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And how if at all you have staggered when income streams kick in. The longer you wait after retirement for you SS benefits the more years of inflation you erase and you in most cases will have built in a few years of inflation protection. It is great to retire with a targeted spending range and then have money above that range kick in over the years. Could make you start looking at new houses which a few do.
I just ran the numbers on a compound interest calculator. I'm 57. I assumed a constant 2% inflation. I looked at what happens if I collect at age 62 versus collecting at age 70. I'd assume the ratios would be constant but they're not. At age 70 if I defer collecting until then, my pension would be 1.58x what it is in 2016 dollars. If I start collecting at age 62 at the lower amount, my pension would be 1.52x what it is in 2016 dollars. This wasn't obvious to me. I had expected the ratios would be the same and they're not. This is another instance of Mathjack's "miracle of compounding". Assuming I don't need the money, I'm far better off deferring until age 70 to get the largest possible inflation-protected annuity. That was already my plan but this re-enforces it.
...or is there some part of Social Security COLA math that I'm overlooking?
We take inflation into account two ways. First, our pensions get COLAs, but they are capped at I think 2% per year and tied to the CPI.
Please provide a link to this. I don't see how it can possibly be right. Most of us have experienced 18% inflation in our lives. I find it hard to believe that there would be a 2% COLA cap.
...or is there some part of Social Security COLA math that I'm overlooking?
The first and most obvious is that a dollar tomorrow isn't the same as a dollar today (which is why whoever wins the Powerball won't really be getting $1.3+ billion ) - the "time value of money". So any future cash flows have to be reduced to present value to compare "apples with apples".
Also - when you defer SS into the future - you are giving up current payments. Eight years worth if you're deferring from age 62 to age 70. Assuming no immediate need for the money - that money can be invested and will grow over the years. It will take a considerable number of years post-70 to break even in terms of those earlier missed payments - much less wind up ahead - even without taking investment returns into account.
When my husband and I first became eligible for SS at age 62 - the SS.gov had a "break-even" calculator on its website. At the time - that calculator said that if we waited until FRA to collect SS (age 66) - not age 70 - we wouldn't break even until we were 78 (without taking any investment returns into account). The break-even point would obviously have been higher had we waited to collect until age 70. Of course - we wouldn't even break even unless we lived to age 78 (or older in the case of collecting at age 70).
Note that that calculator disappeared from the SS website after we went on Medicare (at age 62). Guess it was leading too many people to conclude that it was a better deal to collect now - as opposed to waiting.
Another part of the SS COLA equation that's missing is that SS COLAs haven't averaged 2% for quite a while now. The rate - which is based on the CPI - has been 1.79% for the last 8 years - and that includes a 5.8% COLA in 2008. If you drop that 5.8% - the average COLA has been 1.22% for the last 7 years.
I have not seen a lot of inflation in the last decade or so. There have been some large price increases in some areas - like the costs of *some* drugs. But those really don't have anything to do with inflation (unless you define inflation as any price increase for any reason - which I don't). Our travel costs (our largest discretionary budget item) have gone both up - and down (depending on the state of the economy at home and abroad - whether we're in a boom or a bust). Our real estate taxes have gone sideways or down (our property values can go down if our property value goes down - any increases are capped by the Florida Save Our Homes Amendment - similar to Prop 13 in California). Overall - I think inflation was the "last war". If you look at central banks - the war they they're fighting now - *this war* - is the war against deflation. Robyn
I just ran the numbers on a compound interest calculator. I'm 57. I assumed a constant 2% inflation. I looked at what happens if I collect at age 62 versus collecting at age 70. I'd assume the ratios would be constant but they're not. At age 70 if I defer collecting until then, my pension would be 1.58x what it is in 2016 dollars. If I start collecting at age 62 at the lower amount, my pension would be 1.52x what it is in 2016 dollars. This wasn't obvious to me. I had expected the ratios would be the same and they're not. This is another instance of Mathjack's "miracle of compounding". Assuming I don't need the money, I'm far better off deferring until age 70 to get the largest possible inflation-protected annuity. That was already my plan but this re-enforces it.
...or is there some part of Social Security COLA math that I'm overlooking?
Nahhh I am almost 68 and in two years it will be Bada Bing Ca Ching (sp?) and trying to figure out what to do with the money. Also the higher the benefit the greater the actual dollar compounding benefit which is another Bada Bing! The greatest lesson you can teach a person is the power of compounding! Robyn makes some good points but once again having a high earner spouse with their own benefits enables us already there to collect spousal benefits from 66-70 on their accounts thus minimizing the impact of delaying benefits.
Please provide a link to this. I don't see how it can possibly be right. Most of us have experienced 18% inflation in our lives. I find it hard to believe that there would be a 2% COLA cap.
That is 2% per year max as I stated. Different employers within the system can contract for 2,3,4,or 5% per year cap. My agency is contracted at 2% per year max COLA.
That is 2% per year max as I stated. Different employers within the system can contract for 2,3,4,or 5% per year cap. My agency is contracted at 2% per year max COLA.
Aaah. I was assuming "pension" meant Social Security.
i am more interested in cutting our dependence on markets and rates down the road .
I've tried to structure things so I can use my Social Security check to cover all my cash flow in the event that I run myself out of money. It wouldn't be a luxurious existence but I can pay my bills on $41,664.00 in 2016 dollars and that's guessing $10k in Medicare/supplemental expenses by the time I get there.
Nice calculator and easy to use. Social Security and many pensions are inflation-protected. For those who rely on their own 401(k)'s etc., they have to count on the earnings to offset inflation.
A lot of pensions are, but a lot are NOT. Best to check and confirm your own situation just to make sure when you do you calculations - it can make a big difference over 20 years or more.
What were you making per hour say back in 1970, 1980, 1990, or whatever compared to today's wages. Did you really increase in pay as the years went by?
Social Security indexes your wages.
If you retire in 2025, your wages will be indexed 2 years prior -- 2023.
Quote:
Indexed earnings used to compute initial benefits
When we compute a person's retirement benefit, we use the national average wage indexing series to index that person's earnings. Such indexation ensures that a worker's future benefits reflect the general rise in the standard of living that occurred during his or her working lifetime.
How to use the Index.
Suppose your nominal wages in 1985 were $7980.
Divide the wages for your Index Year by the Index for 1985. Assume your Index Year is 2014, so that
$46,481.52 / $16,822.61 = 2.7630
Multiply your nominal wages $7980 * 2.763 = $22,048
Do that for your highest 35 years of wages and the use the AIME formula to determine your monthly Social Security benefit.
As you can see, wages have sort of stagnated a bit, with only a 1.4 ratio increase during this Century.
Quote:
Originally Posted by Escort Rider
Why do you say that inflation will necessarily always run ahead of investment returns? It may, of course, but it is one of the long-term imponderables.
Developing- and emerging-States will put constant pressure on resources.
Quote:
Originally Posted by swathisharan
Inflation is the worst thing that happens in a life time.
Excluding Monetary Inflation, Interest Inflation and Wage Inflation, the purpose of Demand-pull Inflation is to preserve or conserve resources, by limiting their use or forcing greater efficiency.
Cost-push Inflation may be used to reduced resource consumption, but generally that is not the case in the US.
Quote:
Originally Posted by GeoffD
I just ran the numbers on a compound interest calculator. I'm 57. I assumed a constant 2% inflation. I looked at what happens if I collect at age 62 versus collecting at age 70. I'd assume the ratios would be constant but they're not.
Why would they be, since you collect a reduced amount of Social Security benefit as a penalty for taking early retirement?
Quote:
Originally Posted by GeoffD
...or is there some part of Social Security COLA math that I'm overlooking?
The average COLA increase since 1975 is 3.88%
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) - the "time value of money". So any future cash flows have to be reduced to present value to compare "apples with apples".
