First question: estimating SS benefits for early retirement

[BBQ-Nut]

First question after joining...so testing the waters here.

I did do an advanced search on thread titles and didn't see one that addressed my first pressing question on how early retirement would effect my social security benefits.

I understand that there are reductions on estimated benefits if you retire before reaching the different qualifying ages (62, 67, 70 etc) for SS.

And - I've read that formula on the .gov site and it made my head explode.


Is there an on-line resource/calculator that you can use to type in the year you wish to retire vs the year you begin collecting SS benefits?

Thanks!

 

[Major Tom]

The official SS estimator site allows you to create different scenarios in which you specify which year you stop working (and therefore stop paying into SS).

You may be pleasantly surprised at how little retiring early affects your benefits.

Retirement Estimator

 

[BBQ-Nut]

The official SS estimator site allows you to create different scenarios in which you specify which year you stop working (and therefore stop paying into SS).

You may be pleasantly surprised at how little retiring early affects your benefits.

Retirement Estimator

Very useful - thanks!

I see it only estimates my SS benefits at age 62 and not beyond, though.

The calculator results for full retirement (66 & 10 months) and age 70 still say "from now until..." based on current annual salary assuming your are still working to 66 & 10 months or 70.

 

[RockyMtn]

The official SS estimator site allows you to create different scenarios in which you specify which year you stop working (and therefore stop paying into SS).

You may be pleasantly surprised at how little retiring early affects your benefits.

Retirement Estimator

This calculator will give you benefits at age 62 if you enter a retirement age less than 62. I believe you add 8% annually if you intend to delay receiving your benefits to an age later than 62 (say 66 or 70.5).

 

[Major Tom]

Very useful - thanks!

I see it only estimates my SS benefits at age 62 and not beyond, though.

The calculator results for full retirement (66 & 10 months) and age 70 still say "from now until..." based on current annual salary assuming your are still working to 66 & 10 months or 70.

The site allows you to create alternate scenarios in which you specify how much you will be earning after your "stop work" age. Just enter $0 for future earnings and you should get the answer you're looking for.

 

[DatumPoint5]

Keep in mind that Social Security calculations will be based on 35 years of "indexed earnings" information.

e.g. If you started working "later in life" and/or if you "retire early", then some of those years may be zero. The best way I have found to calculate potential SS benefits based on my actual working history (and future zero earnings) was this calculator (available on the SS website - released on January 7th, 2014)
Social Security Detailed Calculator

 

[scrabbler1]

One of things I did as part of my ER plan I put together in 2007-08 was to see how much lower my SS benefits would versus continuing to work (part-time) enough years to get rid of all the zeroes and negligible summer job earnings while in college. Using the example and description in the SSA website, I created a spreadsheet to mimic it which gave me my answer although I did not have anything good to check it against. I later downloaded the SS benefits calculator but could not get it to work. However, after some gentle prodding by members in this forum, I gave that another try and got it to work. And its estimate was within a dollar or two per month so I was doing everything right in the spreadsheet the whole time. Because I was in the 15% Bend Point, throwing in a few zeroes (around 12 of them) did not greatly reduce my projected benefit.

 

[jcretire77]

http://www.ssa.gov/pubs/EN-05-10070.pdf is useful too.

 

[meierlde]

If you have your SS earnings record there is the anypia detailed calculator:Social Security Detailed Calculator
which allows you to input any retirement date after 62.

 

[ImThinkin2019]

We used the social security benefit calculator that we downloaded from their site. After using that, we purchased ESPlanner which was developed in part by Dr. Lawrence Katlikoff. The staff of ESPlanner took great pains to get their SS calcs as correct as possible, because many people use this calculator to determine how much to save and/or spend.

ESPlanner allows you to vary your income, retirement age, when you take benefits, etc, and see what the results are. We did that and found that it told us our benefit would be higher than the SS calculator did. Here's what they say about why:

We have tested our benefit calculator against Social Security's ANYPIA calculator and generate the same benefits to with a couple of dollars in the case of workers who are 62 or older and have all their earnings in the past.
Where ESPlanner differs from Social Security's ANYPIA is with respect to projecting benefits for workers who have some of their earnings coming in the future. In such cases, Social Security appears to assume there will be zero future inflation and zero economy-wide real wage growth. These are unrealistic assumptions, to be kind, but they are invoked, we suspect, to prevent Social Security from ever providing a benefit projection that exceeds what the system is legally mandated to provide. Our benefit calculator assumes that there will be inflation in the future as well as real wage growth. Our assumptions in this regard are taken from the latest Social Security's Trustees Report, which needs to make these assumptions in order to project Social Security's long-term finances.

 

[gauss]

One of the useful tricks for the online SS modeler is to realize that if you enter '0' for last year's earnings, it will show what you have accrued to day. (otherwise it assumes that you keep working going forward). This technique has allowed me to match my spreadsheet that implements the SS equations (at least the ones that effect me). SS is a very front loaded system. On of my reasons to pull the plug and ER was that I was already on the third portion of the SS curve that has a very shallow slope for future accruals (first leg is 90 cents on the dollar, second leg is 32 cents on the dollar and final leg is 15 cents on the dollar). This differs from income tax brackets because they apply to lifetime cumulative earnings, not yearly earnings.

If anyone would like to construct their own spreadsheet to model SS accruals, then the article at Social Security Benefits: An Excel Spreadsheet Construct is a very good method. It has served me well over the years.

Most people do not understand the value of their accrued SS benefits. My DW and myself have both accrued on the order of $1M each in 2014 dollars.
This assumes starting the draw at age 70 and running 30 years. ($33k/year inflation adjusted for 30 years ~= $1M). I keep trying to point this out to my Gen-X cohorts who have been bred to believe that there will be no SS for them.

-gauss

 

[photoguy]

Most people do not understand the value of their accrued SS benefits. My DW and myself have both accrued on the order of $1M each in 2014 dollars.
This assumes starting the draw at age 70 and running 30 years. ($33k/year inflation adjusted for 30 years ~= $1M). I keep trying to point this out to my Gen-X cohorts who have been bred to believe that there will be no SS for them.

Isn't that a little optimistic? Average lifespan is only ~80 so 10years at $33k = $330k. Age 70 is 30 years away for me, so even at low discount rates (say 3%) the present value is only around 130k.

 

[gauss]

Isn't that a little optimistic? Average lifespan is only ~80 so 10years at $33k = $330k. Age 70 is 30 years away for me, so even at low discount rates (say 3%) the present value is only around 130k.

A little optimistic? Perhaps. I am not median/average as are most folks on these boards. High Education/High Net Worth (relatively speaking) / Low Stress / Few Bad Habits / Happily Married etc/Access to
Good Insurance & Health Care / No chronic disease. There are many people in this nation pulling the average age down.

Your discount rate is flawed in that SS is adjusted for inflation every year. Makes the calculations simple. Age 70 is over 20 years away from me, but idue to wage-inflation, my accrued benefit increases every year (faster than CPI actually) without continuing to work. Check it out.

-gauss

 

[Independent]

A little optimistic? Perhaps. I am not median/average as are most folks on these boards. High Education/High Net Worth (relatively speaking) / Low Stress / Few Bad Habits / Happily Married etc/Access to
Good Insurance & Health Care / No chronic disease. There are many people in this nation pulling the average age down.

Interesting. I tried the Northwestern Mutual Life "Longevity Game" and picked answers that I thought were "most healthy". I got a life expectancy of 95 for a male who has already reached 70. So your 30 years doesn't look overly optimistic.

The Longevity Game Intro | Northwestern Mutual

 

[photoguy]

Your discount rate is flawed in that SS is adjusted for inflation every year. Makes the calculations simple. Age 70 is over 20 years away from me, but idue to wage-inflation, my accrued benefit increases every year (faster than CPI actually) without continuing to work. Check it out.

The discount rate number (3%) I listed was assuming a real dollar analysis. I wouldn't be very happy paying saying 100k now just to get back 100k inflation adjusted in 30 years.

Although choosing a discount rate can be tricky, and perhaps somewhat subjective, the low end should probably be at least 1-1.5% real given that's what you can get with TIPS today. As an upper bound, the discount rate probably should be no higher than the expected return of a high equity stock portfolio (maybe 4-5% if you throw in riskier slices). I would guess that pensions use higher than a 3% rate.

Re wage inflation -- it's not clear that SS wage inflation will grow faster than regular CPI going forward (especially given how much we hear about wages stagnating for all but the 1%). I couldn't find a description of exactly how it is calculated and I think the details will be key here.

In terms of lifespan, the SS actuarial tables show that for a male, less than 1% live to 100. These numbers are not conditioned on education, race etc. CDC has some life expectancy tables (http://www.cdc.gov/nchs/data/hus/hus11.pdf -- figure 32) which breaks out education but even here the life expectancy for males with bachelor's degree or above is only 81.

 

[Murf2]

Great first question BBQ, as I was about to ask the same thing!

MajorTom, I used the estimator you linked. I am a low wage earner, around 35k most of my working years. I am 56 now and it showed no difference if I worked another 6 yrs or not. I assume that I means will be drawing some sort of minimum amount either way. Is that correct? I hope so as it makes some decisions more clear to me.

Thanks to all!
Murf

 

[growing_older]

As additional years of work add to your social security wage base history, the current year wage base will be included in your benefit calculation ONLY if when indexed for inflation it is higher than one of the previous 35 highest years in your history. For people with less than 35 years work history, this means your current year will certainly replace a zero in your top 35. For people with at least 35 years of social security taxes paid, the new year will replace whatever year was lowest among the 35, which could be a year of part-time work, or an early career year with a much lower salary. Since 1982 the maximum wage base has been indexed for inflation, so those years will calculate out fairly closely, but years before 1982 can be candidates to be replaced, even if you earned the max social security wage in those years, because the max wage base was lower than the current indexed formula would have been. Likewise, the index calculation for an individual is fixed based on the index factors in place at age 60. Wages earned AFTER age 60 don't index the same way, so could conceivably replace earlier max wage based years, just based on inflation after the year the age 60 indexing is set.

 

[ERhoosier]

Most people do not understand the value of their accrued SS benefits. My DW and myself have both accrued on the order of $1M each in 2014 dollars.
This assumes starting the draw at age 70 and running 30 years. ($33k/year inflation adjusted for 30 years ~= $1M). I keep trying to point this out to my Gen-X cohorts who have been bred to believe that there will be no SS for them.....

Is this not a bit optimistic? Life expectancy for 70yo is only ~14yrs (bit longer for women). And for most, SS benefits are partially taxed which reduces the recipient's net.

IMHO- The on-line benefit calculators are prob fine for those already 60+, but Gen-X's are wise to doubt their SS benefits. While traditional ("Old Age") payments are rising fairly predictably due to longevity, few realize that SS survivor and disability benefits are increasing much faster. For example SS disability payments alone nearly doubled over past decade and now represent almost 1/5th of total SS payouts. If that trend continues, SS will be in much worse financial straights for Gen-X'ers than anyone now predicts.

BTW- My figures are from SS website data-
Social Security Benefit Payment Data

 

[Major Tom]

Great first question BBQ, as I was about to ask the same thing!

MajorTom, I used the estimator you linked. I am a low wage earner, around 35k most of my working years. I am 56 now and it showed no difference if I worked another 6 yrs or not. I assume that I means will be drawing some sort of minimum amount either way. Is that correct? I hope so as it makes some decisions more clear to me.

Thanks to all!
Murf

That sounds about right - see what growing_older said.

I only worked and contributed to SS for about 22 years. I stopped work at the age of 45 but was quite surprised to find that although I would have received more SS had I continued to work, it wasn't that much more - ~$200 more/month at age 62 and ~$300 more/month at age 67 - for an extra 20 years of work! My average earnings were about the same as yours.

 

[mpeirce]

I only worked and contributed to SS for about 22 years. I stopped work at the age of 45 but was quite surprised to find that although I would have received more SS had I continued to work, it wasn't that much more - ~$200 more/month at age 62 and ~$300 more/month at age 67 - for an extra 20 years of work! My average earnings were about the same as yours.

I have exactly 35 years in my earnings record.

BUT one of those years has a whopping $85 earnings listed and another has $269. Not sure those really count.

On the other hand, I have absolutely no plans to go back to work to pump those amounts up.

 

[scrabbler1]

That sounds about right - see what growing_older said.

I only worked and contributed to SS for about 22 years. I stopped work at the age of 45 but was quite surprised to find that although I would have received more SS had I continued to work, it wasn't that much more - ~$200 more/month at age 62 and ~$300 more/month at age 67 - for an extra 20 years of work! My average earnings were about the same as yours.

Pretty much the same here. I worked for 23 years, spanning 24 different calendar years for SS purposes (before ERing at age 45 five years ago). But because my last 7 years were part-time, had I kept working part-time and received average raises for all those "zero" years in my SS calculation, my projected SS monthly benefit would be about 10% higher, or about $165 a month.

Like what mpeirce wrote, I have a few very small earnings years (summer jobs) before I began working full-time. My SS wages were between $500 and $600 each year.

 

[Ready]

I ran the numbers through the social security web site to find out how not working would impact my future social security benefits. It was an interesting exercise. One thing I noted was that the spread between ages 62, 67 and 70 appear to reflect a 7% increase each year, not 8%.

If I continue working from now until I retire, my numbers would be:

Age 62 $1,896
Age 67 $2,710
Age 70 $3,369

If I stop generating any future income as of this year, my age 62 number drops to $1,631. I then adjust the numbers up by adding a 7% per year increase, so age 67 becomes $2,288 and age 70 becomes $2,802.

I'm planning on delaying social security until age 70. So for me, it's the difference between $3,369 and $2,802. It's not an insignificant amount, but I would have to work ten more years to get the full amount, and it doesn't seem like it's worth 10 years of work for an extra $567 per month.

I'm still wondering why the figures are supposed to increase 8% per year though, and my numbers only seem to be increasing by 7% each year. What am I missing?

 

[growing_older]

You only have three years from your full retirement age (67) until age 70. Three years of 8% increase is 24%. Yes, there is no compounding and that is how they figure "8% increase for each year" you delay. 24% of 2710 is 650 and when you add 650 to 2710 you get 3360, which is pretty much what the calculator is showing you. They actually do an analogous calculation based on number of months from FRA to age 70, so that's probably where the $9 rounding came from.

The element you may have been missing is the weird way they do their calculations.

 

[Ready]

The element you may have been missing is the weird way they do their calculations.

Very interesting - thank you. I found the section on the ssa web site that describes this. Apparently to get from the age 67 number down to the age 62 number you subtract 30%.

So I guess I can deduce that if my age 62 number without working any further is $1,631, then my age 67 number is $1,631 / .7 = $2,330, and my age 70 number is $2,330 x 1.24 = $2,889.

So the $2,889 figure is $480 lower than the figure I would earn if I keep working for another decade. Well, that makes me feel even better, since I have no desire to work ten more years to earn an extra $480/month.

 

[BBQ-Nut]

What is interesting/perplexing is that when I run the numbers in the spreadsheet I have constructed (which allows me to plug in all sorts of scenarios for diff. returns, tax brackets, ss age, 'death') - I end up with more assets to pass on to heirs if I start collecting SS at 62 vs 70.

By starting at 62, I think I am not drawing down as much on my assets and they actually grow from age 80 thru 100.

When I delay ss to age 70, my overall assets still grow over time, but the final amount at 'death' is lower than if I start ss at 62.