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Maximizing Social Security with Bend points
Old 11-23-2014, 10:37 AM   #1
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Maximizing Social Security with Bend points

I'd like to be able to figure out (relatively easily) how to calculate where we are in relation to the bend points on an ongoing basis. Maybe something I can plug into a personal spreadsheet? Anyone know a calculator that shows this? My knowledge of SS is very limited.

Backstory:

Because my wife and I contract our services out through our personal LLC (s-corp), we have the power to pay ourselves pretty much whatever we want. As such, I can control the income taxed (or not) by social security, as well as the amount each of us is paid.

I'd like to investigate the "right payments" to maximize social security considering the current "bend points" in the system. My wife is naturalized citizen, and will have a less than 30 year history most likely, with relatively low wages. I will have 30 or near 30 history, mostly toward the top end of the scale. birth years '69 and '78.
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Old 11-23-2014, 11:01 AM   #2
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See the SS website:

Primary Insurance Amount

and this example:

Social Security Retirement Benefit Calculation (also click through to the next page)

is helpful
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Old 11-23-2014, 12:42 PM   #3
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Here's an article you might like: How to Calculate Social Security Benefits
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Old 11-23-2014, 12:57 PM   #4
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There is a good article, graph and a downloadable spreadsheet related to the "bend point" issue here at this link......

Retiring Early: Effect On Social Security Benefits
Retiring Early: Effect On Social Security Benefits

I downloaded the spreadsheet and found it to be a useful tool that allowed me to change the data for my own personal "bend points". Definitely useful for very early retirees looking for when they have passed the second "bend point". You will find when you are "after the second bend point", the more earnings you have, the less it impacts the payout.

The article is worth reading, but, if you wish to "jump to the spreadsheet", it can be found here...
https://docs.zoho.com/sheet/published.do?rid=n9y9p8dc09c5cbf2c4357beba2771b70c 1ab3
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Old 11-23-2014, 01:48 PM   #5
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I am probably going to do the same thing. If you pay $816 a month, which I believe is the first bend point, she will get 90% of that allocated to her account.

I need to make sure my DGF has just enough to get MinnesotaCare insurance, and not Medicaid. Too much, and she is on the ACA. The bronze/silver will cost much more.

With MinnesotaCare, it is near 100% subsidy, only ~$12 per month premium, no deductible.
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Old 11-23-2014, 02:07 PM   #6
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I don't think there are bend points. I.e., once you qualify for minimum SS benefits, each additional dollar of pay-in results in a lesser incremental increase in benefits till you each the maximum benefit & then get zero return on additional pay-in.
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Old 11-23-2014, 02:14 PM   #7
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I hope you pay your wife from your company, even if its by paying yourself the equal amount less.
This will fill in a number of her zero years out of the 30, and its the 30 yrs of low wages that earns the biggest SS buck.
Watch out for SS deduction for her if she gets a pension from her home country, they don't like it as SS is a form of social engineering as it favors the poor.
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Old 11-23-2014, 02:17 PM   #8
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Originally Posted by gerntz View Post
I don't think there are bend points. I.e., once you qualify for minimum SS benefits, each additional dollar of pay-in results in a lesser incremental increase in benefits till you each the maximum benefit & then get zero return on additional pay-in.
Nope, it goes definitely drops by blocks of income, its not a graduated line, more like steps down.
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Old 11-23-2014, 02:21 PM   #9
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Here a quick and partial excerpt showing the stepping factors:

Step 5:
a. Multiply the first $816 in Step 4 by 90%.
$_________
b. Multiply the amount in Step 4 over $816 and
less than or equal to $4,917 by 32%. $_________
c. Multiply the amount in Step 4 over $4,917 by 15%.
$_________
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Old 11-23-2014, 03:07 PM   #10
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Originally Posted by Sunset View Post
This will fill in a number of her zero years out of the 30, and its the 30 yrs of low wages that earns the biggest SS buck.

No, it works on averages. 0's just skew the average. It's the highest 35 years.




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Old 11-24-2014, 11:13 AM   #11
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They divide by 420 (35 x 12 months). Less than 35 years of work are in effect filled with zeros.
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Old 11-24-2014, 12:08 PM   #12
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This link gives an article on how to create your own spreadsheet for analyzing your personal Social Security situation.

Journal Social Security Benefits: An Excel Spreadsheet Construct

I have made my own spreadsheet based upon this technique.
It reveled to me when I was past the 2nd bend point for Social Security lifetime earnings and thus past the sweet spot of the curve if you will.

It will also show you how much you have accrued to date in Social Security, under current law, if you never work another day in your life.

-gauss
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Old 11-24-2014, 06:10 PM   #13
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Quote:
Originally Posted by DatumPoint5 View Post
There is a good article, graph and a downloadable spreadsheet related to the "bend point" issue here at this link......

Retiring Early: Effect On Social Security Benefits
Retiring Early: Effect On Social Security Benefits

I downloaded the spreadsheet and found it to be a useful tool that allowed me to change the data for my own personal "bend points". Definitely useful for very early retirees looking for when they have passed the second "bend point". You will find when you are "after the second bend point", the more earnings you have, the less it impacts the payout.

The article is worth reading, but, if you wish to "jump to the spreadsheet", it can be found here...
https://docs.zoho.com/sheet/published.do?rid=n9y9p8dc09c5cbf2c4357beba2771b70c 1ab3
That spread sheet was PERFECT and EASY! thanks. Looks like I will hit the second bend point in 2020, pretty much perfect timing for me.

Thanks to everyone else too for contributing, haven't had a chance to review all the doc's, as this one nailed it.
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Old 11-24-2014, 07:48 PM   #14
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Quote:
Originally Posted by dallas27 View Post
That spread sheet was PERFECT and EASY! thanks. Looks like I will hit the second bend point in 2020, pretty much perfect timing for me.

Thanks to everyone else too for contributing, haven't had a chance to review all the doc's, as this one nailed it.
Indeed the 2nd bend point spreadsheet is very direct and easy to use.

I told it my first year of full time employment and it forecast my arrival at the 2nd point in 2009 (in this case it assumes max SS earnings each year). The 2009 seemed very close to when I calculated this in the past. FWIW this was after about 19 years of full time employment.

I then tried it with all of my actual earnings (ie including college and high school) but below SS max each year and it came up with year 2010.

The topic of the article about how the SS payback formula really changes after the 2nd bend point was taken into account by me when I decided to FIRE.

-gauss
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Old 11-24-2014, 10:19 PM   #15
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Quote:
Originally Posted by Sunset View Post
Here a quick and partial excerpt showing the stepping factors:

Step 5:
a. Multiply the first $816 in Step 4 by 90%.
$_________
b. Multiply the amount in Step 4 over $816 and
less than or equal to $4,917 by 32%. $_________
c. Multiply the amount in Step 4 over $4,917 by 15%.
$_________
OK, BUT... doesn't that mean when you blend the under $816 result with the over it results in a gradual decrease in return?
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Old 11-25-2014, 08:22 AM   #16
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Originally Posted by gerntz View Post
OK, BUT... doesn't that mean when you blend the under $816 result with the over it results in a gradual decrease in return?
Sure, it is similar to tax brackets, except it is based on lifetime earnings instead of yearly earnings.

There is a marginal return on each additional dollar earned as well as an average return.

-gauss
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Old 11-25-2014, 09:44 AM   #17
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There is a marginal return on each additional dollar earned as well as an average return.

-gauss
Personally, understanding what "marginal return" really means took a fair amount of pain in low level calculus and intermediate economics.

For those that didn't suffer through it (cause you got wealthy without needing the fancy college debt), its simply the return for the "next" dollar. In this case it's similar to diminishing return.

The first hamburger you buy tastes great. The second one is ok, by the 10th hamburger you realize you've gone to far. Marginal benefit of hamburger decreases with each unit bought.

marginal return (for each dollar you spend) for SS would be $0.85, dropping to 32, then 15, then 0. Once you have bought all the 85's and 32's based on history, the 15's look real expensive . And if you are into the 0's, you're buying hamburgers you can't even eat. For the math wizzes, it's the slope of the total benefit line as a function of average contribution dollars.


If you are a business owner like me that pays into SS on both sides, you are spending 2 dollars instead of 1.
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Old 11-25-2014, 12:10 PM   #18
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Thanks for this thread. Very informative and I learned a lot about SS I hadn't previously known. I haven't worried much about SS because collection is a minimum of 25 years away, but at least now I understand bend points, calculation, and that spreadsheet. Good stuff.
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Old 11-25-2014, 01:44 PM   #19
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I haven't worried much about SS because collection is a minimum of 25 years away, but at least now I understand bend points, calculation, and that spreadsheet. Good stuff.
25-30 years away hear too. But If I hang it up early, I want to have maximized it. I need to be careful I'm not buy .15 cent returns when I have the option to shift that income to my wife and she will be earning 32's or even 85's with her short income history in the US. That's just throwing money away.
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Old 11-25-2014, 01:53 PM   #20
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If I go through with my ER plan as it currently stands, I won't even reach the second bend point. If I continue to work longer, hitting that second bend point may give me another reason for a new/revised "goal date."

One thing I learned today is that while my net is into the six figures, my SS and Medicare wages are much less.
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