Calculating SS break even point

[want2er]

According to SS website my #s are.....

$1648.....at age 62
$2339.....at FRA (66 & 4mo)
$3047.....at age 70

I know that each payment is calculated on the premise that I work until I begin collecting SS. Would someone please explain how to calculate my payments if I stop work at 62, but don't collect until FRA or age 70. I don't see this on SS website.

Thanks!

 

[REWahoo]

. Would someone please explain how to calculate my payments if I stop work at 62, but don't collect until FRA or age 70.

Thanks!

Use the Retirement Estimator on the SS website to manually input your annual earnings, enter 0 after age 62.

I think you'll find having no earnings between 62 and 70 will have only a small negative impact on your $3047 age 70 number - probably only $100 or so and even less on your FRA number.

 

[RunningBum]

Well, maybe. How much notice did we really have when the rule allowing for payback of SS received in order to qualify for a higher payment amount was rescinded?

That change affected very few people and was kind of an advantage that maybe shouldn't have existed. A major cut in benefits that affects nearly everyone isn't going to sneak in. It's like the difference between removing some obscure tax credit that maybe hundreds of people use, vs. raising income tax rates across the board.

 

[Texas Proud]

Amen to that. In reality SS isn't all that "broken." The reason why statements like "it will be underfunded by 25% in 25 years" is because of the impact of an imbalance increasing by 1% per year compounded for 25 years (not the exact numbers, but you get the idea). If you could just correct that 1% cumulative imbalance between what comes in and what goes out, the "crisis" more or less vanishes. And that hardly requires draconian measures -- but the longer we wait, the more it will be.

Anyway, this thread was more about the breakeven point for determining when to take it, not the political aspects of it. Hope we can get it back there; there's other political threads about SS in the FIRE politics forum.

I am not trying to get political on this, but I think most people miss the point when it comes to SS....

Sure, as a stand alone calculation, SS is not broken to much.... but what asset do they hold right now This is from memory, so I can be wrong... but I think it is close to 14 trillion of US bonds... as long as the gvmt can get enough money to pay back these bonds then SS is good to go... if they can not pay them back (which is the real issue), then it is in trouble...

IOW, you can not just look at SS by itself and ignore the big hole created by the rest of gvmt spending....

 

[MichaelB]

I am not trying to get political on this, but I think most people miss the point when it comes to SS....

Sure, as a stand alone calculation, SS is not broken to much.... but what asset do they hold right now This is from memory, so I can be wrong... but I think it is close to 14 trillion of US bonds... as long as the gvmt can get enough money to pay back these bonds then SS is good to go... if they can not pay them back (which is the real issue), then it is in trouble...

IOW, you can not just look at SS by itself and ignore the big hole created by the rest of gvmt spending....

Social Security fund assets were around $2.5T at year end 2010. It is taking in more than $500B a year, so the value of future contributions is far greater than the current assets.

The US Treasury is considered the safest bond in the world. Why is the debt to the SS fund any different?

 

[rayvt]

Now we're getting political.

The SS trust fund is not real. It does not represent real assets. It's just book-keeping entries saying that one part of the government has borrowed money from another part of the government. An IOU to yourself is not an asset.

 

[Texas Proud]

Social Security fund assets were around $2.5T at year end 2010. It is taking in more than $500B a year, so the value of future contributions is far greater than the current assets.

The US Treasury is considered the safest bond in the world. Why is the debt to the SS fund any different?

Thanks for the real number....

The reason is that in total, the gvmt is borrowing 40 cents for every dollar it spends... so it was spending all that extra SS money for many years... but SS wants its money back going forward... the rest of the gvmt has to be cut a lot if you want to give SS back its money... politicians are not willing to cut the rest of gvmt down to a size that would allow it to function based on the remaining revenue after paying back SS...

SO, in the end, it is still a question of where do you get the money to pay back SS... the answer is more debt to the public or smaller gvmt... at this time neither looks like a winning position..

 

[MasterBlaster]

"Simpson Bowles recommendations" It is to laugh. Boob bait. Every few years they hold a study/commission and make recommendations about the current hot topic -- Social Security, income taxes, etc. Invariably it just ends up on a shelf, right next to the dozens of prior sets of recommendations, all ignored.

It seems that something along those lines will occur.

The Simpson Bowles plan gradually reduces payments so that the top max payment goes down by almost a third. Another proposal caps payments at $1200. Other plans use means testing for any payment at all.

Perhaps it just isn't prudent to assume that things will remain as they always have. Big things are at play here.

 

[SteveR]

It seems that something along those lines will occur.

The Simpson Bowles plan gradually reduces payments so that the top max payment goes down by almost a third. Another proposal caps payments at $1200. Other plans use means testing for any payment at all.

Perhaps it just isn't prudent to assume that things will remain as they always have. Big things are at play here.

Medicare monthly "premiums" are based on income. I can see SS going this way too. Your benefits could be based on your other income. It is not that big of a jump to do this for SS when it is already being done for Medicare.

We are still a few years away from our SS decision and a lot of political BS can be played out before our earliest date so we will wait to see what happens. If it makes more sense to wait a few years (not until age 70 due to my family longevity) we will do so; if not then we will apply as we see fit. No crystal ball here but I don't see things easing up on SS demand or the govt. "paying" back the loan to SS. Debts will continue to mount until the American people can scale back their demands for a free lunch. Govt. is more than happy to create all the freebies they can to allow themselves to get (re)elected. .............stopping political soap box now.

 

[justplainbll]

Medicare monthly "premiums" are based on income. I can see SS going this way too. Your benefits could be based on your other income. It is not that big of a jump to do this for SS when it is already being done for Medicare.

We are still a few years away from our SS decision and a lot of political BS can be played out before our earliest date so we will wait to see what happens. If it makes more sense to wait a few years (not until age 70 due to my family longevity) we will do so; if not then we will apply as we see fit. No crystal ball here but I don't see things easing up on SS demand or the govt. "paying" back the loan to SS. Debts will continue to mount until the American people can scale back their demands for a free lunch. Govt. is more than happy to create all the freebies they can to allow themselves to get (re)elected. .............stopping political soap box now.

Amen to MasterBlaster and SteveR.
Looks like there's a good chance that SS retirement benefits will become another vehicle for income redistribution.
Life expectancy, government rules changes and discount rates would appear to be the major unknown variables involved in making decisions about when to begin taking payments. It's quite ominous that this program is negatively characterized as a quasi-welfare Entitlement.
TexasProud explains the whole mess quite succinctly.

 

[Independent]

According to SS website my #s are.....

$1648.....at age 62
$2339.....at FRA (66 & 4mo)
$3047.....at age 70

I know that each payment is calculated on the premise that I work until I begin collecting SS. Would someone please explain how to calculate my payments if I stop work at 62, but don't collect until FRA or age 70. I don't see this on SS website.

Thanks!

The adjustments for early and late retirement are straightforward:

If you stop working before age 62, then your benefit if you start at 62 will be 73.3% of your benefit if you start at 66 & 4 mo. Retirement benefits by year of birth

OTOH, if you wait until 70, your benefit will be 129.3% of your benefit at 66+4 Delayed Retirement: If you were born in 1956

The complication is getting your benefit at 66+4. That requires the indexing system that ReWahoo mentioned. As he suggested, most people on this board will have either 35 years of pretty good earnings or high enough earnings to put them in the 15% marginal benefit bracket, so the impact is small. The rules are here: Primary Insurance Amount

 

[Stargazer57]

Is Life Expectancy Correct?

In the UK, where I'm from, we distinguish between cohort and period life expectancy

I think the figures given on the US Social Security Site are all period figures. In other words they assume, for the purposes of the calculation, that life expectancy stops improving and stays constant for the rest of time. The US figure for a male age 65 (18.7 years) is certainly very similar to the UK figure (18.6) calculated on a period basis. On a cohort basis, assuming that life expectancy continues to improve at the rate recently experienced, the figure in the UK is 21.6 years.

If I'm correct, deferring SS commencement looks a much better deal.

The second point I'd make about life expectancy, based on experience in the UK, is that it is strongly correlated with wealth and income. This makes it much more likely that anyone interested in FIRE will live for longer than the average.

Third, those people who are looking at the age at which people in their family have died, and are using that to estimate, in a rough way, their likely age at death, are also failing to allow for improvements in life expectancy. These have averaged about 1 year in 8, so about 3 or 4 years a generation.

Add this all up, and ignoring political risks, deferring SS looks a much better deal.

 

[Alan]

Welcome to ER.org, Stargazer

I trust that you are enjoying our hottest start to October on Record.

Britons cool off in October heat wave - Telegraph

Feel free to introduce yourself in the Hi, I am Forum

 

[REWahoo]

I trust that you are enjoying our hottest start to October on Record.

Wow, a blistering 86F!

I saw a photoblog on a news site about this weather phenomenon. One photo caught my eye due to several topic-rich features...

 

[REWahoo]

You may now return to your regularly scheduled SS debate...

 

[73ss454]

I like my fries a little more crispy.

 

[Alan]

Wow, a blistering 86F!

I saw a photoblog on a news site about this weather phenomenon. One photo caught my eye due to several topic-rich features...

In hot weather fish and, er, chips, are very popular.

 

[MichaelB]

In hot weather fish and, er, chips, are very popular.

Is that what you call those things over there?

 

[Alan]

Is that what you call those things over there?

They do where I come from

I remember being very disappointed when I saw a movie called "Goodbye Mr Chips", and found out it was about a school teacher

 

[Independent]

In the UK, where I'm from, we distinguish between cohort and period life expectancy

I think the figures given on the US Social Security Site are all period figures. In other words they assume, for the purposes of the calculation, that life expectancy stops improving and stays constant for the rest of time. The US figure for a male age 65 (18.7 years) is certainly very similar to the UK figure (18.6) calculated on a period basis. On a cohort basis, assuming that life expectancy continues to improve at the rate recently experienced, the figure in the UK is 21.6 years.

If I'm correct, deferring SS commencement looks a much better deal.

The second point I'd make about life expectancy, based on experience in the UK, is that it is strongly correlated with wealth and income. This makes it much more likely that anyone interested in FIRE will live for longer than the average.

Third, those people who are looking at the age at which people in their family have died, and are using that to estimate, in a rough way, their likely age at death, are also failing to allow for improvements in life expectancy. These have averaged about 1 year in 8, so about 3 or 4 years a generation.

Add this all up, and ignoring political risks, deferring SS looks a much better deal.

The US SS actuaries provide both cohort and period life expectancy data. For example, section 5 here: 2010 Trustees Report: Section V.A, Demographic assumptions & methods

They also do research on the mortality differentials by lifetime earnings: Trends in Mortality Differentials and Life Expectancy for Male Social Security-Covered Workers, by Socioeconomic Status

So the data is there. But, you are correct, lots of people do not use this information when making their own plans.

One other complication is that any population table ignores the effects of selection. The mere fact that someone is thinking about "average" life expectancies indicates that person doesn't have serious health problems, and hence is in a better than average pool.

 

[heirloom]

I'm definately taking my SS at age 62 while it is still there and invest it in the best place at that time. Be it bond, mkt, or bank.

Anyhow....they are saying there will probably be a 3% increaes in SS in 2012. I will begin SS in Jan. of 2012, will my SS calcualtions be increased 3% or is the increase only for people who already were receiving SS?

Maybe someone who worked for SS can answer this.

 

[W2R]

I'm definately taking my SS at age 62 while it is still there and invest it in the best place at that time. Be it bond, mkt, or bank.

Anyhow....they are saying there will probably be a 3% increaes in SS in 2012. I will begin SS in Jan. of 2012, will my SS calcualtions be increased 3% or is the increase only for people who already were receiving SS?

Maybe someone who worked for SS can answer this.

I'm curious - - Suppose you were beginning SS right now instead of 3 months from now. Of the places you mention, where would you invest it today, and what returns would you expect? I am not trying to say that you are wrong, just curious.

 

[73ss454]

I'm curious - - Suppose you were beginning SS right now instead of 3 months from now. Of the places you mention, where would you invest it today, and what returns would you expect? I am not trying to say that you are wrong, just curious.

I don't want to answer for Heirloom but I don't think too many people are taking SS to invest it. I for one will be taking it to bring down my withdrawal rates and stop the bleeding.

 

[W2R]

I don't want to answer for Heirloom but I don't think too many people are taking SS to invest it. I for one will be taking it to bring down my withdrawal rates and stop the bleeding.

That is why I was curious to find out more about her plan, since she said she would invest it. Maybe I misunderstood.

 

[73ss454]

That is why I was curious to find out more about her plan, since she said she would invest it. Maybe I misunderstood.

No, you are correct, Heirloom did want to invest it. I don't understand why anyone would want to take it at 62 to invest it in this climate. If anything I'd be waiting till a later date if I didn't have any need for my SS.