Author Topic: FICA-if you worked less than 10 years?  (Read 4267 times)

pdxmonkey

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Re: FICA-if you worked less than 10 years?
« Reply #50 on: September 13, 2017, 12:31:00 AM »
If you were making enough to retire before accumulating 40 credits it seems likely you could probably swing some high paying or consulting work making $1300 for a credit more like a couple of days and a full years 4 credits more like a week. If you've got 8 years in you could probably get that kind of rate in the first couple years. If you wait until later you'd be much more likely to have a no longer valued skill set and have to do 3-5 months around minimum wage to get 4 credits which is much less palatable

pdxmonkey

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Re: FICA-if you worked less than 10 years?
« Reply #51 on: September 13, 2017, 12:33:07 AM »
Also I don't think anyone is arguing that you work 10 years if you already have 5 million and 0 credits and can only get the federal minimum.

tj

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Re: FICA-if you worked less than 10 years?
« Reply #52 on: September 13, 2017, 07:13:07 AM »
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Yep. That's exactly what I was arguing for.  :)

You argued that you could just buy an annuity equivalent to what social security is:

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I bet with just a few years working I could save enough to more than duplicate SS's effect, plus buy plenty of insurance for your scenarios (and/or an annuity)

 You can't. There are not any insurance policies or annuities that are mathematically equivalent to the $$$ level provided in the first bend point. That's why it's such a good deal. You'd have to spend drastically more capital to buy an annuity to get your the same.

You also repeatedly used a term like "go back to work" to make it sound like it's more effort than it actually is to earn social security credits.

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Rather than just abandoning the idea of social security because they "don't need it".

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I don't think anyone was arguing for that.

Mr. Moogle apparently hadn't even considered earning whatever is left between what he will have after he retires and what would be eligible to collect benefits. Sounds like abandoning the pursuit of SS to me:

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I wasn't planning on holding any jobs in retirement.  Is that a common thing?  I don't know anyone who has done that.
« Last Edit: September 13, 2017, 07:21:33 AM by tj »

maizeman

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Re: FICA-if you worked less than 10 years?
« Reply #53 on: September 13, 2017, 08:04:12 AM »
So just to get this out of the way up front, ARS I completely agree with you that there are edge cases were the effort of generating earned income to get the extra credits to qualifying for SS just aren't going to make sense. You've got a great example personally where essentially none of your income was taxed by social security, which means that A) you'd need to earn all or nearly all of the 40 credits in FIRE B) because you'd be generating the income just to get credits, you'd probably only generate enough to get the credits which, at $1,300/credit would be only a little more than $50k of lifetime income to determine benefit levels.

But putting that aside, I thought it'd be interesting to run back of the envelop numbers on what a reasonable "worst case" for social security in FIRE assuming a person did have to pay into social security while accumulating their stash. The two factors we can adjust are savings rate (higher savings rate = fewer years to FIRE = fewer social security credits), and spending in FIRE (lower spending = smaller stash = less lifetime social security earnings).

Let's set savings rate to 80% with a goal of saving only $300k (so our hypothetical FIREee is living on $1,000/month, not quite Jacob numbers but reasonably close). 80% savings with $1,000/month of spending means an income of $5,000/month and 75 months (6.25 years) to save $300k. Even working a quarter year is enough to get all four social security credits for the year, so the our hypothetical retiree has 28 credits and and $375k of lifetime earnings in retirement. To qualify for social security they'd need another ~$5k/year in three additional years ($390k in lifetime earnings). If you could find a way to generate apparent self employment earnings from your stash,* $15k of "income" over three years would cost you ~$2,300 in self employment taxes (and nothing in federal taxes).

$390k/35 years/12 months = ~$930/month which is past the first bend point so our hypothetical retiree would receive ($826*.9) + ($930-826)*.32 = $776.7/month from social security.

776.7*12 = $9,320/year

So an annual income steam of $9,320/year costs $2,300 in extra taxes. As ARS says, in some situations even that level of return isn't going to matter because you already have enough money. But it is a pretty impressive return on investment.

*For example being an "active" owner within many types of partnerships or LLCs is a great way to generate a bit of self employment income.

This analysis neglects (among other things), income taxes during accumulation phase (our hypothetical retiree would actually need to earn more to have $5k/month of after tax savings increasing the payout from social security) and investment returns during the accumulation phase (our hypothetical retiree would probably work a little less than 6.25 years which would decrease social security credits earning and lifetime earnings).
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seattlecyclone

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Re: FICA-if you worked less than 10 years?
« Reply #54 on: September 13, 2017, 08:55:50 AM »
Good post, SC.

One minor quibble:

At the same time, earning $1,300 for one credit takes hardly any time at all. It's not OMY, it's more like a couple weeks at minimum wage.

That's 80 weeks, so 1.5 years of work. But, of course, you need 10 years for SS. So those 80 weeks need to be spread out.

Since you can't earn it contiguously, you have to add on the work of finding (or creating) said job. So it'll be a bit more effort than that.

Sure, in your case where you're starting from zero credits you'd have to make an effort. People who earned their FI stash on jobs that paid social security taxes (which I would guess is the vast majority these days) would likely not have retired before earning at least 20 credits, likely more as maizeman points out. That cuts down on the number of calendar years where you would need to earn a bit of money.

The manufactured self-employment is an interesting idea. You could find another retired person and pay each other to do yard work or something.
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Paul der Krake

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Re: FICA-if you worked less than 10 years?
« Reply #55 on: September 13, 2017, 09:33:04 AM »
Yeah, the vast majority of early retirees either already have them, or just need a handful of credits. Has anyone fired in less than 5 years? That'd be absurdly fast.

I don't see myself breaking the 10 year mark, but on the off-chance that I do, I have an infinite list of fun part-time jobs that I'd like to try at some point.

Mr. Green

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Re: FICA-if you worked less than 10 years?
« Reply #56 on: September 13, 2017, 09:44:31 AM »
If I had more than enough .one that I was retired with plenty to spare I would absolutely manufacture 40 credit hours. However, if starting from 0 that only gives you a monthly check of about $130 if you only claim the $1300 to get the credit. However, equally important is the Medicare piece. Not having paid 30 quarters of Medicare taxes means hospital insurance will cost almost $500 per month. So the two combined are worth a minimum of $600 to anyone.

My generalization was really targeted at the person considering stopping short of the 40 credits. Making sure you can have SS is the lowest hanging fruit of a safety net there is for the typical working person.

Don't forget about the disability aspect of SS either. Developing one might mean a significant increase in annual expenses, breaking a retirement plan. Unless you're dying life insurance is no help there. One could always go buy it but it comes gratis with SS if you meet the qualifications.
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arebelspy

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Re: FICA-if you worked less than 10 years?
« Reply #57 on: September 13, 2017, 10:11:37 AM »
Quote
Yep. That's exactly what I was arguing for.  :)

You argued that you could just buy an annuity equivalent to what social security is:

Quote
I bet with just a few years working I could save enough to more than duplicate SS's effect, plus buy plenty of insurance for your scenarios (and/or an annuity)

 You can't. There are not any insurance policies or annuities that are mathematically equivalent to the $$$ level provided in the first bend point. That's why it's such a good deal. You'd have to spend drastically more capital to buy an annuity to get your the same.

Again, you are missing my point.  You're so focused on the money.

My focus is the time.  Sure, it's a great deal. To get more money. By trading your time.  If you have way more money than time though, you don't care about that.

If you had an extra 10MM, but needed a few more years of work to get SS credits, and didn't want to trade that time, you could buy that annuity. It's a WAY worse deal money-wise than the SS based on the amount of money you pay into SS to get it, but the annuity ony costs you money. The SS credits cost you money and years of your life ("years" could be months, or whatever.. time).

Your point that SS is a much better deal if you're only comparing the amount you contribute to SS versus the amount you'd have to pay for the annuity is true, but you're ignoring the time SS also cost. That's something that may not be worth any price.

(FWIW, I'm not arguing for an annuity. I'm just pointing out that you may have a  surplus of money over time, and in that case, earning SS credits may not make sense. You point out that it's such a great deal though, but at that point, you probably don't care.)

Yeah, the vast majority of early retirees either already have them, or just need a handful of credits. Has anyone fired in less than 5 years? That'd be absurdly fast.

THere's some on here that say they ER'd between ages 25-28, they might be right around 5 years working.

(They tend to be semi-ER, when they describe it, every time I've seen details though.)

We ER'd at age 29, and that still took nearly 8 years of working, so 5 would be quite fast.

Quote
I don't see myself breaking the 10 year mark, but on the off-chance that I do, I have an infinite list of fun part-time jobs that I'd like to try at some point.

Totally.  The wife has more SS credits than I, due to working through high school and college. Right now she's self-employed writing romance novels (though that won't count for SS, as it's been excluded via FEIE).  It will probably be worth having her earn the rest of her credits, though it'll likely happen naturally.

That's the key, to me. You aren't earning credits for the sake of doing so (aka literally OMY, selling time for money), you're pursing what you want to do, and it happening to earn some money is fine.
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hoping2retire35

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Re: FICA-if you worked less than 10 years?
« Reply #58 on: September 13, 2017, 10:19:14 AM »
I am really more concerned with the Medicare aspect. This seems to be something everyone relies on, and unless you are a multi-multi millionaire it seems it would behoove everyone to seek this benefit.

Just curious for folks, like ARS, who have no plan of pursuing this, what is your health insurance plan as you age? "that is over 30 years from now, a lot will change, I'll worry about it as it approaches"?

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Re: FICA-if you worked less than 10 years?
« Reply #59 on: September 13, 2017, 10:36:28 AM »
*For example being an "active" owner within many types of partnerships or LLCs is a great way to generate a bit of self employment income.

This is a good point. I know some investments I've seen issue K1s, and depending on how the payout is structured and how you report it, that may end up with you paying "self employment tax" (more complicated then I understand)

Similarly, if you have any self employment income, normally people would try to shelter most of it from FICA if possible, but if you are short of 40 credits, you might want to do the opposite, at least until you get the four credits for the year.

If anyone wants a personal example, last time I checked, at retirement my wife has roughly seven years of eligible work (28 credits), and I have three (12 credits). So she would be close-ish to making 40 credits with minimal work, it would be a stretch for me. (Our "short" working careers as far as SS goes aren't that interesting, it has more to do with having worked in a different country, and me spending a long time in school.)
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arebelspy

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Re: FICA-if you worked less than 10 years?
« Reply #60 on: September 13, 2017, 11:07:01 AM »
Just curious for folks, like ARS, who have no plan of pursuing this, what is your health insurance plan as you age? "that is over 30 years from now, a lot will change, I'll worry about it as it approaches"?

Or medicare, same as most people.

(Our earnings were taxed for medicare, but not for SS. This discussion has focused on getting 40 credits for SS to get that sweet, sweet SS monthly check. We both earned enough credits to qualify for medicare. Last I checked, I was just short, but it looks like I made it? With the caveat of the below, it may be based on assumed credits from last year/this year that I didn't earn.)

If anyone wants a personal example, last time I checked, at retirement my wife has roughly seven years of eligible work (28 credits), and I have three (12 credits). So she would be close-ish to making 40 credits with minimal work, it would be a stretch for me. (Our "short" working careers as far as SS goes aren't that interesting, it has more to do with having worked in a different country, and me spending a long time in school.)

Interesting.  Another scenario where earning the 40 credits may not make sense.

You also made me curious, so I went to look it up. Having to change a password every 6 mo is silly, SSA website. That effectively means you change it each time you log in.

Right now I have "at least" 7 credits and the wife has "at least" 25? (they say "at least X, including assumed credits for last year--we haven't filed yet--and this year if we continue working. Neither is the case, so IDK what credits we have exactly.) Weird way to do things, statement. Why not just say X credits as of dd/mm/yyyy, rather than "at least" and assumed credits.

Oh well, somewhere around 7 and 25, it looks like.

(Random things like self employment on flipping houses got me some credits, apparently).
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tj

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Re: FICA-if you worked less than 10 years?
« Reply #61 on: September 13, 2017, 01:03:32 PM »
When you start getting into time cost vs. Money cost, i dont personally relate to do because i have always had an abundance of free time when choosing not to work, so it would not have been a big dent into my time to manufacture some earned income. Like the other poster mentioned about yard work, it doesnt even need that much effort you could just pay someone to be a personal consultant and vice versa.

When throwing out figures like $10mm, you start getting into the territory of large inheritances or some other windfall like rapidly selling a startup for unexpected big bucks. I dont think thats relevant to most people posting here, but who knows.

Obviously, if you value your time more highly than the money you can receive from a given activity, take the time. For me getting to 40 credits would drastically reduce the stash that is needed to survive indefinitely.

The way ss shows your credits on the website is definitely odd, but they do show you an earnings record and if you only have a decade or so of work, its fairly easy to figure out what you actually have.
« Last Edit: September 13, 2017, 01:10:36 PM by tj »

hoping2retire35

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Re: FICA-if you worked less than 10 years?
« Reply #62 on: September 13, 2017, 01:24:32 PM »
Just curious for folks, like ARS, who have no plan of pursuing this, what is your health insurance plan as you age? "that is over 30 years from now, a lot will change, I'll worry about it as it approaches"?

Or medicare, same as most people.

(Our earnings were taxed for medicare, but not for SS. This discussion has focused on getting 40 credits for SS to get that sweet, sweet SS monthly check. We both earned enough credits to qualify for medicare. Last I checked, I was just short, but it looks like I made it? With the caveat of the below, it may be based on assumed credits from last year/this year that I didn't earn.)


Actually per my OP I was more concerned what folks will do about a lack of Medicare. Though confused by your statement, it seems as if you have to work 10 years(40 credits) to get part A(no premium hospital insurance)
http://www.aarp.org/health/medicare-insurance/info-04-2008/ask_ms__medicare_9.html

So, with the exception of others like yourself who did not pay SS tax, what are others planning on doing about health insurance who may think SS is unimportant.

Mr. Green

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Re: FICA-if you worked less than 10 years?
« Reply #63 on: September 13, 2017, 03:35:32 PM »
Just curious for folks, like ARS, who have no plan of pursuing this, what is your health insurance plan as you age? "that is over 30 years from now, a lot will change, I'll worry about it as it approaches"?

Or medicare, same as most people.

(Our earnings were taxed for medicare, but not for SS. This discussion has focused on getting 40 credits for SS to get that sweet, sweet SS monthly check. We both earned enough credits to qualify for medicare. Last I checked, I was just short, but it looks like I made it? With the caveat of the below, it may be based on assumed credits from last year/this year that I didn't earn.)


Actually per my OP I was more concerned what folks will do about a lack of Medicare. Though confused by your statement, it seems as if you have to work 10 years(40 credits) to get part A(no premium hospital insurance)
http://www.aarp.org/health/medicare-insurance/info-04-2008/ask_ms__medicare_9.html

So, with the exception of others like yourself who did not pay SS tax, what are others planning on doing about health insurance who may think SS is unimportant.
You can get Part A with 0 credits, it just costs you something. It's currently $413/month if you paid in medicare taxes less than 30 quarters. If you paid in between 30-39, it's $227/month. A couple with no credits is will pay $9,912 a year for Part A, plus the premium (income based) for Part B.
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Dicey

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Re: FICA-if you worked less than 10 years?
« Reply #64 on: September 19, 2017, 07:17:39 AM »
If I had more than enough .one that I was retired with plenty to spare I would absolutely manufacture 40 credit hours. However, if starting from 0 that only gives you a monthly check of about $130 if you only claim the $1300 to get the credit. However, equally important is the Medicare piece. Not having paid 30 quarters of Medicare taxes means hospital insurance will cost almost $500 per month. So the two combined are worth a minimum of $600 to anyone.

My generalization was really targeted at the person considering stopping short of the 40 credits. Making sure you can have SS is the lowest hanging fruit of a safety net there is for the typical working person.

Don't forget about the disability aspect of SS either. Developing one might mean a significant increase in annual expenses, breaking a retirement plan. Unless you're dying life insurance is no help there. One could always go buy it but it comes gratis with SS if you meet the qualifications.
Just curious for folks, like ARS, who have no plan of pursuing this, what is your health insurance plan as you age? "that is over 30 years from now, a lot will change, I'll worry about it as it approaches"?

Or medicare, same as most people.

(Our earnings were taxed for medicare, but not for SS. This discussion has focused on getting 40 credits for SS to get that sweet, sweet SS monthly check. We both earned enough credits to qualify for medicare. Last I checked, I was just short, but it looks like I made it? With the caveat of the below, it may be based on assumed credits from last year/this year that I didn't earn.)


Actually per my OP I was more concerned what folks will do about a lack of Medicare. Though confused by your statement, it seems as if you have to work 10 years(40 credits) to get part A(no premium hospital insurance)
http://www.aarp.org/health/medicare-insurance/info-04-2008/ask_ms__medicare_9.html

So, with the exception of others like yourself who did not pay SS tax, what are others planning on doing about health insurance who may think SS is unimportant.
You can get Part A with 0 credits, it just costs you something. It's currently $413/month if you paid in medicare taxes less than 30 quarters. If you paid in between 30-39, it's $227/month. A couple with no credits is will pay $9,912 a year for Part A, plus the premium (income based) for Part B.
I'm with Mr. Green. The Medicare aspect of this discussion is equally, if not more important, particularly if one is close to the qualifying levels.
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Drifterrider

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Re: FICA-if you worked less than 10 years?
« Reply #65 on: September 19, 2017, 08:15:09 AM »
I'm questioning the blanket statements made about it being a huge mistake to not get enough SS credits.

Because:   A lot of younger people (perhaps even older people) don't realize that in the US not everyone is under OASDI for "retirement".  Therefore, they don't consider that one might have a different system.

For those under OASDI, there is more to consider than just "retirement".  Think "disability".  One may choose not to work but if one becomes disabled, there in another avenue of income.  Additionally, for those determined to be disabled and that last more than two years, those people will be covered under Medicare regardless of age.


JoJo

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Re: FICA-if you worked less than 10 years?
« Reply #66 on: September 20, 2017, 11:46:46 AM »
Just a chime in that hitting FIRE without 40 quarters credit is pretty impressive.  I already had 40 quarters by the time I was 28 due to high school & college jobs to pay my way thru school (no loans!) but no where near FIRE.

arebelspy

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Re: FICA-if you worked less than 10 years?
« Reply #67 on: September 20, 2017, 11:51:00 AM »
Just a chime in that hitting FIRE without 40 quarters credit is pretty impressive.  I already had 40 quarters by the time I was 28 due to high school & college jobs to pay my way thru school (no loans!) but no where near FIRE.

I view THAT as pretty impressive/badass.  Good for you.
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Re: FICA-if you worked less than 10 years?
« Reply #68 on: September 20, 2017, 03:37:26 PM »

This is a good point. I know some investments I've seen issue K1s, and depending on how the payout is structured and how you report it, that may end up with you paying "self employment tax" (more complicated then I understand)


Are you referring to publicly traded partnerships that trade on the exchanges, but issue K-1s?  I can't think of any of those that wouldn't be passive income, and you won't be able to use them as self employed income.