Author Topic: social security in early retirement calculations  (Read 4247 times)

treesner

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social security in early retirement calculations
« on: March 27, 2017, 01:20:38 PM »
I was playing around with the personal capital retirement calculator and was wondering how do i estimate social security if i plan to retire in my 30's. seems like the ERT community usually skips over this area, is it one of those things i should just put in as $0 and not even factor it in?

prognastat

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Re: social security in early retirement calculations
« Reply #1 on: March 27, 2017, 01:26:57 PM »
I was playing around with the personal capital retirement calculator and was wondering how do i estimate social security if i plan to retire in my 30's. seems like the ERT community usually skips over this area, is it one of those things i should just put in as $0 and not even factor it in?

In my case I keep it mind as a backup in case FIRE fails, but I don't calculate it into the FIRE calculation itself. If FIRE works out then SS is a nice bonus once I can collect and if not then the paid off house and curbing spending will hopefully allow me to maintain lifestyle with minimal effort if FIRE fails.

TheAnonOne

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Re: social security in early retirement calculations
« Reply #2 on: March 27, 2017, 01:28:16 PM »
I was playing around with the personal capital retirement calculator and was wondering how do i estimate social security if i plan to retire in my 30's. seems like the ERT community usually skips over this area, is it one of those things i should just put in as $0 and not even factor it in?
Don't factor it in. If you're that young it seems silly to require SS to make it.

However, what I've done is just keep it in my mind that SS will offset extra medical and spending requirements. Think, more expensive travel and such that older age requires.


If you're in your 50s, for sure, plan on it.

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rantk81

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Re: social security in early retirement calculations
« Reply #3 on: March 27, 2017, 01:37:52 PM »
There's some calculator that estimates it on the SSA gov website, if you put in your income for each year.

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

I put all my prior years income into the site, and estimate the income for the future years...
But that calculator also lets you put in a retirement age, which, even if below the age of 62, will make the calculation come out correct (because it will stop automatically assuming more income each year, at that age.)

Furthermore, I estimate that I'll receive maybe half of what the calculator spits out... because I'm in my mid-30s.


skeinwinder

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Re: social security in early retirement calculations
« Reply #4 on: March 27, 2017, 04:06:28 PM »
Justin @ RootOfGood did the best analysis of this last fall.

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

skeinwinder

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Re: social security in early retirement calculations
« Reply #5 on: March 27, 2017, 04:11:00 PM »
I would also make certain to get your 40 quarters in nonetheless, to get 'free' Medicare part A.

spokey doke

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Re: social security in early retirement calculations
« Reply #6 on: March 29, 2017, 07:50:13 AM »
Justin @ RootOfGood did the best analysis of this last fall.

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

really good stuff...

Davids

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Re: social security in early retirement calculations
« Reply #7 on: March 29, 2017, 10:51:01 AM »
I do not factor SS. If it is there when I am on my 60s then I consider that as a bonus.

Bateaux

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Re: social security in early retirement calculations
« Reply #8 on: March 29, 2017, 11:29:32 AM »
I never include SS in FIRE planning. I had a gloden parachute pension plan taken away with 20 years of service and replaced legally by a insulting amount of cash.  Nothing is guaranteed. Not pensions or even SS.  Not even our Roth or 401k is guaranteed but they will have a much harder problem stealing them.

Drifterrider

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Re: social security in early retirement calculations
« Reply #9 on: April 05, 2017, 07:25:37 AM »
I was playing around with the personal capital retirement calculator and was wondering how do i estimate social security if i plan to retire in my 30's. seems like the ERT community usually skips over this area, is it one of those things i should just put in as $0 and not even factor it in?

Social Security benefits are calculated on the previous 35 years of earnings.  For every year of no earnings (taxed earnings), use 0.

You must also ensure you've paid your 40 quarters in order to qualify for a retirement AND for disability coverage.

DoubleDown

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Re: social security in early retirement calculations
« Reply #10 on: April 05, 2017, 10:07:01 AM »
This topic is frequently debated here. I, for one, find it pretty ridiculous to ignore Social Security if you're expecting any kind of non-trivial payment. When I hit 62, assuming I take it at the earliest possible time, I'll get about $21,000/year in benefits. It would be both silly and counterproductive to ignore that much money when factoring early retirement. I would have to work years and years longer if I ignored it, and would likely end up with way more income than I could ever spend in my old age.

Social Security isn't going anywhere. It will be around for all of our lifetimes, even for younger workers. Might there be small tweaks or reductions here and there, like chained CPI or raising the cap on payroll contributions? Sure, but any talk of it not being around for younger people is doomsday talk that has absolutely no basis in reality.

TheAnonOne

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Re: social security in early retirement calculations
« Reply #11 on: April 05, 2017, 10:21:29 AM »
It's not ignoring it to not focus on it. For people retiring in their 30s they need to focus on MAKING IT to 62 first. Ha!

SS will also be eaten up by some increased old age costs (presumably)

It's also trivial in your 30s to make up 21k per year in your late 60s.

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DoubleDown

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Re: social security in early retirement calculations
« Reply #12 on: April 05, 2017, 10:33:38 AM »

SS will also be eaten up by some increased old age costs (presumably)

It's also trivial in your 30s to make up 21k per year in your late 60s.

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There is no evidence for your first assertion, and honestly I don't even really know what it means to have SS "eaten up by old age costs."

Your second assertion is also wrong. Social Security payments are indexed every year for inflation. So, an estimate today of $21k annually will be paid out in future dollars, such as $65k thirty years for now (or whatever $21k is worth then).

I don't mean to be rude, but your post is is exactly the kind of falsehood-based fear-mongering I was referring to, that misinforms people and causes them needless worry.

TheAnonOne

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Re: social security in early retirement calculations
« Reply #13 on: April 05, 2017, 10:50:32 AM »

SS will also be eaten up by some increased old age costs (presumably)

It's also trivial in your 30s to make up 21k per year in your late 60s.

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There is no evidence for your first assertion, and honestly I don't even really know what it means to have SS "eaten up by old age costs."

Your second assertion is also wrong. Social Security payments are indexed every year for inflation. So, an estimate today of $21k annually will be paid out in future dollars, such as $65k thirty years for now (or whatever $21k is worth then).

I don't mean to be rude, but your post is is exactly the kind of falsehood-based fear-mongering I was referring to, that misinforms people and causes them needless worry.

Sorry if it came off that way, I am certainly not one of the "fearful" kinds who discount it's value to 0. Simply so that, during FIRE, your biggest risks are early on. The first 10 years determine the majority of your chances at success.

In that same line of thinking, people might avoid thinking about SS in these calculations because they are focused on the sequence of returns risk and SS falls outside of this. (Arguably, this risk is the largest such risk in FIRE). If I am FIREing in my 30s, SS is so far outside of this range it's hard to see much true value in it.

By the time I reach 65 after being FIREed for 30+ years, I WILL be so wealthy it won't change the picture. The only situation it seems to matter at all, is one where you don't go broke PRE SS age, and you ALSO don't become wealthy or even maintain your wealth. A situation where you are in declining stache and SS catches you before the bottom. In this situation, many would either pull back spending, find some side work, or some other method to avoid it anyway.

DoubleDown

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Re: social security in early retirement calculations
« Reply #14 on: April 05, 2017, 11:54:08 AM »
Sorry if it came off that way, I am certainly not one of the "fearful" kinds who discount it's value to 0. Simply so that, during FIRE, your biggest risks are early on. The first 10 years determine the majority of your chances at success.

In that same line of thinking, people might avoid thinking about SS in these calculations because they are focused on the sequence of returns risk and SS falls outside of this. (Arguably, this risk is the largest such risk in FIRE). If I am FIREing in my 30s, SS is so far outside of this range it's hard to see much true value in it.

By the time I reach 65 after being FIREed for 30+ years, I WILL be so wealthy it won't change the picture. The only situation it seems to matter at all, is one where you don't go broke PRE SS age, and you ALSO don't become wealthy or even maintain your wealth. A situation where you are in declining stache and SS catches you before the bottom. In this situation, many would either pull back spending, find some side work, or some other method to avoid it anyway.

Ah, I see where you're coming from, thanks for that. Yes, I understand and agree with you about how if you're retiring in your 30s, sequence of returns risk pretty much obviates any thoughts about Social Security down the road. But that's a bit different than saying Social Security doesn't or shouldn't matter at all to people in their 30s, who may not be retiring just yet, or that Social Security will be "eaten up" for those people.

Those who are looking at a less-than-30-year window between retirement and drawing on Social Security probably want to consider how the expected payout affects their overall wealth/income later in life. For example, to use an extreme case just for illustration, if someone determined:

1. They could live off $20k annually, and
2. Their expected SS income at 62 (adjusted for inflation) will be $20k,

then they could save just enough so that they draw their stash down to $0 on the day they reach age 62, at a rate of $20k per year, during those intervening years. That would cut many years off the time they need to work/save vs. having enough, say, to draw 4% "forever."

Obviously this example would be a ridiculous, high-risk endeavor fraught with peril since no one can plan a drawdown that exact, but I want to make the point that drawing down the stash and using other income streams later in life, rather than having the stash go on infinitely, is a viable strategy. It doesn't have to be black-and-white -- having enough stash so that SS doesn't matter at all, or being in peril and cutting back and getting side jobs just to barely make it to the time you can draw on it. It can be part of a well-thought-out plan for drawing from different "buckets" over time.

jim555

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Re: social security in early retirement calculations
« Reply #15 on: April 05, 2017, 12:04:48 PM »
The Social Security bend points favors the lower earners. 

PIA the first $856 is multiplied by 90%
The difference between $5,157 and $856 is multiplied by 32%
The excess above $5,157 is multiplied by 15%

SS earnings (adjusted for inflation) divided by 420 = Primary Insurance Amount PIA

Once one gets over the second bend point not much is added to the monthly amount.


TheAnonOne

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Re: social security in early retirement calculations
« Reply #16 on: April 05, 2017, 12:20:27 PM »
Sorry if it came off that way, I am certainly not one of the "fearful" kinds who discount it's value to 0. Simply so that, during FIRE, your biggest risks are early on. The first 10 years determine the majority of your chances at success.

In that same line of thinking, people might avoid thinking about SS in these calculations because they are focused on the sequence of returns risk and SS falls outside of this. (Arguably, this risk is the largest such risk in FIRE). If I am FIREing in my 30s, SS is so far outside of this range it's hard to see much true value in it.

By the time I reach 65 after being FIREed for 30+ years, I WILL be so wealthy it won't change the picture. The only situation it seems to matter at all, is one where you don't go broke PRE SS age, and you ALSO don't become wealthy or even maintain your wealth. A situation where you are in declining stache and SS catches you before the bottom. In this situation, many would either pull back spending, find some side work, or some other method to avoid it anyway.

Ah, I see where you're coming from, thanks for that. Yes, I understand and agree with you about how if you're retiring in your 30s, sequence of returns risk pretty much obviates any thoughts about Social Security down the road. But that's a bit different than saying Social Security doesn't or shouldn't matter at all to people in their 30s, who may not be retiring just yet, or that Social Security will be "eaten up" for those people.

Those who are looking at a less-than-30-year window between retirement and drawing on Social Security probably want to consider how the expected payout affects their overall wealth/income later in life. For example, to use an extreme case just for illustration, if someone determined:

1. They could live off $20k annually, and
2. Their expected SS income at 62 (adjusted for inflation) will be $20k,

then they could save just enough so that they draw their stash down to $0 on the day they reach age 62, at a rate of $20k per year, during those intervening years. That would cut many years off the time they need to work/save vs. having enough, say, to draw 4% "forever."

Obviously this example would be a ridiculous, high-risk endeavor fraught with peril since no one can plan a drawdown that exact, but I want to make the point that drawing down the stash and using other income streams later in life, rather than having the stash go on infinitely, is a viable strategy. It doesn't have to be black-and-white -- having enough stash so that SS doesn't matter at all, or being in peril and cutting back and getting side jobs just to barely make it to the time you can draw on it. It can be part of a well-thought-out plan for drawing from different "buckets" over time.
Indeed.

If you were 50, the math to draw down would be really easy and reasonably safe. At 30, it's kind of like mortgages, 30 year mortgage is just a few dollars away from being interest only, like a 30 year portfolio is almost interest (gains) only.

This is why people here discount SS. For better or worse.

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redbird

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Re: social security in early retirement calculations
« Reply #17 on: April 05, 2017, 12:36:25 PM »
I don't even bother to count SS. I am supposed to get money from it if it's still around by the time I reach actual retirement age, but if it's not, it won't negatively affect me. I also have a pension and a 401k as my "old people money", though all of those things I see as supplementing whatever level my stash is at at the time.

SimplyFinanciallyFree

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Re: social security in early retirement calculations
« Reply #18 on: April 24, 2017, 08:57:50 AM »
I would also make certain to get your 40 quarters in nonetheless, to get 'free' Medicare part A.

Agreed. Make sure your Medicare isn't unnecessarily more expensive.

Based on your age, I consider any SS income as bonus fun money.