GETTING THE MOS T out of Social Security is all
about waiting as long as possible to start
fling for benefts, right?
Not quite—especially if, as a business
owner, you get to decide how you are paid.
You can actually live on a lot more money
in retirement if you make some changes
right now to your salary and take some
steps to adjust your current tax bills, says
Matthew Allen, a co-founder of New York
City–based Social Security Advisors.
“Self-employed people generally have
more fexibility in how to structure their
income,” he says. “That gives you a lot
of good opportunities because of the way
Social Security benefts are calculated.”
The main tactic that Allen lays out
below isn’t overwhelmingly complex: Start replacing some
of your salary with dividends, as long as you have a legitimate
business reason to do so. (There’s no required schedule
for dividends, but you may wish to take them quarterly, for
regular cash fow.) Meanwhile, boost your contributions to
retirement savings accounts.
It’s a simple enough change—but it’s not a very obvious
strategy until you understand how the Social Security and
income tax systems work, and how the two interact.
What Your Current Salary Means
To survive in retirement, you’ll obviously have to replace some
of your current wages with other sources of income, including
savings or pensions or government benefts.
Social Security, of course, is the nation’s cornerstone retirement safety net; it provided some
50. 3 million retirees and survivors, or about 15 percent of
Americans, with benefts in 2016.
If you’re planning on relying on Social Security, you
probably already know that the amount you’ll get at retirement varies depending on how much you’ve earned and paid
into the system. What is less well advertised is that Social
Security’s beneft formula favors lower-income retirees, the
assumption being that those who haven’t earned high wages
don’t have much in savings.
Since low-wage workers are less likely to have other
sources of retirement income, Social Security’s graduated
beneft formula gives them the highest “wage replacement”
rates. Specifcally, those who earned average monthly wages
LEAD 44 - INC. - NOVEMBER 2017
BY KATHY KRISTOF
GET SMART ABOUT SOCIAL SECURITY
MONE Y MAGIC
A relatively simple strategy
can earn you much more for
retirement—as long as you know
ho w to navigate the tax code.