THE TAX ATTIC with Jerry Coon

Myths involving Social Security

Jerry Coon

Last week, two significant developments occurred that affect Rockford residents.

First, the Environmental Protection Agency (EPA) issued its Preliminary Assessment Recommendation for the Wolverine Worldwide former tannery site downtown. The report concluded that the Michigan Department of Environmental Quality (MDEQ) and Wolverine Worldwide (WWW) can work together on “further site investigation and remediation activities.” The EPA will receive a report at least twice a year detailing the MDEQ and WWW activities. While the site does not warrant being named a Super Fund site under the Comprehensive Environmental Response, Compensation and Liability Act at this time, it does warrant further investigation and testing and will be designated as an “Other Cleanup Activity” site. The EPA found that WWW has shown good faith during this entire process and will develop plans in the future with the input and approval of the MDEQ.

This is great news for WWW, the City of Rockford, and the residents of the surrounding areas who visit downtown Rockford and enjoy the Rogue River. Stand by for what happens next. That has not been defined as yet, but it has to be better than the site being named a Super Fund site. “Other Cleanup Activity” has a more settling sound to it than Super Fund.

The second development occurred last week when the Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act or as it is more commonly known as “Obamacare.” I will discuss the significance of the landmark decision next week.

There are a number of myths or misconceptions associated with the Social Security system as it stands right now. We are a society of wanting to get things done right now. “Instant gratification” I believe is the term used to describe our impatience with taking a long-term approach to many things. Unfortunately, instant gratification and Social Security do not work together. Accruing benefits is a long-term proposition.

A few weeks ago I went over the formula used to calculate a monthly benefit. The Social Security Administration (SSA) uses 35 years of work history in that calculation. In light of the SSA using 35 years, I think one of the biggest myths or misconceptions is that a monthly SSA benefit can be significantly increased in the last few working years just before retirement occurs. You can’t snap your fingers and get a monthly benefit. In fact, the average working person has earned approximately 90% of his projected monthly benefit before turning age 50. That leaves only 10% of the benefit to accrue over those final years of working or about 1% per year. In most instances, trying to manipulate earnings to increase a benefit after the age of 50 isn’t going to work.

A second myth or misconception is that a benefit is based on the highest five years of earnings. As I stated above, the SSA uses 35 years of earnings to calculate a benefit. Some pension calculations are based on the higher earnings that take place in the last three to five years worked. That situation doesn’t apply to SSA benefits. It might be more advantageous due to the indexing portion of the SSA’s formula to have higher earnings earlier in a working person’s life but, in any event, all 35 years are taken into the calculation.

Truth be told, it usually works out that a person earns more money later than earlier. In this regard, indexing tends to make the playing field more equal.

Another myth or misconception out there is that all taxpayers are treated equally by the SSA. This may be the biggest myth of all. Each of us receives a benefit based on our personal earnings history.

For example, people who work in a state where the typical average income is higher, such as New York or California, will receive a higher benefit that those who work in a state where the typical average income is lower, such as Arkansas or Alabama.

Another example is women who don’t work during the preschool, child-rearing years will receive a lower benefit than those earning even a modest income but received that modest income for all of their working years. It is somewhat surprising that this inequity has not been addressed.

Finally, taxpayers who amass income from physical assets such as land or from investments and do not have a great deal of earnings subject to Social Security tax will probably receive a lesser benefit even though they might have greater wealth.

In the eyes of the SSA, you are an individual and your benefit is calculated on your individual earnings history.

Next week, we will look at some solutions to fixing the SSA system. It is going to be totally bankrupt by 2033 if some solutions are not implemented. This is Jerry Coon signing off.


Jerry Coon is an Enrolled Agent. He owns Action Tax Service on Northland Drive in Rockford. Contact Jerry at

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