SS benefits estimator

[REWahoo]

When I put zero in the online calculator as my last year of earnings, at the age of 44, it reduced my possible benifits by about 30%, from $3100 to $2100.

Yep, if you stop paying into SS when you're a teenager, the impact can be substantial.

I'm on the road with poor internet service and can't run the SS online calculator, but I suspect your situation is due to not having reached the maximum years of SS contributions (35?) before going to zero. Maybe others will chime in with some actual facts to support or refute my recollections.

FUEGO, was it you who ran some of these numbers?

 

[Bikerdude]

Dave, I don't think this is the case - at least not under the current SS rules. Provided you meet the 'earnings quarter' requirement and have a reasonably good income for the years you pay in, having little or even zero income for the last 10-15 years prior to collecting SS has only a small impact on your benefit payments. This is due to the system design - to provide a safety net to the low income worker.

In my own situation I stopped working at 58. The hit to my SS benefit at age 66 as a result of zero earnings for those eight years was less than $30 per month.

I agree. I retired at 52 with 34 yrs. of earnings. I then worked PT 3 yrs doing taxes so my total was 37 yrs. My benefits did not drop dramatically. SS uses your best 35 yrs. Your earnings for those years are brought up to today's dollars. So that $7,500 you made in 1973 is worth $40,000 today and so on. CD's problem is that he does not have the 35 years and will have a lot of zero's added in. Zero in todays's dollars is still zero.

 

[W2R]

Dave, I don't think this is the case - at least not under the current SS rules. Provided you meet the 'earnings quarter' requirement and have a reasonably good income for the years you pay in, having little or even zero income for the last 10-15 years prior to collecting SS has only a small impact on your benefit payments. This is due to the system design - to provide a safety net to the low income worker.

In my own situation I stopped working at 58. The hit to my SS benefit at age 66 as a result of zero earnings for those eight years was less than $30 per month.

I think the difference is that you stopped working at 58, and FD is planning to stop working at 53. If FinanceDave had worked 35 years at 53, that would mean that he entered the workforce at 18. If he went to college and didn't work, then he would have had 31 years instead of 35 years. Each additional year he works is making up for one of those zero-balance college years and could make a big difference.

 

[Independent]

I think the difference is that you stopped working at 58, and FD is planning to stop working at 53. If FinanceDave had worked 35 years at 53, that would mean that he entered the workforce at 18. If he went to college and didn't work, then he would have had 31 years instead of 35 years. Each additional year he works is making up for one of those zero-balance college years and could make a big difference.

Or a small difference, depending.

The key is "reasonably good income". Suppose FD averaged $65,000 of (indexed) annual earnings for 30 years. Adding in 5 zeros, dividing by 35, then dividing by 12 gives $4,643 of "average indexed monthly earnings". Using the 2010 bendpoints of $761 and $4,586, his monthly SS benefit is $1,950 (or $23,400 annually).

If he replaces those 5 zeros with 5 more years at $65,000, he will raise his AIME by $774. This will provide another $116 of monthly benefit ($1,393 per year). So the number of years he works goes up by 16%, but his benefit goes up by 6%. The small increase results from the fact that his first 30 years of income put him above the second bendpoint, into the 15% bracket. (If FD only averaged $45,000 for the first 30 years, the benefit increase from an additional 5 years would have been twice as big.)

I suppose the extra $1,393 can be viewed as "big" or "small", depending on your perspective. Mine is that higher income people don't gain a lot of SS benefit from additional work.