Author Topic: FICA-if you worked less than 10 years?  (Read 4407 times)

hoping2retire35

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FICA-if you worked less than 10 years?
« on: August 24, 2017, 11:10:31 AM »
Has anyone worked less than 10 years and not counting on this benefit? I would guess missing out on SS would be acceptable but what about Medicare? What is your plan?

GenXbiker

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Re: FICA-if you worked less than 10 years?
« Reply #1 on: August 24, 2017, 11:22:47 AM »
I think there are purchase options for Medicare if you haven't worked the minimal requirement.

Mr. Green

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Re: FICA-if you worked less than 10 years?
« Reply #2 on: August 24, 2017, 12:25:14 PM »
Not earning 40 credits for Social Security might just be the worst thing one could do financially. Its the ultimate safety net and will be there regardless of what might happen to one's own personal fortune before 65 (or 67). At just over $1,000 per credit it's almost impossible not to earn 40 credits. I suppose if one we're self employed and grossly underreported profits it could be possible.

I'm not including someone who might be entitled to a spousal benefit or disability, and has not earned credits, but rather someone who doesn't earn the 40 and the result means no SS income in old age.
« Last Edit: August 24, 2017, 12:27:38 PM by Mr. Green »
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MrMoogle

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Re: FICA-if you worked less than 10 years?
« Reply #3 on: August 24, 2017, 01:31:27 PM »
Not earning 40 credits for Social Security might just be the worst thing one could do financially. Its the ultimate safety net and will be there regardless of what might happen to one's own personal fortune before 65 (or 67). At just over $1,000 per credit it's almost impossible not to earn 40 credits. I suppose if one we're self employed and grossly underreported profits it could be possible.

I'm not including someone who might be entitled to a spousal benefit or disability, and has not earned credits, but rather someone who doesn't earn the 40 and the result means no SS income in old age.
I was FI ~18 months ago.  I hit 40 credits after the first quarter of this year.  It's not impossible to save up before that 10 year mark.  I personally just have bigger plans in retirement than I do while I'm working, so I'm saving up a bit more.

bender

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Re: FICA-if you worked less than 10 years?
« Reply #4 on: August 24, 2017, 02:01:25 PM »
You can only earn 4 credits per year.  So 10x4=40 means it takes 10 years to get 40 credits.  I agree with Mr. Green - get those credits.  You only need $5,200 in 2017 to get 4 credits.  The amount goes up slightly each year, but it seems doable to get that amount through some seasonal work?
« Last Edit: August 24, 2017, 02:05:25 PM by bender »

tralfamadorian

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Re: FICA-if you worked less than 10 years?
« Reply #5 on: August 24, 2017, 03:50:56 PM »
I agree- get those credits.  If you are FI before the 40 credit mark, then find a fun part time job. 

Mr. Green

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Re: FICA-if you worked less than 10 years?
« Reply #6 on: August 24, 2017, 05:49:13 PM »
I'm sure its possible to FIRE before earning 40 credits if you have a high income right out of the gate and save a ton right from the beginning. I still think it's unwise not to earn them. Social Security is the best safety net you can have. It's guaranteed income that isn't based on your own personal investing or spending decisions. It's exactly what it was created for, to ensure old people aren't on the street. I take incredible comfort in knowing that I could FIRE in my 30s and fuck it up later in life, ending up penniless in my mid-60s and social security will keep me from being homeless. Someone only earning 40 credits may not get much of a benefit but it beats having absolutely no income and possibly being too old to do anything about it.
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Re: FICA-if you worked less than 10 years?
« Reply #7 on: August 25, 2017, 10:29:58 AM »
Also remember that while you're in at 10 years, your final payment stream is calculated based on income received over 35 years of work.  So you could potentially retire after 10 years, and have 25 years worth of zeros factoring in to your averages.

Maybe not a reason to keep working, but keep it in mind...

Paul der Krake

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Re: FICA-if you worked less than 10 years?
« Reply #8 on: August 25, 2017, 10:50:57 AM »
Also remember that while you're in at 10 years, your final payment stream is calculated based on income received over 35 years of work.  So you could potentially retire after 10 years, and have 25 years worth of zeros factoring in to your averages.

Maybe not a reason to keep working, but keep it in mind...
The way SS is calculated, working longer improves the payout only very marginally for most people in a position to FIRE.

http://rootofgood.com/early-retirement-social-security/

OP, just get the 40 credits. It's absurdly easy to get them. Any seasonal or part time job for a couple weeks every couple years until you have them.

GenXbiker

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Re: FICA-if you worked less than 10 years?
« Reply #9 on: August 25, 2017, 11:05:09 AM »
I think there are purchase options for Medicare if you haven't worked the minimal requirement.

To add to my previous post regarding Medicare:

Part A premium

Most people don't pay a monthly premium for Part A (sometimes called "premium-free Part A"). If you buy Part A, you'll pay up to $413 each month. If you paid Medicare taxes for less than 30 quarters, the standard Part A premium is $413. If you paid Medicare taxes for 30-39 quarters, the standard Part A premium is $227.

Part B premium

The standard Part B premium amount is $134 (or higher depending on your income). However, most people who get Social Security benefits will pay less than this amount ($109 on average)

https://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html

spud1987

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Re: FICA-if you worked less than 10 years?
« Reply #10 on: August 25, 2017, 03:02:33 PM »
I was worried about this until I saw my SSA report (you can look this up online). I had random part-time jobs until my first "real" job at age 23, meaning I hit 40 credits pretty easy. That being said, I only have about 7 years of high earnings, so my SS check would be quite small if I FIRE soon and you include the highest 35 years of earnings in the SS calc.

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Re: FICA-if you worked less than 10 years?
« Reply #11 on: August 25, 2017, 10:41:40 PM »
My wife and I may or may not be in the retired but not yet 40 credit club. I think it's smart to get to 40 credits by the time you are sixty five, but if you stop working in your 30s, you'll probably find enough fun work now and then that will get you to 40 credits even if by accident.

StetsTerhune

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Re: FICA-if you worked less than 10 years?
« Reply #12 on: September 01, 2017, 02:14:32 AM »
"Retired" with 8 years of credits. I have over 30 years to worry about it, so I'm not concerned. I think there's a pretty small chance I won't do some paid work at some point in my life just for fun. If I get to 60 and still need some, I'll go work part-time at Walmart or something for a few months at a time.

Medicare is a much bigger deal than the social security for me, but both are a big enough deal to get done.

It's been a long time since I ran the calculations.  The final payout is based on the average of your top 35 years (individual years are maxed out), but it's regressive, so even though I only have 8 years of salary and my average is only ~25% of my salary, my payout would be more like 70% of what it would be if I had 35 years of that salary.

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Re: FICA-if you worked less than 10 years?
« Reply #13 on: September 02, 2017, 10:39:55 AM »
I hit 40 quarters well before FIRE, because I didn't retire especially young. In reviewing my 35 years of earnings records, there were a couple of years of very low wages when I was in college. I debated working a few more years, or just getting a PT job to knock out those low numbers. Turns out they're adjusted for inflation, so not quite the drag they seem. Pulled the trigger, never looked back.

That said, get the 40 quarters. It might prove to be the best investment you'll ever make.
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tj

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Re: FICA-if you worked less than 10 years?
« Reply #14 on: September 02, 2017, 01:34:41 PM »
Quote
Someone only earning 40 credits may not get much of a benefit but it beats having absolutely no income and possibly being too old to do anything about it.

What's your definition of low? 10 years at 50k the last 10 years would get you at just under $1,400 per month of benefits.

The "first bend point", where you get the most bang for your buck, is just under half of that.

https://thefinancebuff.com/early-retirement-social-security-benefits.html



jim555

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Re: FICA-if you worked less than 10 years?
« Reply #15 on: September 02, 2017, 02:18:48 PM »
It is SO worth it to get the 40 quarters!

Mr. Green

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Re: FICA-if you worked less than 10 years?
« Reply #16 on: September 02, 2017, 02:43:19 PM »
Quote
Someone only earning 40 credits may not get much of a benefit but it beats having absolutely no income and possibly being too old to do anything about it.

What's your definition of low? 10 years at 50k the last 10 years would get you at just under $1,400 per month of benefits.

The "first bend point", where you get the most bang for your buck, is just under half of that.

https://thefinancebuff.com/early-retirement-social-security-benefits.html
The median household income is a little under 60k so there are many who probably never make 50k in their life. The average payout for SS is less than $1400 a month, though I imagine a lot of people don't wait for Full Retirement Age to start drawing.
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Re: FICA-if you worked less than 10 years?
« Reply #17 on: September 06, 2017, 08:32:47 PM »
Quote
Someone only earning 40 credits may not get much of a benefit but it beats having absolutely no income and possibly being too old to do anything about it.

What's your definition of low? 10 years at 50k the last 10 years would get you at just under $1,400 per month of benefits.

The "first bend point", where you get the most bang for your buck, is just under half of that.

https://thefinancebuff.com/early-retirement-social-security-benefits.html

  Very surprised by this, I have 44 years in and will only get about $1,650 a month. But then back in the 70s I had incomes
in the $9k to $15k range. My income now is not enough to wipe out any of my better 35 years, so I'm not increasing my SS
check by working. I'm shifting work and income to my wife, because it will increase her SS. (we're self employed)
  My sister has a rather sparse work history, but has her 40 credits.
She says her SS statement says she will receive a little over $500 a month.
 She will probably collect more from her ex husbands account.
This is sad, because she has absolutely no savings.

tj

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Re: FICA-if you worked less than 10 years?
« Reply #18 on: September 06, 2017, 08:39:20 PM »
Quote
Someone only earning 40 credits may not get much of a benefit but it beats having absolutely no income and possibly being too old to do anything about it.

What's your definition of low? 10 years at 50k the last 10 years would get you at just under $1,400 per month of benefits.

The "first bend point", where you get the most bang for your buck, is just under half of that.

https://thefinancebuff.com/early-retirement-social-security-benefits.html

  Very surprised by this, I have 44 years in and will only get about $1,650 a month. But then back in the 70s I had incomes
in the $9k to $15k range. My income now is not enough to wipe out any of my better 35 years, so I'm not increasing my SS
check by working. I'm shifting work and income to my wife, because it will increase her SS. (we're self employed)
  My sister has a rather sparse work history, but has her 40 credits.
She says her SS statement says she will receive a little over $500 a month.
 She will probably collect more from her ex husbands account.
This is sad, because she has absolutely no savings.

The $$ earned a long time ago is super valuable. $15k earned in 1980 would get you a around $57k of elgible earnings in today's dollars for that year.

https://www.ssa.gov/oact/cola/awifactors.html

Paul der Krake

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Re: FICA-if you worked less than 10 years?
« Reply #19 on: September 06, 2017, 09:59:28 PM »
Yeah SS is super progressive, by design.

The maximum check you can get in 2017 is around $2,600, and that's if you've been at or above the SS cap (currently at $127,200) for 35 years.

Inversely, there are special provisions for super low earners that essentially disregards the actual earnings and just looks at how long they've been working. You can make under $5,000/year for 30 years and receive about $800/month.

GenXbiker

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Re: FICA-if you worked less than 10 years?
« Reply #20 on: September 06, 2017, 10:20:56 PM »

I'll retire at 53 to 55, but I plan to start drawing SS at age 62, so I'll get a reduced benefit vs. waiting until age 67.

If you want a greater benefit, you can start drawing later than 62 or even wait until you're 70 to get extra.


StetsTerhune

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Re: FICA-if you worked less than 10 years?
« Reply #21 on: September 07, 2017, 01:28:38 AM »

I'll retire at 53 to 55, but I plan to start drawing SS at age 62, so I'll get a reduced benefit vs. waiting until age 67.

If you want a greater benefit, you can start drawing later than 62 or even wait until you're 70 to get extra.

Just curious, why would you draw SS early and not wait for the max payout at 70?

tj

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Re: FICA-if you worked less than 10 years?
« Reply #22 on: September 07, 2017, 07:07:13 AM »

I'll retire at 53 to 55, but I plan to start drawing SS at age 62, so I'll get a reduced benefit vs. waiting until age 67.

If you want a greater benefit, you can start drawing later than 62 or even wait until you're 70 to get extra.

Just curious, why would you draw SS early and not wait for the max payout at 70?

If you are single it's actuarally equal. If you have a spouse it's much more beneficial to wait. You also would take it early if you need the cash. The breakeven point between 62 and 70 is going to be quite a bit of years.

maizeman

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Re: FICA-if you worked less than 10 years?
« Reply #23 on: September 07, 2017, 07:20:31 AM »
One gotcha to be aware of is that, depending on how you are paid, many grad school stipends don't have SS withheld and hence don't count towards earning your 40 SS credits for eligibility. It's easy to end up in your late twenties with 4-6 years of making $20-$30k/year but essentially no income history as far as the social security office is concerned.

I think I should hit 40 credits before I hit FI, but it's going to be a near-ish thing and it may end up that I only manage it because of some side jobs I had back in undergrad. If I'd been thinking about FIRE and conscious about the implications of the lack of social security withholding I would have at least thought about whether it would make sense to find some SS withholding eligible ways to make an extra couple of thousand dollars a year.
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seattlecyclone

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Re: FICA-if you worked less than 10 years?
« Reply #24 on: September 07, 2017, 02:09:32 PM »

I'll retire at 53 to 55, but I plan to start drawing SS at age 62, so I'll get a reduced benefit vs. waiting until age 67.

If you want a greater benefit, you can start drawing later than 62 or even wait until you're 70 to get extra.

Just curious, why would you draw SS early and not wait for the max payout at 70?

If you are single it's actuarally equal. If you have a spouse it's much more beneficial to wait. You also would take it early if you need the cash. The breakeven point between 62 and 70 is going to be quite a bit of years.

It's actuarially equal, true. I tend to view social security as insurance for living a very long time. My savings should be more than enough to get me to 70 or 80 without social security, but if I have a bad sequence of returns early in retirement and end up living to 100, those social security checks become more important and I will be glad to have waited to start collecting.
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Rubic

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Re: FICA-if you worked less than 10 years?
« Reply #25 on: September 07, 2017, 03:56:05 PM »
It's actuarially equal, true. I tend to view social security as insurance for living a very long time. My savings should be more than enough to get me to 70 or 80 without social security, but if I have a bad sequence of returns early in retirement and end up living to 100, those social security checks become more important and I will be glad to have waited to start collecting.

+1

Assuming I'm relatively healthy in my mid-60's, I'm likely to wait until age 70, but certainly no
earlier than age 67 (fate permitting) to draw SS benefits.

My parents -- both ex-smokers -- are actually raising the bar by living past 80 in reasonably
good health, since delaying the maximum number of years has a break-even age of 84 for
men.  Addressing the longevity risk by deferring SS benefits is an awesome benefit.

Even better is having a "call option" that I can consider taking SS benefits anytime after
age 62 if a Great Recession event recurs in that 8-year time frame.  I'll probably be secure
enough to continue to delay social security, but it would be available as an option.

Relevant article:

https://www.kitces.com/blog/how-delaying-social-security-can-be-the-best-long-term-investment-or-annuity-money-can-buy/

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Re: FICA-if you worked less than 10 years?
« Reply #26 on: September 07, 2017, 07:45:14 PM »
If you have (or plan to have) international experience, there are a bunch of U.S. International Social Security Agreements that may also help you earn credits.

It had appeared that both my wife and I would be FIRE'ing without 40 credits, but someone suggested we check the Canada-US agreement. It appears my wife might in fact have enough credits factoring in her Canadian work experience and the US-Canada agreement. I still wouldn't reach 40 credits, but would qualify through her assuming we stay married long enough. The international agreements don't seem to cover medicare however.

With the international agreements, you seem left a bit to yourself to figure it out. None of the online tools will help you, and the only guidance I could find online was that when you reach eligibility age, the social security administration will research the agreements and your eligibility. It would be nice to know ahead of time.

Our plan will still be to find a few credits here and there every year through side hustles or any taxable income that comes our way.

tj

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Re: FICA-if you worked less than 10 years?
« Reply #27 on: September 07, 2017, 07:52:38 PM »
I don't understand why someone would willingly not get the 40 credits. You only need to earn $5,200 in today's dollars to get 4 credits per year. Are you planning on no earned income in early retirement, ever? I'm at 39 credits, but I've only had a professional career of 8 years. 7 of my 39 credits were from high school and summer jobs.


BTDretire

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Re: FICA-if you worked less than 10 years?
« Reply #28 on: September 08, 2017, 07:15:37 AM »
It's actuarially equal, true. I tend to view social security as insurance for living a very long time. My savings should be more than enough to get me to 70 or 80 without social security, but if I have a bad sequence of returns early in retirement and end up living to 100, those social security checks become more important and I will be glad to have waited to start collecting.

+1

Assuming I'm relatively healthy in my mid-60's, I'm likely to wait until age 70, but certainly no
earlier than age 67 (fate permitting) to draw SS benefits.

My parents -- both ex-smokers -- are actually raising the bar by living past 80 in reasonably
good health, since delaying the maximum number of years has a break-even age of 84 for
men.  Addressing the longevity risk by deferring SS benefits is an awesome benefit.

Even better is having a "call option" that I can consider taking SS benefits anytime after
age 62 if a Great Recession event recurs in that 8-year time frame.  I'll probably be secure
enough to continue to delay social security, but it would be available as an option.

Relevant article:

https://www.kitces.com/blog/how-delaying-social-security-can-be-the-best-long-term-investment-or-annuity-money-can-buy/
That article deserves it's own thread and may have one.
 One thing I looked for and didn't find is,
"How does waiting until FRA vs 62 change the breakeven point?"

Rubic

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Re: FICA-if you worked less than 10 years?
« Reply #29 on: September 08, 2017, 07:40:09 AM »
Relevant article:

https://www.kitces.com/blog/how-delaying-social-security-can-be-the-best-long-term-investment-or-annuity-money-can-buy/

 That article deserves it's own thread and may have one.
 One thing I looked for and didn't find is,
"How does waiting until FRA vs 62 change the breakeven point?"

Here's a break-even calculator for social security benefits:

https://www.standard.com/individual/retirement/planning-tools-calculators/social-security-break-even-calculator

You can log into https://ssa.gov to look up your estimated benefits, then
input them into the calculator.  It will produce the break-even points with
a nice graph.

MrMoogle

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Re: FICA-if you worked less than 10 years?
« Reply #30 on: September 08, 2017, 07:43:17 AM »
I don't understand why someone would willingly not get the 40 credits. You only need to earn $5,200 in today's dollars to get 4 credits per year. Are you planning on no earned income in early retirement, ever? I'm at 39 credits, but I've only had a professional career of 8 years. 7 of my 39 credits were from high school and summer jobs.
I wasn't planning on holding any jobs in retirement.  Is that a common thing?  I don't know anyone who has done that.

tj

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Re: FICA-if you worked less than 10 years?
« Reply #31 on: September 08, 2017, 08:47:00 AM »
I don't understand why someone would willingly not get the 40 credits. You only need to earn $5,200 in today's dollars to get 4 credits per year. Are you planning on no earned income in early retirement, ever? I'm at 39 credits, but I've only had a professional career of 8 years. 7 of my 39 credits were from high school and summer jobs.
I wasn't planning on holding any jobs in retirement.  Is that a common thing?  I don't know anyone who has done that.

Well the obvious example is every monetized blogger?

MrMoogle

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Re: FICA-if you worked less than 10 years?
« Reply #32 on: September 08, 2017, 12:18:29 PM »
I don't understand why someone would willingly not get the 40 credits. You only need to earn $5,200 in today's dollars to get 4 credits per year. Are you planning on no earned income in early retirement, ever? I'm at 39 credits, but I've only had a professional career of 8 years. 7 of my 39 credits were from high school and summer jobs.
I wasn't planning on holding any jobs in retirement.  Is that a common thing?  I don't know anyone who has done that.

Well the obvious example is every monetized blogger?
That it happens, yes, but not to how common it is.  I'm not questioning that it happens.  Maybe we need a poll to see how many people plan to work some after FIRE.  I thought I would be in the majority that don't plan to work, but maybe I'm in the minority.  Statistically speaking, without data, you're more likely to be in the majority.  Now you and I have equal weighting with opposite plans, we both cannot be in the majority :)

Also, most bloggers don't make much, probably not the $5200/year.

While I have hobbies that could make money, I would not enjoy them if I tried to make money with them.  They may help reduce some expenses though.

BTDretire

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Re: FICA-if you worked less than 10 years?
« Reply #33 on: September 08, 2017, 08:00:37 PM »
Relevant article:

https://www.kitces.com/blog/how-delaying-social-security-can-be-the-best-long-term-investment-or-annuity-money-can-buy/

 That article deserves it's own thread and may have one.
 One thing I looked for and didn't find is,
"How does waiting until FRA vs 62 change the breakeven point?"

Here's a break-even calculator for social security benefits:

https://www.standard.com/individual/retirement/planning-tools-calculators/social-security-break-even-calculator

You can log into https://ssa.gov to look up your estimated benefits, then
input them into the calculator.  It will produce the break-even points with
a nice graph.

 A little thinking require, please critic my calculation.
 Here are my numbers and my logic (if it is logical)
I see major difference between this calculator and Kitces, his adds in growth of the money if taken early.
I think that is what this means;

"Since benefits not paid from age 62 to 70 represents a foregone investment opportunity (either the money could have been invested if it wasn’t needed, or it could have been consumed and thereby allowed other assets to remain invested), we must account for not only the $750/month (at age 62) versus $1,320/month (at age 70) benefits, but also for inflation itself (assumed here to be 3%) and this time-value-of-money factor (projected at 6%, a “balanced” portfolio rate of return that could have been earned on the money invested or not-consumed)."

From The standard.com site, using my SS numbers I get, "After 30 years: 62-$518,760; 66-$591,240; 70-$654,456."
So by waiting until 70y/o I would have collected $135,696 more from SS vs collecting at 62.
BUT, if I collected at 62 and didn't have to spend that money out of my nestegg and it collected only 4% after inflation, I would have $159,332 after 8 years when I start to receive my Bigger SS check at 70y/o.
 Then after 22 more years at 4% my $159,332 would be $377,604. This compared to the $135,696 30 year difference between retiring at 62 vs 70 is pretty big. I see an extra $241,908 by collecting early.
Since this is contrary to all I read, I must have it wrong.
  Where did I get it wrong?

PS, In my case because my wife insists on working, I would pay taxes on the SS, so that messes things up, in my case.
That's another calculation.

Edit,   Sheesh, 22 hrs and no response, is everyone just watching the hurricane or is math hard?  :-)

 
« Last Edit: September 09, 2017, 05:13:12 PM by BTDretire »

CanuckExpat

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Re: FICA-if you worked less than 10 years?
« Reply #34 on: September 10, 2017, 10:43:49 PM »
That it happens, yes, but not to how common it is.  I'm not questioning that it happens.  Maybe we need a poll to see how many people plan to work some after FIRE.  I thought I would be in the majority that don't plan to work, but maybe I'm in the minority.  Statistically speaking, without data, you're more likely to be in the majority.  Now you and I have equal weighting with opposite plans, we both cannot be in the majority :)

There's a poll and related thread on this subforum related to that:
https://forum.mrmoneymustache.com/post-fire/post-fire-unplanned-incomecashflow/
https://forum.mrmoneymustache.com/post-fire/how-much-did-you-end-up-working-post-fire/

If you are talking about having less than 40 credits, I imagine you are retiring in your 20s and 30s. That's a long time until SS eligibility age, which means you don't have to work that hard to get the credits, even if you don't plan to. You may accidentally?

Even if you really don't want to work, I think the difference between 40 credits and not having 40 credits is big enough to consider it, even if it is one credit a year very slowly.

Occasionally I'm at stores/places I find interesting and I see a "help wanted" type ad, and every now and then my mind thinks "Oh, I wonder what it would be like to work here". I don't think I'd do some of them for the money, but maybe for the fun/experience, and earning SS credits would be extra incentive. (Have no idea if any of them would be silly enough to hire me)
« Last Edit: September 10, 2017, 10:50:17 PM by CanuckExpat »

TheAnonOne

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Re: FICA-if you worked less than 10 years?
« Reply #35 on: September 11, 2017, 11:52:57 AM »

I'll retire at 53 to 55, but I plan to start drawing SS at age 62, so I'll get a reduced benefit vs. waiting until age 67.

If you want a greater benefit, you can start drawing later than 62 or even wait until you're 70 to get extra.

Just curious, why would you draw SS early and not wait for the max payout at 70?

For someone living off of their investments already, the reduced-early-payout might be the better option. Consider that any extra money is immediately invested instead of being spent for someone in the FIRE zone. For this reason, taking it early may.....

1. Save your portfolio
2. Cause it to explode upwards


pdxmonkey

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Re: FICA-if you worked less than 10 years?
« Reply #36 on: September 12, 2017, 09:04:38 PM »
One gotcha to be aware of is that, depending on how you are paid, many grad school stipends don't have SS withheld and hence don't count towards earning your 40 SS credits for eligibility. It's easy to end up in your late twenties with 4-6 years of making $20-$30k/year but essentially no income history as far as the social security office is concerned.

I think I should hit 40 credits before I hit FI, but it's going to be a near-ish thing and it may end up that I only manage it because of some side jobs I had back in undergrad. If I'd been thinking about FIRE and conscious about the implications of the lack of social security withholding I would have at least thought about whether it would make sense to find some SS withholding eligible ways to make an extra couple of thousand dollars a year.

I have two years in undergrad where I worked work study jobs, but as far as social security is concerned I made $0 those years. So it's not applicable to just grad school.

pdxmonkey

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Re: FICA-if you worked less than 10 years?
« Reply #37 on: September 12, 2017, 09:16:58 PM »
As far as the bend points the 2017 bend point is 885/month in earnings. or...multiply by 35 years...
$371,700 of adjusted lifetime earnings.

The 2017 second bend point is 5336 per month or...
$2,241,120 in adjusted lifetime earnings


The 2016 and 2015 limit were 118500 each. Both years have a multiplier of 1.0 for 237,000 of that 371,700.
The 2014 max was 117,000 with a multiplier of 1.0347904 for another 121070.4768 which gives a total of a bit over 358,000 if you managed to max out the last three years. Earnings up to the first bend point pay out at a 90% rate. So in a bit over 3 years a high earner could hit the first bend point.

$885 * .9 is 796.50 per month. You still need to get the remainder of the 40 credits to qualify though.

Earnings between the first and second bend point pay out at only 40% so are much less valuable. Earnings between the 2nd 2.2M and change point and the max if you max out all 35 years are worth only 10%...

arebelspy

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Re: FICA-if you worked less than 10 years?
« Reply #38 on: September 12, 2017, 09:49:29 PM »
Not earning 40 credits for Social Security might just be the worst thing one could do financially.

I agree- get those credits.  If you are FI before the 40 credit mark, then find a fun part time job.

As a teacher in NV, I didn't pay into Social Security.

Are you two suggesting I go back to work for 10 years, even though I don't need the money, to pay into social security, to eventually collect something that I'm unlikely to need?

That seems silly.

If you don't earn 40 SS credits, I think you can be just fine. I'm not worried about it in the slightest.
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Re: FICA-if you worked less than 10 years?
« Reply #39 on: September 12, 2017, 10:26:16 PM »
In your case, no, that probably wouldn't be worth it.

For someone with 36 credits...I'd say that finding a way to earn $5,200 doing something at some point before they turn 65 would be a very prudent thing to do.
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Paul der Krake

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Re: FICA-if you worked less than 10 years?
« Reply #40 on: September 12, 2017, 10:32:40 PM »
Not earning 40 credits for Social Security might just be the worst thing one could do financially.

I agree- get those credits.  If you are FI before the 40 credit mark, then find a fun part time job.

As a teacher in NV, I didn't pay into Social Security.

Are you two suggesting I go back to work for 10 years, even though I don't need the money, to pay into social security, to eventually collect something that I'm unlikely to need?

That seems silly.

If you don't earn 40 SS credits, I think you can be just fine. I'm not worried about it in the slightest.
Did you walk away from your NV pension with no vesting whatsoever and no cash value payout? If not, that's not a fair comparison.

The comments are true for almost everyone who pays into Social Security, which is almost every potential early retiree. Somebody who doesn't get the 40 credits will have wasted 7.5% of their salary (and the 7.5% employer contribution) with nothing to show for it. It's obviously surmountable, but it doesn't change the fact that it's money that was spent with no chance of ever seeing any of it back. The difference in between 9.75 years and 10 years is infinity times more money, which is one hell of a fiscal cliff. 

arebelspy

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Re: FICA-if you worked less than 10 years?
« Reply #41 on: September 12, 2017, 10:49:36 PM »
Sure, I'll totally agree that if one is close to getting the credits, it could well be worth it to get it.

But it also might not be.  I'm questioning the blanket statements made about it being a huge mistake to not get enough SS credits.

There are plenty of scenarios where I think it's fine to throw that money away (the money "earned" towards SS), because it's only money. Once you stop valuing money, it may not be worth it.

One example: What if you are a sub-2% WR, and need another year's worth of work? 

If that person doesn't want to sell more of their life for money (SS money), I can't fault them.

That being said, I do think it's prudent for most people to earn it (and most people naturally will anyways). But it's not a blanket thing. It's up to the individual, and there are reasons why they might be okay not doing so.  That's what I'm trying to point out.  :)
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tj

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Re: FICA-if you worked less than 10 years?
« Reply #42 on: September 12, 2017, 11:02:28 PM »
Not earning 40 credits for Social Security might just be the worst thing one could do financially.

I agree- get those credits.  If you are FI before the 40 credit mark, then find a fun part time job.

As a teacher in NV, I didn't pay into Social Security.

Are you two suggesting I go back to work for 10 years, even though I don't need the money, to pay into social security, to eventually collect something that I'm unlikely to need?

That seems silly.

If you don't earn 40 SS credits, I think you can be just fine. I'm not worried about it in the slightest.

It's irrelevant if you are going to "need" it or not. What is relevant is if it's a good financial deal for you to take advantage of it or not.

You certainly don't need to "go back to work" to obtain your 40 SS credits. You could be paying into FICA on your self employment income (like, the tradelines you sell and the referral commissions that you collect). Contributing 10 years of the bare minimum into SS for you and your spouse seems like it would be a pretty damn good investment to me.

Paying 15.6% of FICA on $5,200 of self employed profit per year would be a cost of $811.20 per year. Except $405.60 of that is a tax deduction for your self employment. Based on the previous 10 years of inflation data, a social security benefit  with only $5,200 of coverage income for the past 10 years would be an annual benefit of $1,608 per year @ FRA. In today's dollars..

Hell, 10 years @ $25k (or 20 years at 12.5k) still doesn't even get you to top of the the first bend point. But 10 years @ $25k would have you paying a total of $39k in fica taxes less $19.5k in tax deductions for future annual benefits of $7.7k in today's dollars.

Bottom line, social security gives you 90% of income replacement up to $885 in averaged monthly earnings over a 360 month period. That's a good deal. And mirror it for a spouse.  It's after that first $885 where social security become pretty meh.

Of course if you have a NV government pension that offsets your social security, that's something entirely different.

But if you don't, i don't know why you wouldn't be optimizing your potential social security benefits to the best of your ability. If nothing else, i's just more that you can give to charity.

https://www.ssa.gov/oact/cola/piaformula.html
« Last Edit: September 12, 2017, 11:05:21 PM by tj »

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Re: FICA-if you worked less than 10 years?
« Reply #43 on: September 12, 2017, 11:08:22 PM »
I think we agree that there are no absolutes. If I stumble across 8 figures tomorrow, I won't care very much about my 40 credits either.

That being said, there is great value in having an absolute minimum floor. There is a risk I could be convinced to invest all my money in a risky venture. Or I could be fantastically reckless and have a plaintiff get a judgement for everything I own. Or I could slowly become senile and lose track of what's going on in my affairs.

With Social Security, I could take out an entire bus of high school cheerleaders, an other entire bus of neurosurgeons, and still receive 75% of by monthly benefit.

arebelspy

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Re: FICA-if you worked less than 10 years?
« Reply #44 on: September 12, 2017, 11:12:14 PM »
Bottom line, social security gives you 90% of income replacement up to $885 in averaged monthly earnings over a 360 month period. That's a good deal. And mirror it for a spouse.  It's after that first $885 where social security become pretty meh.

You're still missing my point.

It's not a good deal if you don't need the money. Then you're selling your time for money, which may not be worth it to you.

As for my pension: It exists. It's very small (and not inflation adjusted until I start it about 30 years from now, so it'll be extremely small in real dollars by that point.

Besides, it's irrelevant to the argument, if the argument is "earning 40 SS credits is a good deal". It the argument is "earning 40 SS credits is a good deal if you need the money" sure. Duh.

If you're saying the pension matters, because then maybe you don't need the SS money, then you're agreeing with my point: SS is only a good deal if you need it. If you don't need the money, then you're trading time for money you don't need, which is a bad deal. It shouldn't matter if that money that causes you to not need it is from a large stache, or a pension, or whatever. If you're at the point where SS won't make your life better, trying to earn it is silly.
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Re: FICA-if you worked less than 10 years?
« Reply #45 on: September 12, 2017, 11:20:24 PM »
I think we agree that there are no absolutes. If I stumble across 8 figures tomorrow, I won't care very much about my 40 credits either.

That being said, there is great value in having an absolute minimum floor. There is a risk I could be convinced to invest all my money in a risky venture. Or I could be fantastically reckless and have a plaintiff get a judgement for everything I own. Or I could slowly become senile and lose track of what's going on in my affairs.

With Social Security, I could take out an entire bus of high school cheerleaders, an other entire bus of neurosurgeons, and still receive 75% of by monthly benefit.

There are other ways to mitigate those risks.

Working 10 years is a pretty poor way to do so, IMO.

I bet with just a few years working I could save enough to more than duplicate SS's effect, plus buy plenty of insurance for your scenarios (and/or an annuity).

One can easily completely FIRE in less than a decade.  Another decade of working for me would have us earning multiple mllions more than we need. I just cjan't see SS being super important there.

Here's the thing: At what point would you agree that one should no longer trade that life for money?  Let's say, for example, I'm at scenario A, which includes full FI, but 0 SS credits.  Compare that to scenario B, where you're full FI, with SS credits.  Cool.  B seems better off. You'd say that maybe A should earn their credits to be like B.

Now say person in scenario A works another 2 years and earns enough to give them the NPV of the SS income. They're in the exact same scenario as person B now. Do they still need their credits?  Let's say they work 5 years, and end up with 3x the NPV of the SS credits, and nwo have much more than person B. Do they still need to work 5 more years?  If not, clearly there's some amount of money you're okay with them having where they don't need the SS credits anymore, or at least it's no longer worth trading years of their life for.

This all is the fundamental OMY question.

You all are just trading in the words "SS credits" for "bigger stache," but either way, at some point one has to ask themselves when they're okay with their buffer, whether that buffer be in extra diversification and a lower SWR, or in SS credits, and when they have "enough," including multiple backup plans (one of which may be SS, or it may not).

You all are arguing for OMY, essentially.

It makes sense, in some cases, because of that huge cliff. 9.75 credits to 10? Sure, probably. (Though if someone won the megamillions, and were a smart enough Mustachian that they won't lose it all, I'd be okay if they quit right away.) Before that point though? I think there are legit reasons for someone to draw a line and say "No more. I am not selling my time for dollars any more. I have enough."
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tj

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Re: FICA-if you worked less than 10 years?
« Reply #46 on: September 12, 2017, 11:38:26 PM »
If you're saying the pension matters, because then maybe you don't need the SS money, then you're agreeing with my point: SS is only a good deal if you need it.

Besides, it's irrelevant to the argument, if the argument is "earning 40 SS credits is a good deal". It the argument is "earning 40 SS credits is a good deal if you need the money" sure. Duh.


You having a pension has absolutely nothing to do with the bolded, I'm saying the pension matters because of the windfall elimination provision  That's why it's relevant to if "earning 40 SS credits is a good deal"...if you have a state pension.  It could be far less lucrative for you to pursue .You'd have to research it if you cared.

https://www.ssa.gov/planners/retire/wep.html

Quote
You're still missing my point. It's not a good deal if you don't need the money. Then you're selling your time for money, which may not be worth it to you.

That's subjective. What is objective if the marginal financial costs to obtain the benefits.  If you can't think of a way to use extra money for minimal effort, then sure, don't consider pursuing social security. Most Americans saving for FIRE aren't going to have 0 SS credits.

The point is that people should be educated on what they can purchase with their tax dollars and they can then choose to pursue it or not. Rather than just abandoning the idea of social security because they "don't need it".

OMY would be staying in a specific job for multiple decades to get a pension. Plenty of more creative ways to earn income for SS credits.
« Last Edit: September 12, 2017, 11:42:09 PM by tj »

arebelspy

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Re: FICA-if you worked less than 10 years?
« Reply #47 on: September 13, 2017, 12:13:50 AM »
The point is that people should be educated on what they can purchase with their tax dollars and they can then choose to pursue it or not.

Yep. That's exactly what I was arguing for.  :)

Quote
Rather than just abandoning the idea of social security because they "don't need it".

I don't think anyone was arguing for that.

Quote
OMY would be staying in a specific job for multiple decades to get a pension. Plenty of more creative ways to earn income for SS credits.

Definitely. A pension is a great example of golden handcuffs.  SS credits may be another one (just often with a shorter timeframe).  ;)
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seattlecyclone

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Re: FICA-if you worked less than 10 years?
« Reply #48 on: September 13, 2017, 12:14:04 AM »
It is essentially the same argument as OMY, agreed. At some point you're trading time for money that you probably won't need.

That word probably can have a big impact though. It's the main reason people do OMY in the first place. They don't believe in their heart that "probably" is close enough to "certain" for their tastes. We can never be truly certain, and that's something we all have to accept before we take the plunge into retirement.

At the same time, earning $1,300 for one credit takes hardly any time at all. It's not OMY, it's more like a couple weeks at minimum wage. During decades of retirement I expect to have several years where I earn $0 from work, but I also expect to find plenty of opportunities to make a difference doing something enjoyable and also earn a few bucks doing it. That's what I'd encourage someone a few credits short to look for. It doesn't need to be right away. You can earn nothing for a decade and then finish up your credits later when the right gig comes along.
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Re: FICA-if you worked less than 10 years?
« Reply #49 on: September 13, 2017, 12:21:55 AM »
Good post, SC.

One minor quibble:

At the same time, earning $1,300 for one credit takes hardly any time at all. It's not OMY, it's more like a couple weeks at minimum wage.

That's 80 weeks, so 1.5 years of work. But, of course, you need 10 years for SS. So those 80 weeks need to be spread out.

Since you can't earn it contiguously, you have to add on the work of finding (or creating) said job. So it'll be a bit more effort than that.

During decades of retirement I expect to have several years where I earn $0 from work, but I also expect to find plenty of opportunities to make a difference doing something enjoyable and also earn a few bucks doing it. That's what I'd encourage someone a few credits short to look for. It doesn't need to be right away. You can earn nothing for a decade and then finish up your credits later when the right gig comes along.

Definitely.
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