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Social Security assumptions
Old 08-25-2005, 10:31 PM   #1
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Social Security assumptions

I'm counting down to early retirement in about 17.3 months. I'll be 5 weeks shy of my 50th birthday so I'll be able to say "I retired in my forties." The little things mean a lot.

Anyway, I'm obsessively running my numbers through the retirement calculators at Financial Engines, FIRECalc, Morningstar, Quicken, Vanguard, etc. etc. etc. Been guessing about what to put in for Social Security.

Tonight I ran my actual numbers using the worksheet provided at www.ssa.gov with assumptions about my earnings for my final working years. Luckily I will only have 4 out of 35 "zero" earnings years.

Numbers came out at about $20K/year full retirement age or $15K if I take the benefits early at 62.

My results with the calculators vary significantly depending on what I put in for my expected Social Security benefit. If I enter $0, it's pretty dicey. Anything around $8-10K per year makes a big difference in the survivability of my portfolio.

What are the pre-retirees on the Board assuming about SS? That it will be gone, reduced, stay about the same?
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Re: Social Security assumptions
Old 08-25-2005, 11:56 PM   #2
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Re: Social Security assumptions

I assume zero, but then I always go overboard in making very conservative assumptions.

Run the numbers once with worst-case assumptions, again with reasonable-case assumptions, and if you need cheering up, run again with best-case assumptions.

If you can't make it under the worst-case assumptions, then you still might want to retire early but keep your job skills honed.

If your portfolio does better than expected, then run the numbers again down the road, and maybe you'll feel better about your chances.
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Re: Social Security assumptions
Old 08-26-2005, 03:17 AM   #3
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Re: Social Security assumptions

As I understand it, the number SS gives doesn't include future wage indexing, so it may actually be conservative. Of course, if the politicians switch to CPI indexing for future benefits, the number they give is what you will get, CPI adjusted for future inflation.

I don't think the CPI is a very accurate indicator of real life inflation though, so I am figuring about 75% of the number they give at age 66 1/2, going down a bit each year thereafter.
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Re: Social Security assumptions
Old 08-26-2005, 04:03 AM   #4
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Re: Social Security assumptions


I use the same assumption as Michael and agree with his post.

Wage indexing causes the amount that you calculate to understate the actual value (probably). There could be some benefit cuts, though. And Medicare Parts A & B will go way up, probably. I think 75% for a 50 year old is a very conservative assumption, and good enough to build your numbers on.

Also, under current law SS is slightly tax favored, so it is better income, dollar for dollar, than money from an IRA.

Don't forget that your medical expenses will probably go up until you are 65, and then take a one time drop after medicare, and then start to rise again.

Kramer
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Re: Social Security assumptions
Old 08-26-2005, 05:59 AM   #5
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Re: Social Security assumptions

Quote:
Originally Posted by Red_y
I'm counting down to early retirement in about 17.3 months. I'll be 5 weeks shy of my 50th birthday so I'll be able to say "I retired in my forties." Luckily I will only have 4 out of 35 "zero" earnings years.
Red, Did you start working well before you were 20 or do you plan on working part time for a while? Can't quite reconcile the 4 out of 35 zero earning years. What sort of work do you do and would you be willing-capable of part timing in your next life? [I take the Wab approach but throw in a 50% # once in a while as a best case scenario] T-Dave
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Re: Social Security assumptions
Old 08-26-2005, 05:59 AM   #6
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Re: Social Security assumptions

Quote:
Originally Posted by kramer
I use the same assumption as Michael and agree with his post.

Wage indexing causes the amount that you calculate to understate the actual value (probably).* There could be some benefit cuts, though.* And Medicare Parts A & B will go way up, probably.* I think 75% for a 50 year old is a very conservative assumption, and good enough to build your numbers on.

Also, under current law SS is slightly tax favored, so it is better income, dollar for dollar, than money from an IRA.

Don't forget that your medical expenses will probably go up until you are 65, and then take a one time drop after medicare, and then start to rise again.

Kramer
And when you are dead, medical expenses disappear.
Just something else to look forward to *

JG
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Re: Social Security assumptions
Old 08-26-2005, 09:42 AM   #7
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Re: Social Security assumptions

Medical expenses are not a concern for me, since I am immigrating to Canada in 2007. I have already applied and been accepted as a Permanent Resident in the Skilled Worker category. Wouldn't be able to retire early otherwise.

I had one job during college and then I've been working steadily in IT since age 22. And I'm counting income that will be paid out to me in 2008 from a Deferred Compensation Plan.

I wouldn't consider going back to work in IT, but I've been moonlighting for the past 4 tax seasons at H&R Block. You can clear $15 an hour with them when all is said and done, set your own hours, and obviously the work is seasonal. I can fall back on that if I need additional income.

Thanks for your replies...I feel a bit better now.
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Re: Social Security assumptions
Old 08-26-2005, 09:59 AM   #8
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Re: Social Security assumptions

Hey red, your story sounds interesting. Would you post more of it? Why are you going to Canada? and how difficult is that to do? It cant be that easy to just go up there and get free health care after not paying into their system?
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Re: Social Security assumptions
Old 08-26-2005, 10:16 AM   #9
 
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Re: Social Security assumptions

My gut feeling guess is that if the government does something about social security, my benefits will go down by about 10% from what is stated in my SS mailings. That's based mostly on discussions in this forum.
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Re: Social Security assumptions
Old 08-26-2005, 10:34 AM   #10
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Re: Social Security assumptions

I'm 46 and reduce SSA's projections by 25% in my analysis. At this point I think that's probably a bit conservative for the following reasons:

- the aforementioned Wage/CPI disparity

- it doesn't appear that a "permanent" fix for SS is going to happen during this administration. We might get an incremental fix, and we'll be looking at alternatives again in another 5-10 years. At 45 & 46 we'll likely benefit to some extent from "hands-off" provisions for seniors before too long, thanks to the efforts of the AARP.

- I can't imagine elected officials chopping SS benefits heavily on boomers with incomes under $70K. I believe they'll throttle the economy first (and FIREcalc already assumes a pretty rough patch)

Cb

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Re: Social Security assumptions
Old 08-26-2005, 11:24 AM   #11
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Re: Social Security assumptions

Maddy, here's my story:

I am (1) disillusioned with the direction the US is taking on a number of levels (2) queer as a 3-dollar bill (3) an outdoors nut (4) liberal and pacifist in the extreme.

In Canada, I can live in one of the best countries in the world (with its national health system, livable climate, educated and tolerant population, budget and trade surpluses), speak English, drive on the right side of the road, feel somewhat less of a target for violent extremists, and legally marry my SO.

It is possible to immigrate in the Skilled Worker category as I am if you meet their point system requirements. Points are given for education, speaking fluent English or French, work experience, age, etc. My useless English degree finally paid off! There are other immigration categories if you have relatives in Canada or marry a Canadian.

Sadly, they eliminated the Retirement category some time ago. That's why it was important for me to apply before I was 50...you start to lose points then in the Skilled Worker scheme.

It took me about 2 years total to get through the immigration process...making the decision to go, collecting all the required documentation, submitting the application, undergoing medical check, getting FBI fingerprint check, etc. For the two of us, it cost about $3500 total in fees, medical tests, photos, fingerprint check, express mail, etc.

All Canadian citizens and Permanent Residents are eligible to be covered by the provincial health care system of the province they reside in. I'll have a 3-month waiting period when I move to BC, but that's it. Dental and vision coverage are not included; from what I've read on the newsgroups, most Canadians self-insure for those.

And I will be paying into the system after I move to British Columbia via the GST (Goods and Services Tax) and PST (Provincial Sales Tax). These add about 15% to just about every purchase you make of goods and services. That's where funding for their health care system comes from.

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