No Surprise: Social Security Just Doesn’t Measure Up
We’ve been preaching that note for decades – but some folk just don’t seem to get it, and refuse to look after their own savings needs, expecting they will be spending each summer on the Riviera. It just doesn’t work that way.
The Tax Foundation has a good recent report on the matter, which those who don’t believe us may want to scrutinize. Recalling that Social Security benefits alone are simply not adequate to replace retirement income, millions of Americans just save too darned little to support their preretirement living standard when the time comes to stop working. Indeed, many folk have exactly zero retirement savings, in the form of an IRA or other tax-favored retirement plan! Can you believe it?!
If this is you or somebody close, we invite your review of the Foundation’s report, which compares investment returns from Social Security with those from tax favored savings. Startling. A summary table in the study shows outcomes for five workers who saved 10% of their earnings from age 22 when they start work. All five workers invest in a portfolio of 60% stocks and 40% bonds. In each case, of course, the annual return income from private savings exceeds that from Social Security – in some cases, by a very material amount.
F’rinstance, the worker who earned the average income, and retired at the normal retirement age of 66 in 2016 could expect a Social Security retirement benefit of $19,646 per year. (Slightly less than needed for a trip around the world each year.) But his accumulated personal savings could amount to about $720,000, which could provide an annuitized annual income of over $57,000 – still not a hefty living allowance, but a lot more than Obama will provide. (Obviously these numbers are replete with assumptions and expectations of investment performance, but you’ve got to start somewhere!)
Take that, Teresa Ghilarducci (government guaranteed retirement income advocate). Sure, the investment markets are unpredictable, but we would prefer that folks evaluate the risk on their own, rather than have Uncle Barack dictate! His track record is less than stellar.
And if you’re into filing frivolous tax returns and are nuts, don’t hold your breath waiting for the Revenooers to abate that “frivolous return penalty” just because of your mental incompetency. Recall that IRS can slam you with an extra $5 grand in penalty when it thinks you’re “frivolous.” And that’s exactly what they did recently in the case of a bloke on Social Security disability and pension benefits who didn’t file returns for about eight years, whereupon IRS made up his returns for him, based on available information (1099s, etc.)
So along comes our boy, claiming refunds of the taxes which IRS snatched, and further offering this explanation: “I am A Private Government Entity & cannot be taxed. The money was illegally deducted from my disability payment. The IRS is in violation of the 5th and 14th Amendment of Due Process.”
Not the most artful argument we have ever heard. But he did make the point of trying to get IRS to abate the $5,000 penalty on account of the taxpayer’s mental incompetency.
“No soap,” replied IRS. There may be other “outs,” but not this one. (Chief Counsel Advice 201623010).
CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.
Jeff Quinn, the author of this article, is a CPA, recently retired from Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He welcomes comments at email@example.com.