The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: CryingInThePool on June 16, 2015, 07:18:54 PM
-
Ever since reading this thread over in then journals I’ve been trying to wrap my head around Social Security Bend points.
http://forum.mrmoneymustache.com/journals/wrestling-with-safety-margins/msg688743/#msg688743 (http://forum.mrmoneymustache.com/journals/wrestling-with-safety-margins/msg688743/#msg688743)
Is calculating Bend Points something that should be on the preFIRE to do list (I’d never even heard of it before)? I took a look at the referenced spreadsheet but I’m having a hard time grasping the value if the Bend Point dollar values for say the year 2041 are unknown at this time (2015 below). Is the 2nd Bend point a hurdle you should really clear or just a line in the sand that indicates reduced benefit beyond?
I’m certain after 24 years of working I’d cleared the first bend (a) but I could be on the cusp for the 2nd (b) but having a hard time understanding how much it matters to cross the line into (c). I wasn’t really counting on SS for FIRE in the first place but I also don’t like the idea that I may miss out on getting some of my money back because I didn’t understand the math and pulled the trigger too early.
PIA formula (from http://www.socialsecurity.gov/OACT/COLA/piaformula.html (http://www.socialsecurity.gov/OACT/COLA/piaformula.html))
For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2015, or who dies in 2015 before becoming eligible for benefits, his/her PIA will be the sum of:
(a) 90 percent of the first $826 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $826 and through $4,980, plus
(c) 15 percent of his/her average indexed monthly earnings over $4,980.
-
Is the 2nd Bend point a hurdle you should really clear or just a line in the sand that indicates reduced benefit beyond?
It's just a number, much as $37,450 is just a number that happens to the upper limit of the 15% federal tax bracket for single filers in 2015.
It is good to calculate your potential SS payouts - have you been able to do so using any of the tools referenced in the "safety margins" thread?
-
I've intentionally avoided calculating SS payouts as I didn't want to count on them; treating them more like a pleasant surprise in the safety margin.
Bend Points though made me worried that I might be choosing an suboptimal FIRE date and leaving benefit % points on the table. Sounds like from your tax bracket comparison that shouldn't be a concern. I'll get the benefit based on what I paid but I shouldn't treat the 2nd Bend Point as a minimum I need to clear.
Did I get that right? Thanks!
-
Correct.
The second bend point is just something to know about: after you pass it, there is less financial return on each additional dollar earned.
In other words, there's no big threshold where piles of money are lost because you failed to earn the last little bit that would have qualified you for a big jackpot. Instead, at all three of the levels, each additional dollar on which you pay Social Security tax qualifies you for a slightly higher Social Security payment; after each bend point, the amount of "slightly higher" you get for another dollar is lower than before.
In case you didn't already see it, the link below (from digging in the articles you already were looking at) takes you directly to calculators where you can use real data from your own case.
http://thefinancebuff.com/early-retirement-social-security-benefits.html
-
The first bend point ($816/mo in benefits) is something you would probably clear with most levels of earnings that also got you the necessary 40 credits. The return is very high until you get to the first bend point, then it's still good but less good.