Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
As with most everything else, the issue is psychological. One pays into Social Security for most of one's working-life. It feels that one has been cheated, if one has not maximized the cumulative benefit that one is to receive in retirement. It's less about a vigorous income stream, or insurance against outliving one's money, than a victorious feeling of having gotten back more than one contributed; or at the very least, having maximized the fraction of returns divided by contributions.
Absolutely. The emotional machine is clearly dominant over the calculator almost all of the time. Which in itself is a perfectly good reason to chose early filing.
I have never had an issue with that, and DW filed at 62 for precisely that reason. And she, who has little real math skills when financial matters become complex, failed to see how “taking a chance of not getting what is owed me” was worth the increase of delayed filing, despite showing her the math and pointing out that it just raises our taxes, and the majority of it would be simply dumped in to her IRA and savings. In our case, the absolute difference in income for our budget, by delaying hers is minimal, since her SS is only average & she is a bit over 5 years older than I, so the emotional component was enough to justify with no argument on my part. And she trusts me to make the right decision for our future for my maxed out SS, if we both live to be older or just her. Though it is likely I will outlive her or we will be very close to the same expiration date.
I think that for those of us that clearly favor and accept SS for what it was meant to be, a supplemental longevity insurance annuity, the emotional distress is significantly tempered. Additionally, only with the more recent greater increases in SS rates and amounts, had the SS premiums become a noticeable drain on a paycheck compared to federal and state taxes, where one could feel that a return on that premium is important. FICA is about equal to my state tax now. When it was $50 or $100/mo it was just another small annoying tax that goes with earning a good living. At $650/mo, that’s more than an annoyance today.
At some point in ones aging process, the math vs emotional balance may change, especially when delaying is accomplished by savings withdrawals. “Really, I’m not taking $3500/mo now from SS because I want an extra $20/mo/mo increase?”
A hard fact to mentally come to terms with.
Last edited by Perryinva; 06-27-2018 at 06:27 AM..
And would he be able to care if he did die at 69.5? He would be dead. Like many that delay filing, they live their life with an actually higher income while they are delaying because they know they don’t have to worry about needing more savings later. So whats better, filing earlier and living on less while you live, or later and living on more but using some savings? He knows what he is doing.
Yep. I view Social Security as my insurance for out-living my wealth. My father made it to 85. My mother is 86. I kind of have to contingency plan to make 90+.
I keep a spreadsheet page for all of this. If I start collecting at age 62, my check will be $24,768 per year and I'll have collected $198,144 by age 70. Relative to my net worth, that's not a life-changing amount of money. What is a big deal is if I run out of money in my 80's.
Additionally, only with the more recent greater increases in SS rates and amounts, had the SS premiums become a noticeable drain on a paycheck compared to federal and state taxes, where one could feel that a return on that premium is important. FICA is about equal to my state tax now. When it was $50 or $100/mo it was just another small annoying tax that goes with earning a good living. At $650/mo, that’s more than an annoyance today.
I don't follow this. The FICA payroll deduction has been 6.2% since 1990. There were a couple Great Recession years where they dropped it to 4.2%. If you're high income, you hit the cap at some point in the year and that 6.2% payroll deduction goes away. You're in Virginia, right? The top bracket where most of your income is taxed is 5.75%. Other than 2011 and 2012, your Social Security FICA payroll tax deduction at least for the first part of the year until you hit the cap has always been more than your Virginia state income tax.
I don't follow this. The FICA payroll deduction has been 6.2% since 1990. There were a couple Great Recession years where they dropped it to 4.2%. If you're high income, you hit the cap at some point in the year and that 6.2% payroll deduction goes away. You're in Virginia, right? The top bracket where most of your income is taxed is 5.75%. Other than 2011 and 2012, your Social Security FICA payroll tax deduction at least for the first part of the year until you hit the cap has always been more than your Virginia state income tax.
I wonder how much retirement spreadsheets and calculators like FIRECalc play in how we feel about SS. Perhaps they negate the emotional need to be victorious as has previously been noted. FIRECalc and the program I used before that reduced it to plain bottom line numbers and me evaluating the approx income and portfolio value I wanted to target at different age points. For me plain pure outcome oriented in terms of those two things income/wealth. Victory was to be determined by reaching those age points with the desired outcomes. So far so good.
As far as state tax v FICA as you note my reaction was that at some point the FICA would go away for awhile but the state tax never did. It only went up when I made more money while FICA didn't because I was maxed. Now in retirement FICA has been no more while state taxes continue.
I don't follow this. The FICA payroll deduction has been 6.2% since 1990. There were a couple Great Recession years where they dropped it to 4.2%. If you're high income, you hit the cap at some point in the year and that 6.2% payroll deduction goes away. You're in Virginia, right? The top bracket where most of your income is taxed is 5.75%. Other than 2011 and 2012, your Social Security FICA payroll tax deduction at least for the first part of the year until you hit the cap has always been more than your Virginia state income tax.
I was talking annual outlay. Because in 1990 the cap (51,300) was lower, percentage wise, than what I was making compared to today. I was younger, less senior at work and worked a lot of OT, usually in the spring, due to our business. It was not unusual to pay off SS in Aug or Sept. The total annual would only be $3180, or $256/mo on average, or $400 during the months you were paying. So you got an extra “SS raise” for a few months. But state tax continues 12 months of the year, so annually it was higher than FICA was. The caps have been raised proportionally higher than the average salary increases have. So now I typically only pay off SS in Oct or Nov. So more months of $650+ FICA premiums, and fewer months of “SS raises”. And state tax has stayed the same proportionally. When I started working professionally in 1980, FICA was like $75/mo, and $115/mo in 1981. When I was younger, like many here remembered, SS was something not to be counted on in retirement. Plus the projected benefit amounts were way way lower than what they will actually be. So there was never that “get what’s owed me” feeling on my part, back then. Small input with small output. Today, with the projected amounts so high as is, paying in $10k/yr for FICA & Med, for zero increase in benefits is yet another driver for me to retire early.
Last edited by Perryinva; 06-27-2018 at 04:44 PM..
Yet another factor is that most states tax dividends/capital gains at the same rate as earned income. A retiree might be in the 15% tax bracket for passive income (whether funds are withdrawn from the account, or not) at the federal level, plus another 7% (or whatever it is) at the state level... all while FICA has gone to zero. So, the more affluent the retiree, the more the state/local income taxes overwhelm considerations of cost of living (housing etc
.).
Also I’m pretty sure in 1990 the 6.2% covered both FICA & Medicare. It wasn’t until 94/95 that Medicare was separated and not sure what the rates morphed in to.
Also I’m pretty sure in 1990 the 6.2% covered both FICA & Medicare. It wasn’t until 94/95 that Medicare was separated and not sure what the rates morphed in to.
Absolutely. The emotional machine is clearly dominant over the calculator almost all of the time. Which in itself is a perfectly good reason to chose early filing.
I have never had an issue with that, and DW filed at 62 for precisely that reason. And she, who has little real math skills when financial matters become complex, failed to see how “taking a chance of not getting what is owed me” was worth the increase of delayed filing, despite showing her the math and pointing out that it just raises our taxes, and the majority of it would be simply dumped in to her IRA and savings. In our case, the absolute difference in income for our budget, by delaying hers is minimal, since her SS is only average & she is a bit over 5 years older than I, so the emotional component was enough to justify with no argument on my part. And she trusts me to make the right decision for our future for my maxed out SS, if we both live to be older or just her. Though it is likely I will outlive her or we will be very close to the same expiration date.
I think that for those of us that clearly favor and accept SS for what it was meant to be, a supplemental longevity insurance annuity, the emotional distress is significantly tempered. Additionally, only with the more recent greater increases in SS rates and amounts, had the SS premiums become a noticeable drain on a paycheck compared to federal and state taxes, where one could feel that a return on that premium is important. FICA is about equal to my state tax now. When it was $50 or $100/mo it was just another small annoying tax that goes with earning a good living. At $650/mo, that’s more than an annoyance today.
At some point in ones aging process, the math vs emotional balance may change, especially when delaying is accomplished by savings withdrawals. “Really, I’m not taking $3500/mo now from SS because I want an extra $20/mo/mo increase?”
A hard fact to mentally come to terms with.
I’m not so sure SS was intended to be longevity insurance. I think it was intended to provide a replacement of income for those who were financially responsible throughout their lives. Back in the time SS was implemented, it was the norm to have a paid off house and no other debt by age 62.
I’m sure someone here can readily tell me what the present day “maxxed out SS for 35 years and filing at 62” benefit is. I’m thinking around 30k in todays dollars.
I just spent $34,200 in the last year. A paid off home. Cars paid off. 2500 sqft home. In one of the most expensive zip codes in the US.
I could easily live on the SS payment of about 30k at 62 if I had to.
I don’t think it was intended for longevity insurance. I think it was intended to provide a standard middle class existence for those who were financially responsible and arrived at age 62 (old age back then) with no debt and a paid off house.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
