How do freelancers retire?

[dreamscape]

It's not an advice, I'm just saying that if someone were to do it this would be the procedure.

FICA is not a tax for having a SSN, as if such a thing even could exist. It is an income tax; a mandatory income tax and has nothing to do with whether or not you have an SSN and everything to do with your income. The SSA doesn't even regulate FICA, and they haven't regulated the social security tax since the end of the 30's. The IRS regulates it, it's part of the Internal Revenue Code, and it is classified as an income tax.

http://www.ssa.gov/history/InternetMyths.html

The SSA does not require that you accept the benefits, but the IRS requires that you pay for them:
http://ssa-custhelp.ssa.gov/cgi-bin/...hp?p_faqid=200

Even if you did not have a SSN, you would still be required to pay FICA. You'd just not be able to collect from the SSA when you retire.

This is why the Amish don't have to pay:
http://ssa-custhelp.ssa.gov/cgi-bin/...hp?p_faqid=514

As for canceling your SSN, I have no idea where you read that, but the SSA will not cancel an SSN:
http://ssa-custhelp.ssa.gov/cgi-bin/...hp?p_faqid=514

In extenuating circumstances, they may be willing to delete your application, but they will not delete your SSN.

Damn all that info with only 10 minutes of searching. Now who would have thought that the SSA website would have information on Social Security? That's a pretty big jump to make I guess.

[chargin8]

Live off the 300 clients I will have by then, hosting fees alone will keep me very comfortable, and my kids/grandkids can do all the maintenance!!

[Sagewing]

It's not an advice, I'm just saying that if someone were to do it this would be the procedure. Giving legal advice without license is a class B misdemeanor here, that's up to 1 year in jail. No, thanks.
A good lawyer might help, but CPAs have no clue about it, mine gave me a blank stare when I told her that my daughter doesn't have SSN. Not that she's not good, it's just not something CPAs know about
Amish don't pay SS because they don't have SSNs. If you learn Pensylvania Dutch and move to Lancaster county you'll still need to rescind your SS application to avoid paying into the fund. They do have their own pension fund, but it's not why they are not liable for SS tax. The law doesn't require anyone to be enrolled in a pension fund. It's all about having the number, if you don't have one and send a check to IRS to pay your SS tax they'll return it
Anyway, I hope to go ahead with this once I rearrange my business so that I can run it without SSN (have to sell part of it to my wife for $1 or something, because some things can't be done without SSN). Ask me in a few months

Just because you say it's not advice, you are answering questions in an authoritative manner and advising people on tax/legal matters. If it's not advice, what is it? A haiku? I won't even address the fact that your disclaimer is grammatically incorrect.

Your point that rescinding your ssn NUMBER relieves you of the obligation to pay tax makes no sense and you aren't able to back up the claim. The fact that you aren't even doing what you are saying is possible makes the whole thing suspect.

This forum is intended to provide a useful exchange of information where people can help each other out and communicate in a responsible manner. If you are going to provide such risky and questionable ADVICE to people, you'd better be able to explain your position in a coherent manner and demonstrate that you have some knowledge about the subject matter. If not, you should stop telling people that they can stop paying their social security taxes - it's not fair to the users.

[demosfen]

The SSA does not require that you accept the benefits, but the IRS requires that you pay for them

As long as 'you' is defined as someone who has first name, last name, address, and SSN. That's why just sending Request for Withdrawal Of Application is not enough, you have to rescind SSN. Do they require SS tax from Chinese or Australians? No, and the reason is that Chinese don't have SSN (Not because they are foreigners. I wasn't American citizen when I immigrated to US, and still had to pay SS tax because I did have SSN.)
It's a jurisdiction matter, you give them jurisdiction by applying for SSN and SS benefits. IRS requires it under Admiralty law, there is nothing that requires you to pay into SS fund under Common Law. If you didn't have SSN, IRS wouldn't even take your check for SS taxes if you sent them one. If you don't have SSN and IRS were to sue you for not paying SS tax, it would be like them suing a Chinese citizen in US court. They just wouldn't be able to gain jurisdiction to apply their SS tax rules

As for canceling your SSN, I have no idea where you read that, but the SSA will not cancel an SSN

That's true. SSN will remain on file forever, no way and no reason to cancel it. SSA won't cancel SSN, but they will cancel the SS applicaiton associated with it. In fact, you could get back into the system if you wanted to by simply starting using your former SSN again.

Damn all that info with only 10 minutes of searching. Now who would have thought that the SSA website would have information on Social Security? That's a pretty big jump to make I guess.

SSA website has little, if any, info on rescinding SSN. All info that came directly from them that I've seen came from letters they sent to people who got out of the system, or tried to get out. I've been looking into it for many months now and you won't tell me anything I didn't know by spending 10 min at SSA website, sorry

[Sagewing]

Please, nobody listen to this advice. If you want to try and stop paying taxes, please do your own research and don't take advice from anonymous users on forums who clearly have very little understanding of US tax law.

Tax evasion is a serious manner, and is VERY illegal. This kind of thing can get you in to lots of trouble, and the above legal advice shouldn't be considered valid. Seek the counsel of a qualified attorney (with real credentials) or CPA (with real credentials) before making any decisions.

[Robert Warren]

Tax evasion is a serious manner, and is VERY illegal. This kind of thing can get you in to lots of trouble, and the above legal advice shouldn't be considered valid. Seek the counsel of a qualified attorney (with real credentials) or CPA (with real credentials) before making any decisions.

It's okay, we're all dentists here.

[aspen]

Chris - Would elimination of SS really reduce your taxes 15%? For that to be true, you'd have to be paying SS on 100% of your income (roughly speaking) which is avoidable with a good corporate structure. I think you probably know your way around the tax world, but don't you have a payroll/distribution model where you are only paying payroll taxes and social security on a relatively small salary while the rest of your revenue is paid to you in the form of cash distributions, etc? Probably you know all that, but when I see successful self-employed people paying 15% to SS, it makes me cringe!!! One of the best things about being self employed is that you don't have to pay as much tax as the full timers.

Yes. I used to pay both halfs, now with my s-corp I pay half and my business pays half. But the half my business pays come directly out of my profits so for all practical purposes I'm still paying it. I do also pay myself a salary now, and do the rest in dividends, so that saves some, but on the part I pay its still 15%.

[aspen]

Recently the availability of social security has increased and there are still studies being done to determine its estimated life.

Who needs a study. Less people paying in, more people taking out == problem.

[DaveMaxwell]

Do they require SS tax from Chinese or Australians? No, and the reason is that Chinese don't have SSN (Not because they are foreigners. I wasn't American citizen when I immigrated to US, and still had to pay SS tax because I did have SSN.)

IIRC (and I do believe I am), If you are in the US legally (ie with a working/student/residential visa), you have a SSN assigned to you.

It's a jurisdiction matter, you give them jurisdiction by applying for SSN and SS benefits. IRS requires it under Admiralty law, there is nothing that requires you to pay into SS fund under Common Law. If you didn't have SSN, IRS wouldn't even take your check for SS taxes if you sent them one. If you don't have SSN and IRS were to sue you for not paying SS tax, it would be like them suing a Chinese citizen in US court. They just wouldn't be able to gain jurisdiction to apply their SS tax rules

If you are working in the US, you need to be paying US taxes, including state and/or federal taxes. If you're living in one country for a company residing in another (i.e. working in the US for a canadian company or working in Canada for a US company), you typically have to pay taxes in both countries.

Some other things to note. With the advent of the patriot act and other laws that have passed since 09/11/2001, SSN requirements have changed. My child was born in April 2002 and had to have a SSN form filled out before leaving the hospital - it was optional when my oldest was born in 1999. You must have a SSN to get a passport or to get any public benefits. And I'm sure there are other legal reasons to need to get/hold a SSN.

Just some things to be aware of.

[Hartmann]

Who needs a study. Less people paying in, more people taking out == problem.

I don't agree with a study being done but your assumption of more people taking out than putting in is based on what the news tell you. SS has always been this way except at the beginning there was no one taking out, only people putting in.

We were put in a "frenzy" over SS and people bought into it. It was a great election issue. Yet, I digress from the topic of this thread and move into an area of politics and I will just leave it at that.

[Sagewing]

Yes. I used to pay both halfs, now with my s-corp I pay half and my business pays half. But the half my business pays come directly out of my profits so for all practical purposes I'm still paying it. I do also pay myself a salary now, and do the rest in dividends, so that saves some, but on the part I pay its still 15%.

Ahh.. well, as expected you're already dividing your income (actual) between dividends (shouldn't this be a distribution rather than a dividend??) and ordinary payroll income, so you should only be paying FICA/SS/etc on both sides of the payrolled income. That effectively puts a cap on your exposure to SS tax, and some people (but not me) push that to the limit by giving themselves a too-low salary. I think that once you reduce your SS-taxable income to around 70k, you simply have to pay the TAX on that much. But, your earnings beyond that amount shouldn't increase your liability as it pertains to SS tax.

Who needs a study. Less people paying in, more people taking out == problem.

That is true, but couldn't I extend it like this:

Who needs a study. Less people paying in, more people taking out == problem. Problem != bankruptcy.

Sure, there is a problem. But, that's lke saying that since the US is facing some likely inflation over the next few years, you should move all of your money out of dollars. Things are rarely that simple.

Case in point: people who pitch gold/silver as a great investment. Sounds good, but the math never adds up. It's been going on for 100 years, and if you look at gold values over any period longer than 3 years, it's a crap investment.

[tke71709]

Who needs a study. Less people paying in, more people taking out == problem.

And people taking out longer as they live longer == problem

SS was never truly designed to be used, people would die off before they could collect. Now we live to be 90, that's a problem.

[Hartmann]

And people taking out longer as they live longer == problem

SS was never truly designed to be used, people would die off before they could collect. Now we live to be 90, that's a problem.

That and the fact that people who don't need SS are still taking theirs out.

[Sagewing]

Well, regardless it's hard to avoid paying it

Back to the point of the thread: How do freelancers retire???

With the caveat that successful management of a freelancing career (financially, I mean) can require a big learning/execution effort, I would say that it's actually EASIER to retire well as a freelancer than it would be as a full time employee with a similar income.

The reason is that you have so many options - you can get a slick CPA to reduce your taxes (legally!) by just a few percent, and that additional income is compounded through your whole career. You can qualify for things like SEP-IRA and put more money into retirement than you ever could with a matched 401k or IRA.

So, in theory it's a great way to retire well!

[halfasleeps]

thanks i need to make a note if i ever move to freelance contact a CPA. ....now would contacting a CPA be a step to take before you make the move, right after you make the move, or once you have made the move and you've gotten the ball rolling?

ohh and whats a CPA? my fiance is going to get her degree in business so maybe she'll be able to help bc im clueless about these things.

thanks.

[Dan Schulz]

Ideally, before you make the switch, but it can be done at any time. Preferably, late than never, but it's best to consult with one before it becomes too late.

In other words, now is the perfect time .

[Hartmann]

thanks i need to make a note if i ever move to freelance contact a CPA. ....now would contacting a CPA be a step to take before you make the move, right after you make the move, or once you have made the move and you've gotten the ball rolling?

ohh and whats a CPA? my fiance is going to get her degree in business so maybe she'll be able to help bc im clueless about these things.

thanks.

CPA is a Certified Public Accountant, this means they have passed the CPA Exam, and are licensed public accountants.

[Selkirk]

SS is a pay as you go system, not a savings system. It is very misunderstood. The Social Security Trust Fund is not a bank account, its an accounting device. The future of SS in the United States has three distinct phases:

1. Trust Fund Growth (-2018)
Currently SS taxes exceed SS payouts. The government takes the extra money collected and loans it to itself.

2. Trust Fund Contraction (2019-2039)
Collected SS taxes no longer cover SS payouts. Therefore, the SS administration cashes in its bonds to make up the difference. However, the government owes the money to itself, and they already spent that cash in the "growth" phase. remember, this isn't a savings plan. There is no bank account that contains the money. So the government has to come up with the cash in one of three ways:

• Increase taxes.
• Sell more bonds to the public. Basically they convert the intragovernmental SS bond into a debt to the public. This process will drive up interest rates.
• Spend less on other governmental programs. The problem being that the SS obligation is large and the places available to cut are few.

Remember, that every year the SSA will cash in more bonds than the last year unless benefits are cut or SSI taxes are increased.

3. Trust Fund exhaustion (2040-)
At some point, the SS administration will run out of bonds. At that point, theoretically, they can no longer cover their promised SS payments. However, that does not mean that retirees will not get SS. They will still collect SS taxes in 2042 and the government can still pay that money out. The problem is that they can only pay out 74% of what they promised retirees that they would pay out. "Bankruptcy" is a dramatic term, but it doesn't mean "no payments," it means "sudden benefit cuts."

Predicting 30 years in advance is fraught with dangers. Who knows what will actually happen. If the economy grows fast enough, the tax revenues will increase (at the same tax rate) faster than the SS obligations do. Good times! The trust fund may never reach exhaustion. Or, if the economy stagnates, the SSA may cash in all their bonds sooner than expected. Crisis!

Obviously the benefits cliff at 2040 is a big problem. Most likely, the politicians will do some combination of cutting benefits and raising taxes before 2040 so nothing sudden will happen.

So, for retirement planning purposes, can you count on SS? Absolutely. You just can't count on the exact amount.

For the SSI tax dodgers: If you don't pay the taxes in, you don't get to draw the benefits out. You need 40 work credits to draw retirement benefits and 20 work credits in the past 10 years to draw disability. You get 1 work credit per $970 of reported income up to a maximum of 4 credits per year. Its a low bar, but something to think about.

[SidraG]

And, before all of you go off the grid and opt out of SS, keep in mind that the SS benefits involve much more than just retirement benefits. (You'll learn all of that once you hit 40 and they start sending you these illuminating reports around your birthday on how much you've paid into the system and what it's worth)

Point in fact, that SS benefits pay out if you are disabled for the rest of your life. In my case, it's would amount to nearly half of my current monthly income. If I die right now, my husband would get benefits (about 30% of my current pay) as would each of my existing children. All of this amounts to more benefits than you'd likely get with a healthy insurance policy. Enough to allow your spouse to keep the house, put food on the table and maybe even help send the kids to college.

Also, think about whether you'd work for yourself for the rest of your life. If the answer is no, or maybe not, then opting out of SS would mean that you'd be throwing away the free money your employer would be paying into the system on your behalf.

Finally, keep in mind that there are income caps to most traditional retirement funds -- IRAs, Roths, Keoghs etc that will limit how much you can put away. If you were to put the maximum amount into each of these, you'd still be losing out on the additional money you'd have it you paid into all of them and into SS.

Sure, SS may not be around in the same form as it is now when you retire. But go under completely? Not likely. And certainly not without you being able to get back the money you and your employer actually paid into the system on your behalf. I can't imagine that would happen under any circumstances.

[Shyflower]

And, before all of you go off the grid and opt out of SS, keep in mind that the SS benefits involve much more than just retirement benefits.

The point we have made here is that there is NO LEGAL WAY to "opt out" of Social Security unless you want the IRS and SS on your tail.

Point in fact, that SS benefits pay out if you are disabled for the rest of your life. In my case, it's would amount to nearly half of my current monthly income. If I die right now, my husband would get benefits (about 30% of my current pay) as would each of my existing children.

Just because you die, it doesn't mean your household automatically collects your SS benefits and they don't go to children over age 19 either.
Have a look at this page.

http://www.ssa.gov/ww&os2.htm

Please -- before you give advice, know what you are talking about!