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Will there be a significant difference from the numbers the soc security statement shows and assumes I will work until 62,66, and 70 or is there only a minor difference? Is there a calculator on-line that will help me? I understand the effect if I'm working and earning income up until those ages , but not sure the chart I have reflects the difference if I've stopped working, etc.
Thanks for the assistance.
When the online estimate is given it assumes you are going to earn the same as the year before. So, if 2014 had $55000.00, and you were reaching 62 in 2015, that would be quite accurate. Because, a benefit paid in 2015 never includes earnings from 2015 until 2015 is over. Now, when computing a retirement benefit, the highest 35 years are used. SSA will pick and choose your highest 35, if you have more than that. Then those earnings (up until age 60) are indexed- meaning "what are they worth in today's dollars". But from age 60 on, SSA only uses actual earnings, not indexed earnings, so actually the change in the benefit is much less dramatic. Very often earnings past 60 are not even used because a non-indexed wage, say of $20,000.00 is less than an indexed wage say of $40000.00. That is because if a person had very good earnings (meaning only up to the max that SS taxed you on) in the 1960's, 1970's, 1980's, those indexed earnings are worth say $60,000 to $80,000 in today's dollars.
The person who gets a fairly dramatic change is a person with less than 35 years of earnings- because since SSA divides by 35, there are zero years in the computation bringing down the average. So, if that person has a year of $25,000.00, they remove a zero and add $25000.00. However, if a person has 35 years or more and earns $50000.00 at age 61, they might only be removing a $40000.00 and therefore only adding $10,000.00.
Now, if you retire, say at age 55 and thought that the estimate you get from SSA at that time would be the estimate you will receive at 62, no, the change will be fairly dramatic. Because, the estimate at 55 assumed you would be working and earning what you made the year before. So, when a zero shows up for age 56, your average starts to go down. They have to go further back towards the 50's and 60's to get you your 35 years. And of course, if you only worked 20 years, you have 15 zero's in the comp.
One other point, you begin to earn COLA's on your benefit amount beginning at age 62, whether you are collecting or not. So, you can pay attention to the COLA's SSA is paying beginning that year, and they will be applied first to your Primary Insurance Amount (PIA) and then reduced for your age, if you began to collect earlier. That is good. Because a 2% raise on a PIA of $2000.00 is $40.00, whereas 2% on $1500.00 is only $30.00. Your new PIA would be $2040.00, then reduced for your age.
Deciding on when to start taking social security is so difficult, it gives me a big, fat headache !!! Does anyone take their SS early (62 yo) instead of taking from their investment portfolio? I can't pass our SS to our heirs but I can pass on to heirs a lot of our portfolio. Plus when I look at the portfolio's return, I'm thinking I'd rather hold onto those monies. I know my thinking is flawed since no one seems to do it, but where/how is it flawed?
Your thinking is not flawed. It is quite common and I agree with it for many, many people. As a matter of fact, I just wrote to my best friend this past week and this is what I wrote: (FYI- I wrote this part on city-data to davephan about a week ago)
By and large, for the 35 years I worked at SSA we advocated that if people are not working, that sitting home and not collecting was not a good option. You are letting the government keep your hard earned benefits and if you suddenly die, you or your heirs got nothing after a lifetime of work. Things began to change when the retirement age went up, the reduction factor increased accordingly, the delayed retirement credits maxed out at 8% (although they only pay them now for 4 years, not 5), people were working longer and mainly, and unfortunately, the country was getting divided into the haves and the have nots. SSA, during the GW Bush years, was no longer able to offer advice to the public about which month or when to begin benefits. We used to have to have the person sign a statement stating that they understood the election they were making was disadvantageous because the money they were giving up would not be recouped within 7 years. Now, everyone thinks they are going to live forever, are pushed to figure it out for themselves on the internet and we are out of the advice business, except in certain circumstances like widows/workers. I have a different opinion than Dave Ramsey, or maybe the same opinion, but with a different rationale. By and large, I think people should take their SS when first eligible due to a variety of reasons. First, and I guess foremost, you never know what life will bring. Don't we all know someone who was here today and gone tomorrow? I certainly do- including my mom who worked beginning at age 14 and died at age 58 from ovarian CA. One day, at work, I ran into an acquaintance from my town. They were there to file for Medicare. We discussed benefits, and they were very insistent (on the verge of dogmatic) that they would not be taking benefits until age 70. Ok, so be it. Well, not much later, I read in the local paper that he died. Turns out he was diagnosed with stage 4 liver CA and died within a month. So, all the theories, stats, investment strategies didn't work out for them.
My other ruling theory is that when we are younger retirees, we tend to spend more money. We want to travel, take a cruise-maybe every year, visit grandkids, buy for grandkids, maybe help our kids, maybe a car, an RV, maybe a condo with new furniture... who knows- we all are different in that way- but thinking about my parents (dad and stepmom)and my inlaws, they were not really spending money any more in their 80's. They depended on us to visit and go out to dinner or lunch occasionally, travel stopped, they got rid of their cars, especially when the men died, they send the grands a small check at birthdays, but when the grands were born- they sent large checks- or bought bonds for their college-. When they were younger (60's-70's) they would buy a new couch or a new rug, would still eat out with other retired co-workers or friends, but at a certain point, so much of that lifestyle stops. So, davephan, and his wife, both are eligible for pensions and SS. They are fortunate- those continue until they die and at least the SS, and maybe the pension will increase with cost of living. That is a very secure place to be. So, for those reasons, my two cents would be to take their SS when they retire.
Then today, on the local news, the lead story was about a Cape Elizabeth couple (my town in Maine), both 66, who went to Florida last week to vacation. A 68 year old, driving an Audi, had a medical episode, jumped the curb, and hit 3 pedestrians, - the couple from Cape, and a 34 year old woman. The man died. His wife is in the hospital. It got me thinking. What if that happened to you? Under the scenario we were thinking about, you, or your family would have not gotten one penny of your SS. To date, you have already given up 15 checks.
So, if you don’t mind, this is what I would like you to do. Go to The United States Social Security Administration and get a benefit estimate under My Social Security. Then tell me what it says you will get this month, March, 2015, and what you would get at age 66 and at age 70. Then tell me what your husband's own SS is now- after adding in his Medicare (105.00). I will then figure out what his full SS amount would be. Then I will do the comps for you and then you can decide, once again if you want to wait or want to file.
So, she did as I asked, and these were her numbers: Reduced retirement (31 month reduction) $1937.00. Age 66-$2340 Age 70-$3089.00, 1/2 of spouses PIA is $1047.00. (His PIA is $2095)
1. Take reduced RIB for $1937
2. Wait till 66 and get $2340
3. Wait till 66 and get $1047 on your husband's and at 70 get $3089.00 on your own.
4. Elect reduced RIB now and suspend her bens at FRA to earns DRCs (but get zero from 66-70)because she CANNOT get bens on her husband's record since she is already entitled to RIB on her own (she may not be receiving her own since she's in suspense but being in suspense is not the same as not filing on your own).
Generally speaking no matter which ben you choose you generally have to collect for about 12 years to recoup the money you gave up by not collecting when first eligible. It really is a personal choice. If one doesn't need the money now then they really do have some options to think about that would give them higher bens down the road.
The comps:
Option 1 or 2 - $1937 x31 =$60047 (gain) to lose $403.00 (diff between $2340 and $1937). Divide $60047 by $403 to see how long it takes to make up the 60047 you could have had if you decide to wait until 66 to get the $2340.(option 2) Takes 149 months, which is 12 years, 5 months from age 66 to make it up. (age 78.5)
Option 3: loss of $60047, then loss of $1293.00 month for 48 months,(62064) because she could have had 2340 on her own instead of 1047 to gain $749.00 (diff of 3089 and 2340). Takes 82 months from age 70 just to make up the 2nd loss. (age 76.9)
Option 4. Gain the $60047, but then zero for 48 months, then gets DRC's on the $1937, not the $2340- so her age 70 amount is $2556.00 (only $216.00 more than her age 66 amount.) That is a little known fact for file, suspend, claim at 70- the 32% is on the reduced retirement amount, not the PIA.
Bottom line: She decided she is applying for her benefits now. She also realized she has tax-deferred accounts that she must begin to take at 70 1/2 and has a very good pension already. I asked the critical question: Can she live on her pension and the $1937.00 if her husband died. I asked because his SS is lower (no widow's payable) and he did not provide for her as a survivor on his pension). She said "absolutely".
When the online estimate is given it assumes you are going to earn the same as the year before. So, if 2014 had $55000.00, and you were reaching 62 in 2015, that would be quite accurate. Because, a benefit paid in 2015 never includes earnings from 2015 until 2015 is over. Now, when computing a retirement benefit, the highest 35 years are used. SSA will pick and choose your highest 35, if you have more than that. Then those earnings (up until age 60) are indexed- meaning "what are they worth in today's dollars". But from age 60 on, SSA only uses actual earnings, not indexed earnings, so actually the change in the benefit is much less dramatic. Very often earnings past 60 are not even used because a non-indexed wage, say of $20,000.00 is less than an indexed wage say of $40000.00. That is because if a person had very good earnings (meaning only up to the max that SS taxed you on) in the 1960's, 1970's, 1980's, those indexed earnings are worth say $60,000 to $80,000 in today's dollars.
The person who gets a fairly dramatic change is a person with less than 35 years of earnings- because since SSA divides by 35, there are zero years in the computation bringing down the average. So, if that person has a year of $25,000.00, they remove a zero and add $25000.00. However, if a person has 35 years or more and earns $50000.00 at age 61, they might only be removing a $40000.00 and therefore only adding $10,000.00.
Now, if you retire, say at age 55 and thought that the estimate you get from SSA at that time would be the estimate you will receive at 62, no, the change will be fairly dramatic. Because, the estimate at 55 assumed you would be working and earning what you made the year before. So, when a zero shows up for age 56, your average starts to go down. They have to go further back towards the 50's and 60's to get you your 35 years. And of course, if you only worked 20 years, you have 15 zero's in the comp.
One other point, you begin to earn COLA's on your benefit amount beginning at age 62, whether you are collecting or not. So, you can pay attention to the COLA's SSA is paying beginning that year, and they will be applied first to your Primary Insurance Amount (PIA) and then reduced for your age, if you began to collect earlier. That is good. Because a 2% raise on a PIA of $2000.00 is $40.00, whereas 2% on $1500.00 is only $30.00. Your new PIA would be $2040.00, then reduced for your age.
The bolded is what I found out when I did my sit down with the SS representative. I have a pension and paid into SS, so I will get both with a reduction, but I am thinking to retire and live on the pension until I collect SS. Since SS is not required to make ends meet, I have been trying to figure out the sweet spot for starting withdrawals and am finding lots of right answers depending on how I frame the question, but stopping work has a significant hit IMO no matter when I start withdrawals (62, FRA, or 70).
And taxes make it even more complicated... if you are drawing from an IRA (not roth) you are taxed on every dollar while SS may be taxed at only 85%... but that will push up your income... and eventually you or someone will pay taxes on the IRA dollars but at what rate?
Not only do you need a decent calculator but a good crystal ball is required to really know the options.
you can pull up to 22k tax free from an ira when you delay just by the standard deductions and exemptions. as much as 42k can be drawn out for as little as 1800 bucks in tax . that is a 4.50% tax rate.
throw in the fact that bracket qualifies for zero capital gains taxes in a taxable account and you can draw one heck of a low to no tax income from an ira.
once ss kicks in many of us will never see a rate that low on any of our income. so it isn't quite true about being taxed while you delay. in fact it is the perfect time to fill up the 15% bracket with conversions if you will be in the 25% brack once rmds start.
Looking at my SSA-1099 form, where I am having Medicare Part B deducted, the deduction is not pre-tax. The IRS reportable income (Box 5) is the full amount of the SS benefit payment.
Part B payments can be an itemized deduction on 1040 Schedule A, subject to the 7.5% "haircut"
thanks ,I had a feeling it wouldn't be after tax dollars but wasn't sure. I am just learning my way around the system now so I am green at all this.
now I am counting on you folks to teach me.
if you are already collecting ss at 62 at 65 do you automatically get signed up for parts A AND B OR JUST PART A and everything else you have to first sign up for ?
you can pull up to 22k tax free from an ira when you delay just by the standard deductions and exemptions. as much as 42k can be drawn out for as little as 1800 bucks in tax . that is a 4.50% tax rate.
throw in the fact that bracket qualifies for zero capital gains taxes in a taxable account and you can draw one heck of a low to no tax income from an ira.
once ss kicks in many of us will never see a rate that low on any of our income. so it isn't quite true about being taxed while you delay. in fact it is the perfect time to fill up the 15% bracket with conversions if you will be in the 25% brack once rmds start.
Think how well a 33/33/33% mix of roths, taxable and traditionals could work while delaying ss.
you could pull as much as 320k over 8 years at barely over a 4% tax rate as well as sell equities at zero tax in a taxable account.
by the time rmds kicked in you would have already gotten rid of 320k worth with 1/2 going through tax free..
the roths would spin off no taxable income , perhaps ss wouldn't get taxed and you still may be in the zero capital gains bracket.
that would be ideal but it takes early planning and knowledge which is generally wasted on the young . few have the knowledge or understanding of all the tax aspects yet of retirement.
all they know is buy index funds and I want my tax deduction now..
thanks ,I had a feeling it wouldn't be after tax dollars but wasn't sure. I am just learning my way around the system now so I am green at all this.
now I am counting on you folks to teach me.
if you are already collecting ss at 62 at 65 do you automatically get signed up for parts A AND B OR JUST PART A and everything else you have to first sign up for ?
Mathjak107, What happens at 65 is this: if you are already receiving benefits, SSA sends you a Medicare card a few months before age 65. On it, it is pre-printed with Part A and Part B and the effective date of the 1st day of the month you hit 65. The accompanying literature tells you that if you wanted both parts, you just put the card in your wallet and begin to use it. If you wanted only Part A, because you and or your spouse is covered by an Employer Group Health Plan (due to Active employment by one of you) then you return the card. They will then send you a card with only Part A. If you keep the original card with Part B, they begin to take the premiums out of your check beginning in the actual month you hit 65, because Medicare is paid for the month you are in, whereas the check that is deposited in that month is really for the month before. SSA pays the month after for the month before.
You get so many mailers from 3rd party insurance companies seeking your business...
I suggest you Google Medicare.gov and spend some time checking out various Medigap and RX plans according to your zip code.
You can enter in your required RXs and Find how each is covered on a plan's pharmacology
Some RX are tier 4--most $--on one plan and tier 3 on another. Can made big difference on cost of plan overall. Have friend who takes heart med--expensive--think year she went on Medicare there was so much variation in how that 1 drug was rated on various plans because it was still a "copywrited" drug.
IF you want to ensure you keep same doctors on MediGap call and speak to the insurance manager w/your doctors' offices. Ask specifically because Medicare doing new funding formula some doctors might be changing policies/plans...
We have MEDIGAP and RX coverage through my retirement plan which is better than any RX coverage through Medicare because my husband falls into the donut hole early--
with my retired teacher's ins plan there is no donut hole--big cost savings to us.
Most people would say avoid Advantage plan which combine drugs and medical even though they can be cheaper.
My sister turns 65 in May--lives just north of San Antonio, TX--started SS at 62 when she retired from teaching a local Catholic girls school. Was on COBRA initially but very expensive. Went on individual ins thru ACA--got some bad advice and had to give up,some doctors--
Her Medicare choice was an Advantage plan mainly driven by cost and access to doctors.
I am concerned about how it will treat her RX needs but she thinks it is her best option--at least for first year.
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The IRS reportable income (Box 5) is the full amount of the SS benefit payment.
