Social Security bend points/early retirement estimates

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skor99
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Social Security bend points/early retirement estimates

Post by skor99 » Sat Sep 09, 2017 9:35 am

I used an excel based calculator to calculate bend points based on my SS contributions over the years. The calculator shows me that I reached my second bend point this year and any remaining benefits would accrue @ approx 15% going forward. Also, it shows a benefit level of around $2170 in today's dollars starting at age 67.
I plan on working 10 more years at the least, but the way I understand it, let's say if I were to retire this year, this $2170 amount is guaranteed to me at age 67 ( barring any future reductions by SSA if they start running out of money) . Is that correct? This also jives in with the estimate from SSA which is higher ( around $2600 ) but that assumes I continue working till age 67 at my current salary. Also, my spouse should 50 % of my amount at age 67, if her own contributions generate a lesser amount. Please share your thoughts and knowledge on this.

clydewolf
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Re: Social Security bend points/early retirement estimates

Post by clydewolf » Sat Sep 09, 2017 1:47 pm

SS uses your thirty-five highest earning years (including zeros for non earning years) to determine your SS benefit. For most workers the last 35 years will be their highest earning years.

The bend points on the curve make the SS benefit higher for low earners vs higher income earners. So while the SS benefit will not increase as fast for the higher paid worker, there is still an increase up to the annual income for SS.

Spousal benefits when applied for at FRA are 50% of the beneficiary's benefit. The spousal benefit does not increase after the spouse's FRA. When a person has a higher benefit based on their earnings, they will receive the higher amount.

Spirit Rider
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Re: Social Security bend points/early retirement estimates

Post by Spirit Rider » Sat Sep 09, 2017 1:50 pm

First, your bend points are not applied yearly. You have whatever you have for Social Security (SS) earnings each year. Then at age 60 your Adjusted Indexed Monthly Earnings (AIME) are calculated from your 35 highest wage index adjusted SS earning years. From this your Primary Insurance Amount (PIA) can be calculated from your AIME and the appropriate bend points. This is when the bend points come into play. Additional non-indexed earnings will be added each year you continue working past 60 and the earnings exceed the lowest of your 35 highest wage index adjusted years.

You are correct that the SSA estimates assume you continue working until the retirement age specified. You can get a simple what if benefit if you stop working now by using the SSA Retirement Estimator. You have to do the default calculation first and then select the option to do another estimate. In this estimate state that you future SS earnings will be $0.

If you want even more what if options you can download the AnyPIA app from the SSA website. This is a PC program that is very flexible, but that flexibility comes at the cost of complexity. You have to enter your SS earnings for each year, but can game out endless scenarios.

msj16
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Re: Social Security bend points/early retirement estimates

Post by msj16 » Sat Sep 09, 2017 6:33 pm

Spirit Rider - your post is very helpful. I just went to the site and it is not obvious that you have to hit the estimate button again to state future earnings as zero. I did so and found out that stopping work next year only changes my estimate by one dollar!

Spirit Rider
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Re: Social Security bend points/early retirement estimates

Post by Spirit Rider » Sat Sep 09, 2017 9:00 pm

msj16 wrote:
Sat Sep 09, 2017 6:33 pm
Spirit Rider - your post is very helpful. I just went to the site and it is not obvious that you have to hit the estimate button again to state future earnings as zero. I did so and found out that stopping work next year only changes my estimate by one dollar!
This would seem to indicate that you already have 35 wage index adjusted earning years that are mostly greater than your current earnings.

If your AIME is greater than the second bend point, for each future earning year, each $2,800/year above the current lowest wage index adjusted earnings year will only increase your PIA by $1/month.

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#Cruncher
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Re: Social Security bend points/early retirement estimates

Post by #Cruncher » Sat Sep 09, 2017 10:11 pm

Spirit Rider wrote:
Sat Sep 09, 2017 1:50 pm
... your bend points are not applied yearly. ... at age 60 your Adjusted Indexed Monthly Earnings (AIME) are calculated from your 35 highest wage index adjusted SS earning years. ... your Primary Insurance Amount (PIA) can be calculated from your AIME and the appropriate bend points. This is when the bend points come into play.
This is correct, Spirit Rider. But it's also valid to calculate the AIME for any year assuming one stopped work that year. I believe the original poster has done this for his latest year of work, and seen that the AIME exceeds the second bend point.

This can be illustrated with Case B of Benefit Calculation Examples for Workers Retiring in 2017. In the example, an AIME of $8,843 is calculated based on a work history of 40 years from 1977 through 2016. The NEXT page of the example shows how the bend point formula is applied against the $8,843 AIME to get a monthly benefit of $2,595.79.

The following table shows how the same bend point formula could be applied each year beginning in 1977 on the assumption that year is the last year worked. [1] [2] [3]

Code: Select all

        Indexed                  --- Monthly Benefit --- 
 Year  Earnings Years    AIME    Formula Increase  % Max

Code: Select all

 1977    72,516     1     172     154.80              6%
 1978    72,067     2     344     309.60   154.80    12% [a]
 1979    85,739     3     548     493.20   183.60    19% 
 1980    88,958     4     760     684.00   190.80    26% [b]
 1981    92,680     5     980     772.38    88.38    30% 
 1982    95,830     6   1,209     845.66    73.28    33% 
 1983   100,686     7   1,448     922.14    76.48    36% 
 1984   100,689     8   1,688     998.94    76.80    38% 
 1985   101,174     9   1,929   1,076.06    77.12    41% 
 1986   104,212    10   2,177   1,155.42    79.36    45% [c]
 1987   102,163    11   2,420   1,233.18    77.76    48% 
 1988   100,035    12   2,658   1,309.34    76.16    50% 
 1989   102,640    13   2,903   1,387.74    78.40    53% 
 1990   104,853    14   3,152   1,467.42    79.68    57% 
 1991   105,224    15   3,403   1,547.74    80.32    60% 
 1992   104,004    16   3,651   1,627.10    79.36    63% 
 1993   107,019    17   3,905   1,708.38    81.28    66% 
 1994   109,650    18   4,166   1,791.90    83.52    69% 
 1995   106,468    19   4,420   1,873.18    81.28    72% 
 1996   103,991    20   4,668   1,952.54    79.36    75% [d]
 1997   102,489    21   4,912   2,006.14    53.60    77% 
 1998   101,859    22   5,154   2,042.44    36.30    79% 
 1999   102,407    23   5,398   2,079.04    36.60    80% 
 2000   101,852    24   5,640   2,115.34    36.30    81% 
 2001   104,962    25   5,890   2,152.84    37.50    83% 
 2002   109,737    26   6,152   2,192.14    39.30    84% 
 2003   109,768    27   6,413   2,231.29    39.15    86% 
 2004   105,976    28   6,665   2,269.09    37.80    87% 
 2005   104,678    29   6,915   2,306.59    37.50    89% 
 2006   104,749    30   7,164   2,343.94    37.35    90% 
 2007   103,711    31   7,411   2,380.99    37.05    92% 
 2008   106,058    32   7,663   2,418.79    37.80    93% 
 2009   112,750    33   7,932   2,459.14    40.35    95% 
 2010   110,146    34   8,194   2,498.44    39.30    96% 
 2011   106,800    35   8,448   2,536.54    38.10    98% [e]
 2012   110,100    36   8,538   2,550.04    13.50    98% 
 2013   113,700    37   8,637   2,564.89    14.85    99% 
 2014   117,000    38   8,711   2,575.99    11.10    99% 
 2015   118,500    39   8,782   2,586.64    10.65   100% 
 2016   118,500    40   8,843   2,595.79     9.15   100% [f]
  1. For example $344 AIME shown for 1978 is (72516 + 72067) / (35 * 12); and the $309.60 benefit is 90% of this.
  2. 1980 is last year before AIME reaches $791 first bend point and benefit of incremental AIME drops from 90% to 32%.
  3. 1986 is ten years minimum needed for 40 credits to qualify for retirement benefits.
  4. 1996 is last year before AIME reaches $4,768 second bend point and benefit of incremental AIME drops from 32% to 15%.
  5. 2011 is year reach maximum of 35 years work.
  6. 2016 shows an AIME of $8,843 which is the sum of the 35 highest indexed earnings (1982-2016) divided by 420 months. The monthly benefit is then calculated as follows:
    2,595.79 = 90% * 791 + 32% * (4768 - 791) + 15% * (8843 - 4768).
If the worker in the example had quit working after twenty years, his benefit would be $1,953 which is 75% of the $2,596 benefit for working forty years. This means the last 20 years of work produced only 1/3 the benefit of the first 20. [4]
  1. I'm ignoring the minimum 10 years work needed to get the 40 credits required to receive any retirement benefit at all. (See Social Security Credits.) If the person stopped work after the first nine years (1985) and never went back to work, he'd be entitled to no benefit, not the $1,076 that is shown.
  2. The bend point formula doesn't necessarily calculate the PIA. As explained on the 2nd page of the example, for Case B the $2,595.79 is adjusted upward for four years of COLA to get the PIA of $2,687.
  3. Case B uses the bend points for 2013 since that is the year the person reaches age 62. This page shows bend points for 1979 to 2017.
  4. The social security payroll tax is sometimes criticized for being "regressive"; i.e., for not increasing as a percent of wages the way income taxes do. This is true. But, because of the bend point formula, it's certainly not true when measured against benefits instead of wages.
Last edited by #Cruncher on Sun Sep 10, 2017 8:03 am, edited 1 time in total.

skor99
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Re: Social Security bend points/early retirement estimates

Post by skor99 » Sun Sep 10, 2017 8:19 am

#Cruncher wrote:
Sat Sep 09, 2017 10:11 pm
Spirit Rider wrote:
Sat Sep 09, 2017 1:50 pm
... your bend points are not applied yearly. ... at age 60 your Adjusted Indexed Monthly Earnings (AIME) are calculated from your 35 highest wage index adjusted SS earning years. ... your Primary Insurance Amount (PIA) can be calculated from your AIME and the appropriate bend points. This is when the bend points come into play.
This is correct, Spirit Rider. But it's valid to calculate the AIME for any year assuming one stopped work that year. I believe the original poster has done this for his latest year of work, and seen that the AIME exceeds the second bend point.

This can be illustrated with Case B of Benefit Calculation Examples for Workers Retiring in 2017. In the example, an AIME of $8,843 is calculated based on a work history of 40 years from 1977 through 2016. The NEXT page of the example shows how the bend point formula is applied against the $8,843 AIME to get a monthly benefit of $2,595.79.

The following table shows how the same bend point formula could be applied each year beginning in 1977 on the assumption that year is the last year worked. [1] [2] [3]

Code: Select all

        Indexed                  --- Monthly Benefit --- 
 Year  Earnings Years    AIME    Formula Increase  % Max

Code: Select all

 1977    72,516     1     172     154.80              6%
 1978    72,067     2     344     309.60   154.80    12% [a]
 1979    85,739     3     548     493.20   183.60    19% 
 1980    88,958     4     760     684.00   190.80    26% [b]
 1981    92,680     5     980     772.38    88.38    30% 
 1982    95,830     6   1,209     845.66    73.28    33% 
 1983   100,686     7   1,448     922.14    76.48    36% 
 1984   100,689     8   1,688     998.94    76.80    38% 
 1985   101,174     9   1,929   1,076.06    77.12    41% 
 1986   104,212    10   2,177   1,155.42    79.36    45% [c]
 1987   102,163    11   2,420   1,233.18    77.76    48% 
 1988   100,035    12   2,658   1,309.34    76.16    50% 
 1989   102,640    13   2,903   1,387.74    78.40    53% 
 1990   104,853    14   3,152   1,467.42    79.68    57% 
 1991   105,224    15   3,403   1,547.74    80.32    60% 
 1992   104,004    16   3,651   1,627.10    79.36    63% 
 1993   107,019    17   3,905   1,708.38    81.28    66% 
 1994   109,650    18   4,166   1,791.90    83.52    69% 
 1995   106,468    19   4,420   1,873.18    81.28    72% 
 1996   103,991    20   4,668   1,952.54    79.36    75% [d]
 1997   102,489    21   4,912   2,006.14    53.60    77% 
 1998   101,859    22   5,154   2,042.44    36.30    79% 
 1999   102,407    23   5,398   2,079.04    36.60    80% 
 2000   101,852    24   5,640   2,115.34    36.30    81% 
 2001   104,962    25   5,890   2,152.84    37.50    83% 
 2002   109,737    26   6,152   2,192.14    39.30    84% 
 2003   109,768    27   6,413   2,231.29    39.15    86% 
 2004   105,976    28   6,665   2,269.09    37.80    87% 
 2005   104,678    29   6,915   2,306.59    37.50    89% 
 2006   104,749    30   7,164   2,343.94    37.35    90% 
 2007   103,711    31   7,411   2,380.99    37.05    92% 
 2008   106,058    32   7,663   2,418.79    37.80    93% 
 2009   112,750    33   7,932   2,459.14    40.35    95% 
 2010   110,146    34   8,194   2,498.44    39.30    96% 
 2011   106,800    35   8,448   2,536.54    38.10    98% [e]
 2012   110,100    36   8,538   2,550.04    13.50    98% 
 2013   113,700    37   8,637   2,564.89    14.85    99% 
 2014   117,000    38   8,711   2,575.99    11.10    99% 
 2015   118,500    39   8,782   2,586.64    10.65   100% 
 2016   118,500    40   8,843   2,595.79     9.15   100% [f]
  1. For example $344 AIME shown for 1978 is (72516 + 72067) / (35 * 12); and the $309.60 benefit is 90% of this.
  2. 1980 is last year before AIME reaches $791 first bend point and benefit of incremental AIME drops from 90% to 32%.
  3. 1986 is ten years minimum needed for 40 credits to qualify for retirement benefits.
  4. 1996 is last year before AIME reaches $4,768 second bend point and benefit of incremental AIME drops from 32% to 15%.
  5. 2011 is year reach maximum of 35 years work.
  6. 2016 shows an AIME of $8,843 which is the sum of the 35 highest indexed earnings (1982-2016) divided by 420 months. The monthly benefit is then calculated as follows:
    2,595.79 = 90% * 791 + 32% * (4768 - 791) + 15% * (8843 - 4768).
If the worker in the example had quit working after twenty years, his benefit would be $1,953 which is 75% of the $2,596 benefit for working forty years. This means the last 20 years of work produced only 1/3 the benefit of the first 20. [4]
  1. I'm ignoring the minimum 10 years work needed to get the 40 credits required to receive any retirement benefit at all. (See Social Security Credits.) If the person stopped work after the first nine years (1985) and never went back to work, he'd be entitled to no benefit, not the $1,076 that is shown.
  2. The bend point formula doesn't necessarily calculate the PIA. As explained on the 2nd page of the example, for Case B the $2,595.79 is adjusted upward for four years of COLA to get the PIA of $2,687.
  3. Case B uses the bend points for 2013 since that is the year the person reaches age 62. This page shows bend points for 1979 to 2017.
  4. The social security payroll tax is sometimes criticized for being "regressive"; i.e., for not increasing as a percent of wages the way income taxes do. This is true. But, because of the bend point formula, it's certainly not true when measured against benefits instead of wages.
Thank you for the detailed post. Yes you are correct, I was looking at calculating AIME for the latest year. I used the SSA online calculator and was able to verify what I thought was correct. In the online calculator I am able to put all my earnings history and put 0 for 2018 to simulate early retirement and see that the number is close to what the Excel calculator gave me.
You do need to make sure that you put your age of retirement as 67 or later to see your full FRA benefits ( and not your age next year or your early retirement age, which will prompt the calculator to show your benefits at 62 which is a significantly lower number) . This is the mistake I was making earlier, which I did not understand and went looking for other calculators.
Now, correct me if I am wrong, but The online calculator does not have the feature of simulating early retirement at other ages other than next year , and starting benefits at 67 or later. This is what I really wanted as I was thinking of mid fifties as retirement age, but the online calculator is still useful in providing a good idea of the future benefit amount , as things stand today, especially if somebody has crossed their second bend point.

Kelmscott
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Re: Social Security bend points/early retirement estimates

Post by Kelmscott » Sun Sep 10, 2017 8:22 am

There's a calculator on the Social Security site called Any PIA... have you seen it?

https://www.ssa.gov/OACT/anypia/anypia.html

You can download your earnings, plug in assumptions (shorten your work career, add projected income, etc) and it'll give you an estimate of what early retirement will be on your PIA.

skor99
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Re: Social Security bend points/early retirement estimates

Post by skor99 » Sun Sep 10, 2017 8:28 am

Yes, I tried that but for some reason it would not install. I think I am Ok for now with getting a general idea of what would my benefit at FRA be, in the hypothetical case of me not contributing anything to SS after this year (~$2200) . The numbers would only get better for future years worked.

Billionaire
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Re: Social Security bend points/early retirement estimates

Post by Billionaire » Sun Sep 10, 2017 9:03 am

Are there any explanations why my manually calculated PIA benefit is about $200.00 higher than the amount stated on my SS statement?

Tamales
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Re: Social Security bend points/early retirement estimates

Post by Tamales » Sun Sep 10, 2017 2:10 pm

Billionaire wrote:
Sun Sep 10, 2017 9:03 am
Are there any explanations why my manually calculated PIA benefit is about $200.00 higher than the amount stated on my SS statement?
A $200/month difference is a pretty big difference, so I would suspect there must be an error in your manual calculation. Can't say much more than that without knowing the details of all the steps in your manual calculation.

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FiveK
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Re: Social Security bend points/early retirement estimates

Post by FiveK » Sun Sep 10, 2017 10:56 pm

skor99 wrote:
Sun Sep 10, 2017 8:28 am
Yes, I tried that but for some reason it would not install.
Also had installation problems. IIRC, something about needing admin access even though I was using the admin account under Windows 7. Using the Windows self-extracting zip file did work.

The 'SocialSecurity' tab in Tools and calculators - Personal_finance_toolbox - Bogleheads matched the anypia numbers for both our situations, in case you like using spreadsheets.

scrabbler1
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Re: Social Security bend points/early retirement estimates

Post by scrabbler1 » Sun Sep 10, 2017 11:06 pm

Back in 2008, when I retired (early), I created a spreadsheet which mimicked the SS benefit calculation. At the time, I tried to run the AnyPIA calculator but it wasn't working. A few years later, I tried running it again and it worked. The benefit calculation gave me a benefit which was less than $1 off from my spreadsheet, so I knew my spreadsheet was good and could use it instead.

My wage history ended in 2008, so all I did was to enter a bunch of zeroes after that to populate my wage history to get to 35 years. Every so often, I go back to the SSA website to obtain an updated set of wage indexing factors and replace the ones I have in the spreadsheet. They don't change much, so my projected benefit is always within a few dollars of what it was before.

I am barely into the 15% bend point range, so if I had kept working and received average raises to replace those zeroes, my projected SS benefit would have been maybe 11% higher, I'll take my early retirement, thank you.
Last edited by scrabbler1 on Mon Sep 11, 2017 5:48 am, edited 1 time in total.

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Lieutenant.Columbo
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Re: Social Security bend points/early retirement estimates

Post by Lieutenant.Columbo » Sun Sep 10, 2017 11:14 pm

skor99 wrote:
Sat Sep 09, 2017 9:35 am
...at age 67.
I plan on working 10 more years at the least
Not trying derail your topic, but may I ask the reason you plan to work until age 77 or beyond? Thanks
scrabbler1 wrote:
Sun Sep 10, 2017 11:06 pm
Every so often, I go back to the SSA website to obtain an updated set of wage indexing factors and replace the ones I have in the spreadsheet. They don't change much, so my projected benefit is always within a ew dollars of what it was before
Although small, are these dollar differences shrinking your benefit? I mean: is the benefit trend a downward one? I'm afraid so. Thanks.
Last edited by Lieutenant.Columbo on Mon Sep 11, 2017 6:30 am, edited 1 time in total.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

scrabbler1
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Re: Social Security bend points/early retirement estimates

Post by scrabbler1 » Mon Sep 11, 2017 5:53 am

Lt. Columbo, there is no downward trend. It's basically a rounding difference.

cherijoh
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Re: Social Security bend points/early retirement estimates

Post by cherijoh » Mon Sep 11, 2017 6:10 am

Billionaire wrote:
Sun Sep 10, 2017 9:03 am
Are there any explanations why my manually calculated PIA benefit is about $200.00 higher than the amount stated on my SS statement?
Did your salary exceed the maximum salary that was taxed for SS any of those years? Any excess salary doesn't count in you benefit calculation

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Re: Social Security bend points/early retirement estimates

Post by cherijoh » Mon Sep 11, 2017 6:27 am

Lieutenant.Columbo wrote:
Sun Sep 10, 2017 11:14 pm
skor99 wrote:
Sat Sep 09, 2017 9:35 am
...at age 67.
I plan on working 10 more years at the least
Not trying derail your topic, but may I ask the reason you plan to work until afe 77 or beyond? Thanks
I think you misread the post. I interpreted skao99's post to mean that he is considering retiring before his FRA of 67 but wants to calculate the benefit he'll receive if he delays starting SS until 67.

skor99
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Re: Social Security bend points/early retirement estimates

Post by skor99 » Mon Sep 11, 2017 9:17 pm

Yes that is correct

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