Author Topic: Is this true about Social Security?  (Read 2394 times)

joer1212

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Is this true about Social Security?
« on: December 27, 2012, 01:10:37 PM »
I am planning to retire by age 50 to 52 (I'm currently 43). I will live off the interest from my investments for about a decade, then I will start to receive my partial pension from my job at age 62, and also Social Security.
I spoke to a co-worker the other day about this, and he said that I have not thought my retirement through very well, because if I retire early, and don't contribute to Social Security for more than 5 consecutive years, they will cut my benefits when I go to collect at age 62. Is this true?
This just sounds wrong to me. Why should I be penalized for not contributing in the future, when I have already been vested in the system and earned my benefits? I understand that I will not be earning credit towards additional SSI benefits for the 10+ years that I will be retired, but to actually have benefits cut that I have already earned credit for, is unconscionable.
Am I missing something here?

mlipps

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Re: Is this true about Social Security?
« Reply #1 on: December 27, 2012, 02:16:35 PM »
Lots of people have misunderstandings about how SS is calculated. My understanding is that your social security benefit is based on the average of your 30 highest years of earning, adjusted for inflation. There is no direct penalty as your coworker has implied.

JohnGalt

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Re: Is this true about Social Security?
« Reply #2 on: December 27, 2012, 03:06:23 PM »
Try playing around with different scenarios using this http://www.socialsecurity.gov/estimator/

tomsang

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Re: Is this true about Social Security?
« Reply #3 on: December 27, 2012, 03:40:22 PM »
Social Security is calculated based on your 30 highest years of income. If you have 0 income or low income for some years you will receive lower than someone who had higher income in those years. Also, if you start collecting before 67 then you are penalized. This also makes sense since someone should not get paid the same if they worked significantly less years than others. Social Security was/is a supplemental retirement income source. Planning your finances so you don't need much social security income bogles those who don't plan.

kythuen

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Re: Is this true about Social Security?
« Reply #4 on: December 27, 2012, 03:58:11 PM »
But doesn't it only work that way if you're basing it on ONLY thirty years of income?

If you have only 30 years of income, and five of those years are 0, then you'll get lower SS than someone with 30 years of income and all years above 0.  But if you work for 30 years, it shouldn't matter how many years after that you don't work, your income will still be based on the 30 years of income you earned.

joer1212

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Re: Is this true about Social Security?
« Reply #5 on: December 27, 2012, 04:13:45 PM »
Social Security is calculated based on your 30 highest years of income. If you have 0 income or low income for some years you will receive lower than someone who had higher income in those years. Also, if you start collecting before 67 then you are penalized. This also makes sense since someone should not get paid the same if they worked significantly less years than others. Social Security was/is a supplemental retirement income source. Planning your finances so you don't need much social security income bogles those who don't plan.

I see. So the more years I work, the more chance that I will have more high-earning years to contribute towards the highest 30.
In this case, then, I won't worry. I'll probably retire around 51, then take whatever I'm entitled to from Social Security when I'm 62.

joer1212

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Re: Is this true about Social Security?
« Reply #6 on: December 27, 2012, 04:14:37 PM »
Lots of people have misunderstandings about how SS is calculated. My understanding is that your social security benefit is based on the average of your 30 highest years of earning, adjusted for inflation. There is no direct penalty as your coworker has implied.

Thanks for clarifying. I didn't think there was a penalty like this. The method you mention seems a lot more fair. I can't wait to see my co-worker again.
« Last Edit: December 27, 2012, 04:16:42 PM by joer1212 »

joer1212

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Re: Is this true about Social Security?
« Reply #7 on: December 27, 2012, 04:15:17 PM »
Try playing around with different scenarios using this http://www.socialsecurity.gov/estimator/

Thanks for the link.

tooqk4u22

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Re: Is this true about Social Security?
« Reply #8 on: December 28, 2012, 06:50:26 AM »
Lots of people have misunderstandings about how SS is calculated. My understanding is that your social security benefit is based on the average of your 30 highest years of earning, adjusted for inflation. There is no direct penalty as your coworker has implied.

It is based on 35 years of highest income. 

giggles

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Re: Is this true about Social Security?
« Reply #9 on: December 28, 2012, 08:07:16 AM »
It is based on the highest 35 years of earnings.   So the fewer years you work, the more $00.00 years are in your calcuation, which does pull it down.  For example, if you only work 20 years, there are 15 $00.00 years in your calculation. 

joer1212

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Re: Is this true about Social Security?
« Reply #10 on: December 28, 2012, 01:19:23 PM »
It is based on the highest 35 years of earnings.   So the fewer years you work, the more $00.00 years are in your calcuation, which does pull it down.  For example, if you only work 20 years, there are 15 $00.00 years in your calculation.

Thanks, but now that I think of it, it is actually worse for me that they will calculate 35 years (and not 30) for my average benefit. By the time I retire, say, at 51, I will have had only about 15 years or so of actual (40hr) full-time work. The rest I was working part-time (16-32hrs), and in a few years nothing. 

simonsez

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Re: Is this true about Social Security?
« Reply #11 on: December 28, 2012, 02:58:07 PM »
Of course it's worse.  In an extreme, if S.S. benefit was calculated on your hi-3, then a much higher proportion of those paying in would receive the maximum benefit and in nearly all cases, recipients would be receiving more benefit and simultaneously paying less in to the system.  This would be a terrible system as there wouldn't be enough contributions to cover the payouts.  S.S. already has enough problems making sure receipts cover the payouts as it is with a hi-35 system.  And yes, it will always be harder (or at least as hard) to maximize your S.S. calculations on a hi-(x+n) system vs. a hi-(x) system where x,n >0 or in this case a hi-35 will be harder than a hi-30. 

tooqk4u22

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Re: Is this true about Social Security?
« Reply #12 on: December 28, 2012, 06:12:26 PM »
It is based on the highest 35 years of earnings.   So the fewer years you work, the more $00.00 years are in your calcuation, which does pull it down.  For example, if you only work 20 years, there are 15 $00.00 years in your calculation.

Thanks, but now that I think of it, it is actually worse for me that they will calculate 35 years (and not 30) for my average benefit. By the time I retire, say, at 51, I will have had only about 15 years or so of actual (40hr) full-time work. The rest I was working part-time (16-32hrs), and in a few years nothing.

Its not worse.  The model is not based on the highest of your average working years or 35 years, it is based on 35 years.   Any of the 35 years where there is no income it is a zero for the average, so even part time at $5//hr is better than zero. 

joer1212

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Re: Is this true about Social Security?
« Reply #13 on: December 29, 2012, 01:14:32 AM »
It is worse because there are more low earning/no earning years in 35 years of my employment history than there are in 30 years.
If it was based on, say, 15 years of my employment history, then I would have no problem having, not only an income, but a high income for all those years.
« Last Edit: December 29, 2012, 01:21:05 AM by joer1212 »

tooqk4u22

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Re: Is this true about Social Security?
« Reply #14 on: December 29, 2012, 06:41:51 AM »
It is worse because there are more low earning/no earning years in 35 years of my employment history than there are in 30 years.
If it was based on, say, 15 years of my employment history, then I would have no problem having, not only an income, but a high income for all those years.

Well sure that is true, but unfortunately you don't get to choose. 

joer1212

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Re: Is this true about Social Security?
« Reply #15 on: December 29, 2012, 12:25:39 PM »
I know :(