Got Orthonomics in your Email Box?

Friday, April 16, 2010

Ask Orthonomics: Opting Out of Social Security

I received this question earlier, and my readers have already addressed the question for me (thanks!), but I like to make sure that important subjects have their own posts so interested parties can find them for future reference.

I'm a lurker and comment rarely, I agree with most of your opinions on finance and would love to hear your opinion about my situation. Husband and I are in kiruv, self employed with four children KA"H, our combined income amounts to 46K, we are considering opting out of social security, do you think it is worth it for us? Provided of course, that we invest the equivalent properly.

Dear Reader,

Thank you for bringing up an interesting question. Opting out of Social Security/Medicare is something I don't see younger Rabbis doing, but it isn't unheard of amongst the older Rabbinate. Perhaps the requirements have changed over time, but I'm not quite sure what religious objection we have to a public insurance system as issues regarding the financial sustainability of social security are not valid religious grounds for objections. The Form 4361 is the form needed to opt out and needs to be filed by the second year in the clergy.

The consequence of opting out of social security is that a member of the clergy can no longer receive Social Security, Medicare, or any other welfare program. I'm not quite certain if this means you would be ineligible for all the various welfare credits that already flow through the IRS Form 1040 in the form of "refundable credits" or if this is only exempts you from Food Stamps, WIC (?), Pell Grants, etc. Nonetheless for the $3519 (7.65% of salary) that you would be saving from your half of the employment taxes, you will be losing access to a great deal of programs. (Note: You mentioned being self-employed, but I'm not sure if that is in kiruv or another activity).

The Christian Church has built up numerous "financial ministries" and none seem particularly enthusiastic about members opting out, for both ethical reasons and financial reasons. The United Methodist Church strongly advises its clergy not to exercise this option. Crown Ministries advises clergy that when they opt out of social security they will need to consider income replacement in retirement, purchasing life and disability insurance, and replacing medicare coverage. The truth is that every single one of us who pays into social security needs to do all of the above, especially when you are considering a large family and (yes!) Yeshiva Tuition.

I don't believe that at this income level you will have the means to take the excess and invest all of it. And given the specific concerns in the frum community regarding paying for private schooling, I think you would be nuts to opt out of Social Security, Medicare, all welfare programs, and expect that the "powers that be" will be interested in letting you keep the change to invest in the very things you will need to invest in.

Signed,
Orthonomics

[Updated] To address a comment in the comments section:
I'm surprised no one is bringing up what, at least to me, seems like an obvious problem here: by signing Form 4361, you are certifying that you are conscientiously opposed to, or that because of your religious principles you are opposed to accepting public insurance. The question raised in this post is opting out of Social Security payments because you want to save that money and/or reinvest it yourself. By signing this form, you're basically lying. I don't know of any Jewish religious principle that opposes public insurance; in fact, I would argue quite to the contrary, but that's a different topic for a different day.

I wrote the following: "Opting out of Social Security/Medicare is something I don't see younger Rabbis doing, but it isn't unheard of amongst the older Rabbinate. Perhaps the requirements have changed over time, but I'm not quite sure what religious objection we have to a public insurance system. . . . " In other words, I'm not sure why some Rabbis in the past opted out and I don't have the historical knowledge of the system to determine if clergy could automatically pass on these withholdings without religious objection. Like I noted above, concerns over the viability of the social security system are not "valid reasons for religious objections."

And quite honestly, have am concerned by the discussion in this post as focusing solely on the money savings and pros and cons of opting out of paying this tax. Am I reading this whole thing wrong? I would expect differently from this blog so am a bit surprised.

I'm disucssing the financial issues because I believe that is what promoted the reader to think about leaving the system which is why I concentrated on the pragmatic issues. I did a little research on numerous statements from different church denominations, none of which came out and said signing would be "assur" but all of which said we strongly recommend against this and which asked the clergy member "are you really being honest with youself?" I think if the couple gets past the money issue, they can then ask themself, do I really have a religious objection. Like social security or not (I have plenty of reservations), if the family still wanted to opt out, their next stop should be a posek with a reputation of integrity. I don't know of any religious objection, but then again, I know people in the frum community who don't believe in buying life insurance or saving for retirement for "bitachon" reasons. I think they are sorely mistaken, but if people think that saving for retirement isn't "Jewish" I imagine that they could have the same objection to this safety net.

Don't worry, the blog hasn't changed. Just my approach to the issue was too heavily focused on the pragmatics.

18 comments:

jdub said...

Nuts. Absolutely nuts.

Are you aware that if you are disabled and qualify for Social Security disability benefits, you also qualify for Medicare (at the very least, Part A, but i think other parts as well). If you opt out you won't be qualified. that would suck.

AdMir said...

I am a social worker who works with the elderly and i find it astonishing how little attention saving for retirement gets in our community. Obviously tuition is a priority but G-d willing when one gets to an advanced age- and with medical technology as advanced as it is it is a reality for the majority of people- a lot of money is needed in terms of medical care, medications, home care, therapies. I am not sure if opting out of SS adn investing it is the right thing or not in this case, but I do feel that just as we look at Yeshiva tuition as a priority for our children, so too we should look at saving for retirement- by having the means to support ourselves and our needs in the older years we are ultimately giving our children the gift of not having the financial burden and anxiety around our care.

Anonymous said...

AdMir - Obviously tuition is a priority but G-d willing when one gets to an advanced age

It seems as if everyone is assuming that after working hard to pay their kids tuition, and then later their grandkids tuition, they will probably drop dead from overwork! :-) :-(

Shabbat Shalom all.

Mark

MathGuy said...

I suggest not opting out.
1) SocSec has an excellent return on investment for those on the lower-end of the financial spectrum.
2) SocSec has very good death benefits - monthly payment to kids up to age 18 and to surviving spouse with kids up to age 16

Abacaxi Mamao said...

"7.65% of salary" is only true if you are employed by someone else. Self-employed people pay their share and their "employer's" share, so around 15%. Nonetheless, opting out sounds like a bad idea.

Orthonomics said...

It works out to 14.1%* if you are self-employed. I thought I'd included that, but apparantely not.


*Multiple net income by 92.35% and then by 15.3%.

AdMir-Saving for retirement is something that is not just stressed, there is a school of thought that one should not save for retirement. When the JO put forward some this or that vs. tuition scenarios, retirement was given a no-no while camp and a vacation where needed were given the green light.

If you click on the retirement tag you will see the subject matter. Unfortunately, saving for retirement does not enter the radar, it is looked down upon by some. But, as you know, old age happens and old age is pricy.

The best time to save for retirement is when you are young in small increments, rather than trying to throw everything you make at retirement when the kids graduate HS/college. At that point, one can deisgnate their entire post-tax income and never catch up with the person who put away a smaller amount every month since 25 years old.

Anonymous said...

I can't help but get the impression sometimes that caring for the elderly just is not a priority in the community. Everything is so focused on youth and pouring all the community's resources into the young that there are a lot of impoverished/borderline impoverished elderly and those who might have some funds but need visits and assistance who are overlooked. I think that how the elderly are treated is one of the tests of the character of a community.

elanit said...

I'm surprised no one is bringing up what, at least to me, seems like an obvious problem here: by signing Form 4361, you are certifying that you are conscientiously opposed to, or that because of your religious principles you are opposed to accepting public insurance.

The question raised in this post is opting out of Social Security payments because you want to save that money and/or reinvest it yourself. By signing this form, you're basically lying. I don't know of any Jewish religious principle that opposes public insurance; in fact, I would argue quite to the contrary, but that's a different topic for a different day.

In any case, if rabbis are doing this, I see a huge problem here. And quite honestly, have am concerned by the discussion in this post as focusing solely on the money savings and pros and cons of opting out of paying this tax.

Am I reading this whole thing wrong? I would expect differently from this blog so am a bit surprised.

elanit said...

Now I see that a few folks did comment on this topic in the previous thread. And part of the post does mention the ethical problems here. But I'm not sure about doing all these calculations for something that would fall into the ethical grey area, in the least, for a rabbi to do.

Shabbat shalom!

Anonymous said...

Elanit if you saw my comments in the other post you'll see that I had initially understood from my accountant that there were other ways to get out of paying SS, once it was clear that the only way would be to lie it became a non option to us.

Miami Al said...

Another reason that this is a bad idea to do for economic reasons...

If you spend your entire career in Kiruv, so you avoid SS/Med taxes the entire career, you will likely be on the low end of the income scale, where social security will give you a great ROI (if you run your own Kiruv organization, even if you are a prolific fundraiser, you'd be able to put so many of the "expenses" under the organization that you are unlikely to be higher up in the income range.

If you do NOT spend your entire career in Kiruv, you will be exempted from SS/Medicare benefits, but responsible for the taxes on your normal wages.

In all likelihood, you will have substantial earnings that are subject to the tax without the benefits.

This exemption is much more useful for strange and small churches with hokey situations. It's not really relevant for an Orthodox Jew that is generally integrated in society.

Your accountant was smart to ask, since it is an option and malpractice if he didn't ask, but there seems to be no reason to do it.

elanit said...

Yes, I noticed that after I posted my first comment. I apologize for jumping. Still unsure why some of the older generation rabbinate took advantage of this.

Orthonomics said...

elanit-I will try to find out for you. I have one Rabbi I might be able to ask, but before that I want to see if I can locate old tax forms. Knowing some tax history, I'm fairly certain that the statement under penalty of perjury was not part of the original form.

Lion of Zion said...

"Self-employed people pay their share and their "employer's" share"

isn't the latter a deduction?

Orthonomics said...

Half the amount of self-employment tax paid is a deduction for federal tax purposes. That amount reduces federal tax (doesn't reduce fed tax for those who don't pay fed tax) but doesn't reduce self-employment tax. That clear?

JS said...

Are you crazy? Why would you do this to your kids and spouse? They would receive benefits if you should God forbid die or become disabled.

This is just as stupid as all those "geniuses"/cheaters who under-report income to the IRS. They drop dead and their unwitting spouse goes to collect for herself and her children and suddenly finds out: uh oh! there are next to no reported earnings.

azriel said...

I am considering this. Ethically, I would think it would be encouraged in Judaism. Because the work to qualify is a mitzvah and any compensation we get diminishes the merit of that mitzvah. Financially, (The way I read it) I am only agreeing to give up benefits for religious work. Not all benefits! Just in related to the religious work.

Blogger said...

Can a criminal be using your ID? Protect yourself with IdentityForce. Enroll now.