As a rule, the average person is best served by paying into the Social Security system. It is a good deal and is likely to remain stable. However, there are significant portions of the population for whom it does not make sense to contribute.
You can find out what your potential benefits are by contacting the Social Security Administration by phone or in person. This will give you and your tax professional hard numbers to work on a plan.
- You are already going to receive full benefits.
For many professionals, they have reached full pay status well before retirement. It makes no sense to contribute any additional funds beyond the bare necessity for reasonable compensation. This is more common among older business owners.
- You are a public or union employee who will not be able to collect social security benefits due to windfall restrictions.
Many police officers, firefighters and public school teachers, among many others, will not be allowed to collect significant amounts of social security because their pension benefits will cause windfall issues.
- You are married and your benefits will never catch up to your spousal benefits.
Many people devoted large periods of their lives to raising children and/or low wage work. If you are married for over ten years, you will collect 50% of your spouse’s benefits. Unless you are going to earn enough to take more than 50% of the benefits you are due from your spouse, it does not make sense to contribute.
- You are a real estate professional
No real estate professional should be paying income taxes. Instead, they should be buying properties and using planning techniques to accelerate depreciation to always offset their income. Their money is fair more wisely invested into real estate than social security. Few real estate agents will consistently earn enough to get more benefits from Social Security than they would from rents.
- You are on an income based repayment plan for student loans
It makes no sense to show income if you are on one of these plans and self employed. When you owe potentially hundreds of thousands of dollars, the payments will overtake your life if you start making money. It is far wiser to have a C Corporation, pay yourself a very minimal wage and stash the rest of the funds away in retirement accounts such as 401(k)s and Defined Benefit Pension Plans. You can borrow against these plans in order to cover emergency expenses. Once your loans are forgiven after 20 or 25 years, it will probably be too late to pay enough into Social Security but if you were smart with your savings, you will still have a tidy nest egg.
