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Old 02-21-2010, 09:42 AM   #21
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robjr, my experience is I ran the calculator and it makes little difference in your benefit to keep working as long as you have 25 years or so at the max. Run the calculator and see what you find.

Remember the formula is biased so low income people get a high % of income, then a medium amount, and high earners only get 15 cents on the dollar. The good news is, 25 to 30 years at the max SS earnings plus 5 to 10 years of zero earnings ends up giving you almost as much as 35 years at the max.
OK I looked at my Excel sheet I use to calculate my PIA (which agrees to the dollar with what the online calculator or annual statement shows, given equal assumptions).

Basically for each year you work, you take your covered wages times a wage index (so that earnings from the 60's get brought up to today's wages). Take the highest 35 years, sum them and divide by 420 months.

This average monthly wage gives you your benefit. You get 90% of the first $744 ($669.60), 32% of the amount between $744 and $3283 ($1196.48), and only 15% of the amount over $3283. This is your AIME, Average Indexed Monthly Earnings.

Since most of us are in the 15% "bracket", additional years worked contribute precious little to the PIA.

The PIA is your monthly benefit at FRA (full retirement age). It is actuarily adjusted up or down if you take your benefit before or after FRA.
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Old 02-21-2010, 10:58 AM   #22
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When I was crunching the numbers for my retirement in 2008 at age 45, I wanted to calculate my estimated SS benefits reflecting all those zero-earnings years (for me, only 8 more of them) to fulfill the 35 years averaged in the benefit calculation. This figure would go into my overall spreadsheet as one of my "reinforcements" (IRA and pension the other two) to supplement my dividend income starting in 14 years from now.

As Chemist (thank you for your well-written post) wrote in the post just above mine, the additional years of working add little to the SS benefit because they are in the 15% earnings replacement bracket. I designed a spreadsheet like the one Chemist described and saw this for myself.
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Old 02-23-2010, 12:26 AM   #23
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Did you use this one?

Benefits Calculators: About the Social Security Retirement Estimator

It will give you results for the three ages 62/66/70 (FRA of age 66 is depending on your birth date).

Just plug in "0" for last year's income. It will use your existing annual "contribution" for your actual working history...
I used two calculators, one where you put in your earnings history yourself and one where the site looks it up for you. Both of them gave only one result. What I need to do is put in three more years of earnings and zero earnings after that. I couldn't figure out any way to do that.
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Old 02-23-2010, 04:23 PM   #24
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The easiest way is to use the 1 percent per year reduction model. If you quit working 10 years before your full retirement age or you have 40 years total in SS then your benefit will be reduce about 10 percent.

For a ballpark estimate this model works fairly well.
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Old 02-23-2010, 04:43 PM   #25
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The easiest way is to use the 1 percent per year reduction model. If you quit working 10 years before your full retirement age or you have 40 years total in SS then your benefit will be reduce about 10 percent.

For a ballpark estimate this model works fairly well.
Well, if I work 3 more years I will have 40 years of employment history but be 9 yrs + 4 mo's below full retirement age. So do I reduce it, or no? Or maybe I split the difference? My benefit at age 62 would be less than what it says on my mailed estimate, but not 9.3% less.
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Old 02-23-2010, 04:45 PM   #26
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Well, if I work 3 more years I will have 40 years of employment history but be 9 yrs + 4 mo's below full retirement age. So do I reduce it, or no? Or maybe I split the difference? My benefit at age 62 would be less than what it says on my mailed estimate, but not 9.3% less.
As I understand it SS is based on your best 40 year work history. More than that doesn't get you anything better.

However, If the first several years were in a job that didn't pay so well, then by working extra years at that MegaCorp job will bump some of the lower paid years to your (slight) benefit.

As others have pointed out earnings from past years are wage-inflation adjusted. So it's the real earnings not the nominal non-inflation earnings that matter.
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Old 02-23-2010, 05:23 PM   #27
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As I understand it SS is based on your best 40 year work history.
To be more precise, "...Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most."

Your Retirement Benefit: How It Is Figured (2010)
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Old 02-23-2010, 05:35 PM   #28
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To be more precise, "...Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most."

Your Retirement Benefit: How It Is Figured (2010)
OK - I stand corrected - best 35 years it is.
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Old 02-23-2010, 07:36 PM   #29
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Once you've calculated your benefit at full retirement I believe it is a 25% reduction to retire at 62. At least is is for me.
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Old 02-23-2010, 07:49 PM   #30
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Once you've calculated your benefit at full retirement I believe it is a 25% reduction to retire at 62. At least is is for me.
It depends on your full retirement age. If I recall correctly they take off exactly 8 % a year for every year you retire early.
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Old 02-23-2010, 07:56 PM   #31
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It depends on your full retirement age. If I recall correctly they take off exactly 8 % a year for every year you retire early.
It does depend on your full retirement age -which varies depending on your year of birth. The amount of reduction for retiring at 62 isn't 8% per year. It varies from 25% for those born between 1943-54 to 30% for those born in 1960 or later.

Retirement benefits by year of birth
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Old 02-25-2010, 03:15 PM   #32
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It does depend on your full retirement age -which varies depending on your year of birth. The amount of reduction for retiring at 62 isn't 8% per year. It varies from 25% for those born between 1943-54 to 30% for those born in 1960 or later.
It's not the SSA, it's Scott Burns.

He's used the analogy that every year of delaying SS is the equivalent of earning an 8% yield on the SS that will eventually be received.
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Old 02-25-2010, 04:08 PM   #33
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8 Percent

Ah - I see my confusion.

The 8% per year is the extra amount you get for delaying retirement past your full retirement age until 70 years old. That assumes you were born in 1943 or later.

here's the link from the SS website:

Answer
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