Sanity check of SS with less than 35 years earnings

[bb]

I often see comments on threads that if someone is considering early retirement that they should consider the reduced social security benefits they will get. Looking at SS benefit formula is seems that after the 2'nd bend point the increases in the SS benefit are so small they seem negligible for someone that is contemplating a reasonable middle class lifestyle, ie. I don't see that 5 more years of earnings change the calculation of whether to retire or not. Yes the percentage difference is not negligible but the actual dollar amounts seem to be.

What is actionable: Is there something I am missing with regards to how SS works?

[Flashes1]

I've seen a couple posters say the benefits don't increase much after you reach $2 million of cumulative lifetime income. Not sure if true?

[michaeljc70]

There is a Windows program from SS you can download and calculate exact scenarios. The online calculator is much more limited. I can tell you, I am 47 and if I don't work anymore, I would get $2200 at age 67 (FRA). And I have several years with no/low earnings. I did max out (hit the ss earnings limit) in my early working years. According to the calculator, I would get around $80/mo for each additional year I work. So I would probably need to work 7-10 more years to get the maximum benefit.

[joylesshusband]

Is there something I am missing with regards to how SS works?

It seems you are missing the actual intent of the SS program, namely to insure against completely running out of income during old age (i.e. insurance against outliving one's money) vs. your perception that it is aimed at achieving "a reasonable middle class lifestyle" during retirement.

[bb]

You are missing the point of my thread. I am trying to reconcile some of the posters comments regarding being careful about having 0's in the SS calculation and then looking at the dollar amounts involved and thinking they are small.

[marcopolo]

If you are above the second bend point, several $0 years will not affect the Soc Sec benefits too much.

Previous years wages are indexed to the Average Wage Index, which is usually higher than inflation index.
Those indexed wages for the highest 35 years (including an $0 years) are averaged.
The amount below the 1st bend point get Soc Sec benefits of 90%
The amount between the 1st and second bend points get Soc Sec at 32%
The amount above the 2nd bend point is only produces Soc Sec at 15%

[macman_65]

Assuming you are at the final bend point (5399+ / 0.15)

Divide your estimated earnings you are going to forgo by 420 (35 years x 12 months) and multiply * .15.

eg - 35th year of earnings would be 100,000.
100,000/420*.15 = $35.71.

[cas]

Michael Kitces had an article on this topic that I remember reading not too long ago.

I think it was this one: "The Impact Of Early Retirement On Projected Social Security Benefits" https://www.kitces.com/blog/calculating ... etirement/

[soccerrules]

Assuming you are at the final bend point (5399+ / 0.15)

Divide your estimated earnings you are going to forgo by 420 (35 years x 12 months) and multiply * .15.

eg - 35th year of earnings would be 100,000.
100,000/420*.15 = $35.71.

^ This.
$100K in indexed earnings = $35.71/mo. (once you have passed the 2nd bend point)

[2comma]

I had around 33 years and compared retiring at 58 vs 62 as I remember it wasn't a deciding factor. I think when you hear "be sure to check the effect on SS" they are often talking about someone retiring much earlier.

[juice]

Here is a good tool to play with: https://socialsecurity.tools/

[bb]

Thank for the responses. Sounds like I am not off base - bottom line was I found it hard to believe anyone's retirement is dialed in to within a few thousand dollars either way - seems like noise - caveat being a reasonable middle class lifestyle.

[mggray17]

I've seen a couple posters say the benefits don't increase much after you reach $2 million of cumulative lifetime income. Not sure if true?

I was just calculating this last night.
I came up with $2,268,000 (Wage indexed) ($5399 bend point rounded to $5400 X 420) lifetime earning will get you to the 2nd bend point.
After 27 years full time employment and a few P/T, i'm at 3,100,000 (again wage indexed).
So While I have about 5 more years until retirement, I'm no longer going to concern myself if I Have 35 full years into SS or only 32.

[aristotelian]

Check out this tool:
https://socialsecurity.tools/app.html

Download your earnings record from ssa.gov, cut and paste, and then you can see the impact of additional years of earning. I don't think you're missing anything. Once you hit the second bend point, the benefits are pretty small. You should be sure you are past the second bend point though because it's not based on years worked, it's amount earned. It's possible you aren't there yet, e.g. if your income peaked late in your career but you barely made any money in the first 15-20 years.

[Phineas J. Whoopee]

I am not going to tell you, OP, whether Social Security Retirement Benefit projections for those with some zero years out of the thirty five are sane or not.

The procedure is to consider years in which you were taxed for Social Security purposes nearly to, or at the maximum, SS payroll taxable income, including self-employment income (in which situation obviously one pays both the employee part and the employer part).

If you're already past the second bend point even with fewer than 35 years of SS-taxed earnings, or some zero years, after which point SS is meant to replace 15% of income up to but not beyond the maximum taxable amount, I leave the calculations up to you.

PJW

[DrGoogle2017]

I have 35 years, but some years I had like $20 of earnings, back in 1981, when I was my last year in college and only work maybe one week. But when I checked my SS online, I would get close to the max, if max was $3500 a month, I would get $3456 a month. Not enough that I have to worry about. No more grey hair for me.

[JW-Retired]

Looking at SS benefit formula is seems that after the 2'nd bend point the increases in the SS benefit are so small they seem negligible for someone that is contemplating a reasonable middle class lifestyle, ie. I don't see that 5 more years of earnings change the calculation of whether to retire or not.

35 or 30 or even even fewer years of SS is usually not that big a deal. On the other hand whether you take SS early at 62 or late at 70 is a monster difference. 7% or 8% more SS income for each year of delay even if you already have 35 years.
JW

[michaeljc70]

I've seen a couple posters say the benefits don't increase much after you reach $2 million of cumulative lifetime income. Not sure if true?

I was just calculating this last night.
I came up with $2,268,000 (Wage indexed) ($5399 bend point rounded to $5400 X 420) lifetime earning will get you to the 2nd bend point.
After 27 years full time employment and a few P/T, i'm at 3,100,000 (again wage indexed).
So While I have about 5 more years until retirement, I'm no longer going to concern myself if I Have 35 full years into SS or only 32.

Interesting. I just figured out my wage indexed earnings are $2.6M. I have a lot of years with low/okay earnings, but I guess some of those years early in my career where I hit the limit really shifted things for me. I have 32 years with earnings, but that includes 8 years of earnings less than $10k (college and before mostly). I had about 11 years from 1994-2005 where I did hit the max early on.

[Hubris]

Here is a good tool to play with: https://socialsecurity.tools/

Juice and Aristotelian, thank you very much for the reference link to this tool. Simply one of the most helpful and user friendly financial tools out there, IMO, and doubly true re: tools related to SS.
CHEERS AND THANKS AGAIN

[Billionaire]

Yes, that tool is very cool.
Question - could somebody put into simple language the definition behind each of the three bend points that are discussed so frequently?

[smitcat]

I have 35 years, but some years I had like $20 of earnings, back in 1981, when I was my last year in college and only work maybe one week. But when I checked my SS online, I would get close to the max, if max was $3500 a month, I would get $3456 a month. Not enough that I have to worry about. No more grey hair for me.

Checking your SS online almost always assumes that you will work until retirement age - please read the online 'printout' carefully.
In affect in fills in future years earning with current years earning until your projected retire date is reached.
There is an SS calculator online that you can use to populate your working assumptions by adding zero's to future years you do not intend to work and it will give your the resulting SS benefits and your projected PIA.

[smitcat]

Yes, that tool is very cool.
Question - could somebody put into simple language the definition behind each of the three bend points that are discussed so frequently?

After you reach specific dollar amounts of SS contributions your SS benefit drops to a lower percentage - there are two of these 'drop' or bend points and the second is very significant. Here is a link....
https://www.ssa.gov/OACT/COLA/bendpoints.html

[JoeRetire]

Is there something I am missing with regards to how SS works?

It seems that most folks worry/argue more about starting to receive social security benefits at 62 versus 70, rather than retiring with less than 35 years of earnings on record.

[Sandtrap]

Michael Kitces had an article on this topic that I remember reading not too long ago.

I think it was this one: "The Impact Of Early Retirement On Projected Social Security Benefits" https://www.kitces.com/blog/calculating ... etirement/

Outstanding article.
Thanks.
j

[hand]

Here is a good tool to play with: https://socialsecurity.tools/

Thanks for the reference - this is great!

[letsgobobby]

Deleted

[DrGoogle2017]

I have 35 years, but some years I had like $20 of earnings, back in 1981, when I was my last year in college and only work maybe one week. But when I checked my SS online, I would get close to the max, if max was $3500 a month, I would get $3456 a month. Not enough that I have to worry about. No more grey hair for me.

Checking your SS online almost always assumes that you will work until retirement age - please read the online 'printout' carefully.
In affect in fills in future years earning with current years earning until your projected retire date is reached.
There is an SS calculator online that you can use to populate your working assumptions by adding zero's to future years you do not intend to work and it will give your the resulting SS benefits and your projected PIA.

Interesting, last time I checked, it was already had zero on my last year. I will check again to make sure, but I’ve already retired more than 2 years.

[smitcat]

I have 35 years, but some years I had like $20 of earnings, back in 1981, when I was my last year in college and only work maybe one week. But when I checked my SS online, I would get close to the max, if max was $3500 a month, I would get $3456 a month. Not enough that I have to worry about. No more grey hair for me.

Checking your SS online almost always assumes that you will work until retirement age - please read the online 'printout' carefully.
In affect in fills in future years earning with current years earning until your projected retire date is reached.
There is an SS calculator online that you can use to populate your working assumptions by adding zero's to future years you do not intend to work and it will give your the resulting SS benefits and your projected PIA.

Interesting, last time I checked, it was already had zero on my last year. I will check again to make sure, but I’ve already retired more than 2 years.

I happen to have one of the non adjusted SS printouts with me - on the top it says "you have earned enough credits to qualify for benefits. At your current earnings rate ; if you continue working until...."

Then is shows a benefits number for my FRA at 66 and 2 months.
And another line for 70,
and another line for 62,
But we have gone in and run results utilizing the SS personalized program for our dedcutions adding zeros in for later years and it will then give you the PIA at whatever data you put into it.

[Admiral]

Wow this is a great tool!

I was somewhat shocked to learn that I could work for 5 more years for a payout of $35,529 at age 70 or an additional 7 years after than to make less than another $5k per year.

Of course that doesn't include the wage multiplier that may be used for those extra 7 years, but it's still interesting.

[JGoneRiding]

I've seen a couple posters say the benefits don't increase much after you reach $2 million of cumulative lifetime income. Not sure if true?

Am I missing something? I see cumulative refrred to a lot but have never understood how it is even relative. Let's take it to extreme and say you make 2 mil in one year. That is only. 127 k in ss taxes incomr. Or do people mean once you hit that point in ss earnings ? Which makes more sense then lifetime income

[michaeljc70]

I've seen a couple posters say the benefits don't increase much after you reach $2 million of cumulative lifetime income. Not sure if true?

Am I missing something? I see cumulative refrred to a lot but have never understood how it is even relative. Let's take it to extreme and say you make 2 mil in one year. That is only. 127 k in ss taxes incomr. Or do people mean once you hit that point in ss earnings ? Which makes more sense then lifetime income

It is a wage indexed cumulative. It has nothing to do with how much you make over the ss limit as that has no bearing. If you made 100k in 1995 it counts more than 100k in 2017.

[michaeljc70]

I've seen a couple posters say the benefits don't increase much after you reach $2 million of cumulative lifetime income. Not sure if true?

Yes. Though I guess it depends on your definition of "much". If I worked an additional 12 years and maxed out my benefit would go from $2300 to around $2900. So, that is more than 25%. However, it seems like after the 2nd bend (~$2.2M) you will be getting around 75% of the max you could get.