Social Security payouts vs. "estimated benefits" online

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btownguy
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Social Security payouts vs. "estimated benefits" online

Post by btownguy » Sun Oct 15, 2017 9:19 pm

I've got a little over 20 years of sequential high earning years in my Social Security record. All years either at the SS limit or very close to it up or down. No years are WAY over however. I take a look at my estimated benefits for early/normal/late retirement and think to myself, that doesn't look awful. My understanding is that it's calculated based on your highest 35 years of earnings and that it's making some assumptions on what my next 15 years look like.

So, let's assume I can hold on and make a decent income for the next 15 years and then retire early and fully fund my retirement from then until I'm 67 (and beyond). Can I expect SS payments, adjusted for X years worth of inflation, somewhere along what I'm seeing online?

As an example, if today it says my estimated benefits are $3000/month ($36,000/year), could I expect $53,494/year in 20 years assuming 2% inflation per year from now until then?

Let's try to not let this thread get political discussing whether or not SS will be there in the future. For the record, I'm assuming I'll get 75% of whatever it says I'll get due too potential sustainability changes in the future. I just want to know if my above thinking is sound and if there are any gotchas I'm not thinking of (i.e. you made a good living sooooo....no SS for you).

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David Jay
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Re: Social Security payouts vs. "estimated benefits" online

Post by David Jay » Sun Oct 15, 2017 9:41 pm

Yes, if you have 35 years at max contribution, you should receive in excess of $3000 a month at Full Retirement Age (FRA).

Increases for inflation are based on a wage index, not on cost of living per say. But if wages go up 2% per year, your projections are reasonable.
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Re: Social Security payouts vs. "estimated benefits" online

Post by Phineas J. Whoopee » Sun Oct 15, 2017 10:10 pm

David Jay wrote:
Sun Oct 15, 2017 9:41 pm
...
Increases for inflation are based on a wage index, not on cost of living per say. But if wages go up 2% per year, your projections are reasonable.
Up through age 60, but with a two-year delay because of how long it takes to gather accurate wage data, one's future benefit is adjusted for the wage index. Starting from age 62 benefits are adjusted per CPI-W.
PJW

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Re: Social Security payouts vs. "estimated benefits" online

Post by lazydavid » Mon Oct 16, 2017 8:39 am

As I recall from this thread, working 18 years at the SS contribution cap will get you to the 2nd bend point all by itself. That is, even if the other 17 years used in the calculation formula are zeros, you'll still get 75% of the maximum benefit--$2015/month in today's dollars for someone claiming at FRA of 67--just from those 18 years. Each additional year of working up to the SS cap will net you an extra $39.50/month ($474.20/year) in retirement benefits.

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Re: Social Security payouts vs. "estimated benefits" online

Post by whomever » Mon Oct 16, 2017 9:00 am

Up through age 60, but with a two-year delay because of how long it takes to gather accurate wage data, one's future benefit is adjusted for the wage index. Starting from age 62 benefits are adjusted per CPI-W.
Am I correct that this creates a window of vulnerability for early retirees? If there is late 70's/early 80's inflation going on, does that result in a permanently lowered benefit?

Let's say inflation is running 15% a year (and that the wage index and CPI-W track it perfectly) between when an early retiree is 60 and 62. Does that mean that someone who works those two years (but otherwise has an identical wage history) gets a ~32% larger benefit by having their wages indexed during those two years of high inflation?

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Re: Social Security payouts vs. "estimated benefits" online

Post by btownguy » Mon Oct 16, 2017 9:38 am

whomever wrote:
Mon Oct 16, 2017 9:00 am
Up through age 60, but with a two-year delay because of how long it takes to gather accurate wage data, one's future benefit is adjusted for the wage index. Starting from age 62 benefits are adjusted per CPI-W.
Am I correct that this creates a window of vulnerability for early retirees? If there is late 70's/early 80's inflation going on, does that result in a permanently lowered benefit?

Let's say inflation is running 15% a year (and that the wage index and CPI-W track it perfectly) between when an early retiree is 60 and 62. Does that mean that someone who works those two years (but otherwise has an identical wage history) gets a ~32% larger benefit by having their wages indexed during those two years of high inflation?
Not answering your question specifically but adding to it. Does retiring early introduce any significant interest rate/inflation risk to benefits?

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Re: Social Security payouts vs. "estimated benefits" online

Post by whomever » Mon Oct 16, 2017 12:32 pm

Does retiring early introduce any significant interest rate/inflation risk to benefits?
I think that's the same question.

SS benefits don't have any interest rate risk, other than to the extent that interest rates are correlated with inflation.

To state my understanding, in the hope the more knowledgeable will confirm/deny: If you retire at 55 and claim SS at 70, the indexing procedure indexes your wages until age 60, so no harm done from 55 to 60, and your benefit is indexed from 62 until 70. The problem is the 60 to 62 gap, i.e. your benefit calculated at 62 is based on your wages as indexed up to age 60.

But I'm not sure, and am hoping the gurus can set me straight.

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Re: Social Security payouts vs. "estimated benefits" online

Post by David Jay » Mon Oct 16, 2017 12:38 pm

whomever wrote:
Mon Oct 16, 2017 9:00 am
Up through age 60, but with a two-year delay because of how long it takes to gather accurate wage data, one's future benefit is adjusted for the wage index. Starting from age 62 benefits are adjusted per CPI-W.
Am I correct that this creates a window of vulnerability for early retirees? If there is late 70's/early 80's inflation going on, does that result in a permanently lowered benefit?

Let's say inflation is running 15% a year (and that the wage index and CPI-W track it perfectly) between when an early retiree is 60 and 62. Does that mean that someone who works those two years (but otherwise has an identical wage history) gets a ~32% larger benefit by having their wages indexed during those two years of high inflation?
No difference between working and non-working. Anyone who reached age 60 in 2016 has no inflation protection for 2017 and 2018, regardless of working or non-working. A 58 year old will receive AWI protection of their (future) PIA and a 62 year old will receive a COLA on top of their PIA.

It also goes the other way: Two consecutive years of wage deflation would not affect a 60 year old's PIA (but it would lower the future AWI for a 58 year old).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Social Security payouts vs. "estimated benefits" online

Post by mptfan » Mon Oct 16, 2017 12:52 pm

btownguy wrote:
Sun Oct 15, 2017 9:19 pm
I've got a little over 20 years of sequential high earning years in my Social Security record. All years either at the SS limit or very close to it up or down. No years are WAY over however.
If you earn at least the SS limit in any given year, it doesn't matter if you earn $1 more or $1,000,000 more during that year, any earnings over the limit will not increase your benefits.

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Re: Social Security payouts vs. "estimated benefits" online

Post by btownguy » Mon Oct 16, 2017 1:12 pm

mptfan wrote:
Mon Oct 16, 2017 12:52 pm
btownguy wrote:
Sun Oct 15, 2017 9:19 pm
I've got a little over 20 years of sequential high earning years in my Social Security record. All years either at the SS limit or very close to it up or down. No years are WAY over however.
If you earn at least the SS limit in any given year, it doesn't matter if you earn $1 more or $1,000,000 more during that year, any earnings over the limit will not increase your benefits.
Thanks I was aware of that point. My only reason for bringing it up was to see if there was some sort of means-testing that I'm not aware of that would negate the "estimated benefits" number being presented on the ss.gov website.

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Re: Social Security payouts vs. "estimated benefits" online

Post by soccerrules » Mon Oct 16, 2017 1:28 pm

Your current online account states the "assumption" that you will earn X up until retirement. In 2016 if you maxed SS taxed earnings it was $118,500. So the assumption is you will earn $118,500 for the next 15 -20 years in your example. Well the earnings taxed by SS max in 2017 is $127,200 and 2018 will be $128,700. If you keep making the $118,500 flat you will fall short of hitting the maximum, so you should not assume you will receive the maximum payout. Once your earnings are entered for 2017, and if you hit $127,200, the assumption will increase to $127,200 and adjust benefits accordingly (maybe not if you are at the max level). Although I have not seen it, I assume if you earned a lower amount than it will make the same adjustments to your online account and adjust benefits down.
As someone else referenced once you have earnings past the 2nd bend point ($2.25M Index earnings) the differences for future earnings will have limited impact to your benefits. $100K indexed earnings = $35.70/mo in FRA benefits past the 2nd bend point. (Earnings /420 * 15%)
Don't let your outflow exceed your income or your upkeep will be your downfall.

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Re: Social Security payouts vs. "estimated benefits" online

Post by invst65 » Mon Oct 16, 2017 1:35 pm

btownguy wrote:
Sun Oct 15, 2017 9:19 pm
I've got a little over 20 years of sequential high earning years in my Social Security record.
I probably had no more than 20 years reaching the maximum earnings during my career (retired last year at 67) but I'm still close to the maximum SS benefit. Not sure how it works and don't really care to find out as it's all way too complicated, but apparently at a certain threshold in earnings you stop reaping much benefit from it.

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Re: Social Security payouts vs. "estimated benefits" online

Post by David Jay » Mon Oct 16, 2017 1:45 pm

soccerrules wrote:
Mon Oct 16, 2017 1:28 pm
As someone else referenced once you have earnings past the 2nd bend point ($2.25M Index earnings) the differences for future earnings will have limited impact to your benefits. $100K indexed earnings = $35.70/mo in FRA benefits past the 2nd bend point. (Earnings /420 * 15%)
And even that assumes you have less than 35 years of earnings. If you have 35 years of earnings then it is the difference between the lowest of the (current) Top 35 and $100,000.

If your current lowest earnings year after indexing is $50,000 and you replace it with a $100,000 year then you gain $17.85 per month. I am bumping up against that now. If I work full time in 2019 (at today's salary and discounting the next year's change in AWI), I will replace an earnings year that is only (after indexing) about $8000 less than 2019. Or about $2.85 a month for working the additional year (my AWI will be based on 2017, the year I turned 60).
Last edited by David Jay on Mon Oct 16, 2017 1:54 pm, edited 1 time in total.
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Re: Social Security payouts vs. "estimated benefits" online

Post by btownguy » Mon Oct 16, 2017 1:47 pm

invst65 wrote:
Mon Oct 16, 2017 1:35 pm
btownguy wrote:
Sun Oct 15, 2017 9:19 pm
I've got a little over 20 years of sequential high earning years in my Social Security record.
I probably had no more than 20 years reaching the maximum earnings during my career (retired last year at 67) but I'm still close to the maximum SS benefit. Not sure how it works and don't really care to find out as it's all way too complicated, but apparently at a certain threshold in earnings you stop reaping much benefit from it.
This is really great news and the bend points were new to me until this thread. I've actually got 23 years on record but 3 of those were well below the max. Current plan is to go another 15 but the SS diminishing returns will be a point of consideration (not the only point obviously).

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Re: Social Security payouts vs. "estimated benefits" online

Post by neurosphere » Mon Oct 16, 2017 2:01 pm

btownguy wrote:
Sun Oct 15, 2017 9:19 pm
As an example, if today it says my estimated benefits are $3000/month ($36,000/year), could I expect $53,494/year in 20 years assuming 2% inflation per year from now until then?
The [edit: mailed] benefit estimates project your most recently reported earnings forward to your benefit date. [Edit, the following sentence is not true, see mptfan's post below, I'm correcting the rest of this post] They also assume that wage growth and consumer price inflation equals zero.

If [edit, THE DIFFERENCE BETWEEN] inflation and wage growth (as estimated by the social security trustees), move in tandem (e.g. 1% each, 2% each, -3% each) during your earnings years then your benefit estimate (in TODAY's DOLLARS) remain in the same ball park. In reality, it also depends a little bit on the absolutes of each, even if they are equal.

But if the estimated CPI growth is higher than the SS estimates for wage growth, then your benefit (again, adjusted for inflation, "today's dollars") will fall short of the estimate. The more inflation exceeds wage growth, the "worse" you will do. Alternately, if wage growth exceeds the CPI (by more than the SS estimates), then your inflation adjusted benefit will be better than the current estimates.

Remember, once you are receiving a benefit on your record and no longer working, your benefit will be adjusted exactly for inflation so your benefit in that scenarios is in "inflation adjusted" dollars, no matter the year.
Last edited by neurosphere on Mon Oct 16, 2017 3:23 pm, edited 1 time in total.

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Re: Social Security payouts vs. "estimated benefits" online

Post by neurosphere » Mon Oct 16, 2017 2:07 pm

soccerrules wrote:
Mon Oct 16, 2017 1:28 pm
Your current online account states the "assumption" that you will earn X up until retirement. In 2016 if you maxed SS taxed earnings it was $118,500. So the assumption is you will earn $118,500 for the next 15 -20 years in your example. Well the earnings taxed by SS max in 2017 is $127,200 and 2018 will be $128,700. If you keep making the $118,500 flat you will fall short of hitting the maximum, so you should not assume you will receive the maximum payout.
This is not true. [Edit: It is *I* who is wrong. So sorry. See mptfan's correction below.]
Last edited by neurosphere on Mon Oct 16, 2017 3:24 pm, edited 1 time in total.

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Re: Social Security payouts vs. "estimated benefits" online

Post by btownguy » Mon Oct 16, 2017 2:21 pm

neurosphere wrote:
Mon Oct 16, 2017 2:01 pm

But if CPI growth exceeds wage growth, then your benefit (again, adjusted for inflation, "today's dollars") will fall short of the estimate. The more inflation exceeds wage growth, the "worse" you will do. Alternately, if wages growth exceeds the CPI, AND your wages during your earnings years keep up with wage growth, then your inflation adjusted benefit will be better than the current estimates.
I'm not sure I'm following you 100%. As an example - I have a planning spreadsheet (don't we all). It goes from today until the day I'm age 100. The relevant columns for this discussion are:

Portfolio value
Portfolio value in 2017 dollars
Income needed
Social Security payment
Portfolio Withdrawal amount (this equals Income needed - Social Security payment)

I don't plan to take SS payments until about 25 years from now. The ss.gov site gives me an estimated benefits amount that I can read today. What I'm trying to understand is - is that value on ss.gov today listed in 2017 dollars? So for my spreadsheet, let's say my benefits are $3000/mo on ss.gov today ($36,000/yr). If CPI is 2% every single year from here until 2042 (25 years from now), will my SS payment in 2042 be $36,000/yr or will it be roughly $59,000/yr.

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Re: Social Security payouts vs. "estimated benefits" online

Post by mptfan » Mon Oct 16, 2017 2:50 pm

neurosphere wrote:
Mon Oct 16, 2017 2:07 pm
soccerrules wrote:
Mon Oct 16, 2017 1:28 pm
Your current online account states the "assumption" that you will earn X up until retirement. In 2016 if you maxed SS taxed earnings it was $118,500. So the assumption is you will earn $118,500 for the next 15 -20 years in your example. Well the earnings taxed by SS max in 2017 is $127,200 and 2018 will be $128,700. If you keep making the $118,500 flat you will fall short of hitting the maximum, so you should not assume you will receive the maximum payout.
This is not true. These estimates assume future wage growth is zero.
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 payouts vs. "estimated benefits" online

Post by aristotelian » Mon Oct 16, 2017 2:58 pm

If you really want to muck around with SS payout, this is a great tool. You copy your earnings data from SSA.gov into the box, then you can add additional years and such and get a pretty accurate number.

https://socialsecurity.tools/app.html

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Re: Social Security payouts vs. "estimated benefits" online

Post by neurosphere » Mon Oct 16, 2017 3:01 pm

(post deleted due to my incompetency) :oops:
Last edited by neurosphere on Mon Oct 16, 2017 3:25 pm, edited 1 time in total.

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Re: Social Security payouts vs. "estimated benefits" online

Post by neurosphere » Mon Oct 16, 2017 3:11 pm

mptfan wrote:
Mon Oct 16, 2017 2:50 pm
neurosphere wrote:
Mon Oct 16, 2017 2:07 pm
This is not true. These estimates assume future wage growth is zero.
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
You are absolutely right. Bad mistake on my part. I think I was thinking about the online "quick" calculators. Let me edit my posts!!

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Re: Social Security payouts vs. "estimated benefits" online

Post by mptfan » Mon Oct 16, 2017 3:18 pm

btownguy wrote:
Mon Oct 16, 2017 2:21 pm
I don't plan to take SS payments until about 25 years from now. The ss.gov site gives me an estimated benefits amount that I can read today. What I'm trying to understand is - is that value on ss.gov today listed in 2017 dollars?
Yes.

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Re: Social Security payouts vs. "estimated benefits" online

Post by mptfan » Mon Oct 16, 2017 3:20 pm

neurosphere wrote:
Mon Oct 16, 2017 3:01 pm
btownguy wrote:
Mon Oct 16, 2017 2:21 pm
The ss.gov site gives me an estimated benefits amount that I can read today. What I'm trying to understand is - is that value on ss.gov today listed in 2017 dollars?
YES. The reason is because it assumes NO CHANGE IN CPI, ever. So by definition, if the inflation rate is zero every year. Todays dollar = tomorrow's dollar.
This is not correct either. The SS estimates assume future CPI inflation.

(The conclusion that the estimated benefits number is in today's dollars is correct, but everything else about that statement is incorrect.)

Neurosphere, you are spreading incorrect information and causing confusion about the Social Security estimates.

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Re: Social Security payouts vs. "estimated benefits" online

Post by neurosphere » Mon Oct 16, 2017 3:26 pm

mptfan wrote:
Mon Oct 16, 2017 3:20 pm
Neurosphere, you are spreading incorrect information and causing confusion about the Social Security estimates.
Agreed, and I'm embarrassed. I appreciate the correction, and deleted one post and edited the others.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Re: Social Security payouts vs. "estimated benefits" online

Post by mptfan » Mon Oct 16, 2017 3:33 pm

neurosphere wrote:
Mon Oct 16, 2017 3:26 pm
mptfan wrote:
Mon Oct 16, 2017 3:20 pm
Neurosphere, you are spreading incorrect information and causing confusion about the Social Security estimates.
Agreed, and I'm embarrassed. I appreciate the correction, and deleted one post and edited the others.
I appreciate that you are mature enough to acknowledge when you are wrong and correct the misinformation. You made some of the same incorrect statements in this thread...

viewtopic.php?f=1&t=229485

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Re: Social Security payouts vs. "estimated benefits" online

Post by btownguy » Mon Oct 16, 2017 3:38 pm

I'm back to being confused now. My apologies for not grasping this better.

Is my original assumption valid?

$36,000/yr benefit listed on ss.gov today
Assume 2% CPI-W for the next 25 years
Begin taking regular (not early, not delayed) SS in 25 years
Benefit in 25 years will be $59,061 nominal (which would be $36,000 in 2017 dollars)

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Re: Social Security payouts vs. "estimated benefits" online

Post by mptfan » Mon Oct 16, 2017 3:40 pm

btownguy wrote:
Mon Oct 16, 2017 3:38 pm
I'm back to being confused now. My apologies for not grasping this better.

Is my original assumption valid?

$36,000/yr benefit listed on ss.gov today
Assume 2% CPI-W for the next 25 years
Begin taking regular (not early, not delayed) SS in 25 years
Benefit in 25 years will be $59,061 nominal (which would be $36,000 in 2017 dollars)
What is your original assumption?

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Re: Social Security payouts vs. "estimated benefits" online

Post by btownguy » Mon Oct 16, 2017 3:47 pm

mptfan wrote:
Mon Oct 16, 2017 3:40 pm
btownguy wrote:
Mon Oct 16, 2017 3:38 pm
I'm back to being confused now. My apologies for not grasping this better.

Is my original assumption valid?

$36,000/yr benefit listed on ss.gov today
Assume 2% CPI-W for the next 25 years
Begin taking regular (not early, not delayed) SS in 25 years
Benefit in 25 years will be $59,061 nominal (which would be $36,000 in 2017 dollars)
What is your original assumption?
That my SS benefit in 25 years will be $59,061 nominal (which would be $36,000 in 2017 dollars)

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Re: Social Security payouts vs. "estimated benefits" online

Post by mptfan » Mon Oct 16, 2017 3:49 pm

btownguy wrote:
Mon Oct 16, 2017 3:47 pm
mptfan wrote:
Mon Oct 16, 2017 3:40 pm
btownguy wrote:
Mon Oct 16, 2017 3:38 pm
I'm back to being confused now. My apologies for not grasping this better.

Is my original assumption valid?

$36,000/yr benefit listed on ss.gov today
Assume 2% CPI-W for the next 25 years
Begin taking regular (not early, not delayed) SS in 25 years
Benefit in 25 years will be $59,061 nominal (which would be $36,000 in 2017 dollars)
What is your original assumption?
That my SS benefit in 25 years will be $59,061 nominal (which would be $36,000 in 2017 dollars)
There is insufficient information to answer that question because you do not provide your earnings history and your assumptions about future earnings. The answer depends on whether you will continue to earn at the same level as you did last year (adjusted for wage growth) for the next 25 years. If your earnings were over the SS limit last year, then it depends on whether you will continue to earn at least the maximum social security limit each year for the next 25 years.

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Re: Social Security payouts vs. "estimated benefits" online

Post by btownguy » Mon Oct 16, 2017 3:54 pm

mptfan wrote:
Mon Oct 16, 2017 3:49 pm
There is insufficient information to answer that question because you do not provide your earnings history and your assumptions about future earnings.
My question isn't really centered around the calculation of SS benefits relative to earnings history. I have 20+ years banked at or near the contribution max already and as I understand it, each additional year in this "bend point" is marginal. But let's just assume I am lucky enough to continue to be at or near the contribution max for the final 15 of 35 years.

My question is around CPI-W, inflation, and what the benefit will be 25 years from now relative to what is listed on ss.gov today. Basically if CPI-W is 2% for the next year, will my benefit listed on ss.gov increase by 2% next year? If my benefit is $36,000/yr today (in 2017 dollars), will it be $59,061 nominal in 25 years ($36,000 in 2017 dollars)? Assuming I continue to earn near or at the contribution max.

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Re: Social Security payouts vs. "estimated benefits" online

Post by mptfan » Mon Oct 16, 2017 3:56 pm

btownguy wrote:
Mon Oct 16, 2017 3:54 pm
My question isn't really centered around the calculation of SS benefits relative to earnings history. I have 20+ years banked at or near the contribution max already and as I understand it, each additional year in this "bend point" is marginal. But let's just assume I am lucky enough to continue to be at or near the contribution max for the final 15 of 35 years.

My question is around CPI-W, inflation, and what the benefit will be 25 years from now relative to what is listed on ss.gov today. Basically if CPI-W is 2% for the next year, will my benefit listed on ss.gov increase by 2% next year? If my benefit is $36,000/yr today (in 2017 dollars), will it be $59,061 nominal in 25 years ($36,000 in 2017 dollars)? Assuming I continue to earn near or at the contribution max.
You get to ask questions, but you don't get to tell me how to answer them. Suffice it to say that there are a lot of factors that go into providing a correct and informed answer to your question, some of which you do not understand, and I was trying to explain.

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Re: Social Security payouts vs. "estimated benefits" online

Post by btownguy » Mon Oct 16, 2017 4:04 pm

mptfan wrote:
Mon Oct 16, 2017 3:56 pm

You get to ask questions, but you don't get to tell me how to answer them. Suffice it to say that there are a lot of factors that go into providing a correct and informed answer to your question, some of which you do not understand, and I was trying to explain.
My apologies if my comment came off as rude. That wasn't my intention in the least. I'm just trying to wrap my head around this.

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Re: Social Security payouts vs. "estimated benefits" online

Post by The Wizard » Mon Oct 16, 2017 4:05 pm

btownguy wrote:
Mon Oct 16, 2017 1:12 pm
mptfan wrote:
Mon Oct 16, 2017 12:52 pm
btownguy wrote:
Sun Oct 15, 2017 9:19 pm
I've got a little over 20 years of sequential high earning years in my Social Security record. All years either at the SS limit or very close to it up or down. No years are WAY over however.
If you earn at least the SS limit in any given year, it doesn't matter if you earn $1 more or $1,000,000 more during that year, any earnings over the limit will not increase your benefits.
Thanks I was aware of that point. My only reason for bringing it up was to see if there was some sort of means-testing that I'm not aware of that would negate the "estimated benefits" number being presented on the ss.gov website.
The only means testing we have at present in this area is for your Medicare coverage, which is deducted from your SS benefit once you are on both programs...
Attempted new signature...

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Re: Social Security payouts vs. "estimated benefits" online

Post by mptfan » Mon Oct 16, 2017 4:09 pm

btownguy wrote:
Mon Oct 16, 2017 4:04 pm
mptfan wrote:
Mon Oct 16, 2017 3:56 pm

You get to ask questions, but you don't get to tell me how to answer them. Suffice it to say that there are a lot of factors that go into providing a correct and informed answer to your question, some of which you do not understand, and I was trying to explain.
My apologies if my comment came off as rude. That wasn't my intention in the least. I'm just trying to wrap my head around this.
I accept your apology. The answer to your question is, it depends. It depends on whether your future earnings will continue at the same level for the next 25 years until you reach full retirement age (FRA), and it depends on whether the intermediate assumptions in the Social Security trustees report regarding future inflation (CPI=W) and future wage growth turn out to be accurate. The social security estimates rely on assumptions about future inflation and future wage growth.

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

If those assumptions are correct, then yes. Note that although the SS estimates rely on assumptions about both future inflation and future wage growth, you only provided assumptions about future inflation, that is one of the reasons you have not provided sufficient information to answer the question.

soccerrules
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Re: Social Security payouts vs. "estimated benefits" online

Post by soccerrules » Mon Oct 16, 2017 4:21 pm

aristotelian wrote:
Mon Oct 16, 2017 2:58 pm
If you really want to muck around with SS payout, this is a great tool. You copy your earnings data from SSA.gov into the box, then you can add additional years and such and get a pretty accurate number.

https://socialsecurity.tools/app.html
Thanks for posting again, I'm sure I have skimmed over it on other threads. I do like the ability to adjust combinations of additional years worked and income to see results. Graphs were simple and easy to understand
I did notice that the indexing factors were off from what I found connected to the SS website based on "age at 62". The Maxed Indexed Earnings per year seemed to be around $115-120K on the tool where as the ones through SSA website tend to be $170-180K. Maybe it was user error on my part.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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One Ping
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Re: Social Security payouts vs. "estimated benefits" online

Post by One Ping » Mon Oct 16, 2017 4:50 pm

TL:DR all responses

AFAIK (I think I'm correct here)
  • If you are making more than the maximum now, they assume you will continue to make more than the maximum until reach your FRA. How much more isn't relevant.
  • Between now and FRA, if you have some years where you make less than the maximum, your benefit will be less than that shown. How much less depends on how much less than the maximum you make.
  • Benefits are quoted in today's dollars. It will be adjusted for inflation so, all else being equal (see above), your benefit in the future will have essentially same 'purchasing' power it does today. The exact numerical amount is uncalculable because future inflation is unknown.
Hope this helps clarify principles without getting 'into the weeds.'

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btownguy
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Re: Social Security payouts vs. "estimated benefits" online

Post by btownguy » Mon Oct 16, 2017 4:55 pm

One Ping wrote:
Mon Oct 16, 2017 4:50 pm
TL:DR all responses

AFAIK (I think I'm correct here)
  • If you are making more than the maximum now, they assume you will continue to make more than the maximum until reach your FRA. How much more isn't relevant.
  • Between now and FRA, if you have some years where you make less than the maximum, your benefit will be less than that shown. How much less depends on how much less than the maximum you make.
  • Benefits are quoted in today's dollars. It will be adjusted for inflation so, all else being equal (see above), your benefit in the future will have essentially same 'purchasing' power it does today. The exact numerical amount is uncalculable because future inflation is unknown.
Hope this helps clarify principles without getting 'into the weeds.'

One Ping
Well done! Thanks for this.

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neurosphere
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Re: Social Security payouts vs. "estimated benefits" online

Post by neurosphere » Sun Nov 05, 2017 10:42 am

mptfan wrote:
Mon Oct 16, 2017 3:20 pm
neurosphere wrote:
Mon Oct 16, 2017 3:01 pm
btownguy wrote:
Mon Oct 16, 2017 2:21 pm
The ss.gov site gives me an estimated benefits amount that I can read today. What I'm trying to understand is - is that value on ss.gov today listed in 2017 dollars?
YES. The reason is because it assumes NO CHANGE IN CPI, ever. So by definition, if the inflation rate is zero every year. Todays dollar = tomorrow's dollar.
This is not correct either. The SS estimates assume future CPI inflation.

(The conclusion that the estimated benefits number is in today's dollars is correct, but everything else about that statement is incorrect.)

Neurosphere, you are spreading incorrect information and causing confusion about the Social Security estimates.
mptfan, I'm (potentially) retracting my retraction.

I've spent a lot of time in the past several days reverse engineering the annual social security statements that are (sometimes?) mailed and/or available to each earner online.

Based on an actual earnings statement and estimate, my SS spreadsheet (which DOES adjust for any desired set of future inflation and wage growth estimates) required me to assume 0/0 for CPI and wage growth, rather than any set of Trustees assumptions. I then entered a specific set of earnings into ANYPIA, and the SS provided estimate only worked if I assumed 0/0, and did not use Trustees assumptions. All three estimates were accurate to the penny.

I had forgotten that I had previously done this same exercise and had reached these same conclusions. Finally, I have an email confirmation from SS, where I had asked the same question, and SS confirmed indeed that the benefit estimates used by SS assume no wage or CPI changes.

So I don't know how to reconcile this "fact" I'm stating about 0/0 assumptions, with the information you provided via this link:

https://www.ssa.gov/policy/docs/rsnotes/rsn2008-05.html

However, reading the info at that link closely, I cannot find a statement or set of statements that any individual estimate rely on any FUTURE estimates which are non-zero. That link shows that benefit estimates are "within 10%" of the actual (age 62) benefit for most people of a certain age. But the only difference between the estimates and the reality would be due to whether the assumptions of wage growth were accurate or not. And yet there is no mention that any errors in the estimates are due to inaccurate Trustee assumptions. But I feel a discussion of this link is getting into the weeds?

All I can claim is that, as far as my calculations go, the SS statement estimates assume 0/0 for NAWI changes and CPI-W changes. Under this set of assumptions, the estimates are indeed both wage and CPI "inflation adjusted" (based on zero inflation assumptions).

I would be grateful if anyone can prove me wrong, or prove me right. Does anyone want to put their most recent estimates into ANYPIA to confirm?

NS

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neurosphere
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Re: Social Security payouts vs. "estimated benefits" online

Post by neurosphere » Sun Nov 05, 2017 11:02 am

FYI, here was my email to SS (this was within a larger back and forth to a senior administrator where I reported an error in the AnyPia calculations). The person's title is "Supervisory Actuary for Trust Fund Projections"
Actually, another question which comes up is, what set of wage/cpi assumptions are used with the benefit estimate provided annually to earners? Not sure of the official name, but I'm referring to the greenish colored 4-page thing which can be downloaded from myssa.gov and is occasionally mailed. I always assumed it used the intermediate assumptions and lists the output in today's dollars....

On the off chance you know the answer, or can provide a reference or contact to help me answer that question, there is an entire online community of personal finance enthusiasts who would be very grateful!
Answer:
In answer to your question, Social Security Statements use flat economic assumptions, with no future COLAs or wage growth, the same as the default on the detailed calculator. For future earnings, it uses the last reported year of earnings in our records, up to two years old, from that last reported year up to the year of each estimate. If a worker has no earnings within the last two years, it assumes no future earnings. Given what you have done so far, it should be fairly easy for you to reproduce the estimates on a statement.
It was based on previous calculations and this exchange upon which I based my original statements that the estimates assume zero CPI/Wage growth. I've re-confirmed this today (but using only one official SS benefit statement). Not sure what else I can do to add insight into this oft-asked question about whether estimates are "inflation adjusted". :confused I'm very sorry to have probably created additional confusion by having made a definitive statement about the estimate, to then retract it, and now to re-state it for rebuttal. :oops:

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Re: Social Security payouts vs. "estimated benefits" online

Post by DrGoogle2017 » Sun Nov 05, 2017 11:19 am

I have 35 years of earnings but not all of them with high salary years. Some of the years were in high school with just $20 a year. Last I looked, I’m just a hair under the max amount of SS at 70. For example, max is $3500 per month at 70, I would be getting around $3450 per month at 70 as my estimated benefits. Not enough for me to sweat it.

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neurosphere
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Re: Social Security payouts vs. "estimated benefits" online

Post by neurosphere » Sun Nov 05, 2017 1:56 pm

Summary: I now (re)-claim that both the SS annual statements and the "online-calculator" assume zero wage and inflation growth in the default benefit estimates.

Another data point. The "online calculator" here (https://www.ssa.gov/planners/retire/AnypiaApplet.html)...

This calculator reports the benefit assuming zero wage and CPI-W growth. Which by default is "today's dollars" (because CPI changes are zero, so no inflation means today's dollars = future dollars).

If you select the "inflation adjusted" option, it uses the trustee's intermediate assumptions, and reports the actual dollar amount you will receive at the benefit age "in the future", based on the future wage and CPI-W estimates. I have confirmed this with both my own spreadsheet, as well as anypia (which matches my spreadsheet, so this is redundant, but...).

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