Author Topic: Early Retirement - Social Security  (Read 3686 times)

medinaj2160

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Early Retirement - Social Security
« on: October 03, 2015, 10:04:53 AM »
My parents recently early retire and they want to continue contributing to the social security. How can they contribute if the don't have any income? Pretend that they are self employed? or is there another way. They want to contribute as if they were making 40k each.

Thanks

seattlecyclone

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Re: Early Retirement - Social Security
« Reply #1 on: October 03, 2015, 10:50:15 AM »
First of all, lying on your taxes is illegal. Don't do it.

Secondly, I doubt that reporting fake self-employment income would be a good financial move even if there was zero chance of being caught. Social security benefits are calculated on a tiered system based on your lifetime wage income. See this document for the specifics of how you calculate it for someone who turned 62 this year. In a nutshell, you list out how much you earned each year and multiply each year's earnings by a scaling factor to convert it into current year dollars. You then take the highest 35 years (or all of the years you worked if it's less than 35) and add it up.

If this inflation-adjusted lifetime earnings number is under $347k, each additional $1,000 of lifetime earnings will increase monthly benefits (at "full retirement age") by $2.14.
Between $347k and $2.09 million, each additional $1,000 of lifetime earnings will increase monthly benefits by 76.
Over $2.09 million, each additional $1,000 of lifetime earnings will increase monthly benefits by 36.

Let's suppose your parents are each in this middle bucket of lifetime earnings, and let's also suppose that their real income puts them in the middle of the 15% tax bracket. If they claim an additional $80k of fake self-employment income, they'll pay about 20% federal income tax on this money (some in the 15% bracket and some in the 25% bracket), plus another 15% for self-employment taxes. Let's call it $28,000 of taxes, give or take. In exchange for that $28,000 of taxes, they'll get about $60/month if they start taking social security at their "full retirement age" (67 if they were born in 1960 or later).

If they invest that $28,000 instead, the 4% rule says they can safely withdraw $93/month starting right now! No waiting until 67 needed.

LAGuy

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Re: Early Retirement - Social Security
« Reply #2 on: October 03, 2015, 10:56:18 AM »
I'm a bit confused as to why they would want to do this? As Seattlecyclone said, it's not worth it. Moreover, if they just want a bigger SS check, they should just wait longer to claim it (or suspend their benefits if they have already claimed). Then they could just work more I guess. But it probably won't increase their SS much as they probably already have 35 years of paying SS taxes into the system.

latinlover77

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Re: Early Retirement - Social Security
« Reply #3 on: October 03, 2015, 10:59:15 AM »
First of all, lying on your taxes is illegal. Don't do it.

Secondly, I doubt that reporting fake self-employment income would be a good financial move even if there was zero chance of being caught. Social security benefits are calculated on a tiered system based on your lifetime wage income. See this document for the specifics of how you calculate it for someone who turned 62 this year. In a nutshell, you list out how much you earned each year and multiply each year's earnings by a scaling factor to convert it into current year dollars. You then take the highest 35 years (or all of the years you worked if it's less than 35) and add it up.

If this inflation-adjusted lifetime earnings number is under $347k, each additional $1,000 of lifetime earnings will increase monthly benefits (at "full retirement age") by $2.14.
Between $347k and $2.09 million, each additional $1,000 of lifetime earnings will increase monthly benefits by 76.
Over $2.09 million, each additional $1,000 of lifetime earnings will increase monthly benefits by 36.

Let's suppose your parents are each in this middle bucket of lifetime earnings, and let's also suppose that their real income puts them in the middle of the 15% tax bracket. If they claim an additional $80k of fake self-employment income, they'll pay about 20% federal income tax on this money (some in the 15% bracket and some in the 25% bracket), plus another 15% for self-employment taxes. Let's call it $28,000 of taxes, give or take. In exchange for that $28,000 of taxes, they'll get about $60/month if they start taking social security at their "full retirement age" (67 if they were born in 1960 or later).

If they invest that $28,000 instead, the 4% rule says they can safely withdraw $93/month starting right now! No waiting until 67 needed.

Thanks for your input seattlesyclone!

medinaj2160

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Re: Early Retirement - Social Security
« Reply #4 on: October 03, 2015, 11:31:52 AM »
First of all, lying on your taxes is illegal. Don't do it.

Secondly, I doubt that reporting fake self-employment income would be a good financial move even if there was zero chance of being caught. Social security benefits are calculated on a tiered system based on your lifetime wage income. See this document for the specifics of how you calculate it for someone who turned 62 this year. In a nutshell, you list out how much you earned each year and multiply each year's earnings by a scaling factor to convert it into current year dollars. You then take the highest 35 years (or all of the years you worked if it's less than 35) and add it up.

If this inflation-adjusted lifetime earnings number is under $347k, each additional $1,000 of lifetime earnings will increase monthly benefits (at "full retirement age") by $2.14.
Between $347k and $2.09 million, each additional $1,000 of lifetime earnings will increase monthly benefits by 76.
Over $2.09 million, each additional $1,000 of lifetime earnings will increase monthly benefits by 36.

Let's suppose your parents are each in this middle bucket of lifetime earnings, and let's also suppose that their real income puts them in the middle of the 15% tax bracket. If they claim an additional $80k of fake self-employment income, they'll pay about 20% federal income tax on this money (some in the 15% bracket and some in the 25% bracket), plus another 15% for self-employment taxes. Let's call it $28,000 of taxes, give or take. In exchange for that $28,000 of taxes, they'll get about $60/month if they start taking social security at their "full retirement age" (67 if they were born in 1960 or later).

If they invest that $28,000 instead, the 4% rule says they can safely withdraw $93/month starting right now! No waiting until 67 needed.

My parents only have around 14 years of working history. My mother is 62 right now and her check would be 260 bucks right now and if she waits until 67 with no additional contributions she would get $349. if she has earnings of $10,000 a year until 67 she would get $456.

Maybe a 40k earnings per person is too much and will have a high tax burden. $20,400 total earning between the two would not present any federal tax and increase her social security benefit.

beltim

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Re: Early Retirement - Social Security
« Reply #5 on: October 03, 2015, 11:44:42 AM »
My parents recently early retire and they want to continue contributing to the social security. How can they contribute if the don't have any income? Pretend that they are self employed? or is there another way. They want to contribute as if they were making 40k each.

Thanks

There is no legal way to contribute to Social Security and receive additional benefits unless they actually are employed.

seattlecyclone

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Re: Early Retirement - Social Security
« Reply #6 on: October 03, 2015, 12:13:05 PM »
My parents only have around 14 years of working history. My mother is 62 right now and her check would be 260 bucks right now and if she waits until 67 with no additional contributions she would get $349. if she has earnings of $10,000 a year until 67 she would get $456.

Maybe a 40k earnings per person is too much and will have a high tax burden. $20,400 total earning between the two would not present any federal tax and increase her social security benefit.

This is still fraud. If your parents need more money, they should find a part-time job and earn it.

Cathy

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Re: Early Retirement - Social Security
« Reply #7 on: October 03, 2015, 12:20:44 PM »
It's too bad the rest of you beat AZDude to the punch in this thread. I was looking forward to him identifying yet another fraudulent scheme. It's amusing, in a sort of sordid way, how frequently fraud is proposed as a money-saving technique on this forum.

LAGuy

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Re: Early Retirement - Social Security
« Reply #8 on: October 03, 2015, 12:46:36 PM »
Even if you wanted to commit fraud in this manner, you'd still be on the hook for the payroll taxes (the 15% mentioned in seattlecyclone's post i.e. SS and Medicare tax).

The reason you're having a hard time trying to find a way to game SS is because it's not a welfare program. At best, you get out of SS what you put into it. At best.

medinaj2160

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Re: Early Retirement - Social Security
« Reply #9 on: October 03, 2015, 02:09:21 PM »
Even if you wanted to commit fraud in this manner, you'd still be on the hook for the payroll taxes (the 15% mentioned in seattlecyclone's post i.e. SS and Medicare tax).

The reason you're having a hard time trying to find a way to game SS is because it's not a welfare program. At best, you get out of SS what you put into it. At best.

Understood, they have about 11,000 they can claim as income from a rental property. Even with the 15% taxes is stil a good deal. Thanks everyone.

Cathy

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Re: Early Retirement - Social Security
« Reply #10 on: October 03, 2015, 03:35:14 PM »
Understood, they have about 11,000 they can claim as income from a rental property. Even with the 15% taxes is stil a good deal. Thanks everyone.

Income from rental property is generally not considered to be self-employment income for the purpose of Federal Old-Age, Survivors, and Disability Insurance (commonly referred to as "Social Security") "unless you receive the rentals in the course of a trade or business as a real estate dealer". 20 CFR 404.1082(a). "If you merely hold real estate for investment or speculation and receive rental income from it, you are not considered a real estate dealer." 20 CFR 404.1082(b)(2).
« Last Edit: October 03, 2015, 03:38:18 PM by Cathy »

Bucksandreds

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Re: Early Retirement - Social Security
« Reply #11 on: October 03, 2015, 06:50:57 PM »
I'd suggest getting a part time job some where and delay receiving SS payments until 70 by working part time until then.  They should have been planning for retirement before they were 62.

braje

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Re: Early Retirement - Social Security
« Reply #12 on: October 03, 2015, 07:11:11 PM »
Instead of trying to figure out how to pay into SS without actual earned income, why not invest that money instead?
Also you know about spousal benefits, right?