Social Security’s Finances: Can You Say, “House of Cards?”

| September 17, 2016

There are a plethora of misconceptions out there regarding Social Security.  Some of the more common ones:

  1. I have a retirement account with Social Security.
  2. Social Security has plenty of money.
  3. I paid into the system, so I own something and am guaranteed payments.

Plus many, many more other mistaken ideas.

The truth is far different.  Regardless of how many people have claimed otherwise, Social Security is in effect the biggest Ponzi scheme ever run.  It has the false appearance of a retirement plan by design – indeed, that was only one of the lies told to get the US public to accept it.  But it’s not a retirement plan in any way.  If it were done by private industry, it would almost certainly be illegal.

However, until recently I didn’t know that much about the details of Social Security financing.  Yes, I knew it had something called  “Trust Funds” (more on why the quotes are there later in this article).  But I realized I didn’t know much at all about how they worked.  So I decided to see what I could find.

What follows is the result of that research.  This one’s rather long – so if you’re going to read it, keep that in mind.

Overview.

Here’s a brief overview of how Social Security operates.  It’s not complete, and is lacking some details.  But it hits the main points. It was also compiled from various documents on the Social Security Administration web site.

1.  Social Security is funded from multiple sources; those will be further identified below, but are generally identified in footnotes and/or explanatory text here and here. Those funding inputs are mingled and “laundered” through two so-called Social Security “trust funds” – which in reality are general purpose “slush funds” that receive every dollar that Social Security takes in, and from which all Social Security expenses get paid.  Thus, everything Social Security receives goes into one of two such “pots”:  one called “Old Age and Survivors,” and a second called “Disability”.  Everything Social Security must pay out is paid from one of those two common “pots”.   Anything left over at the end of the year “rolls over” and remains in the applicable “trust fund”.

2.  Those Social Security   slush funds    “trust fundsbuy “special” Treasury securities not available to the public. These “special securities” are always redeemable at face value.  They also accrue interest annually.  (Being government debts, the interest of course comes out of other Federal tax revenues or from borrowing by Uncle Sam.)

The Social Security      slush funds     “Trust Funds” buy these special securities on a daily basis. All Social Security expenses are paid by redeeming some of those “special” securities.

Since the same fund is used to receive current income and pay current expenses, this means that the “trust funds” are not investment funds.  Rather, they’re merely temporary buffers – just like an interest-bearing checking account (if you can still find one of those these days).   Benefits are still primarily paid from incoming tax receipts, but because these “trust funds” have a nonzero balance there’s a time lag between receipt of taxes and outlay of those same dollars due to the “trust fund’s” providing a buffer.  The length of this time lag has varied over time and depends both on the fund’s balance and the average benefits dispersed monthly.  Currently the Old Age and Survivors     slush fund      Trust Fund has a “buffer length” of somewhat over 3 years.  The Disability      slush fund      “Trust Fund” has much less of a reserve on hand; it’s in serious trouble.

3.  The Federal Government – not retirees – owns these “trust funds”. Technically, they are financial accounts belonging to the US Treasury.  All benefits are paid to qualifying individuals from these “trust funds”, as are other program expenses.  As noted above, it does this by redeeming those “special” Treasury securities you or I can’t buy.

4.  Individuals receiving benefits actually own nothing. Since Social Security is a government benefit and not something you own, Congress can change qualification requirements, benefit amounts, or even cancel the program outright if it so desires.  Don’t believe me?  Well, then you might want to read the SCOTUS case Fleming v. Nestor (1960).  There’s a link to that case later in the article.

5.  Social Security is primarily (at present, around 88% – and dropping) funded by payroll taxes on income below a certain level. These payments are not “retirement contributions”; they are taxes that are legally mandatory.  You do not have a “Social Security Account” with a calculable balance; all you have is an earning history.  That earning history is used – in a rather convoluted manner, which by design grossly favors career low-income wage earners at the expense of those earning a large income – to calculate the amount of the benefit the law deems you deserve.

6.  Benefits are paid, as defined by law, to those who qualify to receive them. Federal law defines who qualifies and what must be done to qualify.  Qualification requires two things:  meeting an age or disability threshold, and having enough “qualifying quarters” of work under Social Security for which you’ve paid your Social Security taxes.  Currently, one calendar quarter of coverage credit is given for each $1,260 earned in a calendar year; earn $5,040 in a year, and you’ve got a year’s coverage.   That number was lower in the past.

7.  Under current Federal law, 40 quarters of coverage over your entire working lifetime – in other words, 10 years – are all that is required to be “fully covered” and receive a benefit when you retire. Benefits based solely on age can be received as early as age 62 if not for disability, and earlier for disability.  Nonworking spouses receive benefits based on their spouse’s earning history.  These benefits continue should their spouse predecease them.

8.  Those retiring for disability generally do not require as many quarters of “credit” under Social Security, but must have varying amount of Social Security employment “credit” based on their age.

9.  Not all income is subject to Social Security taxes. Only the first $118,500 of earned income (the amount changes periodically) is subject to Social Security taxes; this is called the Social Security Wage Base.  This is because, regardless of income, there is a maximum possible benefit that can be paid to anyone receiving Social Security Benefits.  That maximum monthly benefit is currently $2,639 for someone retiring at their full retirement age of 66 (this will rise to 67 over the next few years).  Receiving this benefit requires earning at least the Social Security Wage Base for 35 or more years. In contrast, a person working full-time at a minimum wage job for 40 years at age 66 gets a monthly benefit of $924.

10.  Under some conditions, Social Security benefits are taxable income. When this happens, these income taxes are returned to the applicable Social Security “trust fund” which paid them the benefit, not kept by the Treasury to pay Uncle Sam’s bills.  Don’t ask me why.

OK, that’s a rather long overview.  Though it hits the major points, it’s missing a fair number of details.  So I think you can see already why there are so many varied misconceptions regarding Social Security.  It’s complex as hell – and we’ve been lied to about it for years.

What Social Security Is Not.

1.  Social Security is not a retirement plan. This is the biggest and oldest lie about Social Security – right up there with “3% of your income” being “the most you will ever pay” (see the paragraph here titled “Your Part of the Tax”).  While it was sold as a retirement plan by FDR and his cronies, it is not.  You do not own anything.  Your payments are not “retirement contributions”; they are legally mandatory taxes you must pay to avoid going to jail.  You do not have any kind of “retirement account”, nor are your payroll taxes invested on your behalf.  Rather, they’re used to pay benefits to others – currently, with about a 3 year delay between the time you pay them and the time they’re paid out. (In late 1983, that lag was around 2 months.)

What Social Security is is an income transfer program, funded by payroll taxes, that transfers income from those who are working to others eligible by law to receive benefits.  Period.

2.  Social Security is not property; you own nothing. I mentioned this before, but it merits repeating.  Unlike an earned pension, you have no legal property right to receive Social Security benefits because you paid into the system.  The SCOTUS ruled that Social Security was a government benefit, not a pension in which you have ownership rights, in Flemming v. Nestor (1960). (You can read the full SCOTUS opinion here.)  If Congress wants to change the rules, lower benefits, or terminate the whole Social Security program tomorrow, it can – and you’re SOL.  All you did when you paid those FICA taxes was do what was necessary to stay out of jail:  obey current tax laws.

3.  Your benefits are not guaranteed. Congress can change the rules at any time – and indeed has several times over the life of the program.  Just ask anyone affected by the 1970s “notch” – if you can find anyone still alive who was affected, that is.  Or you can anyone who’s had to delay retirement due to the rise in Social Security retirement age.

4.  You didn’t “pay into the plan” or “earn it”. What you did was pay your taxes as required by law.  That’s it.  You earned nothing, and there was no “plan” to “pay into”.  You pay taxes because the law says you must.

5.  Social Security is not “insurance. Insurance involves paying premiums in exchange for a defined payment in the event a certain event occurs.  Social security involves paying taxes required by law, along with – if you’re lucky – getting whatever benefit Congress deems you deserve when you retire or become disabled.  Big difference.

6.  The “Trust Funds” contain investments that have real value.  Not really.  As explained above, they’re more like interest bearing checking accounts.  They earn little value – not nearly enough to pay annual benefits.

Plus, those “trust funds” are “guaranteed” by Uncle Sam, not by real assets.  Uncle Sam is so broke these days that if it cost a quarter to take a dump he’d probably have to upchuck instead if he couldn’t find someone to loan him a nickle.

7.  Finally, I’ll say it again: Social Security is not a retirement plan.  Bluntly, it’s an intergenerational income transfer program – or in plain language, a means of redistributing income from workers who earn it to others who in general no longer work.  In plain language, it’s a welfare program that by design provides an unearned income to elderly and disabled persons as recipients, and is funded by taxes levied on those currently employed.

The Social Security “Trust Funds” – What They Are, and How They Work.

OK, above there’s an overview, followed by a list of some things Social Security is not.  So, how does it work?  How does the money get from taxpayer to beneficiary?  Where does it all come from, and where does it all go?

In what follows, I won’t be addressing Medicare; that also has a trust fund, but though there are some similarities it’s a different beast and appears to be run somewhat differently.  I also haven’t researched that one in enough detail to be able to write anything about it that would be reasonably accurate.

The “Trust Funds”.  Social Security has two so-called “trust funds”.  The quotes are there because in reality, these are merely two temporary holding accounts – or, if you prefer, “laundry bins” or “slush funds” – that allow income to be held temporarily (and earn a bit of interest) before it is spent within a relatively short period of time.  These funds are called the “Social Security Old Age and Survivors Trust Fund” and the “Social Security Disability Trust Fund”.  (Though it’s technically in the name, I refuse to include the term “Insurance” in the name of either trust fund – because Social Security IS NOT FREAKING INSURANCE, no matter how many times people have lied through their teeth claiming that it is.  It’s a damned tax-funded government income transfer program mandated by law; neither payments nor participation are voluntary, and taxes are not insurance premiums.)

While the two funds (Old Age and Survivors, Disability) are distinct, they both operate virtually identically.  So a single discussion of how they operate suffices for both.

Income.  All income for Social Security is glommed together in the applicable    slush funds    “trust funds”.  It’s held there until it’s needed to pay expenses, at which point it’s spent.

On receipt, this income is used to buy interest bearing “special” Treasury securities.  These are different Treasury securities than those available to the public.  They generally earn some interest between purchase and redemption.

These sources of income for Social Security’s “trust funds” come in 3 basic “flavors”.  The first, and largest, income “flavor” is payroll taxes.  This is the 12.4% of all earned income below the Social Security Wage Base (for 2016, that’s $118,500; a history of the Social Security wage base can be found here) that is required to be paid as the OASD portion of the total 15.3% FICA or SECA taxes.  Since 2000, of that 12.4% of payroll income roughly 1.8% has gone to the Social Security Disability fund; the rest  has gone to the Old Age and Survivors fund.

Yes, I did say 12.4% and 15.3%.  That’s not a mistake.  If you’re working as a payroll employee, you don’t see that much deducted from each paycheck.  However, that’s because payroll employees only pay half of that tax; their employers pay the other half.  Self-employed individuals pay SECA taxes vice FICA taxes; these “lucky” folks get boned royally, because they’re responsible for paying that full 15.3% total out of their earned income.  (The “extra” 2.90% is Medicare taxes – which are not limited to the first $118,500 of annual earned income.  Payroll employees generally only pay half of those as well, with the other half paid by their employer.  Self-employed individuals pay the full amount.)  In 2015, those OASD payroll taxes totaled nearly $795 billion in income for Social Security, divided between the two “trust funds”.

The Social Security “trust funds” also receive interest from the US Treasury; that’s the second “flavor” of income received by these slush funds.  This is the interest earned by those “special” Treasury securities the “trust funds” buy between the time they’re bought with payroll taxes/other income and the time they’re redeemed to pay benefits or expenses.  In 2015 that amount was also significant, totaling over $93 billion – again, divided between the two “trust funds”.

The third “flavor” of income for Social Security “trust funds” is payments Social Security receives from the US Treasury’s general fund.  Most years, this consists mainly of the return of income taxes paid on the taxable portion of Social Security benefits; those are transferred by the Treasury to the appropriate Social Security “trust fund” vice retained by the Treasury.  (As I said previously:  do not ask me why this occurs.)  There are a few other reasons why the Treasury would transfer money to Social Security (or, even more rarely, where money would flow in the opposite direction).  However, with the exception of special reimbursements that occurred in 2011 and 2012, these other reimbursements are generally dwarfed by the other types of Social Security “trust fund” income.  (In 2011 and 2012, the Treasury “made up” the 2% temporary reduction in Social Security OASD withholdings by paying the Social Security “trust funds” the difference – which was a huge amount both years.)  For 2015, these Treasury payments were around $32 billion – with returned taxes accounting for nearly 99% of that total.

OK, that’s where the money comes from.  These “trust funds” thus have their hands in the American taxpayer’s pockets 3 different ways:  direct seizure of income (payroll taxes); interest from the Treasury (which taxpayers pay for as well, through other taxes); and diversion of income taxes paid on taxable Social Security benefits that are returned to the fund vice being kept by the Treasury (which taxpayers again must make up through paying other offsetting taxes).

So, that’s where the Social Security “trust funds” get their coin.  Where does that money go?  Glad you asked.

Expenses.  Like income, Social Security has three “flavors” of expenses.  The first is Social Security’s own administrative expenses.  These currently total somewhere around $6 billion annually, and come out of the “trust funds” vice the Treasury’s general fund.  When you’re talking an enterprise that takes in and spends close to $900 billion annually, that’s not really too much in the way of overhead.  It’s around 0.67% or so of income.

The second “flavor” is reimbursements to the Federal Railroad Retirement program.  By law, Social Security and Part I Railroad Retirement are coordinated, with railroad retirees guaranteed the equivalent of Social Security as their Part I Railroad Retirement benefit. (Part II railroad retirement is funded differently, is optional – and to my understanding is actually backed with some real assets besides Treasury IOUs – just like Social Security should have been funded from day 1.)  What that means is that whenever the Railroad Retirement Old Age and Survivor and/or Disability “trust funds” have insufficient income to pay Part I railroad retirement benefits . . . the Social Security “trust funds” transfers them funds to bail them out.  That has happened every year but two since 1960 for both railroad retirement Old Age and Survivors and Disability benefits (for railroad retirment Old Age and Survivors benefits, it’s happened every year since 1958).  However, this is also a relatively small item; in 2015, that total was less than for admin expenses, coming in at a bit less than $4.7 billion – maybe a bit over 0.5% of income.

The last “flavor” of expense for the Social Security “trust funds” is the “biggie”:  benefits payments.  In 2015, the combined benefits paid by Social Security for Old Age and Survivors benefits and Disability benefits totaled over $886 billion – exceeding payroll tax receipts by over $91 billion.  Only the other two sources of “trust fund” income (interest payments, returned taxes/other Treasury payments) kept the “trust funds” from collectively losing money for the year.  Indeed, the Disability fund DID lose money last year – bigtime.  In contrast, last year the Old Age and Survivors fund showed a net surplus.

After all is said and done, anything not spent at the end of the year is retained in the “trust funds”.  The balance rolls over to the next year.  Last year there was a net increase in the OAS fund of around $51 billion.  In contrast, the Social Security Disability fund decreased by nearly $28 billion.

Unfortunately, the gap I referenced above between payroll tax receipts and benefits paid is getting larger every year.  In the relatively near future, both funds will have more outgo in terms of benefits paid/other expenses than income received from all sources – hell, the Disability fund is already in that state, and has been for several years.  When that happens, the “trust fund” concerned spends down its assets to pay those legally-mandated benefits.  When the fund balance drops to zero, payments then get dramatically reduced – when that happens, then by law payments will be limited to available income  (though it’s unclear if that applies by fund or overall).

Observations Based on the Data – and the “So What”.

1.  Many readers may remember the late 1970s/early 1980s “Social Security Crisis”. Yeah, that crisis was real. The Old Age and Survivor’s portion of Social Security damn near went broke.

In the late 1970s and early 1980s, the Social Security Old Age and Survivor’s “Trust Fund” went into a downward spiral.  At the end of 1983, the Social Security Old Age and Survivor’s “trust fund” was low enough that it was in real terms less than  2% of today’s balance; it had lost almost half its nominal value (and far more in real terms) from a decade before.  It had just over 1 1/2 months of average monthly benefits on hand as a reserve.  Since monthly benefits are paid by redeeming securities (and replacing them by immediately repurchasing new Treasury securities with payroll taxes received), this means that the fund was at risk of being unable to pay full benefits if the economy experienced anything but a trivial slowdown.  Absent those early 1980s reforms, Social Security would have almost certainly gone Tango Uniform (in terms of paying full benefits due) within a few years.  In contrast, at the end of 2015 the Old Age and Survivors “trust fund” had somewhere around 3 years of benefits on balance.  (And no – that does NOT mean everything is “Hunky Dory”.  Read on.)

2.  The Social Security Old Age and Survivors “trust fund” turns over every 3 years or so. It is, in effect, nothing more than a Ponzi scheme that presently has a largish (3 years or so worth of benefits) “slush fund” acting as a 3-year buffer through which to “launder” incoming payments.  The fund has nowhere near enough interest and other income annually to pay annual benefits; those incoming payments are thus used, after being held for about a 3 year or so period, to pay benefits.  Only what ever is left over after current benefits are paid – today, only a tiny fraction of overall fund income – is retained annually to increase the “trust fund” balance.  That ended years ago for the Disability fund.  For the Old Age and Survivors fund, that necessary condition (fund increasing annually) for continued operations will be coming to an end pronto.

3.  Today’s Social Security “trust funds” are not in any way, shape, form, or fashion funded by tax payments made decades ago. (Remember:  the Old Age and Survivors fund was nearly gone at the end of 1983 – and the Disability fund is damn near gone today.) Those payroll taxes from long ago were spent decades ago to provide bennies.  Rather, today’s “trust funds” were funded by payroll taxes paid during the past 5 years, give or take – as has historically been the case.  Take away income from payroll taxes and the whole thing comes to a screeching halt in about 3 to 4 years, maybe less.  And benefits payments keep increasing each year.

4.  The Social Security Disability Fund is a “dead man walking”. It will run out of money (e.g., hit zero balance) within 2 years.  I’m not sure precisely what happens then; my guess is that either the Old Age and Survivors fund gets tapped to make up the difference, or perhaps disability benefits get temporarily limited to funds received – with the shortage “to be made up later” (yeah, right).  Or maybe the Treasury makes up the difference – if it can find anyone to lend it the additional money.  Dunno.

However, any of those options is seriously “bad juju”.  The Treasury “making up the difference” increases the Federal deficit substantially.  The second option cuts bennies substantially for those receiving SSDI benefits.  The first accelerates dramatically the coming crash of the OAS fund, which is already projected to occur within 20 years (2035) as it is.

5.  Finally: the “so what”.  Why do we care about these “trust funds” and how they’re run?  How does it affect us?

Here’s why we should care.  When Social Security’s “trust funds” are depleted Social Security then reverts to “pay as you go” status, or PAYGO.  That means Social Security benefits payments will be limited to that which can be supported by payroll taxes alone.  Barring a change, it’s estimated that when that happens in around 20 years, income will at the time support maybe 75% of the benefits that otherwise would be paid.  That means everyone receiving Social Security benefits gets a very sudden and (for most) extremely painful 25% financial “haircut”.

“Bad juju,” indeed.  We should have listened to folks trying to privatize the system back in the early 1980s.

Unfortunately, we did not. And as a result, to paraphrase the words of Apu Nahasapeemapetilon:  “Oh – now (we) are truly screwed!”

Category: "The Floggings Will Continue Until Morale Improves", "Truth or fiction?", "Your Tax Dollars At Work", Society

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Ex-PH2

Dammit, Hondo, that means I’ll have to move back in with my dead parents!

SocSec is taxable at 50% of the annual amount. You will get a 1099 form every year from Uncle Sugar telling you how much you got for oh, say, 2016. After you cut it in half, you deduct the standard deductions. Unless you’re receiving an extraordinary amount, you should’t owe Uncle Sugar any money.

However, the taxable 50% of SocSec may be taxed by your state, after standard state tax deductions, and whether or not you owe anything, you still have to file the form, so just do it!

Ex-PH2

Almost forgot: it’s bodaprez’s fault. I blame that moron for it. All of it.

nbcguy54ACTUAL

When Social Security first hit the streets, the average lifespan of an American was 62 and you were eligible to start drawing at 65. Currently the average life expectancy is almost 80. Reckon we need to jack eligibility up a little past the current age if we want it to work as designed. ..

ex-OS2

That was painful to read, my eyes are burning.

ex-OS2

I agree Hondo. I am curious what the fraction is of Social Security Old Age and Survivors versus Disability payments are. Additionally, what fraction of Disability payments are made to those who never contributed to the slush fund are.

I took my fathers advice many years ago to not rely on the Federal slush fund.

Thank you for the article.

David

I agree that SS is a Ponzi scheme, but I put more trust in SS than I would Wall street. Pensions are in the same shape, underfunded, with the courts determining how much each person gets. All retirement systems are at the mercy of our court system.

11B-Mailclerk

I think you missed the critical point:

You have exactly zero property rights, or legal rights of any kind, with so-callled social security.

None. Nada. Nicht.

If Congress decides, you get bupka, and no court can change that.

A 401k, IRA, bank account, stash of gold, etc are -yours-. They may tax it, or outright confiscate it, but the system at least recognizes you have at least some rights to it.

-private- pensions come with property rights. -sometimes- public ones also.

Certainly, trusted financial people can rip us off, however, the courts recognize that as a theft of property. There are sanctions for that sort of thing.

Congress, however, is -utterly- immune from such sanction if they vote to cut or zero your payments.

Ex-PH2

Is that 2.9% for Medicare in the self-employment tax a raise from the previous years? Looks like it to me. Not sure and I don’t want to dig out my old tax returns.

Hey! Do everything in PAPER! Make those revenooers work for their pay!!!

Silentium Est Aureum

The current 2.9 percent (1.45% split) along with the 12.4% (6.2% from employees and employers) has been in effect since 1994, IIRC.

We did have the “temporary” reduction in 2010-11 of SS with oldies to 4.2 percent, but that shortfall in witholdings was never made up, either.

Silentium Est Aureum

With oldies…witholdings.

Damn autocorrect.

Ex-PH2

Find the options button and turn off the autocorrect. It will lower your blood pressure. But thanks for that update, 2/17AirCav. I asked because self-employment tax, e.g., book royalties, has to be calculated and paid if the income is more than $400 annually. But that’s earned income as opposed to retirement income from pensions, etc., so the 3:1 penalty doesn’t apply. This fund has been a problem for a very long time, not because it’s a Ponzi scheme but because there was a sharp increase in the number of people dependent on it, people who had no retirement funds or pensions. And then with the Crash of 2009, a lot of people decided to start taking SocSec sooner than they had anticipated. I don’t think there was any real preparation for that. In addition, when someone says that most of us are living longer than previous generations, that’s an average that is false. The WWII generation has lived well into its 80s now, and some like my mother and both grandmothers have lived well into their 90s. I expect to live much longer than that, and in good health, right up to the end. This is going to present a problem, because as I said, there are many people like my two grandmothers and my mother and my aunts who did not earn high salaries and had meager retirement incomes, but knew how to economize on everything, including paying off the mortgage on the house. And you may own your… Read more »

Ex-PH2

Well, nuts. I mean SAE, not AirCav. My bad. Sorry.

I need to get out of the house. I’m getting brain fry. I’ll go get some smoked sausage, barbecue sauce and a couple cans of beans, and start the crock pot version of it. And make cornbread to go with it. Now I’m annoyed.

Silentium Est Aureum

And don’t forget the 3:1 reduction: For every $3 you have in outside income benefits, such as 401k payments, pensions, etc., your SS benefit is reduced by $1.

While yes, it would be nice to have a “guaranteed” income in the $120k/yr range at retirement and not have to worry about SS (because your benefit would be zero at that point), it’s still a kick in the dick knowing you and your employers have dropped upwards of $500k+ and you’ll see nary a dime.

Pretty much anyone born after 1965 is going to have a NEGATIVE ROI, especially those who have incomes of $75k/yr or more in today’s dollars.

Bottom line, if you’re not lower-middle class or below, you got hosed, and SS should be regarded as nothing more than beer, gas, and poker money.

Ex-PH2

If you continue to work past the full retirement age, you are required to start taking SocSec at age 70. You can go on working, you’ll still pay FICA and SocSec/Medicare taxes, but there is no penalty for earned or unearned income.

Unearned income is interest and dividends from investments, in case anyone is curious. It’s taxed at a flat rate and is not subject to SocSec/Medicare tax.

If you decide to be self-employed, you will have to report quarterly self-employment income, but it is not taxable unless it exceed $400/yr. (I’ve already had to deal with this.) The IRS does not make it easy for you to find the forms or follow their thinking, with their usual blah-blah-blah gobbledygook instructions, but the gist of it is that you report the quarterly income, and then pay the taxes at the end of the tax year (12/31/16).

Ex-PH2

True. But it depends on the amount, and whether or not it is earned income. Tax on dividends and interest have to be paid quarterly as estimated income tax, but that’s based on the annual gross.

Not the same thing with royalties, which have a more volatile curve and can’t truly be estimated. In one quarter, you may get a massive chunk, but in the next quarter, nothing.

The difference is that royalties are earned income, subject to SS/Med taxes as well, whereas dividends/interest are not. That rule may have changed in the last 12 months.

I have to go look that up now.

Dammit, Hondo, I have a kitchen to clean! Screw taxes! Keep the monkeywrench, wouldja?

2/17 Air Cav

1. Alaska (1)
2. Wyoming (48)
3. Nevada (2)
4. Georgia (20)
5. Arizona (16)
6. Mississippi (34)
7. Delaware (8)
8. Louisiana (6)
9. South Dakota (25)
10. Florida (5)

Want to retire and keep more of your income? Those are the top 10 states for you to do so, with Alaska the best, Wyoming second, and so forth. Beside each state is the state’s ranking in violent crime per 100,000. A state may have moved up or down a ranking in the last two years, but, otherwise, the listing is sound. Wyoming is clearly the place to go if you don’t mind the cold. Me? I have Geogia on my mind.

Ex-PH2

Wyoming. It has mountains. The cold is nothing.

Poetrooper

A well-kept secret is Arkansas with a moderate climate and a reasonable tax structure. Housing costs and property taxes are low compared to other states. Our state government, now solidly Republican controlled, becomes more conservative every election as the Old South “Yellow Dog” Democrats die off and young conservatives seek state offices. We have concealed carry and open carry is still being legally disputed with the attorney general saying it is legal under existing law.

And much of Arkansas is physically beautiful. Almost the entire western half of the state is mountainous with blue fish-filled lakes everywhere. Deer are plentiful and over in the eastern half where the rice fields are is some of the best duck and goose hunting in the country. Stuttgart is known as the duck hunting capital of the world.

For military retirees, there’s a commissary and medical facility at Little Rock AFB, in the center of the state, as well as a major VA Medical Center in Little Rock.

We have some crime but it tends to be concentrated in a couple of cities. And like most places I’ve lived in around the Old South, racial relations here are very good.

All in all, Arkansas is a very good place to retire on a middle class retirement income.

2/17 Air cav

Poetrooper: Your sales pitch is good but once I popped the hood, I ran from the lot. Here’s a report from last year, c/o of an Arkansas TV station.You’re a homie, and that’s a good thing.
http://5newsonline.com/2015/03/23/report-arkansas-ranked-worst-state-for-retirement/

Poetrooper

Cav, you were looking under the wrong hood; move one vehicle left. Arkansas is actually like two states with the eastern half flat, almost exclusively agricultural and poor. It is the last stronghold of the Democrat party in the state. That part of this state could easily deserve such a poor rating for retirement. You couldn’t pay me to live there.

Most of the state crime statistics are skewed because of one city southeast of Little Rock on the edge of those eastern flatlands, Pine Bluff, which is 90% black and in firm control of the Democrat party. It’s like Detroit South. Factor out Pine Bluff and the state’s crime numbers drop way, way down.

Were Arkansas to be rated only on its western half, I’ll wager it would be near the top for retirement. The reaction of most first time visitors to this part of the state is, “Wow! I never had any idea Arkansas looked like this!”

I would never recommend East Arkansas to any retiree and if you notice, that’s not the part of the state I described.

We’ve owned homes in Texas, Louisiana, Florida, New Mexico and Arkansas. All things considered, living costs, taxes, physical beauty and political environment, we find Arkansas a very pleasing choice.

And I’m not a homie; we moved here four years ago from New Mexico. As a booster, I’m in a distinct minority. Most folks don’t want “Any more of them big-city Yankees moving in around here and changin’ things.”

2/17 Air Cav

Well, in that regard, West “By God” Virginia is a popular place for military retirees. It, too, is gorgeous and if one doesn’t want neighbors but wants hills, mountains, rivers and the occasional flatland, WV is the place. But–and here’s the Big Butt–it’s one of the worst states for retirees. The state will tax pensions, social security, the number of blankets on your bed, and a whole slew of other things. It has to. There is no substantial industry in WV outside of coal. And if that ever dies, chances are that WV may sell itself back to Virginia.

Ex-PH2

Yeah, I think I’d stick with Wyoming. Magnificent mountains, hunting, migration routes, and the winters cannot possibly be worse than they are in the Midwest.

Silentium Est Aureum

Plus, if the Yellowstone Caldera blows, you’ve got a front row seat.

Ex-PH2

I’ll pop some popcorn!!

ex-OS2

Did someone say popcorn?

Ex-PH2

The magma chamber hasn’t filled up yet.

Rome’s White Hills volcano is more likely to blow than Yellowstone. Krakatau, and any other Indonesian volcanoes are more likely to hiccup than Yellowstone. Rainier is more likely to pop its top than Yellowstone. Iceland’s Hekla, Eyjafjallajokull, Grimsvotn, and Katla are more likely to blow a gasket together than Yellowstone.

In fact, Vesuvius, Etna, Fuji-san, Kilimanjaro, and the Afar Rift’s Erta Ale are more likely to pop the Big One at the same time than is Yellowstone.

Oh, what if that Iranian volcano that sits on the same plate boundary as Erta Ale decides to start smoking and belching?

Wouldn’t that be something?

Did I tell you guys that the Rio Grande Rift zone has developed fly geysers over the last 5 years? That’s a sign that things are heating up down in our southwest. The last eruptions down there were about 5,000 to 6,500 years ago.

Y’all have a good day. What a bunch of worrywarts!

2/17 Air Cav

Sorry. Ran out of Rs at the wrong time but, as you see, I have replenished my stock. Thus, I can now write Georgia.

2/17 Air Cav

I will not live in or near a city. I will live where I can walk a mile and not see another human. Other humans appreciate that of me.

streetsweeper

Actually, that enforcing “what should be” is conducted through the 13 county council
er non-governmental agency affectionately known around these parts as the Atlanta Regional Commission (ARC). Voters whom are in the know about it, are helpless to throw up any kind of roadblock in their way and here, especially. We did manage to keep the city of Villa Rica from signing on with ARC, much to the dismay of the city manager and one or two city council members. Heh.

A Proud Infidel®™

Another wonderful example of the competence and brains of Government Bureaucracies.

The Party of Hell No!

Ahh my Friends all is not lost! What happens to markets when the Federal Government is forced to abandon it’s centrally planned programs – Freedom!

Speculate at what 25% of $886 Billion dollars represent in the economy and like most schemes fostered by the Federal Government there is a collapse followed by prosperity i.e. the housing bubble while bad for those who should not have bought houses it was a boom for those who just wanted to buy with a conventional loan but could not afford the payments. After the bust they bought at a more affordable price. See also electric vehicles, wind power and solar power as these industries collapse at the behest of lower gas and oil prices.

For most individuals, or couples – if you own your house without mortgage or equity loan – adjusting for a 25% reduction is probably doable, especially if the preparation takes place years before the bust – shorting the Social Security Trust Fund. Also very helpful as Air Cav suggests the retirees move to states with no state income tax and low cost of living.

Ex-PH2

My state taxes only the portion taxable at the federal level, which is 50%, and after deductions, adjusted gross income is usually well below the state taxable amount. Therefore, I pay no federal or state income taxes so far.

Sparks

Wow! I feel so much damned better now. Whew! Good thing I paid into my mandatory SS all those years. The Golden Years are starting to take on a decidedly more brassy tone. While I worked my whole career to fund my own retirement and not really depend on SS totally, it was a factor. I feel for those younger who cannot see the value in contributing to 401K programs which are offered to them at the fullest amount allowed. To many of them see retirement as so far away, that the new car, boat, bigger house seem more tangible. Time is not on their side and to decide at 43 or older that “hey I’m gonna retire sooner than I started this career, I’d better start saving”, just won’t work.

The Party of Hell No!

Exactly – what is the formula? $1600 dollars placed in an interesting bearing account by the age of 20 grows to … Time is way more important than the amount. Also don’t get divorced because you loose the years of growth and have to start over trying to grow your retirement later in life. (Most divorcees never think of the later life consequences to divorce.) – just a pet-peeve of mine.

Poetrooper

Sparks, the problem with 401K’s is that they may not be beyond the reach of a really determined socialist federal government backed by a leftist supreme court. Declaring a national financial emergency, they could conceivably attach the contents of all such accounts as their acquisition and disbursements are controlled by federal law. That could well be why the Democrats seem so unconcerned about the growing federal debt.

Ex-PH2

This is why, during the Depression, Poetropper, people stored their savings in Mason jars and mattresses. No interest paid, perhaps, but it was out of sight of Uncle Sugar. Still a good idea to have a certain amount of cash squirreled away some place where only your eyes can see it.

11B-Mailclerk

This is also why they banned private ownership of gold.

The Party of Hell No!

Oh, and my personnel antidote – my wife and I moved from California to South Dakota it was an immediate 30% raise, or 30% reduction in our costs to live. Besides no state income tax, most other fees such as registration, insurance, water, gas, electricity, and even property taxes (I know natives swear property taxes are high – their not.) were reduced, and the sales tax is 6.25%. The only thing higher is insurance on homes – hail is the insurance company killer. So we have to make up for the bad years.

26Limabeans

But Algore said it was all in a lockbox and he was going to make sure it stayed that way.

Poetrooper

But, but, I thought…that was all just an inconvenient truth.

Ex-PH2

For anyone who is interested, the inflation rate for Aug was 1.1% overall.

http://www.usinflationcalculator.com/inflation/us-inflation-climbs-in-august-annual-inflation-rate-rises-to-1-1/10002066/#more-2066

There is a chart on another page at the CPI site that gives you the inflation rates going back to 1913.

As I understand it, if the inflation rate for the year is less than 1.0%, there is no COLA. That’s several years – lost count – under bodaprez. Didn’t he promise he’d get us out of debt or something? Yes, I blame him for all of this. He was there. He’s responsible. (Wrong word, I know.)

11B-Mailclerk

You do not really believe the “official” inflation rate matches reality, right?

Next you will be telling me we are doing really well on employment.

jarhead

Don’t know where to start, so this may ramble like an errant rose. First, response to the last comment by Ex-PH2…No matter what big bro says about the cost of living, forget it…total b.s., period! IMHO…when computing the cost of living, big bro does not take into consideration such a trivial matter as SIZE of item purchased (dog food, toilet tissue, laundry soap, and so MANY other good) vs. the price remaining steady and even increasing once packaging has decreased. Who on here has not seen a 10-15% decrease in the size of a package followed soon by the smaller size being ON SALE! in big letters? Conditioning is what the retail public is being exposed to. Sizes are significantly reduced, followed by the “new” sale price crowing the “big bargain” you need to grab while you can. A TRUE cost of living statement does not take into consideration this type of shyster manipulation by big corporations. This is not Lars spouting, looking for an argument. If you disagree, don’t do so thinking I’m going to do my best to prove you wrong. Live and deal with it since it is only one man’s opinion. Accepting payment for hours worked, without taxes being taken out: i. e., “contract labor”. Most of us when we were younger thought that was a good idea as it allowed us to do what we may when it comes to taxes. Truth of the matter is this…contract labor requires no benefits be paid to them.… Read more »

Ex-PH2

BigBro and the Cost of Living and purchasing power. No, nothing is taken into consideration but GAO sales reports on products like gas at the pump, cars, housing, etc. Whereas I can and do look for sale prices on things that I use a lot, the actual purchase price is never part of the GAO’s number crunching, nor is the size of what I buy. It is only the product itself – liquid laundry detergent, e.g., – that counts, not the number or size of units sold. The GAO peeps base their number crunching on sales volume reported and prices average through the month. So, if a 3-bedroom house this month costs $215,000 to buy, and next month a 3-bedroom house costs $175,000 or $225,000, it has nothing to do with actual square footage, location or population density. Chicago, for example, is experiencing another housing boom in neighborhoods that were once considered cheap/reasonable. Now, they’re not only no longer cheap, they are also vastly inflated in value. It has nothing to do with actual square footage, or what will happen in 10 years in that area, or how much public transportation is used, or how many small businesses are located there, or whether or not a supermarket (Whole Foods, e.g.) will open there. The only quality taken into account is the cash level at sale time. That means that if an apartment in a 2-flat in Wicker Park used to rent for $1500/month, it will now likely go for $2,000… Read more »

JimV

If the Fed ever stops devaluing the dollar, it will be “game over” for housing and the rest of the economy.

jarhead

Regrettably, we are not going to accomplish a damned thing, much less inform a gullible public. Seems to me if one did not serve in the military (to which I am surprised how many did not) then they don’t think they have any skin in the game. Consider the following and wonder why the hell so few of us pay any attention…….

The following excerpt is from the 1998 Senate Budget Committee session.

HOLLINGS: Well, the truth is…ah, shoot, well, we all know there’s Washington’s math problem. Alan Sloan in this past week’s Newsweek says he spends 150%. What we’ve been doing, Mr. Chairman, in all reality, is taken a hundred billion out of the Social Security Trust Fund, transferring it over to the spending column, and spending it. Our friends to the left here are getting their tax cuts, we getting our spending increases, and hollering surplus, surplus, and balanced budget, and balanced budget plans when we continue to spend a hundred billion more than we take in.

Read more: BILL CLINTON LOOTED SOCIAL SECURITY TO CREATE HIS FEDERAL BUDGET SURPLUS | WHAT REALLY HAPPENED http://www.whatreallyhappened.com/WRHARTICLES/ARTICLE2/budget.php#ixzz4KZYSvNsg

Ex-PH2

Ah, yes! I remember it well. I knew it was a disaster of epic proportions looming on the horizon – my horizon – and that bastard didn’t give a shit because he would not feel the burn from it. It was SUCH a brilliant idea!

And nearly 20 years later, OOOPPSSS! We may not be able to fund anything, even the price of a can of Mmmmm-good!

JimV

I took early retirement. That along with my military pension and other investments I have gives me a comfortable life. Now I can do what I want to do. (VA Volunteer)

jonp

Hate to break the news but economics and math can not be manipulated. They are what they are and grind on regardless of what the politico’s say. The math on this one has been apparent for years. If your under about 50yrs old or so you better come up with a different plan than relying on SSN for part of your retirement income.

When I hit the min at 62, providing it is still the min and not raised by that time, I’m taking what I can get immediately.

JimV

The Fed can print money all day long. No problems.

Zitskey

You guys are all way too smart for me, but I need to ask this..we live in a city that has become a hobo heaven..most of the ones I’ve talked to receive ssi disability,I personally know quite a few that have created their own disability(drugs and/or alcohol). If I personally know so many,I have to think that’s a thimble full compared to the rest of the population. Which category do these people fit into? Have they just learned how to work the system? Or do you have to just be drunk or high to understand it?

Ex-PH2

Considering everything we’ve seen here, I’d say that those people have learned how to milk the system.

Ex-PH2

That really is not news. It was reported back in 2009 and 2010 when unemployment lines were growing and people in specific age groups (50 and up) could not find jobs to replace those they had lost.

If you recall that debacle, it wasn’t just loss of housing in the idiotic subprime mortgage scam that caused the problem. It was also companies that did not prepare for a contraction because they thought the ‘boom’ would go on forever.

No bubble lasts forever, and we know it, but they didn’t listen and a great many of them went out of business, hence the long lines in unemployment offices.

Some of the people who were nearing retirement age chose to go with SSI, instead of trying to stretch meager dollars. That was what was behind the swell in SSI applications.

Just An Old Dog

I notice you didn’t cover SSI in this. Supplementary Security Income I think comes from SS funds as well. The difference is that its for adults who don’t qualify for SS or SSDI.
They can’t have any other income as well. Its basically for those who are handicapped or become handicapped before they get vested.