Financial Planning so You Can Collect Social Security if You Need It

December 02,2014
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I met a very pleasant prospective client yesterday who had been working steadily as a performer for many years. I asked him for a copy of his earnings statement to determine what his monthly benefits would be and I was surprised to see that despite having worked for many years, he had zero earnings throughout that period. When I questioned him about this, he told me that when he was a child, his manager had set up a corporation to which all his income was paid. That corporation, in turn, purchased investments to support him in his retirement. Well, the Stock Market crashed and the housing market tanked and now my client has no assets and the only benefit I might be able to get for him is Supplemental Security Income.

It never ceases to amaze me that qualified CPAs and financial planners fail to consider the possibility that their clients will become disabled!

Even though what this manager did was probably legal, it was a horrible disservice to my client. While I understand the urge to minimize income for tax purposes, there is absolutely nothing to justify posting ZERO earnings for many years. To my mind, the cost of buying the absolute minimum Social Security Disability benefits is cheap. A person pays from 7.5% to 5% payroll tax on earnings of about $5000 per year. Seriously, even including regular federal, state and local income tax, it’s still paying under $1000 for the year. The value of being eligible for Medicare alone should offset the cost.

While I understand that self employed people earning very little might really need to take advantage of this ability to take deductions in order to make ends meet, I’m talking about those financially successful people who figure out legal ways to avoid paying any tax. Ultimately, as with my prospect today, the gamble that everything will be fine doesn’t pay off and, at best, I can help obtain SSI for them. At worst, regardless of the degree of disability, there’s nothing I can do for them.

Gabriel Hermann