Update to Social Security Post

Just a couple of items to add to our Social Security Post of yesterday.

First, if the farmer’s spouse works outside of the farm and has made a substantial amount of money during their career, then it may not make sense for the farmer to pay any more into the system.  A retired person is allowed to collect the HIGHER of:

• Their calculated benefit, or
• 1/2 of their spouse’s benefit

Therefore, if their spouse’s retirement benefit is equal to approximately twice the Tier 1 amount (or about $1,600 in retirement benefits), then a farmer paying into the system is at best increasing their Tier 2 benefit amount which as we explained in the post only gets credited at a 32% rate and the simple payback in years is at least 18.

Second, if the spouse has not worked outside the farm and has generated less than the 40 quarters of service needed to get their own social security benefits, then the actual return to the farmer is potentially greater than the amount shown in the post.  The retiring spouse will be entitled to 1/2 of the farmers benefits, so in these unique cases, it will make even more sense to pay into Social Security.

For example, assume the spouse has never worked outside of the farm and did not get paid on the farm.  In our example of a farmer making an average of $5,000 (in 2013 dollars), his current benefit is about $374 per month.  His spouse’s benefit is 1/2 of that or about $187 or a total of $561 per month for the couple.

If they elect to pay in about $24,000 of extra social security tax over the next couple of years, his monthly benefit increases to $712 and hers would increase to $356 for a total monthly benefit of $1,068 or a combined increase of $507.  In this case, the couples payback would drop from the 6 years shown in our original post to about 4 years.  This is a good return on the farmer’s investment.

Paul Neiffer, CPA