Creative ways to increase U.S. SS retirement benefit amount

[Guitar God]

I worked in the US for over 20 years but that was almost 20 years ago.

I qualify easily for the minimum of them for her of yours work but my highest three years of income were over 20 years ago and it doesn't amount to that much in the monthly benefits right now.

I am currently self-employed and living outside of the U.S. Are there any ways that I could add to my U.S. earned income for the next few years to increase my monthly benefit without physically moving back to the US, getting a job and paying into Social Security as a employee of another company?

Can I set up a business in the U.S. and pay myself as an employee? Can I contribute directly to Social Security from outside of the country based on the company that I own outside the U.S.? What I need to have someone else set up a company and then hire me as an employee and me pay all of the bills?

Any ideas?

[chuckd]

You can be self employed and make your payments directly into the SS system.

You will need to pay both the employee amount (7.65%) and the employer amount (7.65%) for a total of 15.30% of earnings up to an earned income maximum of $118,500.

Check out this link: http://www.ssa.gov/news/press/factsheets/colafacts2015.html

[Langsuan Man]

Not so creative since social security benefits are based upon your lifetime earnings, not just the "highest three years"

Many people wonder how their benefit is figured. Social Security benefits are based on your lifetime earnings. Your actual earnings are adjusted or “indexed” to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. We apply a formula to these earnings and arrive at your basic benefit, or “primary insurance amount”. This is how much you would receive at your full retirement age—65 or older, depending on your date of birth.

source: http://www.ssa.gov/pubs/EN-05-10070.pdf

[Guitar God]

I was given some wrong info. I think the person was thinking about SS disability where they take a percentage of your thee highest earning years. SS retirement benefits are calculated based on your 35 highest years divided by 420 ( months in 35 years), indexed for inflation and a percentage of each of three tiers added together.

The good news is that it seems possible to pay in 15% from years you were self employed to increase the payment amount. But, is it worth giving away 60k to add 10k a year to your benefits or is it better to invest the 60k since you have a 5 year break even point and the actuarials pretty much expect you to die withng 5-6 years after you retire anyway?

[Langsuan Man]

I was given some wrong info. I think the person was thinking about SS disability where they take a percentage of your thee highest earning years. SS retirement benefits are calculated based on your 35 highest years divided by 420 ( months in 35 years), indexed for inflation and a percentage of each of three tiers added together.

The good news is that it seems possible to pay in 15% from years you were self employed to increase the payment amount. But, is it worth giving away 60k to add 10k a year to your benefits or is it better to invest the 60k since you have a 5 year break even point and the actuarials pretty much expect you to die withng 5-6 years after you retire anyway?

OK, I will bite, who gave you the information that : 5 year break even point and the actuarials pretty much expect you to die withng 5-6 years after you retire anyway?

[Guitar God]

Retire at 66 years and 4 months, average life expectancy for men living in the US is 72, probably less if you're living in Thailand. 5-6 years worth of benefits. Who knows what will happen with Social Security in the next decade, benefits may be reduced, retirement age may be increased again.

[Langsuan Man]

Fortunately IRS uses a different life expectancy table for IRA minimum distribution. At 67 they feel I will live till I am 95. In fact they are betting that I will live that long to get their taxes from me and not from my estate

[Pacificperson]

The US Center for Disease Control says the life expectancy of a 65 year old male is 17.7 years, and if you use this figure to plan your spending, then you have a 50% chance of out living your money.

Edited January 29, 2015 by Pacificperson

[BKKSnowBird]

If self employed, are you not REQUIRED to pay SS? I thought the only way to get out of paying SS is to be an employee of a company with NO US ties.

I know there is the exclusion on federal tax but thought you always had to pay self employment tax no matter where the business was.

Edited January 29, 2015 by BKKSnowBird

[maccaroni man]

My understanding is the payout on SS is based on the top 10 yrs of earnings. If you open a company and pay yourself at the top tear after 10 yrs you will have paid in around 197,000 with a SS pension of around 2200 per mo. It will take 9 yrs to recoup the investment after retirement if you have a wife your SS will pass on to her after your death which is another factor however rumor has it that after 2020 SS benefits will drop by 20% due to lack of funding. A political footnote: the democrats are responsible for changing the protected SS funds into a general spending fund.

[Langsuan Man]

My understanding is the payout on SS is based on the top 10 yrs of earnings. If you open a company and pay yourself at the top tear after 10 yrs you will have paid in around 197,000 with a SS pension of around 2200 per mo. It will take 9 yrs to recoup the investment after retirement if you have a wife your SS will pass on to her after your death which is another factor however rumor has it that after 2020 SS benefits will drop by 20% due to lack of funding. A political footnote: the democrats are responsible for changing the protected SS funds into a general spending fund.

Last sentence is false:

Q1. Which political party took Social Security from the independent trust fund and put it into the general fund so that Congress could spend it?

A1: There has never been any change in the way the Social Security program is financed or the way that Social Security payroll taxes are used by the federal government. The Social Security Trust Fund was created in 1939 as part of the Amendments enacted in that year. From its inception, the Trust Fund has always worked the same way. The Social Security Trust Fund has never been "put into the general fund of the government."

Most likely this question comes from a confusion between the financing of the Social Security program and the way the Social Security Trust Fund is treated in federal budget accounting. Starting in 1969 (due to action by the Johnson Administration in 1968) the transactions to the Trust Fund were included in what is known as the "unified budget." This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are "on-budget." This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken "off-budget." This means only that they are shown as a separate account in the federal budget. But whether the Trust Funds are "on-budget" or "off-budget" is primarily a question of accounting practices--it has no effect on the actual operations of the Trust Fund itself.

source: http://www.ssa.gov/history/InternetMyths2.html

[BKKSnowBird]

My understanding is the payout on SS is based on the top 10 yrs of earnings. If you open a company and pay yourself at the top tear after 10 yrs you will have paid in around 197,000 with a SS pension of around 2200 per mo. It will take 9 yrs to recoup the investment after retirement if you have a wife your SS will pass on to her after your death which is another factor however rumor has it that after 2020 SS benefits will drop by 20% due to lack of funding. A political footnote: the democrats are responsible for changing the protected SS funds into a general spending fund.

Everything you said is wrong.

The amount of Social Security you get is based on 35 years of work. You need atleast 10 years (40 quarters) to get a check and medicare. The amount will range from about $300 to $2600 depending on what you paid in during those 35 years.

The fund is due to go broke in 2033. The part that pays disability is due to go broke next year and benefits will be cut 20% unless something is done.

Republicans made a new rule a few weeks ago stopping any relocation from old age fund to disability. Sure to be a hot topic in the election next year.

Your Thai wife can collect your SS after you die ONLY if you were married for 10 years AND she lived in the US for atleast 5 years.

Edited February 1, 2015 by BKKSnowBird

[maccaroni man]

I suggest your CPA and my CPA get in a pissing contest over this, as for me all I know is my benefits will be largely based off my final 10 yrs of contributions and in my case my children and wife will be benefactors.

[BKKSnowBird]

I also expect your last 10 years will be your highest years of earnings but it will still be averaged in. They use a total of 35 years.

If you die and any of your kids are under 18 then they can collect on your work record until they are 18. I assume they are US citizens.

Your Thai wife gets nothing from SS unless she is a US citizen or meets the two requirements I already stated. I assume your wife is Thai.

Edited February 1, 2015 by BKKSnowBird

[chuckd]

The SS Trust Fund is actually invested in US bonds and securities, thereby effectively loaning the funds to the general fund of the US.

The Social Security system is the largest holder of federal debt, to the tune of $2.783 TRILLION as of 9/30/14.

By the same token, China holds a mere $1.253 TRILLION as of 10/1/14.

Social Security holding of government bonds is called Intragovernmental Holding and is described thusly:

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"Some agencies, like the Social Security Trust Fund, take in more revenue from taxes than they need right now. Rather than stick this cash under a giant mattress, they buy U.S. Treasuries with it.

This effectively transfers their excess cash to the general fund, where it can be spent. Of course, one day they will redeem their Treasury notes for cash. The Federal government will either need to raise taxes, or issue more debt, to give the agencies the cash they will need.

Which agencies own the most Treasuries? Social Security, by a long shot. Here's the detailed breakdown (as of September 30, 2014)"

http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-National-Debt.htm

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Prior to 1969, Social Security had been run as an "off budget" item, which simply meant it was a stand alone portion of the federal government. In 1968 the Johnson administration changed the federal accounting procedures to place Social Security in an "on budget" status, which meant all funds from SS were then thrown into the general operating fund for the federal government, beginning in 1969.

Here is a good link that will explain it all. http://www.ssa.gov/history/BudgetTreatment.html

Regardless of the rhetoric of the SSA in the link provided in post #11 above, when the SS funds went "on budget", those funds in excess of their expenditures for that and ensuing years became part of the general operating fund.

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As an aside...

Three counties in Texas chose to opt out of Social Security in the early 80's and begin their separate but parallel program. The differences between the results of the two programs is interesting, to say the least.

A good read on that can be found here:

How Three Texas Counties Created Personal Social Security Accounts and Prospered

http://www.forbes.com/sites/merrillmatthews/2011/05/12/how-three-texas-counties-created-personal-social-security-accounts-and-prospered/

The opt out program was stopped in the early 80's, but these three Texas counties have some happy employees, where the alternate program continues.

[VIPinthailand]

basically the system works like that in many countries: they take a percentage from your paycheck and invest in on the market. after 40 years, you are paid back with interest earned.

the big problem is : interest are lower and lower. before it was easy to make a 10 percent interest from dividends, ... , now 3 percent.

more and more people are retired. so the cake has to be cut in more slices.

government charge you a hefty fee to just manage your money.

workers make less and less money.

result for the next few years: you won't have enough to live in the USA and forced to work until your drop dead . I even think governments (USA and Europe) will seize all your "investment" and will let you die on the streets, after this they will seize your asset (bank accounts, houses)... .

just a question of time.

Edited February 8, 2015 by VIPinthailand

[SiSePuede419]

There's no problem with SS going "broke" if we raise or eliminate the cap.

Currently the cap is 117K.

If you earn anything up to $117,000 per year, your rate is 6.2 percent of total income. But if you earn $250,000, it's just 2.9 percent.

That's unfair. Anybody who earns 250K a year and thinks they should pay LOWER taxes is just CLASS WARFARE. Greedy, stupid bastards...

[SiSePuede419]

basically the system works like that in many countries: they take a percentage from your paycheck and invest in on the market. after 40 years, you are paid back with interest earned.

the big problem is : interest are lower and lower. before it was easy to make a 10 percent interest from dividends, ... , now 3 percent.

more and more people are retired. so the cake has to be cut in more slices.

government charge you a hefty fee to just manage your money.

workers make less and less money.

result for the next few years: you won't have enough to live in the USA and forced to work until your drop dead . I even think governments (USA and Europe) will seize all your "investment" and will let you die on the streets, after this they will seize your asset (bank accounts, houses)... .

just a question of time.

Wrong. The government doesn't invest SS money, it's an insurance pool.

And yes, low birth rates and an aging population is a problem in all countries with a highly educated population.

You're perfectly free to go live in any of the countries with low median age. For example, Uganda has a median age of just 15 years. Let us know how that works out, 555

[chuckd]

basically the system works like that in many countries: they take a percentage from your paycheck and invest in on the market. after 40 years, you are paid back with interest earned.

the big problem is : interest are lower and lower. before it was easy to make a 10 percent interest from dividends, ... , now 3 percent.

more and more people are retired. so the cake has to be cut in more slices.

government charge you a hefty fee to just manage your money.

workers make less and less money.

result for the next few years: you won't have enough to live in the USA and forced to work until your drop dead . I even think governments (USA and Europe) will seize all your "investment" and will let you die on the streets, after this they will seize your asset (bank accounts, houses)... .

just a question of time.

Wrong. The government doesn't invest SS money, it's an insurance pool.

And yes, low birth rates and an aging population is a problem in all countries with a highly educated population.

You're perfectly free to go live in any of the countries with low median age. For example, Uganda has a median age of just 15 years. Let us know how that works out, 555

Funds paid into Social Security are not used as any form of an "insurance pool".

This money goes into the general operating funds of the federal government and is used to operate the government.

In exchange the US government issues an IOU to Social Security Administration to cover the indebtedness.

Social Security is the largest holder of the $18 Trillion of US debt.

Edit in: See post number 15 in this thread.

Edited February 15, 2015 by chuckd

[CaptHaddock]

The OP should have been paying the Self-Employment tax (payroll tax) on his earnings from self-employment for the entire time that he has been self-employed. So, he needs to file amended returns now for the period of his delinquency plus interest and penalties. SS is not voluntary.

[2fishin2]

The OP should have been paying the Self-Employment tax (payroll tax) on his earnings from self-employment for the entire time that he has been self-employed. So, he needs to file amended returns now for the period of his delinquency plus interest and penalties. SS is not voluntary.

Go back and read what the OP wrote....

[CaptHaddock]

The OP should have been paying the Self-Employment tax (payroll tax) on his earnings from self-employment for the entire time that he has been self-employed. So, he needs to file amended returns now for the period of his delinquency plus interest and penalties. SS is not voluntary.

Go back and read what the OP wrote....

I know how to read, thank you. Every point I made is correct whether the OP has been self-employed for all of the last 20 years since he worked in the US or whether he just set up shop, which I doubt is the case.

[Guitar God]

I just set up shop. That's my story and I'm sticking with it.

[CaptHaddock]

I just set up shop. That's my story and I'm sticking with it.

It might be worth your while to pay the back SE tax provided that you can avoid paying income tax for that period. After all, since you are treating the SS as a voluntary system, by starting to pay now, you are, in effect, electing to buy an annuity from the SSA. The only reason for you to do so would be because you think the payout is worth it. That being the case, why would it only be worth buy going forward? Paying for those years of delinquency would get you a larger SS benefit when you collect. You would not have to pay US income tax (as distinct from SE tax) for the same period if you paid tax on that income in the country where you were working, at least up to a high income limit. The interest and penalties might be a deal killer, but if, for instance, you have a spouse who is a US citizen, especially if younger, the long term value of the SS annuity with survivor's rights might make it worth paying even those extra charges.

[Guitar God]

It's only since the beginning of 2014 that I could be considered self-employed and I'm still not absolutely sure if I fit the criteria.

Now I own a foreign corporation which employs me. Both the corporation and I pay income tax in that country and file returns in both there and the U.S. Since the personal income tax there is higher than in the U.S. I have zero income tax liability in the U.S. because of foreign income tax credits which exceed my U.S. tax liability.

From everything I've read, if a U.S. citizen is working abroad and paying into that country's social security, healthcare, unemployment systems then they are exempt from making duplicate payments into the U.S. system.

I am an employee of a foreign company already paying all the taxes I'm supposed to be paying.

The only question for 2014 is, since I'm majority owner of the company if I could also be considered self employedi the U.S.? I've had Dutch accountants and U.S. tax preparers say "no".

Was Bill Gates self employed when he was CEO of Microsoft? Elon Musk, Donald Trump?

[CaptHaddock]

It's only since the beginning of 2014 that I could be considered self-employed and I'm still not absolutely sure if I fit the criteria.

Now I own a foreign corporation which employs me. Both the corporation and I pay income tax in that country and file returns in both there and the U.S. Since the personal income tax there is higher than in the U.S. I have zero income tax liability in the U.S. because of foreign income tax credits which exceed my U.S. tax liability.

From everything I've read, if a U.S. citizen is working abroad and paying into that country's social security, healthcare, unemployment systems then they are exempt from making duplicate payments into the U.S. system.

I am an employee of a foreign company already paying all the taxes I'm supposed to be paying.

The only question for 2014 is, since I'm majority owner of the company if I could also be considered self employedi the U.S.? I've had Dutch accountants and U.S. tax preparers say "no".

Was Bill Gates self employed when he was CEO of Microsoft? Elon Musk, Donald Trump?

Whether you are liable for US payroll tax depends on whether your overseas employer is a US company that would then make both you and the company liable for payroll tax or whether you are self-employed. Self-employment as a sole proprietor would make you liable for both the employee and employer shares of the payroll tax.

Some countries like Canada and Japan have reciprocal arrangements with the SSA that enables paying into one system and getting benefits from the other. Thailand does not have such an agreement.

I can't answer your question as to whether you are self-employed by virtue of working in a company you own, but if you post the question at fairmont.com some CPA will give you a definitive answer.

[Guitar God]

Thanks for the info I will check out Fairmont.com. I didn't think Thailand had any reciprocal agreements with regard to payroll tax, just the US-Thai Amity Treaty which lets a U.S. business operate in Thailand without the need for any Thai shareholders. Neither of those factor into my situation as my company is in a European company that I'm a resident of which does have a reciprocal agreement which prevents double taxation on income .

I'm not 100% sure if that also applies to social/medical contributions. I think since I'm required to contribute to the medical program there and already have (excellent) medical coverage that it's unlikely I have any obligation to pay more into Medicare in the US if I only have foreign income. My Social Security statement says I've satisfied my obligation for Medicare.

[Guitar God]

Fairmont.com isn't the correct url, do you have another one or the full name? I did book a room for an upcoming trip there though.

[CaptHaddock]

Fairmont.com isn't the correct url, do you have another one or the full name? I did book a room for an upcoming trip there though.

Oops. Fairmark.com

[2fishin2]

Thailand does not have a recep agreement and there is no way you can pay ss. Actually it wouldnt be worth it anyways as you would be required to pay more into ss than you would ever get in benefits.