Retirement Planning with and w/o SS

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investingdad
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Retirement Planning with and w/o SS

Post by investingdad » Mon Jun 09, 2014 10:37 am

I plugged my income into the SS calculator today and was surprised by the amount. If I take benefits at 65 (I'm turning 41 this summer, wife is already 41), it's about $2100 a month. My wife makes the same as me which means we'd get $4200 a month. And that's in 2014 dollars. Seriously? We're really going to get that kind of money from the gov't?

I guess I never really thought about it before. And I guess I never really thought about just how much money I've paid into SS over the last twenty years. But I'm having a hard time believing that my wife and I are really going to see that kind of money in the form of SS benefits. I can't get my head around checks of that size showing up in my mailbox for no other reason than I'm still breathing.

I've always modelled an early retirement around exactly ZERO dollars from social security. I've used FireCALC a bunch of times but never with a SS benefit. Always used zero. With the assumption that SS would never materialize, retiring around 54 or 55 looks like a possibility. But if the SS payments materialized, we could potentially retire at age 50, that's just 9 years away. Things can always go goofy one way or another.

In any case, I guess I'm just sharing my surprise at using the SS calculator tool today. Am I the only one that surprised at benefit amounts?

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VictoriaF
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Re: Retirement Planning with and w/o SS

Post by VictoriaF » Mon Jun 09, 2014 10:41 am

Some of us have paid the maximum into Social Security and expect close to the maximum benefits. Note, however, that if you retire at 50, you will not have 35 years of top earnings and your benefit will be lower than you are now calculating.

Victoria
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vested1
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Re: Retirement Planning with and w/o SS

Post by vested1 » Mon Jun 09, 2014 10:47 am

I think many conscientious savers are surprised the first time they look at SS benefits. I was like you and completely discounted SS until relatively recently. I turn 62 next month and will delay taking benefits as long as possible, hopefully at age 70. While discounting SS can be considered a mistake it has the advantage of compelling you to save more and end up in an even better position that you imagined. At your age I would keep SS in the back of my mind but keep pretending that it won't be there. It's much better to be pleasantly surprised than bitterly disappointed.

As a purely anecdotal example, a good friend of mine always considered SS as part of his overall strategy for retirement planning and adjusted his savings accordingly. He was surprised when I told him that I didn't consider SS in my calculations. He ended up with a proportionate amount less than me by saving less. Allowing the promise of an unrealized benefit to unduly influence your savings strategy can have negative effects. The best plan is to do neither as myself nor my friend did and look at things realistically; easier said than done.

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HomerJ
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Re: Retirement Planning with and w/o SS

Post by HomerJ » Mon Jun 09, 2014 11:01 am

Social Security is a huge part of our planning... We also have two high-earners although we both plan to retire early so we won't get maximum benefits... and of course, benefits may be cut in the future, but I'm counting on getting $18,000 a year each... ($1500 a month).

That's $36,000 in today's dollars, inflation-adjusted... Since we plan to retire on $80,000 a year (with a paid-off house, that's an extremely nice lifestyle here in the Mid-west, easily equal to a working couple making $150,000 while paying a mortgage and saving for retirement), Social Security will make up nearly 50% of our retirement income.

It means I only need to generate $44,000 from my investments instead of $80,000. That's huge... That's the difference between saving $1.1 million and $2 million.
Last edited by HomerJ on Mon Jun 09, 2014 11:03 am, edited 1 time in total.

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Sheepdog
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Re: Retirement Planning with and w/o SS

Post by Sheepdog » Mon Jun 09, 2014 11:03 am

investingdad,
I contributed the maximum to SS from 1960 until I retired at 65 in 1998, but no where near what I have received. In my lifetime, I contributed $59,275 to the SS fund.
In my first full year in retirement, 1999, I received $1,323.80 per month, or $15,885.60 for the year. By 2002 I had received more than I had put in. 12 years later, I now receive $1987.90 per month or $23,854.80 a year. (Plus my wife receives hers, but hers is only 35% of mine.

Thank you for working and contributing the maximum to SS so that my wife and I can continue to receive ours.
Jim
Last edited by Sheepdog on Mon Jun 09, 2014 11:05 am, edited 1 time in total.
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lawman3966
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Re: Retirement Planning with and w/o SS

Post by lawman3966 » Mon Jun 09, 2014 11:05 am

VictoriaF wrote:Some of us have paid the maximum into Social Security and expect close to the maximum benefits. Note, however, that if you retire at 50, you will not have 35 years of top earnings and your benefit will be lower than you are now calculating.

Victoria
I believe the above to be incorrect. The ability to specify future earnings depends on which benefit estimator/calculator one uses (there are at least three on the SSA web site, and likely more elsewhere). The "calculator" at the link below allows the user to enter earnings in the year 2015 and thereafter until the point at which the user stops working. My understanding is that this should provide a realistic estimate of benefits that have been earned as of the present date (if one enters "0" for future years), even if the user will not begin receiving benefits until age 70.

I have quoted the language from the SSA online calculator site/page below, and thereafter provided a link to that calculator.

Other calculators or estimators may indeed assume that one's present income will continue until SS benefits are received, thereby leading to an overly optimistic result. However, not all SS calculators are built alike.

* * *
Earnings in 2015 and later
Enter the amount you expect to earn in 2015. The calculator will use this same amount of earnings for each future year up to the year you expect to stop working.
* * *

http://www.ssa.gov/retire2/AnypiaApplet.html

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HomerJ
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Re: Retirement Planning with and w/o SS

Post by HomerJ » Mon Jun 09, 2014 11:07 am

Sheepdog wrote:investingdad,
I contributed the maximum to SS from 1960 until I retired at 65 in 1998, but no where near what I have received. In my lifetime, I contributed $59,275 to the SS fund.
In my first full year in retirement, 1999, I received $1,323.80 per month, or $15,885.60 for the year. By 2002 I had received more than I had put in. 12 years later, I now receive $1987.90 per month or $23,854.80 a year.

Thank you for working and contributing the maximum to SS so that my wife and I can continue to receive ours.
Jim
Well, to be fair, that $59,725, had it been invested in stocks from 1960 to 1998, would probably have grown to $300,000 or so.

LadyIJ
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Re: Retirement Planning with and w/o SS

Post by LadyIJ » Mon Jun 09, 2014 11:16 am

[quote="investingdad"My wife makes the same as me which means we'd get $4200 a month.[/quote]

Just because she's making the same as you, you cannot assume she will get what you are getting - it's the entire history of one's working career that is taken into consideration. To get a better picture she has to go on the social security website. It also assumes as a previous poster mentioned, that you will work enough quarters.

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VictoriaF
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Re: Retirement Planning with and w/o SS

Post by VictoriaF » Mon Jun 09, 2014 11:23 am

lawman3966 wrote:
VictoriaF wrote:Some of us have paid the maximum into Social Security and expect close to the maximum benefits. Note, however, that if you retire at 50, you will not have 35 years of top earnings and your benefit will be lower than you are now calculating.

Victoria
I believe the above to be incorrect. The ability to specify future earnings depends on which benefit estimator/calculator one uses (there are at least three on the SSA web site, and likely more elsewhere). The "calculator" at the link below allows the user to enter earnings in the year 2015 and thereafter until the point at which the user stops working. My understanding is that this should provide a realistic estimate of benefits that have been earned as of the present date (if one enters "0" for future years), even if the user will not begin receiving benefits until age 70.

I have quoted the language from the SSA online calculator site/page below, and thereafter provided a link to that calculator.

Other calculators or estimators may indeed assume that one's present income will continue until SS benefits are received, thereby leading to an overly optimistic result. However, not all SS calculators are built alike.

* * *
Earnings in 2015 and later
Enter the amount you expect to earn in 2015. The calculator will use this same amount of earnings for each future year up to the year you expect to stop working.
* * *

http://www.ssa.gov/retire2/AnypiaApplet.html
OP has estimated his and his wife's Social Security payouts if they retire at the age of 65. He then noted that receiving Social Security will enable them to retire at the age of 50. If they stop working at the age of 50, their Social Security credits will be lower than if they retired at 65 and thus the payouts will be lower, too.

Victoria
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Austintatious
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Re: Retirement Planning with and w/o SS

Post by Austintatious » Mon Jun 09, 2014 11:37 am

I suspect that you've already looked at this but since you didn't mention it, be sure to look at the advantages of delaying past full retirement age and even to 70 years of age, if circumstances allow. Talk about some eye-opening numbers for very reliable income streams. See Mike Piper's book for some helpful insight on strategies for taking Social Security benefits.

http://www.amazon.com/dp/0981454283/?ta ... okblurb-20

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Re: Retirement Planning with and w/o SS

Post by Dulocracy » Mon Jun 09, 2014 11:41 am

I also disregard SS in retirement calculations. Because of any number of factors not to be discussed on this board, I feel that assuming it will not be there is the more prudent course of action. Therefore, I will presume it is not there for the purposes of planning. I was surprised at how much money it can amount to in the end, but I am also amazed at how money invested blossoms over time.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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investingdad
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Re: Retirement Planning with and w/o SS

Post by investingdad » Mon Jun 09, 2014 11:51 am

VictoriaF wrote:
lawman3966 wrote:
VictoriaF wrote:Some of us have paid the maximum into Social Security and expect close to the maximum benefits. Note, however, that if you retire at 50, you will not have 35 years of top earnings and your benefit will be lower than you are now calculating.

Victoria
I believe the above to be incorrect. The ability to specify future earnings depends on which benefit estimator/calculator one uses (there are at least three on the SSA web site, and likely more elsewhere). The "calculator" at the link below allows the user to enter earnings in the year 2015 and thereafter until the point at which the user stops working. My understanding is that this should provide a realistic estimate of benefits that have been earned as of the present date (if one enters "0" for future years), even if the user will not begin receiving benefits until age 70.

I have quoted the language from the SSA online calculator site/page below, and thereafter provided a link to that calculator.

Other calculators or estimators may indeed assume that one's present income will continue until SS benefits are received, thereby leading to an overly optimistic result. However, not all SS calculators are built alike.

* * *
Earnings in 2015 and later
Enter the amount you expect to earn in 2015. The calculator will use this same amount of earnings for each future year up to the year you expect to stop working.
* * *

http://www.ssa.gov/retire2/AnypiaApplet.html
OP has estimated his and his wife's Social Security payouts if they retire at the age of 65. He then noted that receiving Social Security will enable them to retire at the age of 50. If they stop working at the age of 50, their Social Security credits will be lower than if they retired at 65 and thus the payouts will be lower, too.

Victoria
Is that the missing piece of the puzzle here? We'd delay payments until closer to 67 regardless of age of retirement.

My wife's earning history has matched my own, anything I'd get she'd get as well.

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desertbandit442
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Re: Retirement Planning with and w/o SS

Post by desertbandit442 » Mon Jun 09, 2014 12:00 pm

I did my retirement saving and investing w/o SS in my plan. Now retired, but not collecting SS yet. Plan on waiting until 70 for that. SS will be additional vacation money, mad money, surprises, additional care money (if needed) and not having to withdraw out of Roth IRA. Will be able to at least leave IRAs to beneficiaries.

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Sheepdog
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Re: Retirement Planning with and w/o SS

Post by Sheepdog » Mon Jun 09, 2014 12:05 pm

HomerJ wrote:
Sheepdog wrote:investingdad,
I contributed the maximum to SS from 1960 until I retired at 65 in 1998, but no where near what I have received. In my lifetime, I contributed $59,275 to the SS fund.
In my first full year in retirement, 1999, I received $1,323.80 per month, or $15,885.60 for the year. By 2002 I had received more than I had put in. 12 years later, I now receive $1987.90 per month or $23,854.80 a year.

Thank you for working and contributing the maximum to SS so that my wife and I can continue to receive ours.
Jim
Well, to be fair, that $59,275, had it been invested in stocks from 1960 to 1998, would probably have grown to $300,000 or so.
To be fair and, in addition, from that $59,725 I will have received by the end of this year $328,354 in SS payments since 10/1998 and hopefully it will be more than that, but, if I am not here, my wife will continue receiving my payment amount for the rest of her life. If I had invested it, I don't know how much it would have been and how much it would actually have provided for me, assuming I had known how to invest it from my 1st working years in the 50s, and I promise I didn't, it would unlikely have covered this payout nor covered disability and survivor benefits insurance as well.
Just because it isn't your fault doesn't mean it isn't your responsibility....Josh Reid Jones

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englishgirl
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Re: Retirement Planning with and w/o SS

Post by englishgirl » Mon Jun 09, 2014 12:11 pm

Definitely calculate the difference with delaying to 70. Quite eye opening! And then that trick where one of you files and suspends at 67 so the other can collect spousal benefit at FRA while you both continue to rack up delayed retirement credits - wow, seems like free money! And do run all the calculators you can with stopping earning at different ages. Think about things like retiring at a point in the year AFTER you have qualified for your 4 credits for that year, like, don't stop right at the new year, wait to the spring. By factoring in SS at age 70, you can take a larger percentage of your portfolio from retirement date up to age 70, and a smaller percentage thereafter. It means you may be able to go over 4% for those initial years.

Buy yes, the first time I really looked into how much I might get, I was very surprised. And then immediately thought how crazy it was to ignore such a potentially huge income stream. Of course, the catch is that we don't know how solvent the system will be, nor what our future earnings may be, etc, etc, so it can only be a rough guess. But even if you estimate that you'll get 75% of what is projected, it's still a lot. Why work for years more to amass more savings if you don't have to?
Sarah

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Phineas J. Whoopee
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Re: Retirement Planning with and w/o SS

Post by Phineas J. Whoopee » Mon Jun 09, 2014 12:16 pm

investingdad wrote:I plugged my income into the SS calculator today and was surprised by the amount. If I take benefits at 65 (I'm turning 41 this summer, wife is already 41), it's about $2100 a month. My wife makes the same as me which means we'd get $4200 a month. And that's in 2014 dollars. Seriously? We're really going to get that kind of money from the gov't?
...
I recommend caution, and here's why. In this discussion I assume social security legislation remains unchanged.

As with any financial prospect decades in the future the numeric result is highly dependent on the assumptions.

1) As VictoriaF pointed out, the basic calculators assume you will keep working at your present salary, average-wage-increase-adjusted, until the retirement date you put in. Benefits are based on the 35 highest earning years. At age 50 you'd have to have been working at SS-earning jobs since you were 15 years old to meet it, and probably your earnings later in life are more than they were in your teens. If you've fewer years the missing ones are included in the 35, as zero income.

2) Using the AnyPIA calculator, which is fully flexible at the expense of being the most complex, not only can you model future income, you can also choose among a number of underlying assumptions (although you can't fully control all of them). Using the copy I've downloaded, I see there are choices regarding benefit increases and average wage increases. The SSA provides three packages of assumptions each year, one more pessimistic, one in line with what they think is most likely, and one more optimistic. You also have the option to assume no increases. If you don't choose you're likely to get the middle-ground one, and I bet that's what the simpler calculators use. With my current earnings history and assuming I never earn SS-eligible income again, if I use the mid-level assumptions my benefit at age 70 will be $X which is around twice as much as I spend today. If I use the no-increase assumptions it's $0.52X. Fortunately for me, that's in the vicinity of my spending, but the point is when many years away the results are exquisitely sensitive to assumptions.

3) I'm not a scare-monger, but based on today's legislation and projections some time in the 2030s benefits will have to decrease by about a quarter.

In my own planning, I use the poor assumptions, resulting in $0.52X, then discount that by 25 percent, taking it down to $0.39X.

If my multiples applied to your numbers they'd go down to about $1638 / month, combined.

When I was in roughly your position I kept saving and investing a lot. You of course will do as you choose.

PJW

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dbCooperAir
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Re: Retirement Planning with and w/o SS

Post by dbCooperAir » Mon Jun 09, 2014 3:58 pm

Sheepdog wrote:
HomerJ wrote:
Sheepdog wrote:investingdad,
I contributed the maximum to SS from 1960 until I retired at 65 in 1998, but no where near what I have received. In my lifetime, I contributed $59,275 to the SS fund.
In my first full year in retirement, 1999, I received $1,323.80 per month, or $15,885.60 for the year. By 2002 I had received more than I had put in. 12 years later, I now receive $1987.90 per month or $23,854.80 a year.

Thank you for working and contributing the maximum to SS so that my wife and I can continue to receive ours.
Jim
Well, to be fair, that $59,275, had it been invested in stocks from 1960 to 1998, would probably have grown to $300,000 or so.
To be fair and, in addition, from that $59,725 I will have received by the end of this year $328,354 in SS payments since 10/1998 and hopefully it will be more than that, but, if I am not here, my wife will continue receiving my payment amount for the rest of her life. If I had invested it, I don't know how much it would have been and how much it would actually have provided for me, assuming I had known how to invest it from my 1st working years in the 50s, and I promise I didn't, it would unlikely have covered this payout nor covered disability and survivor benefits insurance as well.
The employer pays in on our behalf as well. So depending on how you look at it that's is or could have been your :moneybag
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lawman3966
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Re: Retirement Planning with and w/o SS

Post by lawman3966 » Tue Jun 10, 2014 11:05 am

investingdad wrote:Is that the missing piece of the puzzle here? We'd delay payments until closer to 67 regardless of age of retirement.

My wife's earning history has matched my own, anything I'd get she'd get as well.
I just wanted to follow up on my earlier post and provide a more complete picture.

I believe that you can use the calculator at the link below to calculate what you'll be entitled to at age 62 using any stop-work age you want.

http://www.ssa.gov/retire2/AnypiaApplet.html

Next, you can use the chart linked to below to calculate the benefit of delaying receiving benefits using data specific to your birth year.

http://www.ssa.gov/oact/ProgData/ar_drc.html

Hope this helps.

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Re: Retirement Planning with and w/o SS

Post by basspond » Tue Jun 10, 2014 10:09 pm

investingdad wrote:Am I the only one that surprised at benefit amounts?
No, I am surprised but that it should be a lot more! Remember you have to include your employer's match and run portfolio models based on several factors, including the historical return of the S&P 500. A lot of folks just look at what they put in and do not consider the employer match or time value/return of money. Social Security is great for people who do not understand the power of saving for retirement, compound interest, risk reduction by investing over a long time frame, and discipline. For us Bogleheads, not many "annuity" instruments get better returns when you set goals and have a long investment time horizon.

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Re: Retirement Planning with and w/o SS

Post by letsgobobby » Tue Jun 10, 2014 11:46 pm

Likewise we've always ignored ss but recently calculated that within 6 years I will have reached $2.x million in lifetime ss earnings and the second bend point in PIA calculation. So now I am getting more excited about the prospects of receiving our checks 30 years in the future. This newfound optimism is probably a sign of some kind of top in ss futures. When the last skeptic finally capitulates an inflection point is near.

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Re: Retirement Planning with and w/o SS

Post by shaboob » Wed Jun 11, 2014 6:54 am

basspond wrote:
investingdad wrote:Am I the only one that surprised at benefit amounts?
No, I am surprised but that it should be a lot more! Remember you have to include your employer's match and run portfolio models based on several factors, including the historical return of the S&P 500. A lot of folks just look at what they put in and do not consider the employer match or time value/return of money. Social Security is great for people who do not understand the power of saving for retirement, compound interest, risk reduction by investing over a long time frame, and discipline. For us Bogleheads, not many "annuity" instruments get better returns when you set goals and have a long investment time horizon.
Don't forget that SS is also an insurance program. Your SS taxes get paid out as disability benefits and survivor benefits. You've got to figure that in when determining how "bad" the return you're getting from SS is.
Hope is not a strategy. That's why we have contingency plans.

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Re: Retirement Planning with and w/o SS

Post by scrabbler1 » Wed Jun 11, 2014 7:10 am

Back in 2007-2008, I was putting together a short-term and long-term early retirement (ER) plan for an ER at age 45 in 2008. While SS would contribute zero for at least 17 more years, I still wanted to estimate my SS benefit for the longer-term plan.

I did not download the SS calculator and actually get it to work until a few years after I ERed in 2008. What I had done at the time was to create a spreadsheet which mimicked the SS calculation after reading in the SS website how the benefit calculation worked. I had figured out correctly because when I used it as a check on my spreadsheet my monthly SS benefit was only a dollar or two off. I am in that "sweet spot" just over the second bend point so nearly none of my earnings are "wasted" in the 15% bracket.

With only 24 years of significant wage earnings, I had to include many zeros to fill out the spreadsheet/program. Once in a while, I go to the SS website to get a set of new wage index factors to paste into my spreadsheet, as they are the only things which change with my wage earnings "done" permanently.

As for my long-term outlook, I do assume SS will be there when I retire but I will be okay even if it gets reduced. I will still have my frozen company pension and unfettered access to my IRA to supplement my taxable account whose earnings I am living solely off now and for the next 8-9 years.
Last edited by scrabbler1 on Wed Jun 11, 2014 7:34 am, edited 1 time in total.

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investingdad
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Re: Retirement Planning with and w/o SS

Post by investingdad » Wed Jun 11, 2014 7:24 am

lawman3966 wrote:
investingdad wrote:Is that the missing piece of the puzzle here? We'd delay payments until closer to 67 regardless of age of retirement.

My wife's earning history has matched my own, anything I'd get she'd get as well.
I just wanted to follow up on my earlier post and provide a more complete picture.

I believe that you can use the calculator at the link below to calculate what you'll be entitled to at age 62 using any stop-work age you want.

http://www.ssa.gov/retire2/AnypiaApplet.html

Next, you can use the chart linked to below to calculate the benefit of delaying receiving benefits using data specific to your birth year.

http://www.ssa.gov/oact/ProgData/ar_drc.html

Hope this helps.
Yes, it does help, thanks.

I used the revised calculator which assumes I'd take benefits at 62 with a retirement age of 52. The payment in today's dollars would be $1600 for both my wife and I, or $3200 a month. Less than I had come up with in my OP but still more than I ever really thought about. It's kind of fuzzy but, per FIRECalc, we still seem to have predicted success (98% if we both live to 95) between the age of 51 and 55.

Bah...it's all pie in the sky at this point.

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Aptenodytes
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Re: Retirement Planning with and w/o SS

Post by Aptenodytes » Wed Jun 11, 2014 8:24 am

There is a cost to acting as if SS won't be there. In my case I would probably do several drastic things. I wouldn't pay a dime for kids' college, I'd start acquiring live off the land skills and probably invest a lot of time into overseas home options. My life would be pretty miserable. I prefer to sleep soundly on the premise that the SS benefits in some reasonable form will remain intact. If I have to suffer I'd rather do it because I have to not on spec.

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Re: Retirement Planning with and w/o SS

Post by basspond » Wed Jun 11, 2014 9:58 am

shaboob wrote: Don't forget that SS is also an insurance program. Your SS taxes get paid out as disability benefits and survivor benefits. You've got to figure that in when determining how "bad" the return you're getting from SS is.
I did not include the "disability" payments into my calculation. My portfolio models would have to generate anywhere from 0.5% - 1.5% to match SS payments (no mater the age I decide to start drawing) and My heirs would get to keep any left over balances. That includes not contributing after 55.

Dandy
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Re: Retirement Planning with and w/o SS

Post by Dandy » Thu Jun 12, 2014 5:11 pm

Seriously? We're really going to get that kind of money from the gov't?


As noted you and your wife (and your employers) paid a lot of money into your SS. We are likely to draw down more than we put in so the government is a huge contributor -- but isn't a nice retirement program. It supplies the majority of living expenses for a very large percentage of retirees.

Enjoy the fruits of your labor and of the program - I'm glad you were so pleasantly surprised.

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Cut-Throat
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Re: Retirement Planning with and w/o SS

Post by Cut-Throat » Thu Jun 12, 2014 5:52 pm

Dandy wrote: so the government is a huge contributor -- but isn't a nice retirement program.
I'm not sure what 'nice' is, but it is the only retirement program that most of have left !

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Re: Retirement Planning with and w/o SS

Post by paulsiu » Thu Jun 12, 2014 10:15 pm

Because SS is index to inflation, when I add SS to my retirement calculation, the retirement is essentially bullet-proof. If SS isn't there, there is a small chance of failure. Think about it, it's hard to live on just SS but it's doable. Most of use save a lot more than what SS will provide, assuming that we are diversify, the portfolio won't go to zero even if the stock market crashes.

Paul

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