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SS Calc/Est., In today's $$?
Old 11-01-2010, 05:33 PM   #1
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SS Calc/Est., In today's $$?

I was wondering if the calculations for SS are in today's dollars?
Will the estimates go up as inflation goes up over time?
We still have 12+ years before we could start collecting.

Thanks.
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Old 11-01-2010, 05:36 PM   #2
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I believe it is in today's dollars, and, yes it does go up. However, I don't know what the mechanics behind it is.
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Old 11-01-2010, 05:50 PM   #3
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Quote:
Originally Posted by timekeepr View Post
I was wondering if the calculations for SS are in today's dollars?
Will the estimates go up as inflation goes up over time?
We still have 12+ years before we could start collecting.

Thanks.
As I understand it, The payment that you receive when you start SS is based on your historical earnings. Your historical earnings and your final SS payment are tied to and are adjusted with a National Wage index that adjusts every year with (increasing ?) wages.

Then once your SS payment has been established, the payment increases every year with the CPI (inflation).

One of the issues people can complain about is that the wage index has historically (most years) outpaced the CPI index. Some then, pontificate that the SS payments are inflating with time and cost us taxpayers more that it should. On the other hand, SS recipients are delighted with this arrangement as it means higher payouts.
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Old 11-01-2010, 06:09 PM   #4
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Originally Posted by timekeepr View Post
I was wondering if the calculations for SS are in today's dollars?
If by calculations you mean the projected benefits, the answer is yes, they are in today's $.
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Old 11-01-2010, 06:28 PM   #5
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Yes, I was doing the projections on the SS website. I was doing different projections based on ER or working longer or PT, when to start collecting etc.
Thanks for the help!
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Old 11-01-2010, 07:56 PM   #6
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OK, just to be sure I undertand this.

If my current estimate sent to me in the mail says that I will get $2000 at 66 years of age. In 2010, at 66 yo, do I get $2,000 checks or do I get the equivalent of $2,000 + 10 years of CPI increases?
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Old 11-01-2010, 08:00 PM   #7
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OK, just to be sure I understand this.

If my current estimate sent to me in the mail says that I will get $2000 at 66 years of age. In 2010, at 66 yo, do I get $2,000 checks or do I get the equivalent of $2,000 + 10 years of CPI increases?
It would be $2000 + 10 years of the National Wage Index increases.

For subsequent years, that amount would then go up every year by the CPI amount.
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Old 11-01-2010, 08:09 PM   #8
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It would be $2000 + 10 years of the National Wage Index increases.

For subsequent years, that amount would then go up every year by the CPI amount.
Hey thanks very much, that makes sense but it's been about 3 years of those mailed estimate forms and the number has not changed. Must be because there was no NWI increases.

Appreciate the help.
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Old 11-01-2010, 08:13 PM   #9
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Hey thanks very much, that makes sense but it's been about 3 years of those mailed estimate forms and the number has not changed. Must be because there was no NWI increases.

Appreciate the help.

The last 2 years had no increases. I guess there was a 5% increase before that - the year gas prices were high.
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Old 11-01-2010, 08:18 PM   #10
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I emailed the SSA a month ago with this exact question. Here is their response:

Thank you for contacting the Social Security Administration.
All estimates provided by the Retirement Estimator are in today’s dollars. We use today’s dollars because it gives you an estimate of your benefit which you can easily compare to your current income and expenses for retirement planning purposes. This is the reason we also use today's dollars for the estimates provided on your Social Security Statement.
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Old 11-01-2010, 08:54 PM   #11
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It would be $2000 + 10 years of the National Wage Index increases.

For subsequent years, that amount would then go up every year by the CPI amount.

The above being true-BUT it is entirely possible that the SS forumla will change, be less, or be availble later than age 66 depending on how SS projected shortfalls get fixed. So don;t count on that as gospel in your planning.
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Old 11-02-2010, 07:05 AM   #12
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It is also useful to go to a non-Social Security page. I suggest Understanding the Social Security Benefit Calculation

There may be better ones I didn't look too carefully. Point is, you do the calculations on the "automatic calculators" and get the correct answer for your retirement benefits.

What you may not understand is that SS takes your earnings for the past 35 years, and comes up with an average, number (adjusted for inflation). Let's say it is $4000/ month. What you don't know is that approx. 70% of your benefits are calculated using a wage of $675 per month. About 20% of your benefits are calculated on $3,800 per month and 10% are calculated using the $4000 you actually averaged over 35 years.

Be you rich man, poor man, beggar man, or thief, you all are going to pretty much get the same benefits. If you average more than $4000 per month, you get nothing extra.

My point is, there is a great advantage for you over the next 12 years to avoiding paying Social Security. Max out all the retirement schemes you can find (ie, 401k, etc). Defer the income, work out an arrangement with your employer to buy a company car - whatever, but avoid direct salary because it is throwing money into Social Security that you will never see EVEN UNDER THE EXISTING RULES.
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Old 11-02-2010, 07:51 AM   #13
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It is also useful to go to a non-Social Security page. I suggest Understanding the Social Security Benefit Calculation

There may be better ones I didn't look too carefully. Point is, you do the calculations on the "automatic calculators" and get the correct answer for your retirement benefits.

What you may not understand is that SS takes your earnings for the past 35 years, and comes up with an average, number (adjusted for inflation). Let's say it is $4000/ month. What you don't know is that approx. 70% of your benefits are calculated using a wage of $675 per month. About 20% of your benefits are calculated on $3,800 per month and 10% are calculated using the $4000 you actually averaged over 35 years.

Be you rich man, poor man, beggar man, or thief, you all are going to pretty much get the same benefits. If you average more than $4000 per month, you get nothing extra.

My point is, there is a great advantage for you over the next 12 years to avoiding paying Social Security. Max out all the retirement schemes you can find (ie, 401k, etc). Defer the income, work out an arrangement with your employer to buy a company car - whatever, but avoid direct salary because it is throwing money into Social Security that you will never see EVEN UNDER THE EXISTING RULES.
That's not quite the way I read it. The article in your link says (see Step 5, Example 2) that your benefit in 2005 would be 15% of the amount above the second bend point ($3779) up to the SS wage base. Today's wage base is $106,800 ($8900 per month). Only income above this amount would not count toward your benefit (but, of course you don't pay SS taxes on income above this amount).
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Old 11-02-2010, 10:13 AM   #14
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That's not quite the way I read it. The article in your link says (see Step 5, Example 2) that your benefit in 2005 would be 15% of the amount above the second bend point ($3779) up to the SS wage base. Today's wage base is $106,800 ($8900 per month). Only income above this amount would not count toward your benefit (but, of course you don't pay SS taxes on income above this amount).
Obviously, the laws have been changed. But still the formula, with its "bend points" is heavily skewed to benefit low wage earners:
"The practical impact of this formula is that a worker with lower wages might expect to receive a social security benefit that replaces about 45% of those wages on an inflation-adjusted basis, assuming the worker retires at full retirement age. A worker with much higher earnings will receive a larger social security benefit, but it may replace only about 25% of covered wages."

This statement still holds true. And my original point that if you can figure out a way of avoiding paying FICA, other investments and retirement programs are far superior to Social Security (assuming you are a modesty high wage earner).
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Old 11-02-2010, 10:24 AM   #15
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... other investments and retirement programs are far superior to Social Security (assuming you are a modesty high wage earner).
I know a bunch of people that will rely on SS only, they don't save! So, for them SS is far superior.
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Old 11-02-2010, 05:07 PM   #16
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If a SS check is $2,000 at age 66 (full retirement age) then it would be $1500 at age 62, because there is a penalty of 25% less, if you take it at 62. Now, according to my calculations, which may not be right,......If you start taking it at 62, at $1,500.....you will have been paid $72,000 between the years from 62 to 66. (1500 x 48 months)

If you wait until 66 and opt to get the $2,000 a month SS, that is an extra $500 a month, but there are 144 months you would have to wait to make up that $72,000, which is 12 years. Then after 12 years, you are getting $500 more every month than the person who chose to start SS at 62. BUT, if you don't need the SS money at 62, wouldn't it be better to take it anyway and put it in a guaranteed interest or something very safe, where you Could get to it if you wanted?

And 12 years is a long time to wait.......
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Old 11-02-2010, 05:35 PM   #17
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If a SS check is $2,000 at age 66 (full retirement age) then it would be $1500 at age 62, because there is a penalty of 25% less, if you take it at 62. Now, according to my calculations, which may not be right,......If you start taking it at 62, at $1,500.....you will have been paid $72,000 between the years from 62 to 66. (1500 x 48 months)

If you wait until 66 and opt to get the $2,000 a month SS, that is an extra $500 a month, but there are 144 months you would have to wait to make up that $72,000, which is 12 years. Then after 12 years, you are getting $500 more every month than the person who chose to start SS at 62. BUT, if you don't need the SS money at 62, wouldn't it be better to take it anyway and put it in a guaranteed interest or something very safe, where you Could get to it if you wanted?

And 12 years is a long time to wait.......
I expect every person who posts here has an opinion on that one, and there are hundreds of posts if we look for them. The common answer is "It depends".

For example, is this money that you're not going to spend anyway and is just going to go to your kids or charity? Then maybe you should take it now, invest aggressively, and figure that gives you the best chance of maxing out your estate.
Or, do you know that you've got a lower than average life expectancy (say diabetes), that seems to point to taking the money today.
Or, do you need SS just to cover your basic spending in retirement, and you are worried about the fact that you may substantially outlive your life expectancy? Then you may want to think of SS as an immediate annuity that the gov't offers at very attractive rates.
Or, are you planning on an SWR of 4% or less, but you want to maximize what that percent will allow you to spend? Then deferring SS typically gives the higher spending.
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Old 11-02-2010, 05:38 PM   #18
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If you wait until 66 and opt to get the $2,000 a month SS, that is an extra $500 a month, but there are 144 months you would have to wait to make up that $72,000, which is 12 years. Then after 12 years, you are getting $500 more every month than the person who chose to start SS at 62. BUT, if you don't need the SS money at 62, wouldn't it be better to take it anyway and put it in a guaranteed interest or something very safe, where you Could get to it if you wanted?

And 12 years is a long time to wait.......
Ah yes - the when to take SS discussion. You didn't tell us how old you will be when you plan on dying. So, if you tell us that then we'll tell you when exactly to take SS.

We have had the SS discussion here many times:

here's one such discussion: When to take Social Security

in short though, you could take the money earlier and invest it. remember that if your income is above poverty levels then you'll pay extortionary tax rates on your early SS though.

But where will you "safely" put it that's going to give you the no-risk returns of delaying SS ? That needs to be answered. Think about risk-normalized returns when you think this though.

And then throw in all the issues with spouses and survivorship benefits and it gets harder.

My personal take is that yes - maybe you can game this and come out ever so slightly ahead. In the big scheme of things though your life shouldn't be too much different either way. You won't get rich doing this.
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Old 11-03-2010, 09:48 AM   #19
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If you're on the calculator on the SSA website, at Quick Calculator , it gives you the option of picking today's dollars or inflated (future) dollars
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Old 11-03-2010, 07:07 PM   #20
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Ah yes - the when to take SS discussion. You didn't tell us how old you will be when you plan on dying. So, if you tell us that then we'll tell you when exactly to take SS.

We have had the SS discussion here many times:

here's one such discussion: When to take Social Security

in short though, you could take the money earlier and invest it. remember that if your income is above poverty levels then you'll pay extortionary tax rates on your early SS though.

But where will you "safely" put it that's going to give you the no-risk returns of delaying SS ? That needs to be answered. Think about risk-normalized returns when you think this though.

And then throw in all the issues with spouses and survivorship benefits and it gets harder.

My personal take is that yes - maybe you can game this and come out ever so slightly ahead. In the big scheme of things though your life shouldn't be too much different either way. You won't get rich doing this.
and here is another (check out page 3) Social Security at 62, 66 or 70?
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