social sec question

[albundyz]

I've emailed SS three times. The first time, they said to use one of their three calculators. They ingored my second and third e-mails that were reworded.

The problem is that all of their calculators assume that I will work until I'm 62. That's my question. How much will I suffer for not working 6 years?

Next year I'll retire at 56. I will have worked 35 consecutive years for MegaCorp. My last SS document says I should get $1550 at 62 ASSUMING I continue to work until I'm 62. I'm not looking for anything specific, but can anyone with experience guess what percentage of that 1550 I'll lose by not working for 6 years? 1%? 5%? 10%? 30%?

 

[samclem]

Just use the online calculator and put in "0" for next year. The calculator will automatically put in the same figure for all following years. It isn't exact, but it is supposed to be prety close.

http://www.ssa.gov/retire2/AnypiaApplet.html

Good luck

 

[REWahoo]

The SS people gave you the right answer. The only way to get an accurate answer is to go to their site, use their calculator, and plug in your annual earnings, including 0 for the years you will have no income. (You can't retire before 62 for purposes of SS, but you can have 0 income before age 62.) Here is a thread where the impact to SS from ER was discussed and you may find a rule of thumb that helps answer your question:

http://early-retirement.org/forums/index.php?topic=4921.0

 

[Leonidas]

Yet again this board proves how much depth and breadth there is in the experience and knowledge to be found here. The OP spends who know how much time trying to get the SSA to explain how to do something, and within ten minutes there are two replies with links and how to's provided.

 

[JohnEyles]

Yet again this board proves how much depth and breadth there is in the experience and knowledge to be found here.

Amen.

But I had no problem getting SS to send me a new estimate with the ER
assumptions. And was gratified to see it agreed with what the calculators
gave (both the one I downloaded, and the online one). I believe I filled
in some sort of online request form at their website.

 

[kramer]

Al,

You will lose very little by quitting early. I think you will be surprised.

There seem to be three linear segments in the SS earning curve that represent the benefit of working additional years at different points in the earning cycle.

If someone is making maximum SS earnings (the max wage which is around $94K now), they almost immediately reach the end of the first steep segment when benefits rise very rapidly. After about 17 full earnings years you reach the end of the second segment, where benefits are rising much less rapidly than the first curve. After those first 17 years or so, the rate of annual increase is halved in the third segment. So the marginal benefit of working additional years decreases dramatically over time.

Also, once you have the maximum number of years in, 40, new earnings years start replacing lesser earnings years, so you get even less benefit for additional years.

Also, you should think twice about taking benefits at 62, although this depends on a number of factors. There are several threads about it here. But just know that it is a non-trivial decision.

Kramer

 

[REWahoo]

Also, once you have the maximum number of years in, 40, new earnings years start replacing lesser earnings years, so you get even less benefit for additional years.

Not that it makes a huge difference in anything, but I believe the number is 35 years, not 40.

 

[hogwild]

The version of the SS calculator that you download allows you to put in the age you want to retire. You do have to input your earnings for each year, but that info is available on the statement you get in the mail. The calculator allows you to save your data which makes it easy to play "what-if".

 

[HFWR]

Yet again this board proves how much depth and breadth there is in the experience and knowledge to be found here.

Yeah, it is pretty deep here...

And wide, too...

 

[Elderdude]

My wife will be retiring at 56 in July. We used the SSA supplied calculator that had us put in all the information from her last yearly estimate from Social Security then estimate the remaining years of income, at 0 in her case. The result was less than $170 per month of what it would have been if she worked six more years to 62. She has been grossing 60 k a year.

 

[landover]

I have a related question about the SS amount you get from the calculater. Is it in today's $, also if one stops working today, will one's SS be indexed with wage growth or with inflation till normal retirement date? Thanks.

 

[albundyz]

I would like to thank everyone that responded.

This is what I learned. As stated by a previous responder....From the downloaded calculator, I ran the report the first time with zero income for 2008 and a retirement age of 56. My monthly benefit at 62 was 1561. Then, I changed my retirement age to 62 and put a 2008 estimated income of $80K. I ran the report again. The benefit rose to 1607. That means that I only lose $46 by not working for those 6 years. or slightly less than 3%......basically, it is insignificant.

Every situation is different, remember, I worked 35 continuous years for the same company.

 

[MasterBlaster]

When I played around with the SS calculator I estimated that my SS payout was reduced by around 1 percent for every year early that I retired early. Those estimates are for someone retiring at "full" retirement age.

Your 3 percent difference for retiring 6 years earlier doesn't jive very well with my calculations. So either you are older than myself or we are at big differnces in income level. Either that or the early retirement at 62 throws off my ballpark numbers.

 

[REWahoo]

I have a related question about the SS amount you get from the calculater. Is it in today's $, also if one stops working today, will one's SS be indexed with wage growth or with inflation till normal retirement date? Thanks.

Yes, the amounts shown in the SS calculators are in today's dollars. [EDIT: The calculators default to 'today's dollars' but allow you the option to select 'future (inflated) dollars'.]

Whether you stop working today or continue working until retirement, SS payments are indexed to wage growth. Stand by for future changes to that...

 

[MasterBlaster]

Yes, the amounts shown in the SS calculators are in today's dollars.

- Just one minor point...

The calculator(s) has(have) the option to either give you the benefit in todays dollars or in future inflated dollars.

 

[REWahoo]

- Just one minor point...

The calculator(s) has(have) the option to either give you the benefit in todays dollars or in future inflated dollars.

True. The online calculator defaults to todays dollars but gives you the option of selecting future (inflated) dollars. I edited my post accordingly.

 

[FIRE'd@51]

Whether you stop working today or continue working until retirement, SS payments are indexed to wage growth. Stand by for future changes to that...

When does the changeover from wage growth to CPI occur? Is it

(1) when you start to draw benefits

(2) full retirement age

(3) age 62

In other words, if you are retired and take SS at 62, do you lose the index to wage growth?

 

[FIRE'd@51]

(4) None of the above.

SS payments are indexed to wage growth only. My comment about standing by for changes reflects much discussed plans to "save" SS, which often includes changing the index away from wages to the CPI. At this point it is only discussion.

Note: Amplifications and corrections to the above statements are encouraged and welcomed.

Now I'm confused. I thought that once you were drawing SS, it was indexed to the CPI, not wage growth.

 

[REWahoo]

Now I'm confused. I thought that once you were drawing SS, it was indexed to the CPI, not wage growth.

I appears my assumed understanding of SS indexing is seriously flawed . According to this and this from the SS website, you are correct.

I will delete my incorrect post and quietly bow out of this discussion..

 

[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]

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

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

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.

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]

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]

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]

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.