<p>^ Because that would hit the people who get the smallest benefits, who can least afford it, the hardest. It would be very regressive.</p>
<p>But even with their ss taxable they might still be below the threshold to actually have taxable income.</p>
<p>So… the people getting smaller benefits, who will collect far more than they have paid in, will not pay taxes on the surplus because they are below the threshold, and the people with large benefits, who will never get back what they paid in, won’t have to pay the tax either.</p>
<p>I don’t think this is going to raise too much money.</p>
<p>Most of the people paying the max amount get back more than they paid in a very short period of time.</p>
<p>^ it’s not really fair if you don’t adjust for inflation. I’ve been paying in since 1965 or thereabouts.</p>
<p>But it would be the same for everyone. You pay tax on the amount that is in excess of what you contributed.</p>
<p>But, if I contributed $2000 in 1965, that’s very different to contributing $2000 in 2013. So, it benefits people whose contributions were made late in the game rather than early. In any case, it’s the age old story that capital gains should be inflation adjusted. If I bought stock in 2012 for $100,000 and it is now worth $102,500 – did I make a profit of $2,500 that should be taxed (assuming inflation rate of 2.5%)? I can buy just as many bananas now as I could in 2012 with the money; no more and no less.</p>
<p>I understand your point but that makes the system too complicated. The length of time you contributed and the amount you receive in benefit will balance out your 1965 contribution to someone else’s 2013 contribution anyway.</p>
<p>We have decent 401K balances. But they were done tax-deferred, not Roth. For projections, it is important to factor in the fact that our 401K withdrawal will be taxed.</p>
<p>“Most of the people paying the max amount get back more than they paid in a very short period of time.”</p>
<p>How can that be? It doesn’t seem to work out numerically. Say you pay the max for 40-45 years, what would that end up being, about 300K or so (not adjusting for inflation, or any interest----but imagine how much that money would have been, invested in the S&P for 45 years)?</p>
<p>Then you collect at age 67, about $2,500/mo or so…potentially get taxed out of it by up to 40% (not including state taxes), and you end up with a big 18K/year. How long would you have to live, based on your tax rate, to get your money back. About age 84 or so? And that’s not even looking at inflation or interest. It would have been worth many millions, invested.</p>
<p>I realize, though, that this is not the retirement plan that was advertised. I don’t have a complaint with people paying in to support each other, nobody wants to see the elderly on the street. But I definitely don’t buy that if you pay the max for many decades, that you will get back what you put into it in a very short period of time!</p>
<p>"We have decent 401K balances. But they were done tax-deferred, not Roth. For projections, it is important to factor in the fact that our 401K withdrawal will be taxed. "</p>
<p>Yes, that is significant! I know you can covert IRAs, but I don’t know about 401K’s. Of course, the market may be so crazy high that it isn’t worth it, anyways, even if you could do it.</p>
<p>^^You can if you roll the 401Ks into IRAs first.</p>
<p>It might be a good idea to take into consideration your age and tax bracket and convert some every year instead of all at once. Keep it taxed at a lower rate. The biggest benefit, besides then growing tax free is that money in a Roth is not subject to RMD.</p>
<p>Before anybody does that though, consider doing the back door Roth contribution if your income is too high to contribute to a Roth. I know we’ve discussed this here before, but for those who don’t know: You can contribute to a traditional IRA and immediately convert if your income is too high for a Roth. But if you already have IRAs, take that into consideration first. So if your retirement income is in 401Ks, think about this method BEFORE you roll to IRAs.</p>
<p>busdriver- you would not pay any tax in my proposal until you collect all your contributions back. Over the last 40-45 years the max ss paid by an individual was no where near $300,000. The max now is about $7k. I would say someone that paid the max for 40-45 years would have paid closer to $200k (most people did not pay the max their entire career) or less.</p>
<p>You would get $2533 or about $30,300 so you would get all your money back in about 7 years. I have read that most get everything back in 5 years or less.</p>
<p>BD - Not fair to compare SS tax with investing 100% in S&P. No one invests 100% in stocks if they are expecting a guranteed income.</p>
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<p>I stand corrected. How about this case; Can you start collecting your own SS and switch to your spouse’s later?</p>
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<p>The only way this would be beneficial is if your own benefit is less than 50% of your spouse’s benefit. The FAQ at <a href=“http://www.ssa.gov%5B/url%5D”>www.ssa.gov</a> says
I’m not sure, but I think that means that you can request a change to spousal benefits after you’ve already been collecting on your own. Best to check with your local SSA office to be sure, though.</p>
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Assuming 3% wage inflation adjustments, a person my age who works to FRA and makes the maximum each year will have contributed about $270,000.</p>
<p>A person who retires at FRA this year and paid the maximum will have paid half of that.</p>
<p>[Annual</a> Statistical Supplement, 2010 - History of OASDI Coverage, Financing, and Insured Status (2.A1-2.A7)](<a href=“Annual Statistical Supplement, 2010 - History of OASDI Coverage, Financing, and Insured Status (2.A1-2.A7)”>Annual Statistical Supplement, 2010 - History of OASDI Coverage, Financing, and Insured Status (2.A1-2.A7))</p>
<p>That means it would take about 9 years to get my money back, assuming none of it is taxable.</p>
<p>It also assumes a 0% rate of return, which if you were running a real retirement plan with these kinds of returns, you would have been fired after the first year or two.</p>
<p>That does not include the employer contribution, which roughly that amount. Now we are out to 18 years, which exceeds the average life expectancy of a 67 year old person.</p>
<p>I use an annuity calculator to estimate the present value of SS. It’s not bad at all. In our case, it’s about the same as our 401k.</p>
<p>For the OP, I found this calculator useful:</p>
<p>[Retirement</a> Planning Tool - Visual Calculator](<a href=“http://www.marketwatch.com/retirement/tools/retirement-planning-calculator]Retirement”>Retirement Planning - Financial Planning for Retirement - MarketWatch)</p>
<p>It is interesting to read differing views/approaches to retirement. For me, waiting until age 70 to collect SS is the “no brainer.” My fear is running out of money and living forever. My best chance at avoiding running out of money is to maximize my SS annuity, which is done by waiting until age 70. I only recently learned about the “file and suspend” strategy. My wife and I are the same age, so we will probably do that at age 66. </p>
<p>When I stopped working and had almost no income, another “no brainer” was to do some small IRA to Roth conversions that created taxable income, but not enough to produce a significant tax bill. I did not convert large chunks (or all) of my traditional IRA which would have resulted in a hefty tax bill. I understand that might have been a good long run decision, maybe not. For me, the easy obvious thing to do was at least convert minimal amounts that didn’t produce a tax bill. In fact, the income created by Roth conversions let me take advantage of energy tax credits one year. </p>
<p>My last job ended in 2007, and I only recently realized that I actually was “retired” and probably could stay retired given our financial situation. We won’t need (nor will we have) anywhere near $200,000 per year in retirement income. I am having so much fun with hobbies, recreation, volunteer work, and other activities that I am grateful every day that I have the luxury of not working. If we had a lot more money the only thing that would change is we would do more international traveling. Otherwise we are muddling along just fine, spending much less $$ in NC than we would be in NJ.</p>
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<p>We are currently discussing where to go when we no longer need to be near NYC (probably in the next 5-6 years). Some contenders are Oregon and Maine, but we also want someplace warmer for a few months. We like our house, but the property and income taxes and general cost of living are not worth it if we don’t need to be here, and we’ll be empty nesters in 3 years. If you don’t mind my asking, what area of NC are you in, and do you have any regrets?</p>
<p>Thanks NJRes. </p>
<p>lxnayBob, we are in Maine and no way we retire here. Cost of living is astronomical (check out property tax and income tax rates).</p>