Social Security

[retired1]

On the SSA website I saw the expected SS benefits at full retirement (67 yr) and reduced benefits at 62. Then I saw a phrase saying "The above benefits are based on assumption that you will continue to earn $xxxxx until full retirement age". What does that mean? If we retire early and don't contribute, the full benefit at 67 will be reduced ?

 

[MissMolly]

Possibly. It depends, as most things do, on circumstances. How close are you to retirement? Have many zero years will you have? Did you contribute up to the max for all the years that will be counted? Even if there is a reduction, if you are past the second bend point it most likely will not be significant.

 

[REWahoo]

Yes, if you don't contribute to your FRA of 67 your benefits will be reduced due to the fact you stopped contributing. The good news is the way SS is structured the reduction amount is small. IRR, my age 58 retirement reduced my FRA amount by roughly $50 a month. Not much to forfeit in return for 7 years of not working!

 

[Dtail]

You can use the below website, which can provide your expected SS payments at different ages if you don't earn anymore income until retirement.

https://www.ssa.gov/benefits/retirement/estimator.html

 

[erkevin]

If you are currently working, SS uses the latest data on you (earnings) going forward to retirement age. If you retire early, it uses zeroes (but only automatically uses zeroes once a year or so has passed from retirement and a $0 has been entered into your earnings record. Yes, retiring before a given retirement age can/will reduce your SS benefits. Mine did but the amount was fairly insignificant (to me). There is a manual calculator on the SS site that allows you to enter your earning's data and then zeroes for the early retirement years.

 

[retired1]

How close are you to retirement? >>> 4 yrs (55 yo)

Have many zero years will you have? >>> 12 Yrs (55 to 67)

Did you contribute up to the max for all the years that will be counted? >> Yes.

How close are you to retirement? >>> 4 yrs (55 yo)

Have many zero years will you have? >>> 12 Yrs (55 to 67)

Did you contribute up to the max for all the years that will be counted? >> Yes.

 

[Spock]

You can use the below website, which can provide your expected SS payments at different ages if you don't earn anymore income until retirement.

https://www.ssa.gov/benefits/retirement/estimator.html

ha! I just plugged my numbers into the estimator and my benefit estimate is higher than my last SS statement (oct 2018) that still had a tiny but non-0 annual income... Maybe it was the COLAs. I'll wait for the next SS statement before using a new PIA in the rest of my spreadsheets.

 

[mountainsoft]

On the SSA website I saw the expected SS benefits at full retirement (67 yr) and reduced benefits at 62. Then I saw a phrase saying "The above benefits are based on assumption that you will continue to earn $xxxxx until full retirement age". What does that mean? If we retire early and don't contribute, the full benefit at 67 will be reduced ?

Social Security calculates your benefits using your highest 35 annual earnings. Since most people earn more at the end of their career than they did at the beginning, your top 35 years are usually closest to retirement age. When calculating your benefits SSA assumes you will continue earning the same income, which will usually be part of those top 35 years.

If you retire early (or switch to a job with a lower income), your top 35 years may have already passed, which could result in lower benefits than what SSA is estimating.

One of the best SS estimating tools I've found is https://ssa.tools/. You copy your actual earnings record from your "MySocialSecurity" account, then you can see how retiring early will affect your social security payments.

 

[Big_Hitter]

Social Security calculates your benefits using your highest 35 annual earnings.

that's incorrect

the 35 year average is based on indexed wages - your historical earnings are indexed up based on national averages, then the 35 year average is taken from those that yield the highest indexed values

due to the indexing, it's possible that working additional years may not increase the 35 year average

 

[Dtail]

Social Security calculates your benefits using your highest 35 annual earnings. Since most people earn more at the end of their career than they did at the beginning, your top 35 years are usually closest to retirement age. When calculating your benefits SSA assumes you will continue earning the same income, which will usually be part of those top 35 years.

If you retire early (or switch to a job with a lower income), your top 35 years may have already passed, which could result in lower benefits than what SSA is estimating.

One of the best SS estimating tools I've found is https://ssa.tools/. You copy your actual earnings record from your "MySocialSecurity" account, then you can see how retiring early will affect your social security payments.

Isn't it technically your 35 highest INFLATION WEIGHTED earning years, thus might not be your highest years in nominal terms.

Edit - cross posted with Big Hitter.

 

[Big_Hitter]

Isn't it technically your 35 highest INFLATION WEIGHTED earning years, thus might not be your highest years in nominal terms.

Edit - cross posted with Big Hitter.

JINX lol

yes, the earning years are adjusted with wage inflation

 

[mountainsoft]

that's incorrect. The 35 year average is based on indexed wages

I stand corrected. Still, the link to the calculator I posted figures all that out for you.

 

[Spock]

...

One of the best SS estimating tools I've found is https://ssa.tools/. You copy your actual earnings record from your "MySocialSecurity" account, then you can see how retiring early will affect your social security payments.

A new one! Thanks! it even recommends opensocialsecurity.com for optimization scenarios.

I wish it allowed me to print the results for "spousal discussions".
One thing is doesn't fit with prior info is when using the slide bar in the calculator to play with retirement ages, the spousal benefit decreases if I start my benefits before 64y9months old. Prior SS info says the spousal benefit is a percentage of my PIA regardless of when I start (but I have to start in order for spousal benefits to start). What is significant about 64y9months old?? My FRA isn't until 67.


Playing with the sliders, my age 64y9months lines up with my spouses FRA... but what difference does that make if the spouse started their benefits at 62?

 

[MissMolly]

I also wanted to point out that your spouse no longer has the option to choose between filing for spousal or her own (assuming she will not turn 66 by the end of this year). If her own is higher, that is what she will get when she files. If spousal is higher, that is what she will get when she files (assuming you have filed). I'm not sure if this is part of your calculations. For folks born after 01/01/1954 they can no longer file for spousal and let their own grow to 70.

 

[gayl]

Social Security calculates your benefits using your highest 35 annual earnings. ...
One of the best SS estimating tools I've found is https://ssa.tools/. You copy your actual earnings record from your "MySocialSecurity" account, then you can see how retiring early will affect your social security payments.

Tried it and it clearly indicates which years it will use in calculating benefit. Thank you! I'll get more at 70 than I thought despite having a lot of -$0s- due to FIRE

 

[UnrealizedPotential]

Yes, your SS payments could possibly be reduced. Like in my case I retired in 2016. Up until then I was receiving estimates based on if I continued working. Two years later I finally received the updated SS payment estimate and it went down but not as much as I thought it would. Of course that is my situation, you could experience something completely different. A lot of variables that could change the amount in each individual case.

 

[mountainsoft]

Tried it and it clearly indicates which years it will use in calculating benefit. Thank you! I'll get more at 70 than I thought despite having a lot of -$0s- due to FIRE

I'm just sharing what others shared with me earlier. Paying it forward.

You might want to deduct 25% from your estimated benefits in case SS isn't "fixed" before the trust fund runs out around 2034. For example, if your SS estimate is $1000, assume you'll only get $750 to be safe. Better to under estimate and be happily surprised, than come up short if payments do end up being reduced.

 

[Major Tom]

My gosh, I only have 23 years of earnings on record. Oh well - have been retired for 10 years now, and I'll be darned if I'm going to go back to work at this point I wasn't relying on SS for retirement funds, but was pleasantly surprised to find that the lower earners get a better deal out of SS, in proportion to what they pay in. Despite all the years of zero earnings, it will still be a check worth receiving.

 

[Winemaker]

Using opensocialsecurity website, the optimum strategy has changed 4 times since last year on the optimum strategy. I'm the high earner, taking it at 70, and her optimum starting point was 4 months before 65, then 2 months, then 0 months and now is 65 +4 months. Still using same numbers as 2 years ago.

 

[SevenUp]

Using opensocialsecurity website, the optimum strategy has changed 4 times since last year on the optimum strategy. I'm the high earner, taking it at 70, and her optimum starting point was 4 months before 65, then 2 months, then 0 months and now is 65 +4 months. Still using same numbers as 2 years ago.

Aside from any bugfixes that might have occurred, perhaps that is because the older one gets the later the actuarial date of death becomes. Later dates of death favor delaying benefit's start.

 

[gregable]

A new one! Thanks! it even recommends opensocialsecurity.com for optimization scenarios.

I wish it allowed me to print the results for "spousal discussions".
One thing is doesn't fit with prior info is when using the slide bar in the calculator to play with retirement ages, the spousal benefit decreases if I start my benefits before 64y9months old. Prior SS info says the spousal benefit is a percentage of my PIA regardless of when I start (but I have to start in order for spousal benefits to start). What is significant about 64y9months old?? My FRA isn't until 67.


Playing with the sliders, my age 64y9months lines up with my spouses FRA... but what difference does that make if the spouse started their benefits at 62?

Hiya , I assume you are referring to the sliders in the "Early and Delayed Combined Retirement" section. Your spouse may have started at age 62 for their own benefit, but their spousal benefit does not start until you begin your benefit. Therefore, the amount is adjusted based on how many months before the spouse's FRA you start your benefit. Your spouse's personal benefit is determined by their own start date, not yours. The sum (spousal + personal) is determined from both start dates essentially, which is fairly complicated.

Source: I built the ssa.tools website. [mod edit]

Let me know if you have any other questions or if this didn't make sense.

 

[skipro33]

And don't forget, all those 'zero' years are years you don't pay into SS. That's 6.2% of your income you won't pay into the system. So, for 12 years, and, say, an average of $100,000 a year, that's almost $75,000 you get to keep. Missing out on, at most, $100 a month because you didn't continue to work is a pretty sweet trade off I think. Something like 62 years to make it up and that's not including any investment earnings on the money you get to keep investing.

 

[joeea]

And don't forget, all those 'zero' years are years you don't pay into SS. That's 6.2% of your income you won't pay into the system. So, for 12 years, and, say, an average of $100,000 a year, that's almost $75,000 you get to keep.

How do you keep $75,000 that you didn't earn?

Missing out on, at most, $100 a month because you didn't continue to work is a pretty sweet trade off I think. Something like 62 years to make it up and that's not including any investment earnings on the money you get to keep investing.

 

[Mike Piper]

Using opensocialsecurity website, the optimum strategy has changed 4 times since last year on the optimum strategy. I'm the high earner, taking it at 70, and her optimum starting point was 4 months before 65, then 2 months, then 0 months and now is 65 +4 months. Still using same numbers as 2 years ago.

Aside from any bugfixes that might have occurred, perhaps that is because the older one gets the later the actuarial date of death becomes. Later dates of death favor delaying benefit's start.

This is true.

A major contributing factor though is simply interest rates. The default discount rate is the yield on 20-year TIPS, whatever that happens to be at the time the calculator is running.

Right now, it's 0.19%. At the beginning of this year, it was 1.07%. Because interest rates have fallen, it has become more advantageous to delay. (That is, the calculator is reflecting the fact that the "take the money early and invest it" strategy has become relatively less appealing.)

 

[skipro33]

How do you keep $75,000 that you didn't earn?

It's $75,000 you don't need to pull from IRA, taxed as income, to pay for SS.

The reduction in SS for not working the last years will drop the amount of SS awarded by around $100 a month. The $75,000 saved in the IRA because it's not subject to SS tax offsets that reduction.

When I was calculating how much money I needed to retire, there were several expenses I needed to consider that were no longer going to be owed. SS was one of them and at 6.2%, was substantial. I need much less income in retirement to have the same net to my spending. Meaning I get to keep what I would have had to pay into SS if I had continued to work.

I might want to add that my working income was above the SS max, all of it going to my retirement accounts; IRA, 401K, 457. So I didn't pay SS on those dollars when I earned them and don't now that I draw from those accounts now that I'm retired.