Actually, I suggested a 3.7% marginal return. You claimed that it was ‘at least double’ that - which means you were claiming it was at least 7.4% I don’t see anything where you disputed this characterization of it being ‘at least 7.4%’ - but you never did provide any math to back up your claim.
Right - which is why you can’t actually back up your claim with any actual math. Your hand waving of saying it’s ‘at least double’ the actual calculated marginal benefit is just that - hand-waving.
I would disagree that you ‘volunteered’ to pay OASDI. Royalty income from authoring a book is reportable taxable self-employment income, whether you run it through an LLC or not. I suppose that you could try to say it was ‘hobby income’ but once you have a hobby that pays you for 2 or 3 years, that’s generally considered a business, on which you would pay self-employment tax. Since your theory was that you would get the income for 5 years, it seems pretty clear that you were running a business, whether or not you ran it through the LLC.
When calculating your marginal gains, did you account for the cost of setting up the LLC?
The benefit rises 8% each year starting at your FRA. Your FRA benefit has 8% added to it at FRA + 1. At FRA + 2, 16% is added to your FRA benefit. At FRA + 3, 24% is added to your FRA benefit.
It is a straight 8% of your FRA benefit amount each year, not compounded.
Also, it is actually adjusted for whole months, not annually, you get a .666% for each whole month after FRA which becomes 8% for 12 months.
No, I already had a business active from when I had to be “employed” as an engineering consultant to get my health insurance through a professional society. I actually just sent the renewal in this week for my New York license, so I’m good for another 3 years if the economy craters and I’m forced back into the workforce. [LOL]
I believe it is your PIA amount that is being increased by .666% for each month you delay claiming SSA benefits after your full retirement age. At least that seems to be what happened to me when I claimed SSA benefits after retiring at age 68. My full retirement age was 66.0.
a) It does not compound. It is a flat 24/36% per month increase for each month past your FRA.
The increase is # of months times 24/36. Does not compound.
b) The increase is not free. You give up the previous month’s benefit in order to get the increase. If your FRA benefit is $1000/mo, each month you give up $1000 in order to eventually collect and extra $6.67/mo for the rest of your life.
It is entirely possible that intercst is using a different definition of “voluntary” than you are. I’ve read and discussed his material for decades, and it could very well be he is referring to the very action that caused the income as being “voluntary”. He’s a big fan of keeping taxable income as low as prudent in order to enable ancillary savings, sometimes substantial. For example, keeping income under a certain amount enables ACA medical coverage at a cost of about $0/month instead of $300/mo, or $700/mo, or even $1200/mo in some cases.
So “voluntary” may mean “chose to take the action that resulted in the [FICA] taxable income”.
Wait! This hardly seems worth it. If you lose $1000 now to get an extra $6.67 later, then breakeven is about 12 1/2 years without accounting for time value of the payment stream.
Plus if you invest that money you get into anything, even a few percent certificate of deposit, which then compounds, your break even is a few years more. My break even without accounting for investing the money or inflation is in my 80s AND there is a risk that something will be changed. So for example by the time I collect, it may be reduced by 25% if our gov decides to do so and I have learned that everything is possible. On the other hand, if I am already collecting, there is close to guarantee that it won’t be reduced and the worst that may happen is lower COLA increases.
Not exactly correct. When you claim Social Security benefits, all years of insured earnings before the year you turned 60 are adjusted by the Average Wage Index (AWI) for the year you turned 60. Starting at your age 60, your insured earnings are not indexed for inflation.
All the years that you did not have earnings before you entered your claim for Social Security benefits are included in determining your Average Indexed Monthly Earnings (AIME). the 35 years with the highest earnings are summed and divided by 420 to produce your AIME.
The PIA is calculated by applying the AIME bend points in effect when you entered your claim for benefits to the AIME. The PIA amount is then adjusted for early or late retirement. See Early or delayed retirement for the percentage of adjustment. The table is missing the columns for age 68 and 69.
After the PIA has been adjusted for early or late retirement, the COLA earned for each year starting with the year you turned 62 until the year that you claimed your Social Security benefit to yield your monthly Social Security benefit amount.
Which AIME bend points (i.e., the bend points for which year) are use for calculating AIME. Age 62, FRA, or the year in which benefits are applied for? This issue has been less than clear to me for some time. I finally understood the inflation adjustments and that they stop once one turns 60?
I don’t know. I have yet to find anything on Social Security’s web site that provides a definitive answer. My assumption is that the AIME bend points used are for the year you claimed your benefits.
At least the web site is clear on inflation adjustments stopping at age 60. This implies that no COLA adjustments are made for earnings for the years you were 60 and 61. COLA adjustments are only made between the ages of 62 and the your age when you claim benefits.
a Year of eligibility; that is, the year in which a worker attains age 62, becomes disabled before age 62, or dies before attaining age 62.
Reading together, for most people the year they turn 62 is the relevant year for determining bend point unless the person dies or becomes disabled before age 62.
They are the bend points for the year in which you ‘first become eligible’ which, unless you die or become disabled before then, is 62. You can see that from the example for “Person B” on this SS website page Social Security Retirement Benefit Calculation (ssa.gov)
The worker in case B is first eligible in 2019 (the year case B reached age 62). Thus the case-B PIA is the case B amount computed above truncated to the next lower dime and increased by cost-of-living adjustments, or COLAs, for 2019 through 2022. These COLAs are 1.6 percent, 1.3 percent, 5.9 percent, 8.7 percent, respectively. The resulting PIA is $3,627.10.
When you look at the bend point calculation for Person B from that page
you can see that the bend points that were used in their calculation were the ones from 2019 from the table of bend points here Benefit Formula Bend Points (ssa.gov)
Your assumption appears to be incorrect based on the referenced example.
I’ve heard this assumption before and tend to disagree with it. First of all, there is no COLA adjustment needed for the year that you turn 60, since that’s the base year for your wage indexing. Therefore, all of your wages in your AIME are being adjusted for the year in which you turned 60, so your wages for that year are already indexed and don’t need a COLA. Then for the years after you turn 60, your wages are counted as-is, with no adjustment but if there was wage inflation from the year when you turned 60, presumably, you would have participated in that wage inflation, so, in theory, your wages would have increased, and the wage inflation would have been accounted for. I understand that not everyone participates in wage inflation equally, so, depending on your specific circumstances, the wage inflation that you received for your wages when you were 61 may be better or worse than the average indexing that could have been applied to it.
Excellent spreadsheet. I only looked at the main tab so far, but it looks correct. I would want to modify it to 62/67/70 instead of 62/66/70 because my “full SS” age is 67.
I thought it was well understood, and generally accepted, that delaying until age 70 (obviously, only if you have other money to live on between 62/67 and 70) is a “no brainer”. Based on your spreadsheet, that isn’t so. If you delay from 62 to 70, you break even at age 86 or so. Most people dramatically slow spending by age 86. And if you happen to live to 95 (very few do), you leave your heirs an extra $160k because you aren’t likely to be enjoying that money at that point. The only caveat I can think of is that the money might provide somewhat better health care at that advanced age, but the numbers are so small that they don’t really make much of a difference with the gargantuan costs involved.
And a second caveat, if the money remains invested well throughout, we are talking about a 33 year period (62 to 95), so the returns could potentially be somewhat higher than the assumption in the spreadsheet.
Third caveat. After spousal benefits are calculated, it is possible that the numbers shift somewhat. But I doubt they can shift much because the numbers are [mostly] calculated by government actuaries, and I suspect they try to keep it reasonable actuarily.
Nice sheet, Ray. I adjusted the 62 yo calculation to .691 of the FRA from .75 I assume based on my FRA. And my 70 year old one is 1.248*FRA vs 1.32 in the base sheet.
. I’ll go back and reread the information.
