We're a late 47 yr old childless couple, hoping to maybe early retire, and currently our main "day jobs" paychecks don't contribute to Social Security.

But we will also not get pensions from these jobs, since we hope to not work long enough in this career to qualify (we don't like it).

We don't pay into S.S. because we happen to live in one of the 15 states where public workers are exempt from paying Social Security taxes. (Bad luck).

We already have both achieved our 40 quarters of Social Security contributions to receive the minimum payment in retirement age, but, so far, just near the minimum amount, since we have many $0 years already. However, if we hold out until 70 (living off other wealth), I will get about $1,200 and my wife about $1,000, even if we never work again.

I am also focusing on building wealth in other ways so we don't have to fully rely on Social Security, but I also know it would be a big help if those checks--for life--were more than the $2,200 combined. Especially considering many lifetime workers will get the max, which is well over $3k/month for one person.

If we move to other states without this irritating exemption from Social Security tax, we can work in this same role and still contribute toward SS. It is possible we could be paying taxes on good salaries, like $150k combined, so could put some "good years" into our 35 year Social Security history. But of course, that would require getting certified in that state, moving, finding a job there, and generally starting over there. I have family in one such state, though.

I also currently make between $10k--$25k in self-employed freelance work and that is paying into Social Security (in fact, I pay both the employee and employer's share since I'm self employed for that work).

My question is:

  • How much is working in this "no pension/no S.S. contribution" situation hurting us financially down the road? How much is it worth moving/recertifying in another state and moving there to do the same job but make S.S. contributions?

I tried to answer this myself by making use of this tool. I plugged in a few different scenarios for just me. A snapshot of this is shown here.

I just wanted to make sure I am thinking of this clearly and not leaving out any considerations--which I have a feeling I am.

  • 1
    Are you affiliated in any way with that tool that you linked? Commented Apr 26, 2018 at 14:49
  • 2
    I would be contributing the maximum amount to a Roth for both you and your wife, as well as building a regular investment portfolio. That will more than make up for a lack of SS contributions, if invested in a good growth oriented plan with a solid track record.
    – Norm
    Commented Apr 26, 2018 at 14:58
  • 2
    I just don't see where this is a problem per se - if you are investing that 15% of your income (that SS would deduct) in an appropriate retirement vehicle in addition to your regular retirement saving then you are ahead of the game.
    – Norm
    Commented Apr 26, 2018 at 17:03
  • 4
    They are "guaranteed for life" - until they aren't. There is no guarantee that will not change in the future.
    – Norm
    Commented Apr 26, 2018 at 17:16
  • 2
    "SS payments are guaranteed for life"? It is what it is until it isn't. The current estimate is that Treasury will soon begin tapping into SS reserves and it's estimated that they will be gone by 2035. At that point, SS will only be able to pay 79% of the benefits. For some time, there has been talk of cutting benefits by further raises of the full retirement age. So don't bet on guarantees. Have a Plan B. Commented Apr 27, 2018 at 2:20

1 Answer 1


All US workers must pay into Social Security unless they work for a State government which has opted out of the Social Security system for its employees (usually because the State does not want to pay the employer's share of SS taxes to the Federal Government). But, the Federal Government does not allow such opting out by a State unless the State provides retirement benefits (such as pensions) to its employees to replace the Social Security benefits that the employees cannot collect because they haven't paid into the Social Security System. Now, you say that there are some retirement benefits but you don't wish to stay in your current jobs until it is time to collect retirement benefits. That's fine, but when you quit your current jobs and go work somewhere else, the money accumulated in your State "pension plan" is not forfeited. Typically, you have the option of leaving the money where it is and collecting a picayune pension late in life, or rolling it over into an IRA or possibly the 401(k) plan at your new job (not all 401(k) plans are set up to allow this), or even taking a lump-sum distribution and paying income tax on it right away. This last is usually the least desirable because there are additional financial penalties over and above the income tax. For example, Illinois pays (or used to pay) 8% per annum interest on money in the retirement system, but if withdrawn as a lump sum, the interest is recomputed as if it had been paid at 4% all along, and you get this reduced sum.

So, how else can you boost your retirement income? Well, an obvious suggestion is to open a solo 401(k) plan and put some of that $10K-25K of self-employment earnings into the solo 401(k) plan. Many mutual fund companies offer such solo 401(k) plans and will do the necessary paperwork for it. Another place to save for retirement is to explore if your State offers a 457 plan where you can put away pre-tax money towards retirement, and roll it over into an IRA when you leave. If your State employment is at a hospital or teaching institution (school or college), there may be an optional 403(b) plan (like a 401(k) plan) available to you over and above the retirement plan. But, in some cases, the State retirement plan is like a 403(b) or 401(k) with mandatory contributions.

But, if you will be getting retirement benefits from State employment, then your Social Security benefit will be reduced because of the Windfall Elimination Provision enacted by Congress. Furthermore, if you are receiving a pension from a government source that is not covered by Social Security, any benefits that you might receive as the spouse (or widower or widow) of a person who is covered by Social Security are reduced by an amount equal to two-thirds of the pension. This is called the Government Pension Offset Rule. It does not matter if you opted for a lump-sum payout instead of a pension from your Government employer: the Social Security Administration assumes that you had opted to take a pension and uses that amount in determining the reduction in the Social Security benefit. You might find the following description helpful towards understanding the details.

  • "So, your claim that your State provides no pension benefits in lieu of Social Security benefits is questionable." Please see my 2nd and 3rd paragraph. I didn't write the state provides no pension benefits, I wrote that we aren't planning on qualifying for them (because of lack of time in the system). Thanks for the other ancillary information, though.
    – IBitAChip
    Commented Apr 27, 2018 at 11:06
  • Thanks for the edit and additional comments. It didn't occur to me that we could roll the pension amount into some other retirement vehicle, so that's an interesting option. All the other choices are good to know about, but I really was trying to isolate the "lack of paying into social security issue" on its own, really mathematically quantify just how much working in this state vs. a neighboring state could be costing us.
    – IBitAChip
    Commented May 1, 2018 at 15:41
  • 1
    @IBitAChip if you can roll over the state pension contributions, the answer is more or less "nothing."
    – stannius
    Commented Jan 8, 2019 at 20:17
  • @IBitAChip if you can roll over the state pension contributions, If you can see or calculate the value of the pension, I would use as a rule of thumb the value of that pension. It's what you're getting in lieu of SS. You might then multiply it by the probability of working long enough to collect it, and then reduce it to account for the effect of the windfall elimination provision. The good news is, when you are getting ready to retire (early or otherwise) you should have enough information to remove the probability component.
    – stannius
    Commented Jan 8, 2019 at 20:23
  • @BrianBorchers Your comment should be deleted here and re-posted as a comment on the OP's question. It is not I who needs to respond to your questions; it is the OP, who will never see that you wrote unless you write it as a comment on the main question. Commented Jan 27, 2022 at 4:09

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .