Social Security

So here’s a fun problem to have. In order to collect social security retirement benefits, you need 40 “credits”. You can earn up to 4 credits per year in any year where your earned income is at least $4,520. Which means you have to have 10 years of earned income to collect social security payments. So what about us poor schlups who have managed to retire on less than ten years of work?

I will only have 32 credits at the end of this year, and don’t plan on having any more wages in the future.

If I don’t pickup 8 more credits, all those social security taxes I’ve paid will have been wasted, and I’ll never see any benefit from them.

I’ve still got about 40 years until I’ll reach the qualifying age for drawing any SS retirement payments. So there remains a pretty good chance (though I have no plans for it)┬áthat I will fall into some kind of paid work at some point during the next four decades. Right now, I’ll just bank on that.

But if I get into my early 60′s and still haven’t managed it, I may have to do something silly, like create a company, and hire myself at a salary of $4,520 (or whatever the COLA has upped the numbers to 4 decades from now) just so I can pay some pay roll taxes and get my last 8 credits.

With the SS tax at something like 8%, and the minimum retirement benefit around $400/month. That would be a pretty good return. 8% of $4,520 = $361 x 2 years = $722 in additional SS taxes paid so that I can start drawing a monthly $400 check. Worth the hassle I think.

Of course, then there’s the issue that, well, who knows if I or the U.S. will even exist in 40 more years, nevermind SS.

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  1. Dreamer
    Posted March 29, 2012 at 10:20 am | Permalink

    Another 40 years??? Thats a long time

    Im not sure the state pension will be around by the time I get there, I think the age I can claim at the moment is 68, I think they will up it to 70 soon.

    Do you plan to live in the US when the spouse finishes work?

  2. Dreamer
    Posted March 29, 2012 at 10:22 am | Permalink

    Oops sorry, I posted on the wrong blog.

    I like your blog by the way though, so hello :)

  3. eva
    Posted March 29, 2012 at 11:42 am | Permalink

    I have a similar perplexing problem: I work for the government, where I pay into a defined benefit program: I have less than 10 SSA credits! BUT, I do not intend to stay long enough to become vested in the system…so I probably won’t get a pension either. (I *think* if I quit before vesting, I get some percentage of my contributions back, but the regulations are very complicated and I don’t quite understand them yet.)

  4. Posted April 1, 2012 at 12:27 am | Permalink

    @dreamer Thanks and hello!

    @eva It stinks. Pension payments can feel like a real waste when they have vesting schedules of 10+ years and you know you won’t make it to recover any of your money. I was in a pension plan at the utility company I worked at where we vested after just 5 years with a $300/month benefit when you reach age 65. My plan was to just get to my five years and quit, then start collecting my COLA’d $300/month 40 years in the future, though the company had other plans and I was swept up in a massive layoff after less than 3 years.

  5. Maus
    Posted April 2, 2012 at 10:21 pm | Permalink

    Hate to rain on the parade, but self-employed taxpayers must pay the full-freight for SS; so you pay close to 16%, then get to deduct a certain portion of that from your AGI. That means you’ll by paying $4520 x 0.16 = 723 x 2 = $1446 in 2012 dollars (about $3500 in 30 years at 3% inflation) to get those 8 credits. This reduces your ROI, but not by a horrific amount.

    More bad news. Your ultimate benefit is based on the average of your highest 30 years of wages. If I get past the six years of $0 income during my time as a monk, I’ll probably be relying on low four-figure amounts from my high school jobs.

    If you actively manage your rental properties (to overcome the passive income test), you may be able to file a Sched C instead of a Sched E and earn the 8 credits one-at-a-time over the next decade, while they are still cheap.

    And don’t forget that you can take a reduced benefit at 62 y.o. I’m grabbing mine as soon as I can because it is a classic Ponzi scheme.

    Ah, joy…

  6. Posted April 3, 2012 at 3:54 am | Permalink

    Hey Maus! Thanks for clarifying/muddling things up!

    I wouldn’t even bother with it, but I’m so close to getting the minimum benefit, I think it’s worth the last little bit of effort. The big screwgie would be if they upped the minimum credits required to collect up to 15 or 20 years. The horror!

  7. Posted April 3, 2012 at 11:11 pm | Permalink

    I was only with one employer long enough to become vested in the pension.

    It wasn’t much of a pension and I hardly paid attention to it. We used to joke that when the time came the monthly payment might buy us a loaf of bread.

    When I retired last year I dug out the paper work and applied for a lump sum payout figuring I could invest it better than they.

    The check they sent was for 85k. Not enough by itself to retire on certainly, but a very pleasant addition to the family.

  8. bigato
    Posted May 21, 2012 at 8:59 pm | Permalink

    By the date I plan to be FI, I will be three years away from the minimum I would need to contribute to get some pension later. If I don’t get back to getting a wage, it would be a nice idea to set up a business of some kind like you said.