Scott Burns, a syndicated financial columnsit, has written about
choosing the age at which to commence taking Social Security benefits.
See http://assetbuilder.com/blogs/scott_...-Benefits.aspx,
and for more articles about Social Security, click on the Social
Security link in the Categories pane.

Dave

On Aug 28, 7:24 am, "Elizabeth Richardson" <erich...[at]worldnet.att.netwrote:
- quote -

Thanks. I found the thread "Optimizing Social Security Benefits
Withdrawal" starting in Feb 2007. Is that the discussion you have in
mind? If not, I would appreciate if you post the thread title, if you
can remember.

I'll read through the "Optimizing" thread, and any other one that you
mention. But I'm curious: do these threads say essentially the same
thing that Kaye Thomas says about receiving Soc Sec benefits earlier
and later than the full retirement age?

(Good information at fairmark.com, as usual.)

On Aug 28, 7:05 am, Dave Dodson <dave_and_da...[at]Juno.com> wrote:
- quote -

Thanks. I appreciate your constructive, non-judgmental and education
tone in pointing out my oversights.

I see what you and Mark mean now. And I do now see that explained in
the statement. When I read it before, I thought it did not apply
because we already have more than our 35 years of non-zero earnings.
But I see now that it does apply; and it makes sense to me that it
would, since projecting the last year's earnings (subject to Soc Sec
tax) forward might replace years with lower earnings.

And yes, that does explain why my wife's estimated future retirement
benefits (PIA) took a hit, whereas mine did not, as you explained
earlier.

But I especially appreciate your pointer to (and quoting of) the URL
above [truncated by Google Groups, not I]. Not only does it explain
things more fully, but also it makes it clear that I want to use the
online calculator because both my wife and I retired early. By that,
I mean we stopped working, not that we started receiving Soc Sec
benefits.

I have some more questions germinating; mostly nitpicks and what-ifs.
But I need to digest Kaye Thomas's explanations, which Mark pointed
to, as well as all the information at ssa.gov, which you pointed to.

Again, thanks very much. Your inputs have been especially helpful and
easy to receive.

nomail1983[at]hotmail.com wrote:

[...]
- quote -

There are two separate things here: the annual estimate, and the actual
benefits calculation once you actually file a claim for benefits. I
could be wrong but I think you keep on trying to combine the two.

The estimate calculation DOES use only most recent earnings, not an
average, to FORECAST the numbers that WOULD BE used in actual
calculation. So for example if you were unemployed last year, that
annual statement will show a much lower estimate, similar to the
situation for your wife, because it will assume the same lower earnings
for all future years until retirement. If you then resume full
employment, the estimate on the following year's statement should go
right back up to approximately where it was (except possibly for the
slight downward drag due to the low income year).

Assuming that you don't yet have your top 35 years of full-time earnings
to report, then if you know your most recent reported year was
abnormally high or low, you should really just disregard the estimate
numbers printed on the statement, since they are based on an assumption
(continued future earnings at the same abnormal level) that you yourself
probably wouldn't make. You could then use one of the interactive
calculators in this situation.

-Mark Bole

<nomail1983[at]hotmail.com> wrote in message
news:1188274513.540700.184150[at]q3g2000prf.googlegroups.com...
- quote -

Having just received my statement last Friday, I can quote what is on my
statement, just below my estimate in the paragraph on the left, bold type:
What we assumed

"If you have enough work credits, we estimated your benefit amounts using
your average earnings over your working lifetime. For 2007 and later (up to
retirement age), we assumed you'll continue to work and make about the same
as you did in 2005 or 2006. We also included credits we assumed you earned
last year and this year."

I think that clearly states your wife's estimate is based on her continuing
to earn at the reduced amount, thus her average earnings will be less than
was projected for the previous years.

But will she be continuing to work until age 70 and thus not taking benefits
until then? You seem to be comparing this and the last estimate of her SSA
Benefit at that age. There was a really good discussion here a few months
ago on the financial advantages of starting SSA benefits and varying ages.
Age 70 may or may not be the most advantageous time for her to begin
receiving her benefit. You may want to google this group. There were links
to some good articles, too. I know it opened my eyes.

Elizabeth Richardson

On Aug 28, 4:06 am, "nomail1...[at]hotmail.com" <nomail1...[at]hotmail.comwrote:
- quote -

From
http://ssa-custhelp.ssa.gov/cgi-bin/...i=&p_topview=1

Question
What assumptions did you use in calculating the retirement benefit
estimates on my Statement?

Answer
We used assumptions about your future earnings and about when you
will stop working. The assumptions depend on whether your Statement
was automatically issued or you requested it. The differences are
explained below. In both types of Statements, the resulting estimates
are given in today's dollar amounts (rather than in "future dollars"
adjusted for assumed inflation) so that you can compare them with
today's living costs.

Automatically issued Statements: We assume that you will continue to
work up to each of the potential retirement ages shown and that your
earnings will continue at your current level. To determine your future
earnings, we look at the last two years on your record. If you have
earnings posted for last year, we use that amount for your current and
future years' earnings. If your Statement is prepared during the first
6-9 months of the calendar year, your earnings for last year may not
be on record yet. In that case, we will use the amount of earnings you
had in the year before as your earnings for last year, this year, and
future years.

Statements you requested: On the form you completed when you requested
your Statement, you told us how much you made last year, how much you
expect to make this year and in future years, and when you plan to
stop working. We used this information to calculate your estimates,
with one exception: the first estimate shown is based on the age at
which you said you plan to stop working, but the other estimates
assume you will continue to work up to those later ages. For example,
if you say you plan to stop work at age 57, the estimate of your
benefits at age 62 assumes you have $0 earnings in the following 5
years. Your full retirement benefit and age 70 benefits, however,
assume you will work right up to those ages and continue to earn the
amount you showed for future earnings on your request. This is done to
let you see the effect that the additional earnings would have on your
amount of your benefits.

Dave

[Reposted since it appears that Google Groups lost the first one.]

On Aug 25, 12:59 pm, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -

Please quote what the statement says about this. I still do see
anything about "project[ing] forward using the most recent level of
income". In fact, I believe your understanding is incorrect. See
below.


- quote -

Thanks; good pointer.

In fact, I believe Thomas's explanation on that web page along with
http://fairmark.com/retirement/socsec/pia.htm is similar mine, with
just one important correction. The sum of the highest of at most 35
years of earnings is always divided by 420 (35 * 12), not the number
of non-zero months, as I said.

But the point is: the monthly retirement benefit (PIA) is based on
the AIME, the __average__ index monthly earnings. It is an
__average__, not a number "project[ed] forward using the most recent
level of income". Please read Thomas's explanation.

On Aug 25, 3:11 am, "nomail1...[at]hotmail.com" <nomail1...[at]hotmail.comwrote:
- quote -

To get the most accurate possible simulation of the method actually
used by the SSA, download the detailed calculator from
http://www.socialsecurity.gov/OACT/anypia/anypia.html and install it
on your PC. Type in her entire earnings history and save it. You can
now do "what if" scenarios as desired.

This might take a bit of work, but Nomail1983 could
type the social security history in the online SSA benefits
calculator, zero out 2006 and see if there is something
quirky in the formula. It would give the same answer as
the 2005 mailing because there should be the 2006
income inflator added in.

I've personally found the online calculator to be pretty close
to what the mailing says.

"Mark Bole" <makbo[at]pacbell.net> wrote in message
news:9%5Ai.3610$JD.640[at]newssvr21.news.prodigy.net...

- quote -

If it were voluntary, many of the people who need it most would not have it.
Then, I guess it would be necessary to bring back "poor houses," "alms
houses," or whatever you want to call them. Or, it might be necessary for
some people in their old age to lie down in the streets and starve, as has
happened in some places throughout history. Civilized society means that
many things must be deliberately planned and arranged for everyone's good
and not at all voluntary. You might voluntarily choose to shoot your
neighbor, but that will never do. Voluntarily failing to save money for old
age will not do either.

Mark Freeland wrote:

[...]
- quote -

Ah, if only the insurance-like coverage were voluntary -- then I
wouldn't be calling it "taxes"! ;-)

-Mark Bole

"Mark Bole" <makbo[at]pacbell.net> wrote in message
news:ey3Ai.50749$YL5.48408[at]newssvr29.news.prodigy.net...
- quote -

That there is a function mapping your payroll deductions (not your
employers') into your (social security) annuity payments IMHO shows that
there is a direct, arithmetic impact on ultimate benefits. There are also
additional possible payouts, as you note below. The benefit one receives is
insurance - the assurance that those payments will be there if qualifying
events occur:

"The social security measure gives at least some _protection_ to thirty
millions of our citizens who will reap direct benefits through unemployment
compensation, through old-age _pensions_ and through increased services for
the protection of children and the prevention of ill health."

FDR Statement Signing SSA, Aug 14, 1935.
http://www.ssa.gov/history/fdrstmts.html#signing

- quote -

They receive payments. The worker received the benefit - the insurance-like
coverage of familiy.

- quote -

Similar to a private pension - if you have other income, then the after tax
value of the payments is reduced because the other income puts the
incremental pension income into a higher bracket. And so on.

It depends on how one choses to view/classify the benefits; ultimately what
you call it doesn't matter.

- quote -

Amen.

Mark Freeland
BnetOnewsX[at]sbcglobal.net

Mark Freeland wrote:
- quote -

I don't disagree with your examples or analysis. But from a financial
planning standpoint, I think it's important to emphasize that Social
Security is NOT a pension plan or an investment, and your payroll taxes
are just that: taxes, with no direct impact on your ultimate benefits.

Consider that many people can receive benefits without ever paying any
SS taxes, such as ex-spouses after ten or more years of marriage,
survivors of deceased retirees, or dependent children of living retirees.

Or consider a person who earns $180K from one employer in a year vs.
another person who earns $90K from each of two employers in the same
year. The employer share of SS taxes will be roughly double for the
second wage-earner but will not change his benefit calculation at all
compared to the first.

Or consider that two people who paid identical taxes on identical
earnings before retirement may not receive the same net benefits due to
other income in retirement (resulting in higher taxes on SS income, or
resulting in lower benefits due to earnings before full retirement age).

Trying to analyze and maximize eventual SS benefits prior to early
retirement age is one of the least productive or useful financial
planning activities I can imagine.

-Mark Bole

<nomail1983[at]hotmail.com> wrote in message
news:1188064044.914627.313970[at]q4g2000prc.googlegroups.com...
- quote -

Common sense should tell you this is wrong. Consider two people, one who
worked for 10 years (to qualify for Social Security), and one who worked 35;
assume the first 10 year's earnings were the same, and the second person
worked at reduced pay the next 25 years.

Who paid in more to Social Security? Who should thus get more benefits?
But whose average (the way you computed it) is higher?

Answers: The person who worked longer (but not more than 35 years) paid in
more and should get more back. The first person's average is higher,
because you chose to divide by 120 (10 years * 12 months), rather than 420
(35 years * 12 months).

The flaw is that you don't divide by the number of months worked, but by the
number of months in 35 years:
"When a worker has fewer than 35 years of earnings, Social Security law
requires that zero years be included, which reduces the average. For
example, a women [sic] with only 25 years of lifetime earnings has her
retired-worker benefits computed using those 25 years (indexed) plus 10 zero
years, but still the total is divided by 420 to determine the AIME."
http://www.newyorklife.com/cda/0,3254,9156,00.html

- quote -

No. Se above. However, if you've already reached 35 years, and subsequent
years are at lower wages (adjusted for inflation), then you don't gain any
Social Security benefit by paying in those extra years. You may not be
better off (from a Social Security perspective) by stopping work, but you
are no worse off.

Mark Freeland
BnetOnewsX[at]sbcglobal.net

nomail1983[at]hotmail.com wrote:

[...]
- quote -

Your understanding is incorrect. As stated, the estimate of your
benefits on your annual statement does project forward using the most
recent level of income. Please read the statement.

- quote -

If by "better" you mean getting more government welfare money for less
work, the answer is no.

Try this link:

http://www.fairmark.com/retirement/s...tra-year-1.htm

From a financial planning viewpoint, you are almost certainly better
off continuing to work at a reduced level than stopping "cold turkey".
Not only might you increase your eventual SS benefits, but with earned
income you have many more opportunities for tax-advantaged savings and
health care, plus of course continuing to meet current living expenses
without having to use retirement savings.

-Mark Bole

On Aug 25, 5:30 am, Dave Dodson <dave_and_da...[at]Juno.com> wrote:
- quote -

Thanks. Your summary and the information at that URL was very
helpful.


- quote -

That is not my understanding of their algorithm. Instead, I believe
they take the actual earnings for the highest of up to 35 years
worked, multiply each by a factor based on average wage indexes for
that year and for the year in which the person turns 60 (which I
believe is intended to restate the all earnings in the same age-60
future dollars), sum those future-value amounts and divide by the
actual months worked. That is the average indexed monthly earnings
(AIME).

The monthly benefit (aka primary insurance amount, PIA) is based on
the sum of percentages of portions of the AIME; for example, 90% of
the first $680, 32% of the next $3420, and 15% of any amount over
$4100. The cut-off amounts ("bend points") -- $680, $3420 and $4100
-- depend on the year in which the person turns 62, as well as on how
long after that age the person waits before drawing benefits.
Finally, the PIA may be reduced depending on how soon before the full
retirement age (e.g. 66) the person begins drawing benefits.

Whew!


- quote -

Yes. But I think it is not so much because her lower earnings were in
the last year, but simply because the lower earnings (had they
occurred in any or the 35 years counted) drags down the average.

Hmm, does that mean that it is better to stop work cold turkey rather
than to taper off (earning less), as many people do?

I believe so, if my understanding of the algorithm is correct.


Thanks again for the pointer. It is exactly what I needed.

nomail1983[at]hotmail.com wrote:
- quote -

The explanation is written out clearly right there on the statement you
received. It's the section labeled "How Your Benefits Are Estimated".
Did you read it?

- quote -

You seem to have that backwards. According to a 2001 General Accounting
Office (GAO) report to Congress "IRS Telephone Assistance" (GAO-02-212),
the "tax law correct response rate" was 79%, not 25% as you suggest.

- quote -

You don't have to wonder -- the statement you received clearly explains
that the benefit is _not_ based on taxes paid, and also what it _is_
based on. It also explains that unlike the estimate, the actual
benefits cannot be determined until you actually apply for them.

-Mark Bole

On Aug 25, 4:11 am, "nomail1...[at]hotmail.com" <nomail1...[at]hotmail.comwrote:
- quote -

Social Security benefits are figured on the "average indexed monthly
earnings." This is figured by adjusting each year's covered earnings
to account for inflation, and then averaging the highest 35. In doing
this, they project forward to retirement using the last year's income.
So if your wife's income dropped last year, they may be using a
smaller number for several years than in previous projections,
resulting in a smaller estimate. See http://ssa.gov/OACT/COLA/Benefits.html
for more details and examples.

Dave

According to my wife's Soc Sec statement, the estimated retirement
benefit at age 70 __decreased__ by about 7% between 2005 and 2006.
(She was 56 and 57 in those years.)

Can someone suggest an explanation?

If I called the SSA and asked for an explanation, would I get a
reliable answer? Or are they as reliable as IRS help line?

(As I recall, there is a 75% chance of getting a wrong answer from the
IRS help line.)

My wife has already earned enough credits to qualify for benefits. Of
course, she is not receiving any benefits now. (She is not yet 62.)

According to the SSA "Thinking of Retirement?" flyer that accompanies
the statement, for her year of birth, her benefits would increase by
8% for each year that she delays receiving benefits between her full
retirement age (66) and age 70.

So I thought her estimated age-70 benefit would increase even now --
especially since her or at least remain flat. I did not think it
would decrease.

I was born in the same year. My estimated retirement benefit at age
70 increased by more than 4% between 2005 and 2006.

I do notice that my wife's annual taxed SS earnings decreased between
by about 35% between 2004 and 2005. But her total paid SS taxes
increased by about 5.5%.

I would think that a person's estimated future SS retirement benefit
is based on total SS taxes paid, not the person's taxed SS earnings in
the last working year.