Social Security

[lauraf13]

I just received my Social Security statement that projects how much my benefits will be in retirement. It states that they assume I will continue to earn at my present level until age 62, 66, or 70. I have earned more than the Social Security max since 1983.

How does retiring at age 55 or before affect your Social Security benefit?

Laura

[area52]

Please correct me if I'm wrong but I have heard that....

One qualifies for the the minimum SS payout after 40 quarters (10 yrs) of work.

The minimum SS payout at this time is something around 500 a month and the maximum payout (worked many yrs as a high income high tax payin' mo' fo') tops out at about 1500 per month.

So retiring at 55, or 35 for that matter, as long as you get your 40 quarters in will get you at least 500 per month

So you'll get somewhere twixt 500 and 1500 per mo no matter what your situation is

[RedOscar]

Not knowing your earning history, or the number of years you have paid into Social Security, it is impossible to project what numbers you can expect.

However, the difference between the estimate before and after early retirement for me personally was in the neighborhood of $64 per month (start drawing at age 62).

I also recall preparing a request at the Social Security web site in November 2000 (after my retirement) where I estimated my earnings after age 48 as $0. That estimate at age 62 was $83 less per month then the most recent estimate I received - July 2002.

So for me, the difference has been less than $100 per month, maybe around 8%.

Your mileage may vary,

Red

[Ed_B]

I seem to recall reading somewhere that the SS payment that one receives in retirement is based somewhat upon the highest earning 35 years. If a person works and pays into SS for 30 years, their "average" wage calc will include 5 zeros. The inclusion of a zero in most average calcs has a severe detrimental effect on the final outcome.

In my case, if I retire on schedule in July 2004, I will have worked for 34 years and will have 1 zero included in my calc. My wife, OTOH, retired at age 51 in 2001 and worked for only 30 years. She will have 5 zeros in her calc, which would reduce her SS benefit considerably. If possible, she might be better off to take my SS payments instead of hers when the time comes.

I'll have to check with the SS admin to see if this 35 year averaging thing is correct. It would be good to know this for sure. Thanks to anyone who knows and can post.


Ed_B

[MRGALT2U]

I believe that in both your case and your wife's, the
"zeroes" will have little or no effect on the monthly check.

[RedOscar]

Quote:

I'll have to check with the SS admin to see if this 35 year averaging thing is correct. It would be good to know this for sure.

Ed_B

You are absolutely correct about the highest 35 years of earnings being used to calculate benefits. If you do not have 35 years of earnings, you just use $0 for those years. The calculation is quite convoluted. It goes something like this:

You are credited for the highest 35 years of earnings up to the "social security maximum". In 2001, that value was $80,400. In 1965 the value was $4800. Past year earnings are normalized to 2001 dollars using an index factor. So for 2001, the factor is 1.00, and for 1965 the factor was 6.90. Each year in-between has its own factor based on some inflationary value for the times.

The indexed earnings for the 35 years are summed together, then divided by 420 to get the average monthly earning.

So for the first $592 of average monthly earning you get 90%;
between $593 and $3566 monthly earning you get 32%;
and for $3567 and above, you get 15%.

This would determine the starting monthly social security payment for a 65 year old receiving full benefits. If you started receiving benefits at 62, the recipient would only get 77.5% of the starting amount.

So depending on where your average monthly earnings were relative to the $3567 value, the credit you receive drops off pretty quickly.

This information was based on some research done many months ago based on values through 2001. If I can find the web link that explains this in more detail I will post it as an update to the message.

Red

[Michael]

Just go to the SS web site, plug in your past earnings, and SS will tell you exactly what they will send you if you quit now, or continue working until normal retirement age at whatever estimated future earnings rate you plug in:

http://www.ssa.gov/OACT/ANYPIA/index.html

Mike

[Ed_B]

John:

I'd like to think that those zeros have little to no effect upon the benefits received but I'd have to see some hard data to really believe it. I can see where if the calc is very complicated that the other factors involved might ameloriate the presence of some zeros but in many math calcs a zero in an average can have a devastating effect.


Ed_B

[Ed_B]

Red:

Thanks much for the explanation of the SS calc. Sheesh... looks to me like they hired the actuary from hell to come up with that sort of bureaucratese nonsense. :P


Ed_B

[Ed_B]

Mike:

I've been to the SS web site and I did do some estimates using their calculators. I must have missed something but I could not find anything that covered my situation... retiring at age 55 and collecting benefits at 62. All I saw was a calc based upon my current salary that was projected forward until age 62 or age 66, with nothing for retiring and collecting benefits early. I'll take another look and see if I can find this. Appreciate the tip.

Ed_B

[RedOscar]

Ed_B

At the www.ssa.gov web site, select the link "Your Social Security Statement" (right hand side under Resources). At the next page, select the link "Need to Request a Statement".

I believe from here you can request a form stating the age you plan to stop working as well as your future estimated earnings.

The SSA will mail you a revised benefits estimate with the data you submitted. It will show the benefits to be paid at age 62 as well as your full retirement age. The URL is posted below.


https://s044a90.ssa.gov/apps6/isss/bp-7004home.jsp


Red

[RedOscar]

Ed_B,

Here is the web link for the formula used to calculate the Social Security Benefits for a person born in 1941. To me the interesting part is how once your earnings reach certain levels, you get less of your earning average back.

http://www.ssa.gov/pubs/10070.html

Red

[Ed_B]

Hi, All:

I'm planning to take SS benefits at age 62, even though they will be reduced from the full amount available at age 66. My reasoning for this is two-fold: 1) since we do not need the money for living expenses, I plan to invest it so that we will have it available for use later; and 2) I'm concerned that future changes in the program will reduce the benefits for anyone not currently receiving them. By starting the benefits early, it may be possible to lock them in and not be subject to any cost reduction program that comes along later. Although this would result in a smaller monthly check, the greater number of checks received and the investment of that money should compensate for it. Also, an early death would result in no benefits received, which I don't want to see happen to my family. I'm sure that many of the folks who visit this site have wrestled with this same issue and I would really like to hear how they are managing this aspect of retirement.

Ed_B

[Ed_B]

Red:

Thanks for the pointer to the SS calc. I can see that this is a complicated issue and not one that is resolved easily. My interest in the benefit number is from curiousity and not one of urgent need. If I can get an estimate of benefits that is in the ball-park, that will be fine with me and I won't need to calculate it to the last dollar. I sent off for an estimate of benefits based upon my age, earnings, retirement date, and date of benefits start. That should be accurate enough for my purposes. I appreciate your comments and tips on where to find this info. I saved the URLs in my Favorites/Retirement folder for future reference.

Ed_B

[RedOscar]

I'll be right behind you so make sure you leave something for the rest of us!

[Ed_B]

You bet, Red... just like one hog does for another!

Supposedly, the system will remain solvent until sometime around 2040-2050, depending upon the numbers you use. I'm sure that will be more than long enough for most of us here but it would be good if the system was fixed and remained viable for our kids and grandkids.

Personally, I would rather see SS morphed over time into a more unified and privatized retirement system that uses the same rules for everyone and not different rules for IRAs, 401Ks, 457s, 403Bs, etc. They did some of that in the 2002 tax law changes and that was a good thing. People shouldn't have to save less simply because they work for the government or for a non-profit agency than the folks who work in private industry. I also like the enhancements they made in portability of retirement accounts, the ability to roll just about anything into just about anything else, and the increases in both amount and percentage of income that can be contributed.

IMHO, the government works best when it sticks to over-all long-term strategy, such as requiring everyone to have a retirement account, forming a consortium of business, academics, government, and interested citizens to discuss and then set up a universal private retirement system, and to contribute at least a minimal amount to it, but it should not get too wrapped up in the details. That's where they always go wrong. The S&L fiasco was a perfect example of that. Yes, personal savings should be insured but by private insurers and not by the government. A private insurer would have audited the S&L books and found out who was making risky loans, who didn't have sufficient reserves, and who didn't have sufficient collateral for their loans. Those S&Ls would have seen their account insurance premiums skyrocket and maybe that would have brought them back to their senses before the problem got so huge. Sigh... we still have not learned the BIG lesson from the S&L mess, so it is likely that we will repeat at least some of that behaviour at some point in the future.


Ed_B

[patnbj]

Quote:

Mike: I've been to the SS web site and I did do some estimates using their calculators. *I must have missed something but I could not find anything that covered my situation... retiring at age 55 and collecting benefits at 62. All I saw was a calc based upon my current salary that was projected forward until age 62 or age 66, with nothing for retiring and collecting benefits early. *I'll take another look and see if I can find this. *Appreciate the tip. Ed_B

Ed_B,

There is a way for people who retire at age prior to being able to collect SS, to project what their benefits will be.

http://www.ssa.gov/planners/calculators.htm

On the SSA website link shown above, there are three calculators: quick, online and detailed. Choose the detailed one (option #3). You will have to download it and run it on your PC. In order to properly project your benefits, you will need to set the last earning year equal to the actual year that you retire. You'll find that setting in the "supplemental worker information" in the "Forms" folder. Your entitlement date should be set to the year you anticipate drawing SS.

Hope that helps.

[Ed_B]

Thanks much, patnbj. I'll check that out. Appreciate the tip.


Ed_B