Should Wealthy Clients Delay Taking Social Security?

Investing Strategies Retirement Investing
21

Just to be clear, let’s look at some equivalencies where the spouse receiving SS dies using this calculator from the SSA See how your pension may affect your benefits | SSA

Case 1: Higher paid spouse gets $3000/month from SS, lower paid spouse gets $1500/month from SS vs. higher paid spouse gets $3000/month from SS, lower paid spouse gets $1500/month from government pension. Higher paid spouse dies.

SS only couple - survivor collects $3000/month (66.7% of the prior combined amount)
Mixed benefit couple - the SS benefit is reduced by $1000/month to $2000, but the survivor is also still getting the pension of $1500, so collecting $3500/month (77.8% of the prior combined amount)

Case 2: Both spouses get $3000/month from SS vs. one spouse gets $3000/month from SS, other spouse gets $3000/month from government pension. A spouse receiving SS in each couple dies

SS only couple - survivor collects $3000/month (50% of prior combined amount)
Mixed benefit couple - the SS benefit is reduced by $2000/month to $1000, but the survivor is also still getting the pension of $3000, so collecting $4000/month (66.7% of prior combined amount)

Case 3: Higher paid spouse gets $3000/month from SS, lower paid spouse gets $2000/month from SS vs. higher paid spouse gets $3000/month from SS, lower paid spouse gets $2000/month from government pension. Higher paid spouse dies.

SS only couple - survivor collects $3000/month (60% of the prior combined amount)
Mixed benefit couple - the SS benefit is reduced by $1333.33/month to $1666.67, but the survivor is also still getting the pension of $2000, so collecting $3666.67/month (73.3% of the prior combined amount)

Case 4: Higher paid spouse gets $3000/month from SS, lower paid spouse gets $1500/month from SS vs. higher paid spouse gets $3000/month from government pension, lower paid spouse gets $1500/month from SS. Lower paid spouse dies

SS only couple - survivor collects $3000/month (66.7% of the prior combined amount)
Mixed benefit couple - the SS benefit would be reduced by $2000/month, but since the SS benefit of $1500 is lower than $2000, the SS benefit is just reduced to $0. The survivor continues to collect the government pension of $3000/month (66.7% or the prior combined amount)

Case 5: Higher paid spouse gets $3000/month from SS, lower paid spouse gets $2000/month from SS vs. higher paid spouse gets $3000/month from government pension, lower paid spouse gets $2000/month from SS. Lower paid spouse dies.

SS only couple - survivor collects $3000/month (60% of the prior combined amount)
Mixed benefit couple - the SS benefit is again reduced by $2000/month, which is equal to the SS benefit, so again, the survivor collects no SS. The survivor continues to collect the government pension of $3000/month (60% or the prior combined amount)

So, when the spouse collecting the government pension is getting a benefit that’s the same or lower than the spouse receiving SS, they will come out ahead of a couple receiving the same benefit amounts, but both from SS. When the spouse collecting the government pension is getting the higher benefit, they end up equal to a couple receiving only SS.

Not sure why you think this is unfair to the mixed benefit couple, since they never end up worse than a couple receiving the same amounts from just SS, and in several cases, end up better.

AJ

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22

We are going to have to agree to disagree.

My statement that the government taking SS tax from an individual and giving them nothing in return is still completely wrong. It is a tax that the individual never receives any benefit from.

Andy

23

I do not think you understand my position. You seem to think that someone making more shouldn’t have anything to complain about. It is the old crab in a boiling pot of water argument. I do not want anyone else to get more so I am going to pull them down to my level.

My position as I have stated over and over again is that someone that pays into a system should get a return on their payments commensurate with everyone else. If not than it is just another tax on that person.

Yes that person should be able to collect on the person’s spousal benefit also. By your logic, anyone making more than you do should not be able to collect their social security benefits either. But if you are going to have a means test then make it a means test on everyone. I assume if you did that most government employees would still be under the limit.

So your argument is all around who makes more? If the government worker always was to make less than you would be fine with them getting social security? I am starting to think you would like a means test. Now if that is the case I would have no problem with that.
Andy

24

And how is the survivor receiving the same or more in retirement benefits not getting a return on their payments not commensurate with everyone else?

So your position is that, for couples who both receive SS, it’s fine for the survivor to take a haircut in their payments from taxpayers, but for a couple who has both a government pension and SS, the survivor should continue to receive the same payments from taxpayers as the couple did before one of them died? Sorry, as a taxpayer, I don’t find that fair at all. The couple with the government pension needs to take a haircut, too.

AJ

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25

Never mind that when that happens, they are getting a government pension that is at least twice as much as they would have gotten from SS, since the maximum WEP reduction is 50% of the government pension amount. That is something that the pension recipient should understand when they take a job that promises a pension without having to pay SS taxes.

As a taxpayer who is concerned with how the deficit will get paid, I don’t have an issue with how the law was implemented.

AJ

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26

As I told you, you really do not know that they are getting the same or more benefit. The only thing you really know is that they are not receiving anything from their SS benefit.

Not at all, the person receiving SS benefit will take the same cut that is mandated. As a taxpayer this has nothing to do with that. Your taxes are not paying for SS benefits that comes from companies and individuals paying into SS. I think that is where you are mixing this all up. You are looking as it as a tax and you have no problem with others paying a tax with no benefit as long as it isn’t you.

Andy

27

Many people get pensions or RSU’s without having to pay for them. It’s a compensation for working hard and long for your employer. They still get their Social Security and their spouses do also.

Andy

28

Social Security isn’t a Pay In/Take Out type of system. It is there to provide a minimal level of income security. Someone who was married pays into the system and thus provides that minimal level of security to all their spouses of at least 10 years. Someone who was never married pays the same into the system, but gets “nothing back” for spouses. Similarly, a spouse that collects on their own earnings record, or collects from a different system (a state system, for example) doesn’t receive that minimal level of income security from social security, but gets it from elsewhere (the state system) instead.

Heck, someone who dies before receiving any social security pays into the system for their entire career and literally gets nothing back (other than $255 death benefit and the value of the disability insurance throughout).

That’s just how this system works. It isn’t a retirement savings account.

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29

That is the whole discussion Mark. It doesn’t provide for everyone’s spouse. In Fact, people paying in at the end, while still living, get nothing back. That is a tax that they never should have had to pay.

I think we all understand how the system works in it’s current iteration. My argument is that it isn’t correct. I would have no problem with the people getting a government pension, if they never had to pay in but that isn’t the way it works.

Andy

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30

It doesn’t matter. If this system was the kind you propose, basically in retirement each person gets back roughly what they put in, then that would be fine. BUT the country would still need another “social security” system funded by some sort of tax to provide basic income security to everyone who doesn’t have it from elsewhere. And then … you would be complaining about, and we would be discussing, that system instead.

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31

Social Security is “social insurance”. You should be comparing it to your homeowner’s policy or your car insurance. What’s the investment return on your car insurance if you never make a claim?

intercst

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32

Actually, my tax dollars are paying for SS. SS is not bringing in enough revenue to pay for itself, so it is currently drawing from the ‘trust fund’ that is being paid for with my tax dollars, since Congress borrowed from SS excess to pay for other programs.

Except the person receiving SS is the one who died in the examples given. So what cut is the survivor (getting the government pension) taking under your theory?

If there is no cut to the SS that the decedent had been getting, you ARE saying that the mixed benefit couple should take no cut when the SS recipient dies, while the couple who gets only SS should take a cut. How does that make the SS couple commensurate with the mixed benefit couple?

The survivor is getting as much or more benefit from the taxpayers as the survivor of a couple who was getting only SS in the same amounts.

AJ

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33

The spouse is provided for through their government pension. When they took a job that provided a government pension, and didn’t have to pay SS taxes, they should have understood that was the deal, since it’s been in place for over 40 years now. Sorry if you and your wife didn’t understand that.

That said, I still don’t see how she’s getting shorted if you die. Please provide numbers comparing what she will get with her government pension plus a portion of your SS compared to what she would have gotten if you and she had both been collecting SS in the same amounts.

AJ

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34

That doesn’t make sense. Why would there need to be another system? The current system will work fine. It just needs to be tweaked. There isn’t any reason to start another system

Andy

35

Aj you need to go back to my example. I will reiterate it for you so then you will hopefully understand.

Someone works in the private sector for 30 years. They pay into SS for those 30 years. Then at 45 they decide to go into public service. Yes they understand how SS and government pensions work. They work another 30 years and are now 75 years old. They retire and do not get their SS nor does their Spouse. How is that fair? Yes they understand how it works, yes they agreed to it. But that isn’t my argument. My argument is that those 30 years of paying into the SS system was an unfair tax on them.

I think I have stated my position very clearly. The numbers really do not matter. It seems you are hung up on numbers but my position is that taxing someone for something they will not receive any compensation for is inherently wrong.

Andy

36
  1. Someone who works for 30 years in the private sector may be exempt from WEP, if their SS income was high enough to meet the ‘substantial earnings’ limit
  2. Even if they aren’t exempt from WEP, the most that their SS would be decreased is by 50% of their government pension, which means that in order to get $0 from SS, their pension would have to be at least twice as much as they would have gotten from SS
  3. As you said, they knew the rules going in. They got to work for 30 years without paying into SS, and paid very little toward their government pension, which they are now collecting.

Yes, the numbers do matter because under the theory that you appear to support (although you try to say you don’t), the survivor of a mixed benefits couple would continue to collect the same payments from taxpayers that the couple was getting, while the survivor of a couple getting only SS takes a haircut. That’s not fair to the vast majority of people who don’t get government pensions.

Then why aren’t you advocating that the estates of those people who die before being able to collect SS should get some type of compensation, too? And for the estates of those who start collecting SS, but don’t get as much as they put in before they die also getting some type of compensation?

SS is not a retirement plan. It’s social engineering to keep elderly out of poverty.

AJ

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37

And where is the extra money to pay for the ‘tweak’ going to come from, since, as already mentioned, SS isn’t taking in enough money to pay for itself right now. You are just advocating for changes that would cause SS to get to the point where it can’t pay all of the benefits it’s already promised sooner than the current 2033 estimate.

AJ

38

This is the essence of taxation. I pay taxes for roads I will never drive on, schools I will never attend, soldiers fighting wars I don’t endorse, medical research for diseases I don’t have, and insurance programs I won’t collect on. The price of civilization.

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39

But you can drive on those roads, and can go to those schools and fight in those wars. You also can get those diseases and collect on those insurance policies. But if you pay into Social Security and have a public pension you will never, ever, be allowed to collect your rightfully owned policy.

Andy

40

That’s not true. As a retiree with a public pension, you can collect any SS you are entitled to that’s in excess of 50% of your government pension. If your SS is not in excess of 50% of your government pension, then I’m not sure what you’re crying about. Your taxpayer paid pension is least twice as much as you would be getting from taxpayer paid SS. Sorry, but as a taxpayer, I don’t think that taxpayers should be funding SS for someone who is already getting >200% of the SS amount from the taxpayers. Not to mention that, this has been the deal for more than 40 years, so at this point, anyone who is affected by this should have known the deal when they took the public pension job.

As the survivor with a government pension and a deceased spouse who was receiving SS, the combined survivor’s SS benefit plus your government pension will combine to be at least as much as your deceased spouse’s SS, and maybe more. That’s at least as good a deal as the survivor of a couple who was getting only SS.

Again, I don’t see where the person receiving the government pension is getting shortchanged. They are getting at least as much, if not more, than SS would give them. They should have known that they would have a cut to their SS benefits when they took the job that offered the government pension. Complaining about it now just seems like needing to find something to complain about.

AJ

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