Social Security and Pension question

[guest]

Hi folks....quick question.

I have been getting my SS statements and have a question....

In it, it says that at age 70, I will get $2000 per month from SS...is that in todays dollars? In other words, it says I'll get $2000 per month at age 70...but I am only 40, so $2000 per month in 30 years not adjusted for inflation is peanuts...but if it keeps getting adjusted, and assuming no big SS law changes, that would make a big difference...so which is it?

 

[cute fuzzy bunny]

That should be $2000 in todays dollars, hence you'll get more when the time arrives, but it'll be worth what 2k is today.

Also, note the analysis done that has said that you should start taking SS as soon as you're eligible. Someone who participated in that analysis can give the real number, but its something like 15 or 20 years before theres a break even in waiting and taking the larger amount. In other words, you might be dead before you can reap the benefits of the higher amount.

 

[cute fuzzy bunny]

Ah yes, here it is
http://early-retirement.org/cgi-bin/yabb/YaBB.pl?board=faq;action=display;num=1070060076

 

[Nords]

It also assumes that you keep working!

I believe columnist Scott Burns has been spouting a 14-year payback if SS is delayed from age 62 to age 65. I'm not sure what the payback is when the boomers are stretched out to age 67 but one of Scott's articles may have more detail.

The SS statement (that you get in the mail) makes its predictions on the assumption that you're going to keep earning at your present level, and that you're going to keep doing so until you're 62 (I think that's the correct age).

If you don't do those assumptions, then your SS benefit will be much less. The SS website has more detailed calculators that let you put numbers into your own predictions.

http://www.ssa.gov/planners/calculators.htm , try calculator #2 or #3.

 

[Cut-Throat]

I think the bigger issue here is that money is not going to be that important at age 80 than it is at age 62.


I've seen 80 and it ain't pretty for the most part! (Yes I know there are exceptions) - But most folks at 80+ are not worried about money and the future.

And considering that the average lifespan is less than 80, I think it's a pretty safe bet to go with 62.

 

[John Galt]

62.............it's a no-brainer!

John Galt

 

[Zipper]

........or in Canada, at 60. Again.......a no brainer!

 

[MJ]

Hi folks....quick question.

I have been getting my SS statements and have a question....
In it, it says that at age 70, I will get $2000 per month from SS...is that in todays dollars? In other words, it says I'll get $2000 per month at age 70...but I am only 40, so $2000 per month in 30 years not adjusted for inflation is peanuts...but if it keeps getting adjusted, and assuming no big SS law changes, that would make a big difference...so which is it?

That should be $2000 in todays dollars, hence you'll get more when the time arrives, but it'll be worth what 2k is today.

TH: I wish you were right but I just got off the phone with an SSA CS and she confirmed that the COLA does not start until the age of 62 whether you begin to collect or not.

Last year I called SSA with the same question and they gave me the same answer.

Guest: So, your 2K will not be inflation protected for another 22 years.

See this explanation of benefits http://www.ssa.gov/pubs/10070.html

Sorry

MJ

 

[Bob_Smith]

MJ, I think TH is right. While COLAs aren't applied directly until one's benefit is determined, I believe the system does adjust the individual's previous earnings to reflect inflation. So the rep may have been technically correct in that there are no COLAs per se, (since there is no benefit yet to apply the COLAs to) but it is my understanding that the Earnings & Benefits statement provides an amount in today's dollars, and that figure will be regularly increased for the 22 years you mention. Here's a link:

http://www.ssa.gov/OACT/COLA/Benefits.html#aime

 

[John Galt]

So, MJ (or anyone) for someone who retires early,
those yearly statements from SS overstate what you will
get since they do not begin adjusting
for COL until after you are 62, but your average earnings
decline each year until then because you are earning -0-
wages. Right?

John Galt

 

[cute fuzzy bunny]

Yeah, it has to be inflation adjusted, otherwise everyones social security benefits would be worth enough for a big mac.

Heyyyyyy....maybe thats how they plan to "fix" social security...stop inflation adjusting it until you actually retire. Then they can give you the option of a big mac a month or a lump sum in the form of "supersizing".

 

[MJ]

Bob_Smith:
Trust me I want to be WRONG BUT I asked her a simple question,

If I had retired at end of 2003 at the age of 50 and requested a statement annually, she said that the same monthly benefit would print until the age of 62. Perhaps she didn't understand the question.

As I said I'd rather be wrong. My retirement figures were based on a static monthly benefit of 22K that would begin at 66.
So If I'm right my benefits at least will begin to increase at 62 and if I'm wrong then I will be ecstatic as 22K will be inflation protected for another 7 years until 62.

MJ

 

[MJ]

I've already made 2 phone calls over the past 8 months and got what I thought was the same answer. Perhaps some of you could try as well. Maybe I'm not asking the right question.

Social Security has a toll-free number that operates from 7AM to 7PM, Monday to Friday: 1-800-772-1213

MJ

 

[Bob_Smith]

Your 35 highest-earning years are indexed to wage growth to get your Average Indexed Monthly Earnings (AIME) which is used to determine the monthly benefit. So while having some "zero" earnings years will reduce your benefit (especially for those with less than 35 years), you don't also get totally hammered by a loss to inflation throughout all those years between the date you quit and age 62.

EDIT: Sorry MJ, just saw your posts above. I'll keep checking - I sure hope the rep you talked to was wrong.

 

[haha]

I sure hope the rep you talked to was wrong.

MJ's rep was wrong. Bob_Smith is correct. Prior to age 62, your earnings each year(not benfit, earnings) are adjusted for average wage levels, not CPI inflation. After age 62, your full benift is adjusted for CPI inflation, rather than for wage changes.

One of the methods being considered for taming SS payment growth is begin making all adjustments by CPI rather than DOL wage levels. This would slow overall SS liability growth, because through most of US history, real wages have grown.

Mikey

 

[Nords]

Here's what I think (worth its price)

MJ, here's what the link says: "Your actual earnings are first adjusted or "indexed" to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. It applies a formula to these earnings and arrive at your basic benefit, or "primary insurance amount" (PIA)."

As Bob_Smith & TH have said, SS will use some magic number to do the "indexing" and then they'll take the 35-year average. I agree with them that the gov't will attempt to find the smallest possible number-- CPI instead of employer cost index, and a shriveled CPI at that after all those "hedonic adjustments"-- to reduce the size of the future payments.

John Galt, you're absolutely right. The paper SS statement you get in the mail provides an estimate that says "We assumed you'll continue to work and make about the same in future years." So if we ERs start throwing a bunch of zeros into that 35-year average, then the printed estimate will be wildly off the mark. Using SS's calculator #2 (with actual earnings history) at http://www.ssa.gov/retire2/AnypiaApplet.html , in my case it dropped my "real" SS check to 66% of the paper estimate. I only have a 24-year working history (instead of 35) so that seems about right.

MJ, IMO there's no way your "customer service" rep can be correct about retiring at age 50 and viewing subsequent statements. 2002, the year I stopped working & when I only had income for five months, was small enough to drop that year's paper estimate to 90% of the previous year's paper estimate. Last year my earnings history was 0 so I bet this year's statement has an even smaller number (I'll see it in a month or two.)

For GDER & other military retirees, the "Special Military Service Credit" appears to add back in about 10%. But you can read the rules at SS's Answer ID #454 and then put your corrected earnings history into the online calculator. Some people have earned more taxable pay than me and the credits won't have as big an effect.

 

[Bob_Smith]

...I will be ecstatic as 22K will be inflation protected for another 7 years until 62.

MJ, I think you can break out the champagne.

 

[MJ]

MJ, I think you can break out the champagne.

There's nothing like being wrong all the way to the bank!

So when are you coming over for some bubblely?

MJ

 

[Telly]

Bob_Smith:
Trust me I want to be WRONG BUT I asked her a simple question,

If I had retired at end of 2003 at the age of 50 and requested a statement annually, she said that the same monthly benefit would print until the age of 62. Perhaps she didn't understand the question.

MJ, she answered your specific question correctly. By retiring early (at age 50), you no longer have SS taxable earnings in the years from 50 to 62, not putting any more $ into the system. So your @62 benefit is frozen until age 62. At age 62 it will then start to move with subsequent COLA's which occur then.

Refer to your SS statement, page 2 "What we assumed"

The following is from a 2003 REGULAR statement, the type most people get:

- If you have enough work credits, we estimated your benefit amounts using your average earnings over your working lifetime. For 2003 and later (up to retirement age), we assumed you'll continue to work and make about the same as you did in 2001 or 2002. We also included credits we assumed you earned last year and this year.

at the bottom of page 2:

We based your benefit estimates on these facts:
Your estimated taxable earnings after 2002 .....$84,900 (which was the 2002 SS wage base)

Contrast that with a REQUESTED 2003 statement below, which set earnings for all years after 2002 = 0:

- If you have enough work credits, we estimated your benefit amounts using your average earnings over your working lifetime. For the first retirement amount shown, and your credits through 2003, we assumed you would stop work at the retirement age you gave us.

You have earned enough credits to qualify for benefits. At your current earnings rate, if you stop working and start receiving benefits...
At age XX, then at 62, your payment would be about $n,nnn a month.

at the bottom of page 2:

We based your benefits on these facts:
2002 earnings..... over $84,900
2003..........None
Your estimated taxable earnings per year after 2003..... None
Age you plan to stop working....... XX


The situation is totally different for those who DO NOT retire early. They continue to have SS taxable earnings adding to their account each year. More years, more dollars. Plus, and this is a big plus, their salary will probably move up with inflation as the years go by, as will the SS wage base, over the intervening years till age 62. So in effect, those who continue to work to age 62 get "inflation protection" along the way

Retiring early (<< age 62) has its down side, as inflation will nibble away at the purchasing power of that fixed amount, in the years between early retirement and age 62.

Hopefully, this has made it clearer, but not nicer :-/

 

[John Galt]

Thanks Telly! I was too lazy to read all of the fine print,
so it's nice to find someone who did it for me. I am not
going to do anything now that would change what I
get at 62, but it's still nice to have a "number" to
anticipate.

2 years, 2 months and 19 days to go..................

John Galt

 

[unclemick]

One year, 29 days --- plan to spend it all on hobby stocks -- of course the SO might have other plans.

 

[Bob_Smith]

So your @62 benefit is frozen until age 62.  At age 62 it will then start to move with subsequent COLA's which occur then.

Well, I suppose that Mikey, TH, NORDS, and I could be wrong on this, but I don't think so. When you request a statement based upon an early retirement age, they assume you will have zero earnings between your ER age and 62, and they provide an estimate accordingly. The benefit is reduced for those who ER, especially those who have less than 35 years of wages, but that reduction is already reflected in the statement you request, as long as you ask for one based upon your ER age. However, that monthly amount is NOT further reduced by being frozen until you are 62. Why? Because they determine the monthly benefit based upon your earnings history which is adjusted for average wage levels until shortly prior to age 62. So the only way that your benefit would be frozen is if wage levels were frozen for all of those years. So if you get a statement that says you'll get $1000 at 62 if you retire at 50, that $1000 will likely be increased significantly (per average wage levels) throughout those 12 years between 50 and 62. It won't be frozen at $1000.

 

[John Galt]

I feel like we are beating this to death, but it's really
an important issue. I guess I at least can be sure
that the benefit I see on my annual statement
won't be any LESS when I actually turn 62 and start
collecting. Right?

Obviously this assumes no changes in the law in the
next 2 years which would impact my situation.

John Galt

 

[Cut-Throat]

The statements that I receive indicates that it assumes that I would continue to earn the same amount every year after the statement until you retire.

That is why I download the calculator and plug in zero's for the years preceding age 62 and use this amount. Now whether this amount is on today's dollars or not, I'm not sure. But FireCalc says that it does use inflation protected dollars right next to the box where you enter it.

 

[Telly]

John G. - Check page 3 of your latest regular SS statement. Is it showing no earnings for all of these years that you have not been working? If so, I would expect the projected amount to be pretty accurate, as you are so close to 62. You could always request (via SSA website or phone) a special statement to be sent to you, reflecting your age that you ER'd. Use your last (and final ) ER age!

For this next part, let's name the 3 calculators available @ SSA.gov:

Simple on-line calculator = Calculator #1.
More complex on-line calc that you enter data year by year = Calculator #2.
Downloadable calculator = Calculator #3.

Cut-Throat - By chance have you requested a SS statement with your ER age particulars, and compared it to the output of Calculator #3? I'm interested in what you found, if you have.

For me, Calculator #2 came up with about $10/mo. lower than the requested special statement.

And Calculator #3 came up with almost $30/mo. less than the requested special statement.

In less than 2 mos. I will be getting the next "regular" statement. I have no idea if they hang on to constants like my ER age from the requested special statement, and use that in all following regular statements, or if they just reset and continue on with regulars assuming I'm continuing to work. Anyway, once I get that, I'll request another special. When I get that, I can then compare a 2004 special to a 2003 special. I sure would like to see the projected benefit increase from 2003 to 2004 . But I'm not getting my hopes up. I really expect it to be about the same. Many many months ago I too called the SSA, and I got the same story as MJ when I asked.