Author Topic: social security calculation ?  (Read 4462 times)

jom2025

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social security calculation ?
« on: October 25, 2016, 04:14:30 PM »
Hello can anyone help with my question on social security estimated benefit?

I went on the SSI website let the program show me an estimated benefit at age 62 if i continued working another eight years earning my same annual salary.

Then i keyed in the numbers as if i retired now at age 54 and made no more annual salary or SS contributions.

Whenever i hit the age of 62 and i'm eligible to collect my SS to my surprise the difference if i retired at age 54 instead of 62 and stopped contributing to SS was only 91.00 a month less.

I called sat on hold for over an hour but the representative assured me i was in fact utilizing the program correctly.

Has anyone else run their own numbers ?

MDM

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Re: social security calculation ?
« Reply #1 on: October 25, 2016, 04:33:03 PM »
Hello can anyone help with my question on social security estimated benefit?

I went on the SSI website let the program show me an estimated benefit at age 62 if i continued working another eight years earning my same annual salary.

Then i keyed in the numbers as if i retired now at age 54 and made no more annual salary or SS contributions.

Whenever i hit the age of 62 and i'm eligible to collect my SS to my surprise the difference if i retired at age 54 instead of 62 and stopped contributing to SS was only 91.00 a month less.

I called sat on hold for over an hour but the representative assured me i was in fact utilizing the program correctly.

Has anyone else run their own numbers ?

You could try the 'SocialSecurity' tab in the case study spreadsheet, but if your income has been high for most of your career then it isn't surprising that more work has very low returns SS-wise.

The_Dude

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Re: social security calculation ?
« Reply #2 on: October 25, 2016, 04:49:35 PM »
I've run the numbers before.  I didn't want to download it now but I believe I built my own calculator using the quick as well as detailed calculator form the SSA website. https://www.ssa.gov/OACT/anypia/anypia.html

The main points I would highlight about the calculation is as follows (info as of 2015):
You SSA eleigilble earnings are your highest 35 years of wage history.  The wages are adjusted for inflation.  But the really important part to understand is how the bend points work and how drastically they reduce incremental benefits.

A quick simple way to estimate your benefits is to take your inflation adjusted top earnings years add them all together (If you have more than 35 years only include the top 35).  Now divide them by 420 (35 years x 12 months) which gives you your average monthly earning history.

The first $856 of earnings history will generate 90% SS benefit or $770.
$857-$5,157 pays 32% benefits or $1,376.
Above $5,157 pays 15% benefits.

Things to keep in mind.  1) Earnings above the SS cap don't count and 2) the inflation factor published by the SSA will be most accurate for adjusting your historical earnings.

What I learned is that once your average annual salary from 35 years (including zeros for the non working early retired years) exceeds $62k you hit the 3rd bend point and see very little increase in SS benefits.  I've personally worked far less than the 35 years and if I early retire when I anticipate I will be very close to that 2nd bend point.

ETA: Another way to think about it is that at $62K in average salary earnings you will receive a monthly benefit at Full Retirement Age (FRA) of about $2.1K.  The earnings cap on SS is nearly twice that so if you made $120K a year for a full 35 years you benefit would only be $2.6K.  So more than doubling your SS wages (and taxes paid) after the 2nd bend point only nets you about a $500 increase in monthly benefit or 24%. 
« Last Edit: October 25, 2016, 04:57:09 PM by The_Dude »

Mother Fussbudget

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Re: social security calculation ?
« Reply #3 on: October 25, 2016, 06:04:20 PM »
The_Dude has it right. 

If you want more reading on the subject, you should certainly check out the book "Get What's Yours" by Larry Kotlikoff - probably available at your local library.  A short excerpt is here: http://www.pbs.org/newshour/making-sense/get-whats-social-security/.  It's well worth the read.

AlmstRtrd

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Re: social security calculation ?
« Reply #4 on: October 25, 2016, 06:18:10 PM »
If you want more reading on the subject, you should certainly check out the book "Get What's Yours" by Larry Kotlikoff - probably available at your local library.  A short excerpt is here: http://www.pbs.org/newshour/making-sense/get-whats-social-security/.  It's well worth the read.

Have they done an update on the book since "file and suspend" was nixed?

The only thing I would add to what The_Dude wrote is that I believe it's hard to know exactly what your benefits will be until one is very close to collecting. This is because the index factors are always changing (usually increasing because of inflation). But I'd be happy if someone wants to correct me on this.

MDM

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Re: social security calculation ?
« Reply #5 on: October 25, 2016, 06:29:51 PM »
...it's hard to know exactly what your benefits will be until one is very close to collecting. This is because the index factors are always changing (usually increasing because of inflation).
That's true - but not necessarily a problem.  It's true because you won't know the inflation-adjusted future numbers.  If you assume zero inflation, however, you get a result in "today's dollars" and can compare that with today's spending needs.

See https://www.ssa.gov/OACT/anypia/download/anypia32.pdf, including
Quote
Choose the fourth selection if you do not want any future benefit increases. This is the
recommended assumption for projecting future benefits. You can compare a benefit estimate
with no future inflation to your current income and expenses for retirement planning.

AlmstRtrd

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Re: social security calculation ?
« Reply #6 on: October 25, 2016, 07:32:07 PM »
Thanks for that, MDM. Sounds like whatever number I am coming up with for my monthly benefit can be used as a baseline. I'm 58 and still working some, but as has been pointed out earlier in the thread, additional earnings won't mean much because of that 2nd bend point.

jom2025, if you understand the bend points with SS, it will probably make sense that an additional eight years of work don't add much to your monthly benefit.
« Last Edit: October 26, 2016, 06:43:27 PM by AlmstRtrd »

ZiziPB

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Re: social security calculation ?
« Reply #7 on: October 26, 2016, 08:19:06 AM »
Here is a good article that explains how the bend points work, etc.

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

andy85

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Re: social security calculation ?
« Reply #8 on: October 26, 2016, 08:26:18 AM »
Here is blog post from rootofgood that i really found helpful
http://rootofgood.com/early-retirement-social-security/

Spitfire

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Re: social security calculation ?
« Reply #9 on: October 26, 2016, 10:51:22 AM »
Here is blog post from rootofgood that i really found helpful
http://rootofgood.com/early-retirement-social-security/

This is a great article. Motivated me to check out my own earnings history. I wonder if you could get an estimate of your future SS by adding on years of your current salary, with no index, then applying the calculation based on that total wage figure. For example, if I plan on retiring in 10 years, I'd use my current earnings then add this years salary x 10 before dividing by 420 to get a monthly amount. This is likely very conservative if you are rapidly advancing in your career with big salary jumps. 

The_Dude

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Re: social security calculation ?
« Reply #10 on: October 26, 2016, 01:07:50 PM »
This is a great article. Motivated me to check out my own earnings history. I wonder if you could get an estimate of your future SS by adding on years of your current salary, with no index, then applying the calculation based on that total wage figure. For example, if I plan on retiring in 10 years, I'd use my current earnings then add this years salary x 10 before dividing by 420 to get a monthly amount. This is likely very conservative if you are rapidly advancing in your career with big salary jumps.

Yes you can do that.  It will give you your estimated benefits in today's dollars.  If you are young then obviously there is plenty of time for the laws to be changed but due to the bend points early retirement folks can really optimize social security benefits by performing these calculations.

jom2025

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Re: social security calculation ?
« Reply #11 on: October 26, 2016, 06:07:59 PM »
Thank you for all the replies and the links.
They will help me with my decision when i'm ready to Fire.
The MMM community as always comes thru again.


                                                                                   Thanks jom2025

MDM

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Re: social security calculation ?
« Reply #12 on: October 26, 2016, 07:41:32 PM »
Based on discussion in this thread, the "two bend point" chart has been added for visualization in the case study spreadsheet.

seattlecyclone

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Re: social security calculation ?
« Reply #13 on: October 26, 2016, 08:06:30 PM »
One thing that's important to remember for people wanting to retire at close to a "typical" retirement age is that the social security formulas only consider your top 35 years of wage earnings (adjusted for inflation). So if, for example, you're 54 and have been earning some money from some sort of job since at least when you were 19, you're already at that 35 years of earning history. Working for another year won't be a pure addition to the formula, it will instead replace a lower-earning year. You're really just adding on the difference between this year's earnings and the amount you earned when you were 19 (or whenever was your previous 35th best year). Combine this effect with the bend points that reduce the benefit from further earnings, and work past 35 years doesn't make much difference for your eventual social security benefits.
« Last Edit: October 26, 2016, 08:08:10 PM by seattlecyclone »

AlmstRtrd

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Re: social security calculation ?
« Reply #14 on: October 27, 2016, 04:45:01 AM »
One thing that's important to remember for people wanting to retire at close to a "typical" retirement age is that the social security formulas only consider your top 35 years of wage earnings (adjusted for inflation). So if, for example, you're 54 and have been earning some money from some sort of job since at least when you were 19, you're already at that 35 years of earning history. Working for another year won't be a pure addition to the formula, it will instead replace a lower-earning year. You're really just adding on the difference between this year's earnings and the amount you earned when you were 19 (or whenever was your previous 35th best year). Combine this effect with the bend points that reduce the benefit from further earnings, and work past 35 years doesn't make much difference for your eventual social security benefits.

Right. I happen to have reached 35 years of earnings at the end of 2015. This thread got me interested in calculating what difference working this year and next will make on my FRA benefit. It turns out that it will bump it up only by about $20 per month. Not much but I don't hate my job so that's OK. I do wonder if some folks who are working 8-9 years and retiring are keeping that SS payout in mind. Not that getting check from the government for the last 30 years of one's life should necessarily be high on one's list of priorities. But at this end of the tunnel, it's a lot more appealing. I guess I would just say that getting 40 quarters (ten years) of earnings is probably a good thing to do for one's older self.

Incidentally, I am not even at the 2nd bend point so any extra indexed income at this point still gets multiplied by .32. So even before hitting the 2nd bend point, the financial benefit of working longer isn't necessarily dramatic.

Thanks all for your input.

FLBiker

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Re: social security calculation ?
« Reply #15 on: October 27, 2016, 07:27:21 AM »
Thanks for this!  I just did a quick and dirty calculation based on my current plan (stay in current job for 3 more years @~80K, downshift to 9 mos. job @~40K for 5 years, retire) and found that I'd get $1292 per month.  I have a lot of 0's in my SS earning history, because I worked overseas until the mid-point of 2008.  If I stayed in my current job (and kept getting ~2% raises) I'd get $1519.  If I downshifted at the same point in time but stayed in that for 10 years, I'd get $1473.

This will be helpful as I get closer to a point where I'm thinking about changing.

AlmstRtrd

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Re: social security calculation ?
« Reply #16 on: October 27, 2016, 07:38:35 AM »
As always, remember to take spousal benefits into account if applicable in your situation. I'm closer to claiming (still 12 years away if I follow the plan and starting drawing at age 70) and these calculations become much more real the closer one gets. Of course laws around SS are almost guaranteed to change some. File and Suspend was nixed earlier this year. That was a strategy that millions were taking advantage of.

My own mental calculation is to figure that I'll get about 75% of my benefit. That's a totally random guess but I don't think it's prudent to count on 100%.

mjs111

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Re: social security calculation ?
« Reply #17 on: October 28, 2016, 10:33:35 AM »
I built a spreadsheet that estimates your benefits if you're interested in seeing some of the math behind it. I recently updated it to take into account the indexing factors for each year with 2016's new numbers, the new bend points with 2016's numbers, and the new wage base that gets taxed (which determines your maximum possible payout):

http://mikesandrik.com/spreadsheets/

You'll need to input your Social Security-taxed earnings for each year, which you can get by creating an account at www.ssa.gov. The earliest year I have the spreadsheet go back to is 1989 since that's the first year I had taxed earnings, but if you have a longer history of taxed earnings it's an easy matter to just add more table rows and input the indices for the new years from the Social Security Administrations website. I have the ssa.gov links as to where to find that data in a couple of the spreadsheet's cells.  If you want I could also quickly build you a sheet that goes back as far as you need it to (no charge :) ).

You'll definitely want to read rootofgood's excellent post on the theory behind the bend points, max payout, etc. before fiddling with it so you know all the basic theory.


Mike

« Last Edit: October 28, 2016, 10:42:01 AM by mjs111 »