Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

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Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Fri Apr 17, 2020 3:53 pm

[Thread updated starting with this post on Page 2. --admin LadyGeek]

Important note: A previous thread on this issue was locked because it ventured off course and into a discussion of possible/proposed changes or fixes to this "problem". Please do not theorize, suggest, or hypothesize what laws might be changed and stick to a discussion of the potential risks or impact to individuals that may occur with changes in economic projections, e.g. the national average wage. Do not suggest "better" or alternate ways to measure inflation or calculate SS benefits.

Background:
-- SS benefits depend in part on national wages (i.e. the national average wage index aka NAWI)
-- One's benefit is particularly sensitive to changes in the national average wage index closest to retirement
-- The last possible NAWI value which affects benefits is the one for the calendar year in which one turns 60
-- Thus, for those born in 1960, increases or decreases in the 2020 NAWI value will have a disproportionate effect on one's benefit

Data/Assumptions:
-- Below is a plot of monthly SS benefits if started at age 67 (y-axis) vs the percent change in NAWI for 2020 (relative to 2019)
-- Both sets of data assume someone born in 1960, who worked for exactly 35 years with the last year of earnings at age 59
-- The blue data assumes one has earned the maximum taxable SS earnings (aka benefit and contribution base aka wage base) for each of those years ("high earner")
-- The orange data assumes one earned exactly half of the maximal taxable amount
-- 2019 NAWI is assumed to increase by 4%
-- The right most values start at a 3% increase in the 2020 NAWI, the left most value represents a 50% decrease in the NAWI
-- I have assumed no changes to the CPI between now and age 67.
-- These numbers were derived from my own personal spreadsheet, and I make no attestations to the accuracy. It would be great if anyone could duplicate a point or two using "anypia" or another such calculator. [Edit, several spot checks of a a few points match those made by the personal finance toolbox]

[Edit: original graph was incorrect. Now fixed. This update is as of 12:30pm ET on 4/18/2020]

Image
Last edited by neurosphere on Sat Apr 18, 2020 11:28 am, edited 1 time in total.
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Fri Apr 17, 2020 3:59 pm

Here are a couple of questions I have or wonder about, or points for discussion...

-- How big is the effect for a person one year younger, assuming no rebound in wages, or a partial rebound?
-- Does this mean that in general and on average, everyone's future benefit is likely to be less, unless future wage inflations is higher enough to track previous trends/assumptions? (I think yes)
-- Is there historical precedent for a drop in wages, and how big a drop? Folks are theorizing that 2020 wages might be massively lower, for obvious reasons
-- If the NAWI goes down (i.e. is negative in a given year), what happens to the maximum taxable earnings (SSWB) or other such parameters? For example, I know that if CPI is negative and there is a zero COLA, the SSWB is not increased until COLAs become positive. Are there other such rules which come into play if the NAWI is negative?
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Fri Apr 17, 2020 4:11 pm

Here is a table which explains/calculates the most recent wage index (2018): https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2018

It's interesting, because it shows the distribution of wages at various wage amounts (e.g. under $5,000, $5,000-$10,000, etc).

Wages are defined as the amounts reported by employers on W2 (including amounts to deferred compensation plans). I find it fascinating that over 200 people had amounts above FIFTY MILLION dollars reported on a W2, with many of those over 100 million. That's some salary, deferred or otherwise! :shock:
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by JDCarpenter » Fri Apr 17, 2020 5:02 pm

Thanks for this. Interesting impact, and I hadn't even thought of it. (Still ten years off, age 70, under today's laws.)
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FIREchief » Fri Apr 17, 2020 5:10 pm

Thanks for starting this. I believe it is extremely difficult to try to translate unemployment numbers to impact on NAWI. I'm guessing that those who have lost jobs are disproportionately in the lower ends of the wage spectrum, meaning a 10% rise in unemployment might only drive a 5% drop in NAWI. Also, many higher compensated employees receive a significant portion of their incomes as bonuses, which may be (or have been) paid in 2020 but represent 2019 results.
Last edited by FIREchief on Mon May 04, 2020 12:41 pm, edited 1 time in total.
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Fri Apr 17, 2020 5:26 pm

FIREchief wrote:
Fri Apr 17, 2020 5:10 pm
I believe it is extremely difficult to try to translate unemployment numbers to impact on NAWI. I'm guessing that those who have lost jobs are disproportionately in the lower ends of the wage spectrum, meaning a 10% rise in unemployment might only drive a 5% drop in NAWI. Also, many higher compensated employees receive a significant portion of their incomes as bonuses, which may be (or have been) paid in 2019 but represent 2018 results.
Agree that it could be hard if not impossible to predict NAWI other than to say it's certainly not going to be what was expected just a few short months ago, which is why there is such a large range in the graph. :D And obviously, there is a lot of 2020 left to speculate about. But I think there is going to be a lot of wage reductions across the board. I know many physicians who are furloughed or laid off. I have very close relationship to one higher up in the architecture world and there have been massive layoffs in the hardest hit covid states (lockdowns mean no non-essential construction, etc). But I have no idea how these personal observations might be reflected in national wage numbers.

Anyway, "most people" (e.g. Social security trustees) have assumed a 2-3% increase for this year, and if instead it's a drop of 5%, that's a swing of 8% and results in a big, permanent, decrease in the benefit (about a 15% decrease) than otherwise for anyone age 60 (and regardless of when they choose to start receiving a benefit).
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Sat Apr 18, 2020 10:45 am

neurosphere wrote:
Fri Apr 17, 2020 3:53 pm
It would be great if anyone could duplicate a point or two using "anypia" or another such calculator.
Using the 'SocialSecurity' tab in the personal finance toolbox spreadsheet, the high earner's age 67 $3142/mo, assuming the 2020 AWI = 2019 AWI = 2018 AWI = $52,145,80, appears consistent with the chart.

Changing the 2020 AWI to $26,072.90 (and keeping the 2019 AWI at $52,145.80) cuts the age 67 amount to $1,571. That's significantly different from the $800 or so on the chart.

Don't know which is correct. Some intermediate results below.

Code: Select all

2020 AWI               Bend    Bend
reduction     AIME     Pt #1   Pt #2
0%           10,681     960    5,785
50%           5,340     480    2,893

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Sat Apr 18, 2020 11:17 am

FiveK wrote:
Sat Apr 18, 2020 10:45 am
neurosphere wrote:
Fri Apr 17, 2020 3:53 pm
It would be great if anyone could duplicate a point or two using "anypia" or another such calculator.
Using the 'SocialSecurity' tab in the personal finance toolbox spreadsheet, the high earner's age 67 $3142/mo, assuming the 2020 AWI = 2019 AWI = 2018 AWI = $52,145,80, appears consistent with the chart.

Changing the 2020 AWI to $26,072.90 (and keeping the 2019 AWI at $52,145.80) cuts the age 67 amount to $1,571. That's significantly different from the $800 or so on the chart.

Of course! I inadvertently reduced BOTH the 2019 AND 2020 NAWI, rather than just the 2020 figure. Thanks so much, I'm updating the graph now, using an arbitrary 4% increase in the 2019 NAWI.

[Edit, the graph is now updated/corrected. Thanks again FiveK!]

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by Small Savanna » Sat Apr 18, 2020 12:45 pm

I'm interested in this topic, since I was born in 1960. To get a sense of the possible impact, I looked at data from the last recession. The Social Security wage indexing series shows that average wages dropped 1.5% from 2008 to 2009. Would anyone care to speculate about whether 2019 to 2020 will be worse than that?

Also, I use a spreadsheet to calculate my AIME and estimate my PIA. The AIME is straightforward because I have my earnings history and the wage indexing series - I just need to guess the 2019 and 2020 entries in the wage indexing series. However, I don't understand how the bend points are calculated; I'm just using the current year bend points. Can anyone provide a good explanation of how the bend points are calculated? Would anyone care to speculate about what the bend points will be in 2022?

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Sat Apr 18, 2020 1:02 pm

Small Savanna wrote:
Sat Apr 18, 2020 12:45 pm
I'm interested in this topic, since I was born in 1960. To get a sense of the possible impact, I looked at data from the last recession. The Social Security wage indexing series shows that average wages dropped 1.5% from 2008 to 2009. Would anyone care to speculate about whether 2019 to 2020 will be worse than that?
Totally guessing, but would say yes, it will be much worse, but I can't quantify "worse".

This coronavirus was a relatively acute "all at once" event early in 2020 that essentially caused a big instantaneous economic disruption across almost all business sectors. But 2008-period economic hardship was more spread out with a longer/slower decline and that straddled several years beginning in some form in 2007, so the effects on national wages was likely smoothed somewhat compared to the current situation.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Sat Apr 18, 2020 1:26 pm

Small Savanna wrote:
Sat Apr 18, 2020 12:45 pm
Also, I use a spreadsheet to calculate my AIME and estimate my PIA.
...
Can anyone provide a good explanation of how the bend points are calculated?
Given that you are spreadsheet-knowledgeable, the toolbox spreadsheet mentioned earlier has the equations open for view. They aren't complicated. ;)

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Sat Apr 18, 2020 1:33 pm

FiveK wrote:
Sat Apr 18, 2020 1:26 pm
Small Savanna wrote:
Sat Apr 18, 2020 12:45 pm
Also, I use a spreadsheet to calculate my AIME and estimate my PIA.
...
Can anyone provide a good explanation of how the bend points are calculated?
Given that you are spreadsheet-knowledgeable, the toolbox spreadsheet mentioned earlier has the equations open for view. They aren't complicated. ;)
I second the advice to check out the "toolbox". But also, this link on the SS site has an explanation with examples for calculating the bend points. And this site (https://ssa.tools) will also allow you to enter your own data and check your math, but also includes a walkthrough of sorts, with graphs, for how various numbers which affect your benefit are calculated.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Sat Apr 18, 2020 2:27 pm

Ignoring the various truncations in the actual SS benefit calculations (these might affect monthly payments by $1 or so), one's monthly benefit is linearly dependent on the age 60 AWI.

Quick 'n' dirty derivation below.

Average Indexed Monthly Earnings (AIME) = Age_60_AWI * (sum of annual earnings, weighted by each year's AWI, divided by 480 (=12*35) months)
Bend Pt #1 (BP1) = Age_60_AWI * (Bend point #1 in 1970)/(AWI in 1970)
Bend Pt #2 (BP2) = Age_60_AWI * (Bend point #2 in 1970)/(AWI in 1970)
For a fixed set of annual earnings, the Age_60_AWI is the only variable in the above equations.

Then, assuming AIME > Bend Pt #2 (conclusion doesn't change if the AIME is lower):
Base PIA = 0.90 * BP1 + 0.32 * (BP2 - BP1) + 0.15 * (AIME - BP2)
Base PIA = Age_60_AWI * [0.90 * BP1_1970/AWI_1970 + 0.32 * (BP2_1970 - BP1_1970)/AWI_1970 + 0.15 * (sum(...) - BP2_1970)/AWI_1970]

Everything within the [] is fixed, so the Age_60_AWI has a direct linear impact.

ETA: correct typos
Last edited by FiveK on Wed May 06, 2020 4:00 pm, edited 2 times in total.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by DonIce » Sat Apr 18, 2020 2:42 pm

neurosphere wrote:
Fri Apr 17, 2020 3:53 pm

Background:
-- SS benefits depend in part on national wages (i.e. the national average wage index aka NAWI)
How is the average wage for any given year actually calculated? I assume unemployed people are not counted in the average?
Last edited by DonIce on Sat Apr 18, 2020 2:45 pm, edited 1 time in total.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Sat Apr 18, 2020 2:43 pm

neurosphere wrote:
Sat Apr 18, 2020 1:33 pm
I second the advice to check out the "toolbox". But also, this link on the SS site has an explanation with examples for calculating the bend points. And this site (https://ssa.tools) will also allow you to enter your own data and check your math, but also includes a walkthrough of sorts, with graphs, for how various numbers which affect your benefit are calculated.
Agreed - all good tools with somewhat different perspectives.

Some cut & paste suggestions I've used in other threads:
A couple of spreadsheets and a web tool that work well for calculating an individual's benefit:
- The 'SocialSecurity' tab of the personal finance toolbox spreadsheet.
- The Downloadable Social Security Benefit Estimator (repost) - Bogleheads.org.
- Social Security Calculator
A web tool that evaluates SS benefit start dates, particularly useful for a couple:
Open Social Security: Free, Open-Source Social Security Calculator

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Sat Apr 18, 2020 2:53 pm

DonIce wrote:
Sat Apr 18, 2020 2:42 pm
neurosphere wrote:
Fri Apr 17, 2020 3:53 pm

Background:
-- SS benefits depend in part on national wages (i.e. the national average wage index aka NAWI)
How is the average wage for any given year actually calculated? I assume unemployed people are not counted in the average?
https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2018

A summary is: Total wages in the US (as reported on all W2s) divided by the number of wage earners. If one or more W2s were not created for an individual, that person is not a wage earner. Thus, the unemployed do not count, if they were unemployed for the entire year. But if they were employed from only Jan to April (for example), that would count.

Note that W2 data only has one year-end total amount. SS can't determine who had a salary/wage of $10,000 per year over a full 12 months vs one who had a salary/wage of $120,000/year but for only one month. And if one has NO W2 created, SS doesn't know that person exists. Well, of course they DO, but they don't count in this data set. :D

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by DonIce » Sat Apr 18, 2020 2:59 pm

neurosphere wrote:
Sat Apr 18, 2020 2:53 pm
https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2018

A summary is: Total wages in the US (as reported on all W2s) divided by the number of wage earners. If one or more W2s were not created for an individual, that person is not a wage earner. Thus, the unemployed do not count, if they were unemployed for the entire year. But if they were employed from only Jan to April (for example), that would count.

Note that W2 data only has one year-end total amount. SS can't determine who had a salary/wage of $10,000 per year over a full 12 months vs one who had a salary/wage of $120,000/year but for only one month. And if one has NO W2 created, SS doesn't know that person exists. Well, of course they DO, but they don't count in this data set. :D
Got it... that definitely leaves the door open for some big impacts this year then! Does income from unemployment benefits end up getting counted on a W2 or is that reported differently?

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Sat Apr 18, 2020 3:10 pm

DonIce wrote:
Sat Apr 18, 2020 2:59 pm
Got it... that definitely leaves the door open for some big impacts this year then! Does income from unemployment benefits end up getting counted on a W2 or is that reported differently?
Unemployment is reported on a 1099-G.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by Small Savanna » Sun Apr 19, 2020 9:11 am

FiveK wrote:
Sat Apr 18, 2020 2:27 pm
Ignoring the various truncations in the actual SS benefit calculations (these might affect monthly payments by $1 or so), one's monthly benefit is linearly dependent on the age 60 AWI.

Quick 'n' dirty derivation below.

AIME = Age_60_AWI * (sum of annual earnings, weighted by each year's AWI)
Bend Pt #1 (BP1) = Age_60_AWI * (Bend point #1 in 1970)/(AWI in 1970)
Bend Pt #2 (BP2) = Age_60_AWI * (Bend point #2 in 1970)/(AWI in 1970)
For a fixed set of annual earnings, the Age_60_AWI is the only variable in the above equations.

Then, assuming AIME > Bend Pt #2 (conclusion doesn't change if the AIME is lower):
Base PIA = 0.92 * BP1 + 0.35 * (BP2 - BP1) + 0.15 * (AIME - BP2)
Base PIA = Age_60_AWI * [0.92 * BP1_1970/AWI_1970 + 0.35 * (BP2_1970 - BP1_1970)/AWI_1970 + 0.15 * (sum(...) - BP2_1970/AWI_1970]

Everything within the [] is fixed, so the Age_60_AWI has a direct linear impact.
Thanks - great explanation!

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by teen persuasion » Sun Apr 19, 2020 9:22 am

FiveK wrote:
Sat Apr 18, 2020 2:27 pm
Ignoring the various truncations in the actual SS benefit calculations (these might affect monthly payments by $1 or so), one's monthly benefit is linearly dependent on the age 60 AWI.

Quick 'n' dirty derivation below.

AIME = Age_60_AWI * (sum of annual earnings, weighted by each year's AWI)
Bend Pt #1 (BP1) = Age_60_AWI * (Bend point #1 in 1970)/(AWI in 1970)
Bend Pt #2 (BP2) = Age_60_AWI * (Bend point #2 in 1970)/(AWI in 1970)
For a fixed set of annual earnings, the Age_60_AWI is the only variable in the above equations.

Then, assuming AIME > Bend Pt #2 (conclusion doesn't change if the AIME is lower):
Base PIA = 0.92 * BP1 + 0.35 * (BP2 - BP1) + 0.15 * (AIME - BP2)
Base PIA = Age_60_AWI * [0.92 * BP1_1970/AWI_1970 + 0.35 * (BP2_1970 - BP1_1970)/AWI_1970 + 0.15 * (sum(...) - BP2_1970/AWI_1970]

Everything within the [] is fixed, so the Age_60_AWI has a direct linear impact.
Why did you use 0.92 and 0.35?

I thought the rates were 0.90 up to the first bend point, and 0.32 between the first and second bend point.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Sun Apr 19, 2020 10:39 am

teen persuasion wrote:
Sun Apr 19, 2020 9:22 am
FiveK wrote:
Sat Apr 18, 2020 2:27 pm
Quick 'n' dirty derivation below.
Why did you use 0.92 and 0.35?
Probably a visual transposition from a quick glance. ;) The numbers you mention are of course the correct ones. But the point remains.... :)

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by HobbesMB » Mon May 04, 2020 10:48 am

Bumping this thread to ask a question. My wife turned 60 on December 31, 2019, the final day of the year. I assume the AWI index that will be used for her calculations is the 2019 number and not the 2020 number, is that correct? Since she would not be eligible for benefits until January after her birthday in December, I didn't know if that one-month lag impacted the AWI index calculations. I'm hoping she got in just under the wire.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Mon May 04, 2020 12:16 pm

HobbesMB wrote:
Mon May 04, 2020 10:48 am
My wife turned 60 on December 31, 2019, the final day of the year. I assume the AWI index that will be used for her calculations is the 2019 number and not the 2020 number, is that correct?
Yes.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by HobbesMB » Mon May 04, 2020 12:23 pm

FiveK wrote:
Mon May 04, 2020 12:16 pm
Yes.
Thanks!

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by MP123 » Mon May 04, 2020 12:47 pm

DonIce wrote:
Sat Apr 18, 2020 2:59 pm
neurosphere wrote:
Sat Apr 18, 2020 2:53 pm
https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2018

A summary is: Total wages in the US (as reported on all W2s) divided by the number of wage earners. If one or more W2s were not created for an individual, that person is not a wage earner. Thus, the unemployed do not count, if they were unemployed for the entire year. But if they were employed from only Jan to April (for example), that would count.

Note that W2 data only has one year-end total amount. SS can't determine who had a salary/wage of $10,000 per year over a full 12 months vs one who had a salary/wage of $120,000/year but for only one month. And if one has NO W2 created, SS doesn't know that person exists. Well, of course they DO, but they don't count in this data set. :D
Got it... that definitely leaves the door open for some big impacts this year then! Does income from unemployment benefits end up getting counted on a W2 or is that reported differently?
And since we had record high employment (lots of W2s) at the start of the year, and likely low total wages for the rest of the year it's a double whammy.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Mon May 04, 2020 3:38 pm

FiveK wrote:
Mon May 04, 2020 12:16 pm
HobbesMB wrote:
Mon May 04, 2020 10:48 am
My wife turned 60 on December 31, 2019, the final day of the year. I assume the AWI index that will be used for her calculations is the 2019 number and not the 2020 number, is that correct?
Yes.
Because someone will ask, what about a person who turned 60 on January 1st? :wink:
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by Leesbro63 » Mon May 04, 2020 3:42 pm

I admit that I got lost in the math. Can someone just summarize what this is all about?

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by ObliviousInvestor » Mon May 04, 2020 3:49 pm

Leesbro63 wrote:
Mon May 04, 2020 3:42 pm
I admit that I got lost in the math. Can someone just summarize what this is all about?
The calculation of the "bend points" used to calculate a person's primary insurance amount depend on the national average wage index (NAWI) from the year in which they turn age 60. (See the bottom of this page for the 2020 example.)

If the NAWI is low in the year you turn 60, your bend points will be lower than they would be if the NAWI were higher that year (meaning you have a lower primary insurance amount for a given amount of historical wages).

And, NAWI is likely to be low for 2020, which is not good news for people born in 1960.
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by Leesbro63 » Mon May 04, 2020 3:52 pm

ObliviousInvestor wrote:
Mon May 04, 2020 3:49 pm
Leesbro63 wrote:
Mon May 04, 2020 3:42 pm
I admit that I got lost in the math. Can someone just summarize what this is all about?
The calculation of the "bend points" used to calculate a person's primary insurance amount depend on the national average wage index (NAWI) from the year in which they turn age 60. (See the bottom of this page for the 2020 example.)

If the NAWI is low in the year you turn 60, your bend points will be lower than they would be if the NAWI were higher that year (meaning you have a lower primary insurance amount for a given amount of historical wages).

And, NAWI is likely to be low for 2020, which is not good news for people born in 1960.
Thank you for that concise answer. So what's the average SS payment? How much less will it be than for people born in 1959?

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by ObliviousInvestor » Mon May 04, 2020 4:01 pm

Leesbro63 wrote:
Mon May 04, 2020 3:52 pm
So what's the average SS payment? How much less will it be than for people born in 1959?
We don't know yet how much lower it will be for people born in 1960 than for people born in 1959, because we don't yet know how much lower NAWI will be in 2020 than 2019. (That's what neurosphere's chart in the OP is showing -- different possibilities.)

As far as the average Social Security payment, as of 12/2019, the average monthly retirement benefit was $1,503. But that includes a bunch of different birth years, and it includes claiming ages from 62-70. I honestly don't know where to look to find the average PIA of people born in a given year (which is what we'd want to find in order to be able to make comparisons).
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by Leesbro63 » Mon May 04, 2020 4:12 pm

ObliviousInvestor wrote:
Mon May 04, 2020 4:01 pm
Leesbro63 wrote:
Mon May 04, 2020 3:52 pm
So what's the average SS payment? How much less will it be than for people born in 1959?
We don't know yet how much lower it will be for people born in 1960 than for people born in 1959, because we don't yet know how much lower NAWI will be in 2020 than 2019. (That's what neurosphere's chart in the OP is showing -- different possibilities.)

As far as the average Social Security payment, as of 12/2019, the average monthly retirement benefit was $1,503. But that includes a bunch of different birth years, and it includes claiming ages from 62-70. I honestly don't know where to look to find the average PIA of people born in a given year (which is what we'd want to find in order to be able to make comparisons).
Again thanks for the concise reply. It will be interesting to see, in actual dollars, the amount less for those of us born in 1960.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Mon May 04, 2020 5:12 pm

ObliviousInvestor wrote:
Mon May 04, 2020 4:01 pm
Leesbro63 wrote:
Mon May 04, 2020 3:52 pm
So what's the average SS payment? How much less will it be than for people born in 1959?
We don't know yet how much lower it will be for people born in 1960 than for people born in 1959, because we don't yet know how much lower NAWI will be in 2020 than 2019. (That's what neurosphere's chart in the OP is showing -- different possibilities.)

As far as the average Social Security payment, as of 12/2019, the average monthly retirement benefit was $1,503. But that includes a bunch of different birth years, and it includes claiming ages from 62-70. I honestly don't know where to look to find the average PIA of people born in a given year (which is what we'd want to find in order to be able to make comparisons).
For people with identical annual earnings and starting SS at the same age, the SS payments for those born in 1960 vs. 1959 will be exactly the ratio of the 2020 AWI vs. the 2019 AWI.

People born in 1959 who earned exactly the AWI every year for 35 years would have a PIA of $1,947 and would thus receive that amount per month ($23,364/yr) if they retired now and start SS at their full retirement age of 66 yrs 10 mos.

Don't know how that will compare with the average SS benefits of everyone born in 1959, or any other average one might compute.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by 2pedals » Mon May 04, 2020 6:29 pm

All, thank you for sharing this information. I had no idea that SSI bend points are calculated based on NAWI at age 60 this way. :shock: :shock:

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Mon May 04, 2020 6:50 pm

neurosphere wrote:
Mon May 04, 2020 3:38 pm
Because someone will ask, what about a person who turned 60 on January 1st? :wink:
According to ssa.gov, If your birthday is on January 1st, we figure your benefit as if your birthday was in the previous year.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by aida2003 » Mon May 04, 2020 7:19 pm

ObliviousInvestor wrote:
Mon May 04, 2020 3:49 pm
Leesbro63 wrote:
Mon May 04, 2020 3:42 pm
I admit that I got lost in the math. Can someone just summarize what this is all about?
The calculation of the "bend points" used to calculate a person's primary insurance amount depend on the national average wage index (NAWI) from the year in which they turn age 60. (See the bottom of this page for the 2020 example.)

If the NAWI is low in the year you turn 60, your bend points will be lower than they would be if the NAWI were higher that year (meaning you have a lower primary insurance amount for a given amount of historical wages).

And, NAWI is likely to be low for 2020, which is not good news for people born in 1960.
Wow, I never realized that even SS is determined by 'the luck' of the birth year. Does this mean that people born in 1960 will be out of luck going forward or just for this one year as bend point formula changes every year?
I didn't have a clue that age of 60 plays such a significance for SS. I still don't understand how it impacts an individual or a couple with incomes way above the average yearly earnings.
Can the current situation be compared to the GR and how the average SS was impacted in 2008 and maybe 2009 vs. other years?

This is a complicated topic whose outcome I cannot control :greedy

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by ObliviousInvestor » Tue May 05, 2020 6:55 am

aida2003 wrote:
Mon May 04, 2020 7:19 pm
ObliviousInvestor wrote:
Mon May 04, 2020 3:49 pm
Leesbro63 wrote:
Mon May 04, 2020 3:42 pm
I admit that I got lost in the math. Can someone just summarize what this is all about?
The calculation of the "bend points" used to calculate a person's primary insurance amount depend on the national average wage index (NAWI) from the year in which they turn age 60. (See the bottom of this page for the 2020 example.)

If the NAWI is low in the year you turn 60, your bend points will be lower than they would be if the NAWI were higher that year (meaning you have a lower primary insurance amount for a given amount of historical wages).

And, NAWI is likely to be low for 2020, which is not good news for people born in 1960.
Wow, I never realized that even SS is determined by 'the luck' of the birth year. Does this mean that people born in 1960 will be out of luck going forward or just for this one year as bend point formula changes every year?
The bend point formula changes every year, in the sense that people born in 1960 will have different bend points than people born in 1959, who have different bend points than people born in 1958, etc.

But once your bend points have been calculated, they are what they are. (And from age 62 forward, your PIA is adjusted upward based on price inflation as measured by CPI-W, as opposed to the wage-based indexing that occurs up to age 60.)

You can look at the historical bend points and NAWI by year at the links below:
https://www.ssa.gov/oact/cola/bendpoints.html
https://www.ssa.gov/oact/cola/AWI.html

For example comparing 2018 NAWI (52,145.80) to 2017 NAWI (50,321.89) gives us a ratio of 1.036.
And we can compare the 2020 bend points to the 2019 bend points (e.g., 5,785 vs 5,583) to find the same ratio, because the bend points for a person reaching age 62 in a given year are based on average wage index from the year that person reached age 60.

But note that the bend points used in, for example, 2015 are still the bend points used for people in that birth cohort (i.e., people born 1953).
aida2003 wrote:
Mon May 04, 2020 7:19 pm
Can the current situation be compared to the GR and how the average SS was impacted in 2008 and maybe 2009 vs. other years?
It could be compared to that, yes. (See links above for how bend points changed.)

But I don't see any reason to think that the change in average wage index resulting from this pandemic will necessarily be similar to that resulting from the 2008-2009 financial crisis.
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by LilyFleur » Tue May 05, 2020 1:00 pm

Will our estimated SS benefits be adjusted sometime next year on our online SS accounts? What is the potential difference in a monthly SS check?

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Tue May 05, 2020 1:18 pm

LilyFleur wrote:
Tue May 05, 2020 1:00 pm
Will our estimated SS benefits be adjusted sometime next year on our online SS accounts?
Probably. You could also use any of the tools mentioned in this post to do your own estimate at any time.
What is the potential difference in a monthly SS check?
"A few percent" might cover it, but the answer might also depend on politics as much as mathematics.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by LilyFleur » Tue May 05, 2020 1:29 pm

I suppose since I can't change my birth date, I won't worry about it. SS is not a big piece of my retirement. To be perfectly honest, I got a little lost in the acronyms and the math in this thread :mrgreen: But it is good to be aware of. I have learned so much from this forum.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by HobbesMB » Wed May 06, 2020 3:34 pm

Leesbro63 wrote:
Mon May 04, 2020 3:52 pm
So what's the average SS payment? How much less will it be than for people born in 1959?
This white paper estimates that we could see a 15% drop in the Average Wage Index in 2020. Therefore, for a medium wage worker aged 60 in 2020, a 15% decline this year in the Average Wage Index could lead to a permanent reduction Social Security retirement benefits of around 13.8%.

I don't know how likely that 15% drop is, but that impact to benefits is not insignificant.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Wed May 06, 2020 3:50 pm

HobbesMB wrote:
Wed May 06, 2020 3:34 pm
Leesbro63 wrote:
Mon May 04, 2020 3:52 pm
So what's the average SS payment? How much less will it be than for people born in 1959?
This white paper estimates that we could see a 15% drop in the Average Wage Index in 2020. Therefore, for a medium wage worker aged 60 in 2020, a 15% decline this year in the Average Wage Index could lead to a permanent reduction Social Security retirement benefits of around 13.8%.

I don't know how likely that 15% drop is, but that impact to benefits is not insignificant.
The previous "most likely" estimate from the SS Trustees for 2020 was for an increase of 3% (working from memory). So a decrease of 15% is like a decrease of 18% from the "expected" value.

I have to think about what happens if we have (for example) a 15% decline, and then we have a have slow/steady increases in wages such that we get back to the 2019 wage index value in 5 years. Does that mean those currently aged 55-59 will also have a reduced benefit compared to today's 61 years olds, all things equal? Meaning, this is not just an "age 60" problem. Younger folks are affected too. Anypia can answer this question with exact numbers. My spreadsheet can do it too, if I make a small modification, but I don't think I'll get to it anytime soon. :D
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by HobbesMB » Wed May 06, 2020 3:53 pm

neurosphere wrote:
Wed May 06, 2020 3:50 pm
I have to think about what happens if we have (for example) a 15% decline, and then we have a have slow/steady increases in wages such that we get back to the 2019 wage index value in 5 years. Does that mean those currently aged 55-59 will also have a reduced benefit compared to today's 61 years olds, all things equal? Meaning, this is not just an "age 60" problem. Younger folks are affected too.
I've been wondering about that as well. It seems like this could impact multiple years of recipients, not just those turning 60 in 2020.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by FiveK » Wed May 06, 2020 4:03 pm

HobbesMB wrote:
Wed May 06, 2020 3:53 pm
neurosphere wrote:
Wed May 06, 2020 3:50 pm
I have to think about what happens if we have (for example) a 15% decline, and then we have a have slow/steady increases in wages such that we get back to the 2019 wage index value in 5 years. Does that mean those currently aged 55-59 will also have a reduced benefit compared to today's 61 years olds, all things equal? Meaning, this is not just an "age 60" problem. Younger folks are affected too.
I've been wondering about that as well. It seems like this could impact multiple years of recipients, not just those turning 60 in 2020.
SS benefits are indeed directly proportional to the AWI at age 60.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Wed May 06, 2020 4:32 pm

FiveK wrote:
Wed May 06, 2020 4:03 pm
SS benefits are indeed directly proportional to the AWI at age 60.
And for those who don't know, it's going to be a while before we know the 2020 value, which comes out in the fall of 2021 (October, if memory serves). Although, W2s are due by March 31st. So SS will have a pretty good idea at that point (if by chance there was some need to get an idea of data sooner than the release of an official number).
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by 22twain » Wed May 06, 2020 5:33 pm

ObliviousInvestor wrote:
Tue May 05, 2020 6:55 am
(And from age 62 forward, your PIA is adjusted upward based on price inflation as measured by CPI-W,
which is commonly known as the COLA (Cost of Living Adjustment). The SSA announces it in October, for the following year.

https://www.ssa.gov/cola/
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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by stargazer » Wed May 06, 2020 5:48 pm

My spouse is 67 (born in 1952), and for the last 18 months has been collecting a SS benefit based on my work record (a restricted application for spousal benefits). She will file for benefits based on her own work record when she turns 70.

How will this affect her?

stargazer

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by randomguy » Wed May 06, 2020 6:00 pm

HobbesMB wrote:
Wed May 06, 2020 3:53 pm
neurosphere wrote:
Wed May 06, 2020 3:50 pm
I have to think about what happens if we have (for example) a 15% decline, and then we have a have slow/steady increases in wages such that we get back to the 2019 wage index value in 5 years. Does that mean those currently aged 55-59 will also have a reduced benefit compared to today's 61 years olds, all things equal? Meaning, this is not just an "age 60" problem. Younger folks are affected too.
I've been wondering about that as well. It seems like this could impact multiple years of recipients, not just those turning 60 in 2020.
The assumption is that by 2021, we are back to a some what normal employment situation (i.e. maybe unemployment is at 8% instead of 4% but people are working 12 months are normal wages and will not have 2 months where they get 0).

Normally this isn't a big deal because the numbers don't change much. (i.e. they go up like 1-3%/year). We have never had a 10%+ drop. The GCF was like a 2% drop. This year could obviously be a bit different. A compared to something like 2008-9, it seems like that more of the pain will be scrunched up into 1 year instead of spread out.

As far as actionable, other than writing your congressman asking them to look into the problem, is there anything you can do?

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by neurosphere » Wed May 06, 2020 6:05 pm

stargazer wrote:
Wed May 06, 2020 5:48 pm
My spouse is 67 (born in 1952), and for the last 18 months has been collecting a SS benefit based on my work record (a restricted application for spousal benefits). She will file for benefits based on her own work record when she turns 70.

How will this affect her?
It has no effect on anyone over 60 who also has a spouse over age 60.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by Leesbro63 » Wed May 06, 2020 6:17 pm

HobbesMB wrote:
Wed May 06, 2020 3:34 pm
Leesbro63 wrote:
Mon May 04, 2020 3:52 pm
So what's the average SS payment? How much less will it be than for people born in 1959?
This white paper estimates that we could see a 15% drop in the Average Wage Index in 2020. Therefore, for a medium wage worker aged 60 in 2020, a 15% decline this year in the Average Wage Index could lead to a permanent reduction Social Security retirement benefits of around 13.8%.

I don't know how likely that 15% drop is, but that impact to benefits is not insignificant.
Agreed that this is not insignificant. Probably will just add to the already heated politics surrounding future benefits, of which we cannot discuss here. But this information is good to know, particularly when being quantified like this.

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Re: Graph of how SS benefits can change with decreases in 2020 national wages for one born in 1960

Post by JAZZISCOOL » Wed May 06, 2020 6:42 pm

HobbesMB wrote:
Wed May 06, 2020 3:34 pm
Leesbro63 wrote:
Mon May 04, 2020 3:52 pm
So what's the average SS payment? How much less will it be than for people born in 1959?
This white paper estimates that we could see a 15% drop in the Average Wage Index in 2020. Therefore, for a medium wage worker aged 60 in 2020, a 15% decline this year in the Average Wage Index could lead to a permanent reduction Social Security retirement benefits of around 13.8%.

I don't know how likely that 15% drop is, but that impact to benefits is not insignificant.
From the Wharton paper the author estimates the $:

".....This $3,900 annual benefit reduction would reduce his lifetime benefits by over $70,000. Similar percentage benefit cuts would apply to retirees at all earnings levels. While we expect the economy will eventually recover, Americans age 60 in 2021 may also receive lower-than-expected benefits."

I didn't see the $ estimate mentioned yet (unless I missed the post.)

But again, these are estimates and the author also proposes potential policy changes FWIW.

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