A basic Social Security question regarding RE

[maldini]

Hi all,

Each year I get a social security statement showing what I can expect to get if I start taking benefits out at 62, 65 and 67,

Do those numbers assume that I continue working until that time or do the numbers represent what I have earned up until this point in time?

I am trying to gauge what RE does to those basic numbers..

 

[W2R]

Hi all,

Each year I get a social security statement showing what I can expect to get if I start taking benefits out at 62, 65 and 67,

Do those numbers assume that I continue working until that time or do the numbers represent what I have earned up until this point in time?

I am trying to gauge what RE does to those basic numbers..

They assume that you keep working at your present salary.

 

[samclem]

Look closely at the statement--the last one I read listed the assumption that I continue working.

Often, retiring early doesn't reduce your check as much as you might guess.

You'll need to go to the SS web site and put your numbers (past and forecast) into the calculator if you want to know what your monthly check might look like.

Use the second calculator, not the "quick calculator"

Choose a Benefit Calculator

For a real eye-opener, play around with the annual income figures ad note the impact on your expected check. Contributing several thousand bucks per year in SS taxes will yield about 10-20 bucks per month in increased payments. Wooh-hoo!

 

[bigla]

When I checked it a few years ago, there was some sort of entry which informed the calculator that you won't be earning anymore. Look for it, I am sure it is there.
Larry

 

[EngineeringMyFinances]

You should read your statement carefully. Your question is answered on page 2 of the statement, in the section titled "What we assumed". And the estimates are given at ages 62, 70, and your Normal Retirement Age. Doubt that your statement shows an estimate for age 65, since those with a Normal Retirement Age of 65 are already 70 years old or will be by the end of this year.

Your statement has clues, if you'll read it carefully. To learn more visit the Social Security web site, and in particular read carefully this page.

The way benefits are calculated, most of your benefit is earned early in your career. The closer you are to retirement, the less the effect on your benefit by quitting now. But you should understand the Social Security system better, so visit their web site that I linked.

 

[maldini]

Thank you for all the information in the thread. I have used the calculator recommended and was able to see what the #'s would be if I stopped working at my early retirement age.

When people model SS as part of their retirement, do you model a smaller amount than what the statements/calcs show in case the system is altered in the future to help with the expected underflow?

 

[samclem]

When people model SS as part of their retirement, do you model a smaller amount than what the statements/calcs show in case the system is altered in the future to help with the expected underflow?

It varies. Some people here believe that the SS payments won't change, since the program is so important to so many people, and since seniors will vote their pocketbook. Others believe that ERs will be seen as "the wealthy" and the payment amounts will be reduced either by means testing or effectively reduced via COLAs that don't keep up with inflation.
I reduced the number provided by the SS calculator by approx 40% IIRC in my calculations. It will be 20+ years before my first check.

 

[ziggy29]

I used the advanced calculators and zeroed out everything past age 50 (42 now), and it only reduced my projected benefits about 12%.

 

[maldini]

Others believe that ERs will be seen as "the wealthy" and the payment amounts will be reduced either by means testing or effectively reduced via COLAs that don't keep up with inflation.

That would be a shame because I don't know how you make the determination of someone who lived well below their means in order to retire early vs the people who spend like crazy and then have less left at retirement.

I don't see why the latter group should be considered more worthy of SS than the former.

I reduced the number provided by the SS calculator by approx 40% IIRC in my calculations. It will be 20+ years before my first check.

This seems very reasonable to me. I may even do 50-60% reduction just to be conservative.

 

[W2R]

That would be a shame because I don't know how you make the determination of someone who lived well below their means in order to retire early vs the people who spend like crazy and then have less left at retirement.

I suspect that the latter group tends to think that the reason the former group has a larger nestegg, is that they are just "lucky".

I don't see why the latter group should be considered more worthy of SS than the former.

You're right. In a just world, this should never happen (though it might anyway).

 

[Cb]

You can request "customized" statements from the SSA websites that are prepared by the SSA..they'll arrive ~3 weeks after you request them. When I do this I submit 2 or 3 requests for both my wife and I, inputting different retirement years for each request.

As to modeling SS income for retirement planning, I reduce the SSA estimates for my wife & I by 20%. I figure that's plenty conservative for the following reasons:

- We're 47 & 48 now, and will be even older if/when our elected officials get around to adressing on SS underfunding. I think there's even a remote chance we'll be 55 by the time we get a 2nd term president willing to make the necessary changes. Most of the suggested fixes I've read about put the lion's share of the burden on the young, with little or none of the pain to be born by those >50 or so.

- A ~25% benefit reduction would pretty well address the shortfall. But I figure there's no way it elected officials will choose to use benefit cuts only to address it...my guess is it'll be some split between tax increases & benefit reductions, and it wouldn't surprise me in the least to see tax increases as the dominant portion.

- Our retirement income will likely remain under ~$100K per year in today's $$, and I have a very hard time believing politicians will hit that demographic with steep (>20%) reductions.

- when you use today's SSA estimates you're already a little conservative in that it ignores the slight wage vs price index disparity between now & starting SSI.

Cb O0
PS: now Medicare is another story...I'm planning on very little in the way of HC cost relief from the government by the time we reach 65.

 

[samclem]

- Our retirement income will likely remain under ~$100K per year in today's $$, and I have a very hard time believing politicians will hit that demographic with steep (>20%) reductions.

I hope you are right, but don't be too sure about being spared. You are in the topmost 17% in US household income, (according to 2005 figures), so you are "rich, Rich, RICH!"

 

[Cb]

I hope you are right, but don't be too sure about being spared. You are in the topmost 17% in US household income, (according to 2005 figures), so you are "rich, Rich, RICH!"

What demographic votes more than reasonably well-informed retired baby boomer AARP'ers with transportation and something at stake?

I think Edwards even proposed giving $93K - $200K earners a pass on higher SS taxation. No...I think assuming a 20% haircut for the >50 crowd is plenty conservation.

Cb

PS: Here's a Cut & Paste from The Thing I Wrote For My Old Lady on ER:

"So to summarize:

If we were to only diversify our portfolio with the S&P 500 stock index and US bonds,
and
one or both of us live to be 102
and
we never earn any income again
and
we inherit nothing
and
the amount of Social Security income projected for us today is chopped by 20%
and
US health care expenses continue to climb, negating the savings we'd see at 65 (Medicare)
and
we never cash out of our home
and
we have the lousy luck to retire at the start of a period similar to the eve of the depression,

...then we'd have less than a 1% chance of going broke before we die, based on history.

So what I'm thinking is, how can I improve the odds, just in case the next 30-55 years is worse than any period seen in the past 135 years of US history?..."

 

[kaudrey]

maldini - I am 38 and I cut the expected SS amount for my planning. I calculated on the website what SS would be assuming I retire at 52, and then cut that number in half for my calculations.

 

[boilerman]

...my guess is it'll be some split between tax increases & benefit reductions, and it wouldn't surprise me in the least to see tax increases as the dominant portion.
-

I am amazed every year when I hit the ss tax max (this year is $97.500) that congress hasn't already eliminated that limit. With the perception that anyone making 6 figures is rich and with those same people being in the minority, it would be easy to pass...

 

[ERD50]

I am amazed every year when I hit the ss tax max (this year is $97.500) that congress hasn't already eliminated that limit. With the perception that anyone making 6 figures is rich and with those same people being in the minority, it would be easy to pass...

Color me amazed also. With all the 'tax the rich' momentum out there, and the SS issues, this seems like a no brainer. Remove the limit.

We have progressive taxes (income tax), we have flat-rate taxes (sales and property taxes), but SS is a totally regressive tax. It is not even graduated - it just chops off to ZERO above that level.

I don't understand why the liberals are not chopping at this one - it seems so obvious. What am I missing?

-ERD50

 

[Sandy]

[- it seems so obvious. What am I missing?

-ERD50[/quote]

inertia, atmosphere of "no new taxes", and election cycles and term limits that make it "not my problem"

my $.02

 

[talltrees]

You're right. In a just world, this should never happen (though it might anyway).[/quote]


If you find a just world, let me know. I'll meet you there.

 

[EngineeringMyFinances]

but SS is a totally regressive tax.

I disagree. When it comes time to pay benefits, the low income earner gets a much larger percentage return for taxes paid than does a top earner. Visit Social Security Online and get an education on how benefits are calculated, for example, and learn about how "bend points" reduce your benefit.

And those earning over the the Wage Base limit get no benefit for the income on which no payroll taxes were paid.

 

[ERD50]

I disagree. When it comes time to pay benefits, the low income earner gets a much larger percentage return for taxes paid than does a top earner. Visit Social Security Online and get an education on how benefits are calculated, for example, and learn about how "bend points" reduce your benefit.

And those earning over the the Wage Base limit get no benefit for the income on which no payroll taxes were paid.

True, the benefits are 'progressive', so I guess if you look at the whole input-output you could say it is a progressive tax overall.

It still stands out as unique (I think). What other tax rates go to zero when you stop receiving benefits? I had some really wide swings in my taxable income a few years back. I don't think I used more govt services in one year vs another. Maybe if the SS fund was isolated, it would make more sense, but it is just lumped in with everything. I don't get to contribute less tax if I reduce the driving on roads (except for toll roads - another tax policy inconsistency).

I wish that SS was in my personal account. I feel a lot more secure in my 401K and IRA because it is MY money. My pension and post-retirement benefits are largely 'promises' from my employer (partially backed by more govt promises).

-ERD50

 

[aenlighten]

As it stands

SS using the midpoint assumptions would be cut 25% in 2041 and decline slowly over time in real terms to about 30% if nothing were done. This is actually more attractive than most of the proposed solutions. Most just propose other means of cutting the same benefits such as raising ages. Eliminating the cap would almost entirely solve it and is most likely what will be done for that reason. Means testing, in contrast, would accomplish next to nothing, but is usually proposed by those against SS to stir up some opposition to it. Meanwhile, if low cost projections are correct, there is no problem at all.