Social Security statements after FIRE

[Nords]

I received my SS statement yesterday, my first since FIRE to have zeros in the latest earning column.

That means the SS computer, which projects the future from your latest earnings, is finally projecting my next 17 years of "Taxed SS Earnings" as "zero". So my SS estimate is finally correct. I think.

Military veterans from 1978-2001 received a small "military wage credit" of $300/quarter in their earnings for those years. (The details are on the SS website in this glossary.) I don't think the paper statement reflects those credits because it says that the benefit amount may be affected by military service (among other things). The paper statement estimates $870/month in today's dollars.

When I plug my earnings history into the SS online calculator and then add $300/quarter for the years 1978-2001, the detailed benefit is calculated as... $870 (also today's dollars). I'm sure the same result with different inputs will lead to a stimulating debate when I visit the SS office in late 2022.

So I guess the number is $870/month or $10,440/year. When I did this calculation in 2003 the result was $822.80/month. Benefits have risen 5.7% since then or 2.8%/year. Would 2.8% indicate that the employer's cost index (ECI) is less than the CPI, or that SS's wage indexing is losing ground even faster than the (presumably understated) CPI?

Here's another way to look at it. Today's $10,440/$33,864 is about 30.83% of my current pension. In 2003 the ratio was $9873.60/$31860 = 30.99%. It'll be interesting to see how that ratio changes (dwindles!) over the coming two decades. The first will be adjusted for "wage indexing" and the second has a CPI-U COLA.

And to think we get to pay taxes on that...

 

[wabmester]

Here are the wage index adjustments since 2000:

2000: 3.5%
2001: 2.6
2002: 1.4
2003: 2.1
2004: 2.7

Here is the CPI-U over the same period:

2000: 3.4%
2001: 2.8
2002: 1.6
2003: 2.3
2004: 2.7

 

[Nords]

Here are the wage index adjustments since 2000:

2000:  3.5%
2001: 2.6
2002: 1.4
2003: 2.1
2004: 2.7

Here is the CPI-U over the same period:

2000: 3.4%
2001: 2.8
2002: 1.6
2003: 2.3
2004: 2.7

1.035*1.026*1.014*1.021*1.027 = 12.9% rise in wage indexing,
1.034*1.028*1.016*1.023*1.027 = 13.5% rise in CPI-U.

It'll be interesting to see how this progresses...

 

[JohnP]

Nords - SS considers 35 years of contributions as 'normal' for the estimate.  I believe that if SS thinks that you will have fewer than 35 'good' years that they will reduce that estimate accordingly, likely to include less Cola'ing. 

In this forum oldbyker is quite knowledgable on SS.

JohnP

 

[Newell]

Thanks for the compliment JohnP.

I don't think the wage index factors have been released yet for 2004. They should be announced about mid-October.

These are the wage index factors used by SS.

 

[wabmester]

These are the wage index factors used by SS.

Oops, I posted the SSI COLA numbers from here:

http://www.ssa.gov/OACT/COLA/autoAdj.html

I'm obviously already in over my head, but remind me again how the COLA and wage index factors interact. I assume COLA increases are applied once you start collecting SSI, and the wage index factors are used to determine benefit increases before you start collecting, right?

 

[Newell]

The wage index factors are used to adjust all of your annual earnings history upwards into something resembling today's dollars. These indexed earnings are one of the inputs in determining your initial benefit (what SS calls your PIA or primary insurance amount). PIA is the "normal" benefit received at age 65, or 66, etc depending on your date of birth.

Also remember that wages are indexed every year until you are age 60. At age 60, the wage index is 1.0 and no further indexing is done. The 35 highest indexed earnings are used in the PIA calculation. The sum of the highest 35 years divided by 420 months gives average indexed monthly earnings or AIME.

The other factor used in determining PIA is what SS refers to as bend points, kind of like the federal income tax bend points. The formula (and bend points) for this year is  90% of the first $612 of AIME plus 32% of the amount of AIME between $612 and $3689 plus 15% of the amount of AIME above $3689.

COLAs only come into play after your benefit has been determined (not necessarily taken, just determined). Note that an alternative currently being discussed is to use COLAs to index earnings rather than the National Average Wage Index (NAWI) as explained above..

This is a simplification of the process but works for most SS recipients.

 

[SteveL]

One of the fun things to do is to use the SS calculator to put imaginary future earnings to see what happens to your future benefits. As a person who maxed out the contribution for many years prior to retirement at 55, I was surprised to find that adding ten more years of max contributions to SS produced a zero increase in ultimate benefits. :

 

[bosco]

So my SS estimate is finally correct. I think.

Just make sure that any penisons you have do not trip off the "windfall elimination provision." I'm not sure of the details, but if you receive a pension from an employer that did not pay into Social Security, and you qualified for SS anyway with other earnings, they will reduce your SS benefit, potentially LOTS, depending on how much pension you get. And no, it does not get figured into the annual projections they send you.

Don't ask me how this is fair. It tends to screw teachers. I just know many people have received a rude surprise upon retirement. My benefit stands to be reduced by 40-50% because I will get a pension from the State of Alaska which does not participate in SS, but I qualified for SS before I went to work for the state.

 

[Nords]

Just make sure that any penisons you have do not trip off the "windfall elimination provision."

No problem here, it's all military service... and a part-time job during high school.

I understand the annoyance of being regarded as an exception to the rule, but a lot of people would envy all those years that you DIDN'T have to pay SS taxes and were "free" to invest "all that money" somewhere else at a higher return.

 

[bosco]

I understand the annoyance of being regarded as an exception to the rule, but a lot of people would envy all those years that you DIDN'T have to pay SS taxes and were "free" to invest "all that money" somewhere else at a higher return.

Actually, I'm not complaining. I'm aware of the windfall elimination provision. so I won't be surprised by it. It's the people that don't have a clue, plan a retirement, believe the statements they get in the mail from the SSA, and then find out it ain't so.....

In my case, for the last 13 years, my SS contribution (and my employer's) went into a DB account that I had the ability to direct into any of about 10 mutual funds. That's not to say I always made the best investment decisions with it, but I did check tonight and it made nearly 15% over the past year (wish it had done that all along).

If I have any regret, it's all the years before that I did pay into SS. However, my retirement as it is shaping up, will be heavily weighted in DB pension income, far more so I suspect than most in this forum.

I confess to hypocrisy. I'm glad that I'm not paying into SS, but I think that some componant of DB is a good safety net, so am suspicious at attempts to reform the program (even though it will have limited impact on me personally). However, as I said, I have a very nice DB pension shaping up.

 

[newellcr]

Hello Nords,

Just curious.  What was you last estimate with a full salary year?  I'll be close to 50 when my SS "investment" stops.  I wanted to take see if I could use your numbers to better estimate what I could expect. 

Thanks,

Chris

 

[MasterBlaster]

This thread got me thinking about SS.

I worked through my numbers and noticed that for every year I work from now until 62 that I will get less than $24 extra per year worked.

Therefore my conclusion is the same in that It's clearly not worth it to keep working just for SS benefits.

However, Since the SS shortfall situation has not yet been dealt with. And since the new "rules" are not available yet,  all of this analysis is just so much fluff. Depending on how the political winds blow we (those hoping to FIRE) may or may not be hurt when the new "rules" come.

 

[Nords]

Hello Nords,
Just curious.  What was you last estimate with a full salary year?  I'll be close to 50 when my SS "investment" stops.  I wanted to take see if I could use your numbers to better estimate what I could expect.  Thanks, Chris

Eh, you would ask that question. I didn't save the 2002 mailer; my last full year of income was 2001 (I retired June 02) and I remember shredding that one because it was full of bad projections. Besides the numbers change every year with wage indexing and we'd have to use the correct percentages to convert everything to the same year's dollars.

I don't know how much my salary years would translate to yours, anyway, and we'd have a hard time telling which factors were affected by what. You can make your own FIRECalc-like projections using your own data. SS's online calculator that I linked in this thread's first post lets you enter the data, hit the "calculate" button, and go back to change the data. I think you can do that without re-entering everything.

That calculator is just the second of three. The third (most accurate) calculator has to be downloaded & installed on your computer but you should be able to enter & save "what-if" data to your heart's content without having to re-enter it from scratch.

If military wage credits apply to you, it's an extra $300 salary for every quarter when you were earning a military paycheck and the program was in effect.