Drawing SS at 62

[Jiggers]

I am a tax practitioner operating as a C-Corporationa approaching age 62 in a couple of years.

I want to be able to draw SS at that age.

However, I am too far from Medicare and my lovely young spouse is considerably further away. And she has pre-exisiting conditions that requires me to have very expensive health insurance for her until she can get on Medicare.

I don't mind working, but my salary would put me out of bounds for SS until age 65.

She works for me now, drawing a salary comparable to a secretary, her position.

I own my building outside of my corporation and am paying a realistic rent for it.

I don't mind working for many years, but I want my SS as I know too many people, now deceased, who waited and lost!

What ideas can you come up with that will enable me to continue working and still draw SS at 62?

I was thinking about upgrading my spouse, by having her go to tax seminars, and take some bookkeeping classes, and set her up an S-Corporation that does some tax and all my monthly bookkeeping. I would pay that S-Corporation as a sub-contractor, for her doing the work. She would draw a legitimate salary from that S-Corporation.

I would keep her on my C-Corporation payroll as a corporate officer and as my office secretary, a part-time position. She would stay on our group insurance plan and medical reimbursement plan.

My salary would have to be reduced because of the billing going to the S-Corporation.

Hopefully under the SS limit for drawing benefits at 62.

Any suggestions?

[erchess]

I know little about Social Security

but from what I understand it is only the salary you take from your C Corp that is in the way of your goal of drawing Social Security at age 62. Can you confirm that?

Probably everyone on this board knows that you have to pay yourself a reasonable salary but it seems that you need to make sure you don't pay yourself too much. On the other hand I think you want to pay yourself rent on the high end of what your building could get. The idea of increasing what you pay your wife sounds reasonable and is as you point out automatic justification for paying yourself less salary. Then perhaps you could pay yourself dividends.

Then again, all this assumes that you stay in business. I am hearing that you would not mind retiring. Have you looked into selling your business? You could even structure it so that for a time you and if desired your wife worked in the business.

Perhaps a couple hours of the time of a lawyer who helps people get Social Security and who works in a firm that has a tax attorney would be worth the cost.

[JohnH]

I have a slightly different view with respect to the entire decision on whether to draw SocSec at 62 or wait until 65. The greatest danger is not missing out on 2-3 years of SocSec benefits - the greatest danger is outliving your financial resources. So I see the extra benefit derived from waiting until 65 (or even as late as 70) to be worth taking the risk that I might die in the interim and look like a chump (a dead chump, BTW), so it isn't as though it would be embarrasing or anything. On the other hand, if you live into your late 70's, 80's, or 90's, that extra benefit is going to come in mighty handy.

Viewed another way, deferring benefits until full retirement age is roughtly the equivalent of buying an annuity. The cost of the annuity is the foregone benefits between age 62-65 and the payout on the annuity is the extra benefit you will receive between age 65 and whenever you die. Benefits that are guaranteed by the full faith & credit of the US treasury and indexed for inflation. Incidentally, if you run the math on this be sure to take info account that the cost of this annuity is the net benefit you would receive after 85% of it is taxed. Since you've already posted enough info to hazard a pretty good guess that the benefit would be fully taxable, I think that';s a valid assumption. I'm not a big fan of annuities in general, but in this case it makes a good analogy and since there are no other investment options you have to go with what you've got to work with.

I could go on, but the only way I'd draw SocSec at 62 would be if I have a terminal illness or health condition that makes me pretty sure I won't live into my 70's, so I need to grab what I can while I can.

[erchess]

I don't disagree with John

but he addressed a question that was not posed by Jiggers.

[JohnH]

You're right.
I do tend to wander, don't I?
Probably because I just turned 60 this year...

[Roland Slugg]

I don't mind working for many years, but I want my SS as I know too many people, now deceased, who waited and lost!

Do they regret that? I also know people who have been killed in car or motorcycle accidents, but that doesn't prevent me from owning and operating both.

I believe your thinking is an irrational reason to start receiving SS benefits at 62. Your "full retirement age" is 66, and you can delay starting until you're 70, and your benefit will continue to increase that whole time. However, if you start at age 62, you will forever forfeit 25% of your "normal" full benefit, and in addition for the first four years (until you're 66) you will have to pay back $1 of that reduced benefit for every $2 in earnings above a certain amount ... currently about $13,500/year. Look at some numbers: Let's say your full SS benefit, at age 66, will be $1,600/month. If you start at 62, you will receive only $1,200/month ... $14,400/year. If you earn $42,300± or more, you will lose your entire benefit for those four years. (You may lose less in the year you turn 66.)

Better questions to ask yourself are these:
1) How badly do I need the SS benefit right now?
2) Based on my own health and that of my close relatives/ancestors, what is my realistic life expectancy at this time?
3) How long do I plan to work, and how much do I expect to earn each year before I turn 66?
4) If I don't start SS now, then drop dead before I do, do I really care?

Most people ... I heard something like 80% ... start receiving their SS benefit at age 62, and for many it's because they need the money. For some, however, it's based on the oft-repeated saying that "it's best to start getting SS at 62" but citing no reasons. The crossover point is at around age 77. At that point a person who started at 62 will have received the same cumulative benefits as someone who started at age 65. Beyond that point the person who started at 65 will be ahead.

Another way to look at it is this: What would I rather have ...$1,200 per month now ... and each month when I'm 80, 85, 90 ... or nothing now but $1,600 month each month when I'm 80, 85, 90? (COLAs will widen that difference even more.)

For most people who are continuing to work it's better to delay the start of their SS benefits until they reach their full retirement age, or even later ... up to age 70.

[erchess]

Let's say

I have a paying client or a friend to whom I willingly give free advice, and this person has a C Corporation with large accumulated earnings and profits but they ask me NOT whether they should make the S Election but how to make it, I think I need to tell them how it is done. If I think they should not make the election or if it happens that they may not, then I should certainly point that out. But our friend Jiggers asked a question and in my estimate John and Roland most likely could answer it better than I did but all they chose to post was arguments why Jiggers should not do it. I guess I just don't understand posting in a thread without answering the question posed.

[JohnH]

You make a good point, but I'd suggest two reasons for why we answered as we did, based on the fact that Jiggers is not your ordinary tax client looking for advice, but rather a tax pro looking at all the angles (including some he may have overlooked)

1) There will be plenty of others who are free to provide the direct answer in great if they choose to do so. Jiggers is capable of listening to or discarding any or all of it, as he sees fit;
2) If the responses Roland and I posted happen to have merit, then all the other hoop-jumping becomes irrelevant. I try to decide if I need to jump through the hoops prior to getting my feet tangled in them - I fall less often by doing that.

As for how to handle the general concept, I don't let my clients tell me what advice I need to give them when they want to run "what if's". If I think the client needs to back off, look at the big picture, and make a strategic decision before making the tactical ones, I'll say so. After that happens, if they want me to nit-pick the unnecessary details and are willing to pay for the useless excercise, then I'll comply. This 62 vs 65 question comes up a lot, and I gave the answer I lead with every time I'm asked, because I think it's infinitely more important.

[ChEAr$]

first question

Jiggers, you should answer is your state of health.

As JohnH hinted, declining health is a good reason to consider to start to draw at 62.

But if health is good, keep on keeping on, iow, continue to march until age 65. Then
you draw the regular amount, and more than if you had started at 62, with inflationary
increases plus the annuity is reclaculated each year with the addition of last year's
FICA earnings from the C corp.

Make sense?

[veritas]

I like the idea

"thinking about upgrading my spouse"

Speaking of such, does not your wife draw one half of your benefit come her retirement age?

But anyhow tell us more about the upgrade idea. I might get some pointers for my household.

[Jiggers]

62 versus 66

If I retire at 62 my SS would be 1398.
If I wait until 66 my SS would 1871.

The difference is 473.

SS received from 62 to 66 would be 1398 X 48months = 67,104.

Dividing that by 473, I would have to live almost 12 years past 66 to 78.

My dad lived to be 70. Mom is 78 and still alive, but had major breast surgery in 06.
My dad's parents died at 58 and 68.
My mom's parents dired at 78 and 69.

Longevity is not there, but I do take care of myself and exercise regularly.

[Jiggers]

"Upgrading wife"

She is currently just a secretary. Answers the phone, files, processes returns during the tax season.

I would like to have her attend some classes, to justify setting up the S-Corporation in her name. And then billing the S-Corporation. She would be the only employee of the S-Corporation.

I would also rent a portion of my building to the S-Corporation.

Currently her SS benefits would be 1/2 of mine as that would be more than on her record.

However, she won't be 62 until 7 years after I am. She would be receiving more salary and paying more in and her benefits on her record might just be a bit more than mine.

[Lion]

Why a new corporation?

Why don't you train your wife to work as a preparer in your existing corporation? With a new preparer taking over some of your duties, you'd have justification to pay her well and to reduce your salary -- if you want to not have to repay SS. However, I agree with the others. If you're still working and can live off your current household income, why start SS now? It'll be 85% taxable, and you'll be repaying some of it. Why not wait until health issues lower your income and you need SS? You're also building your account for your younger wife to draw upon someday by waiting. Unfortunately, none of us can give you the exact best answer until we know how long you'll live.

[erchess]

Reconsidering

I think John made very good points. I think that in the future I will do a little more telling people what I think they need to hear. I also appreciate the fact that we are able on this forum to disagree with each other without people taking offense. This is starting to get a little off topic but please bear with me. I recently joined NAEA and so far I like this bulletin board much better than theirs. I'm not sorry I joined the organization but this is a great board.

[ChEAr$]

NAEA webboard

I think John made very good points. I think that in the future I will do a little more telling people what I think they need to hear. I also appreciate the fact that we are able on this forum to disagree with each other without people taking offense. This is starting to get a little off topic but please bear with me. I recently joined NAEA and so far I like this bulletin board much better than theirs. I'm not sorry I joined the organization but this is a great board.

Yes, I see where you joined us on June 24th. That's only a few days, so keep on reading
the Webboard. It's kinda slow right now, but things'll pick up after July 4th, I assure you.

Do you mind if I introduce you on that board?