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Financial Residency

Sep 15, 2023

In this discussion, we will be exploring the topic of social security and its importance in financial planning. There are often misconceptions surrounding social security, leading to negative perceptions about its funding and benefits. However, it is crucial to consider the potential advantages and whether it should be included in one's planning.

For individuals with above-average incomes, such as physicians, it is likely that a significant amount will be contributed towards social security throughout their careers. Currently, the income threshold for contributions is set at $160,200 in 2023. Both employees and employers are required to contribute 6.2% each, totaling 12.4% of income. Self-employed individuals also contribute the full 12.4%.

Given these contribution levels, it is essential to understand the potential benefits of social security. At present, the maximum benefit at full retirement age is $3,627 per month, with variations depending on birth year. The maximum benefit can reach $4,555 per month at age 70. It is plausible that individuals with full careers and maximum social security contributions would receive these benefits.

Considering the substantial lifetime payments and the potential return on investment, social security might not be as unfavorable as some may believe. However, it is crucial to analyze and project the future implications. While it may be satisfactory to receive benefits at current levels or during the later stages of one's life, the question arises regarding the future sustainability of social security and potential tax implications.

By discussing these aspects, we aim to provide a comprehensive understanding of social security, how it operates, and its potential application in financial planning. Whether it is a worthwhile benefit to consider for the future depends on individual circumstances, and we will explore these further to provide a clearer perspective on the matter.

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