Like most everyone, I receive an annual report from the Social Security Administration. It details, among other things, estimated monthly benefits for Early Reirement (Age 62), Full Retirement (Age 66) and Full Retirement Age 70).
Comparing the report I received in 2009 with what I just received, I note that the Age 62 amount went up a bit, the Age 66 amount went down a bit and the Age 70amount went down a bit.
As I am still employed, and paying into the system, why would any of the aforementioned monthly benefits go down?
Because SS is a shared sum. I’m sure someone will be along shortly to explain this in greater detail and with much more knowledge than me, but in the simplest terms, there will be more people drawing on the same pool the older you get. The money being added to the pool is being outpaced by the number of people drawing on it as more and more time passes, so in order for everyone to receive some share, the amount has to go down. The fine print on the 2nd or third page explains this in vague, uncertain terms.
Uh, no, benefits paid out by Social Security are not “dividing up the pie,” they change year-by-year based on cost of living increases. If the Social Security Trust Fund has a good year (let’s say there was a bus accident that took out one million senior citizens, while two million non-residents paid into the system for a whole year before returning to their native countries) that doesn’t change the amount of benefits paid out – it will still be linked to increases in the cost of living.
The cost of living adjustment for 2009 and the amount expected for 2010 is an increase of approximately zero percent. Thus, with the whole time-value of money thing, one would expect that the future benefits would be slightly lower than previous projections… but I don’t understand why one of the benefits would go up. Hm.
I don’t understand the difference in direction of change in benefits either. Did SanDiego Tim misread his statements? As one approaches retirement age, the first benefit amount shown changes from “retirement at age 62” to “retirement at age 63” , “retirement at age 64”, etc.
Uh, I don’t believe so. Ages 62, 65/67 (depending on when you were born) and 70 are the breakpoints for early/full retirement.
ETA: I should add that I believe that any Social Security statement is based on these breakpoints. If you retire at, say, 63.5, you get some credit for the additional months worked, etc.
The inflation rate as determined by the consumer price index declined during 2009 as compared to 2008. This measure had the impact of lowering projected benefits.
Trust me – when I passed age 62 my next statement gave my benefits at age 63: then 64.
That doesn’t explain why the early retirement benefit INCREASED while the full benefit DECREASED. The early retirement benefits are calculated as a percentage of the full benefit amount. The SSA site has a table showing the percentage reduction by month for each month someone retires early.
For each month of early retirement, your benefits will be decreased 5/9%. Before full retirement age was raised from 65 to (eventually) 67 (for people born after the year 1937), this would result in a 20% reduction of benefits if you retired as early as possible (on your 62d birthday) (5/9x12x3=20). Your total reduction now would, of course, be less. For each month you defer payments up to age 70, your total benefits would increase likewise.
The benefits you receive are called the “primary insured benefits.” Auxillary benefits are possible if you have auxillaries who are eligible (minor children, spouse over age 62, etc.) The computations are set forth at 20 CFR.201 et. seq. Here’s a link to 20 CFR. 204: Code of Federal Regulations § 404.204
That’s the form I’m talking about – it wouldn’t make sense for them to tell me my benefits at age 62 if I’m already 63.
The full retirement age did not change between last year and this year so the question of why the early retirement benefit INCREASED while the full benefit DECREASED.
If SanDiegoTim’s taxable income declined significantly in the recent past, that might have changed the projected earnings level enough to account for the change in direction – but that’s pure conjecture.
Sometimes the ages are in different order then you would expect. In other words 64 might be before 62. You might double check the ages next to the benefit. I have had that before and it sort of is odd.
The early retirement age at 63 would, of course, be greater than the early retirement age at 62. Note: you have to retire to draw early benefits, but do not have to retire to draw benefits at the full retirement age. As you note, the taxable income would have had to declined significantly for the projected PIA to fall. The estimates you get are projected upon no decrease in earnings.
The talk about the COLA is a red herring. Once you draw your benefits, they may increase each year if the COLA allows it. COLA has nothing to do with the PIA. If the cost of living increases before you draw benefits, that should be reflected in your salary and, consequently, a higher PIA.