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Is SS amount reduced by retiring before age 62?
Old 05-24-2012, 10:33 PM   #1
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Is SS amount reduced by retiring before age 62?

I will be 60 this August, and anticipate retiring somewhere between January and August 2013. I intend to collect SS at age 62. I just got my SS notice, and the estimate says it presumes I will work until age 62.
Does that mean my benefit will be lower if I stop working before 62? If so, is there any way to estimate what that reduction would be?
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Old 05-24-2012, 10:45 PM   #2
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I think if you have your 35 years in it will only be a few bucks a month. Since you are 60 and want to collect in 2 years I would guess maybe 10 to 20 bucks a month lower.
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Old 05-24-2012, 11:02 PM   #3
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You can estimate it on the SS website. It really isn't much of a reduction when I did it for me. I do have 35 years although some of the early years were lower paid so a few more years at max contribution rate would make a difference but -- for me anyway -- that difference is not very much.
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Old 05-25-2012, 02:04 AM   #4
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There is a calculator on the SS website that allows you to enter manually your earnings between now and the year when you retire.
Quote:
Originally Posted by mystang52 View Post
I will be 60 this August, and anticipate retiring somewhere between January and August 2013. I intend to collect SS at age 62. I just got my SS notice, and the estimate says it presumes I will work until age 62.
Does that mean my benefit will be lower if I stop working before 62? If so, is there any way to estimate what that reduction would be?
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Old 05-25-2012, 07:18 AM   #5
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I just ran my own numbers on the SSA's quick calculator. For me, the difference between working to 60 and working to 62 is a whopping $6 per month. So, if you can afford to go out at 60, IMO it's not worth it to keep slaving away for another two years.

Now, for every year after after age 62 you delay it, the amount goes up quicker. For instance, while delaying it from 60 to 62 only gets me another $6 per month, pushing it from 62 to 63 bumps it up by $108 per month. Hold out another year to 64, and it's another $109 on top of that.

However, I think these more generous bumps after age 62 are a more a result of the gov't trying to encourage you to wait to collect it, moreso than a bigger benefit accrued from putting in more time.

The calculator assumes that you work right up until the age you start collecting. It won't let you calculate the estimated benefit if you stopped working at 60, but wanted to hold off collecting until 63, 64, or later.

I have a feeling that if you quit working at 60, but held off on collecting SS until 65, the amount would be very close to if you worked until 65, and then started collecting right away. But, the feds probably don't want you to know that. Gotta keep the mice on the treadmill, you know.
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Old 05-25-2012, 08:21 AM   #6
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However, I think these more generous bumps after age 62 are a more a result of the gov't trying to encourage you to wait to collect it, moreso than a bigger benefit accrued from putting in more time.
Uh, no.

It's just a simple fact that you will have less years left to collect SS.

No different than those that say "don't purchase an SPIA till age 80+ because you get higher payments" - sometimes tied to a possible better interest rate.

It has little to do with interest rates. It does however increase monthly payments greatly due to the simple fact that there are less years to receive a monthly payment.
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Old 05-25-2012, 09:25 AM   #7
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Quote:
Originally Posted by mystang52 View Post
I will be 60 this August, and anticipate retiring somewhere between January and August 2013. I intend to collect SS at age 62. I just got my SS notice, and the estimate says it presumes I will work until age 62.
Does that mean my benefit will be lower if I stop working before 62? If so, is there any way to estimate what that reduction would be?
If you're not afraid of a formula, you can see the rules at:Social Security Benefit Amounts

These are the steps:
1) Index each year's wages.
2) Pick the 35 highest years (fill in with zeros if necessary)
3) Take the average of those 35 years
4) Your benefit at your Normal Retirement Age is 90% of the first X dollars,
plus 32% of the excess over X but below Y dollars,
plus 15% of any excess over Y.
5) For people born in 1950, X=$9,204 and Y=$55,488.
6) If you start benefits at some age before or after NRA, there is a starting age reduction or increase.

This means that additional years of earnings only impact your benefit if they are high enough to bump out some of the low years in your 35 year average.
For example, you may make $80,000 this year, but you've already got 35 years in and the lowest is $30,000. So only $50,000 of this year's earnings really help your benefit.
If you already have reached an average indexed wage of $55,488, the additional annual benefit of say $50,000 of earnings is 50,000/35 x 15% = $214 annually.

(Note that the SS administration quotes all their numbers in monthly units. I've converted to annual.)
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Old 05-25-2012, 10:59 AM   #8
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Thanks, all (especially Independent). I thought that if there would be a reduction it would be nominal so it was gratifying to see that verified. But as Ronald Reagan once said "Trust, but verify.." so I will take the time to do that formula to...verify.
In the end I guess it doesn't matter. I'm so unhappy working, now, for multiple reasons, that I cannot envision any life scenario that would have me working beyond my 61st birthday.
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Old 05-27-2012, 05:06 PM   #9
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The SS web site lets you work out 3 scenarios simultaneously. Start here;
Retirement Estimator

Once you have filled in all the info, the site will give you the estimates based on working all the way to 62. Look in the lower right corner for a button that says,
"Create alternate scenarios".
You will be able to select a scenario that stops work at any age between 55 and 99.

I worked up the difference between quit working at 56 and quit working at 62, drawing SS at age 62 for the following results;

Scenario Results

No. 1
Stop Work Age 56
Future Earnings $0
Monthly Benefit $1,719.00
As of age 62

No. 2
Stop Work Age 62
Future Earnings $120,000
Monthly benefit $1,829.00
As of age 62

So, if I worked until 62, I'd pay about $40,000 in SS tax over 6 more years and take in about $110 a month more.
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Old 05-27-2012, 05:29 PM   #10
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Quote:
Working until 62 instead of retiring at 56 costs me $40,000 in taxes and more than $123,000 I didn't collect in SS while I worked.
You cannot collect social security benefits until 62.
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Old 05-27-2012, 05:51 PM   #11
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Originally Posted by Spanky View Post
You cannot collect social security benefits until 62.
You are correct and I edited my post. Thanks for catching that.
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Old 05-27-2012, 07:23 PM   #12
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Cool link. just ran my numbers

51 collect at 62 $1561

55 collect at 62 $1668

56 collect at 62 $1692

59 collect at 62 $1753

62 collect at 62 $1778

Used ave earnings $135k.

55 looks good enough to me........

If I live long enough, I might even get my money back.........
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Old 05-27-2012, 08:35 PM   #13
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Originally Posted by almost there View Post
Cool link. just ran my numbers

51 collect at 62 $1561

55 collect at 62 $1668

56 collect at 62 $1692

59 collect at 62 $1753

62 collect at 62 $1778

Used ave earnings $135k.

55 looks good enough to me........

If I live long enough, I might even get my money back.........
To get quotes over age 62, just put in the year and stipulate you earn zero income.

For example; If I put in that I quit working at 56 I get the same payout as I do when I put in that I work until 62 and earn zero. (I'm 56 now and retiring this year.)

Then I put in other ages, 65, 66 (max for my age), 67, etc. and state that I earn zero. The results are payouts that I would get if I hold off drawing SS until those ages. If I retire at 56, my current age, and don't work but 'retire' at 66, my payout is $2,200 a month. That's about $500 a month more than what I would draw at 62 and quit working at 56.
That means I can collect $1700 a month from 62 to 66, a total of $82,000 from SS. How long would I have to collect SS if I didn't apply for it until 66 and got $2,200 a month before I 'broke even' and started to pull ahead? About 160 months, or 13 years. I'd be 79 years old before I broke even taking the later SS retirement at 66 compared to taking the lower amount at 62.

Frankly, I'm of the mind to take the money now, while it's still around than bank that I'll make it pay off and live longer than age 79 and SS is still around in a form that I would even recognize.
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