Social security by the numbers

[Redmt]

I worked lots of cash jobs.
I then paid the taxes due.

Hey Hank, I was curious if there was a requirement to pay into SS? I received 1099's for cash labor jobs that obviously I paid the taxes due but never paid into SS for them.

 

[SAJ-99]

Hey Hank, I was curious if there was a requirement to pay into SS? I received 1099's for cash labor jobs that obviously I paid the taxes due but never paid into SS for them.

Go in and set up a login and check your account.

Plan for retirement

Estimate your benefit amount, determine when to apply, and explore other factors that may affect your retirement planning.

www.ssa.gov

 

[Redmt]

Go in and set up a login and check your account.

Plan for retirement

Estimate your benefit amount, determine when to apply, and explore other factors that may affect your retirement planning.

www.ssa.gov

I've been on SS for 10 years.

 

[SAJ-99]

I've been on SS for 10 years.

Then why the question. To over simplify, If you paid taxes on a 1099, you paid into SS. The government put it in the right spot.

 

[Wildabeest]

Hey Hank, I was curious if there was a requirement to pay into SS? I received 1099's for cash labor jobs that obviously I paid the taxes due but never paid into SS for them.

It’s often referred to as “self employment tax”. You pay both the employee and employer portions towards both SS and Medicare if you have income reported on a 1099-NEC.

 

[hank4elk]

Hey Hank, I was curious if there was a requirement to pay into SS? I received 1099's for cash labor jobs that obviously I paid the taxes due but never paid into SS for them.

I had asked the IRS about what my share was on my income. It was applied to SS when I paid taxes.
Workers Comp. was a separate issue. Deductions ,etc...

I even paid my SS dues when I left temp. city job to county. So there was no gaps to ?

Many fed and government agencies do not pay in, in exchange for pension,health ,etc.. plans.
My neighbor worked for USDA-FS for 35 years and is now having issues with Medicare and SS payments.
He's playing catch up. Luckily he has a pension to use.

 

[Bonasababy]

Same here and I look at my own family as the perfect example.

My grandfather had a RR pension, did not draw SS, and he lived very comfortably and retired in his late 50's, 58 IIRC. Lived to be 85.

My Dad has 2 pensions, from Union controlled pensions that are a majority of his retirement income, as well as union covered secondary health insurance for both him and my Mother. Without that, they would be in a pretty tough spot with just SS income.

I also agree with you that the average American blue collar worker is really getting the shit end of the stick with a 401 type program. Mainly because most simply can't afford to put much more than 2-3% company match into a 401. Further, many don't have the time or training, etc. to know HOW to invest within the 401 programs. I work with a bunch of people that simply don't have the experience, knowledge, or mentors to show them and explain the different investment options within a 401 type program. I was lucky that I have a very close friend that gave me advice, and good solid advice, in how to invest a long time ago. I owe him, and I'm thankful every time I look at my investments that he was willing to help me out.

Make no mistake the 401 deal is a much better deal for corporate America than the working class, also a much better deal for those that make 6 figures than for those that don't (for obvious reasons).

The American working class was sold a bill of goods by dissolving DBP's, and many are about to find out.

Many employers are taking steps to simplify their retirement plans for workers, often going with fewer choices which I am not a fan of as I have been handling our investments for years and rather have many options, but I get the sentiment.

If I didn't have a pension I would sunk a lot more into our retirement plan and done OK--but I know many are not that capable or disciplined.

 

[npaden]

If memory serves, before an employer can offer a lump sum option on a defined benefit pension, they have to meet a threshold, of pension solvency.

A company offers a pension in order to attract and retain employees. It is NOT the employee's fault, that a pension fund is insufficient. More than a few companies defer making payments into their pension fund, assuming a later date will be a time easier to make the payment.

imo, it is no different than an employee saving for their retirement. If you skip payments into the fund, it will likely come up short, when the retirement date arrives.

These pension plans were in the "green" zone under PBGC the entire time. They were not skipping payments into the fund, actually the opposite, they were paying extra voluntarily.

Even with that they are up to close to 35% of current employee salaries to stay in the green zone. It is more a matter of demographics than anything else. Same thing is happening with social security. More people taking out of the plans than putting into the plans. To make the math work on a pension plan the contribution rates have to go up.

They are getting to the point that most companies are having a hard time attracting and retaining employees because they can't afford to pay a competitive salary AND pay in as much as 35% of salary into a defined benefit plan. Most younger employees would rather make $100,000 and have a 8% match on a 401k plan than make $80,000 and have $28,000 contributed on their behalf into a defined benefit plan. Same $108,000 out of pocket for the employer but they are going to get way more interest in the job posting with the first option.

I don't blame them, if you do the math the employee is going to be way better off deferring $20,000 of their own salary plus the $8,000 match into a 401k than they would under a defined benefit plan. A defined benefit plan is investing for the entire block of employees and can't invest as aggressively as a younger employee could. Most of my pension plans are looking at expected rates of return just barely over 7% where I think a aggressively invested 20 or 30 year old should be expecting closer to 9%.

All that said, I think the average person is probably not going to earn the $100,000 and put $20,000 into their 401k. They are going to earn the $100,000 and hopefully at least put in $8,000 to get the match but some aren't even going to do that.

We are moving (actually I think we already are there) to an instant gratification culture and people want the money now and they will worry about retirement when they get there. If you are relying on social security for retirement purposes then you will most likely have enough to feed yourself but not much else.

 

[Bonasababy]

View attachment 363803

huh?

A 10 percent expected rate of return is nearly twice what any advisor would suggest using---unless they are looking backwards. Pension reform experts have long pointed to unrealistic ROR expecations and their suggestions are more like 6 to 8 these days, And a 4 percent withdrawal rate on 11 million over a generous 30 years (living to 97 in this scenario) is nearly 65K a month, 52K if you want the amount to keep up with inflation.

FWIW I hope to retire several years younger than 67, my pension is going to be a fair amount higher than this example--AND (this is important to factor in) it keeps up with inflation using COLA's the rest of our lives--that's with the reduction to keep the same amount for my wife if I die first (it's even higher at lesser levels of reduction).

Lost entirely in these simple projections is any cost to support others. As there is cost, and there always will be cost, whether we like it or not.

That's the real value in SS, the biggest idiots or clueless in money handling can't mess it up.

The origin of the word "Social"...It is and was always designed to be a partial safety net to provide a base for retirement that yes helps the individual--but importantly helps others have to pay less for each other as well.

Bush (Dubya) ran for POTUS on an initial platform of ending or privatizing social security. Sounds good to some--but the initial cost is unbearable, especially for a country in as much debt as we are. Dubya dropped it like a rock soon after taking office.

 

[Pucky Freak]

The killer was the low discount rates from the early 2000s up until 2022.

What does that mean?

 

[Bonasababy]

These pension plans were in the "green" zone under PBGC the entire time. They were not skipping payments into the fund, actually the opposite, they were paying extra voluntarily.

Even with that they are up to close to 35% of current employee salaries to stay in the green zone. It is more a matter of demographics than anything else. Same thing is happening with social security. More people taking out of the plans than putting into the plans. To make the math work on a pension plan the contribution rates have to go up.

They are getting to the point that most companies are having a hard time attracting and retaining employees because they can't afford to pay a competitive salary AND pay in as much as 35% of salary into a defined benefit plan. Most younger employees would rather make $100,000 and have a 8% match on a 401k plan than make $80,000 and have $28,000 contributed on their behalf into a defined benefit plan. Same $108,000 out of pocket for the employer but they are going to get way more interest in the job posting with the first option.

I don't blame them, if you do the math the employee is going to be way better off deferring $20,000 of their own salary plus the $8,000 match into a 401k than they would under a defined benefit plan. A defined benefit plan is investing for the entire block of employees and can't invest as aggressively as a younger employee could. Most of my pension plans are looking at expected rates of return just barely over 7% where I think a aggressively invested 20 or 30 year old should be expecting closer to 9%.

All that said, I think the average person is probably not going to earn the $100,000 and put $20,000 into their 401k. They are going to earn the $100,000 and hopefully at least put in $8,000 to get the match but some aren't even going to do that.

We are moving (actually I think we already are there) to an instant gratification culture and people want the money now and they will worry about retirement when they get there. If you are relying on social security for retirement purposes then you will most likely have enough to feed yourself but not much else.

What I have suggested to folks with pensions like mine is to consider them the safer portion of your portfolio. When young it can then free up the need to have some in that in your 401K, 457 etc., you can load up on growth choices in them while knowing you have the safety net in SS and Pension.

FWIW We didn't do this all the way, was planning more for what we wanted and certainty more than maximizing income while taking on more risk. Granted my match was laughable and my wifes wasn't high.

 

[406dn]

What does that mean?

Interest rates are used to make assumptions on what a retirement lump sum will earn, during the pensioner's retirement. Lower interest rates infer a lower rate of return on the lump sum. Thus the lump sum is increased to an amount to be equivalent what the pension would provide, if the person took the monthly pension.

At the company I worked for, everyone watched the interest rates, carefully. A lower rate is worth a nice chunk of money, on a lump sum.

 

[npaden]

What does that mean?

Not sure if all plans are like this or just the ones I am involved with but all of the ones I'm aware of allow a lump sum distribution option. They calculate out what you would get paid monthly and your life expectancy and then the compute the net present value of those projected payments. When the discount rate is low the net present value calculation is higher so the lump sum payout is higher.

Example: You retire at 65, life expectancy is 83 and your projected pension is going to be $5,000 per month. At a 5% discount rate (about where we are right now) the net present value of those payments would be $686,196. You can take that in one payment now and be responsible for investing it on your own or you can take the $5,000 per month until you die. Based on your life expectancy that will be $1,020,000 over those 17 years.

If the discount rate is extremely low (it got under 3% for a while) that lump sum payment goes up. At 3% the lump sum would be $798,244. And you get that no matter what. If you die in 5 years your beneficiaries would still have the money, if you were being paid monthly that would stop (unless you had spouse coverage, etc.)

At a discount rate of 7% (which is around where it was when most of these pension plans were started), the lump sum would be $595,479 which is less than half of the expected monthly payments and would be a much harder decision.

Starting in 2008 the discount rate dropped under 5% and stayed there until 2022. Some of those years it was under 3%. To put extra pressure on the pension plans that also corresponds with times where at least the bond market is depressed and for some of that time the equity markets were depressed. So the rates drop low, and the pension plan has to sell assets at low prices to get the cash to pay out the lump sum payments. It's a double whammy. They had planned on those funds being invested over the next 17 years to help pay for some of those payments but instead they are being cashed out.

Not sure I'm doing a good job of explaining it but trust me, it was a bad deal for the plans paying out those lump sums. You used to have to really make a tough decision on whether to take the lump sum or the monthly payout but with the low discount rates EVERYONE took the lump sum. It would have been crazy not to.

 

[BuzzH]

These pension plans were in the "green" zone under PBGC the entire time. They were not skipping payments into the fund, actually the opposite, they were paying extra voluntarily.

Even with that they are up to close to 35% of current employee salaries to stay in the green zone. It is more a matter of demographics than anything else. Same thing is happening with social security. More people taking out of the plans than putting into the plans. To make the math work on a pension plan the contribution rates have to go up.

They are getting to the point that most companies are having a hard time attracting and retaining employees because they can't afford to pay a competitive salary AND pay in as much as 35% of salary into a defined benefit plan. Most younger employees would rather make $100,000 and have a 8% match on a 401k plan than make $80,000 and have $28,000 contributed on their behalf into a defined benefit plan. Same $108,000 out of pocket for the employer but they are going to get way more interest in the job posting with the first option.

I don't blame them, if you do the math the employee is going to be way better off deferring $20,000 of their own salary plus the $8,000 match into a 401k than they would under a defined benefit plan. A defined benefit plan is investing for the entire block of employees and can't invest as aggressively as a younger employee could. Most of my pension plans are looking at expected rates of return just barely over 7% where I think a aggressively invested 20 or 30 year old should be expecting closer to 9%.

All that said, I think the average person is probably not going to earn the $100,000 and put $20,000 into their 401k. They are going to earn the $100,000 and hopefully at least put in $8,000 to get the match but some aren't even going to do that.

We are moving (actually I think we already are there) to an instant gratification culture and people want the money now and they will worry about retirement when they get there. If you are relying on social security for retirement purposes then you will most likely have enough to feed yourself but not much else.

That's a great post for the 18% of the American public who make 100k+ per year.

What about the other 82% that make less?

 

[npaden]

That's a great post for the 18% of the American public who make 100k+ per year.

What about the other 82% that make less?

You can take those numbers and divide them in half and it stays the same. Even proves the point even better actually.

Which do you think is going to attract a higher quality employee. $50,000 plus 8% match on the 401k or $40,000 and contributing $14,000 into a pension plan for them?

 

[BuzzH]

You can take those numbers and divide them in half and it stays the same. Even proves the point even better actually.

Which do you think is going to attract a higher quality employee. $50,000 plus 8% match on the 401k or $40,000 and contributing $14,000 into a pension plan for them?

What makes you assume that an employee making 50K a year is going to be able to afford an 8% match?

Apparently you must think they live in their parents basement and don't have rent, don't have food expenses, insurance bills, etc. etc. etc.

You're proving my point as to exactly why the only winners in a 401 system are those that make high enough income to be able to afford to contribute to them. I deal in reality, you seem to be stuck in a fantasy world where a 50K a year employee has all this spare money to invest.

Fact is, they don't and I know because I work with a bunch of them. It seems you're too far removed from people who make lower incomes to understand their reality.

The only "winner" in your example is the company that gets off the hook paying zero toward their retirements because they don't pay them enough to afford to. The other reality you're missing, many companies don't offer an 8% match. Taking it one step further, the company could offer a 30% match and not many, if any, $50K a year employees would be able to afford it.

Make no mistake, the reason companies fought pensions is because it was better for their bottom line, no question and no debate about it.

 

[Bonasababy]

You can take those numbers and divide them in half and it stays the same. Even proves the point even better actually.

Which do you think is going to attract a higher quality employee. $50,000 plus 8% match on the 401k or $40,000 and contributing $14,000 into a pension plan for them?

What about a pension and a retirement plan with little or no match? Offered both by the employer?

 

[npaden]

What makes you assume that an employee making 50K a year is going to be able to afford an 8% match?

Apparently you must think they live in their parents basement and don't have rent, don't have food expenses, insurance bills, etc. etc. etc.

You're proving my point as to exactly why the only winners in a 401 system are those that make high enough income to be able to afford to contribute to them. I deal in reality, you seem to be stuck in a fantasy world where a 50K a year employee has all this spare money to invest.

Fact is, they don't and I know because I work with a bunch of them. It seems you're too far removed from people who make lower incomes to understand their reality.

The only "winner" in your example is the company that gets off the hook paying zero toward their retirements because they don't pay them enough to afford to. The other reality you're missing, many companies don't offer an 8% match. Taking it one step further, the company could offer a 30% match and not many, if any, $50K a year employees would be able to afford it.

Make no mistake, the reason companies fought pensions is because it was better for their bottom line, no question and no debate about it.

They have $10,000 more than the guy with the defined benefit pension plan. They could put $4,000 of that into the 401k and have $6,000 left over to pay for groceries.

Seems way better than taking a job paying $10,000 less and having the company put in a bunch of money into a pension plan for them.

In my example the employer is out the same amount either way but the employee is better off with the 401k.

I think you proved my point.

 

[kodiakisland]

What makes you assume that an employee making 50K a year is going to be able to afford an 8% match?

Apparently you must think they live in their parents basement and don't have rent, don't have food expenses, insurance bills, etc. etc. etc.

You're proving my point as to exactly why the only winners in a 401 system are those that make high enough income to be able to afford to contribute to them. I deal in reality, you seem to be stuck in a fantasy world where a 50K a year employee has all this spare money to invest.

Fact is, they don't and I know because I work with a bunch of them. It seems you're too far removed from people who make lower incomes to understand their reality.

The only "winner" in your example is the company that gets off the hook paying zero toward their retirements because they don't pay them enough to afford to. The other reality you're missing, many companies don't offer an 8% match. Taking it one step further, the company could offer a 30% match and not many, if any, $50K a year employees would be able to afford it.

Make no mistake, the reason companies fought pensions is because it was better for their bottom line, no question and no debate about it.

Drive down the interstate. Who do you think is driving all those new vehicles? Many can afford it but choose debt over long term stability.
Part of the problem with today's society. They want a safety net. Paid for by those who made better choices.

 

[BuzzH]

They have $10,000 more than the guy with the defined benefit pension plan. They could put $4,000 of that into the 401k and have $6,000 left over to pay for groceries.

Seems way better than taking a job paying $10,000 less and having the company put in a bunch of money into a pension plan for them.

In my example the employer is out the same amount either way but the employee is better off with the 401k.

I think you proved my point.

How about the company pay people enough so that they can pay their bills and also contribute to a 401?

You're living in fantasyland if you think a $50K a year employee can afford even 8% (assuming the company offers any kind of 401 program).