Poll: What is your SS payback period?

[pb4uski]

This exercise is to compare what you paid into SS to your monthly benefit at your FRA (aka your primary insurance amount).

The numerator is 90% of your SS taxes paid from your SS statement. Why 90%? because ~10% relates to survivor benefits and 90% relates to retirement benefits.

The denominator is your PIA. If you are not yet to your FRA, your PIA can be found on your SS statement. If you are already collecting you can either go back to an old SS statement from before your FRA (I kept pdfs of mine so I could do that) or you can take your current benefit and back into it.

I took my age 70 benefit currently and had Gemini AI reverse calculate my PIA adjusting for COLA increases since my FRA and delayed retirement credits. It initially only adjusted for delayed retirement credits so I had to prompt it to also adjust for COLA, but after that it nailed it... the PIA that Gemini AI calculated was the exact same as the PIA on my SSA statement saved a couple months before my FRA.

The result of dividing the numerator by the denominator is the number of months of PIA that is takes for you to recover the retirement benefits portion of your SS taxes paid. Then divide by 12 to convert the months to years. Round up to the nearest 1/10th.

So to summarize... (90% * SS taxes paid)/PIA/12

I was a high earner and my recovery period is 3.2 years. DW was a lower earner and her recovery period was less than 1 year. What was yours?

 

[jazz4cash]

This is too much like homework. I asked Gemini without any inputs. It assumef a range of inputs. Some estimates were pretty close. It included the employer share. The nominal result was 17 yrs. Something is off.

 

[deserat]

Are you missing the time value of money in your calculation? 3 years? Those dollars that went in in the earlier years were worth more than those in later years.

 

[RetiredHappy]

@pb4uski Did you also use the employer's portion because your number of years is very low?

 

[pb4uski]

This is too much like homework. I asked Gemini without any inputs. It assumef a range of inputs. Some estimates were pretty close. It included the employer share. The nominal result was 17 yrs. Something is off.

Yes, you definitely did something wrong.

 

[Winemaker]

I mentioned this in another thread long time ago. Not subtracting the "disability" portion of my biweekly payment, it took almost 3.5 years to get my money back.

 

[pb4uski]

@pb4uski Did you also use the employer's portion because your number of years is very low?

No, only my portion since I'm looking to see what I receive for retirement benefits in relation to what I contributed towards those retirement benefits.

Some people claim that if their employer hadn't had to pay SS on their behalf that they would have received more pay from their employer but I think that is BS.

 

[pb4uski]

I mentioned this in another thread long time ago. Not subtracting the "disability" portion of my biweekly payment, it took almost 3.5 years to get my money back.

Were you surprised that it was only 3.5 years? I know that I was quite surprised. The power of compounding and the employer contributions I guess.

 

[Just_Steve]

I come up with 3.3 years on my taxes and 7.1 combined with employer taxes. I'm in the same time frame as the OP but was never a high earner for most of my work life, so not sure I understand this.

 

[RetiredHappy]

No, only my portion since I'm looking to see what I receive for retirement benefits in relation to what I contributed towards those retirement benefits.

Some people claim that if their employer hadn't had to pay SS on their behalf that they would have received more pay from their employer but I think that is BS.

I won't take part in the polls because 1) The employer's contribution should be factored into the calculation. 2) 90% is fuzzy Math, when you have 2 high income earners like my spouse and me.

 

[Gumby]

Are you missing the time value of money in your calculation? 3 years? Those dollars that went in in the earlier years were worth more than those in later years.

I think that is accounted for in the PIA, because the AIME is increased for wage inflation every year. So maybe a better metric is how long until the PIA = AIME x 6.2% x however many years you contributed (up to 35) x 90%. And that will depend on where your are on the "bend point" curve.

 

[Al18]

I don't understand why you wouldn't include the employer contributions in your calculation.

 

[pb4uski]

Are you missing the time value of money in your calculation? 3 years? Those dollars that went in in the earlier years were worth more than those in later years.

Yes, it is missing the time value of money.

I have done a separate analysis of my IRR by taking my taxed SS earnings times the tax rate in effect for those years to reverse engineer my total SS paid by year as cash outflows and then added my benefits starting when I started SS at age 70 and calculated an IRR given those cash outflows and inflows if I live to certain ages assuming 2% future COLAs. See table below. So if I live to 82-1/2 (average longevity) then my IRR is 6.0%... pretty good I think... but 3.0% if one includes the employer share... still not bad.

So the IRR incorporates the t value of money but in a different way. It solves for the breakeven time value of money given the presumed cashflows.

 

[Ronstar]

I don't understand why you wouldn't include the employer contributions in your calculation.

I do, because I was the employer.

 

[jazz4cash]

Yes, you definitely did something wrong.

Yes, I asked Gemini

 

[pb4uski]

I don't understand why you wouldn't include the employer contributions in your calculation.

I don't understand why one would include the employer contributions in the calculation unless one was self-employed.

I didn't pay for those and I'm looking for the return on what I paid in. If you have a contributory defined pension plan only what you paid in is included in your basis and the non-taxable portion. The part that you are taxed on is the difference which is employer contributions and pension plan asset growth/investment returns.

What my employers' paid in is included in the denominator since it is included in my benefit and the denominator is my PIA.

 

[pb4uski]

I do, because I was the employer.

Where you were self-employed, I think that makes sense because those were cash outflows for you but it can easily be seen by just doubling the result since the numerator would be twice.

 

[Ronstar]

Where you were self-employed, I think that makes sense because those were cash outflows for you but it can easily be seen by just doubling the result since the numerator would be twice.

Makes sense. but my situation is a little complicated. I was only part owner and for only 20 years.

 

[VanWinkle]

Did you calculate the interest it would have earned for all of those years and compare it to a 50/50 portfolio of US total stock and intermediate treasuries?
Now that would be interesting.

 

[L-5Player]

The denominator is your PIA. If you are not yet to your FRA, your PIA can be found on your SS statement.

I'm only 59 so I haven't started SS. But I have a login and can download my SS statement. Nowhere on the statement is the acronym PIA or the words "Primary Insurance Amount."

I assume that my monthly FRA benefit, the one shown in the line graph on the main page, is not the number we're looking for. If it somehow is, then my recovery period is 3.29 years.

 

[Gumby]

I'm only 59 so I haven't started SS. But I have a login and can download my SS statement. Nowhere on the statement is the acronym PIA or the words "Primary Insurance Amount."

I assume that my monthly FRA benefit, the one shown in the line graph on the main page, is not the number we're looking for. If it somehow is, then my recovery period is 3.29 years.

Your PIA is the amount you would receive if you retire exactly at your Full Retirement Age (FRA).

 

[pb4uski]

Did you calculate the interest it would have earned for all of those years and compare it to a 50/50 portfolio of US total stock and intermediate treasuries?
Now that would be interesting.

Not that specific calculation, but a different way.... see post 13 in this thread. You could take the IRR and compare it to the total return of a 50/50 portfolio.

 

[pb4uski]

I'm only 59 so I haven't started SS. But I have a login and can download my SS statement. Nowhere on the statement is the acronym PIA or the words "Primary Insurance Amount."

I assume that my monthly FRA benefit, the one shown in the line graph on the main page, is not the number we're looking for. If it somehow is, then my recovery period is 3.29 years.

You got it. If you are under your FRA then your PIA is shown on your statement as your monthly benefit at your full-retirement age.

However, I guess that you would need to add any additional SS taxes that you would pay bewteen now and your FRA to the numerator in order to have an apples-to-apples comparison with us retired folk but if you are retired and haven't yet started SS then the adjustment would be $0 since you are done working.

 

[tulak]

Open Social Security will tell you everything you want to know about PIA and how it’s calculated, along with pointing you to a calculator.

Open Social Security: Free, Open-Source Social Security Calculator

opensocialsecurity.com

If you’re still working, the problem with the Social Security calculation is it estimates future years for you. If you plan to retire sooner, it’s better to do your own calculation. I used the calculator at SSA.tools that is mentioned on the Open Social Security website.

 

[pb4uski]

ETA: I changed the poll to allow two responses for those who are married... on response for you and one response for a spouse (but please do not include spousal benefits).