The Math of Social Security
Paul Briand of Baby Boomer Examiner reports, Early-wave Baby Boomers started collecting Social Security last year, a trickle that is becoming a torrent — 10,000 Baby Boomers will apply for benefits every day for the next 20 years.
But be advised if you are part of that torrent: The calculation of your Social Security benefits may not accurately represent what you’ll collect when the time comes to actually retire.
That’s because the Social Security Administration’s estimates are based on the assumption you will continue to work full-time, at about your current rate of pay until you are 66.
The government indexes actual earnings to account for changes in average wages since the year the earnings were paid. Next, it calculates your average monthly indexed earnings during the 35 years in which you were paid the most. Then it applies a formula to those earnings to compute the amount at, 66, considered your full retirement age.
But as Baby Boomers are well aware in this soured economy, working full-time at the same or even a higher pay each year until you are 66 years old is a challenge.
There are more and more stories of Baby Boomers losing their jobs because of layoffs or forced retirements. And there are more and more stories of the difficulty of finding new jobs in this recession.
Most everyone gets a paper estimate mailed from the Social Security around the time of his/her birthday each year.
The most accurate method to narrow what a benefit might be — especially in this fast-changing economy — is use of the on-line estimator.
It can walk you through a variety of scenarios related to your work status.
For example, if you are 55 and had been working for many years as a progressively good salary, your calculation might show an estimated benefit of $2,284 per month. That is, if you keep working until you are 66 and if you maintain that good salary for the next 11 years.
But let’s say that same 55 year old person has lost that good paying job and eventually finds one at half the pay. In that case the estimate drops slightly to $2,128 per month at age 66.
For first-wave Baby Boomers, you can begin collecting Social Security benefits at age 62, but you’ll get larger checks if you wait until 66 and even larger benefits if you wait until age 70. When should you start taking payments? It depends on a variety of factors, including your health, family history and sources of income.
The Social Security Administration recently rolled out the ability to apply for benefits online at www.socialsecurity.gov, and click on “Applying Online for Retirement Benefits.” You’ll be asked a series of questions about you and your work.
Filed Under: Baby Boomers • Retirement
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