SSA estimate letter assumptions on when I retire?

[BlueberryPie]

I'm 52 and have been working for 25 years and some of the early few years had really low earnings.
The estimate letter from the SSA shows an estimated amount for taking SS at 62, 67 (FRA) and 70.

I'm trying to understand the assumptions the SSA makes in those calculations. It sounds like they extrapolate my future salary from the last 2 years of data. I assume it takes inflation into account too.

When does it consider you stop working at though? FRA?


Or looking at it another way, if I retire at 62 (current goal) and take SS right away, my actual payment should be close to the estimate in the statement.
If I wait till 67 to draw on SS, will I get roughly the amount in the current estimate, or does that amount assume I work till 67 also? If that's the case, I will be getting less than estimates because I will be missing 5 top earning years compared to the estimate.

Hope I explained this right.

 

[Sunset]

You can set up an online account at the SS site. It's a good idea to do it, so nobody sets up your account instead of you, example scammer.

The SS site has a calculator that allows you to put in when you want to retire to get a slightly more accurate estimate.

They do assume in the letter you are going to make the same amount roughly speaking for the next X years.

If you work more than 30 yrs, the extra years replace the tiny earning years, you don't lose them, so it boosts your earnings score.

However, there are bend points, so once your earnings get up there, the next $1 earned contributes a lot less to your SS check than the first $1. There are 3 bend points. It's all very complex.

 

[BlueberryPie]

I get the general idea of the bend points, etc ...

After further reading tonight it does seem the estimates assume you will keep working till your start claiming.

So if I retire at 62 but wait till 67 to claim, my actual number will likely be less than the estimate because they assume I earned a much higher salary for 5 out of the 35 years.

Because of the bend points the difference may not be that significant. I need to find a calculator or spreadsheet that lets you enter individual earnings by year.

 

[BlueberryPie]

I should find what I need here: https://www.ssa.gov/OACT/anypia/index.html

and understand how working more or less years from now will impact the benefits, regardless of what age I take them at.

 

[Dtail]

I should find what I need here: https://www.ssa.gov/OACT/anypia/index.html

and understand how working more or less years from now will impact the benefits, regardless of what age I take them at.

See below for another official SS calculator. No pasting involved and you can play with the earnings stopping at any age and the effect.

https://www.ssa.gov/benefits/retirement/estimator.html

 

[Out-to-Lunch]

Here is an online calculator. It does require pasting, but it is useful: https://ssa.tools.

Also, a nice Excel-based calculator is available here: https://www.bogleheads.org/forum/viewtopic.php?t=262772

 

[BlueberryPie]

Thanks Detail, I can't figure out how to make that calculator determine "work till 62 but start benefits at 70". It assumes I want to start benefits as early as possible after stopping work.

I'll keep looking at other calculators to see how much difference swapping 5 years of low earnings with late career earnings makes. I suspect (hope) it won't make a substantial difference.

 

[Gumby]

Thanks Detail, I can't figure out how to make that calculator determine "work till 62 but start benefits at 70". It assumes I want to start benefits as early as possible after stopping work.

I'll keep looking at other calculators to see how much difference swapping 5 years of low earnings with late career earnings makes. I suspect (hope) it won't make a substantial difference.

SSA assumes you work to 62 at your last reported wage. Wages prior to the year you turn 60 are indexed. Wages for the last two years are not.

So here is how to see the effect of changing that assumption:


Go to "myssa" and get your earnings record. Copy and paste it into an Excel spreadsheet.

Then go here https://www.ssa.gov/OACT/COLA/awifactors.html and get the average wage indexing factors. The year you input should be the year you turn 62. Copy and paste the appropriate year range to your spreadsheet. Make sure they line up properly with the years in your earnings report.

Use a PRODUCT function to multiply your earnings in a particular year by the AWI factor. Keep that as one column and make a second, duplicate column next to it.

From the duplicate column, eliminate all but the highest 35 years, then SUM the column. Divide by 35, which gives you your average yearly indexed wage. Then divide by 12 for your average month wage.

Calculate as follows: 1st $992/mo x 90% + above $992 up to $6002 x 40%; and anything over $6002 x 15%. This gives you your monthly primary insurance amount. That is what you would get at full retirement age.

Now you can play around with your earnings to substitute zeros for the last few years, which means you'll need to add back an equal number of your early, low earning years (as indexed) to keep the number of years at 35. Do the calculation again with the new highest 35 years and see how your PIA changes.



To find out what you'll get at 70, multiply your PIA by (1 + (.0067 x the no. of months between your full retirement age and age 70))

 

[foxcreek9]

I retired at 56, my FRA SS estimate dropped 2.7% from the year of retirement to my first full year of retirement (ie no income). 24 of my top 35 were max ss tax years, fwiw.

 

[BlueberryPie]

thanks, I found this online calculator https://www.doctoredmoney.org/ss-benefit-calculator which lets you enter your actual numbers and show benefits at different ages. it uses 2018 rates/numbers by I am not as interested in exact numbers as in understanding the impact of working longer on my SS benefits.

It confirms what I was hoping: benefits if I stop working at 62 (current plan) would be $3796 if I wait till 70. Benefits if I stop working at 70 and then take the benefits immediately would be $3859 or an extra $63 per month or about $1.6% or less than $800 a year.
I am lucky enough that my investments to complement SS will be such that this $800/year is in the noise.

Regardless of what year I stop working, when I start taking benefits will of course have a much greater impact on the monthly check. I'm currently of the school that SS is your long term insurance against running our of money in your portfolio. If you can afford not to take it until 70, but run out of portfolio money sometime after 70, the SS+Spousal benefit would be $5700/month which is far from destitute!
Not that I plan on letting my portfolio run out...

I don't have anywhere to host a picture or I would have attached the graph I generated from this exercise.

 

[BlueberryPie]

I haven't played with it yet but it seems that the SA offers a similar tool: https://www.ssa.gov/oact/anypia/download.html