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How much will my SS benefit drop if I RE?
Old 02-17-2015, 02:53 PM   #1
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How much will my SS benefit drop if I RE?

I saw this on a FP website and I did their math. If I RE at age 54, that would be 13 years before my FRA of 67. That's 156 months. If I work out their math, my age 67 SS benefit is reduced by like 70%?

I went on the SSA website and I used their calculator and got a much different answer. The SSA calculator only reduced my age 67 benefit by about 10%. My age 67 benefit is projected as $40k/yr. The SSA calculator says that would drop to about $36k/yr if I stopped working now. I'm not going to take benefits until age 67.

You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you retire early, your Social Security benefit will be less than if you wait until your full retirement age to begin receiving benefits. Your retirement benefit will be reduced by 5/9ths of 1 percent for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. For example, if your full retirement age is 67, you'll receive about 30 percent less if you retire at age 62 than if you wait until age 67 to retire. This reduction is permanent--you won't be eligible for a benefit increase once you reach full retirement age.
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Old 02-17-2015, 02:59 PM   #2
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I went on the SSA website and I used their calculator and got a much different answer. The SSA calculator only reduced my age 67 benefit by about 10%.
^ This.

See the threads linked here for additional information: Class of 2017
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Old 02-17-2015, 03:02 PM   #3
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^ This.

See the threads linked here for additional information: Class of 2017
Thanks!
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Old 02-17-2015, 04:11 PM   #4
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Originally Posted by bulbar View Post
I saw this on a FP website and I did their math. If I RE at age 54, that would be 13 years before my FRA of 67. That's 156 months. If I work out their math, my age 67 SS benefit is reduced by like 70%?

I went on the SSA website and I used their calculator and got a much different answer. The SSA calculator only reduced my age 67 benefit by about 10%. My age 67 benefit is projected as $40k/yr. The SSA calculator says that would drop to about $36k/yr if I stopped working now. I'm not going to take benefits until age 67.
It very much depends on what your earnings average is. Ss replaces 90% of the first 826 of average monthly earnings, 32 % between 827 and 4980 and 15% between 4981 and the earnings cut off. So you need to know your average earnings over the highest 35 years (adjusted for wage increases), and see where they fall with respect to the 2 amounts mentioned earlier. Above 4981 you get 15% of each additional dollar of average earnings, below that amount more. So it is impossible to make a general statement except that if you have been at the limit for most of your years the increase is likley in the 15% range.
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Old 02-17-2015, 04:19 PM   #5
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It very much depends on what your earnings average is. Ss replaces 90% of the first 826 of average monthly earnings, 32 % between 827 and 4980 and 15% between 4981 and the earnings cut off. So you need to know your average earnings over the highest 35 years (adjusted for wage increases), and see where they fall with respect to the 2 amounts mentioned earlier. Above 4981 you get 15% of each additional dollar of average earnings, below that amount more. So it is impossible to make a general statement except that if you have been at the limit for most of your years the increase is likley in the 15% range.
I used the SSA calculator. I entered my 36 years of historical earnings. Then I entered a number for 2014. Then I entered zero for 2015 and onward. It came back with an estimate of $2,433/month. I assume that's at age 67 but it doesn't say. My original estimate at age 67 is $2,729/month. So it's dropping me 11%. All in today's dollars
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Old 02-17-2015, 05:06 PM   #6
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I used the SSA calculator. I entered my 36 years of historical earnings. Then I entered a number for 2014. Then I entered zero for 2015 and onward. It came back with an estimate of $2,433/month. I assume that's at age 67 but it doesn't say. My original estimate at age 67 is $2,729/month. So it's dropping me 11%. All in today's dollars
SS has a calculator that pulls all your data and estimates what you'll get if you work until 62, 67, and 70. Then you run other cases. I usually pick the age I want to take SS (62-70) and put the following years with all 0 income. Since you can put in the age you want to start taking it... you know when it is.
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Old 02-17-2015, 05:06 PM   #7
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I've used this - http://www.ssa.gov/pubs/EN-05-10070.pdf
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Old 02-17-2015, 10:58 PM   #8
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When I putting together my ER plan back in 2007-08, I was able to create a spreadsheet which mimicked the SS benefit calculation. I wasn't able to check it against the SSA downloadable benefit calculator until a few years later but it checked out fine. Because my monthly benefit was barely into the 15% bend point, the benefit reduction caused by including about 12 zeroes was about 11% versus 12 more years of working at the low, part-time number of hours with average raises (around 2%).
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Old 02-18-2015, 08:32 AM   #9
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I ran our numbers last night on the SSA website. I am only 4 years from FRA and 2015 is my first year with no SS wages. So 4 years of no SS contributions only lowers my monthly SS by $55 which is only a 2.1% reduction. DW is a little over 5 years from FRA and her last year of SS wages was 2012. So for DW with approx. 8 years of no SS contributions her monthly SS is lowered by only $23 which is only a 1.3% reduction.


So in our situation 4 plus years of additional SS contributions would only have brought in an additional $78 per month. Not much of a hit if you have the investments to retire early.
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Old 02-18-2015, 08:43 AM   #10
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When I putting together my ER plan back in 2007-08, I was able to create a spreadsheet which mimicked the SS benefit calculation. I wasn't able to check it against the SSA downloadable benefit calculator until a few years later but it checked out fine. Because my monthly benefit was barely into the 15% bend point, the benefit reduction caused by including about 12 zeroes was about 11% versus 12 more years of working at the low, part-time number of hours with average raises (around 2%).
Under current law, the SS formula is very generous to ERs -- especially if they have worked steadily up to the time of ER. SS is a progressive calculation that is calculated on lifetime earnings. Once I realized that I was into the 15% of the curve and past the "sweet spot", that was another reason for me to ER.

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Old 02-18-2015, 09:17 AM   #11
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I ran our numbers last night on the SSA website. I am only 4 years from FRA and 2015 is my first year with no SS wages. So 4 years of no SS contributions only lowers my monthly SS by $55 which is only a 2.1% reduction. DW is a little over 5 years from FRA and her last year of SS wages was 2012. So for DW with approx. 8 years of no SS contributions her monthly SS is lowered by only $23 which is only a 1.3% reduction.


So in our situation 4 plus years of additional SS contributions would only have brought in an additional $78 per month. Not much of a hit if you have the investments to retire early.
Being that close to FRA, you likely have your 35 years in (the number of years earnings that are averaged). Likely the difference is due to differences in inflation adjusted monthly income now verse early in your contributing to SS. Everyone is different. I'm not up to my 35 years and still have very low early years (working in high school and during college). However, (and I have been using the benefit being taken at age 70) for me at age 53, 14 years from FRA, I have about a 10% reduction for stopping work now (actually a couple years ago) and having some 0 in the 35 years and some very low income. Usually when I run it, I compare working to 70 verse stopping now. So this would also increase the monthly average income for many years where I did not max out the SS tax.

This really can be quite different depending on ones earning/paying into SS tax years and values, pensions based on years not paying into SS, etc. It is important that people do their own calculations before ER/R.

As for me using the SS website, I'm always missing the last year income figures.
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