Double Income and Social Security Tax

[SplashMo]

For a married couple filing jointly what is the best technique for withholding security tax to maximize Social Security benefits as a couple? What is the smartest choice to make it fair for both people?

 

[Mary2e]

Your social security benefits are based upon the income you earn, not the social security taxes you pay. The last time I checked, your benefits are based upon an average of your highest 10 years of salary. You can't adjust the amount you pay - everyone pays 6.2% of their gross income until you have paid $7347 maximum based upon earing about $118k per year - whether you're married or not. Keep in mind your employer also pays a similar amount.

You can find all the information you could ever want about how your social security benefits are calculated here: http://www.ssa.gov/

 

[scrapquitler]

Your social security benefits are based upon the income you earn, not the social security taxes you pay. The last time I checked, your benefits are based upon an average of your highest 10 years of salary. You can't adjust the amount you pay - everyone pays 6.2% of their gross income until you have paid $7347 maximum based upon earing about $118k per year - whether you're married or not. Keep in mind your employer also pays a similar amount.

You can find all the information you could ever want about how your social security benefits are calculated here: http://www.ssa.gov/

This answer is correct. There are no options involved in Social Security tax.

OP, if you were asking about how to maximize your benefits once you reach the age of collecting your social security benefits, that is a whole different thing....once you reach 62 1/2 (or whatever the current age requirement is based on your birth year) you can choose to receive your benefits at a lower rate or wait until you are older (65? 67? it depends on your birth year) and get a higher monthly payout. And one spouse can collect on the other's beneifts if that spouse is deceased. These decisions can be complicated, and your pensions or other income can make a difference in that decision. But that's not what you asked. Maybe it's what you meant to ask?

 

[supersnoop]

There's a lot more to this question, and you really need to consult an expert. In dual-income households where both make about the same money, there isn't much of a strategy. But, if one makes significantly more than the other, the lower-income spouse is entitled to 50% of the higher-income spouse's benefit, but only after that spouse files. That spouse could file and suspend benefits in order to quality the other spouse. But that doesn't always work out better, either.

 

[SplashMo]

There's a lot more to this question, and you really need to consult an expert. In dual-income households where both make about the same money, there isn't much of a strategy. But, if one makes significantly more than the other, the lower-income spouse is entitled to 50% of the higher-income spouse's benefit, but only after that spouse files. That spouse could file and suspend benefits in order to quality the other spouse. But that doesn't always work out better, either.

Thanks everyone. So the spouse that makes less money gets an even share? That seems to work out well.

 

[Mary2e]

A spouse that makes less money gets 50% of the higher person's benefit OR their own benefit - which ever results in a higher payment. I think my mother made it on her own earnings by something like $100.

You should try the income calculators on the SSA site I linked above. It's always far better to use actual numbers than try to figure what is best from postings on an IBB.

 

[DVCcurious]

The last time I checked, your benefits are based upon an average of your highest 10 years of salary.

That is incorrect. SS is calculated on your 35 highest earning years, not 10. And they are all inflation-adjusted, so your earnings in 1980 will be adjusted to 2015 dollars if you were to retire this year.

It's also weighted so that the lower earnings "count" more towards the benefit. I don't know the exact calculation off the top of my head, but it's something like 60% for the first 30,000 earned, 30% for the next 30,000, and 10% for any amount above 60,000. So if you make 100,000 you will not get twice the benefit of someone who earns 50,000 per year. You'd get something like 20% more benefit.

When people say we can fix SS by making the benefits 'means tested' I just laugh because the benefits already are means tested and have been for a long time. In both the calculation of the benefit and the fact that SS benefits are taxed for higher earning retirees. Anything above about $32,000 is taxed if your a married couple: you don't have to be the Gates or Buffets to get your SS taxed.

 

[morgan98]

That is incorrect. SS is calculated on your 35 highest earning years, not 10. And they are all inflation-adjusted, so your earnings in 1980 will be adjusted to 2015 dollars if you were to retire this year.

It's also weighted so that the lower earnings "count" more towards the benefit. I don't know the exact calculation off the top of my head, but it's something like 60% for the first 30,000 earned, 30% for the next 30,000, and 10% for any amount above 60,000. So if you make 100,000 you will not get twice the benefit of someone who earns 50,000 per year. You'd get something like 20% more benefit.

When people say we can fix SS by making the benefits 'means tested' I just laugh because the benefits already are means tested and have been for a long time. In both the calculation of the benefit and the fact that SS benefits are taxed for higher earning retirees. Anything above about $32,000 is taxed if your a married couple: you don't have to be the Gates or Buffets to get your SS taxed.

This is a great post and when people want to discuss social security I always bring up this point. Everyone is taxed at the 6.2% on $118,000 of salary (with employer match) so everyone is taxes at the same rate. However, the benefit calculation is skewed towards those who earn less receiving a larger portion of their contribution as their benefit. I understand why this is done, but I wish more people understood this general concept.

 

[a742246]

That is incorrect. SS is calculated on your 35 highest earning years, not 10. And they are all inflation-adjusted, so your earnings in 1980 will be adjusted to 2015 dollars if you were to retire this year.

It's also weighted so that the lower earnings "count" more towards the benefit. I don't know the exact calculation off the top of my head, but it's something like 60% for the first 30,000 earned, 30% for the next 30,000, and 10% for any amount above 60,000. So if you make 100,000 you will not get twice the benefit of someone who earns 50,000 per year. You'd get something like 20% more benefit.

When people say we can fix SS by making the benefits 'means tested' I just laugh because the benefits already are means tested and have been for a long time. In both the calculation of the benefit and the fact that SS benefits are taxed for higher earning retirees. Anything above about $32,000 is taxed if your a married couple: you don't have to be the Gates or Buffets to get your SS taxed.

Thank you for posting. What you wrote is what I heard, you just reinforced what I heard.

 

[crisi]

There's a lot more to this question, and you really need to consult an expert. In dual-income households where both make about the same money, there isn't much of a strategy. But, if one makes significantly more than the other, the lower-income spouse is entitled to 50% of the higher-income spouse's benefit, but only after that spouse files. That spouse could file and suspend benefits in order to quality the other spouse. But that doesn't always work out better, either.

Even then, there is some strategy, depending on what your retirement goals are, your expected lifespan and what your other sources of income are. Most experts recommend delaying getting your SS check as long as possible so you max the benefits, but my husband and I - both fairly high earners - may end up choosing to take his early (men in his family tend to suffer from heart disease), mine late (women in my family tend to live well into their 80s), and live primarily off 401k disbursements anyway.

 

[havaneselover]

Even then, there is some strategy, depending on what your retirement goals are, your expected lifespan and what your other sources of income are. Most experts recommend delaying getting your SS check as long as possible so you max the benefits, but my husband and I - both fairly high earners - may end up choosing to take his early (men in his family tend to suffer from heart disease), mine late (women in my family tend to live well into their 80s), and live primarily off 401k disbursements anyway.

There's also a strategy for those of us who are divorced (and were married at least 10 years). If I don't remarry, I will claim my ex's at full retirement age (67) and restrict my larger personal benefit. I think at 70 (but maybe 71) I take my benefits and they've grown 8%/year from full retirement age.

 

[DVCcurious]

Even then, there is some strategy, depending on what your retirement goals are, your expected lifespan and what your other sources of income are. Most experts recommend delaying getting your SS check as long as possible so you max the benefits, but my husband and I - both fairly high earners - may end up choosing to take his early (men in his family tend to suffer from heart disease), mine late (women in my family tend to live well into their 80s), and live primarily off 401k disbursements anyway.

This is also what we are going to do. My wife and I make almost the same amount of money (there's about a 5% difference). We are both government workers with pensions so we're going to retire at 58. We won't even take 401k distributions because we won't need to with 2 gov't pensions coming in. We'll leave all that money to our kids. We'll take my SS at 62 and delay hers until 70. Whoever lives longer will get the age 70 benefit (if she dies first I can move over to her higher benefit). The break even is about 83 before delaying pays off, and I figure if we both see 83 then I'll be more than happy to have "lost money" by choosing to take SS at 62. But the age 70 benefit is necessary because there's a real possibility one of us will see 100. We're 40 and life expectancy is rapidly increasing with medical advances so in 60 years I'm sure 100 years old will be normal.

I highly recommend anyone below 35 years old do whatever they can to get a Federal government job. High pay, no layoffs, generous pension...It's the best.

 

[RitaE]

There are some apps and websites now that can assist anybody interested in maximizing their social security benefits - including the File and Suspend tactics that are optimal for married couples. They range from free and fairly useless … to costing $5 to $10 and being a good outline …. to costing about what a Financial Planner would charge you for the same information. In fact, many Financial Planners use the same sort of software when creating their recommendations.

Google around and see if you find anything that you feel is appropriate.

 

[Mary2e]

That is incorrect. SS is calculated on your 35 highest earning years, not 10. And they are all inflation-adjusted, so your earnings in 1980 will be adjusted to 2015 dollars if you were to retire this year.

It's also weighted so that the lower earnings "count" more towards the benefit. I don't know the exact calculation off the top of my head, but it's something like 60% for the first 30,000 earned, 30% for the next 30,000, and 10% for any amount above 60,000. So if you make 100,000 you will not get twice the benefit of someone who earns 50,000 per year. You'd get something like 20% more benefit.

When people say we can fix SS by making the benefits 'means tested' I just laugh because the benefits already are means tested and have been for a long time. In both the calculation of the benefit and the fact that SS benefits are taxed for higher earning retirees. Anything above about $32,000 is taxed if your a married couple: you don't have to be the Gates or Buffets to get your SS taxed.

I actually called in about this 2 years ago, and the agent I got on the phone said the 10 highest years will count after you've worked the requisite number of years. Perhaps I was misinformed.

 

[Sadie22]

I actually called in about this 2 years ago, and the agent I got on the phone said the 10 highest years will count after you've worked the requisite number of years. Perhaps I was misinformed.

Go to Social Security dot gov and get the real scoop.

 

[DVCcurious]

I actually called in about this 2 years ago, and the agent I got on the phone said the 10 highest years will count after you've worked the requisite number of years. Perhaps I was misinformed.

You need 40 quarters (10 years) of paying into the SS system to qualify for benefits. If you have 9 years working you haven't earned an SS benefit. That's where the #10 comes in. But your benefit is calculated on your top 35 working years. If you work less than 35 years you get a 0 for each of those years you didn't work.

 

[btk2333]

This is a great post and when people want to discuss social security I always bring up this point. Everyone is taxed at the 6.2% on $118,000 of salary (with employer match) so everyone is taxes at the same rate. However, the benefit calculation is skewed towards those who earn less receiving a larger portion of their contribution as their benefit. I understand why this is done, but I wish more people understood this general concept.

It is not exactly true that everyone pays 6.2%. If you are self employed you don't get an employer match because you are the employer as well. Therefore if you are self employed you pay double what a regular employed person pays into social security. Not saying this is fair or unfair just pointing it out

 

[havaneselover]

It is not exactly true that everyone pays 6.2%. If you are self employed you don't get an employer match because you are the employer as well. Therefore if you are self employed you pay double what a regular employed person pays into social security. Not saying this is fair or unfair just pointing it out

What you say is true, but you can also argue that if my employer weren't paying their portion of social security taxes on my income, I'd probably be paid more as the employer is looking at the total cost of employing me (salary, benefits, FICA, FUTA). Put another way, if I were responsible for all payroll taxes, my salary would likely be higher. My ex-husband worked in IT staffing and when he figured what he could pay someone and what his margin would be, a 1099 obviously could make much more / hour than a salaried employee but then they had to pay their own payroll taxes.

 

[nalajms]

I actually called in about this 2 years ago, and the agent I got on the phone said the 10 highest years will count after you've worked the requisite number of years. Perhaps I was misinformed.

My mother had the same conversation a couple of years ago with SSA. She was laid-off and went to a lower income the last 2 years before full collection of her SS benefits. Her benefits DID drop because of the lower income in the last 2 years. She had more than 10 years of work. So in her case, she should have just taken her benefits early because the drop in her salary caused the full benefits to decline and was only a bit more than the early benefits.

 

[eliza61]

This is also what we are going to do. My wife and I make almost the same amount of money (there's about a 5% difference). We are both government workers with pensions so we're going to retire at 58. We won't even take 401k distributions because we won't need to with 2 gov't pensions coming in. We'll leave all that money to our kids. We'll take my SS at 62 and delay hers until 70. Whoever lives longer will get the age 70 benefit (if she dies first I can move over to her higher benefit). The break even is about 83 before delaying pays off, and I figure if we both see 83 then I'll be more than happy to have "lost money" by choosing to take SS at 62. But the age 70 benefit is necessary because there's a real possibility one of us will see 100. We're 40 and life expectancy is rapidly increasing with medical advances so in 60 years I'm sure 100 years old will be normal.

I highly recommend anyone below 35 years old do whatever they can to get a Federal government job. High pay, no layoffs, generous pension...It's the best.

Lol, i keep my son's checking the usa jobs website.

I plan on retiring next year, my late husband was the higher wage earner. I'll l be 57, I plan on living the first two years out of my investments then at 59 I'll start pulling from his pension and social security, then at 60 my pension will kick in & at 70 I'll be forced to take my payout of my 401k and I'll switch over to my ss benefits

Lol I can't remarry before 62 I think because if I do I'd lose dh's benefits. no way no how. that's almost 4k a month. I'll date forever.