Thank you. Would it be accurate to say then that it benefits the employee to pay lower health insurance costs because it would increase taxable wages--just for the sake of calculating SS benefits? Since SS is calculated based on the 35 years of highest salary, wouldn't it be better to have a higher taxable income? Of course, I am not taking the savings from lower taxes into account, I realize.
That's a complicated question.
In general you would prefer to shelter as much income from the 6.2% SS tax as possible. Most people consider the return on that 6.2% in their own investment account to be higher than what SS offers. This is especially true the higher lifetime earnings you have - first earnings yield benefit at 0.9, higher earnings at 0.32, highest earnings at 0.15 (look up calculation of PIA for the details). Keep in mind this is *lifetime* earnings (35 years) and for FIRE folks if they make lots of money fast and retire early they may actually have relatively low lifetime earnings despite making buckets of money for the short time they worked. So it's complicated. At the PIA conversion of 0.15 you definitely want your 6.2% back. At 0.9 you might actually like the additional benefit.
Now, if what is sheltering you from SS tax is also sheltering you from income tax - then my goodness gracious you most certainly want that deduction. If most people think they'd be better off with their 6.2% then the eventual SS benefit than you'll be much, much better off with say 30-35% back once accounting for federal and state taxes!
So - in general you always want deductions rather than more SS wages.
Now the health care insurance question is another issue. Is expensive health insurance worth it? Would you be better off with a lower cost policy? The details of course matter a lot, but in general the Mustachian way to do things is to view insurance as only for catastrophes you can't possibly afford rather than as some sort of service plan. So cheaper high deductible policies on cars, houses and medical (one *huge* difference is if you are about to have a baby, you do not want to have a baby on a high deductible plan).
So really the question is what health insurance plan do you want and the tax deductions only come into the question tangentially when estimating your real cost for the insurance.
