FIRE and SS

[chinaco]

DW stopped working at 53. I intend to FIRE at 55. Has anyone determined the impact of stopping working at 55 on the SS payments?

For example, when I FIRE, at 55 I will have 35 years of work which is the max number of years used to calculate the SS benefit. However, since I will be stopping about 11 years before FRA, there must be some sort of inflation factor that will come into play since my 35 years will be calculated about 11 years before FRA (which is the basis for calculation).

When I get my projection from SS it states an amount. I assume that the basis for that amount is calculated assuming I continue working using the same income levels.

What will that do to my benefit when it is eventually calculated? I am assuming that the statements I receive will show an amount that is higher than I will actually receive in today's dollars.

 

[LOL!]

Use the explicit calculator at the SSA.gov web site. Plug in your exact numbers. Get answer. I'm not sure what you mean by "When I get my projection from SS ....". If you use the calculator, you can plug in $0 for all your years between when you retire and when you begin benefits.

 

[MasterBlaster]

Or just ballpark the benefit reduction at 0.5-1.0 % per year retired early.

Since your spouse is 53 I would ballpark the reduction at around 6-12%.

For you retiring at 55 I would ballpark the reduction at 5-10%

 

[walkinwood]

In my "Your Estimated Benefits" section of my SS statement says that it assumes that I will earn a certain amount going forward. See the bottom of that section just after your birth-date.

 

[jdw_fire]

Or just ballpark the benefit reduction at 0.5-1.0 % per year retired early.

Since your spouse is 53 I would ballpark the reduction at around 6-12%.

For you retiring at 55 I would ballpark the reduction at 5-10%

why would you do this? the OP said he had already worked 35 years sooo since the SS formula takes the top 35 earning years to calculate the average monthly earnings and all wages are inflated with the wage index to what wage levels will be when the OP is 60, it seems he would be losing nothing except the opprotunity to have an earning year that would be more than 1 already worked and thus replacing it in the averaging formula. the OP would have to be forgoing some very well paid work years, relative to his lowest paid work years, for this to change his SS by 10%

 

[chinaco]

Use the explicit calculator at the SSA.gov web site. Plug in your exact numbers. Get answer. I'm not sure what you mean by "When I get my projection from SS ....". If you use the calculator, you can plug in $0 for all your years between when you retire and when you begin benefits.

I was referring to the estimate that SSA sends periodically.

I will take a look at the calculator.

 

[Bikerdude]

I was referring to the estimate that SSA sends periodically.

I will take a look at the calculator.

The estimate they send you will change once the "0" years start to show up.

 

[Rustic23]

I had about 45 years of SS income when I stopped w*rking. I did not notice any decline in my statements. I believe jdw's comment is true. In fact my first year of military service is not being used to calculate my payment. It was not one of my 35 highest.

 

[Bikerdude]

The estimate they send you will change once the "0" years start to show up.

I guess I should have said the statement will "reflect" the effect of the "0" years going forward instead of "change". I estimated my reduction from 10 yrs of 0 income to be 5%. This pales in comparsion to the amount of $$ I left on the table by retiring early. More than worth it IMHO.

 

[jdw_fire]

I guess I should have said the statement will "reflect" the effect of the "0" years going forward instead of "change". I estimated my reduction from 10 yrs of 0 income to be 5%.

did you have 35 years of full time work history that qualified for SS? if not than the ER effect would be larger.

 

[Bikerdude]

did you have 35 years of full time work history that qualified for SS? if not than the ER effect would be larger.

1965 to 2000. Looks like I just made it.

 

[jdw_fire]

1965 to 2000. Looks like I just made it.

did the early (or should i say some) years have a very real low income compared to your last years? actually they had to, otherwise there would be no effect on your SS payout.

 

[Bikerdude]

did the early (or should i say some) years have a very real low income compared to your last years? actually they had to, otherwise there would be no effect on your SS payout.

Yes.

 

[chinaco]

... all wages are inflated with the wage index to what wage levels will be when the OP is 60...

This sounds familiar... Did you find this sort of description or calculation on the SSA site?

 

[jdw_fire]

This sounds familiar... Did you find this sort of description or calculation on the SSA site?

i did years ago when i did some investigating of SS for my personal situation but i didnt go reverify it before making the above post. sooo maybe i should have added an "if memory serves" in there somewhere, lol.

 

[Bikerdude]

i did years ago when i did some investigating of SS for my personal situation but i didnt go reverify it before making the above post. sooo maybe i should have added an "if memory serves" in there somewhere, lol.

Its in there somewhere. I think they call it a "wage index factor" and its applied to each year of earnings. For example, my wages for 1965 were multiplied by 7.93 to get the current earnings value. Age 59 earnings used 1.13 or so as I remember. Look for the actual math formula for estimation of your benefits and I think you will find the tables to use.

 

[teejayevans]

I developed a spreadsheet for social security calcs, if I stopped working before I had
35 years worth, it's a 15% decrease. There are lots of factors, understand after a certain
level your SS return goes from 90%->32%->15%.
TJ

 

[jdw_fire]

I developed a spreadsheet for social security calcs, if I stopped working before I had
35 years worth, it's a 15% decrease. There are lots of factors, understand after a certain
level your SS return goes from 90%->32%->15%.
TJ

if you are saying that losing 1 year of wages (i.e. you have 34 years of wages instead of 35 years) will cost you 15% of your SS as compared to not losing that 1 year (and thus having 35 years of wages to compute your SS), i would respectfully suggest your spread sheet is in error since each year is only 2.86% of your wage history (if you have reasonably flat real wages over your work history). and to get what SS is going to pay you, after you have your average monthly wage based on those 35yrs of work, a sliding percentage of that amount is computed, making each year of wages forgone worth even less (especially if your wages were anything over minimum wage and you worked full time).

for example, lets say that you have 35 yrs of work that when averaged comes to $12k/yr ($1000/mo) in gross income (quite small). this amount of income will, at FRA, produce SS of $761.38/mo (which would be rounded down to $761/mo). now lets say that you gave up 1 year of work in which you earned $12000 (so now you only have 34 yrs of wages). that would make your average monthly earnings $971.43 (still based on your highest paid 35 yrs, 1 of which is $0), producing SS of $752.24/mo (rounded down to $752/mo). this is a reduction to SS of only 1.18%, not much at all. so what if your last year you gave up $24k instead of $12k? then your average monthly earnings would be $942.86 and your SS would be $743/mo, a 2.37% reduction even though the year of earnings you gave up was more than double the average of your other 34 years! so, you can see that giving up 1 year of earnings doesnt have much of an affect on your SS payment.

now, maybe you could contrive an example where it would be MUCH more significant but that would involve the 34 years of counted income being very small and a very large projected income in the year you gave up i.e the 35th yr.

 

[Independent]

This sounds familiar... Did you find this sort of description or calculation on the SSA site?

It is the "Indexing Factor" on this page: Social Security Retirement Benefit Calculation
All the factors increase in any year when the wage index goes up.

For lots of analytical people on this board, the best way to understand the link between earnings and SS benefits is to copy this page into your own worksheet, put in the formulas, then play with the inputs.

 

[teejayevans]

if you are saying that losing 1 year of wages (i.e. you have 34 years of wages instead of 35 years) will cost you 15% of your SS as compared to not losing that 1 year (and thus having 35 years of wages to compute your SS)

No, I'm saying if I retire 10 years early (52 instead of 62), only costs 15%
because the diminishing returns on my SS contributions.
Remember your old wages are index for inflation, so looking back 30 years, I realized
my pay adjusted for inflation hasn't gone up that much :-(
TJ

 

[ejman]

There seems to be very little additional SS benefit to continue working past the early-mid 50's if one had the good fortune to earn enough to pay in the maximum allowed. I did this thru 2002 when I ER'd at 52. Looking at my statement from 2003 it actually shows a lower anticipated SS payment at 62 than my current statement which has zeros for income since 2003 (The 2003 statement assumed I would continue working at my then salary). There has been little inflation since 2003. It would appear that by design SS is encouraging Early Retirement - why is that?

 

[jdw_fire]

There seems to be very little additional SS benefit to continue working past the early-mid 50's if one had the good fortune to earn enough to pay in the maximum allowed. I did this thru 2002 when I ER'd at 52. Looking at my statement from 2003 it actually shows a lower anticipated SS payment at 62 than my current statement which has zeros for income since 2003 (The 2003 statement assumed I would continue working at my then salary). There has been little inflation since 2003. It would appear that by design SS is encouraging Early Retirement - why is that?

it is not that SS "by design" is encourging ER but rather it is not rewarding high incomes. SS was set up as a safety net not a retirement plan. it highly favors low income people (just look at the formula). also, when you take the average wage of the top 35 years there isnt as big a consequence to missing a few of them (as i pointed out in an earlier post) which as you noticed, does support ER.