A more optimistic look at SWRs

[Brett_Cameron]

We have well over 10 years of credits due t lots of work for both of us during high school and college,...
IIRC credits start after you turn 21.

 

[NW-Bound]

I have played a bit with FIRECalc to see the ranges of outcome that past historical data would have produced. This range of results is huge. For example, even at the 100% success rate, I may barely be afloat at the end of 30 years, or I could be a multi-decamillionaire. Wouldn't the latter case be nice? I hope I will live long enough to see it.

Anyway, the "What if" or "Investigate" feature of FIRECalc is interesting to play with. Just now, I toyed with it, and here are different scenarios and results that I have found.

1) Suppose I will get no SS, what is the COLA'ed amount that I can spend at 100% success rate? FIRECalc tells me that it is $X. Of course, there is a chance that I may be broke at the end of the 30 years. Let's use this $X amount as the baseline.

2) I now tell FIRECalc that I am willing to reduce my spending such that during the 30 years, my portfolio will never drop below 1/3 of its initial value, and I still get no SS. FIRECalc tells me that I can spend only 91% of $X above.

3) Now, I add in SS and am willing to die broke. FIRECalc now says that I can spend 119% of X.

4) If I now use Bernicke's spending model, and am willing to spend more in my earlier years, FIRECalc tells me that I can spend up to 164% of $X. That's a huge increase. I can now fly 1st class, stay in fancy hotels, buy a new car every few years, etc..., and probably still have money left over.

So, what do I do? Well, I am spending the amount in case 2) above.

Yes, I am chicken! If I underspend, and if the market is doing well relative to the gloom that some people forecast, I should be able to see that in just a few years, as my portfolio would keep increasing despite repeated and numerous Wh*** posts. I will still be in my early 60s, and hopefully still young to increase my spending for more hedonistic pleasures.

That's my plan, and I am sticking to it.

 

[W2R]

Yes, I am chicken!

I wouldn't call that chicken! I would call that cautious and prudent. And when you see Wh*** posts in the future, you'll be financially secure enough to be happy and enjoy the exhilarating rush of a bull market while it lasts.

 

[Nords]

IIRC credits start after you turn 21.

I started paying Social Security taxes when I was 16 years old.

I'd be mightily annoyed to find that my SS credits didn't start for over five more years. It's irrelevant now, but it would've been mightily annoying if I'd retired before age 26.

 

[Lsbcal]

...(snip)...
2) I now tell FIRECalc that I am willing to reduce my spending such that during the 30 years, my portfolio will never drop below 1/3 of its initial value, and I still get no SS. FIRECalc tells me that I can spend only 91% of $X above.
...

I assume you are doing this by using the option on the "Investigate" tab, "Leave some money in the portfolio for my estate". This is critical IMO because most of us would be very worried indeed if our current portfolio dropped to some small fraction of the current.

I generally set this to about 50% of the current portfolio. This redefines the FIRECalc failures. Some of those lines that go below 50% of my current portfolio and then come back strong will appear as failures. But do I really want to go through that scenario? After 2008, my answer is now NO WAY!

Also I just use 20 years for the study. Probably will sell the big house if we get to our 80's and cannot afford lots of helpers around (gardeners, painters, cleaners, etc.).

 

[NW-Bound]

I just tried to raise the desired minimum portfolio value from 33% up to 50%. FIRECalc gives me diddly squat to spend!

Heck, even if one does not spend any money, a portfolio can drop close to 50% just because of market movements.

I guess I need to bring down the stock portion. Additionally, I am too far away from SS eligibility. Hmm... Something to think about. Maybe I should not stop the part-time work.

 

[FUEGO]

We have well over 10 years of credits due t lots of work for both of us during high school and college,...

IIRC credits start after you turn 21.

I don't think your statement is accurate. The only age exception I saw was earnings don't earn SS credits for "Children younger than age 21 who do household chores for a parent". I know my SS statement reflects the earnings from the years I was age 15-21, and I earned 4 credits each year for the most part. All of the "you will get $X,XXX when you retire or if you become disabled" are based on the inclusion of my earnings from age 15-21.

Although in the grand scheme of things, it is only of minor importance since my earnings from age 22-present are much greater than from ages 15-21, and my post age 21-earnings represents in excess of 40 credits. The marginal benefit of the age 15-21 earnings are maybe $1000 a year in SS payouts at FRA.

 

[Nords]

I don't think your statement is accurate. The only age exception I saw was earnings don't earn SS credits for "Children younger than age 21 who do household chores for a parent". I know my SS statement reflects the earnings from the years I was age 15-21, and I earned 4 credits each year for the most part. All of the "you will get $X,XXX when you retire or if you become disabled" are based on the inclusion of my earnings from age 15-21.
Although in the grand scheme of things, it is only of minor importance since my earnings from age 22-present are much greater than from ages 15-21, and my post age 21-earnings represents in excess of 40 credits. The marginal benefit of the age 15-21 earnings are maybe $1000 a year in SS payouts at FRA.

Whew. I know that children younger than 21 doing household chores for a parent are also exempt from paying FICA.

In our daughter's case, this little income niche has been fueling her Roth IRA for over five years.

 

[photoguy]

Using the online SS calculator at the gov site seems to confirm credit for earnings before 21.

 

[smr91481]

I have been a Dave Ramsey listener for years and I have only just recently found this site. I have always heard Ramsey say that since the stock market has increased an average of 12% per year that you can withdraw 8% of your portfolio per year and never touch the principal. Glad I found this site. I really believed what he said.

 

[Brett_Cameron]

Whew. I know that children younger than 21 doing household chores for a parent are also exempt from paying FICA.

In our daughter's case, this little income niche has been fueling her Roth IRA for over five years.

I don't think your statement is accurate. The only age exception I saw was earnings don't earn SS credits for "Children younger than age 21 who do household chores for a parent". I know my SS statement reflects the earnings from the years I was age 15-21, and I earned 4 credits each year for the most part. All of the "you will get $X,XXX when you retire or if you become disabled" are based on the inclusion of my earnings from age 15-21.

Although in the grand scheme of things, it is only of minor importance since my earnings from age 22-present are much greater than from ages 15-21, and my post age 21-earnings represents in excess of 40 credits. The marginal benefit of the age 15-21 earnings are maybe $1000 a year in SS payouts at FRA.

See this from the Social Security handbook:
SSA Handbook § 704
Quote:
"Under the usual formula, “elapsed years” begin with those calendar years after 1950, or after you turn 21, if this is later and end with the year before first eligibility (or death if earlier). "

"For retirement insurance benefit purposes, elapsed years are those calendar years after 1950 up to the year you turn 62.
Example: An insured worker turned 62 on December 2, 1994, and filed his application for retirement insurance benefits on January 3, 1995. There are 40 elapsed years, counting the years from age 22 through 1993. The number of “computation years” is 35 (40 minus 5)."

This is how elapsed years are used in computation of benefits:
http://www.socialsecurity.gov/OP_Home/handbook/handbook.07/handbook-0703.html


This is the basis of my statement that years before age 22 don't count.

 

[FUEGO]

See this from the Social Security handbook:
SSA Handbook § 704
Quote:
"Under the usual formula, “elapsed years” begin with those calendar years after 1950, or after you turn 21, if this is later and end with the year before first eligibility (or death if earlier). "

"For retirement insurance benefit purposes, elapsed years are those calendar years after 1950 up to the year you turn 62.
Example: An insured worker turned 62 on December 2, 1994, and filed his application for retirement insurance benefits on January 3, 1995. There are 40 elapsed years, counting the years from age 22 through 1993. The number of “computation years” is 35 (40 minus 5)."

This is how elapsed years are used in computation of benefits:
SSA Handbook § 703


This is the basis of my statement that years before age 22 don't count.

The age 21 is only relevant in determining computation years, which will be 35 years for everyone looking to ER today (ie those turning 21 on or after 1950, which means being born after 1929).

Then Section 705 defines "base years", or the years that SS looks at to determine your PIA.

Your base years are the years after 1950 up to the year of the first month you become entitled to retirement or disability insurance benefits. For a survivor's claim, the base years include the year of the worker's death. A year wholly contained in a period of disability is not included in the base years. Years partially within a period of disability are included.



Example: Mr. Clifford applied for retirement insurance benefits in October 1995. He is found entitled to a reduced benefit beginning October 1995, the month in which he is age 62 throughout the month. His base years for purposes of the initial computation of his benefit rate are the years 1951 through 1994, the year before the year in which he became entitled to benefits (1995). Since the elapsed years are 40 (1955 through 1994, the year before he attains age 62), the computation years are 35 (40 minus 5). To find the PIA, the earnings are averaged over the 35 highest of the base years 1951 through 1994 after the earnings are indexed. Mr. Clifford's PIA may be recomputed to take into account any earnings he had in 1995. This increase, if any, in his retirement insurance benefit will be effective January 1996.

Note the bolded section in the quote. No limitation based around age 21 or anything. Any earnings after 1950 fall in the base years, and they look at the highest 35 of those base years (indexed for inflation by the wage growth factor IIRC).

 

[Brett_Cameron]

The age 21 is only relevant in determining computation years, which will be 35 years for everyone looking to ER today (ie those turning 21 on or after 1950, which means being born after 1929).

Then Section 705 defines "base years", or the years that SS looks at to determine your PIA.



Note the bolded section in the quote. No limitation based around age 21 or anything. Any earnings after 1950 fall in the base years, and they look at the highest 35 of those base years (indexed for inflation by the wage growth factor IIRC).

yep, I was confusing "base years". "elapse years" and "computation years". I am glad I was wrong and thank you for correcting me!

 

[FUEGO]

yep. Only relevant if you do not work until age 62.

I don't think age 21 means anything in terms of what earnings history SS looks at. I do not see anything in the SS regs that say "exclude from review of base year earnings all earnings earned before worker turns 22".

In my situation, they will look at my age 15-21 earnings along with my age 22-62 earnings. Since my age 36-62 SS earnings are likely to be approximately zero (assuming ER is a success!), then SS will take the 21 years of earnings history from age 15 to age 35 (while I have worked) and give me 14 years of zero income. I don't see anything in the regs to the contrary. They aren't going to toss my seven years of earnings history where I was paying SS tax the whole time and give me seven years of zero earnings somewhere in the age 22 to age 62 period. They simply take the highest 35 years of earnings from all of my earnings history.

 

[Brett_Cameron]

It seems I was editing my last post as you were replying. You are correct and I was confused.

 

[Nords]

I don't think age 21 means anything in terms of what earnings history SS looks at.

After reaching age 21, though, the IRS says that if you're working for your parents they have to start contributing FICA for your wages.

 

[FUEGO]

It seems I was editing my last post as you were replying. You are correct and I was confused.

Glad to see SS will count my 7 youthful years of earnings (and paying ss taxes!). Otherwise I'd be pissed in 30 years!

 

[obgyn65]

I guess this is what will happen to me also. I will withdraw 3% to 4% from my investments once a year but may not spend all of it. I must confess I find it difficult to spend money, except my spending for free clinics here and abroad, for which I have no problem spending thousands of $ every year.

Yes, I withdraw 3.5% every year but I don't end up spending all of it.

 

[rescueme]

After reaching age 21, though, the IRS says that if you're working for your parents they have to start contributing FICA for your wages.

Only if they are paying you and not required to w*rk for the "good of the family" (been there, done that) ...

 

[mathjak107]

Who suggested otherwise? So do all the credible SWR studies, for example:

reminds me of the doctors who came up with the calculations that heart rate monitors for exercising were built on.

they never even finished their work and an entire industry cropped up on numbers they themselves say may not work in many cases as being fact.