Passing the second SSA Bend Point - Reversible?

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JCE66
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Passing the second SSA Bend Point - Reversible?

Post by JCE66 » Thu Nov 23, 2017 7:31 am

Bogleheads....I recently downloaded a spreadsheet for 'The Finance Buff' and filled in my data. I have passed the second bend point. Yay me.

Is it possible to go back below that second bend point? For instance, if you lose your job and are unable to find new employment. Or disability. Or is the deal that once you pass that second bend point - you passed it for life.

Thoughts?

aristotelian
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Re: Passing the second SSA Bend Point - Reversible?

Post by aristotelian » Thu Nov 23, 2017 7:35 am

I don't see how because it is based on your highest 35 years of earnings. Even if you never earned another penny, your highest 35 years is already in the books. But why would you want less SS?

beardsworth
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Re: Passing the second SSA Bend Point - Reversible?

Post by beardsworth » Thu Nov 23, 2017 7:46 am

aristotelian wrote:
Thu Nov 23, 2017 7:35 am
I don't see how because it is based on your highest 35 years of earnings. Even if you never earned another penny, your highest 35 years is already in the books. But why would you want less SS?
I, too, was confused about why someone would, in the words of the thread title, want to know whether Social Security gains were "reversible." But since the OP then refers to some hypothetical future misfortunes in a person's working life, I think what's actually being asked is: Once you've achieved this, is there any way you could still lose it, i.e., have it taken away?

Unfortunately, I don't know the "official" answer, but aristotelian's response certainly makes common sense, that things could never again be worse than the 35 highest years already booked.

Constant Chaos
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Re: Passing the second SSA Bend Point - Reversible?

Post by Constant Chaos » Thu Nov 23, 2017 8:57 am

aristotelian wrote:
Thu Nov 23, 2017 7:35 am
I don't see how because it is based on your highest 35 years of earnings. Even if you never earned another penny, your highest 35 years is already in the books. But why would you want less SS?
Passing the second bend point is not the same thing as having 35 years. It can be done, at least according to the finance buff's spreadsheet, in under 20 years.

22twain
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Re: Passing the second SSA Bend Point - Reversible?

Post by 22twain » Thu Nov 23, 2017 9:04 am

IIRC the bend points are indexed according to the National Average Wage Index in the same way that your earnings are, in the year that you turn 60. Your bend points for that year are calculated the following year and used to calculate your benefits for age 62. They don't change afterwards.

Before that, your bend points don't even exist, technically. I used to estimate my future benefits by using then-current (pre-60) bend points, which increased from year to year along with the NAWI (they did decrease slightly in 2009), but I considered this as only an approximation for my future benefits in then-current dollars.

So it looks like if you stop paying into SS before age 60, or your high-35 years remain the same, your high-35 earnings are fixed. However, your indexed earnings increase along with the NAWI, and so do the current bend points. They stay in step with each other.

terran
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Re: Passing the second SSA Bend Point - Reversible?

Post by terran » Thu Nov 23, 2017 9:58 am

This is how your Average Indexed Monthly Earnings (AIME) is calculated
Up to 35 years of earnings are needed to compute average indexed monthly earnings. After we determine the number of years, we choose those years with the highest indexed earnings, sum such indexed earnings, and divide the total amount by the total number of months in those years. We then round the resulting average amount down to the next lower dollar amount. The result is the AIME.
This means that your total earnings are all that really matters. So if you have enough total earnings to pass the 2nd bend point, then you've passed in forever even if you have a bunch of $0 income years counted in your highest 35 earning years. Based on the bend points posted here once you have passed lifetime earnings of $5336 x 35 years x 12 months = $2.24 Million you will have passed the 2nd bend point forever.

Since wages are indexed, as long as your cumulative indexed earnings pass the bend point in the year you do the calculation then they should continue to be indexed to pass in in the future.

Edited: Thanks to Lars_2013 for correcting my monthly vs annual earning mistake.
Last edited by terran on Thu Nov 23, 2017 10:44 am, edited 1 time in total.

JCE66
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Re: Passing the second SSA Bend Point - Reversible?

Post by JCE66 » Thu Nov 23, 2017 10:01 am

But why would you want less SS?
-- aristotelian....Who said I wanted less SSA? I spoke of incapacity.
I think what's actually being asked is: Once you've achieved this, is there any way you could still lose it, i.e., have it taken away?
....Beardsworth: Yes, you nailed it, that is what I was asking. I am definitely looking for the 'official' answer, assuming anyone actually knows.
So it looks like if you stop paying into SS before age 60, or your high-35 years remain the same, your high-35 earnings are fixed. However, your indexed earnings increase along with the NAWI, and so do the current bend points. They stay in step with each other.
-- 22twain...I think you gave the answer. As long as your indexed earnings are above the NAWI, you stay above the second bend point. Am I understanding you correctly?

JCE66
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Re: Passing the second SSA Bend Point - Reversible?

Post by JCE66 » Thu Nov 23, 2017 10:01 am

But why would you want less SS?
-- aristotelian....Who said I wanted less SSA? I spoke of incapacity.
I think what's actually being asked is: Once you've achieved this, is there any way you could still lose it, i.e., have it taken away?
....Beardsworth: Yes, you nailed it, that is what I was asking. I am definitely looking for the 'official' answer, assuming anyone actually knows.
So it looks like if you stop paying into SS before age 60, or your high-35 years remain the same, your high-35 earnings are fixed. However, your indexed earnings increase along with the NAWI, and so do the current bend points. They stay in step with each other.
-- 22twain...I think you gave the answer. As long as your indexed earnings are above the NAWI, you stay above the second bend point. Am I understanding you correctly?

Lars_2013
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Re: Passing the second SSA Bend Point - Reversible?

Post by Lars_2013 » Thu Nov 23, 2017 10:10 am

terran wrote:
Thu Nov 23, 2017 9:58 am
This means that your total earnings are all that really matters. So if you have enough total earnings to pass the 2nd bend point, then you've passed in forever even if you have a bunch of $0 income years counted in your highest 35 earning years. Based on the bend points posted here once you have passed lifetime earnings of $5336 x 35 = $186,760 you will have passed the 2nd bend point forever. You could therefore, conceivably hit the 2nd ben point in as little as 2 years (not 1 year because income over $127,200 in 2017 is neither taxed nor counted for social security).

Since wages are indexed, as long as your cumulative indexed earnings pass the bend point in the year you do the calculation then they should continue to be indexed to pass in in the future.
This is conceptually correct but the math is wrong because you mixed up annual and monthly earnings. Lifetime earnings (adjusted using the wage index) would have to be $2,241,120 for someone turning 62 in 2017 in order to have hit the 2nd bend point. (Cumulative earnings of $2.24 million / 35 years / 12 months = $5336.) That's between 17 and 18 years of work at the current social security maximum of $127k.

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David Jay
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Re: Passing the second SSA Bend Point - Reversible?

Post by David Jay » Thu Nov 23, 2017 10:17 am

JCE66 wrote:
Thu Nov 23, 2017 10:01 am
So it looks like if you stop paying into SS before age 60, or your high-35 years remain the same, your high-35 earnings are fixed. However, your indexed earnings increase along with the NAWI, and so do the current bend points. They stay in step with each other.
-- 22twain...I think you gave the answer. As long as your indexed earnings are above the NAWI, you stay above the second bend point. Am I understanding you correctly?
I made a spreadsheet to calculate my SS PIA, so I have been through the calculations. "22twain" (in your quote above) makes good assumptions, but they are assumptions.

His second paragraph makes point that no one has an official PIA until age 60. I know my wife's PIA with certainty because she turned 60 in 2016 and the NAWI for 2016 was released this October so I was able to perform the calculation. Nothing is "official" until age 60. Even after age 60, laws can (and sometimes do) change. Just look at the file-and-suspend rule changes in 2015.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

terran
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Re: Passing the second SSA Bend Point - Reversible?

Post by terran » Thu Nov 23, 2017 10:39 am

Lars_2013 wrote:
Thu Nov 23, 2017 10:10 am
terran wrote:
Thu Nov 23, 2017 9:58 am
This means that your total earnings are all that really matters. So if you have enough total earnings to pass the 2nd bend point, then you've passed in forever even if you have a bunch of $0 income years counted in your highest 35 earning years. Based on the bend points posted here once you have passed lifetime earnings of $5336 x 35 = $186,760 you will have passed the 2nd bend point forever. You could therefore, conceivably hit the 2nd ben point in as little as 2 years (not 1 year because income over $127,200 in 2017 is neither taxed nor counted for social security).

Since wages are indexed, as long as your cumulative indexed earnings pass the bend point in the year you do the calculation then they should continue to be indexed to pass in in the future.
This is conceptually correct but the math is wrong because you mixed up annual and monthly earnings. Lifetime earnings (adjusted using the wage index) would have to be $2,241,120 for someone turning 62 in 2017 in order to have hit the 2nd bend point. (Cumulative earnings of $2.24 million / 35 years / 12 months = $5336.) That's between 17 and 18 years of work at the current social security maximum of $127k.
You're right, thanks for the correction. I have it right in my spreadsheets, but I goofed in my response.

Zack59
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Re: Passing the second SSA Bend Point - Reversible?

Post by Zack59 » Thu Nov 23, 2017 3:54 pm

Is it concluded that if you are between 62 and 66 with zero income in the past 5 years and no income in the future your FRA benefit cannot be reduced only increased with COLA's? Regardless of having 35 years or not?

marcopolo
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Re: Passing the second SSA Bend Point - Reversible?

Post by marcopolo » Fri Nov 24, 2017 1:45 pm

Not sure what happens in case wage and/or CPI deflation. Do the SS rules allow for Index multiplier of less than 1.0? If so, that could bring you back below the bend point sometime after you have passed it.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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David Jay
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Re: Passing the second SSA Bend Point - Reversible?

Post by David Jay » Fri Nov 24, 2017 1:46 pm

Zack59 wrote:
Thu Nov 23, 2017 3:54 pm
Is it concluded that if you are between 62 and 66 with zero income in the past 5 years and no income in the future your FRA benefit cannot be reduced only increased with COLA's? Regardless of having 35 years or not?
Short of a change in the law, you are correct. You can also extend your statement back to age 60. You can't claim before age 62 but the calculation is done based on age 60 data.

Of course claiming before or after FRA will respectively decrease or increase your benefit.
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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