social sec question

[MasterBlaster]

The initial benefit is indexed to wage growth. After you start taking benefits then the value goes up every year with the CPI.

So the answer to

Quote:

Can you preserve the indexing to wage growth by delaying SS until full retirement age (or even until age 70), or does the changeover to CPI indexing occur at age 62 regardless of whether or not you are drawing benefits?

is the former, you preserve the indexing to wage growth by delaying SS until full retirement age. Note that the difference between 62 and full retirement is only 3-5 years. So the difference is marginal to your benefit. The much bigger differenc is the bigger draw at full retirement age versus 62.

and the answer to

Quote:

When does the changeover from wage growth to CPI occur?

is (1) when you start to draw benefits

[landover]

Thanks for the question (and replies), this is exactly I wanted to ask,

So the actual SS amount what one get in future, will be more than the amount calculated by the program, This is assuming that wage growth is generally more than CPI (or less SS if wage growth< CPI). For people retired now and getting SS in 25-30 Yrs, this may be significant assuming SS present setup is not changed.

Quote:

Originally Posted by FIRE'd@51 I may have stated my question poorly. What I am trying to get at is: Assume you are already retired. Can you preserve the indexing to wage growth by delaying SS until full retirement age (or even until age 70), or does the changeover to CPI indexing occur at age 62 regardless of whether or not you are drawing benefits?

[MasterBlaster]

Quote:

This is assuming that wage growth is generally more than CPI (or less SS if wage growth< CPI)

That brings up an interesting side issue. What if due to foreign competition wages grow slower than the CPI. Then your benefit just might be lower than you are expecting it to be in real terms.

[FIRE'd@51]

Quote:

Originally Posted by MasterBlaster That brings up an interesting side issue. What if due to foreign competition wages grow slower than the CPI. Then your benefit just might be lower than you are expecting it to be in real terms.

To be sure, this could happen in any given year, especially with a big run-up in energy prices. However, I think it would be unlikely for this to occur over a period of years. Nevertheless, it is an interesting possibility to contemplate.

[samclem]

Quote:

Originally Posted by MasterBlaster That brings up an interesting side issue. What if due to foreign competition wages grow slower than the CPI. Then your benefit just might be lower than you are expecting it to be in real terms.

Wage growth is tied most closely to worker productivity (increases in productiity are the only thing that can lead to long-term real wage growth), and there are some good reasons to believe that the growth of US worker productivity wll slow (educational shortfalls, demographics, and structural disencentives to US business investments in productivity-enhancing technologies compared to some foreign countries). All these things. plus foreign competition, will likely depress US wage growth, IMO. Meanwhile, there will be growing inflationary pressures (US govt debt and the concommitant pressure to print more money, energy and commodity prices pushed up by demand from emerging economies, and the "hedonistic" inflationary pressures brought by improved consumer goods and health care spending opportunities.

So, for all these reasons, linking SS increases to CPI vs wage growth might not be a good way to cut SS expenditures. This might be precisely the wrong time to change indices.

[albundyz]

For Mathblaster....

Whether it's 3% over 6 years, or 6% over 6 years........that's ok with me, I can live with that.... I just did not want to find out that it was a 25% reduction

thanks for your input

[Telly]

Some wrong conclusions on Wage Adjustments here. The SSA website is a mess, bookmarks don't last for long, hard to find something you found before. I looked into this a while ago when I modified my spreadsheet to include Wage Adjustments. Here is some of the detail:

Wage Adjustment stops at age 60.

see http://www.ssa.gov/OACT/COLA/AWI.html

"When indexing an individual's earnings for benefit computation purposes, one must first determine the year of first eligibility for benefits. For retirement, eligibility is at age 62. If a person reaches age 62 in 2007, for example, then 2007 is the person's year of eligibility. An individual's earnings are always indexed to the average wage level two years prior to the year of first eligibility. Thus, for a person retiring at age 62 in 2007, the person's earnings would be indexed to the average wage index for 2005, or 36,952.94. Earnings in a year before 2005 would be multiplied by the ratio of 36,952.94 to the average wage index for that year; earnings in 2005 or later would be taken at face value. (See two examples of indexed earnings.)"

Another snip, this from the Two Examples link within the above link:

"Indexing brings nominal earnings up to near-current wage levels. For each case, the table shows columns of earnings before and after indexing. Between these columns is a column showing the indexing factors. A factor will always equal one for the year in which the person attains age 60 and all later years..."

[FIRE'd@51]

Thanks for that info, Telly. Looks like annual wage growth from 1951-2005 was 4.9% versus annual CPI growth over the same period of about 3.7%.