Social Security: The Best and Worst Years To Be Born

[Shermann]

Social Security has a number of quirks related to the way it adjusts for inflation. In a nutshell, your 35-year earnings history is normalized for inflation to your indexing year (the year you turn 60) using the National Average Wage Index. Benefits start at age 62 at the earliest, and from that point forward the Consumer Price Index for Urban Wage Earners and Clerical Workers is used for COLA (a lower percentage on average). From 60 to 62, there is a gap of two years, and no inflation adjustment occurs. Though typically not significant, it can be.

If you were born in 1961, you will miss out on the 5.9% COLA in 2021 and the 8.7% COLA in 2022 for a combined percentage of 15.1%. This is the highest pair of percentages since 1980-1981 and resulted from the inflation bubble. To get that percentage back, you would have to delay your benefits for almost 2 years after your full retirement age of 67.

The best birthyear in the modern era? That would be 1949. Thanks to the Great Recession, COLA was zero in 2009 and 2010, so these fortunate individuals don't effectively have gap years.

Inflation can have a dramatic effect on retirement planning, and this provides a small window into one of its hidden effects.

[Walleye]

1. Sounds about right, I was born in 1949 and I'm very happy with my Social Security

[KarenS]

2. 1949 for me as well,,,

[NoRethugFriends]

6. Me as well.

[LovelyStuff]

13. Me too!

[mwb970]

18. 49er here.

[William Seger]

22. Ditto!

[flashman13]

32. Good grief. What a bunch of old farts. Wink Wink

[Chainfire]

29. '52 here and I have no complaints.

[mitch96]

40. "The best birth year in the modern era? That would be 1949".. me too. My buddy who was born the same year

did a lot of "cash business" gets less than half of what I get..
m

[MOMFUDSKI]

3. Born in'47.

Didn’t get a SS raise the first year I was on it.

[enough]

4. Interesting. Is there a link? Thanks.

[Shermann]

19. There isn't a lot of awareness about this

I've been building my own retirement simulation models for years and have picked up on a number of interesting things. I ran these numbers myself, so I guess it is a DU original story. I'd welcome a peer review of it.

The inflation gap is odd and unfair, but it normally affects everybody the same way when inflation hums along at the same rate. Now we have two blips in the modern era, one high and one low. So, directly comparing these two outliers is revealing.

On paper it is an easy fix, just start COLA at age 60 and retroactively bump everybody's benefit. While that would be a boon for retirees, how many billions would that cost?

Taxes on SS are similarly flawed, there are fixed basis values which are never adjusted for inflation. So more and more of retirees' benefits are subject to taxes every year. Again, how many billions would a fix cost the government?

[OMGWTF]

25. IIRC, SS benefits were not taxed until St. Ronnie Raygun went on his mission to destroy the middle class.

[Farmer-Rick]

37. He and Greenspan gouged out a big chunk of Social Security

That really hurts seniors today.

You can't live on Social Security because if you get more than $25,000, taxes start getting bigger and bigger. As your SocSec goes up, the amount of taxes they take away from you goes up. Unless you are filthy-rich and then get expensive accountants to hide their income.

[Shermann]

48. That's that basis value that I referred to in post 19

It's dubious that it doesn't adjust for inflation. For retirement planning purposes, it creates a moving target. One tool used to stay below that is Roth accounts. But if there is a lot of inflation between now and your retirement date, it might be futile. So, unless ALL of your retirement funds are in Roth accounts, you might be sort of hosed. $25K doesn't go very far these days.

[Farmer-Rick]

50. Thanks for that explanation

You are talented at explaining complex financial issues. Thanks

[Peer Gynt]

24. You can get indexing information from SSA here...

… by entering different retirement eligibility years, you can see what the indexing factors will be for each year after birth (only some of which will be years with wages, of course). What’s crucial are the 35 years of highest wages.

https://www.ssa.gov/oact/cola/awifactors.html

[2naSalit]

41. Cool, thanks.

Welcome to DU!

Interesting handle.

[LakeVermilion]

5. Actually, its not the best and worst years to be born...

It's the best year and the worst year to retire.

I was born in 1947, but didn't retire until 2010. So I get to share in the windfall with the 49ers.

Just an observation.

[Shermann]

12. Your primary benefits filing age doesn't affect the calculus here

This gap phenomenon is determined by your indexing year which is determined strictly by your birthyear (with an odd corner case if you were born on January 1. We won't talk about that here.)

[KPN]

20. Born January 1. You've got me curious

What’s the odd case about?

[Shermann]

23. I guess we're going there

Social Security follows English common law that finds that a person attains an age on the day before the birthday. So, your indexing year is the year you actually turn 59.

https://secure.ssa.gov/poms.nsf/lnx/0300615015

[KPN]

42. Lol. Thanks! Not sure whether that's a benefit or cost. I was curious mostly because in my younger years,

having that birthday sure seemed like a cost to me. Best examples:

on my 16th birthday, the age for being eligible to get a learners permit to drive in MA was raised from 16 to 17 (my best friend's birthday was Dec. 29th -- he could drive, I couldn't for another year);

the year I turned 21, the legal drinking age was lowered from 21 to 18 MA effective on my birthday -- pissed me off; the very first day I could legally have a beer in a bar, thousands of 18, 19 and 20 year olds could too! (MA corrected that error within a decade and moved the age back up to 21 -- it was originally lowered to 18 for the same reason voting age was lowered to 18 -- because 18 year olds had and were going to Vietnam to fight and die for their country.

[Shermann]

44. It is sort of a scale from 0 to 15 with zero being the best and 15 being the worst

Most two-year gaps have been around a 5 in the last two decades. The government hands two years of inflation back to beneficiaries to eat. Everybody gets a helping, but of varying size. There's at least one 15 on the menu now, in addition to one 0.

[wolfie001]

7. So 1960 was a bonanza?

Tell me it's true! I just retired a month ago.

[Shermann]

10. 1960/1962 are only half as bad as 1961

Likewise, 1948/1950 are only half as good as 1949 (loosely speaking).

[wolfie001]

47. C'est la vie..... nt

[The Butler]

8. Social Security & Medicare

I remember my dad mentioning that he got dinged by Social Security because he was born in 1919. He was a "Notch Baby". I was born in the year that Germany and Japan surrendered. I must have frightened them.

[LittleGirl]

9. Raises hand

If I wait until I’m 66, 10 months, I get most of my SS. I was born in 59 but they still shafted me. I’m unable to find work but I will wait another 2 years before I get over the penalty of collecting at 65. Hubby is supporting me. Ugh.

[Shermann]

30. Penalty isn't the right word

Benefits are designed with fairness in mind no matter what filing age you choose. Penalties have teeth to them to discourage you from doing something, which isn't the case here. The correct term is "reduction factor".

[LittleGirl]

46. That's a good term

reduction factor. It was supposed to be for everyone born after 1960 but since I was born in '59, they included me in the curse.

[jimfields33]

11. I'm waiting until 70. The highest you can get.

I still have a little over 15 years to wait but I want the larger check. Yes controversial but what’s new. lol.

[Martin Eden]

14. For that reason my wife wants me to keep working until 70

Born in Sep 1957, I'll reach my retirement age of 66.5 years in less than two months. My stated intent to retire at that time didn't go over too well, so I compromised and decided to work through the end of this year.

It's not all about money. I love to go hiking & backpacking, but can't find the time to do that nearly as often as I'd like. I want to enjoy my recreational passions (including slowpitch softball tournaments) as much as I can while I am still able.

My job is not physically demanding, but working long hours in a salaried postion has not been good for my physical condition. I'll get much more exercise and fresh air when I'm no longer shackled to a desk.

[Auggie]

21. We're one month apart in age

I'm trying to hold out until 70 before filing for SS, figuring that the cost of everything is only going to escalate. Why not retire with the maximum you can? And so what if I die before I come out ahead. I'd rather have too much money and not need it than need it and not have it. Health care, skilled nursing, and long-term hospice/hospitalization can be substandard if you have to count pennies.

Good luck moving forward!

[Martin Eden]

36. Good luck to you as well, fellow Boomer!

The best retirement decision isn't the same for everyone. As age and arthritis begin to limit my abilities I don't want to reduce the years I have to enjoy my physical activities even if I live well beyond them.

[jimfields33]

53. I totally get that. Enjoy.

I think retirement is an individual decision and nothing is wrong.

[Shermann]

15. The retirement simulators tend to support your strategy

The SS benefits formula is designed to be a wash regardless of your primary benefits filing age, based on the actuarial tables. If you beat the odds and outlive everybody, you generally come out ahead delaying filing. The risk there is in burning through too much retirement savings trying to hold out for age 70.

Some feel there is also risk in delaying benefits due to the threat of SS insolvency, and you should get what you can get while you can. I believe there is a lot of gaslighting in the MSM on this issue, so the real risk there is difficult to ascertain.

[PoindexterOglethorpe]

58. Most people don't realize how long they actually will live.

They look at life expectancy at birth and conclude that's how long they'll live. Right now the average American lives to age 88.

[Shermann]

60. Yes and every year you live extends your life expectancy

It just isn't another full year, unfortunately.

[PoindexterOglethorpe]

62. It depends on what year you are looking at.

I'm a 75 year old woman. A quick on-line search (I googled "how much longer will a 75 year old woman live" and came up with a chart that says 12.97 more years. So, it actually is a whole lot more than one full year.

This might help: https://www.annuityadvantage.com/resources/life-expectancy-tables/

[Shermann]

63. Right and if and when you make it to 76, it extends to 12.29 years instead of 11.97

So, you'd have picked up an extra .68 years, that was my meaning. It's always greater than zero but less than 1.

[Joe Nation]

16. There was also a phase in period

when the retirement age went from 65 to 67. For instance, I was born in '58 and I can retire with full benefits at 66 and 8 months. I may just wait until I am 70 to collect because it increases a lot over that 3 years and 4 months.

[chicoescuela]

27. Joe I'm the same age and plan to do the same thing. Good luck to you

[Joe Nation]

35. My wife was born in 1961

Ouch! However, she was in a state plan that took the SSI contribution and added it to her state pension instead of contributing to the federal system. In other words, she won't collect SSI anyway, maybe $30 if at all. I think we played our retirement just right. It's hard to know when you are young which type of savings you should invest in. It's just a roll of the dice.

[PoindexterOglethorpe]

17. I was born in 1948,

and did not start collecting my own SS until age 70. I was a stay at home mom for 25 years so I wound up with working and paying in 29 years.

I was able to collect on my ex's at age 65 (getting 50% of what his amount would be at his full retirement age), then switch over to my own at age 70. If he dies before me I become one of his two widows, and will then get 50% of his SS. He waited until age 70 himself to start collecting, so while I don't know how much his payment actually is, I can guess.

It seems to me that working even retail or fast food for a while so as to delay collecting SS as long as possible might be a good idea. For one thing, since the increases when they occur, are a percentage, it's an even bigger increase, the higher your check is.

[llmart]

28. My situation is almost exactly the same as yours.

I was born in 1949. I got 50% of my ex's Soc. Sec. I actually do know what my ex gets per month. He was a high wage earner and worked until he was 70. I have the added bonus of getting 50% of his retirement benefit since he had a defined benefit plan and I was awarded spousal support for the rest of his life. When he stopped working he thought the spousal support would end, but they take my spousal support out of his Social Security check.

[PoindexterOglethorpe]

59. Good for you.

My spousal support ended after about six years. And because I was out of the workforce so long, I was very limited in what sort of job I could get. He's five years younger than I am, and much of his family lives well into their 90s. Oh, well.

[DFW]

26. I was born in 1952

I applied for Social Security payments when I turned 70. I had started working at age 23, and have been with the same employer since then. It took well over a year to get all the paperwork done, going through about seven different SS offices, from D.C. to Albuquerque to Baltimore, etc. finally ending up with the FBU office in the US Embassy in Warsaw, Poland (!!), and they were the ones who ended up being the ones to actually complete the process.

My SS monthly payments are supposedly about $4100, which, after paying German taxes on 85% of it, leaves a net of about $2350, or about $28200 a year, before the SS tax of about $9900 a year being taken out of my U.S. paycheck, leaving me with about a net of $18,300 per year from the whole SS system. It's better than nothing, so I'm not complaining, but when some think that getting a gross payout of $48,000 a year means having a nice wad of cash, if you're still working and living in a high tax country like Germany, it's more like a nice chunk of extra pocket money.

[Martin68]

33. I, too, was born in '52. My social security was reduced by the amount I receive from Japan for the national pension

I qualified for during my 21 years working there. That was a disappointment...

[DFW]

39. I'll bet!!

My employer is the same US employer I have always had (a few incarnations) since 1975, so that has not been an issue with me, but on the other hand, where I am paying 50% in German taxes, plus another chunk to the IRS due to participation in S-Corps of the outfit I work for, I am assessed at about 73% income tax (I am fighting a 12 year war with the Germans about their disregarding the Double Taxation Treaty with the USA), so for all the taxes the Germans take from me, I get no pension and no health insurance, and no anything else. As they say in Brooklyn, such a deal! In Spain, they say, "de invierno a invierno, todo el dinero para el gobierno." That applies not only to Spain, needless to say!

[calguy]

31. I was born in 1950

So I guess that means I'm pretty much living "the good life'?

[Martin68]

34. High on the hog? LOL!

[FM123]

38. Uh oh, I was born in 1961....

Not exactly the news I wanted to hear, but I always appreciate learning what I need to know - thanks Shermann.

[Shermann]

45. On a sorta kinda positive note, you can't really lose money that you never had! nt

[FM123]

49. You're right about that!

[Think. Again.]

54. Wait...

...when you say "you can't lose money you never had", are you saying that the money we paid into SS all those years, and the interest it has accrued, was never ours?

SS tax does come out of our earned wages, correct?

[DFW]

57. For the last 49 years, it has come out of mine, anyway!

And in the form of an equal amount in SS taxes from my employer as well, of course.

[Shermann]

61. The Social Security benefits formula is what it is

My point is that is hasn't changed much over time, and it is all sort of set in concrete. If you are on the losing side of something, you always were. It's not like you had something yesterday that was taken away today.

Maybe I should have said "you can't lose a benefit you never had".

[usonian]

43. Happy 75th birthday to 49'ers.

I got mine!

And GO FORTY NINERS!

[Beachnutt]

51. Recently retired and started my SS

in October, 1961 here and I guess I took a hit but I'm happy with what I get along with my Teamster pension.

[Goonch]

52. είναι ελληνικό για μένα

[SWBTATTReg]

55. I'm glad that so many are playing the numbers game w/ their SS benefits, it's a good thing to know what one is

going to receive. One serious point, is your health too, in determining whether or not to retire. If your health is not in a good way, consider this too. Otherwise, as some of my friends found out the hard way (they passed away, and received nothing).

I know that a lot of us don't consider perhaps too much on the dying part, but it does need to be considered too, as to a decision on getting the SS benefits.

To all of those looking forward to retirement, good luck and best wishes. The best part of your life is coming, so enjoy it, you earned it.

[Joe Nation]

56. Great point!

Health is the unknown variable at retirement. It definitely can drag you down financially regardless of your SS haul.