You’ll learn it’s not even comparable and might make you a few hundred Gs you might not get otherwise. Calculate hard.

I’m going to run you through the numbers using myself as an example since I qualify for “early” payments of a small fraction of what I’ve paid in since the age of 9 (53 years of paying by the age 62). Had I invested that money over that period in compounding securities I’d have millions.

But it is what it is. I’m not going to deal with the moral arguments.

1. Yes it’s abject socialism
2. Yes it’s coercion
3. Yes it’s a Ponzi scheme—legalized by the government for the government
4. Yes it’s regressive taxation (I’ll explain why as an aside)

The other day I got an email from the Social Security Administration giving me a link to my record and an opportunity to check up on it, to make sure it’s all correct and so forth. I hadn’t seen anything in a while that I recall, so I checked in. I had not really realized I’m only a year away from “retirement,” or, as they put it, “early retirement,” “early benefits,” early EARLY EARLY!!!

They don’t do a hard sell to get you to wait until “full retirement” or “full benefits,” but if you go around and about Googling, it’s always couched in such terms. It’s like a subtile nudge to shame you into waiting longer. …Sort of a suggested delayed gratification thing.

• Social Security as a regressive tax highly beneficial to the well off and rich
• My own social security record
• The easy case for taking benefits at 62 vs. 67 with simple math
• Bonus Disaster Image; Tangential

Social Security as a regressive tax highly beneficial to the well off and rich

There’s a few elements to this.

The first and biggest one is that which most employees never know about until they go off to leave their jobs (W-2 income) and start their own businesses dream (1099 income or many other tax forms depending on how the business is structured). Yea, they saw the social security deductions in their paychecks all those years, but didn’t realize that it was only half of their tax. The other half was paid by their employer. It’s split into social security and medicare but in total is about 15%—half and half employee and employer.

They go off, start a business, and make income—likely less than when employed, at least for a while—and when they file their first tax return, realize they’re now on the hook for the entire 15%. Their tax just doubled. Way to incentivize entrepreneurial spirit and achievement leading to the real creation of jobs for others.

It get’s worse for small to medium sized businesses where you’re hauling in less than about $143,000 per year. That’s the cap. In other words, you pay 15% up to $143K and then zero after that. So, no matter how much you make, your total load is capped at $21,000 for SS and medicare. You make $143,000, you pay $21K. Make $1 Billion, you pay $21K.

Regressive as fuck, eh?

It get’s worse. This is the main trick of the wealthy to get tax liability down to a pittance compared to others in percentage terms. You go passive income. But, to live off passive income to the tune of, say, $100,000 per year, you need $1,000,000 in investments making 10% average and solid. If you’re doing 3%, you need $3 Mil. If you’re in passbook savings, you need $10 Mil. (Caveat: I’m no tax accountant or lawyer and so don’t know if some forms of passive income are more equal than others…see below.)

Side story:

Once upon a time I was discussing with a smart fried—a Harvard grad and author of published books—the ins & outs of taxation and he hauled out Warren Buffet who back in those days was spouting how TAXES NEED TO BE RAISED!!! because he was paying so little.

In addition to telling him that the IRS probably wouldn’t refuse a check from him for a few billion, I asked him if he had a clue as to why. Of course, he did not. It’s because all of Buffet’s income is passive, i.e., from investments and not from working for the man or even working directly, hands on.

If your income is derived passively from investments, two things:

1. There’s no social security or medicare tax
2. Your income tax is about…wait for it…15% (what a coincidence)

I did this in my own company. At the time, I was taking substantial straight W-2 income and the taxes are insane once you get up to the $200K and above level. I started crunching numbers and it was clear.

1. Reorganize from a C Corp to an S Corp
2. Hire a “Manager” (so-called CEO or President)
3. Run the business at arms length through that employee, making your income passive
4. Take all my income as K-1 (an IRS form), reducing my tax to zero social security / medicare, to 15% straight income tax

Saved me a ton, plus I had shit-tons of time on my hands with plenty of capital. Sure wish I had played that end of it better….

My own social security record

I still have 3 years (2020, 2021, and 2022) to boost this. No, I have not filed for even 2020 yet…working on it. But, here’s how it stands even if there’s no additional “contributions.”

The easy case for taking benefits at 62 vs. 67 with simple math

This gets adjusted upwards periodically for inflation, called cost of living adjustment or COLA. But, if you work in the same dollars it’s going to wash out. For instance, I could plug in average inflation to arrive at a number for the 5 years from 62 to 67 where I was not getting money, if I wait; but then by the time I get to 67, the benefit is a lot higher too because of the same thing.

Keep it simple. Complicating frequently doesn’t matter, or makes it more difficult to understand what you essentially need to know.

If I just do simple math and assume living to 80, then that $1,445/mo over 18 years vs. waiting and getting $2,122/mo over 13 years…for the former, it’s a total of $329K and the later, $356K, a difference of only $27K.

The thing is, you never know when you die. It would be kind of a pisser for something to happen just before you’re 67 or even after and you’ve lost out on $87,000 you could have had over 5 years….or even a lot more…see below.

I got more curios and did more simple math. I created a ridiculously simple Google docs spreadsheet in 5 minutes to add up the cumulative on both runs, taking at 62 or 67, running it out to 80 years old.

See the green.

So, you have to make it to age 77 — 10 YEARS! — before you catch up with what you’d have been getting already for 15 years. And this doesn’t even account for what you could have done with the money over those 5 years of waiting for a BIGGER BENEFIT!!! at FULL RETIREMENT!!! rather than meh, I’ll take “early retirement,” then you can give me back a pittance of the money I “contributed” over 53 years since I was 9 years old as a W-2 employee of my dad’s company; and yea, he did all the proper filings.

And yes, if you earn “wages” at 9 years old, you are required to pay taxes. I’ll refrain from the moral evil of the US Government taxing authorities, which are well-known by those in the know all over the world as the Number 1 Draconian. Quite ironic for “The Land of the Free.”

…If you don’t need the money at 62, you could just take it and bank it in good securities, or finance a business, or whatever that sees compounded growth. In that scenario, having waited 5 years for the first penny will never catch up ever. Opportunity cost.

The other element is life expectancy and we’re not even talking the quality of the life you have left. At age 60, a male has a 15% chance of dying by age 70. At age 70, a male has a 30% chance of dying by age 80. That’s pretty significant risk to forego $18K per year for 5 years.

When you’re born, you begin to have a chance of death. Unless you live in undeveloped countries who haven’t thought of getting up out of their own squalor and shit, your risk of death is minuscule for a pretty long time. By age 50 it begins the march upwards and never stops until you become one of the statistics.

But also, your quality of life diminishes, especially 70 and up. There are outliers and I’m happy to say that my parents, 84 and 80—respectively dad and mom—are serious outliers just as active as I’ve ever seen them my whole life.

But this post is about the average, not the outliers.

Just intuitively about money—like monthly income money—and especially when your age is soundly into the actuarial tables.

1. Now is better than later
2. Later might never come
3. Benefit now while you still can

Bonus Disaster Image; Tangential

This is tangential, so I’ll just pop up the image and save the thousand words for another day. It’s via Alex Berenson’s Substack earlier today.

If I was to say one sentence, that would be: “stay the fuck out of the US ‘health care’ system, and not only to save the money.”

Until next time around, soon. Thanks for your paid membership.