Imagine working for 40 years, each year paying Social Security taxes and dying at the age of 62 with no spouse to bequeath. The Government is going to secretly laugh at you because they now get to keep the hundreds of thousands of dollars you paid into the system for free, baby!
Meanwhile, if you get married the Government will make sure to tax you at a higher rate (marriage penalty tax) to ensure they get more of your money and perhaps even deter you from getting married so they can pay out less in Social Security benefits. Makes you think, doesn’t it?
Why else do you think the income threshold for a 35% income tax rate stays at $400,000 and jumps to only $450,000 for a married couple instead of $800,000? Not sticking to the $200,000/$250,000 income threshold for tax increases helps thousands of people living in expensive areas survive. Ironically, the $200,000/$250,000 income threshold was more fair since $50,000 divided by $200,000 = 25%. Now, $50,000 divided by $400,000 is just 12.5%. The Government is sexist and wants one spouse to just stay at home or make less money if they get married. Absurd!
The maximum taxable earnings amount for Social Security (OASDI) taxes is roughly $113,700. There is no limitation on taxable earnings for Medicare’s Hospital Insurance (HI) taxes.
The Social Security tax for 2013 reverts back to its normal rates. The tax rate for 2013 is:
- Employee-portion: 6.2% of wage earnings, up to the maximum wage base of $113,700;
- Employer-portion: 6.2% of wage earnings, up to the maximum wage base of $113,700;
- Self-employed persons: 12.4% of net self-employment income, up to $113,700.
For 2011-2012, the employee-portion of the Social Security tax was reduced from 6.2% to 4.2%. Self-employed persons also received the same reduction from 12.4% to 10.4%.
WHAT ARE YOU GOING TO DO ABOUT BEING SHORTCHANGED?
Now that you know the government wants you to die by age 62 (the current earliest age you can start receiving Social Security) and stay single, what are you going to do about it? There are only about two workers supporting one Social Security beneficiary now vs close to five workers for every one beneficiary back in the 1950s. By the year 2033, the Social Security fund will only have enough to pay out 75% of what the program promised. Clearly, all of us will pay more into the system than we will receive.
Solution #1: Go Galt and work less, so you can pay less taxes. Even better if you can stop making W2 income altogether and just have passive income. We know the Government is incredibly inefficient with handling our money. The people who are getting short changed the most are the ones who make around $114,000 a year in regular wages but not much more. They are the ones who are getting taxed on their entire income, while likely getting the least benefits vis a vis what they put in.
The people who are getting the most benefit are the ones who make less than $50,000 a year or make much more than $113,700 a year. Mathematically, you get the biggest bang for your Social Security contribution buck if you earn around $50,000 or less. Meanwhile, if you make so much more than $113,700 a year, Social Security tax as a percentage of your overall income drops to minute levels. The wealthy don’t really care about Social Security. Any money that does come during retirement is just a bonus.
Solution #2: Live a long, beautiful life. Most actuarial calculations use a lifespan of 85 for women and 83 for men to calculate Social Security funding nowadays. Each year we live beyond 85/83 is one more year where we can benefit extra from Social Security. If the average payment is $1,000 a month, then each year we live is an extra $12,000 back from the government.
Living a long life means eating better, exercising, not smoking, being less stressed, and not risking your life doing too many crazy things. Given the majority of us aren’t very healthy, we aren’t doing ourselves any financial favors. From the Government’s perspective, an unhealthy America is a good thing for Social Security, since more people will die young from heart disease and so forth. The problem is the burden an unhealthy America puts on our health care system.
Solution #3: Flee the country or renounce your citizenship like Edward Saverin of Facebook. It’s great to see people doing something about their finances by moving from highly taxed states to lower tax states. States such as Washington, Oregon, Florida, Nevada, Wyoming, Texas, Alaska and Florida are all on the list for mobile folks.
On the international front, Hong Kong has a 15% flat tax and Singapore is not bad at around 20%. Even mother Russia has a flat tax of around 15%. The list goes on and on. Unfortunately, the US government still gets you with an “exit tax” and future taxes over the next seven years or so. Custom officials might give you stink-eye if you try to return as well.
CALCULATING SOCIAL SECURITY FOR EARLY RETIREES
Be aware that Social Security payouts is calculated using 35 years of average earnings after you’ve obtained 40 credits over 10 years. Given I worked for only 13 years after college, my calculation will look something like this:
$100,000 X 13 years = $1.3 million divided by 35 = $37,142 in average income for 35 years.
* The $100,000 comes from me earning the maximum income, and therefore maximum payment to Social Security for 13 years.
* 13 years is the number of years I worked.
* 35 is the number of years Social Security uses to calculate my average income for that time period, to then figure out the payout.
Based on the above calculation, if I decide never to work again, I will receive a Social Security payout benefit equivalent to someone who has made roughly $37,142 for 35 years. As a result, I should be able to collect about $1,000 a month in Social Security after the age of 62. Try doing the calculation yourself and checking out the SSA calculator.
SOCIAL SECURITY REVOLUTION
There will be Social Security for us all because the middle class will revolt if Social Security disappears. We can count on the middle class looking out for ourselves to keep our politicians in check. After all, politicians need the middle class vote to keep themselves in power.
Despite knowing the government wants us to die young and/or stay single so they don’t have to pay out hundreds of thousands of dollars in Social Security benefits, I’m sure many will still vote for bigger government. The future is the future and does not concern many of us. If it did, we’d balance the budget already and not leave the burden to our children. What concerns us is what we can get from the government now.
Some might call taking hundreds of thousands of dollars from people stealing. The reality is most people don’t mind, otherwise, we’d vote down big government. From Mayor Bloomberg’s decision to regulate how much soda we can drink to allowing politicians to dictate who we can marry, the people enjoy being told what to do. Once we have to make a decision, oh no!
Harness the benefit of not paying social security taxes to motivate you towards early retirement. After you get your 40 credits, you’re pretty much set. Let’s take back our money for the good of our nation!
Readers, How are you feeling about Social Security? What are your thoughts about the government wanting you to die young and stay single? Any qualms about your Social Security benefits going to nobody if you are single or if your spouse dies before you? Anybody willing to die early for the greater good?