Social Security - general question

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BostonButterfly
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Social Security - general question

Post by BostonButterfly » Tue Oct 10, 2017 12:41 pm

I have a big picture question about social security. When I log in to the website I see the estimated benefit amounts if I begin taking the benefit at age 62, 67 and 70 (I realize these are estimates and will be fine-tuned the closer I get to age 62). Here are the assumptions for my question:

1. The estimated benefit at 62 is, say, for example, $1,000.
2. I continue to work, earning my current salary, until age 58.
3. I stop working at age 58.
4. At age 58 I have 35 earning years in the “system”.
5. I begin taking my social security benefit at age 62.

Is it correct to say that since I will have 35 earning years by the time I stop working at age 58, my benefit will remain at $1,000 when I begin taking it at age 62 (ignoring fine tuning between now and then)? I won’t be at risk of a reduced age 62 benefit by stopping work at age 58 because I had 35 earning years banked, right? The only thing I give up is the opportunity to increase the age 62 benefit by working beyond age 58 to replace some of the lower earning years with higher earning years. Is that correct?

I am at the very beginning of learning about the intricacies of social security, and realize that I have a ton of learning to accomplish on the subject. But at this point, I’m just looking for big picture understanding to help get a better handle on my retirement planning.

Thanks!

Jack FFR1846
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Re: Social Security - general question

Post by Jack FFR1846 » Tue Oct 10, 2017 12:48 pm

My understanding is that the numbers on the SS site assume you make your current salary until the age listed. So if any of your adjusted 35 year numbers are lower than last year's salary, your SS number will be lower. I have looked for myself and check my adjusted lowest year every year that gets by. I make enough to max the SS payment so look back and for this year, am replacing $40k. So I know that my SS actual would be lower if I were to stop working before the shown ages.
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BostonButterfly
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Re: Social Security - general question

Post by BostonButterfly » Tue Oct 10, 2017 1:22 pm

Thanks Jack.
I plan to download the Anypia calculator and dig into that, but right now I'm still in the big picture mode.
Is it really necessary for the system to be SO complicated?? Maybe its not, as I haven't even dipped my toe in the water yet, but it sure seems like most people you talk to have no clue about the calculations and rules of SS.

marcopolo
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Re: Social Security - general question

Post by marcopolo » Tue Oct 10, 2017 2:01 pm

BostonButterfly wrote:
Tue Oct 10, 2017 1:22 pm
Thanks Jack.
Is it really necessary for the system to be SO complicated?? Maybe its not, as I haven't even dipped my toe in the water yet, but it sure seems like most people you talk to have no clue about the calculations and rules of SS.
You are not wrong, it is complicated. Wait till you read about "bend points". The amount you get may be reduced a bit from the estimates due to not having the higher earning years (59-62) to replace the lower earning years 30+ years ago. But, it may not be that big for two reasons. First, those lower earning year from long ago are adjusted by the average wage increases in the intervening years. So, the difference might not be huge depending on how much your wages increased relative to the average (and capped at yearly max). Second, once you hit the second "bend point" based on total SS wage contributions, those replacement years have very little impact you benefit amount. AnyPia will account for all of these complexities.
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BostonButterfly
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Re: Social Security - general question

Post by BostonButterfly » Tue Oct 10, 2017 2:07 pm

Eeesh.
Is there a recommended book that covers the 'need to know' stuff, without getting WAY deep into the weeds? I would like to know what I need to know, so that I understand the implications of any decisions I make, but I don't necessarily need to become an expert.

Will AnyPia basically cover everything I need to know?

marcopolo
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Re: Social Security - general question

Post by marcopolo » Tue Oct 10, 2017 2:22 pm

BostonButterfly wrote:
Tue Oct 10, 2017 2:07 pm
Eeesh.
Is there a recommended book that covers the 'need to know' stuff, without getting WAY deep into the weeds? I would like to know what I need to know, so that I understand the implications of any decisions I make, but I don't necessarily need to become an expert.

Will AnyPia basically cover everything I need to know?
It depends on how accurate an estimate you want. If you want to be close to exact, you need to consider all the factors. leaving out some of the esoteric complexities will still get you pretty close.
I believe AnyPia does account for all the various complex calculations. I have not used it, but i believe there have been discussion here about how it can be cumbersome to use.

If you are just looking for the difference in benefit between working to 62 and drawing vs working to 58 and drawing at 62, there may be a simpler way to get a fairly accurate estimate of that.
Use the calculator at this link:
https://secure.ssa.gov/acu/ACU_KBA/mai ... =en&LVL=4

You will need to provide you personal information, but then it will use your own salary history, and you can run different scenarios, including working to specific ages. If the age is less than 62, it gives your benefit assuming you start taking benefits at 62.

Good luck.
Once in a while you get shown the light, in the strangest of places if you look at it right.

soccerrules
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Re: Social Security - general question

Post by soccerrules » Tue Oct 10, 2017 5:53 pm

BostonButterfly wrote:
Tue Oct 10, 2017 12:41 pm

Is it correct to say that since I will have 35 earning years by the time I stop working at age 58, my benefit will remain at $1,000 when I begin taking it at age 62 (ignoring fine tuning between now and then)?
I believe you are incorrect. SS online assumes you will continue to earn the same SS taxed income consistently through 62/67. For 2016 the max was $118,500. If you hit this maximum in 2016, the assumptions online is based that you will earn $118,500 exactly through to taking retirement benefits at each age listed.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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Re: Social Security - general question

Post by grabiner » Tue Oct 10, 2017 6:30 pm

soccerrules wrote:
Tue Oct 10, 2017 5:53 pm
BostonButterfly wrote:
Tue Oct 10, 2017 12:41 pm

Is it correct to say that since I will have 35 earning years by the time I stop working at age 58, my benefit will remain at $1,000 when I begin taking it at age 62 (ignoring fine tuning between now and then)?
I believe you are incorrect. SS online assumes you will continue to earn the same SS taxed income consistently through 62/67. For 2016 the max was $118,500. If you hit this maximum in 2016, the assumptions online is based that you will earn $118,500 exactly through to taking retirement benefits at each age listed.
Therefore, if you work at age 59, and earn more (adjusted for wage growth) than you did at age 24, the difference will be added to your Average Indexed Monthly Earnings, increasing your benefit. If you have earned the maximum covered wage for 35 years, your benefit will not change much if you work another year; it may change slightly because the index-linked maximum is not quite fixed.
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Re: Social Security - general question

Post by ResearchMed » Tue Oct 10, 2017 6:59 pm

grabiner wrote:
Tue Oct 10, 2017 6:30 pm
soccerrules wrote:
Tue Oct 10, 2017 5:53 pm
BostonButterfly wrote:
Tue Oct 10, 2017 12:41 pm

Is it correct to say that since I will have 35 earning years by the time I stop working at age 58, my benefit will remain at $1,000 when I begin taking it at age 62 (ignoring fine tuning between now and then)?
I believe you are incorrect. SS online assumes you will continue to earn the same SS taxed income consistently through 62/67. For 2016 the max was $118,500. If you hit this maximum in 2016, the assumptions online is based that you will earn $118,500 exactly through to taking retirement benefits at each age listed.
Therefore, if you work at age 59, and earn more (adjusted for wage growth) than you did at age 24, the difference will be added to your Average Indexed Monthly Earnings, increasing your benefit. If you have earned the maximum covered wage for 35 years, your benefit will not change much if you work another year; it may change slightly because the index-linked maximum is not quite fixed.
Thanks.
You almost answered the question I was about to ask...

IF one has worked at or above the SS ceiling for 35 years and are collecting max SS now (started at age 70, etc.), and one keeps working, also above ceiling... can the SS benefit go below the then current max in the future?
I had understood that the benefit *might* go up, albeit barely noticeably, due to the slight amount added past the second bend point. But can it go down? (Please ignore COLA for this; assume 0% COLA adjustment. Also assume Medicare isn't being withheld.)

Needless to say, if it can indeed "go down" (however slightly), the nice income for the extra year(s) is still well worth it, especially in DH's case, as he'd do much the same thing even if he didn't get paid.
Hence, no "regular retirement" just yet. :wink:

Is there any scenario with continued work above ceiling that the FRA would increase (even if very slightly) such that spousal would go up, even if almost imperceptibly?
(And could spousal go down, per above?)

RM
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Re: Social Security - general question

Post by grabiner » Tue Oct 10, 2017 7:05 pm

ResearchMed wrote:
Tue Oct 10, 2017 6:59 pm
IF one has worked at or above the SS ceiling for 35 years and are collecting max SS now (started at age 70, etc.), and one keeps working, also above ceiling... can the SS benefit go below the then current max in the future?
I had understood that the benefit *might* go up, albeit barely noticeably, due to the slight amount added past the second bend point. But can it go down? (Please ignore COLA for this; assume 0% COLA adjustment. Also assume Medicare isn't being withheld.)
The benefit can't go down, because it is based on your 35 index-adjusted highest-earning years. If you work an additional year but the wages in that year are lower than the adjusted wages for 35 previous years, your benefit won't change.
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BostonButterfly
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Re: Social Security - general question

Post by BostonButterfly » Wed Oct 11, 2017 7:24 am

marcopolo wrote:
Tue Oct 10, 2017 2:22 pm

If you are just looking for the difference in benefit between working to 62 and drawing vs working to 58 and drawing at 62, there may be a simpler way to get a fairly accurate estimate of that.
Use the calculator at this link:
https://secure.ssa.gov/acu/ACU_KBA/mai ... =en&LVL=4

You will need to provide you personal information, but then it will use your own salary history, and you can run different scenarios, including working to specific ages. If the age is less than 62, it gives your benefit assuming you start taking benefits at 62.

Good luck.
Thanks for this link, Marcopolo! This is just what I need for my purposes at this point.
Thanks as well to all the others who chimed in. Much appreciated. This is such a great forum!

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Re: Social Security - general question

Post by scrabbler1 » Wed Oct 11, 2017 8:20 am

If you are good at spreadsheets, you can create one which mimics the AnyPIA program. I looked at the key calculations within the SS website and created a spreadsheet, before I was able to download and successfully run the AnyPIA program. I later used AnyPIA as a check on my spreadsheet and the two projected monthly benefit amounts were within $1 of each other.

I am an early retiree, as I stopped working 9 years ago after working for 23 years. This means I have many zeroes of SS wages but it mainly froze my SS benefit. Every year or so, I copy and paste a new set of wage indexing factors from the SS website into my spreadsheet. The new set's factors are nearly the same as the previous set, so my frozen SS benefit changes very little, if any. I assume collecting SS at my FRA (Full Retirement Age) but I could easily adjust it should I start at a different age.

soccerrules
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Re: Social Security - general question

Post by soccerrules » Wed Oct 11, 2017 8:27 am

scrabbler1 wrote:
Wed Oct 11, 2017 8:20 am
If you are good at spreadsheets, you can create one which mimics the AnyPIA program. I looked at the key calculations within the SS website and created a spreadsheet, before I was able to download and successfully run the AnyPIA program. I later used AnyPIA as a check on my spreadsheet and the two projected monthly benefit amounts were within $1 of each other.

I am an early retiree, as I stopped working 9 years ago after working for 23 years. This means I have many zeroes of SS wages but it mainly froze my SS benefit. Every year or so, I copy and paste a new set of wage indexing factors from the SS website into my spreadsheet. The new set's factors are nearly the same as the previous set, so my frozen SS benefit changes very little, if any. I assume collecting SS at my FRA (Full Retirement Age) but I could easily adjust it should I start at a different age.
+1
I did the same. The spreadsheet allows you to play with different scenarios and what extra year(s) on indexed earnings might mean to your SS benefit. Once you hit the 2nd bendpoint, it doesn;t change much. You gain much more by waiting to take SS until 67 or 70.

For each increase of $100K of indexed earnings past the 2nd bend point = $35/mo benefit at FRA (less at 62). Hardly really worth it, in my eyes. What is worth it is the income from working and not having to draw down your assets and allowing SS benefit to grow.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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Re: Social Security - general question

Post by oldcomputerguy » Wed Oct 11, 2017 8:30 am

BostonButterfly wrote:
Tue Oct 10, 2017 2:07 pm
Eeesh.
Is there a recommended book that covers the 'need to know' stuff, without getting WAY deep into the weeds? I would like to know what I need to know, so that I understand the implications of any decisions I make, but I don't necessarily need to become an expert.

Will AnyPia basically cover everything I need to know?
First off, I second the recommendation of AnyPIA. It's a bit of a pain to get set up (you have to manually enter your earning history), but once it's set up, it's very accurate.

As for book recommendation, to get the big picture, I'd suggest Mike Piper's "Social Security Made Simple".
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Re: Social Security - general question

Post by smitcat » Wed Oct 11, 2017 9:03 am

soccerrules wrote:
Wed Oct 11, 2017 8:27 am
scrabbler1 wrote:
Wed Oct 11, 2017 8:20 am
If you are good at spreadsheets, you can create one which mimics the AnyPIA program. I looked at the key calculations within the SS website and created a spreadsheet, before I was able to download and successfully run the AnyPIA program. I later used AnyPIA as a check on my spreadsheet and the two projected monthly benefit amounts were within $1 of each other.

I am an early retiree, as I stopped working 9 years ago after working for 23 years. This means I have many zeroes of SS wages but it mainly froze my SS benefit. Every year or so, I copy and paste a new set of wage indexing factors from the SS website into my spreadsheet. The new set's factors are nearly the same as the previous set, so my frozen SS benefit changes very little, if any. I assume collecting SS at my FRA (Full Retirement Age) but I could easily adjust it should I start at a different age.
+1
I did the same. The spreadsheet allows you to play with different scenarios and what extra year(s) on indexed earnings might mean to your SS benefit. Once you hit the 2nd bendpoint, it doesn;t change much. You gain much more by waiting to take SS until 67 or 70.

For each increase of $100K of indexed earnings past the 2nd bend point = $35/mo benefit at FRA (less at 62). Hardly really worth it, in my eyes. What is worth it is the income from working and not having to draw down your assets and allowing SS benefit to grow.
For each increase of $100K of indexed earnings past the 2nd bend point = $35/mo benefit at FRA (less at 62).
WOW is this eye opening!!! thank you

BostonButterfly
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Re: Social Security - general question

Post by BostonButterfly » Wed Oct 11, 2017 9:14 am

soccerrules wrote:
Wed Oct 11, 2017 8:27 am

For each increase of $100K of indexed earnings past the 2nd bend point = $35/mo benefit at FRA (less at 62). Hardly really worth it, in my eyes. What is worth it is the income from working and not having to draw down your assets and allowing SS benefit to grow.
Interesting, because I was thinking the opposite.....that I would be better off taking SS at 62 to let our nest egg grow. In my case, combined SS of my spouse and I taking benefit at 62 covers a significant portion of expected expenses in retirement. I know.....lots of scenarios and lots of what-ifs. Again, I'm just big picture right now.

Oldcomputerguy: thanks for the book rec.

Scrabbler: maybe I'll create my own spreadsheet. At some point when I have the spare time in my life!

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Re: Social Security - general question

Post by Jack FFR1846 » Wed Oct 11, 2017 9:24 am

In addition to all the complications that currently exist, what's going to happen when the trust fund runs out of money? It's generally expected that around 2034, this will occur and that barring any changes, payouts will drop by 20-25%. I expect this and plan for it. It's something I also use in my spreadsheet to determine when I take SS because the break even point is changed. But there are other complicating factors like medicare premiums and taxes. I honestly haven't even looked at them yet and figure I'll try to wait past 62 both to increase my later payments but also to keep medicare premiums low and I happen to have a son who will start college when I am 62 so it is possible that simply not working, and living from investments might bring in financial aid for the first time ever (son #1 is getting nothing but Stafford loans).
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Re: Social Security - general question

Post by neurosphere » Wed Oct 11, 2017 10:00 am

[This post is deleted. I was wrong]
Last edited by neurosphere on Mon Oct 16, 2017 4:00 pm, edited 1 time in total.

soccerrules
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Re: Social Security - general question

Post by soccerrules » Wed Oct 11, 2017 10:07 am

BostonButterfly wrote:
Wed Oct 11, 2017 9:14 am
soccerrules wrote:
Wed Oct 11, 2017 8:27 am

For each increase of $100K of indexed earnings past the 2nd bend point = $35/mo benefit at FRA (less at 62). Hardly really worth it, in my eyes. What is worth it is the income from working and not having to draw down your assets and allowing SS benefit to grow.
Interesting, because I was thinking the opposite.....that I would be better off taking SS at 62 to let our nest egg grow. In my case, combined SS of my spouse and I taking benefit at 62 covers a significant portion of expected expenses in retirement. I know.....lots of scenarios and lots of what-ifs. Again, I'm just big picture right now.

Oldcomputerguy: thanks for the book rec.

Scrabbler: maybe I'll create my own spreadsheet. At some point when I have the spare time in my life!
BB-
my point was once you have passed the 2nd bend point the act of working longer to increase your SS benefit is not really worth it for that purpose only (growing SS benefit). There is a larger impact in growing your SS benefit , in waiting to claim based on the 6-8% yearly increase in the benefit from 62-70. I like you have wrestled with taking SS at 62 to allow for nest egg to grow vs spend nest egg and allow SS benefit grow and delay filing.

I believe the 2nd bend point starts at around $2.25M ($64K a yr) of indexed earnings over 35 years ($5,336 PIA * 420 = $2,241,120)
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neurosphere
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Re: Social Security - general question

Post by neurosphere » Wed Oct 11, 2017 10:08 am

For those who are interested, here is a graph which shows how the FUTURE (inflation adjusted) benefits can change based on differences between wage growth and CPI between "now" and "later":

Image

(taken from this thread: viewtopic.php?f=2&t=204221)

Here are the fixed parameters for the chart: An earner born in 1970, with 35 years of maximal earnings from age 26 to age 60. Historical/actual values are used until 2015 for earnings, CPI, and wage info. Then from 2016 onwards earnings are set to the maximum, and CPI and Wage assumptions are as shown on the graph. The benefit is the age 67 benefit, inflation adjusted to december 2015 dollars.

The black line represents Wage growth = CPI growth each year.
Last edited by neurosphere on Mon Oct 16, 2017 4:01 pm, edited 1 time in total.
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Re: Social Security - general question

Post by neurosphere » Wed Oct 11, 2017 10:27 am

(deleted, duplicate)
Last edited by neurosphere on Mon Oct 16, 2017 4:02 pm, edited 1 time in total.

soccerrules
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Re: Social Security - general question

Post by soccerrules » Wed Oct 11, 2017 10:39 am

neurosphere wrote:
Wed Oct 11, 2017 10:00 am
BostonButterfly wrote:
Tue Oct 10, 2017 12:41 pm
Here are the assumptions for my question:

1. The estimated benefit at 62 is, say, for example, $1,000.
2. I continue to work, earning my current salary, until age 58.
3. I stop working at age 58.
4. At age 58 I have 35 earning years in the “system”.
5. I begin taking my social security benefit at age 62.

Is it correct to say that since I will have 35 earning years by the time I stop working at age 58, my benefit will remain at $1,000 when I begin taking it at age 62 (ignoring fine tuning between now and then)?
For the assumptions you list, I believe the benefit you see on the SSA website (or on the green statements they send you) will be correct. That is, if you have 35 years of maximal earnings by age 58, then your benefit at age 62 will not change, even though the estimate assumes you will work until age 62. But working past 35 year of max earnings does not change your averaged indexed monthly earnings (AIME) and thus a benefit (which is based on your record) does not change with those extra earnings, at least in terms of the benefit that the SS estimates calculate for you.
I think there lies the difference. Yes if OP has already hit 35 years of maximum earnings, it will not matter at all. In the OP's comments there is no mention of hitting maximums for 35 years, just "35 years in the system", assuming no $0's.

So the question is "what happens from 58-62 with no income, does it change the assumptions from the SSA website?"
1) If you hit 35 maximum years by 58 -- NO
2) if you don't hit 35 maximum by 58 -- yes -- the how much is really the difference between the max indexed earnings for those 4 years and the 4 years of lower indexed earnings that the OP would replace if OP continued to work from 58-62.

The potential difference is $0 (#1 above) and roughly $700K in indexed earnings. (Maxed indexed earnings tend to fall between $170-180K earnings each year, if you hit the SS max for any given year; times 4 for our 58-62 example). If $100K in indexed earnings = $35/mo SS benefit at FRA -- then the maximum difference in our scenario would be @ $250/mo at FRA. Not adjusted for 75% reduction for taking at 62 ($187.5)

So the range of difference in payout at 62 is $0/mo to $187/mo. (slight rounding here)
The OP mentioned working 35 years, so the amount will be less than $187/mo depending on that difference in the replacement years indexed earnings. If it only increases the Indexed earnings by $200K, than the change will be about $50/mo at 62.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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Re: Social Security - general question

Post by mptfan » Wed Oct 11, 2017 11:08 am

neurosphere wrote:
Wed Oct 11, 2017 10:00 am
But there is a KEY point to remember. The SS estimates assume ZERO wage growth, and ZERO inflation from today onward.
I don't think this is true. This is what the Social Security Administration says...

"Estimated benefits are adjusted for economy-wide average wage growth from about the time of Statement issuance to about the time of retirement."

https://www.ssa.gov/policy/docs/rsnotes/rsn2008-05.html
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Re: Social Security - general question

Post by neurosphere » Wed Oct 11, 2017 11:14 am

soccerrules wrote:
Wed Oct 11, 2017 10:39 am
I think there lies the difference. Yes if OP has already hit 35 years of maximum earnings, it will not matter at all. In the OP's comments there is no mention of hitting maximums for 35 years, just "35 years in the system", assuming no $0's.
Thanks for catching that! You are right, I just assumed the OP was referring to maximal earnings, which he/she did not state and I should not have assumed. I must have been asleep the week in school they taught reading comprehension.
soccerrules wrote:
Wed Oct 11, 2017 10:39 am
So the question is "what happens from 58-62 with no income, does it change the assumptions from the SSA website?"
1) If you hit 35 maximum years by 58 -- NO
2) if you don't hit 35 maximum by 58 -- yes -- the how much is really the difference between the max indexed earnings for those 4 years and the 4 years of lower indexed earnings that the OP would replace if OP continued to work from 58-62.
Keep in mind that the SS estimates assume that the CURRENT (most recently reported) salary will be earned until the claiming age/date, which after indexing may or not be higher than any other earnings. We don't know what happens to the OP's "top 35 years" if his current earnings are projected forward to age 62. The forward projected earnings may change the AIME, or they may not.

And just a reminder that we already know what index will be applied to the earnings at age 60+61 when the age 62 benefit is calculated: "1.0". Although we don't yet know the base this "1" will be applied to. :D
-- Real name: Sotirios Keros. If you have to ask "Is a Target Retirement fund right for me?", the answer is yes.

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Re: Social Security - general question

Post by BostonButterfly » Wed Oct 11, 2017 11:41 am

soccerrules wrote:
Wed Oct 11, 2017 10:39 am
neurosphere wrote:
Wed Oct 11, 2017 10:00 am
BostonButterfly wrote:
Tue Oct 10, 2017 12:41 pm
Here are the assumptions for my question:

1. The estimated benefit at 62 is, say, for example, $1,000.
2. I continue to work, earning my current salary, until age 58.
3. I stop working at age 58.
4. At age 58 I have 35 earning years in the “system”.
5. I begin taking my social security benefit at age 62.

Is it correct to say that since I will have 35 earning years by the time I stop working at age 58, my benefit will remain at $1,000 when I begin taking it at age 62 (ignoring fine tuning between now and then)?
For the assumptions you list, I believe the benefit you see on the SSA website (or on the green statements they send you) will be correct. That is, if you have 35 years of maximal earnings by age 58, then your benefit at age 62 will not change, even though the estimate assumes you will work until age 62. But working past 35 year of max earnings does not change your averaged indexed monthly earnings (AIME) and thus a benefit (which is based on your record) does not change with those extra earnings, at least in terms of the benefit that the SS estimates calculate for you.
I think there lies the difference. Yes if OP has already hit 35 years of maximum earnings, it will not matter at all. In the OP's comments there is no mention of hitting maximums for 35 years, just "35 years in the system", assuming no $0's.

So the question is "what happens from 58-62 with no income, does it change the assumptions from the SSA website?"
1) If you hit 35 maximum years by 58 -- NO
2) if you don't hit 35 maximum by 58 -- yes -- the how much is really the difference between the max indexed earnings for those 4 years and the 4 years of lower indexed earnings that the OP would replace if OP continued to work from 58-62.

The potential difference is $0 (#1 above) and roughly $700K in indexed earnings. (Maxed indexed earnings tend to fall between $170-180K earnings each year, if you hit the SS max for any given year; times 4 for our 58-62 example). If $100K in indexed earnings = $35/mo SS benefit at FRA -- then the maximum difference in our scenario would be @ $250/mo at FRA. Not adjusted for 75% reduction for taking at 62 ($187.5)

So the range of difference in payout at 62 is $0/mo to $187/mo. (slight rounding here)
The OP mentioned working 35 years, so the amount will be less than $187/mo depending on that difference in the replacement years indexed earnings. If it only increases the Indexed earnings by $200K, than the change will be about $50/mo at 62.
Soccerrules - you are correct. I will not have 35 years of max earnings.
All of these comments of course create more and more questions for me, but I realize I need to educate myself on the subject. I can't just keep on asking questions. I've used the quick and dirty calculator that Marcopolo pointed me to, which is a great starting point for me. I plan to read some books on the topic and get a better understanding.

It's shameful that this is so overly complex. I consider myself fairly intelligent, and I know I'm in for learning curve. I feel for people who don't have the resources or wherewithal to learn the ins and outs of social security. Especially for folks who will be entirely dependent upon it.

Thanks again, everyone. So very much appreciated.

Admiral
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Re: Social Security - general question

Post by Admiral » Wed Oct 11, 2017 11:54 am

BostonButterfly wrote:
Wed Oct 11, 2017 9:14 am
soccerrules wrote:
Wed Oct 11, 2017 8:27 am

For each increase of $100K of indexed earnings past the 2nd bend point = $35/mo benefit at FRA (less at 62). Hardly really worth it, in my eyes. What is worth it is the income from working and not having to draw down your assets and allowing SS benefit to grow.
Interesting, because I was thinking the opposite.....that I would be better off taking SS at 62 to let our nest egg grow. In my case, combined SS of my spouse and I taking benefit at 62 covers a significant portion of expected expenses in retirement. I know.....lots of scenarios and lots of what-ifs. Again, I'm just big picture right now.

Oldcomputerguy: thanks for the book rec.

Scrabbler: maybe I'll create my own spreadsheet. At some point when I have the spare time in my life!
Unless you die early (!), most research shows that you are better off drawing from your portfolio (assuming you have enough saved) than taking SS early, because of the significant increase in the benefit the longer you wait. Because it's an annuity (never runs out) that also includes COLA, it's a very good deal. Now, if you don't actually need the money (like, say, you are still working or have a massive portfolio) then you could conceivably take SS early and invest it. But that return is not guaranteed. The return on waiting IS guaranteed (provided, of course, you are alive to claim it!)

Here's a pretty good, clear take on how Vanguard feels about it:

https://advisors.vanguard.com/VGApp/iip ... urityStart
In the past, the decision as to the "right" time to claim Social Security has often been based on a break-even analysis of a retiree's expected benefits versus his or her life expectancy. That approach, however, ignores two key features of Social Security, namely: Once you start receiving it, it's paid for the rest of your life, no matter how long you live, and is adjusted upward for inflation. A big concern for most retirees is the risk of outliving their savings. For many retirees who can afford to do so, deferring Social Security for a few years (even past their "full retirement age"—defined by Social Security according to one’s birth year—to the maximum annual benefit at age 70) greatly increases their lifetime monthly benefit. Given that at age 65, more than 50% of women can expect to live past age 88 (and 50% of men past 85), delaying Social Security can provide powerful longevity protection.

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Re: Social Security - general question

Post by runner540 » Wed Oct 11, 2017 12:34 pm

BostonButterfly wrote:
Wed Oct 11, 2017 11:41 am
soccerrules wrote:
Wed Oct 11, 2017 10:39 am
neurosphere wrote:
Wed Oct 11, 2017 10:00 am
BostonButterfly wrote:
Tue Oct 10, 2017 12:41 pm
Here are the assumptions for my question:

1. The estimated benefit at 62 is, say, for example, $1,000.
2. I continue to work, earning my current salary, until age 58.
3. I stop working at age 58.
4. At age 58 I have 35 earning years in the “system”.
5. I begin taking my social security benefit at age 62.

Is it correct to say that since I will have 35 earning years by the time I stop working at age 58, my benefit will remain at $1,000 when I begin taking it at age 62 (ignoring fine tuning between now and then)?
For the assumptions you list, I believe the benefit you see on the SSA website (or on the green statements they send you) will be correct. That is, if you have 35 years of maximal earnings by age 58, then your benefit at age 62 will not change, even though the estimate assumes you will work until age 62. But working past 35 year of max earnings does not change your averaged indexed monthly earnings (AIME) and thus a benefit (which is based on your record) does not change with those extra earnings, at least in terms of the benefit that the SS estimates calculate for you.
I think there lies the difference. Yes if OP has already hit 35 years of maximum earnings, it will not matter at all. In the OP's comments there is no mention of hitting maximums for 35 years, just "35 years in the system", assuming no $0's.

So the question is "what happens from 58-62 with no income, does it change the assumptions from the SSA website?"
1) If you hit 35 maximum years by 58 -- NO
2) if you don't hit 35 maximum by 58 -- yes -- the how much is really the difference between the max indexed earnings for those 4 years and the 4 years of lower indexed earnings that the OP would replace if OP continued to work from 58-62.

The potential difference is $0 (#1 above) and roughly $700K in indexed earnings. (Maxed indexed earnings tend to fall between $170-180K earnings each year, if you hit the SS max for any given year; times 4 for our 58-62 example). If $100K in indexed earnings = $35/mo SS benefit at FRA -- then the maximum difference in our scenario would be @ $250/mo at FRA. Not adjusted for 75% reduction for taking at 62 ($187.5)

So the range of difference in payout at 62 is $0/mo to $187/mo. (slight rounding here)
The OP mentioned working 35 years, so the amount will be less than $187/mo depending on that difference in the replacement years indexed earnings. If it only increases the Indexed earnings by $200K, than the change will be about $50/mo at 62.
Soccerrules - you are correct. I will not have 35 years of max earnings.
All of these comments of course create more and more questions for me, but I realize I need to educate myself on the subject. I can't just keep on asking questions. I've used the quick and dirty calculator that Marcopolo pointed me to, which is a great starting point for me. I plan to read some books on the topic and get a better understanding.

It's shameful that this is so overly complex. I consider myself fairly intelligent, and I know I'm in for learning curve. I feel for people who don't have the resources or wherewithal to learn the ins and outs of social security. Especially for folks who will be entirely dependent upon it.

Thanks again, everyone. So very much appreciated.
BostonButterfly, best wishes as you clamber up the learning curve. Like much of policy and taxes, it started simple, and got more complex as voters and policy makers added features, reformed it to last longer, and deal with perceived inequities.

As I understand it, the biggest decision for lower earners is when to claim. The other complexity, such as bend points, taxation of benefits, etc. are less relevant.

Lower earners get a much bigger % of their SS taxed earnings "back to them" in SS benefits than high earners:

https://www.cbpp.org/social-security-be ... rogressive

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Re: Social Security - general question

Post by soccerrules » Wed Oct 11, 2017 12:54 pm

Boston-
No worries. Once you start to understand the process and then start to look at your own record, it will be a little more clear.

You can look-up the current indexing factors through the SS website. ex: SS taxed income for 1985 for someone turning 62 in 2017 has a factor of 4.22767. SS taxed income of $25,000 in 1985 would be indexed to $105,691 in today's dollars. For example if this was you ($25K in 1985) you would need to have a yearly indexed earnings higher than $105,691 in future years to "replace" that 1985 year. If you had lower years or had not reached 35 years of earnings-- the new/future year would replace the $0 or the lowest indexed year.
As you consider the years from age 58-62, you would evaluate if the potential earnings for 58,59,60-62 would be higher than the indexed earnings for any of those prior years.
Also the closer you get to age 60 -- your earnings have almost no indexing applied to them. At age 60 -- indexing stops. ($1=$1)
(this may be automatically included in the application you download from the SS site?-- i haven't done that)

I have a few years in HS were i had SS taxed income and my indexed earnings were less than $20K. So assuming I hit 35 years earnings this year. Any year going forward that my indexed earnings is higher than $20K , that replaces one of those HS years.

This "replacing prior years" process losses it's BIG impact when these 2 things happen:
1) you reach $2.25M (currently) in your 35 year total indexed earnings and reach the 2nd "bend point". $100K increase is only worth $35/mo at FRA.
2) When net difference from a current year and a prior year starts to shrink. If you are only adding $20K in indexed earnings to your 35 year total for working an additional year, it only adds $7/mo to SS benefit at FRA.(assuming you hit 2nd bend point). Now you do benefit from the real income that year that allows you to potentially delaying SS and having to use your nest egg, just not really adding to your SS benefit.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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Re: Social Security - general question

Post by neurosphere » Wed Oct 11, 2017 1:16 pm

soccerrules wrote:
Wed Oct 11, 2017 12:54 pm
Also the closer you get to age 60 -- your earnings have almost no indexing applied to them. At age 60 -- indexing stops. ($1=$1)
(this may be automatically included in the application you download from the SS site?-- i haven't done that)
If you are referring to AnyPia, the default assumptions assume no changes in wage growth from today forward. So indexing is basically "1" from one's current age forward. There are "advanced" settings where you can change these assumptions to any one of three separate pre-selected "SS Trustee" assumptions, or where you can input your own assumptions for CPI and Wage Index changes for every possible year.

If one does enable the non-default assumptions, then yes of course, the program stops indexing from age 60 onwards, rather than stopping indexing from today onward*.

NS

* To be more precise, wage data are not yet available for the past 2 or so years. So Anypia's defaults take the most recent available NAWI fix that NAWI from the most recent year and projects that same value forward. In a way, it's as if the program "makes" you age 62 as far as indexing goes, but not for other age-based calculations. It HAS to, unless you want to enter your own (non-zero) wage growth estimates. :D
-- Real name: Sotirios Keros. If you have to ask "Is a Target Retirement fund right for me?", the answer is yes.

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Re: Social Security - general question

Post by neurosphere » Sun Nov 05, 2017 3:30 pm

mptfan wrote:
Wed Oct 11, 2017 11:08 am
neurosphere wrote:
Wed Oct 11, 2017 10:00 am
But there is a KEY point to remember. The SS estimates assume ZERO wage growth, and ZERO inflation from today onward.
I don't think this is true. This is what the Social Security Administration says...

"Estimated benefits are adjusted for economy-wide average wage growth from about the time of Statement issuance to about the time of retirement."

https://www.ssa.gov/policy/docs/rsnotes/rsn2008-05.html
I think the statements in this link are confusing. Your quote above is perhaps out of context, except in the case where "economy-wide average wage growth" is actually projected to be zero.

I say that because there is this:
As noted above, benefits are estimated using the PIA formula for the year the Statement is sent.
The PIA formula depends on bend points. Bend points depend on wage growth, and based on the bend points at age 62. But this quote says the PIA formula from the year the statement is sent. The PIA formula also relies in AIME. The document mentions that future earnings are assumed to be fixed at the same dollar amount as the most recent year.

There is also this:
The AIME used in the PIA formula that is in effect the year the Statement is sent is based on these indexed prior earnings and on assumed current and future earnings.
This implies (but does not explicitly state) that prior earnings are indexed, but future (estimated) earnings are not indexed. Assuming a zero wage growth would produce the same result as not indexing future wages.

I admit there are other statement in that document which imply otherwise. But I think it's either due to imprecise wording or due to other assumptions which alter the meaning of the words.

I was very confused by this document/link. But ultimately, I do not think it is actually saying that the SS statement estimates are making any assumptions for future inflation or wage growth other than zero. If it is, this would seem to contradict the math which is on the statements. :confused

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Re: Social Security - general question

Post by mptfan » Sun Nov 05, 2017 7:46 pm

There is no contradiction. Social security uses two different estimates for future inflation and future wage growth:

The table below shows estimated future cost-of-living adjustments (COLAs) and estimated future percentage increases in the national average wage index (AWI). These estimates are derived from the "intermediate" assumptions in the 2017 Trustees Report.

The AWI is used to index an individual's earnings through age 60 in the benefit calculation formula, and the COLA is used to increase benefits annually. The COLA shown for a year is effective for December of that year, but is payable in January of the following year.


https://www.ssa.gov/oact/TR/TRassum.html

The average estimated future CPI increases over the next 10 years are about 2.6%, while the average wage growth (as measured by the AWI) is around 3.8%.
I eat risk for breakfast. :)

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Re: Social Security - general question

Post by cherijoh » Sun Nov 05, 2017 8:30 pm

soccerrules wrote:
Wed Oct 11, 2017 8:27 am
scrabbler1 wrote:
Wed Oct 11, 2017 8:20 am
If you are good at spreadsheets, you can create one which mimics the AnyPIA program. I looked at the key calculations within the SS website and created a spreadsheet, before I was able to download and successfully run the AnyPIA program. I later used AnyPIA as a check on my spreadsheet and the two projected monthly benefit amounts were within $1 of each other.

I am an early retiree, as I stopped working 9 years ago after working for 23 years. This means I have many zeroes of SS wages but it mainly froze my SS benefit. Every year or so, I copy and paste a new set of wage indexing factors from the SS website into my spreadsheet. The new set's factors are nearly the same as the previous set, so my frozen SS benefit changes very little, if any. I assume collecting SS at my FRA (Full Retirement Age) but I could easily adjust it should I start at a different age.
+1
I did the same. The spreadsheet allows you to play with different scenarios and what extra year(s) on indexed earnings might mean to your SS benefit. Once you hit the 2nd bendpoint, it doesn;t change much. You gain much more by waiting to take SS until 67 or 70.

For each increase of $100K of indexed earnings past the 2nd bend point = $35/mo benefit at FRA (less at 62). Hardly really worth it, in my eyes. What is worth it is the income from working and not having to draw down your assets and allowing SS benefit to grow.
I also did the same in Excel - I prefer to know how the calculations work. :wink:

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Re: Social Security - general question

Post by neurosphere » Sun Nov 05, 2017 8:34 pm

mptfan wrote:
Sun Nov 05, 2017 7:46 pm
There is no contradiction. Social security uses two different estimates for future inflation and future wage growth:
I'm not sure what contradiction you are referring to? The contradiction I was referring to in my post was that this link (https://www.ssa.gov/policy/docs/rsnotes/rsn2008-05.html) implies that the future benefit estimates which SS provides are indexed in some way. I'm stating that this is not true. There is no adjusting/indexing for any economic factors which are not yet calculated.

I am aware of the two different measures of inflation, wage growth and price growth, that SS uses to calculate benefits. And I'm very familiar with the three sets of trustee's assumptions for these two measures, and I use them in my personal calculation and in my social security spreadsheet when I inflation adjust benefits to today's dollars.

But neither of those two types of inflation estimates are applied to the benefit estimates which are provided to workers. Instead, the trustee estimates are ignored, and the statements just assume zero for both wage growth and price inflation. Except in the case of the "online calculator" which will give the future value of the benefit, in inflated dollars (e.g. the actual dollar amount which will be printed on the future monthly benefit check). [Edit, the online calculator has an OPTION to give future inflated dollars as the output, and in this case I do believe it uses the trustee's intermediate assumptions but our numbers did not exactly agree, but they were close].

The link you provided (https://www.ssa.gov/oact/TR/TRassum.html) also does not say that these intermediate assumptions are used to calculate benefits estimates. It says "The AWI is used to index an individual's earnings through age 60 in the benefit calculation formula, and the COLA is used to increase benefits annually." Which is true.

To clarify, my only claim is that the social security benefit estimate as per the statements and online calculators assume zero wage and price growth for any future values needed to calculate a future retirement benefit. Do you disagree with this? I can't tell.

Note, tone is hard to interpret, and please don't assume I'm being at all confrontational. I just wonder if we're talking past each other, or if I'm not understanding something you've written (or it was not directed to me).

NS

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Re: Social Security - general question

Post by CurlyDave » Mon Nov 06, 2017 2:00 am

Admiral wrote:
Wed Oct 11, 2017 11:54 am
BostonButterfly wrote:
Wed Oct 11, 2017 9:14 am
...
Interesting, because I was thinking the opposite.....that I would be better off taking SS at 62 to let our nest egg grow. In my case, combined SS of my spouse and I taking benefit at 62 covers a significant portion of expected expenses in retirement. I know.....lots of scenarios and lots of what-ifs. Again, I'm just big picture right now...

Scrabbler: maybe I'll create my own spreadsheet. At some point when I have the spare time in my life!
Unless you die early (!), most research shows that you are better off drawing from your portfolio (assuming you have enough saved) than taking SS early, because of the significant increase in the benefit the longer you wait. Because it's an annuity (never runs out) that also includes COLA, it's a very good deal. Now, if you don't actually need the money (like, say, you are still working or have a massive portfolio) then you could conceivably take SS early and invest it. But that return is not guaranteed. The return on waiting IS guaranteed (provided, of course, you are alive to claim it!)...

I did create my own spreadsheet and based on that took SS at the earliest possible age which was 62 when I retired 10 years ago.

Most of the "research" on break-even ages, including that by SS, completely ignores the time value of money. (Of course if I am even one day late in making a payment to the IRS, those boys and girls, from the very same government that does the SS calculations, know all about the time value of money.) Take a look at page 76 of Mike Piper's book. If the return on your portfolio is greater than 5% above inflation, the break-even age jumps to 90 when this return is taken into account. Sadly, Mike did not go higher in his return table, because the 100 year CAGR on stocks is in the 10% range, while inflation is in the 3% range. Using these figures would push the break even age well over 100.

The other nuance of this is that you do not have to invest the SS payments, you merely use the SS payments to avoid drawing down your portfolio.

A significant factor for me, forbidden from discussion on this board, was my evaluation of political considerations. It is a non-political fact that even SS acknowledges that the current payment scheme is unsustainable and that the SS trust fund will be depleted in the early 2030s. This is well within most of our expected lifetimes, and we know that something must change. I think the rules allow me to quote a song: "You don't have to be a weatherman to know which way the wind is blowing..."

Another area where I would love to see some research is the relationship between early SS and Sequence of Returns Risk (SORR). My gut feel is that by receiving pressure on a portfolio in the early years of retirement when SORR is a greater worry, taking early SS may be a benefit. But, I haven't done the math on that, and since I don't have the option of a do-over at this point, I am going to spend my time doing something more enjoyable.

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Re: Social Security - general question

Post by FiveK » Mon Nov 06, 2017 5:40 am

BostonButterfly wrote:
Wed Oct 11, 2017 9:14 am
maybe I'll create my own spreadsheet. At some point when I have the spare time in my life!
To save some time, there is a version available on the 'SocialSecurity' tab of the personal finance toolbox spreadsheet.

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Re: Social Security - general question

Post by smitcat » Mon Nov 06, 2017 9:00 am

CurlyDave wrote:
Mon Nov 06, 2017 2:00 am
Admiral wrote:
Wed Oct 11, 2017 11:54 am
BostonButterfly wrote:
Wed Oct 11, 2017 9:14 am
...
Interesting, because I was thinking the opposite.....that I would be better off taking SS at 62 to let our nest egg grow. In my case, combined SS of my spouse and I taking benefit at 62 covers a significant portion of expected expenses in retirement. I know.....lots of scenarios and lots of what-ifs. Again, I'm just big picture right now...

Scrabbler: maybe I'll create my own spreadsheet. At some point when I have the spare time in my life!
Unless you die early (!), most research shows that you are better off drawing from your portfolio (assuming you have enough saved) than taking SS early, because of the significant increase in the benefit the longer you wait. Because it's an annuity (never runs out) that also includes COLA, it's a very good deal. Now, if you don't actually need the money (like, say, you are still working or have a massive portfolio) then you could conceivably take SS early and invest it. But that return is not guaranteed. The return on waiting IS guaranteed (provided, of course, you are alive to claim it!)...

I did create my own spreadsheet and based on that took SS at the earliest possible age which was 62 when I retired 10 years ago.

Most of the "research" on break-even ages, including that by SS, completely ignores the time value of money. (Of course if I am even one day late in making a payment to the IRS, those boys and girls, from the very same government that does the SS calculations, know all about the time value of money.) Take a look at page 76 of Mike Piper's book. If the return on your portfolio is greater than 5% above inflation, the break-even age jumps to 90 when this return is taken into account. Sadly, Mike did not go higher in his return table, because the 100 year CAGR on stocks is in the 10% range, while inflation is in the 3% range. Using these figures would push the break even age well over 100.

The other nuance of this is that you do not have to invest the SS payments, you merely use the SS payments to avoid drawing down your portfolio.

A significant factor for me, forbidden from discussion on this board, was my evaluation of political considerations. It is a non-political fact that even SS acknowledges that the current payment scheme is unsustainable and that the SS trust fund will be depleted in the early 2030s. This is well within most of our expected lifetimes, and we know that something must change. I think the rules allow me to quote a song: "You don't have to be a weatherman to know which way the wind is blowing..."

Another area where I would love to see some research is the relationship between early SS and Sequence of Returns Risk (SORR). My gut feel is that by receiving pressure on a portfolio in the early years of retirement when SORR is a greater worry, taking early SS may be a benefit. But, I haven't done the math on that, and since I don't have the option of a do-over at this point, I am going to spend my time doing something more enjoyable.


We have and continue to compare the choice of taking SS at various ages by utilizing IORP . RPM ,and our own spreadsheets. After fuzting with our own spreadsheets to add the value of time, the affects of tax on the SS and the ability to change the discount rate we found that the other two 'real' calculators (IORP /RPM ) were much better ate the task then our own.
We can compare many alternate ideas quickly such as varying SS, varying Roth conversions and varying % gains in certain accounts and AA's.
Although SS options can also be accomplished with the Bedrock SS calculator it will only work on the SS variables by themselves.

When we vary the SS dates and look at the outputs based upon: total adjusted payouts vs a bond fund, tax affects, the affect when one spouse passes first, Roth conversions ,etc - we always end up with delaying SS.
My thoughts - look at the biggest picture that you can, use as many of these powerful 'tools' as possible, consider not just what you get but what you keep (taxes) and we would not compare an SS yield to a potential stock market gain.
Bedrock / IORP / RPM - run with the multiple possibilities that you might face , look at results , and then decide what is important to you.

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Re: Social Security - general question

Post by aristotelian » Mon Nov 06, 2017 9:49 am

I would suggest logging into ssa.gov and getting a copy of your SS wages. You can then copy the wages info into this website and get a fairly precise estimate of how much you will get depending on when you stop working and when you claim.

https://socialsecurity.tools/app.html

It is possible that you could increase your benefit significantly by continuing to work if some of your years had very low income. That said, I doubt one or two more years is going to do much for you if you already have 35 years in the system.

Generally, if you have any tax deferred investments, you will be better off from a tax standpoint drawing down your retirement accounts first at a low effective rate, while delaying SS to 67 or 70.

kd2008
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Re: Social Security - general question

Post by kd2008 » Mon Nov 06, 2017 9:56 am

OP,

Please read this article as it answers all your questions and provides the requisite spreadsheet to play around.

Retiring Early: Effect On Social Security Benefits

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Re: Social Security - general question

Post by grabiner » Tue Nov 07, 2017 12:21 am

CurlyDave wrote:
Mon Nov 06, 2017 2:00 am
Most of the "research" on break-even ages, including that by SS, completely ignores the time value of money. (Of course if I am even one day late in making a payment to the IRS, those boys and girls, from the very same government that does the SS calculations, know all about the time value of money.) Take a look at page 76 of Mike Piper's book. If the return on your portfolio is greater than 5% above inflation, the break-even age jumps to 90 when this return is taken into account. Sadly, Mike did not go higher in his return table, because the 100 year CAGR on stocks is in the 10% range, while inflation is in the 3% range. Using these figures would push the break even age well over 100.
The time value of money needs to account for risk. If you invest the SS money in TIPS, you don't change your risk. If you invest it in stock, you increase your expected return and risk, but you can do this even if you didn't take SS early; sell bonds in your retirement account equal to the SS benefit you didn't claim, and buy stock. Thus a TIPS investment is a fair comparison.
The other nuance of this is that you do not have to invest the SS payments, you merely use the SS payments to avoid drawing down your portfolio.
These are equivalent. If you take SS early instead of selling bonds from your portfolio, this is equivalent to drawing down your portfolio and investing the SS in bonds.
David Grabiner

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Re: Social Security - general question

Post by neurosphere » Tue Nov 07, 2017 8:58 am

aristotelian wrote:
Mon Nov 06, 2017 9:49 am
I would suggest logging into ssa.gov and getting a copy of your SS wages. You can then copy the wages info into this website and get a fairly precise estimate of how much you will get depending on when you stop working and when you claim.

https://socialsecurity.tools/app.html
That's a great calculator, and has a nice way to display bend points. And it has a super-smart way to allow a user to quickly input their own personal data from an SS statement. I know the coder responsible for the site, and he's a great guy. About a year ago I helped troubleshoot the math and fix some errors.

A couple things to note:
-- The tool uses national wage indexes through 2015 (i.e. does not yet incorporate the new 2016 NAWI)
-- It does not use as many significant figures as SS does when calculating the indexed wages, such that the bend points, and thus PIA will be off a few dollars from official calculations. The longer your earnings history and the higher your wages, the greater the error. For a worker with 10 years of earnings around $40,000 I found that the PIA and bend points were off by about $3 and $10 respectively. But certainly close enough for the type these kinds of estimates!

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Re: Social Security - general question

Post by MP123 » Tue Nov 07, 2017 11:19 am

neurosphere wrote:
Tue Nov 07, 2017 8:58 am
That's a great calculator, and has a nice way to display bend points. And it has a super-smart way to allow a user to quickly input their own personal data from an SS statement. I know the coder responsible for the site, and he's a great guy. About a year ago I helped troubleshoot the math and fix some errors.
Works great in Chrome and Firefox. You might let him know the first page is completely blank in IE11 at least for me.

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Re: Social Security - general question

Post by CnC » Tue Nov 07, 2017 11:30 am

BostonButterfly wrote:
Tue Oct 10, 2017 12:41 pm
I have a big picture question about social security. When I log in to the website I see the estimated benefit amounts if I begin taking the benefit at age 62, 67 and 70 (I realize these are estimates and will be fine-tuned the closer I get to age 62). Here are the assumptions for my question:

1. The estimated benefit at 62 is, say, for example, $1,000.
2. I continue to work, earning my current salary, until age 58.
3. I stop working at age 58.
4. At age 58 I have 35 earning years in the “system”.
5. I begin taking my social security benefit at age 62.

Is it correct to say that since I will have 35 earning years by the time I stop working at age 58, my benefit will remain at $1,000 when I begin taking it at age 62 (ignoring fine tuning between now and then)? I won’t be at risk of a reduced age 62 benefit by stopping work at age 58 because I had 35 earning years banked, right? The only thing I give up is the opportunity to increase the age 62 benefit by working beyond age 58 to replace some of the lower earning years with higher earning years. Is that correct?

I am at the very beginning of learning about the intricacies of social security, and realize that I have a ton of learning to accomplish on the subject. But at this point, I’m just looking for big picture understanding to help get a better handle on my retirement planning.

Thanks!
Yes in the general terms you are correct. 35 years at x dollars a year will give you approximately the same as 45 years at x dollars.

Also remember social security favors the poor. There are several (3?) Breakpoints where making alot more a year doesn't really equate to much more social security benefits.

Let's take Mike and Sally. Mike makes 60,000 a year as his average 35 year inal rate of earnings. Sally makes 120,000 her benefits will only be ±20 % more than Mike rather than 100% more.

CurlyDave
Posts: 221
Joined: Thu Jul 28, 2016 11:37 am

Re: Social Security - general question

Post by CurlyDave » Tue Nov 07, 2017 12:13 pm

grabiner wrote:
Tue Nov 07, 2017 12:21 am

The time value of money needs to account for risk. If you invest the SS money in TIPS, you don't change your risk. If you invest it in stock, you increase your expected return and risk, but you can do this even if you didn't take SS early; sell bonds in your retirement account equal to the SS benefit you didn't claim, and buy stock. Thus a TIPS investment is a fair comparison.
While the decision should account for risk, the time value of money calculation does not do this. Plus, I can only sell bonds in my retirement account if I have bonds. I am in the group (which, by the way, includes Mr. Bogle) who feel that SS and pensions should be treated as the functional equivalent of fixed income investments in a retirement account. As a practical matter, my controllable assets are all in equities and real estate and I am still overweighted in fixed income equivalents.
grabiner wrote:
Tue Nov 07, 2017 12:21 am

These are equivalent. If you take SS early instead of selling bonds from your portfolio, this is equivalent to drawing down your portfolio and investing the SS in bonds.
1. While they are certainly similar, there are differences due to the different tax treatment of SS vs. other income.

2. In the current environment, investing in bonds is not going to produce enough real return to make early SS attractive. 5+ % real return is currently achievable only with non fixed income assets.

* * * * * * * * * * * *

While our case is not the most common, I think it is far from uncommon, especially on this board. DW and I had entitlements (SS and pensions) which, when combined, led to a situation where we did not feel that portfolio failure was a serious consideration. This leads to a situation in which we could maximize the expected value of our portfolio.

While this is certainly not the case for everyone, I feel strongly that presenting the concept of "withdraw from your portfolio to delay SS" as always the best strategy does a real disservice to those who have the ability to be more risk tolerant. And, those who have the financial strength to be more risk tolerant are going to be more highly represented in the group contemplating voluntary early retirement.

CnC
Posts: 268
Joined: Thu May 11, 2017 12:41 pm

Re: Social Security - general question

Post by CnC » Tue Nov 07, 2017 12:58 pm

CurlyDave wrote:
Tue Nov 07, 2017 12:13 pm
grabiner wrote:
Tue Nov 07, 2017 12:21 am

The time value of money needs to account for risk. If you invest the SS money in TIPS, you don't change your risk. If you invest it in stock, you increase your expected return and risk, but you can do this even if you didn't take SS early; sell bonds in your retirement account equal to the SS benefit you didn't claim, and buy stock. Thus a TIPS investment is a fair comparison.
While the decision should account for risk, the time value of money calculation does not do this. Plus, I can only sell bonds in my retirement account if I have bonds. I am in the group (which, by the way, includes Mr. Bogle) who feel that SS and pensions should be treated as the functional equivalent of fixed income investments in a retirement account. As a practical matter, my controllable assets are all in equities and real estate and I am still overweighted in fixed income equivalents.
grabiner wrote:
Tue Nov 07, 2017 12:21 am

These are equivalent. If you take SS early instead of selling bonds from your portfolio, this is equivalent to drawing down your portfolio and investing the SS in bonds.
1. While they are certainly similar, there are differences due to the different tax treatment of SS vs. other income.

2. In the current environment, investing in bonds is not going to produce enough real return to make early SS attractive. 5+ % real return is currently achievable only with non fixed income assets.

* * * * * * * * * * * *

While our case is not the most common, I think it is far from uncommon, especially on this board. DW and I had entitlements (SS and pensions) which, when combined, led to a situation where we did not feel that portfolio failure was a serious consideration. This leads to a situation in which we could maximize the expected value of our portfolio.

While this is certainly not the case for everyone, I feel strongly that presenting the concept of "withdraw from your portfolio to delay SS" as always the best strategy does a real disservice to those who have the ability to be more risk tolerant. And, those who have the financial strength to be more risk tolerant are going to be more highly represented in the group contemplating voluntary early retirement.
I am in the group you are talking about, but I'm not sure I see your logic.

I'm still young, but if all goes well I plan to have a ±4m portfolio for a bit less than a 4% withdrawal rate until pension kicks in and eventually when we get social security the withdrawal will be around 1%.

My fear isn't that the portfolio will run out it is my consern about taking rmd's on my money because with the early Social Security I won't be able to convert nearly as much to my Roth. Then from 70+ I will be paying considerably more taxes.

Assuming you have sufficient assets that you are concerned with maximizing your portfolio, you will be able to convert additional assets beyond what you require to pay the bills. Taking 40-60,000 in social security will eat into that ability. Thus come 71 you will be forced to take money out you don't need and have both that and your social security taxed at a possibily higher rate.

Could you explain how your approach benefits in that way? Regardless of risk tolerance.

CurlyDave
Posts: 221
Joined: Thu Jul 28, 2016 11:37 am

Re: Social Security - general question

Post by CurlyDave » Wed Nov 08, 2017 10:42 am

CnC wrote:
Tue Nov 07, 2017 12:58 pm
...My fear isn't that the portfolio will run out it is my consern about taking rmd's on my money because with the early Social Security I won't be able to convert nearly as much to my Roth. Then from 70+ I will be paying considerably more taxes...

Could you explain how your approach benefits in that way? Regardless of risk tolerance.
1. I am not certain I understand the question. You can contribute to a Roth at regardless of SS.

2. If you are young, there is a good chance the tax code may change before you retire. I am not going to get into how it might change (which is politics and a forbidden topic on this board), but I am 72 and in my lifetime the tax code has changed substantially with respect to retirement and SS in several major ways. SS payments went from being mostly non-taxable to mostly taxable, SS payments went from being fixed and somewhat inflation-adjusted from time-to-time at the whim of Congress to today's COLA. Medicare was invented. Traditional IRAs were invented, and then Roth IRAs. And, if I am fortunate enough to live until the SS trust fund is depleted, early 2030s, there is guaranteed to be yet another major change -- probably sometime before it is depleted. A major non-tax code change has also occurred in my lifetime. Many private employers have gone from defined benefit pensions to defined contribution plans.

If I had based my retirement plans on the tax codes/SS laws in effect at the early stages of my working career, I would not in nearly as good a position as I am now.

If one is young, the best tax advice is to realize that Congress giveth and Congress taketh away. Your primary defense should be to prepare by saving a large surplus under current tax law, but realize that the law may change favorably or unfavorably at any time. Be prepared.

3. In 2016 DW and I paid enough Federal tax to more than support the entire salary of a government bureaucrat of our own. While this chaps my hide at times, mostly I do not consider this a problem, it is a reflection of success.

4. Money taken out in RMDs may be reinvested in taxable accounts. It is not lost, it is merely taxed, just like Roth conversions. Invest in tax-efficient ETFs and you will be OK. Or, invest in brick and mortar real estate and reap those tax benefits.

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