Author Topic: How to make earned income for 2 more years of SS contributions when retired?  (Read 1821 times)

Padonak

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I am considering retiring early and moving overseas next year (currently working in the US). If I retire next year, I will have 8 years of Social Security contributions because I worked overseas before moving to the US. I know that I need at least 10 years of contributions to get SS and Medicare. I am currently in my late 30s.

I will need to make enough earned income and pay self employment taxes for at least two more years to get SS credits. My understanding is i need to make at least about $6K per year to earn enough credits (4 per year). What are my options given that I plan to live overseas in a low cost country?

-I can stay at my current job two more years (don't want to do it unless the economy suddenly collapses in which case I'll probably be laid off anyway given that it's a cyclical industry).
-I can start an online business or do some freelancing to earn more than $6k per year. In this case, I'll have to pay 15% of income as a self employment tax. It's something I am considering trying anyway, but there is no guarantee that I'll be able to earn enough money.
-Other alternatives? For example, would I have to pay FICA on ROTH IRA conversions? What about selling tradelines (already doing it, but earned a few hundred dollars last year and another few hundred this year, so not nearly enough). Anything else I can do to get SS/medicare credits?

« Last Edit: May 29, 2017, 01:52:38 PM by Padonak »

maizeman

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It's actually a little easier at $6k. In 2017, you need $1,300 of earned income per credit up to a max of 4 credits. So that's $5,200 to earn the maximum number of credits for the year. Every little bit helps, right?

That also means it's not all or nothing to hit the $5,200 annual cap. If you do enough freelancing/online business to make $1,300, even if you only manage to hit that threshold every other year for the 20 years between when you turn 40 and when you turn 60, you'll have 10 credits (2 more than you need). While you would have to pay 15.3% in self employment tax, you'd be paying 7.65% in payroll taxes anyway, so the "extra" tax from being self employed is only half as much.

You don't pay FICA on ROTH IRA conversions. You already paid SS and medicare withholding on the money that was contributed to your traditional IRA/401k. That's why you generally cannot contribute 100% of your paycheck to a 401k, you'd end up owing your employer money for payroll taxes.

Depending on where you move or where you worked before you worked in the USA, working overseas may also count towards your social security credits (most of the countries where this would apply are in europe).
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Start a corporation.  Invest cash in the corporation.  Enough for, oh, 8 quarters worth of salary and other expenses.  Hire staff, i.e., you.

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Padonak

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It's actually a little easier at $6k. In 2017, you need $1,300 of earned income per credit up to a max of 4 credits. So that's $5,200 to earn the maximum number of credits for the year. Every little bit helps, right?

That also means it's not all or nothing to hit the $5,200 annual cap. If you do enough freelancing/online business to make $1,300, even if you only manage to hit that threshold every other year for the 20 years between when you turn 40 and when you turn 60, you'll have 10 credits (2 more than you need). While you would have to pay 15.3% in self employment tax, you'd be paying 7.65% in payroll taxes anyway, so the "extra" tax from being self employed is only half as much.

You don't pay FICA on ROTH IRA conversions. You already paid SS and medicare withholding on the money that was contributed to your traditional IRA/401k. That's why you generally cannot contribute 100% of your paycheck to a 401k, you'd end up owing your employer money for payroll taxes.

Depending on where you move or where you worked before you worked in the USA, working overseas may also count towards your social security credits (most of the countries where this would apply are in europe).

Thanks a lot maizeman! Yes, it's actually much easier than i thought, so not worth worrying about. Chances are I'll make some money on an off either freelancing or running a little business while retired.

Your are right, the european country I moved from has a "totalization agreement" with the US, so i'll still be able to get some SS even if I work in the US less than 10 years. However, I don't know how the math works exactly in this case, perhaps the amount will be very small. Also, medicare is not covered, so I still need 10 years of contributions if I'm going to return to the US when I'm eligible.

FrugalZony

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I am in a similar boat and wondering what to do.
Unlike most I don't really have a side hustle (I FIRED last year) and my blog does not generate income.
I do have a couple hundred from tradeline sales, but that has dried up as well.

Have you come up with a solution Padonak?

The "start a business and pay yourself" idea sounds cumbersome, but maybe it's real easy? I am not sure.

I am pretty sure I don't want to go back to work unless I can make real good money so I could fund a donor advised fund.

what would be the easiest legitimate way to go about this?
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AlmstRtrd

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Just wanted to add a couple of things...

1) You are still so young that it's probably wise to count on at least one major overhaul (or, more likely, considering how politics works, just a bunch of little tweaks) before you are able/choose to start collecting. So keep an eye from time to time on any changes.

2) Though it sounds like you are already planning to get this out of the way sooner rather than later, getting these additional SS credits now as opposed to years from now may make a decent difference in your monthly check due to the inflation indexing factors. Assuming we don't hit a long deflationary spiral, earnings now will be "valued" more than earnings, say, ten or 20 years from now.

Note that my second point could be somewhat negated depending on whether or not the income you have already earned will push you past the 2nd bend point in SS calculations.

Definitely not an expert here. I'm just old enough (58.8) that I am starting to take potential SS benefits at age 70 into account.

Padonak

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I am in a similar boat and wondering what to do.
Unlike most I don't really have a side hustle (I FIRED last year) and my blog does not generate income.
I do have a couple hundred from tradeline sales, but that has dried up as well.

Have you come up with a solution Padonak?

The "start a business and pay yourself" idea sounds cumbersome, but maybe it's real easy? I am not sure.

I am pretty sure I don't want to go back to work unless I can make real good money so I could fund a donor advised fund.

what would be the easiest legitimate way to go about this?

Hey there... other posters already gave some great advice, so no potential solutions other than what they mentioned.

Basically, three alternatives I am considering:

-Stay in full time employment at least about 2.5 more years give or take to get at least 40 credits. Not my current plan, but it could happen for other reasons.

-Quit full time job before that and rely on side hustles, temp work or other income to get enough credits in the future.

-Don't get enough credits. Get a very small SS pension based on a treaty with another country where I also have similar pension credits which can be combined with SS credits. Don't get Medicare when retired but get free health care in another country instead.



FrugalZony

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thanks for both your responses.

@AlmstRtrd
Yes, it's true that even if you reach the threshold you need to keep an eye on the thing, as requirements may change.

@Padonak
For me right now it's option three as well. I know they'll recognize the years from the other country, but I won't get much.
It is more the healthcare that I am interested in to hedge my bets.

At the same time my SO thinks, I am overthinking this, as we'll be better off in Europe in our old age rather than relying on medicare,
but I still want to have options.

After a time, you may find that having is not so pleasing a thing, after all, as wanting. It is not logical, but it is often true.
Mr. Spock


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Save money on pet food: http://pennywisepaws.com

TomTX

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I am in a similar boat and wondering what to do.
Unlike most I don't really have a side hustle (I FIRED last year) and my blog does not generate income.
I do have a couple hundred from tradeline sales, but that has dried up as well.

Have you come up with a solution Padonak?

The "start a business and pay yourself" idea sounds cumbersome, but maybe it's real easy? I am not sure.

I am pretty sure I don't want to go back to work unless I can make real good money so I could fund a donor advised fund.

what would be the easiest legitimate way to go about this?

Hey there... other posters already gave some great advice, so no potential solutions other than what they mentioned.

Basically, three alternatives I am considering:

-Stay in full time employment at least about 2.5 more years give or take to get at least 40 credits. Not my current plan, but it could happen for other reasons.

-Quit full time job before that and rely on side hustles, temp work or other income to get enough credits in the future.

-Don't get enough credits. Get a very small SS pension based on a treaty with another country where I also have similar pension credits which can be combined with SS credits. Don't get Medicare when retired but get free health care in another country instead.

In November 2018 get hired as "holiday help" and work into January, spreading the earnings across 2 tax years. That should get you most of the credits you need. If not, do it again sometime.

Working for 3-6 months sounds a lot better to me than working an extra 2.5 years...

Heck, if you were planning to work the rest of 2017 anyway, just keep working for long enough in 2018 to get the full SS credit for the year. 4 weeks? 6 weeks? Depends on what you earn, of course.
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