Social Security Questions

[tvguy]

The system is set up so it actually replaces much more of the income for people earning on the lower end of the scale. For me, my full retirement age SS is less than a third of my take home pay. I worked and paid into the system for 40 years.

So you had the income to save for retirement on your own. Yes, I have been paying into the system since 1973, so pretty close to 50 years when I retire. I have no complaints with social security. My dad died when I was 9 and I got survivors benefits until I turned 21. I understand now it only goes to 18. My mom invested that money, paid for my college, with money to spare. But that was also an era when you could get 16% interest on a bank CD.

 

[amcnj]

I have to disagree. My annual Social Security statement came today in the mail, my full benefit is more than I thought, 91% of my current take home pay*. How is that not taking good care of people in their old age? Remember, Social Security was never intended to be your entire retirement. It was designed to be a supplement to your retirement savings and pension if you have a pension.

*67% of my current take home pay if I take it at age 62 1/2. 118% of my current take home pay if I wait to age 70.

Social security pays something like 90% of the first $1000 in monthly earnings, 32% of the next $4500 in earnings, and then 15% of anything over that. Then you have to reduce that if you begin collecting before your full retirement age. I think at age 62 the reductions are between 70 and 75% depending on when you were born.

When talking about take home figures, something to keep in mind is that some items currently paid for via work payroll deductions may now have to be paid by you in retirement (such as income tax withholding and any medical deductions). So duplicating a take home figure may not be sufficient for someone who typically spent all of their take home pay, as they may also now need to cover those other expenses previously paid for via payroll deductions. Just something to think about as it may affect some.

 

[georgina]

Although the experts suggest waiting to take SS until you are 70 to get the highest possible benefit, there is at least one other reason for taking it as soon as you are eligible. For many people, waiting on SS means that they have to start drawing on their IRA or 401K retirement savings. Since retirement savings can be inherited by family members other than a spouse, taking SS early can help preserve those assets since there are no SS benefits after you die other than for a spouse. Everyone's situation is a bit different.

I have inherited a traditional IRA from my mom and in my opinion, it's a pain to deal with. We are taking our lower income years before DH collects his SS to convert a significant portion of his traditional IRA money to Roth IRA which will not be taxable to our kids if left to them. Tax-wise, it could be beneficial to withdraw some IRA money before taking SS as the tax rate might be lower, and since you have to take money at 70.5 a large required IRA withdrawal then could cause higher taxes on your SS income! As you said, situations differ.

The system is set up so it actually replaces much more of the income for people earning on the lower end of the scale. For me, my full retirement age SS is less than a third of my take home pay. I worked and paid into the system for 40 years.

There is a cap on the amount of income that is taxed for social security. So a lower earning person would have had 100% of his/her income taxed, while a higher earner would not have paid SS tax on his/her whole income. It's a safety net.

 

[amcnj]

Although the experts suggest waiting to take SS until you are 70 to get the highest possible benefit, there is at least one other reason for taking it as soon as you are eligible. For many people, waiting on SS means that they have to start drawing on their IRA or 401K retirement savings. Since retirement savings can be inherited by family members other than a spouse, taking SS early can help preserve those assets since there are no SS benefits after you die other than for a spouse. Everyone's situation is a bit different.

Another reason some decide not to wait till 70 is that they feel they would better enjoy the money when younger and healthier. There are a lot of factors to consider. From observations of my own family, most who lived longest started slowing down and spending less in their 80’s. But, so far no one has needed extended care either.

 

[tvguy]

When talking about take home figures, something to keep in mind is that some items currently paid for via work payroll deductions may now have to be paid by you in retirement (such as income tax withholding and any medical deductions). So duplicating a take home figure may not be sufficient for someone who typically spent all of their take home pay, as they may also now need to cover those other expenses previously paid for via payroll deductions. Just something to think about as it may affect some.

Lots of factors to consider. On the other side, I won't be putting 6,200 miles a year on my car commuting to work which will cut my gasoline, upkeep costs, and will make a major reduction in my auto insurance premiums. I also expense my clothing costs to drop. But like I said, Social Security is supposed to be a supplement to your retirement, not your bonus. If it nearly replaces your current take home pay, and you have either a pension ( I don't) and/or saved for retirement, you'd sitting pretty in most cases.

 

[tvguy]

I have inherited a traditional IRA from my mom and in my opinion, it's a pain to deal with. We are taking our lower income years before DH collects his SS to convert a significant portion of his traditional IRA money to Roth IRA which will not be taxable to our kids if left to them. Tax-wise, it could be beneficial to withdraw some IRA money before taking SS as the tax rate might be lower, and since you have to take money at 70.5 a large required IRA withdrawal then could cause higher taxes on your SS income! As you said, situations differ..

My MIL passed unexpectedly at age 64, and had not touched her IRA. My wife's only option was to cash it in and pay 50% of it in taxes.
My mom passed away at age 90, put off IRA withdrawals until age 70, used her beneficiary's age (me) to lower the minimum distributions and never took more than that out. I had the option of cashing it, or keeping up the distributions at the level she was taking them at. I continued the distributions, and I use that money to pay for my long term care insurance.

 

[amcnj]

Lots of factors to consider. On the other side, I won't be putting 6,200 miles a year on my car commuting to work which will cut my gasoline, upkeep costs, and will make a major reduction in my auto insurance premiums. I also expense my clothing costs to drop. But like I said, Social Security is supposed to be a supplement to your retirement, not your bonus. If it nearly replaces your current take home pay, and you have either a pension ( I don't) and/or saved for retirement, you'd sitting pretty in most cases.

Social security is an important piece of retirement income for many. And that alone has lots of variables. Then add in all the other decisions and possibilities in retirement, and it makes you think maybe it would be wise to invest in companies that make headache remedies!

 

[Feralpeg]

I began collecting at 62. Life is very unpredictable. I figure I'd collect while I can. Social Security is not my only income.

 

[piccolopat]

So you had the income to save for retirement on your own. Yes, I have been paying into the system since 1973, so pretty close to 50 years when I retire. I have no complaints with social security. My dad died when I was 9 and I got survivors benefits until I turned 21. I understand now it only goes to 18. My mom invested that money, paid for my college, with money to spare. But that was also an era when you could get 16% interest on a bank CD.

For the last decade of working I did very well and saved as much as my budget allowed. I knew what my SS was estimated to be and knew what other money I would need to support my retirement budget. It meant giving up a lot of things but so important and worth the sacrifice since I was able to retire early and leave behind a 5 hour a day commute. I also remember the 16% interest rates at banks but I had no money back then to save. I also remember the 18% mortgage rates that prevented many of us from becoming homeowners for years.

 

[tvguy]

For the last decade of working I did very well and saved as much as my budget allowed. I knew what my SS was estimated to be and knew what other money I would need to support my retirement budget. It meant giving up a lot of things but so important and worth the sacrifice since I was able to retire early and leave behind a 5 hour a day commute. I also remember the 16% interest rates at banks but I had no money back then to save. I also remember the 18% mortgage rates that prevented many of us from becoming homeowners for years.

Yup. We JUMPED to buy a house in 1983 when mortgage rates PLUNGED to 12.25%! DS and DDIL got a 3.8% rate 2 years ago

 

[tvguy]

Social security is an important piece of retirement income for many. And that alone has lots of variables. Then add in all the other decisions and possibilities in retirement, and it makes you think maybe it would be wise to invest in companies that make headache remedies!

I've needed headache remedies for nearly 40 years of my employers bringing in financial experts to show us why we need to put money in the 401k plan. Even just the minimum to get the company match. Our last teleconference with our CEO, he spent 10 minutes talking about how surprised he was that 30%+ or the eligible employees were not in the plan, and please sign up even if it costs the company money. But I have never worked at a company with a pension plan.

 

[amcnj]

I've needed headache remedies for nearly 40 years of my employers bringing in financial experts to show us why we need to put money in the 401k plan. Even just the minimum to get the company match. Our last teleconference with our CEO, he spent 10 minutes talking about how surprised he was that 30%+ or the eligible employees were not in the plan, and please sign up even if it costs the company money. But I have never worked at a company with a pension plan.

Wow, that’s a shame that so many are not signed up all, let alone contributing at least enough to get the employer match.

Depending on investment performance, a 401 K can outperform a pension plan. But of course there is that shift of the risk to the retiree, requiring attention and planning so that you don’t get caught by a downturn.

 

[tvguy]

Wow, that’s a shame that so many are not signed up all, let alone contributing at least enough to get the employer match.

Depending on investment performance, a 401 K can outperform a pension plan. But of course there is that shift of the risk to the retiree, requiring attention and planning so that you don’t get caught by a downturn.

Well, even a pension isn't risk free. My wife's Grandfather retired with a nice pension and Social Security, and then his former employer went bankrupt and the pension went away.

 

[vacationer1954]

I have to disagree. My annual Social Security statement came today in the mail, my full benefit is more than I thought, 91% of my current take home pay*.

I have come to understand that those statements show how much you would get if you continue earning what you're earning now until you reach full retirement age. I lost my job in October 2017 and my older brother lost his last week. The best I've been able to do is find a job earning less than 75% of what I was earning previously, in an utterly horrible working environment, and my brother doesn't think he'll do as well as that. Age discrimination is a very significant factor if you end up having to change jobs in your late 50's or early 60's. Many of us are finding that we either have to take really big pay cuts or take jobs with horrible working environments by comparison to what we had before, or both.

The SSA offers a software program you can download from them that allows you to recalculate what your benefit would be if you ended up in our unfortunate circumstances or worse, were forced to retire early. The good news, for me at least, is that the impact is not that big - less than $100 a month. That is dwarfed by the impact on our retirement plan from doing without expected income, from paying for health insurance ourselves instead of having a good portion of the costs covered by employers, etc.

Remember, Social Security was never intended to be your entire retirement. It was designed to be a supplement to your retirement savings and pension if you have a pension.

Actually, there was no such thing as "retirement savings" per se until 1974 - there were pensions, and there was savings - period.

Social Security was intended to supplement pensions. For those, like my grandmother, who didn't have pensions, Social Security actually was enough to sustain their standard of living in retirement, with a little help from family. So yes, poor people (again, like my grandmother) would remain poor, but middle-class workers for well-established companies would be taken care of by their pensions. It was a reasonable expectation, just as barbaraann said.

What changed was that employers found that ERISA paved the way for them to enhance profitability long-term by shifting that burden to their employees, switching from defined benefit plans (pensions) to defined contribution plans (401ks).

 

[dclpluto]

Social security pays something like 90% of the first $1000 in monthly earnings, 32% of the next $4500 in earnings, and then 15% of anything over that.

Thanks I never knew that.

 

[barbaraann]

My husband used to get those Social Security statements, and then for some reason they stopped sending them. Depending on one's age when they are looking at the statements, how much will the cost of living go up, and will the Social Security benefit keep up with that ? I am 71, and my mom depended on her entire Social Security check to support her. Of course, in the end, it did not. Many people of her generation thought the same. Especially women who were widowed. We live in a different world, and my generation, and my children have learned that they better plan better, or they will struggle big time just counting on Social Security. My tenant became disabled, and her Social Security is all she has. She is struggling big time to pay me the rent.

 

[aprilgail]

My husband used to get those Social Security statements, and then for some reason they stopped sending them. Depending on one's age when they are looking at the statements, how much will the cost of living go up, and will the Social Security benefit keep up with that ? I am 71, and my mom depended on her entire Social Security check to support her. Of course, in the end, it did not. Many people of her generation thought the same. Especially women who were widowed. We live in a different world, and my generation, and my children have learned that they better plan better, or they will struggle big time just counting on Social Security. My tenant became disabled, and her Social Security is all she has. She is struggling big time to pay me the rent.

You can log into social security online to see your statements that they no longer send.
Social Security is not meant to support anyone fully-it is supposed to supplement what people should be preparing for on their own.

 

[amcnj]

Well, even a pension isn't risk free. My wife's Grandfather retired with a nice pension and Social Security, and then his former employer went bankrupt and the pension went away.

That’s true. I guess the saying about the only certainties being death and taxes is true!

 

[amcnj]

Thanks I never knew that.

Those are rough figures. This is from the social security website:

PIA definition
The "primary insurance amount" (PIA) is the benefit (before rounding down to next lower whole dollar) a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age. At this age, the benefit is neither reduced for early retirement nor increased for delayed retirement.

PIA formula bend points
The PIA is the sum of three separate percentages of portions ofaverage indexed monthly earnings. The portions depend on the year in which a worker attains age 62, becomes disabled before age 62, or dies before attaining age 62.

For 2019 these portions are the first $926, the amount between $926 and $5,583, and the amount over $5,583. These dollar amounts are the "bend points" of the 2019 PIA formula. A table shows bend points, for years beginning with 1979, for both the PIA and maximum family benefit formulas.

PIA formula
For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2019, or who dies in 2019 before becoming eligible for benefits, his/her PIA will be the sum of:
(a) 90 percent of the first $926 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $926 and through $5,583, plus
(c) 15 percent of his/her average indexed monthly earnings over $5,583.
We round this amount to the next lower multiple of $.10 if it is not already a multiple of $.10.

 

[amcnj]

My husband used to get those Social Security statements, and then for some reason they stopped sending them. Depending on one's age when they are looking at the statements, how much will the cost of living go up, and will the Social Security benefit keep up with that ? I am 71, and my mom depended on her entire Social Security check to support her. Of course, in the end, it did not. Many people of her generation thought the same. Especially women who were widowed. We live in a different world, and my generation, and my children have learned that they better plan better, or they will struggle big time just counting on Social Security. My tenant became disabled, and her Social Security is all she has. She is struggling big time to pay me the rent.

I believe they stopped sending statements to everyone as a cost saving measure. But now they are supposed to send them if you are over age 60 and not yet collecting social security. They are available online though.

The cost of living is variable, depending on changes in the consumer price index, though I forget which one they use for social security purposes. But whichever they use, there has been criticism that it doesn’t accurately reflect senior spending, such as a typically higher amount for healthcare. Over the last twenty years it appears the cola increase has usually been between 0 and 3%. I know I have also read that increased Medicare premiums can offset some or all of any social security cola increase received.