Age 70 Social Security Benefits - 2 different answers

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djs2
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Joined: Mon Dec 12, 2016 12:46 pm

Age 70 Social Security Benefits - 2 different answers

Post by djs2 »

I recently contacted SSA to determine my deferred age 70 benefits. The value I was given was different than the spreadsheet I had generated. So what was different? Referencing the example below, assume the FRA is $2,400, and it includes the 2013 1.7% COLA.

The first benefit values below show the age 70 SS benefit if the COLA and 8% bump-up are applied yearly so that one gets the full yearly benefit of the compounding for both the COLA and the 8% bump-up. This is how I calculate the age 70 benefit, and what makes sense to me.

The next benefit values show the age 70 SS benefit if either all the COLAs are applied first, and then the 8% yearly bump-ups, or vice versa. In either case, the age 70 benefit is identical. This is how the SSA calculates the age 70 benefit.

The way SSA calculates the benefit understates the monthly benefit by $100.61 or $1,207.31 yearly. Not a minor difference.

Does anyone know whether the way the age 70 benefits are calculated is codified anywhere? I've tried google, but found nothing.

Am I, as all, just stuck with how the SSA does their calculation, or?

Thanks

Yearly Social Security Bump-Up - 8%
Yearly COLAs

2014 1.50%
2015 1.70%
2016 0.00%
2017 0.30%

SS Benefit w/ Compounding Both COLA and 8% Bump-UP Yearly

2013 $2,400.00
2014 $2,630.88
2015 $2,889.65
2016 $3,120.83
2017 $3,380.60

SS Benefit w/ Applying All COLAs , Then All Bump-ups:

$2,484.84 <- First apply COLA's
$3,279.99 <- Then bump-ups

Or vice versa

$3,168.00 <- First apply bump-ups
$3,279.99 <- Then COLOAs

Difference between the SSA calculations and month $100.61/month, or $1,207.31/year.
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dodecahedron
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Re: Age 70 Social Security Benefits - 2 different answers

Post by dodecahedron »

Edited my previous response because I realized I had misinterpreted the situation.

Interesting puzzle.
earlyout
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Re: Age 70 Social Security Benefits - 2 different answers

Post by earlyout »

Delayed retirement benefits do not compound. The benefit is 8% of the benefit at FRA per year, or to be more exact, it is 2/3 of 1% of the FRA benefit for each month you delay.
The Wizard
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Re: Age 70 Social Security Benefits - 2 different answers

Post by The Wizard »

earlyout wrote:Delayed retirement benefits do not compound. The benefit is 8% of the benefit at FRA per year, or to be more exact, it is 2/3 of 1% of the FRA benefit for each month you delay.
Right.
The COLAs, however, do compound...
Attempted new signature...
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One Ping
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Re: Age 70 Social Security Benefits - 2 different answers

Post by One Ping »

This is the way I understand it.

Code: Select all

                        COLA Adjusted    #yrs 8% DRC applied     DRC Adjustment      Delayed
Year	Age	COLA (%)   	FRA Ben	      to COLA FRA Ben	   to COLA FRA Ben	Benefit (D+F)
2013	66	  n/a	      $2,400.00               0	                 … 	        $2,400.00 
2014	67	  1.5	      $2,436.00               1	              $194.88 	     $2,630.88 
2015	68	  1.7	      $2,477.41               2	              $396.39 	     $2,873.80 
2016	69	  0.0	      $2,477.41               3	              $594.58 	     $3,071.99 
2017	70	  0.3	      $2,484.84               4	              $795.15 	     $3,279.99 
Everything is calculated based off your FRA benefit. First apply the COLA to the FRA benefit to get the COLA Adjusted FRA Benefit. Delayed Retirement Credits (DRCs) are then calculated at the rate of 8% of the COLA Adjusted FRA Benefit per year beyond FRA (or 2/3 of 1% per month beyond FRA). To calculate the DRC Adjustment, take the number of years (or months) past FRA times 8% of the COLA Adjusted FRA Benefit. Then add the DRC Adjustment and the COLA Adjusted FRA Benefit to get the Delayed Benefit.

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