Author Topic: Anyone consider Social Security "Bend Points" for deciding when to FIRE?  (Read 5360 times)

FIREstache

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I do not include any welfare in my retirement planning. It is foolish to do so as the State can change anything it wants at any time with no notice. I will not gamble the rest of my life on welfare.

1) Social Security is not 'welfare' in the traditional sense, though I'm guessing you know that and are trying to make a point and bait a response.

2) Society would collapse before SS benefits went away completely. Tens of millions of US citizens are and will be completely dependent on it and despite political posturing, no one is going to willingly be the one to touch it.

Yeah, his post comes across as trolling to me.  To me, disregarding social security is like ignoring one of your bank accounts or a pension that you've earned, just as SS is earned after paying into it for 40+ quarters.  I posted something similar earlier in this thread:
https://forum.mrmoneymustache.com/welcome-to-the-forum/when-is-the-best-time-to-retire/msg2384321/#msg2384321

CoffeeR

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2) Society would collapse before SS benefits went away completely. Tens of millions of US citizens are and will be completely dependent on it and despite political posturing, no one is going to willingly be the one to touch it.
You are correct, but it is not impossible that government introduces a phase out on SS benefits based on wealth (not income) which would hit many US based FIRE proponents hard. I am not saying they will do this, but there are countries doing similar things (I believe this is so, but could be wrong).



FIREstache

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2) Society would collapse before SS benefits went away completely. Tens of millions of US citizens are and will be completely dependent on it and despite political posturing, no one is going to willingly be the one to touch it.
You are correct, but it is not impossible that government introduces a phase out on SS benefits based on wealth (not income) which would hit many US based FIRE proponents hard. I am not saying they will do this, but there are countries doing similar things (I believe this is so, but could be wrong).

It's not impossible, but it seems highly unlikely they would base cuts on wealth savings vs. income.  The wealth savings/assets aspect isn't even mentioned as one of the 12 proposals at AARP:
https://www.aarp.org/content/dam/aarp/work-and-retirement/social-security/2012-06/The-Future-Of-Social-Security.pdf

Even the Medicaid expansion doesn't have an asset test, which is why there are millionaires using it.  I think the additional administration to implement it would be one hurdle, but you would essentially be penalizing savers when too many people already fail to save sufficiently and don't need any further incentive not to save.

Here's a good SS thread from a while back that I was reading - has some good discussion on this topic.

https://forum.mrmoneymustache.com/welcome-to-the-forum/social-security-will-not-be-bankrupt/

SwordGuy

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If you look at the bend points, you'll see that high income career earners subsidize low income earners with 75% marginal tax rate.   I forget the 1st bend point marginal tax percentage, but it's around 60%.

I say marginal tax rate because people below the first bend point get 90% credit and people above the 2nd bend point only get 15% credit.  That 75% credit is used to subsidize lower income individuals.   

I guess, technically, it's a bit less than 75%/60% since we also subsidize our own below the 1st bend point dollars, but it's still an unGodly high marginal tax rate.

TomSelleckJR

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Just wanted to say thank you to the contributors of this thread.  It's been very educational for me.  I did not know much of this info beforehand.

sol

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I do not include any welfare in my retirement planning. It is foolish to do so as the State can change anything it wants at any time with no notice. I will not gamble the rest of my life on welfare.
Yeah, his post comes across as trolling to me.

GetItRight is a known troll.  As in, he just recently came back to the forum after being banned for trolling.  Apparently he hasn't learned his lesson yet?

So don't take anything that comes from that account too seriously.  He's deliberately antagonizing you for the purpose of causing arguments and ill will.  Try to think him as a Russian political operative, a man paid by Vladimir Putin to sow division in our ranks as a way of weakening our community.  It makes his posts seem a little more quaint, once you know that they aren't sincere. 

Hi GetItRight!  How was your ban?  Did you do something fun with your time off?

spartana

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Just wanted to say thank you to the contributors of this thread.  It's been very educational for me.  I did not know much of this info beforehand.
Ditto. I know bend points were mentioned in some other SS threads but I didn't really understand them and now I do. So thanks for the info everyone.

I only contributed 12 (full time adult) low earning years into SS and stopped at age 30 so haven't even reached the first bend point. And what I will get according to the calculators (approx $700/ month at 67) will get reduced due by approx half by the Windfall Elimination Provision (due to contributing to a gov pension instead of SS from age 30 to 42). Wonder what effect going back to work and paying into SS would have on any SS benefit for  me due to the WEP? I don't plan to find out ;-).

FIREstache

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Just wanted to say thank you to the contributors of this thread.  It's been very educational for me.  I did not know much of this info beforehand.
Ditto. I know bend points were mentioned in some other SS threads but I didn't really understand them and now I do. So thanks for the info everyone.

I only contributed 12 (full time adult) low earning years into SS and stopped at age 30 so haven't even reached the first bend point. And what I will get according to the calculators (approx $700/ month at 67) will get reduced due by approx half by the Windfall Elimination Provision (due to contributing to a gov pension instead of SS from age 30 to 42). Wonder what effect going back to work and paying into SS would have on any SS benefit for  me due to the WEP? I don't plan to find out ;-).

If you went back to work, your increased benefit would be similar to someone who has already passed that first bend point and went back to work, because that's what WEP does to the calculation to cut down on that early windfall before the first bend where the curve is steep.

spartana

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Just wanted to say thank you to the contributors of this thread.  It's been very educational for me.  I did not know much of this info beforehand.
Ditto. I know bend points were mentioned in some other SS threads but I didn't really understand them and now I do. So thanks for the info everyone.

I only contributed 12 (full time adult) low earning years into SS and stopped at age 30 so haven't even reached the first bend point. And what I will get according to the calculators (approx $700/ month at 67) will get reduced due by approx half by the Windfall Elimination Provision (due to contributing to a gov pension instead of SS from age 30 to 42). Wonder what effect going back to work and paying into SS would have on any SS benefit for  me due to the WEP? I don't plan to find out ;-).

If you went back to work, your increased benefit would be similar to someone who has already passed that first bend point and went back to work, because that's what WEP does to the calculation to cut down on that early windfall before the first bend where the curve is steep.
That's what I figured. It seems like the more I would earn towards SS, the greater the WEP reduction would be until I was at the max WEP reduction (currently around $450ish/month).  Not that I have any plans to go back to work even to get to the first bend point but it's interesting to figure out the math. Assuming I'm doing it right...I'm probably not.

TomTX

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Oh, but then I realized I could just use the actual equations instead of monkeying with an estimator website, so thatís what I prefer:

Your monthly benefit at regular retirement age is:
Your lifetime earnings from SSA, divided by 35 years, divided by 12 months
Now for the portion that is up to $895, you get 90% of that each month
Now for the portion that is above $895 but below $5397, you get 32% of that each month
Now for the portion that is above $5397, you get 15% of that each month

So if you hit the first bend but havenít gone above $5397, then your equation is this:
= (0.9*895)+0.32*(((LifetimeEarnings/35)/12)-895)

This is helpful. After redoing my SSA projection with accurate numbers, it seems that I would stay below the second bend point if I FIRE by 2027. Depends on future earnings increases of course.

Classical_Liberal

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Oh, but then I realized I could just use the actual equations instead of monkeying with an estimator website, so thatís what I prefer:

Your monthly benefit at regular retirement age is:
Your lifetime earnings from SSA, divided by 35 years, divided by 12 months
Now for the portion that is up to $895, you get 90% of that each month
Now for the portion that is above $895 but below $5397, you get 32% of that each month
Now for the portion that is above $5397, you get 15% of that each month

So if you hit the first bend but havenít gone above $5397, then your equation is this:
= (0.9*895)+0.32*(((LifetimeEarnings/35)/12)-895)

This is helpful. After redoing my SSA projection with accurate numbers, it seems that I would stay below the second bend point if I FIRE by 2027. Depends on future earnings increases of course.

Remember, when making this calculation, your earnings are inflation adjusted with an index factor.  See https://www.ssa.gov/pubs/EN-05-10070.pdf

Irregular Joe

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Yup. I am in my mid-30s and am projected to hit the 2nd bend point at 47. I plan to retire that year. Our savings rate gets us to FI by 46/47 anyway though, so it's more just a nice coincidence.