can anyone explain how ER will impact your SS benefits?
As an additional question, what if in ER you do earn a small income from your own endeavors (say $10K/year) and pay SS tax on the 10K, does that help or hurt your SS benefits. Basically, are you better off not paying any SS Tax in ER or pay some on a much lower earnings base vs. when you were building your stash?
can anyone explain how ER will impact your SS benefits?
Basically, your SS benefit is based on your highest 35 years of earnings, indexed backwards in time for inflation. That means you can't really make any predictions about future dollar amounts without knowing future inflation rates.
The bad: with far less than 35 years of wages, your 35-year average is going to be very small.
There's no easy way to work this out. One method is to assume future inflation will match past inflation patterns (a bad guess, due to the 70s) and use one of the online SS benefit calculators assuming that your first year of wages, say 2003, was actually 35 years before you retire; so if you plan to retire in 2020 then you would input your 2003 wages as 1985 wages. Of course, you have to use a separate web calculator to reduce your 2003 wages to their 1985 inflation-adjusted value, making this whole process kind of messy.
It's actually a good thing when you aren't throwing money into SS. SS benefits are a FANTASTIC waste of your money.
Retirement age | Monthly benefit at age 62 (today's dollars) |
30 | $666 |
35 | $881 |
40 | $1096 |
45 | $1310 |
50 | $1435 |
55 | $1529 |
I didn't look at it closely, but it doesn't look linear. If you start working at age 22, then 8 years of work gets you $666, while 33 years of work gets you $1529. There might be a sweet spot somewhere in there.
Where else can you get a guaranteed 100+% replacement rate of your pre-retirement salary for only 6.2% of your salary over 35 years?
People on the low end of the scale get 90% of their inflation-adjusted average of the last 35 years. Where do you get 100%+?
See here (http://www.ssa.gov/pubs/10070.html#a0=0) for a detailed worksheet you can use to check the numbers manually.