" for the South, and I don't want to wind up getting just enough income to put me in a higher tax bracket. I am going to check with my tax accountant, and based on her advice I may go ahead . I'm sick of worrying they are going to do something that will adversely effect my social security, and I will have waited too long. My wife basically doesn't get social security because, although she paid into it well over the minimum of 10 years, she will have a pension so no social security. Yet, when my aunt, who was a microbiologist at CDC, died of cancer her husband got her pension and her social security. I can't figure that out, because she was a government employee and the rules should apply to a federal employee as well as a state employee, seems to me.

  5. Hard facts about social security. (Note I am speaking off the cuff here so please forgive slight errors, the end points are pretty accurate.)

    1. SS was set up to have a pay out at 62 in 1933 when the average man died at something like 58. Life expectancy has increased but the pay out age of SS has not kept up. If it were comparable now it would probably be 72 or 74.

    2. Our government spent the money and people let them do it.

    3. SS has a serious problem due to the population bulge of baby boomers retiring. There are not enough people, especially making good money, paying in to cover the folks who will be drawing out. Money could have been saved and invested for this when there were many workers and relatively few retirees but see #2.

    Those are general facts that we can't really argue. Now to some of my beliefs.

    1) Boomers are going to get every dollar they were promised, generally on time. At least for awhile.

    2) Borrowing money to pay for retirement of folks, some of whom have substantial assets, will lead to even more inflation. Combine this with the above and while you'll get every dollar those statements have been promising they might not buy much.

    3) At some point as younger people (my age and under) hit the 30-40 age range where people start to vote consistently our voices are going to be heard. Folks scraping by at 3 part time jobs trying to pay off student loans are not generally sympathetic to the fiscal plight of those in far better situations than them.

    3A) Personally I would not be surprised to see SS means tested. Anybody with over X in income or X in total assets does not receive SS.

    3B) I would not be surprised to see the cap for SS contributions removed entirely or set at $500,000 or a similarly high number.

    3C) Adjusting the retirement age to better reflect the original intent of the last few years of life. Late 60's or early 70's I'd wager.

    Not saying I am necessarily for these things. They are just what I see happening.I don't know the answer to the problem that folks were forced to pay in and that money is now an IOU with nothing to back it.

    If I were the SS Genie short of the ability to create lots of new, non inflationary money I would apply the SS tax to all income, including corporations and hedge funds and such. Also I would means test to a level that kept the pay out for folks who need it but eliminated people with sufficient means to be fine. The bar would be a certain income from any source (say 65k for a couple) or total assets (probably 500k) to take care of their selves. The upper middle class and wealthy do not need social security.

    If I were you I would start drawing now and either save it as inflation protection or put it into tangibles like silver.

    1. I agree with what you say. Here's an example of how social security makes no sense. The blood sucker I worked for for twenty years is a millionaire many times over. He married a trophy wife, twenty five years younger than the old goat was himself. They had a kid. Social Security started paying him about a thousand a month for the kid, which he put into investments. It will continue to pay until his daughter turns 18. What the hell is that about?

      I think everything you said is basically true. That's one reason why I think maybe I better quit pondering the issue and get signed up. It will be a lot harder for them to hose people who are already receiving their social security than those who haven't started it yet.

      I'd be careful about the total assets thing, though. Some people are land rich and cash poor. One day property will recover and it would be easy to have some old soul with a house and land worth a lot, but not much in the bank. I don't think they should get screwed out of the money if they paid into it.

    2. Harry, Yes there are many cases like that.

      As to some theoretical means test on assets. The issue is without assets being considered in a means test you would have a freight train sized hole in the whole thing. Most older folks do not have income in the 'work doing something and get money for it' sense. Furthermore I believe it would have to be all assets including land, home(s), investments, etc.

      I'm not sure where exactly the number should be. Especially since it would include home(s), land of all types, etc it is tricky. 250-300k is certainly too low as many folks in expensive areas can have that in the old family house but a million is too high. Acknowledging it would be rough for a few land rich but cash poor farmers and ranchers I have a hard time being sympathetic for the plight of an individual whose total net worth is that high.

      I certainly see the "don't want to get screwed" view older folks, even with substantial assets hold. However the truth is that screwing has already happened. The real question is if younger generations are going to cover the losses.

      Personally I do not mind (well at least too much) my SS dollars going to people who need it to maintain a decent standard of living. However for folks like your boss who would be just fine without it, or even folks who would be OK but have to sell an expensive second home or not able to go on vacation 3x a year I don't think they need a government check.

    3. I think it's criminal to be taking money out of young peoples checks when everybody knows they'll not get any social security. My answer would be to let the younger crowd out of SS, and build a few less aircraft carriers , F33 fighters, and nuc subs for a start. I would also get rid of all the B.S. good ole boy deals done up in D.C. for multi million dollar bridges to uninhabited islands and the like.

      I don't know what will come of it. But my attitude is kind of the old battle cry " hurrah for me and F*** you, I got mine!" Not very sociable but it's a hard world.

  6. Hi Harry

    What ever happened to your heath insurance coverage? That is something that we worry about, trying to keep the payments up, especially since I am five years younger than my husband.

    How are all of the little ferret buddies doing?


    1. Spinnersaw, I haven't really worried much about health insurance. We have a plan now, thanks to Obama, that is worthless. Utterly worthless. At 65 we will get medicare. I guess we will be better off then than we are now.

      The two I have left are doing ok. My daughter is bringing me two more from the shelter in the town where she lives, come October.

  7. Thanks for this. Been thinking about this too since the 62 arrives early next year. Something to ponder.

    1. Randy, I just don't seem to find a good, straightforward answer. There are drawbacks no matter what you do. I think, though, that I'm going to go ahead and apply. I keep hearing all these news stories about "changing" social security rules and the ones we have now are bad enough. I can just imagine what Congress will come up with if they think they can stave off the shipwreck til they are out of office. That's all they care about.

  8. We're all doomed when it comes to social security!

    1. I think if you can't apply within the next year or so, that's an accurate assessment. About the only people who can do anything to have some control over their own destiny are those who will soon be 62, or those who already passed that age. Young people, like yourself and your husband, and my kids, are probably going to have to pay into it but receive nothing back .

  9. Replies
    1. Yes, and the actual inflation rate has not been too bad in comparison to past years. I remember the 1970's, and God help us if it comes to that again. It was as close to the Weimar Republic as this country has yet come.

  10. I applied at 62, well it was several months before. Actual disability drove me there. I did not want to apply so soon. Now, at 68 I just feel stuck in a low income position forever! I wonder at this age how much I can earn without affecting my access to healthcare or reduction in disability. Actually, there is little work I can actually do, unlike the guys I know that put the business in the wife's name and continue their activities. It's fraud, plain and simple!

    1. Well, if my reading of the tax laws in those little booklets they sent me is correct, putting the business in the wifes name doesn't really help, because the only way you can avoid taxes is to be single and file single. The book specifically says that a married person filing single instead of joint will still be subject the the income limit regulations which include the spouses income. But I am really just starting to plumb the depths of the social security regulations and I may have missed something. The thing that aggravates me is that everybody tells you all your life to save, so I have some minuscule investments that provide a tiny income. Yet, if I exceed the income limits for a year, the government takes part of my social security. So are they not penalizing the very people who tried to take their "advice" about savings?