Social Security and Retiring at 54

[robjr100]

Here`s the story.I`m thinking about retiring this year at 54.If I never work again and do not pay anymore into social security will it effect what I get when I collect at 62 (or whatever age it is) I`ve paid quite a bit into SS over the years.Maxed out or came close many times.I`m thinking this should play a part in what I receive.

I`ve heard it is based on 35 years of work.Then I`ve heard it`s based on the last 5 years you work.

I`ve also been told if I retire at 54 I should work enough to make the minimum ($4400) a year to stay on the social security rolls.

I plan on asking the folks at social security themselves.In the meantime I thought I`d post the question here.

 

[REWahoo]

You can get the answers to these questions by taking a look at the FAQ section of the SSA.gov website.

 

[robjr100]

You can get the answers to these questions by taking a look at the FAQ section of the SSA.gov website.

Can you point that answer out to me? I`ve looked and have not found a answer for my particular question.

 

[LOL!]

It's been awhile since I did it, but you can run the calculator that calculates your benefits based on all the scenarios you want. Get the calculator from the SSA.GOV web site. My current understanding is that it takes N years of income (where N is 30 or 35) and SS payments to figure out your benefit. If you stop paying in early, then you put $0 for some of those years. Use your annual SS statement to get your early numbers for input or maybe even the web site has your numbers for you.

I was surprised that the drop in benefits was not as much as I expected, but I have paid in the max SS taxes for most of my working years. I guess if you were in a minimum wage job for 25 years and had 5 to 10 years of zeroes, then it would be different.

 

[REWahoo]

How you earn credits for Social Security benefits.

 

[REWahoo]

...and: Social Security Statement: How Your Benefit Is Figured

 

[robjr100]

...and: Social Security Statement: How Your Benefit Is Figured

I can find the social security web site just fine.I wanted some feed back from personal experience.
Thanks

 

[REWahoo]

My personal experience is that my benefits are calculated just like it says on the SS website.

 

[travelover]

I retired at 54. The good news is that although it reduces your monthly benefit if you quit working early, it is not nearly as much as you'd think. I requested an estimate before I quit, but I think you can do it on line now.

 

[OhSoClose]

I can find the social security web site just fine.I wanted some feed back from personal experience.
Thanks

Hey, its easy to do "what ifs" on the social security website benefit calculator. I have a 32 year work history, have maxed out my contributions for many years, and am now 53 years old. I take the hardcopy statement I get every year from the soc security administration, plug my historical wages into the online calculator, enter zero for all future years up to the year I want to take social security (say age 62), and it tells me my future monthly benefit at age 62 in today's dollars if I stop working now. Then I play around on the calculator with my projected earnings until age 62. As it turns out, my monthly benefit changes very little whether I work or not between now and age 62. Now, that is (minor) disincentive to keep working.

 

[chemist]

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.

 

[robjr100]

It looks as though I have nothing to worry about then.Thank you all for your help.

Now if the criminals in Washington DC would just stop looting social security and the treasury things might look better.We may be a day late and a dollar short for that.

 

[Pete]

My wife retired at 47. She no longer pays into Social Security. Each year that passes she gets her benefit statement from the Feds that shows her benefits reducing.

 

[Telly]

For those that are ER'd, and yet far from SS age, don't forget the Wage Indexing concept.

Each Fall/Winter, the SSA updates it's detailed calculator with values for the following year. Buried in the new download is the next years Wage Indexing adjustment.

Wage Indexing works like this: Let's say the average wage in 1970 was $10,000. But you made only $5,000 that year. So you made 50% of the 1970 Wage. A paltry amount in 2010 $.

The SSA "Wage Indexes" all of your previous years earnings from the past, into the present when you retire SS-wise (actually, they halt wage indexing at age 60, but it still does good things for all those previous years!)

In the example I gave above, that paltry $5,000 becomes 50% of the Wage Index of the future at age 60. So if the WI was, say, $60,000, then that 50% of the 1970 WI becomes $30,000, not $5,000. This "Wage Indexing" is done for all of the years of earnings input.

In simple terms, this means that if you quit working, and have many years till age 62, your "estimated $ at 62 or 66" increase every year that goes by... even though you are no longer paying into SS. So each year that goes by, I see my @62 and @66 benefits increase.

See this old post: SS calculator - Early Retirement & Financial Independence Community

 

[clifp]

Even retiring at 40, since I maxed out FDIC withholding for most of the time, I found very little difference (a few hundred a month) between working for the next 20+ years and not.

Truly a screwy system.

 

[zinger1457]

If the Retirement Estimator on the SS site shows I will get a monthly benefit of say $1500 dollars when I turn 62, will this amount be adjusted for inflation when I finally start collecting 10 years from now?

 

[bizlady]

SS estimated benefits are adjusted yearly for inflation-- if there is inflation... I believe no increases for 2010 and 2011

 

[Telly]

If the Retirement Estimator on the SS site shows I will get a monthly benefit of say $1500 dollars when I turn 62, will this amount be adjusted for inflation when I finally start collecting 10 years from now?

I use the downloadable calculator, and as mentioned above, I download the new one late each year.

Comparing the monthly benefit for collecting at age 62:

The new number from late 2009 calculator (for 2010) was 2.3% greater than the number from late 2008 calculator (for 2009).

This is due to Wage Indexing. Each year there is another increase.

Some years ago I verified this via the online-requested US-mailed special statements (where I instructed that all future earnings were to be 0 $). The special statements tracked to the dollar with the downloadable calculator.

Since Wage Indexing is just that, that is what SSA calls it. It is not CPI-U "inflation adjusting". The Wage Index increase can (and almost always does) exceed the annual CPI-U inflation factor. Wages can increase faster than consumer inflation via improvements in productivity.

Whether people currently getting SS benefits get a COLA for 2010 or some future year has nothing directly to do with Wage Indexing.

During the time I have been watching it, Wage Indexing has increased my @62 amount by 28.5%, with no new $ in.
Of course, if I could get into a time machine and go all the way back to when I started having FICA withheld, and could have invested it all myself instead...

 

[kyounge1956]

I tried the online calculator, but when I tell it my earnings will be zero after age 57, it will only tell me the amount of my reduced benefit at early retirement age. Can anyone tell me how to get it to calculate the benefit at full retirement age, even if I stop working before 62?

 

[rescueme]

I tried the online calculator, but when I tell it my earnings will be zero after age 57, it will only tell me the amount of my reduced benefit at early retirement age. Can anyone tell me how to get it to calculate the benefit at full retirement age, even if I stop working before 62?

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...

 

[chemist]

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.

 

[scrabbler1]

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.

 

[kyounge1956]

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.

 

[MasterBlaster]

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.

 

[kyounge1956]

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.