Social Security estimate now vs. actual

[Telly]

As future Social Security benefit payments reduce our retirement fund's required "withdrawal rate", I thought this might be the forum to ask it in.
I'll round and simplify the question, hopefully I can get it across without mucking it up too bad

2002 was the last year Mr. Smith paid into S.S. Assume that he never has S.S. payroll earnings ever again. He is now 52 years old. He runs all the calculators available at ssa.org, inputting his past earnings, and puts zero earnings in for the future. The calculators all show that with retirement at age 62, he will get $1k a month, $12k a year. The calculator allows computing for TODAYS dollars, or an inflated amount they come up with, that looks like about 5% annual inflation over the 10 year period.

But what really is the PROPER way to view this? That the $12k a year in todays dollars, will be increased over the years between his age 52 and 62, such that the actual benefit at age 62 when he files will be higher than $12k?
In other words, between ages 52 and 62, his "account" will be adjusted for inflation of those interim 10 years?

Or, will the $12k a year that is projected today, because he has no future pay-ins to S.S., really be what he gets at age 62, no matter what inflation is in the interim?

 

[dory36]

Well, I'm not sure this was your question, but FIRECalc expects the change in withdrawal requirements in TODAY's dollars. It does its own inflation adjustments.

Dory36

 

[Ted]

I checked the "ssa.org" website and got the Soaring Society of America. Unfortunately, the glider pilots that they serve aren't as knowledgeable about the effects of inflation as hot air balloon pilots :

The Social Security website is actually ssa.gov.

Under existing legislation, all Social Security benefit payments are indexed to inflation as measured by the Consumer Price Index. So, as of now, anyone can expect their future benefits to be increased in proportion to whatever inflation actually occurs.

The catch, however, is that there will be increasing pressure to trim benefits, as the ratio of workers to retirees continues to decrease and the financial burden imposed by Social Security on workers therefore continues to increase. It is quite likely that one of the first measures undertaken to trim Social Security benefits will be to adopt an index separate from the CPI which more closely reflects the actual spending habits of retired people and (presumably) increases less rapidly than the CPI.

Some retirees will inevitibly squawk about any trimming of their benefits. But those of us who understand that those benefits must come from taxes on people who are actively working, should be willing to accept some reduction in benefits out of fairness to them.

 

[Mr._johngalt]

Well, I would squawk loudly! Re. "fairness", you are
assuming the government couldn't get the money in some other way (other than cutting/delaying benefits).
Anyway, it all depends on whose ox is being gored.
Speaking for myself, almost everything the government
does is suspect (confirmed cynic).

 

[Telly]

Ted, when I was typing up the post, I couldn't remember if it was .gov or .org Maybe some of our payroll deduction was going to .org instead of .gov, and that's why there may be a $$ crisis in years to come 8)

I'm still not sure if a person who isn't working anymore, not paying anymore into SS, gets the inflation indexing in the interim time before the actual start of benefits.

I could call the SSA, but I don't know how I could get them to understand what I was asking. I called them once on what I thought was a very simple question. I thought I knew the answer already (I did), but some folks were telling me I was wrong. I waited for about 1/2 hour, then got a very nice lady, who spoke very slowly. I suspect she keyed in my question, and was reading what a monitor told her to say. She was so careful to say only that. And she just repeated the same words.

As the years go by, I could just look at my yearly SSA statements mailed to me, and see if the future benefit dollar amount goes up year by year. But really would like to know before that!

 

[RedOscar]

As the years go by, I could just look at my yearly SSA statements mailed to me, and see if the future benefit dollar amount goes up year by year. But really would like to know before that!

Telly,

I too have asked this very same question. I retired three years ago at age 48 with a company pension. One of the pension options was to take a payout that decreased at age 62 by an amount of the expected SSA benefit. It was called the "Level Benefit Option".

In November 2000, I requested a benefit sheet from the SSA on the assumption that all future earnings in 2001 and beyond were $0. Naturally, the estimated amount was less than what I had received in a July 2000 mailing where they estimated all future earnings based on 1999 darning values. However, the $0 future earnings estimate was very close to the difference between my pre-62 and post-62 pension amounts.

The estimated benefits sheet from the SSA says "These estimates are in current dollars. As you receive benefits, they will be adjusted for cost-of-living increases."

I interpret this to mean the monthly benefit will begin in an amount close to what is shown, THEN, will be entitled to yearly adjustments to account for COL increases.

While I know this is not a direct answer to your question, it is my opinion as a best guess for possible future Social Security benefits. Then again, maybe we should take the most contraian of views and assume there will be nothing left for us at age 62 and beyond. Where's that crystal ball.................?

Red

 

[bongo2]

I'm not sure if your question is about the estimation, or the actual rules of SS. I don't know how the calculators work, but I'm pretty sure that under the actual rules, your historical SS contributions are indexed to the national average wage level (not inflation), regardless of future contributions. After you reach age 62, then your benefits are indexed to inflation.

 

[Telly]

Red,

I'm tending to agree with your view. That the benefit amount is fixed, and will only increase with Cost Of Living once I actually claim benefits at age 62. Of course, I'd much rather see the future benefits index up before I'm 62

My last statement from the SSA shows what I would get at 62 if I continued working at the $ I was. It agrees with the SSA calculators if I input the same info. If I worked the rest of the years till 62, both show I would only get $200 more a month. That sure doesn't seem worth it!

The SSA has reworked their website since the last time I used it (and it IS at SSA.gov ). I found the area that you can request a statement, and can put in what, if any, future earnings you will have. I'll do that and see what they say.

Still see something odd, though. The Calculator has that Today vs. Future Dollar setting. And I found where they make the assumption of what the national average wage adjustment (I think thats what it was called) will be for the coming years. That is a different index than what they think inflation will be.

So I'm thinking, as was mentioned by one of our posters, that PRIOR to "Retirement", the NAW is used, and AFTER "Retirement", the COLA is used. But with this line of thinking, it would seem that If I had kept on working till 62, that the benefits at 62 should be incrementing up by the NAW, besides the fact that more years paid in would give more dollars. My salary was well above the max that SSA uses to compute benefits. So I don't see why they aren't showing more than $200 dollars more if I kept working!

And just what was the Today vs. Future dollar setting for in the Calculator, anyway? Just when I think I've gotten it figured out, I find something that doesn't fit the idea

 

[RedOscar]

My last statement from the SSA shows what I would get at 62 if I continued working at the $ I was. It agrees with the SSA calculators if I input the same info. If I worked the rest of the years till 62, both show I would only get $200 more a month. That sure doesn't seem worth it!

For me personally, the difference (at age 62) between continuing earnings and no earnings was $147/month (as calculated in 2000 with 1999 earnings history). As you say, it hardly seems to be worth it considering the additional taxes that would be paid during that time.