Social Security benefit calculation for FIRE

[Lusitan]

I'm a long way from reaching the age at which social security theoretically would provide any benefits, and to be conservative (and realistic, maybe) I have always completely avoided relying on any social security income when I do my FIRE calculations.

But I received my annual "estimated SS benefits" form in the mail the other day, and just for fun I was playing around with FireCalc to see if/how SS benefits would impact my FIRE plans. When I started thinking about it, I realized that I know very little about social security and what the rules are.

My question is this: how can I computer my (theoretical) expected social security benefits that'd I'd receive at 67 if I retire early? The form that the SSA sent me provides me with an estimate of my benefits, but the language indicates that they are basing this calculation off on the assumption that I continue to work until I receive benefits (age 67) at about the same income level that I currently enjoy. That's obviously not going to be the case if I FIRE!

But how would I go about calculating my SS benefits at any given point in time? Is that even possible? How do you guys who plan to retire at age 40 or 50 or whatever calculate the estimated SS benefits you'd receive when you reach 67?

 

[ats5g]

Go to the SSA's Online Calculator. You can enter in your yearly earnings info, age you plan to stop working, etc.

- Alec

 

[Lusitan]

Thanks Alec - even better than doing the calculations myself is finding a reliable online calculator!

 

[cute fuzzy bunny]

My experience was that factoring in the appearance of the SS income stream 18 years from now increased my success percentages and increased my SWR all the way back to today.

Providing you've got enough credits to receive benefits (your statement will tell you that) and you worked at least a handful of fairly well earning years...cutting your SS contributions "short" probably wont make a huge difference...at least not compared to the number of years work you'd have to put in.

Now you've got the $64,000 question: can you rely on that income stream actually appearing and actually paying that much from 62-whenever?

Which is why I leave it out. Lobster and champagne money if we get it.

 

[Bigritchie]

Since It will be a minimum of 32 years before I even can sniff SS, I do not even factor it into retirement plans.

if it is there great, if not no biggie

 

[73ss454]

I think if your going to retire at the age of 30 even if SS was there for you I don't think you would get more than $10 bucks a month.

 

[Goonie]

Now you've got the $64,000 question: can you rely on that income stream actually appearing and actually paying that much from 62-whenever?

Which is why I leave it out. Lobster and champagne money if we get it.

That's the way I look at, too. I'm usually quite the optimist, however, when it comes to gov't programs run and administered by Uncle Sam, my optimism fades slightly. If I get to collect SS benefits similar to what the SSA calculator shows.....GREAT! If not....oh well, no great loss. I didn't include SS in my plans to FIRE, so if it's still there, it will be "Lobster and champagne money".

 

[cute fuzzy bunny]

I just like to point out that the SSA prints on all of their statements that the plan is going to run out of money on a certain date and that benefits may be cut by 30% or more.

Nobody would buy any investment of any kind if the investment company put that on their brochures or statements.

Yet, some people are willing to count on that income as ultra low risk and fully available.

Maybe if you're an inch away from retiring. If you're an early retiree in their 30's, 40's or 50's...maybe not something you count on being available to you in 2050.

To be fair, I dont expect social security to dry up. I expect they'll cut the inflation protection, reduce the core benefit, or perhaps exclude people over a certain income level or asset level.

As long as nobody pisses off the core voting group, it'll fly.

 

[W2R]

I just like to point out that the SSA prints on all of their statements that the plan is going to run out of money on a certain date and that benefits may be cut by 30% or more.

OK, I just happen to be sitting here with my social security statement in my hand (because I just recomputed my future earnings using the method on Your Retirement Benefit: How It Is Figured (2007) ).

I think the sentence you are referring to is, "The law governing benefit amounts may change because, by 2040, the payroll taxes collected will be enough to pay only about 74 percent of scheduled benefits."

Yet, some people are willing to count on that income as ultra low risk and fully available.

Maybe if you're an inch away from retiring. If you're an early retiree in their 30's, 40's or 50's...maybe not something you count on being available to you in 2050.

Even if they cut benefits by 26% in 2040, I'll be 92 by that time (I'm 59 now). I think it's more likely that, instead of cutting benefits, they will cut back on cost of living increases. Ugh. That could have a lot worse impact.

 

[Bimmerbill]

The last time I worked my retirement estimates, I did a "low" estimate, which included no SS and very low returns, and a "high" estimate. The "high" estimate included SS and average return rates (historically) for my investments.

I will probably ignore SS in my future computations. That way if I get anything at all it will be an additional cushion.

I'd hate to factor it into my plans and have it not pan out... 21 years until I can collect at minimum age.

 

[Cb]

I expect to get the majority of what the SSA currently projects. Here's how I look at it:

My wife and I will be 47 & 48 next month. I don't think there's any way there will be meaningful changes to Social Security in the next few years, in fact the earliest I'd expect changes would be early in the next presidential 2nd term.

Most of the proposals to fix Social Security that I've seen put most (nearly all) of the burden on those under the age of 50. I'd be quite surprised to see changes that substantially reduced benefits for middle class voters over the age of 50.

I model a 20% reduction in our currently projected benefits for SWR purposes, and figure that 100% of our SSI will be subject to taxes.

Cb O0

 

[cute fuzzy bunny]

The Boskin based adjustments to the CPI calcs made a substantial difference to all recipients of CPI indexed benefits.

So its already been done once and pretty much slipped under the wire. I think the trick here was to bury it in a change to a complex calculation that not many people understood.

Good paper http://faculty-web.at.northwestern.edu/economics/gordon/346.pdf

A loss of 1.1% per year is pretty significant over a 20-30 year period.

 

[FinanceDude]

I'm NOT counting on it in my projections,because I think my benefit will be cut at LEAST 40% to make sure it stays solvent.

If that doesn't happen, I will have a little extra gas money every year.......

 

[Cb]

I'm NOT counting on it in my projections,because I think my benefit will be cut at LEAST 40% to make sure it stays solvent.

If that doesn't happen, I will have a little extra gas money every year.......

I'm curious, how old are you now, and what sort of non-SSI taxable income do you expect to have after retirement?

Cb

 

[Lusitan]

I think if your going to retire at the age of 30 even if SS was there for you I don't think you would get more than $10 bucks a month.

Well, maybe not. But according to the SSA online calculator, if you earned a decent salary between age 20 and age 30 you'd get quite a bit more than $10 per month when you hit 62 if you stopped working at age 30. Granted, that's just using today's calculations and who knows what the picture will look like down the road.

Since I'm only in my early 30's I think that SS benefits will definitely be trimmed back by the time I'm eligible for benefits. I like the idea of relying on only 60% of current estimated benefits. (As cynical as I am about the solvency SS, I've also grown cynical about whether our govt will have the guts to make any real changes in my lifetime, apart from forced changes like lowering benefits. Most likely scenario I see is the country just continuing to go deeper into debt to keep some semblance of the current system around.)

I guess I could ignore SS altogether, as I've been doing, but if using even some SS in my calculations gives me an extra 5 years or so of my life back I may decide to roll the dice and count on at least a little SS in my plan. Maybe scale back to 50% of the current estimated benefits to be conservative.

 

[eytonxav]

At 58, I am much more worried about what happens to medicare and healthcare costs going forward than SS.

 

[Sam]

I think the sentence you are referring to is, "The law governing benefit amounts may change because, by 2040, the payroll taxes collected will be enough to pay only about 74 percent of scheduled benefits."

This is why I secretly thank each and everyone who delays or plans to delay collecting SS beyond age 62. By 2040, I would already have collected SS for 20 years.

 

[FinanceDude]

I'm curious, how old are you now, and what sort of non-SSI taxable income do you expect to have after retirement?
Cb

Age 42, and am looking to be able to get a 4% SWR on $2 million at age 54............

Hopefully.........

 

[OAG]

Today: Gross SS Benefit $21,024 MINUS Income Taxes on 85% of that at 15% ($2,681) and MINUS Part B for 2 ($2,352) gives you a NET SS Benefit of $15,991 or 76% of the STATED Benefit. BTW Medicare Part B is scheduled for something like a 17% jump in 2008 (while the projected CPI is 2.3%) so the 76% of benefits will fall in this example to 74.5% of STATED benefits. At least you get to keep something.

The above does not even consider the cost of a Medigap Policy that many will need to cover the copays, etc.

If the Medicare Part B continues to grow at 17% and the CPI at about 3% (approximately the average of the last 30 years) when do we have to start forfeiting ALL SS benefits for Medical Care? About age 83 or 84; earlier if one falls into the higher Part B premium income brackets. (Never say Never).

Medicare needs to put up an accurate premium calculator; if they could/would dare do it!

 

[teejayevans]

I think if your going to retire at the age of 30 even if SS was there for you I don't think you would get more than $10 bucks a month.

I believe you need a certain number of credits (10 years of full
employment) to qualify for SS. Retire before that you get zip.
TJ

 

[Cb]

Today: Gross SS Benefit $21,024 MINUS Income Taxes on 85% of that at 15% ($2,681) and MINUS Part B for 2 ($2,352) gives you a NET SS Benefit of $15,991 or 76% of the STATED Benefit. BTW Medicare Part B is scheduled for something like a 17% jump in 2008 (while the projected CPI is 2.3%) so the 76% of benefits will fall in this example to 74.5% of STATED benefits. At least you get to keep something.

The above does not even consider the cost of a Medigap Policy that many will need to cover the copays, etc.

If the Medicare Part B continues to grow at 17% and the CPI at about 3% (approximately the average of the last 30 years) when do we have to start forfeiting ALL SS benefits for Medical Care? About age 83 or 84; earlier if one falls into the higher Part B premium income brackets. (Never say Never).

Medicare needs to put up an accurate premium calculator; if they could/would dare do it!

I've got no beef with paying taxes on SS income, and Medicare isn't such a bad deal, is it? Would you opt out?

Cb

 

[bosco]

I believe you need a certain number of credits (10 years of full
employment) to qualify for SS. Retire before that you get zip.
TJ

I don't think that is right. I don't think you need 10 years of full time. I think you need 40 quarters with some minimum earning, but I don't think it's very much, like $100 in a quarter or something like that..

 

[W2R]

I think you need 40 quarters with some minimum earning, but I don't think it's very much, like $100 in a quarter or something like that..

I still have my SS statement in front of me. It says that this year, you will get one credit for each $1000 you earn from wages or self-employment, and when you've earned $4000 you've earned your four credits for the year.

In past years I am sure it was probably a lot less so you are right!

 

[OAG]

Cb -- Don't get me wrong I would not want to opt out of Medicare Part B and I have always paid my taxes (now working on my 52d year of doing so).

I was just trying to provide some "real World" and "now" numbers.

 

[kaudrey]

I used the SSA calculator assuming retirement at 52, cut that in 1/2, and plugged those #s into my spreadsheet (and assume I'll start pulling at 65).

I'm 38 now. We'll see if that 50% estimate survives...