2020 Social Security Maximum Taxable Earnings $137,700

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Spirit Rider
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2020 Social Security Maximum Taxable Earnings $137,700

Post by Spirit Rider » Sat Oct 12, 2019 5:17 pm

There has been a lot of information about the 2020 SS COLA of 1.6%. What has not been mentioned in the SSAs same day release of 2020 SS changes from the CPI-U release on 10/10/2019. Is that those changes also included an increase in the Maximum Taxable Earnings from $132,900 (2019) to $137,700 (2020).

Must just be more interest in increases in income than increases in income subject to taxes.

Olemiss540
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by Olemiss540 » Sat Oct 12, 2019 6:09 pm

Wow, that stinks. I am sure it will be put to good use.
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FIREchief
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by FIREchief » Sat Oct 12, 2019 6:32 pm

It's interesting that taxable earnings are able to increase at over twice the rate of inflation. This used to puzzle me before I FIREd, but now it is meaningless to me. Does anybody know why this is the case?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by abuss368 » Sat Oct 12, 2019 6:34 pm

I have been watching this with interest for a while and I am not surprised. I would think it will continue. We as investors must continue to live below our means and sacrifice for a better future.
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by unclescrooge » Sat Oct 12, 2019 6:52 pm

FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
Does anybody know why this is the case?
So the social security fund doesn't run out of money?

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by nps » Sat Oct 12, 2019 8:09 pm

unclescrooge wrote:
Sat Oct 12, 2019 6:52 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
Does anybody know why this is the case?
So the social security fund doesn't run out of money?
No, it's tied to a wage index while Social Security benefits are tied to a price index. My understanding is that wages tend to grow faster than CPI.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by neurosphere » Sat Oct 12, 2019 8:42 pm

FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
It's interesting that taxable earnings are able to increase at over twice the rate of inflation. This used to puzzle me before I FIREd, but now it is meaningless to me. Does anybody know why this is the case?
For those that are not yet 62, future benefits are greater whenever average wage inflation (upon which the maximum taxable earnings aka SSWB aka the benefits and contribution base) exceeds price inflation (CPI-W).

Future benefits are based on your earnings, and also your earnings compared to average wages. In addition, your SS taxable maximum each year you have earnings is also based on average earnings. However, once you receive a benefit (I'm finessing the explanation here), your benefit increases with price inflation, but not wage inflation.

As to "why"? Well, that's just the law. However, to me, it makes some small amount of intuitive sense.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by neurosphere » Sat Oct 12, 2019 8:44 pm

nps wrote:
Sat Oct 12, 2019 8:09 pm
unclescrooge wrote:
Sat Oct 12, 2019 6:52 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
Does anybody know why this is the case?
So the social security fund doesn't run out of money?
No, it's tied to a wage index while Social Security benefits are tied to a price index. My understanding is that wages tend to grow faster than CPI.
Correct. Historically, on average, wages have increased more rapidly than inflation. This actually benefits the majority of earners, in particular earners that don't have earnings which exceed the SS maximum taxable earnings.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Spirit Rider
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by Spirit Rider » Sat Oct 12, 2019 9:10 pm

nps wrote:
Sat Oct 12, 2019 8:09 pm
unclescrooge wrote:
Sat Oct 12, 2019 6:52 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
Does anybody know why this is the case?
So the social security fund doesn't run out of money?
No, it's tied to a wage index while Social Security benefits are tied to a price index. My understanding is that wages tend to grow faster than CPI.
That is not entirely correct.

The Maximum Taxable Earnings (MTE) are indexed to the wage index, your adjusted indexed monthly earnings (AIME) are indexed to the wage index until age 60 and then your primary insurance amount (PIA) based on your AIME is subject to COLA increases starting at age 62 (even if you are not collecting). Yes, there is a two year gap (60 - 62) where you do not get either the wage index adjustments or COLA.

So until age 60 (accumulation phase) your benefits are adjusted by the wage index. from 62 (benefit phase) your benefits are adjusted by the COLA. Surprisingly for the government this actually makes sense. Your benefit while working increases based on average wage increases. Your benefit while retired increases based on average price increases.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by neurosphere » Sun Oct 13, 2019 1:58 pm

FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
It's interesting that taxable earnings are able to increase at over twice the rate of inflation. This used to puzzle me before I FIREd, but now it is meaningless to me. Does anybody know why this is the case?
Keep in mind that part of what you are seeing is a result of rounding to the nearest multiple of $300. So that can either exaggerate or minimize any apparent disconnect between wage inflation and price inflation, while preserving the underlying numbers in the long run. But as mention, taxable earnings are not at all tied to (CPI) inflation, except as they are somehow related over time by macroeconomics. :D

https://www.ssa.gov/OP_Home/ssact/title02/0230.htm (courtesy of sscritic)

If you retired and not yet 62 years old, or do not otherwise have earnings above the maximum, then you would "want" wage inflation to be as high as possible compared to price inflation. Your future benefit will increases with increasing wage inflation, so you should hope for that to be as large as possible (relative to prices). Perhaps this phenomenon is not quite "meaningless" to you! ;)

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by White Coat Investor » Sun Oct 13, 2019 2:04 pm

Spirit Rider wrote:
Sat Oct 12, 2019 5:17 pm
There has been a lot of information about the 2020 SS COLA of 1.6%. What has not been mentioned in the SSAs same day release of 2020 SS changes from the CPI-U release on 10/10/2019. Is that those changes also included an increase in the Maximum Taxable Earnings from $132,900 (2019) to $137,700 (2020).

Must just be more interest in increases in income than increases in income subject to taxes.
Wow, it feels like that really climbs quickly each year.
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by Clever_Username » Sun Oct 13, 2019 3:26 pm

Darn. I feel like it was barely in six figures not too long ago. Oh well, at least I am going to be over that limit so some money comes back.
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by jaj2276 » Sun Oct 13, 2019 4:35 pm

White Coat Investor wrote:
Sun Oct 13, 2019 2:04 pm
Spirit Rider wrote:
Sat Oct 12, 2019 5:17 pm
There has been a lot of information about the 2020 SS COLA of 1.6%. What has not been mentioned in the SSAs same day release of 2020 SS changes from the CPI-U release on 10/10/2019. Is that those changes also included an increase in the Maximum Taxable Earnings from $132,900 (2019) to $137,700 (2020).

Must just be more interest in increases in income than increases in income subject to taxes.
Wow, it feels like that really climbs quickly each year.
That it does. In 2002 I moved to NY from Atlanta for a new job. I never knew there was a cap on SS wages because I never had a job that would come close to it. This new job did and when my paycheck increased late in the year due to me hitting the cap, it felt like I was getting a raise! The cap was something like $86k. I've aligned my expectations to be "ok" with a $5k increase in the cap.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by JoeRetire » Sun Oct 13, 2019 4:35 pm

FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
This used to puzzle me before I FIREd, but now it is meaningless to me. Does anybody know why this is the case?
I do.

It's meaningless to you because it no longer directly impacts you.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by LadyGeek » Sun Oct 13, 2019 4:48 pm

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by MathIsMyWayr » Sun Oct 13, 2019 5:58 pm

Social Security Taxable earnings include any compensation in addition to salaries, e.g., bonuses, commissions, exercise of stock options, vesting of RSU. They are all entered W2.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by Longdog » Sun Oct 13, 2019 7:16 pm

neurosphere wrote:
Sat Oct 12, 2019 8:42 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
It's interesting that taxable earnings are able to increase at over twice the rate of inflation. This used to puzzle me before I FIREd, but now it is meaningless to me. Does anybody know why this is the case?
For those that are not yet 62, future benefits are greater whenever average wage inflation (upon which the maximum taxable earnings aka SSWB aka the benefits and contribution base) exceeds price inflation (CPI-W).
Correct me if I'm wrong (probably an unnecessary request!), but I think this means that when doing the PIA calculation for a future benefit, previous years earnings that reached the cap at the time will be indexed upward as if they met the current cap. And even those who did not ever meet the cap will have their previous years earnings indexed higher. So, for those who have not yet started collecting benefits, this is beneficial.
Steve

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by neurosphere » Sun Oct 13, 2019 7:25 pm

Longdog wrote:
Sun Oct 13, 2019 7:16 pm
neurosphere wrote:
Sat Oct 12, 2019 8:42 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
It's interesting that taxable earnings are able to increase at over twice the rate of inflation. This used to puzzle me before I FIREd, but now it is meaningless to me. Does anybody know why this is the case?
For those that are not yet 62, future benefits are greater whenever average wage inflation (upon which the maximum taxable earnings aka SSWB aka the benefits and contribution base) exceeds price inflation (CPI-W).
Correct me if I'm wrong (probably an unnecessary request!), but I think this means that when doing the PIA calculation for a future benefit, previous years earnings that reached the cap at the time will be indexed upward as if they met the current cap. And even those who did not ever meet the cap will have their previous years earnings indexed higher. So, for those who have not yet started collecting benefits, this is beneficial.
Yes, you have the general idea correct. If one is not at/near maximal earnings currently, then an increase in the benefit and contribution base does not result in extra tax. But, it represents a net effect of increasing a future benefit. For those not at age 62, the higher the difference between wage inflation and price inflation, the "better".
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by TropikThunder » Sun Oct 13, 2019 7:28 pm

White Coat Investor wrote:
Sun Oct 13, 2019 2:04 pm
Spirit Rider wrote:
Sat Oct 12, 2019 5:17 pm
There has been a lot of information about the 2020 SS COLA of 1.6%. What has not been mentioned in the SSAs same day release of 2020 SS changes from the CPI-U release on 10/10/2019. Is that those changes also included an increase in the Maximum Taxable Earnings from $132,900 (2019) to $137,700 (2020).

Must just be more interest in increases in income than increases in income subject to taxes.
Wow, it feels like that really climbs quickly each year.
I dunno, we’re only talking about $367 in FICA taxes ($4,800 cap increase at 7.65%). A dollar a day?

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by Longdog » Sun Oct 13, 2019 7:36 pm

neurosphere wrote:
Sun Oct 13, 2019 7:25 pm
Longdog wrote:
Sun Oct 13, 2019 7:16 pm
neurosphere wrote:
Sat Oct 12, 2019 8:42 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
It's interesting that taxable earnings are able to increase at over twice the rate of inflation. This used to puzzle me before I FIREd, but now it is meaningless to me. Does anybody know why this is the case?
For those that are not yet 62, future benefits are greater whenever average wage inflation (upon which the maximum taxable earnings aka SSWB aka the benefits and contribution base) exceeds price inflation (CPI-W).
Correct me if I'm wrong (probably an unnecessary request!), but I think this means that when doing the PIA calculation for a future benefit, previous years earnings that reached the cap at the time will be indexed upward as if they met the current cap. And even those who did not ever meet the cap will have their previous years earnings indexed higher. So, for those who have not yet started collecting benefits, this is beneficial.
Yes, you have the general idea correct. If one is not at/near maximal earnings currently, then an increase in the benefit and contribution base does not result in extra tax. But, it represents a net effect of increasing a future benefit. For those not at age 62, the higher the difference between wage inflation and price inflation, the "better".
And that is whether or not you’re still working, as long as you haven’t started collecting? That’s awesome-like going back in time and retroactively bumping up your earnings. :thumbsup
Steve

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by White Coat Investor » Sun Oct 13, 2019 9:38 pm

TropikThunder wrote:
Sun Oct 13, 2019 7:28 pm
White Coat Investor wrote:
Sun Oct 13, 2019 2:04 pm
Spirit Rider wrote:
Sat Oct 12, 2019 5:17 pm
There has been a lot of information about the 2020 SS COLA of 1.6%. What has not been mentioned in the SSAs same day release of 2020 SS changes from the CPI-U release on 10/10/2019. Is that those changes also included an increase in the Maximum Taxable Earnings from $132,900 (2019) to $137,700 (2020).

Must just be more interest in increases in income than increases in income subject to taxes.
Wow, it feels like that really climbs quickly each year.
I dunno, we’re only talking about $367 in FICA taxes ($4,800 cap increase at 7.65%). A dollar a day?
Thank your employer for paying the other 6.2%. The 2.9% Medicare tax has no cap anyway, so the correct equation in my case is $4,800*12.4% = $595. I don't know about you, but that's going out to eat once a month that is now going to taxes.
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by AlphaLess » Sun Oct 13, 2019 9:43 pm

White Coat Investor wrote:
Sun Oct 13, 2019 2:04 pm
Spirit Rider wrote:
Sat Oct 12, 2019 5:17 pm
There has been a lot of information about the 2020 SS COLA of 1.6%. What has not been mentioned in the SSAs same day release of 2020 SS changes from the CPI-U release on 10/10/2019. Is that those changes also included an increase in the Maximum Taxable Earnings from $132,900 (2019) to $137,700 (2020).

Must just be more interest in increases in income than increases in income subject to taxes.
Wow, it feels like that really climbs quickly each year.
Compounding is powerful.
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by AlphaLess » Sun Oct 13, 2019 9:49 pm

What are some of the best ways to 'arbitrage' social security?

Here is one I thought about:
- start paying social security at 50,
- for the period of 50-60 years, pay at a pace of earning, say $30K a year,
- then reduce earnings at 60 to some minimal amount.

Seems like a dollar of tax paid vs dollar collected at 70 is quite high.

Any other good strategies?
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by Spirit Rider » Sun Oct 13, 2019 10:57 pm

Your personal wage index for the calculation of Adjusted Indexed Monthly Earnings (AIME) is based on the average wage index for the year you turn 60. However, the SS MTE will continue to increase by the average wage index. For every year you make > the age 60 MTE -> current MTE, your receive a boosted earnings benefit.

Not that it is practical, but the best option for maximum SS benefits might be to not start working until age 40 (retire first) and then earn the MTE from age 40 -> 70. The boosted earnings from age 60 -> 70 might be enough to offset the 5 $0 years.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by FIREchief » Sun Oct 13, 2019 11:03 pm

neurosphere wrote:
Sun Oct 13, 2019 1:58 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
It's interesting that taxable earnings are able to increase at over twice the rate of inflation. This used to puzzle me before I FIREd, but now it is meaningless to me. Does anybody know why this is the case?
If you retired and not yet 62 years old, or do not otherwise have earnings above the maximum, then you would "want" wage inflation to be as high as possible compared to price inflation. Your future benefit will increases with increasing wage inflation, so you should hope for that to be as large as possible (relative to prices). Perhaps this phenomenon is not quite "meaningless" to you! ;)
Thanks!! Apparently it is anything but meaningless to me! :beer
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by FIREchief » Sun Oct 13, 2019 11:05 pm

JoeRetire wrote:
Sun Oct 13, 2019 4:35 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
This used to puzzle me before I FIREd, but now it is meaningless to me. Does anybody know why this is the case?
I do.

It's meaningless to you because it no longer directly impacts you.
According to at least one other poster, it may directly impact me. I didn't give you my age or work history, nor did I indicate if I am currently drawing benefits.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by Goal33 » Sun Oct 13, 2019 11:20 pm

White Coat Investor wrote:
Sun Oct 13, 2019 9:38 pm
TropikThunder wrote:
Sun Oct 13, 2019 7:28 pm
White Coat Investor wrote:
Sun Oct 13, 2019 2:04 pm
Spirit Rider wrote:
Sat Oct 12, 2019 5:17 pm
There has been a lot of information about the 2020 SS COLA of 1.6%. What has not been mentioned in the SSAs same day release of 2020 SS changes from the CPI-U release on 10/10/2019. Is that those changes also included an increase in the Maximum Taxable Earnings from $132,900 (2019) to $137,700 (2020).

Must just be more interest in increases in income than increases in income subject to taxes.
Wow, it feels like that really climbs quickly each year.
I dunno, we’re only talking about $367 in FICA taxes ($4,800 cap increase at 7.65%). A dollar a day?
Thank your employer for paying the other 6.2%. The 2.9% Medicare tax has no cap anyway, so the correct equation in my case is $4,800*12.4% = $595. I don't know about you, but that's going out to eat once a month that is now going to taxes.
Well not entirely. It’s also going into your benefit calculation.
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by Tamarind » Mon Oct 14, 2019 5:53 am

Spirit Rider wrote:
Sat Oct 12, 2019 5:17 pm
There has been a lot of information about the 2020 SS COLA of 1.6%. What has not been mentioned in the SSAs same day release of 2020 SS changes from the CPI-U release on 10/10/2019. Is that those changes also included an increase in the Maximum Taxable Earnings from $132,900 (2019) to $137,700 (2020).

Must just be more interest in increases in income than increases in income subject to taxes.
I'm really glad you posted this because I think I'll exceed the max SS withholding this year due to changing jobs. I didn't know you could request a return of overwithholding if one's employers withheld SA tax on more than the maximum taxable earnings (it's on 1040 Schedule 5). I still keep learning new things on this forum!

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by neurosphere » Mon Oct 14, 2019 9:21 am

Longdog wrote:
Sun Oct 13, 2019 7:36 pm
neurosphere wrote:
Sun Oct 13, 2019 7:25 pm
Longdog wrote:
Sun Oct 13, 2019 7:16 pm
neurosphere wrote:
Sat Oct 12, 2019 8:42 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
It's interesting that taxable earnings are able to increase at over twice the rate of inflation. This used to puzzle me before I FIREd, but now it is meaningless to me. Does anybody know why this is the case?
For those that are not yet 62, future benefits are greater whenever average wage inflation (upon which the maximum taxable earnings aka SSWB aka the benefits and contribution base) exceeds price inflation (CPI-W).
Correct me if I'm wrong (probably an unnecessary request!), but I think this means that when doing the PIA calculation for a future benefit, previous years earnings that reached the cap at the time will be indexed upward as if they met the current cap. And even those who did not ever meet the cap will have their previous years earnings indexed higher. So, for those who have not yet started collecting benefits, this is beneficial.
Yes, you have the general idea correct. If one is not at/near maximal earnings currently, then an increase in the benefit and contribution base does not result in extra tax. But, it represents a net effect of increasing a future benefit. For those not at age 62, the higher the difference between wage inflation and price inflation, the "better".
And that is whether or not you’re still working, as long as you haven’t started collecting? That’s awesome-like going back in time and retroactively bumping up your earnings. :thumbsup
It's not the "collecting" itself that's directly relevant. It's that changes in the wage index no longer affect any calculations at age 62. More precisely, the last wage index number that affects the calculations is locked in (in a manner of speaking) at age 60, but which is not really available for almost 2 years so gets calculated at age 62. Whether one collects a retirement benefit is not relevant. Of course, one cannot collect the traditional retirement benefit prior to age 62 (I'm not sure if there are perhaps other types of benefits which can come prior to age 62 which may perhaps be affected by changes in the wage index, I doubt it but really have no idea).

If one is <60 and still working, then increases in the wage index do indeed increase the future benefit. However, if one is at/near any newly increased taxable maximum, one could end up paying more in taxes in that (and/or future) years. So whether this "helps" or "hurts" you is based on many assumptions and also how one defines "helps" or "hurts". :)

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by neurosphere » Mon Oct 14, 2019 9:25 am

Tamarind wrote:
Mon Oct 14, 2019 5:53 am
I'm really glad you posted this because I think I'll exceed the max SS withholding this year due to changing jobs. I didn't know you could request a return of overwithholding if one's employers withheld SA tax on more than the maximum taxable earnings (it's on 1040 Schedule 5). I still keep learning new things on this forum!
Yep! Interestingly, the employER portions of SS tax are not returnable. If one has two separate W2 jobs and earns the max, for example, at each job, the government (specifically the SS trust funds) gets +1/3 more dollars than if there was only one job. :)
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by wootwoot » Mon Oct 14, 2019 9:30 am

nps wrote:
Sat Oct 12, 2019 8:09 pm
unclescrooge wrote:
Sat Oct 12, 2019 6:52 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
Does anybody know why this is the case?
So the social security fund doesn't run out of money?
No, it's tied to a wage index while Social Security benefits are tied to a price index. My understanding is that wages tend to grow faster than CPI.
Good info. Is the government saying that wages went up twice as fast as CPI this year then? It's hard to imagine average wages going up this fast over the last year.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by neurosphere » Mon Oct 14, 2019 9:40 am

wootwoot wrote:
Mon Oct 14, 2019 9:30 am
nps wrote:
Sat Oct 12, 2019 8:09 pm
unclescrooge wrote:
Sat Oct 12, 2019 6:52 pm
FIREchief wrote:
Sat Oct 12, 2019 6:32 pm
Does anybody know why this is the case?
So the social security fund doesn't run out of money?
No, it's tied to a wage index while Social Security benefits are tied to a price index. My understanding is that wages tend to grow faster than CPI.
Good info. Is the government saying that wages went up twice as fast as CPI this year then? It's hard to imagine average wages going up this fast over the last year.
The most recently released wage data is from the 2018 calendar year. You can compare 2018 numbers with previous ones here: https://www.ssa.gov/oact/cola/AWI.html

In general and historically, wages increase faster than inflation. Here is the COLA history (based on CPI-W) for comparison: https://www.ssa.gov/oact/cola/colaseries.html. And if I'm thinking clearly, it's the 2018 wage data that gets applied to the 2020 taxable maximum, but it's the 2019 inflation data that gets applied to 2020 benefits.

And remember changes in the SS taxable maximum do not directly scale with changes in the wage index, in the short term, due to rounding rules.

soccerrules
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by soccerrules » Mon Oct 14, 2019 9:49 am

White Coat Investor wrote:
Sun Oct 13, 2019 2:04 pm
Spirit Rider wrote:
Sat Oct 12, 2019 5:17 pm
There has been a lot of information about the 2020 SS COLA of 1.6%. What has not been mentioned in the SSAs same day release of 2020 SS changes from the CPI-U release on 10/10/2019. Is that those changes also included an increase in the Maximum Taxable Earnings from $132,900 (2019) to $137,700 (2020).

Must just be more interest in increases in income than increases in income subject to taxes.
Wow, it feels like that really climbs quickly each year.
2000 it was $76,200
2010 is was $106,800 (actually 08 and 09 it was as well)
2016 it was $118,500
2017 is jumped to $127,200
Don't let your outflow exceed your income or your upkeep will be your downfall.

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Clever_Username
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by Clever_Username » Mon Oct 14, 2019 9:55 am

neurosphere wrote:
Mon Oct 14, 2019 9:25 am
Tamarind wrote:
Mon Oct 14, 2019 5:53 am
I'm really glad you posted this because I think I'll exceed the max SS withholding this year due to changing jobs. I didn't know you could request a return of overwithholding if one's employers withheld SA tax on more than the maximum taxable earnings (it's on 1040 Schedule 5). I still keep learning new things on this forum!
Yep! Interestingly, the employER portions of SS tax are not returnable. If one has two separate W2 jobs and earns the max, for example, at each job, the government (specifically the SS trust funds) gets +1/3 more dollars than if there was only one job. :)
Wait... what? I switched jobs mid-year this year. Had I stayed in job one, I'd have hit the SS Cap for 2019 with my last (only, paid monthly) paycheck in September. However, my new job was adamant that they have to treat my SS withholding as if I were starting from $0. Fine, nothing I can do about that. But I have already grossed more than the cap in 2019.

If I understand you correctly, when I file CY 2019 taxes, I will get the overpay from my share into SS back, but the excess my employer paid is just in the system?
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by neurosphere » Mon Oct 14, 2019 10:04 am

Clever_Username wrote:
Mon Oct 14, 2019 9:55 am
neurosphere wrote:
Mon Oct 14, 2019 9:25 am
Tamarind wrote:
Mon Oct 14, 2019 5:53 am
I'm really glad you posted this because I think I'll exceed the max SS withholding this year due to changing jobs. I didn't know you could request a return of overwithholding if one's employers withheld SA tax on more than the maximum taxable earnings (it's on 1040 Schedule 5). I still keep learning new things on this forum!
Yep! Interestingly, the employER portions of SS tax are not returnable. If one has two separate W2 jobs and earns the max, for example, at each job, the government (specifically the SS trust funds) gets +1/3 more dollars than if there was only one job. :)
Wait... what? I switched jobs mid-year this year. Had I stayed in job one, I'd have hit the SS Cap for 2019 with my last (only, paid monthly) paycheck in September. However, my new job was adamant that they have to treat my SS withholding as if I were starting from $0. Fine, nothing I can do about that. But I have already grossed more than the cap in 2019.

If I understand you correctly, when I file CY 2019 taxes, I will get the overpay from my share into SS back, but the excess my employer paid is just in the system?
Yes, excess SS payments on YOUR end come back to you (see line 72). And your job was correct to be "adamant", lol. And yes, your W2 employers do NOT get anything back. It's just extra money in the system. Consider an individual who has 3 W2 jobs in a year, some overlapping in time, another not, and in total exceed the SS taxable maximum. Imagine how difficult it would be to figure out which employer would get back which amounts!

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sunny_socal
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by sunny_socal » Mon Oct 14, 2019 10:07 am

Taxes going up pretty fast.

Will be looking for a better job next year (still stuck in a contract currently) :|

CurlyDave
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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by CurlyDave » Mon Oct 14, 2019 10:29 am

AlphaLess wrote:
Sun Oct 13, 2019 9:49 pm
What are some of the best ways to 'arbitrage' social security?

Here is one I thought about:
- start paying social security at 50,
- for the period of 50-60 years, pay at a pace of earning, say $30K a year,
- then reduce earnings at 60 to some minimal amount.

Seems like a dollar of tax paid vs dollar collected at 70 is quite high.

Any other good strategies?
Whether this is a "good" strategy depends on your objective.

If you want to have the ratio of SS collected to taxes paid be as high as possible, go for it. But realize that the low end of SS benefits is pretty darned low.

Personally I think that having a higher retirement income is a better strategy. Not paying SS before 50 implies not working, or earning very, very little. This is a great way to turn your retirement into "the Alpo years."

Yup, I have to give the tax man his due, but my standard of living is much better.

Every April I write the IRS a check which is high enough to support more than one bureaucrat for an entire year. (No quarterly payments for this boy.) I hate this like sin. But, not paying taxes would imply not having a higher standard of living.

* * * * * * * * * * * * * * * * * * * * *

The only thing that bothers me more than the idea of paying more taxes is the prospect of getting all the government I pay for. :D :D

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by wolf359 » Mon Oct 14, 2019 10:30 am

Clever_Username wrote:
Mon Oct 14, 2019 9:55 am
neurosphere wrote:
Mon Oct 14, 2019 9:25 am
Tamarind wrote:
Mon Oct 14, 2019 5:53 am
I'm really glad you posted this because I think I'll exceed the max SS withholding this year due to changing jobs. I didn't know you could request a return of overwithholding if one's employers withheld SA tax on more than the maximum taxable earnings (it's on 1040 Schedule 5). I still keep learning new things on this forum!
Yep! Interestingly, the employER portions of SS tax are not returnable. If one has two separate W2 jobs and earns the max, for example, at each job, the government (specifically the SS trust funds) gets +1/3 more dollars than if there was only one job. :)
Wait... what? I switched jobs mid-year this year. Had I stayed in job one, I'd have hit the SS Cap for 2019 with my last (only, paid monthly) paycheck in September. However, my new job was adamant that they have to treat my SS withholding as if I were starting from $0. Fine, nothing I can do about that. But I have already grossed more than the cap in 2019.

If I understand you correctly, when I file CY 2019 taxes, I will get the overpay from my share into SS back, but the excess my employer paid is just in the system?
I never thought of it that way, but I did some research and that appears to be the case. Wow, the system is set up so that sometimes extra taxes are paid in. Who woulda thunk it?

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by Clever_Username » Mon Oct 14, 2019 12:46 pm

neurosphere wrote:
Mon Oct 14, 2019 10:04 am
Clever_Username wrote:
Mon Oct 14, 2019 9:55 am
neurosphere wrote:
Mon Oct 14, 2019 9:25 am
Tamarind wrote:
Mon Oct 14, 2019 5:53 am
I'm really glad you posted this because I think I'll exceed the max SS withholding this year due to changing jobs. I didn't know you could request a return of overwithholding if one's employers withheld SA tax on more than the maximum taxable earnings (it's on 1040 Schedule 5). I still keep learning new things on this forum!
Yep! Interestingly, the employER portions of SS tax are not returnable. If one has two separate W2 jobs and earns the max, for example, at each job, the government (specifically the SS trust funds) gets +1/3 more dollars than if there was only one job. :)
Wait... what? I switched jobs mid-year this year. Had I stayed in job one, I'd have hit the SS Cap for 2019 with my last (only, paid monthly) paycheck in September. However, my new job was adamant that they have to treat my SS withholding as if I were starting from $0. Fine, nothing I can do about that. But I have already grossed more than the cap in 2019.

If I understand you correctly, when I file CY 2019 taxes, I will get the overpay from my share into SS back, but the excess my employer paid is just in the system?
Yes, excess SS payments on YOUR end come back to you (see line 72). And your job was correct to be "adamant", lol. And yes, your W2 employers do NOT get anything back. It's just extra money in the system. Consider an individual who has 3 W2 jobs in a year, some overlapping in time, another not, and in total exceed the SS taxable maximum. Imagine how difficult it would be to figure out which employer would get back which amounts!
Thanks, and very good point. Having been a freeway flier in the past, I should have recognized the idea of two concurrent jobs having that disagreement.
wolf359 wrote:
Mon Oct 14, 2019 10:30 am
I never thought of it that way, but I did some research and that appears to be the case. Wow, the system is set up so that sometimes extra taxes are paid in. Who woulda thunk it?
Funny how the excess always goes their direction. It's like the opposite of Superman III.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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Re: 2020 Social Security Maximum Taxable Earnings $137,700

Post by AlphaLess » Mon Oct 14, 2019 9:31 pm

CurlyDave wrote:
Mon Oct 14, 2019 10:29 am
AlphaLess wrote:
Sun Oct 13, 2019 9:49 pm
What are some of the best ways to 'arbitrage' social security?

Here is one I thought about:
- start paying social security at 50,
- for the period of 50-60 years, pay at a pace of earning, say $30K a year,
- then reduce earnings at 60 to some minimal amount.

Seems like a dollar of tax paid vs dollar collected at 70 is quite high.

Any other good strategies?
Whether this is a "good" strategy depends on your objective.

If you want to have the ratio of SS collected to taxes paid be as high as possible, go for it. But realize that the low end of SS benefits is pretty darned low.

Personally I think that having a higher retirement income is a better strategy. Not paying SS before 50 implies not working, or earning very, very little. This is a great way to turn your retirement into "the Alpo years."

Yup, I have to give the tax man his due, but my standard of living is much better.

Every April I write the IRS a check which is high enough to support more than one bureaucrat for an entire year. (No quarterly payments for this boy.) I hate this like sin. But, not paying taxes would imply not having a higher standard of living.

* * * * * * * * * * * * * * * * * * * * *

The only thing that bothers me more than the idea of paying more taxes is the prospect of getting all the government I pay for. :D :D
First of all, we both understand that this is not a choice.

But yea, as a hypothetical exercise of getting as many Social Security dollars (in terms of PIA * 1.32) in exchange for as little time worked as possible, or as little dollars contributed to SS as possible.

I guess, for time, you can work for 3 years at $135K a year or so, and be doing pretty well.

In terms of 'low income', if you work for 10 years immediately prior to retirement, say from 60 to 70, then pretty much stay under the first bend-point, then that would be the best.

When you say: "You write a check every April, etc", do you refer to your annual taxes paid, or the top-up you have to do on April 15th?

I mean, by that metric, I probably pay enough taxes to pay 10 government workers.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.

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