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View Diary: My view of chained CPI at age 67 (48 comments)

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  •  Some links (7+ / 0-)


    The formula's for determining social security payments are a little bit complicated. Right now we have AWI with bendpoints rather than CPI determining the PIA. Essentially the more you make over $711 a month
    the more they tell you to get bent.

    A worker's retirement income benefit is based on his or her Primary Insurance Amount, or PIA. The PIA is the average of the highest 35 years of the worker's covered earnings (before deduction for FICA). Covered earnings in any year are limited by that year's Social Security Wage Base, the maximum earnings that could be subject to the OASDI portion of FICA payroll tax ($110,100 of earnings in 2012 and $113,700 in 2013).[15] If the worker has fewer than 35 years of covered earnings, each year needed to reach 35 is assigned zero earnings. Years of covered work more than 2 years before the year the worker turns 62 are indexed upward to reflect the increase in the national wage via the average wage index (AWI) from the time at which the earnings were covered in the past to the value of the AWI two years before the worker turns 62 (which is the most recent year available at the date the worker turns 62). One-twelfth of this 35-year average is the average indexed monthly earnings (AIME). The PIA then is 90 percent of the AIME up to the first (low) bendpoint, and 32 percent of the excess of AIME over the first bendpoint but not in excess of the second (high) bendpoint, plus 15 percent of the AIME in excess of the second bendpoint. Bendpoints designate the point at which the rates of return on a beneficiary's AIME change.[16][17] In 2008, the bendpoints for calculating the PIA are a change from 90% to 32% at $711 and a change to 15% at $4,288.[17][18] This PIA is then adjusted by automatic cost-of-living adjustments annually starting with the year the worker turns 62. Similar computations based on career average earnings determine disability and survivor benefits. These alternate computations average less years of earnings when the worker dies or is disabled before age 62 and use different base years for the inflation adjustments.
    A worker who starts benefits before normal retirement age has their benefit reduced based on the number of months before normal retirement age they start benefits. This reduction is 5/9 of 1% for each month up to 36 and then 5/12 of 1% for each additional month. This formula gives an 80% benefit at age 62 for a worker with a normal retirement age of 65, a 75% benefit at age 62 for a worker with a normal retirement age of 66, and a 70% benefit at age 62 for a worker with a normal retirement age of 67. The 2008–2012 global recession has resulted in an increase in long term unemployment and an increase in workers taking early retirement.[21]

    Live Free or Die --- Investigate, Incarcerate

    by rktect on Sun Mar 17, 2013 at 05:06:25 AM PDT

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    •  Thank you. (7+ / 0-)

      That all seems entirely arbitrary and over complicated but I'll certainly continue to re-reread it over.

      However, what I glean from your second quotation is that the banks responsible for screwing up the economy in 2008 got their CEO's pockets lined with cash while people with no knowledge of subprime mortgage derivatives were rendered unemployed and foreclosed upon, with future retirement prospects going down the tubes.

      And on top of all that Republicans don't want to not only not prosecute the bankers, but also want them to have free run of the economy, while cutting taxes for the rich and cutting social programs people need now more than ever, to settle a fictitious debt/deficit emergency in a time of serious unemployment, while the DJI, corporate profits, and worker productivity are at an all time high. And all of this was propagated from two unfunded Republican wars based on lies.

      I can see now why people would be pissed at Democrats for even suggesting altering social benefits in any way.

      I will not say do not weep, for not all tears are an evil.

      by ReverseThePolarity on Sun Mar 17, 2013 at 05:49:52 AM PDT

      [ Parent ]

    •  A little conceptual confusion here (5+ / 0-)

      "Right now we have AWI with bendpoints rather than CPI determining the PIA"

      It is difficult to see how or why inflation should set the Primary Insurance Amount directly.

      Initial benefits are targeted by Income Replacement Ratio which in turn is adjusted in a way that lower income workers get around a 50% income replacement while workers earning at the cap get about 30% with an overall average of 40%. Rather than just fix that ratio to final year employment (which might very well NOT be the highest year for a manual worker whose best earning years might be in their 40s) the Insured Amount is set by an admittedly complex formula taking into account lifetime earnings, growth in Real Wage over that time, and finally an adjustment in how much credit you get for earnings above a lower limit and then a higher one. Which is how a system with bendpoints at 15 and 75 magically gets you results from 50 to 30 replacement.

      These initial benefits are by design post inflation (hence Real Wage factor) to smooth out actual benefits in real basket of goods terms compared to workers still in the workforce.

      Now continuing benefits are directly adjusted by inflation, the current question being whether CPI overstates or understates actual real basket of consumed goods cost increase. But I fail to see how any of that would be improved by inserting CPI into the initial benefits formula. And really the only way that bendpoints tell you 'how you get bent' is in this initial progressive setting of benefit levels, under current rules CPI is applied evenly across the board to continuing benefits (which is the only way I can make sense of that $711, as a minimum payout for a more or less full time lifetime worker).

      So I am scratching my head. And still more at the introduction of early retirement and it's effective acceleration during the current recession as some 62-65 years olds simply are shoved out of the work force and have no option but to take reduced early benefits. I just don't see how PIA and AWI factors fit in with that at all.

      Maybe I just know enough to be confused and am over thinking this one and so missing an obvious point. Because I think I agree with your opening and know I agree with the thrust of your close. It's the relation to the quoted stuff from NASI im between that has me baffled. - SocSec.Defender at - founder DK Social Security Defenders group - (hmm is there a theme emerging here?)

      by Bruce Webb on Sun Mar 17, 2013 at 11:48:58 AM PDT

      [ Parent ]

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