Social Security

Most people elect the reduced rate of 80% when filing at age 62 instead of 66 which is the full retirement age today. Medicare benefits begin at age 65 however, so a person has a blackout period of medical insurance until that age. Another consideration is that if a spouse has died before you are age 62, there is a blackout period of no benefits at all until you reach age 62-- even if your spouse has been receiving benefits. Furthermore, your early retirement can be reduced or forfeited if earned income is over $15, 720. Benefits accrue until age 70 so the longer you live to apply, the higher monthly payments you will receive. The two primary considerations for early benefits are the possibility of losing money if income exceeds the low earned income figure, and the other is the cost of medical insurance if you are leaving a job that pays for medical insurance. The last consideration is that you will be receiving reduced benefits forever. Many people work until age 65 or 66 to receive the full base benefit with Medicare.

You receive benefits in arrears, that is, you will receive monthly benefits on the last day of the month following your birthday, which the effective date is based on. There is a twist to the benefit paid because if you should die before the month is over, you would receive no benefits for that month. Yes, you or your heirs can be shorted by the month. I found this out when my mother died on the last day of the month. Her wired Social Security check had just been received by the bank. The next day they reversed the charge and took it back out. There is immediate National notification of deaths to the Social Security roster which enables the quick rescinding of benefits. This is offset with a tiny check of $255 for funeral costs. I imagine this was put together in the Great Depression when funerals were a bit cheaper. This is actually the amount the nearby funeral home charged to receive my mother, instead of the nursing home sending her elsewhere to be cremated [as they were instructed].

An additional note is that the Social Security tax in 2015 was 14.4% times gross wages up to $118,000 which has a bad habit of increasing every year. The Medicare tax is 2.9% times unlimited wages. In addition, if earnings are above $125,000 an additional tax of .9% is applied to the excess earnings. To reach further into your pocket, there is another 3.8% Medicare tax on investment income over $125,000. Today’s Medicare insurance premiums, which are deducted from your benefits check, are dramatically increased [tripled] if your Gross Income [not Earned income] is over $85,000 to $129,000.

Worth noting is that Social Security benefits are pegged to the amount you have earned except I have never seen benefits increase beyond earnings of $50,000. Cost of living indexes are especially lowered for the annual mark up of benefits. Increased taxes or fees don’t count. I’m thinking of the recycling fees on cans and bottles, tire, appliance, paint can, and electronics recycling fees, lumber fees [I’m not sure what they named this new one], gasoline and other sales taxes don’t count. Accordingly, there has been no cost of living increases in the past two years. After all, this is not City Hall here. The maximum amount of benefits being paid this year is about $25,000.

Invested benefits of Social Security funds for the time you worked to the time you received benefits [fifty years or more] may be lost. The invested money surplus [received V.S. paid out] has been invested in special Treasury bonds. II f you read the top of our paper money it will say “Federal Reserve Note.” The Social Security funds were receiving the same documents but never paid back. Accordingly, when the amount paid out exceeds the amount collected [coming up soon] the treasury will have to borrow more money to pay the difference. You got it; borrow more money to pay back a loan to the General Fund. Borrow from Peter to pay Paul.

The killer deal is that your Social Security benefits received are subject to income tax if your income is over $25,000 [including Social Security].

Why is the program bankrupt? Look around at the younger people receiving benefits; children of a deceased parent, retarded individuals of all ages, insane or disabled people, and the list goes on. Some people are passing on after working for many years, to never receive benefits, as well.

The good news is that unlike the IRS or FTB in California, the Social Security people will answer the phone promptly and have pretty good answers to your questions.

Confused? Then you are normal. There are books published that give more details. Like the Internal Revenue Code, they get bigger every year.

* Phillip B Chute is an Enrolled Agent, tested, licensed and appointed by the IRS directly. He has prepared or supervised over 25,000 tax returns over 30 years.