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Calculating Your Ever Shrinking Social Security Checks

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For more than a decade now, it's almost been a foregone conclusion amongst the young people in the United States that Social Security will not exist for them. A more thorough analysis shows that even if the reserves were to run out, there would still be money coming into the system and hence there would be money to pay out.

The question then becomes: How much money would there be to pull out?

For a long time, I considered it one of those nebulous questions that can't really be answered such as, "When can I retire?" In many ways it is, as many factors come into play. I'm nearly 30 years away from when I get to the average age of collecting, so I'm expecting a lot to change between now and then.

Like answering the retirement question, just because it is nebulous doesn't mean that it isn't worth doing a little planning.

I stumbled across this Daily Finance article, which proved helpful in calculating my Social Security benefit.

As a little primer, the eligibility age to start taking Social Security is age 62. If you opt to take it earlier, you'll get penalized. If you take it after age 66 you receive a bonus. It is typically around 7% in each direction around that key age 66 average. Opting to get around 72% of your benefit vs. waiting to get 128% of your benefit is a big deal, but so are those 8 years between taking Social Security at age 62 and taking it at age 70. This is why it is always worth considering whether it is better to take Social Security early or late.

The interesting thing about the Daily Finance article is that details the moving back of the age 66 keystone:

"But beginning for those born in 1955, who will be eligible to apply for benefits as early as 2017, the full retirement age will start going up. For today's 59-year-olds, the official full retirement age will be 66 and two months, and for every year after that, the age will go up by another two months until it hits 67 for those born in 1960 and later.

Having been born in 1976, it looks like the keystone will be 67 for me... but I fully expect that to change just as it is changing for those born between 1955 and 1960. It will probably go up at least as fast, two months per year.

Let's make the assumption that the increase in the keystone age is going to increase by the same amount. In that scenario, I'm born 16 years after the 1960 date when it's at 67. Those 16 years means pushing back the age 67 date 32 months.. or another 2 years 8 months. Because I think the increase may even be faster, I'm going to round that up to 3 years.

Thus by the time I'm ready to retire, I expect the keystone age to be 70. If true, I'd be eligible to take money at age 66 at the penalty or could wait until age 74 to get a bonus. That seems to be a very important thing to take into account when it comes to retirement planning. On the positive side, it would be certainly good news for those who expected to get no benefit at all.

I don't know about you, but thinking about all this made me want to go for a run. Being healthy seems like the best way to beat the system, right?

Posted on September 16, 2014.

This post deals with: ... and focuses on:

Retirement

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5 Responses to “Calculating Your Ever Shrinking Social Security Checks”

  1. Andy Hough says:

    I think you might be misunderstanding the article. The current retirement ages were set way back in 1983. The retirement age change for those born between 1955 and 1960 was set back then so they have had 30 years to prepare for the new full retirement age. Your retirement age might change, but I doubt it. I’d be very surprised if it changed as much as you’re predicting. It is unlikely that they would change the full retirement age by much for those who are less than 30 years away from full retirement age.

    • Lazy Man says:

      I think I understood the article. I didn’t mean to imply that things were slated to be changed for me being born in 1976. Maybe I miscommunicated that.

      I probably should have stated that I’m planning for similar changes like those set back 1983 for me because of the position that Social Security is in. If they planned to push it back in 1983, why wouldn’t they plan to push it back again as it is in worse shape than it was was then? With increased longevity, it seems to make sense, doesn’t it?

  2. Andy Hough says:

    Okay, from reading the article I got the impression you thought the retirement age raise was a recent thing. Nobody had their retirement age raised by more than two years when they last raised the retirement age, so if you’re going to use that scenario for predicting how much your retirement age might rise the most you should predict is another two years or 69 years old.

    Since your (and my) retirement age was already raised by two years once I doubt they will raise it again. I think it more likely any changes will affect younger taxpayers. Although if there aren’t other changes made to keep SS solvent anything is possible.

    • Lazy Man says:

      It’s recent news to me. Does that count?

      I like your logic with them not raising it another couple of years. I hope they see it your way. I suspect they’ll say, “Hmmm people are living longer. The easiest adjustment to make is to push it back.”

      Imagine if politicians said, “Historically, Social Security kicked in at 85% of the national life expectancy (age 65 of 76). We want to keep the same 85%. Now that life expectancy is 82 we need to move it up age 70.” I’m not saying those numbers are accurate (I’m sure they are not as I just made them up for example’s sake). I don’t think I’d necessarily like it, but I think such a scenario would be fair.

  3. Kosmo says:

    Honestly, it’s probably going to depend more on how the political winds are blowing and how much electoral sway the affected group(s) would have than on any objective analysis of the health of the SS program.

    The best way to prevent this is to vote. If your demographic has a very high percentage of active voters, politicians will be more wary of you.

    Making changes to the youngest groups has a couple of advantages for legislators:

    1) That group doesn’t worry as much about retirement, because it’s very far away. The average 18 year old doesn’t worry as much about retirement as the average 57 year old.

    2) Traditionally, a lower percentage of younger people vote, so it’s less likely that they’ll vote out the people that imposed the change.

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