US Social Security Question Re: not retired yet/working

[CaptHaddock]

On 5/24/2017 at 1:39 PM, Minnehaha said:

 

Is it possible to pay into SS while living and working abroad and lets say, age 50? To explain further, if I had my own business in Thailand and had 3 or 4 quarters remaining to be fully vested, is it possible to pay into it so that one is vested at ... say age 65 or whatever the cut off age might be? 

If  you are an American citizen who is self-employed abroad you MUST pay Self-Employment tax, which covers SS and Medicare.  You need 40 quarters of covered employment to qualify for SS retirement benefits.  That includes periods of self-employment whether in the US or abroad.  You can reach the 40 quarters at any age.  There is no age cut-off to reach the qualifying 40 quarters.

[CaptHaddock]

On 5/25/2017 at 0:32 AM, ThaiWai said:

 To avoid US income tax on income earned abroad, keep foreign earnings under $101,300 and don't be in the US for more than 30 days total in a 12 month time frame or you loose your exemption. 

 

The OP is self-employed.  There is no Foreign Earned Income Exclusion for the Self-Employment tax (SS and Medicare.)  The SE-tax is about 15%.

[tonray]

1 hour ago, CaptHaddock said:

The OP is self-employed.  There is no Foreign Earned Income Exclusion for the Self-Employment tax (SS and Medicare.)  The SE-tax is about 15%.

He did not say if it was a US registered and therefore US taxed business. 

[CaptHaddock]

6 minutes ago, tonray said:

He did not say if it was a US registered and therefore US taxed business. 

Irrelevant.  If he is self-employed anywhere in the world, the SE-tax is a tax on his income as a US citizen, not the business.  And he MUST file his 1040 each year with Schedule C (Profit/Loss from Business) and Schedule SE (Self-Employment Tax.) 

[gk10002000]

On 5/24/2017 at 2:47 AM, tonray said:

There is a foreign income exclusion of $102,100 in 2017. So anything you earn above that level is taxable in then US and that portion can then be used for SS credit purposes (means paying SS and Medicare taxes in addition to income taxes on income above 102,100 dollars.)

I believe the current estimates are that contributing to social security is almost a 0 ROI or return on your investment. So given your situation, I don't think it is a great option. If you live a very long time, it might be an OK investment.    I am pretty sure you will in most cases do better by simply having the discipline every month to take the 8% of your pay and investing it, instead of giving it to Social Security.  That is the choice since if you have wages, SSA will take the 6.2 % for Social and 1.5 or whatever it is for Medicare.  I think you will still be eligible for medicare given your past work history.

[CaptHaddock]

6 minutes ago, gk10002000 said:

I believe the current estimates are that contributing to social security is almost a 0 ROI or return on your investment. So given your situation, I don't think it is a great option. If you live a very long time, it might be an OK investment.    I am pretty sure you will in most cases do better by simply having the discipline every month to take the 8% of your pay and investing it, instead of giving it to Social Security.  That is the choice since if you have wages, SSA will take the 6.2 % for Social and 1.5 or whatever it is for Medicare.  I think you will still be eligible for medicare given your past work history.

First of all, the OP does not have a choice to pay his Self-Employment Tax or not.  He would be committing illegal tax evasion if he did not.  Indeed, SS is never optional.  The SE-tax, by the way, is about 15%.

 

Secondly, it is the height of foolish optimism to imagine that he is going to outperform SS by investing success if he did have the choice.  SS, like other annuities, is the only "investment" that you can't outlive.  SS, unlike other annuities, has cost of living adjustments.  SS is guaranteed by the US government and has never missed a payment to a recipient in 80+ years.  He is very lucky to have access to SS.  His only strategy is to pay his SE-tax, save as much as he can otherwise, and, when he retires, move somewhere where he can live on his SS.  Trying to beat SS by investing in stocks is a prescription for old age poverty, even if he is not caught by the IRS.

[mrwebb8825]

My sister used to handle all my taxes for me when I was working in the states. I've been here 15 yrs now and she told me, based on my income here that I didn't need to file anymore as I didn't qualify for any benefits living outside the states and I didn't make enough money to owe taxes. At the time she was working for H&R Block, the largest tax handling company in the country so I/she stopped filing for me 13 years ago.

Contacted the SS office in Manila a few yrs back and they said it wasn't a problem. I'd still get my full entitlement.

[Jingthing]

2 minutes ago, mrwebb8825 said:

My sister used to handle all my taxes for me when I was working in the states. I've been here 15 yrs now and she told me, based on my income here that I didn't need to file anymore as I didn't qualify for any benefits living outside the states and I didn't make enough money to owe taxes. At the time she was working for H&R Block, the largest tax handling company in the country so I/she stopped filing for me 13 years ago.

Contacted the SS office in Manila a few yrs back and they said it wasn't a problem. I'd still get my full entitlement.

I'm entirely not surprised. Income under a certain level, IRS doesn't even want you to file! 

 

[Pib]

3 hours ago, mrwebb8825 said:

My sister used to handle all my taxes for me when I was working in the states. I've been here 15 yrs now and she told me, based on my income here that I didn't need to file anymore as I didn't qualify for any benefits living outside the states and I didn't make enough money to owe taxes. At the time she was working for H&R Block, the largest tax handling company in the country so I/she stopped filing for me 13 years ago.

Contacted the SS office in Manila a few yrs back and they said it wasn't a problem. I'd still get my full entitlement.

 

Where you say "I'd get my full entitlement, your full entitlement will be based on "Your Taxed Social Security Earnings."  

 

If no earnings have the social security tax applied, then no entitlement is earned.   Normally a person needs to earn 4 social security credits per year for at least 10 years for a total of at least 40 work credits to earn an entitlement on their earnings record which means the social security tax must be paid.   Either your employer making the social security tax payment through with-holdings to your paycheck or you paying them separately if self-employed. Below is quote from the Social Security Annual  Statement that sums it up.     

 

Quote

How Your Benefits Are Estimated: To qualify for benefits, you earn "credits" through your work — up to four each year. This year, for example, you earn one credit for each $1,260 of wages or self-employment income. When you've earned $5,040, you've earned your four credits for the year. Most people need 40 credits, earned over their working lifetime, to receive retirement benefits. For disability and survivors benefits, young people need fewer credits to be eligible.

 

Assuming you have already earned 40 credits before retiring to Thailand, then you do indeed have a social security pension entitlement of X-amount whether you need to file a tax return or pay social security tax.   I'm assuming that is your situation which is similar to mine where I retired to Thailand around 10 years before starting my social security pension....I started the pension before my full retirement age.  Now I already had over 35 years of social security earnings and taxes paid so I was not hurt by the social security 35 year averaging rule. But say I had only worked 20 years, I would have ended up with 15 years of "zero" earnings/social security taxes paid and that would have lowered my entitlement using that 35 year averaging formula.

 

If a person paid social security tax for some years and for other years didn't, then those years he didn't pay any social security tax are years he earns zero work credit for social security pension purposes.    Remember, the basic social security pension formula is based on your indexed for inflation social security taxed earnings.....low earnings earning or no taxed earnings for X-years means a lower social security pension entitlement.   The social security pension is different for everyone because everyone made different earnings and paid different taxes during their work life.

 

Don't confuse whether you need to file a federal income tax return or not with the possible need to pay social security tax....two different animals.

 

 

 

[Pib]

7 hours ago, CaptHaddock said:

Secondly, it is the height of foolish optimism to imagine that he is going to outperform SS by investing success if he did have the choice.  SS, like other annuities, is the only "investment" that you can't outlive.  SS, unlike other annuities, has cost of living adjustments.  SS is guaranteed by the US government and has never missed a payment to a recipient in 80+ years.  He is very lucky to have access to SS.

 

Amen brother!  People can talk "if only the govt didn't take any social security tax and instead I invested it in a person account."   Sounds good, but the fact is many, many people save little, spend every penny they make, make bad investments, investments go belly-up, etc."  Preaching to the choir I know.

 

Just for others listening in, Social Security tax is basically a "forced" savings plan because many, many people have to be forced to save....or save any significant amount.   And some people wouldn't save a penny even if they had to because they figured they would just live off govt handouts when they get old.

 

Social Security a very good thing and people don't really come to appreciate it until they near or reach retirement and then I'm sure most then think, durn good deal! (or at least they should think durn good deal based on what I paid in).   I'm sure they would like having a higher pension (don't we all), but at the same time they realize it's still a pension they earned through payment of social security taxes in most cases.   I say "most" cases because social security covers a lot of people who maybe didn't work a day in their life/pay any taxes.... like a wife drawing pension off her husband's work record, disabilities payments, etc....you know, the wide array of possible social safety net situations.

 

The next time anyone looks at their Annual Social Security Statement look down on page 1 or 2 where they list the "total social security taxes" you paid over your work life...not what your employer paid also or your Medicare tax....just what "you" paid.  Then divide that by the monthly pension you will get.  I'm sure most folks will they say, "Wow!!!...only after approx 2 to 4 years they will have been paid back every penny of social security tax "they personally paid."   And then for the remainder of their life their pension is like free money.    

 

Now as mentioned earlier everyone's pension is different since everyone made different earnings and paid different taxes during their work life.  For me (and I retired before my full retirement age), after only after 37 months (3 years and 1 month) of monthly pension payments I will have been paid back every penny of social security tax I paid....I hope I still have several decades of living after that point to continue collecting my Social Security pension--like free money.    

 

Now I'm sure some may think, well, what about considering the equal amount paid by my employer and I could have got that in my pay extra to save also?  Yea, nice thought, but employer's don't pay any more than they have to and if they didn't have to pay social security tax to the govt they are surely not going to pay it to you as a salary increase.

 

And just over the last few days an American-Thai (dual citizen) which I helped apply for his  security security pension since he worked in the U.S. for about a dozen years over a decade ago got his pension approved.  Now he's getting significantly less pension than what I get since his earnings, etc., were different and fewer work years than mine, but when I pointed out to him what I mentioned above about dividing total personal security taxes paid divided by his monthly pension payment that he will recover every penny of social security tax he paid during his work life in only 22 months (1 years, 10 months) and then it's free money for the rest of his life.  You could see his eyes just say, Good Deal!   And of course he's pretty happy about the first 22 months of payments also.  

 

Seems his attitude about social security taxes he paid over his work life changed from a negative (wish I hadn't had to pay them) to a positive (guess the social security taxes I paid was a good investment).  People are funny.

 

 

 

 

[gk10002000]

9 hours ago, CaptHaddock said:

First of all, the OP does not have a choice to pay his Self-Employment Tax or not.  He would be committing illegal tax evasion if he did not.  Indeed, SS is never optional.  The SE-tax, by the way, is about 15%.

 

Secondly, it is the height of foolish optimism to imagine that he is going to outperform SS by investing success if he did have the choice.  SS, like other annuities, is the only "investment" that you can't outlive.  SS, unlike other annuities, has cost of living adjustments.  SS is guaranteed by the US government and has never missed a payment to a recipient in 80+ years.  He is very lucky to have access to SS.  His only strategy is to pay his SE-tax, save as much as he can otherwise, and, when he retires, move somewhere where he can live on his SS.  Trying to beat SS by investing in stocks is a prescription for old age poverty, even if he is not caught by the IRS.

I never said invest in stocks.  But I guarantee investing in some fixed income/interest paying bonds will outperform social security.  investing 8% of ones pay at 4 % for 20 years is a lot.  Lets' say he makes 50,000 a year and saves 8 % every year.  after 20 years he would have about 150,000.  Now at that point the 150,000 at 4% would be earning 6,000 a year which would be more than his estimated $480 something would be paying him.  Is it a fair comparison?  Perhaps.  There are other factors to consider.  His 8% could be going into a Roth IRA and the income he could later pull from that would NOT be taxable, nor would it be added to other incomes, in the calculations that determine how much of his social security is taxed.  And while it is probably likely that social security will be around for some time, in some fashion, the details are uncertain.  As far as outliving social security, well the problem is you can't take lump sum distributions on it, whereas if you had gone the individual investment route, the numbers I mentioned above could be available for use.

 

And I never addressed self employment tax except to say that if he wanted to pay into social security he could go that route.  If instead he uses the foreign income exemption than he would not be required to pay into social security.

 

  I am just offering that people take the time to do a little calculating.  Log onto the SSA site, check what the agency says are your historical earnings, what your estimated benefits may be, consider when to take benefits early or later, etc.  A little bit of planning may prove very beneficial later on.

[CaptHaddock]

37 minutes ago, gk10002000 said:

I never said invest in stocks.  But I guarantee investing in some fixed income/interest paying bonds will outperform social security.  investing 8% of ones pay at 4 % for 20 years is a lot.  Lets' say he makes 50,000 a year and saves 8 % every year.  after 20 years he would have about 150,000.  Now at that point the 150,000 at 4% would be earning 6,000 a year which would be more than his estimated $480 something would be paying him.  Is it a fair comparison?  Perhaps.  There are other factors to consider.  His 8% could be going into a Roth IRA and the income he could later pull from that would NOT be taxable, nor would it be added to other incomes, in the calculations that determine how much of his social security is taxed.  And while it is probably likely that social security will be around for some time, in some fashion, the details are uncertain.  As far as outliving social security, well the problem is you can't take lump sum distributions on it, whereas if you had gone the individual investment route, the numbers I mentioned above could be available for use.

 

And I never addressed self employment tax except to say that if he wanted to pay into social security he could go that route.  If instead he uses the foreign income exemption than he would not be required to pay into social security.

 

  I am just offering that people take the time to do a little calculating.  Log onto the SSA site, check what the agency says are your historical earnings, what your estimated benefits may be, consider when to take benefits early or later, etc.  A little bit of planning may prove very beneficial later on.

What I really enjoy about you cocksure investors with your rosy returns is how you never, ever mention risk. 

 

Evidently reading skills not your strong point then?  The OP MUST pay SE-tax on his self-employment earnings in Thailand.  There is no Foreign Earned Income Exclusion for SE-tax, only for income tax.  So he has to pay the approx. 15% SE-tax on his first dollar of profit right up to the SE-tax ceiling of about $116,000.  If he fails to pay his SE-tax due he is guilty of illegal tax evasion.  SS is not a voluntary system.  Perhaps you had another planet in mind?

 

But thanks for your helpful insights all the same.

[rcoyote]

This thread is incredibly helpful for me. I've always appreciated the idea of social security and have had other social services save my life. Although where I sit isn't ideal, I'm thankful for even the small savings/retirement plan that has been started. Now it's up to me and the rest of my time to make a few better choices - day by day, month by month, year by year. 

[Grumpy Duck]

On 5/25/2017 at 0:44 AM, ThaiWai said:

Great advise to start saving and earning but expecting 10% returns over time is presumptive.  6% is a safer estimate. Your figures don't account for taxes, fees or inflation??  That $1750 you speak of is not a realistic in pocket figure.   Hope for the best, expect/plan for the worst.

 

http://business.financialpost.com/personal-finance/retirement/calculating-investment-returns-actuarially-speaking-6-is-a-good-rule-of-thumb

I have worked for a living all my life, I consider "investing" to be no different than gambling at a casino. When a salesperson refers to something as an "investment" I see red flags experience showed me it was really overpriced. However,  I have read too many articles about IRA's ripping people off the only person making a profit are the fund managers and lousy investments paying the managers. 

[gk10002000]

13 hours ago, CaptHaddock said:

What I really enjoy about you cocksure investors with your rosy returns is how you never, ever mention risk. 

 

Evidently reading skills not your strong point then?  The OP MUST pay SE-tax on his self-employment earnings in Thailand.  There is no Foreign Earned Income Exclusion for SE-tax, only for income tax.  So he has to pay the approx. 15% SE-tax on his first dollar of profit right up to the SE-tax ceiling of about $116,000.  If he fails to pay his SE-tax due he is guilty of illegal tax evasion.  SS is not a voluntary system.  Perhaps you had another planet in mind?

 

But thanks for your helpful insights all the same.

You are being a nit.  I never said he did not have to pay SE tax.  In fact I said he should go self employed if he wants to be sure he contributes to SSA.  I never said there is exclusion for Self employment.  You are being pig headed and just reading that into.  You are listening to refute as they say.

 

  As for risk, there is much less in owning pieces of hundreds or even thousand of bonds spread across industries, sectors, and all of decent ratings, not junk bonds mind you.  bond defaults are very very low. They do happen but the risk is negligible except for crazy junk bonds or municipal bonds if you chase yields offered by risky places like Puerto Rico was, or a few of the US States.  That is why you spread them out and don't chase high yields.  4 % is easily done.  8 % put away for 35 years would be an astounding sum.  But most people just blindly went to work, put almost nothing away.  Look at the average networth statistics.  Horrifying.  Then now they retire and get 1500 a month between them.  Luckily they have medicare.  Lucky are they if they can move in with sons or daughters.  But in this day and age where so much financial information is out there, it is a shame how little time people spend on their financial planning.  Sure most people may not like it, or be bored by it, etc.  So the alternative is to just ignore it, go to work and hope the Government takes care of things? 

 

It is a world of choices.

[gk10002000]

10 hours ago, Grumpy Duck said:

I have worked for a living all my life, I consider "investing" to be no different than gambling at a casino. When a salesperson refers to something as an "investment" I see red flags experience showed me it was really overpriced. However,  I have read too many articles about IRA's ripping people off the only person making a profit are the fund managers and lousy investments paying the managers. 

I feel sorry that you don't understand what an IRA is.  You don't have to and should not turn your IRA over to some manager unless you really trust them and they show you how good they are.  IRAs are yours.  You can buy, sell trade or do whatever you want in them.  BUy bonds, Dividend paying stocks (ATT) or whatever.  My IRAs are in Etrade but Etrade doesn't do anything with them.  And having more then 50 K there are no service or maintenance fees.  You worked hard for your money.  You should take the time to learn better way to invest.  Investing doesn't have to be some quick rich scheme, buy some burger chain, some lush real estate developoment, etc.  Be a tortoise.  Slow and steady. Take 4 % tax free and just sit back. 

[CaptHaddock]

32 minutes ago, gk10002000 said:

You are being a nit.  I never said he did not have to pay SE tax.  In fact I said he should go self employed if he wants to be sure he contributes to SSA.  I never said there is exclusion for Self employment.  You are being pig headed and just reading that into.  You are listening to refute as they say.

 

  As for risk, there is much less in owning pieces of hundreds or even thousand of bonds spread across industries, sectors, and all of decent ratings, not junk bonds mind you.  bond defaults are very very low. They do happen but the risk is negligible except for crazy junk bonds or municipal bonds if you chase yields offered by risky places like Puerto Rico was, or a few of the US States.  That is why you spread them out and don't chase high yields.  4 % is easily done.  8 % put away for 35 years would be an astounding sum.  But most people just blindly went to work, put almost nothing away.  Look at the average networth statistics.  Horrifying.  Then now they retire and get 1500 a month between them.  Luckily they have medicare.  Lucky are they if they can move in with sons or daughters.  But in this day and age where so much financial information is out there, it is a shame how little time people spend on their financial planning.  Sure most people may not like it, or be bored by it, etc.  So the alternative is to just ignore it, go to work and hope the Government takes care of things? 

 

It is a world of choices.

The OP says that he "plans on working and running a business for some time."  So, he is and will be self-employed.  His self-employment is not a hypothetical that he could exchange for local employment covered by the FEIE as you suppose out of thin air.

 

8% safe bond yields is a world of fantasy.  Especially for a period as long as 35 years. 

 

The OP is 53 years old and says nothing so suggest that he has a history of successful investing.  To suggest that he close his apparently income-producing business to avoid the SE-tax so that he can embark on investment at an age when he can tolerate essentially no risk is the height of irresponsibility.  In fact, he should do exactly the opposite: try to grow his business so that he can pay more SE-tax thereby buying more of the safest annuity in the world: SS. He should be sure to file for the years that he did not file and pay his SE-tax for those years.

 

If he has further savings from his income he should also buy a private life annuity to supplement SS since at his age his best option is to pay the SSA and a private insurer to accept his longevity risk which he lacks the assets to cover himself.  Then, as I suggested earlier, he should move somewhere where he can live on his SS and private annuity.  If Thailand is not cheap enough he should look elsewhere.

[mrwebb8825]

17 hours ago, Pib said:

 

Where you say "I'd get my full entitlement, your full entitlement will be based on "Your Taxed Social Security Earnings."  

 

If no earnings have the social security tax applied, then no entitlement is earned.   Normally a person needs to earn 4 social security credits per year for at least 10 years for a total of at least 40 work credits to earn an entitlement on their earnings record which means the social security tax must be paid.   Either your employer making the social security tax payment through with-holdings to your paycheck or you paying them separately if self-employed. Below is quote from the Social Security Annual  Statement that sums it up.     

 

 

Assuming you have already earned 40 credits before retiring to Thailand, then you do indeed have a social security pension entitlement of X-amount whether you need to file a tax return or pay social security tax.   I'm assuming that is your situation which is similar to mine where I retired to Thailand around 10 years before starting my social security pension....I started the pension before my full retirement age.  Now I already had over 35 years of social security earnings and taxes paid so I was not hurt by the social security 35 year averaging rule. But say I had only worked 20 years, I would have ended up with 15 years of "zero" earnings/social security taxes paid and that would have lowered my entitlement using that 35 year averaging formula.

 

If a person paid social security tax for some years and for other years didn't, then those years he didn't pay any social security tax are years he earns zero work credit for social security pension purposes.    Remember, the basic social security pension formula is based on your indexed for inflation social security taxed earnings.....low earnings earning or no taxed earnings for X-years means a lower social security pension entitlement.   The social security pension is different for everyone because everyone made different earnings and paid different taxes during their work life.

 

Don't confuse whether you need to file a federal income tax return or not with the possible need to pay social security tax....two different animals.

 

 

 

Just to put your mind at ease, I started working at 12 yrs old and continued to work and pay into SS until I chucked it all in, quit the rat race of corporate America and moved here.

Around 4 yrs after I moved here I got a "booklet" in the mail saying that at 66yrs, 10 months, I qualified for $997 a month. That was 11 yrs ago so I can only imagine it has gone up a bit.

My last 6yrs working in the states for AT&T I was pulling down around $80k a yr.

[CaptHaddock]

54 minutes ago, mrwebb8825 said:

Just to put your mind at ease, I started working at 12 yrs old and continued to work and pay into SS until I chucked it all in, quit the rat race of corporate America and moved here.

Around 4 yrs after I moved here I got a "booklet" in the mail saying that at 66yrs, 10 months, I qualified for $997 a month. That was 11 yrs ago so I can only imagine it has gone up a bit.

My last 6yrs working in the states for AT&T I was pulling down around $80k a yr.

As I read this, it sounds as though you are not collecting the SS benefits to which you are entitled.  Can that be correct?  Or have you not yet reached Full Retirement Age?

[quandow]

I love the TV community and many folks have experience in most topics but good GAWD, man, contact Social Security for concise answers.

[mrwebb8825]

On 5/27/2017 at 11:40 AM, CaptHaddock said:

As I read this, it sounds as though you are not collecting the SS benefits to which you are entitled.  Can that be correct?  Or have you not yet reached Full Retirement Age?

You are correct. 8 yrs to go. :)