"Delayed Retirement Credits. I knew I would feel a need to pension such a person off in that case and so it added to my incentive to pay SS for a pair of cleaning ladies we had hired the prior year when the labor secretary nominee or someone was named in a scandal for paying their staff off the books (I still thought there was a slim chance I or spouse might be named a general someday haha). Sterlings first book, Lose Weight Save Money, can be purchased by clicking this link. ", Social Security Online. Because he was born before Jan. 1, 1954, he was still able to get his spousal benefits on my record even though his benefits were considerably larger. Indexing Factors for Earnings., Social Security Administration. Assuming a normal retirement age of 67, the age of 62 is the earliest year a person can receive benefits or 60 months early. Bend points are income thresholds that are used to effectively reduce your AIME to the primary insurance amount (PIA) you'll receive from Social Security at full retirement age, or the age at which you can receive 100% of your monthly benefit. In the table below, the highest 35 years are listed in Column G. Total the highest 35 years of indexed earnings, and divide that amount by 420, which is the number of months in a 35-year work history, to find the Average Indexed Monthly Earnings. Marketing cookies are used to track visitors across websites. The table below helps to explain the AIME calculation for a worker born in 1956 who plans to retire in 2022 at age 66 and two months, their full retirement age (FRA). In 2022, the second bend point comes at an AIME of $6,172 in today's dollars. If you earn at least $1,510 x 4 = $6,040 in a year, you get credit for four quarters that year. Invest better with The Motley Fool. Financial Wellness and Burnout Prevention for Medical Professionals, 20 Ways You Are Incentivized to Earn Less, 5 Reasons to Not Give Up on Social Security, The Social Security Cost of Living Increase Is the Biggest in Decades. Even for high-income professionals, the target audience of this blog, Social Security will be a significant portion of retirement spending. A complex formula determines how your Social Security benefits are calculated. Alternatively, you could get there in just 10 years if you earned $43,080 per year. PIA determines the monthly Social Security benefit that will be received in the first year of benefits by a worker who starts benefits at their full retirement age (FRA), which is 66 for individuals born between 1943 and 1954, increases by two months each year for those born after 1954, and reaches 67 for those born in 1960 and thereafter. Making the world smarter, happier, and richer. But an additional dollar paid to her pays income, Medicare, and Social Security taxes. The earliest you can begin retirement benefits is age 62 (age 60 if you are eligible for a widow or widower's benefit on a deceased spouse's or ex-spouse's record). Thanks. "Office Closings. That would be a great future blog post as Im sure there are many physicians married to a lower but not zero earner. You can see current andhistorical bend points and the current year's bend points on the Bend Formula Bend Points page of the Social Security Administration's website. Supplemental Security Income (SSI) If you received Social Security before May 1997 or if receiving both Social For all other types of cookies we need your permission. Each year, Social Security publishes the national average wages for the year. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Social . This is from an AARP article on the subject. That alternative would reduce the 15 percent PIA factor by 1 percentage point per year until it reached 5 percent in 2031. When to Begin Taking Social Security When You're Single, Social Security Benefits for an Ex-Spouse, How Early Retirement Affects Your Social Security Benefits. To do that, the formula uses what are called "bend points," which are adjusted for inflation each year. You must earn and pay taxes on $1,024 per month * 420 months = $430,080 in today's dollars over 35 years to get there, or about $12,288 per year. Your spouses 50% benefit is calculated on your FRA benefit. A 60K yearly benefit functions as 1.5M bond portfolio using the 4% Rule. Old Age and Survivor's Insurance., Social Security Administration. The number of credits you need depends on your age when you apply and the type of benefit you are applying for. Could allow higher Equity exposure in investment portfolios. After all, any slight changes to these formulas could have a big impact on your lifetime benefits. If I am looking at this correctly, I think the statement if you delayed to age 70 instead of taking it at the full retirement age of 67, it would be 24% larger, or $52,660 ($78,990 married) is incorrect. Those amounts are indexed to the AWI, so they $147,000. SSA - POMS: RS 00605.900 - Social Security Administration There are an awful lot of people cheating on their taxes (not reporting tips, working under the table etc) that are unknowingly hurting themselves. For a full explanation, please see the postSocial Security and Early Retirement 2022: Know Your Bend Points! ", Social Security Administration. The three MFB bend-points for 2022 eligibilities are $1,308, $1,889 and $2,463. the bend points (13k/year and 80k/year) are critical for your retirement. Cost-of-Living Adjustment (COLA) Information., Social Security Administration. Note: Some Apple computers download the file as a zip file rather than a .xlsx file. Formula Bend Points. Maximum Social Security Benefit: What Is It, How Is It Figured? Even if you are at full retirement age when you file for spousal benefits, your total monthly payment will be less than half of your spouses primary insurance amount, reflecting the fact that your initial Social Security claim came early. To make the world smarter, happier, and richer. The next step is to convert your AIME into a primary insurance amount (PIA) by running it through a calculation called "bend points." That number is then rounded to the next lowest dime. Page 8. Smith Godios Sorensen Inc. 411 Wolf Ledges Parkway, Suite 400, Akron, OH 44311. And if its the latter, does the math change at all for the 24% booster (for delayed retirement)? The law states that we can store cookies on your device if they are strictly necessary for the operation of this site. The taxes that fund Social Security come from the payroll tax, which is 6.2% for employees or 12.4% for self-employed individuals. Before you learn about bend points, it helps to understand how Social Security calculates your average indexed monthly earnings (AIME). Facebook:Jim Blankenship Please clarify this. Social Security uses a process called "wage indexing" to determine how to adjust your earnings history for inflation. "Retirement Benefits. Learn how Social Security works. ", Social Security Administration. A hands-on guide to running the numbers behind your Social Security. When you understand a few basic concepts, its not that difficult. I think your annual benefit would increase by only $1080/35=about $31. I wouldnt say its a mistake, but I suppose it could be clarified a little. We'll assume you're ok with this, but you can opt-out if you wish. The first 36 months would be calculated as 36 months times 5/9 of 1%plus24 months times 5/12 of 1%. 2023 - The White Coat Investor Investing & Personal Finance for Doctors. ", Social Security Administration. ", Social Security Administration. My understanding is that a person who collects SS benefits before FRA will have a permanent reduction, and that applies to future spousal benefits also if he/she switches over to them after his/her spouse applies for his/her own benefit. It even has a calculator so you can tell the effect of early retirement (before FRA) on spousal benefits. It all becomes a matter of a formula now: Current years AWI Series divided by 1977s AWI figure, times the bend points for 1979 equals your current year bend points. This is a link to the Social Security site on the subject. Have I Lost the Right to Collect Spousal Social Security Benefits Before My Own? Click this link for the Amazon ordering page. "Benefit Calculation Examples for Workers Retiring in 2021. 5 comments already - add to the conversation! Many people do not account for this when doing their own calculations, which can lead them to think that taking Social Security early is a better deal, when waiting is often the better deal. You will be sent a link to the file and a confirmation to receive notifications of new posts. OK, let's get started then. In 2022, the wage base for the Social Security tax will increase 2.9 percent, and Social Security benefits will increase 5.9 percent. Your PIA is rounded to the next lowest dime, and your benefit amount is rounded to the next lowest dollar. ", Social Security Administration. Scroll down to the year of your first recorded earnings and see your bend points and estimated benefit at the bottom of the spreadsheet. Here's Exactly How to Optimize for the $4,194 Social Security Monthly This manual is available onAmazon at this link. I want you to pay attention to the general shape of the chart and to the axes. There are two things that affect your PIA after you reach age 62: You may get the wrong answer when running your own calculations on when to begin Social Security if you simply take the numbers off your statement and do not properly apply inflation adjustments. She is now eligible for her own Social Security benefit. Though these facts create uncertainty, its also true that the quality of your retirement depends on your planningand you must start planning somewhere. Unsurprisingly, the Physician on FIRE has spent some time thinking about this and has even developed a calculator to help you know when you reach each of the bend points. For our example worker, who was born in 1953 and turned 60 in 2013, the highest 35 years of wages total $1,919,040. That includes if you file early for your retirement benefit say, at 62, as in this scenario and switch to spousal benefits later. What's the fastest you can get there? In this case, you can claim your own Social Security beginning at 62 and make the switch to spousal benefits when your husband or wife files. A Medicare Owners Manual, is updated with 2020 facts and figures. Visit the Social Security website and use one of its online benefit calculators to determine your retirement estimate based on your earnings record. Same for disability. Average Indexed Monthly Earnings (AIME): Shown on the X axis, the more you earn (and pay SS taxes on), the higher your Social Security benefit. If my wife gets a job, she wont also pay social security tax, will she? ", Social Security Administration. How Are the Social Security Trust Funds Invested? Understanding this benefits calculation process may allow you to have increased confidence that your benefits are fairly secure, regardless of any future actions taken by Congress to deal with Social Security shortfalls. Overview; We Are Local; More specifically, when calculating your PIA, you only get credit for a certain percentage of your AIME up to each bend point, and those percentages are fixed by law. According to Forbes contributor Andrew Biggs, a significant number of Americans rely on Social Security for 90% or more of their retirement income. To this we apply the COLAs from the point [], [] Social Security Bend Points Explained []. If youd prefer, you can download this spreadsheet and others Ive made for home use. If it confused you, it might be confusing someone else. Social Security Bend Points Explained - Getting Your Financial Ducks In Investing $149 and getting $1,080 EVERY YEAR FOR THE REST OF YOUR LIFE is an incredible investment.. If I continue to work until age 70, that benefit will increase to perhaps $3,700 a month. In this scenario, your PIA would equal 41% of your AIME. It all gets added together. There are four ways to figure out your Social Security benefits: Visit a Social Security office to get an estimate, create an account at the official Social Security website and use its calculators, let the SSA calculate your benefits for you, or calculate your benefits yourself. Fourth Wednesday: 21. st - 31. With the AWI figure for 1977, it was determined that the first bend point for 1979 would be set at $180, and the second bend point at $1,085. Multiply columns A and B and output the result to column C. Identify in column D the 35 highest values in column C. Add these together and divide the sum by 420 (seeing as there are 420 months in 35 years). Can I Collect Social Security While I'm Still Working? How to Estimate Your Social Security Income, Benefit Reduction if Taken Before Full Retirement Age, Four Ways Benefits Can Be Increased or Decreased, How to Calculate Social Security Benefits in Excel, Social Security Explained: How It Works, Types of Benefits, Old Age, Survivors, Disability Insurance (OASDI) Program Basics. You must earn a certain number of credits to qualify for Social Security benefits. Its the greater of your own or half of your spouses. if you are BELOW 13k/year lifetime average, then it's a good idea to work more to hit that number. The benefit is the sum of the following elements: 90 percent of the first $1,024 of averaged indexed monthly earnings A different set of bend points is established each year. There are three exceptions to the deemed-filing rule for spouses. $6,172 per month * 420 months = $2,592,240. If a typical physician retires with a $2 million nest egg, that would only support retirement spending of perhaps $80,000 per year. The relevant bend points for each worker are those published in the year the worker first becomes eligible for benefits (age 62). Do Not Sell My Personal Information. You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. "Fact Sheet Social Security, 2023 Social Security Changes.". To do this, the AIME is sectioned into three brackets (or segments) of earnings, which are divided by dollar amounts known as bend points. The spouse cannot receive 50% of the benefits the recipient gets at age 70. In that respect, it doesn't matter if you earned just a little for many years or a lot for a few years (as long as it was at least 10 years). 8 Types of Americans Who Arent Eligible to Get Social Security. These bend points have been indexed annually over the years, such that for 2022 the bend points are $1,024 and $6,172. Quick question: if I am already maxing out social security tax on my income (full $147,000*0.124), is there any drawback to my wife making an income? Also available on Audible! The more you earn, the lower the percentage of your working wages that you will receive. "Indexing Factors for Earnings. 9 Benefits Calculation Example For Person What do you think? Is it capped at 1.5x the high earners benefit (in this case either earners benefit), so $63,702? You can see this published list on theNational Average Wage Index page. Instead of getting credit for 90% of what you earned, you now get credit for only 32% of what you earned. And if youve come here to learn about queuing waterfowl, I apologize for the confusion. Investopedia contributors come from a range of backgrounds, and over 24 years there have been thousands of expert writers and editors who have contributed. The worst thing about the basic my social security site is that it didnt make it easy/obvious how to model early retirement (retirement in the sense of no longer having an income, not in terms of taking SS). Survivor benefits for a widow or widower will also receive these delayed retirement credits. Latest Cost-of-Living Adjustment., Social Security Administration. After Social Security adjusts your historical earnings, it then adds up your 35 highest years of income and divides that sum by 420, which is the number of months in 35 years. Can I file for my Social Security at 62 and switch to spousal benefits later? Now, divide that by $137,700 and you'll get 3.3 years, about 17-18 years out of residency in my case. Bend Point Calculator - Social Security Intelligence Analysis of the Sanders Plan for Social Security Good news! If the higher earning spouse wants to wait until he/she is 70, the lower earning spouse wont be able to collect spousal benefits until the higher earner has applied for his/her own benefit at that age. If this number is less than $926, it is multiplied by 90% to arrive at your monthly earning amount (based on the first bend point). Keep in mind I appreciate that you are still writing. If one delays claim SSI to 70, ones spouse can only get 50% of one amount at ones FRA not his amount at 70. For example if you stop working at 50 then of course youre not making those payments all the way from 50->62, but the basic site just wanted to know salary and not how many years that salary would really continue. Benefit Formula Bend Points., Social Security Administration. Technically, your PIA is calculated and rounded to the next lowest dime, and then any inflation adjustments are applied. You are eligible for Social Security disability benefits. There is a three-step process used to calculate the amount of Social Security benefits you will receive. In our example above, the workers benefits were based on 2022 figures, but usually, the SSA adjusts the level of benefits based on the pace of rising prices in the economycalled inflation. If you plan to continue working after age 60, project the taxable earnings in the second column and use 1.0000 in the third for all future years. "Social Security Benefit Amounts.". The SSA has invested vast resources in the records, systems, and software required to perform these calculations for millions of Americans. 11. th - 20. No, what were doing here is talking about all things financial; getting your financial house in order. In addition, my wife will be eligible for at least 50% of my benefit. This idea is embedded in the first step, the calculation of your average indexed monthly earnings (AIME). How much you receive depends on your age and income. Next, any increase or decrease based on age is applied. Here is how they work. Basically, if you are below this bend point and retiring next year, earning an extra $100 a month (and paying 12.4% in SS tax on it) means you (and your employer) are investing $100 * 12 * 12.4% = $148.80 in exchange for an annual benefit of $100*12*90% = $1,080! No annual fee. But I wondered where she was at in relation to the bend points and especially whether her benefit was higher than 50% of mine. Click the link to choose the paperback version, or the Kindle version. The dollar amounts in the formula are sometimes called "bend points" because a formula, when graphed, appears as a series of line segments joined at these amounts. If you also figure in the time value of money on these contributions, your total contribution to the system could be twice as much. PDF Social Security: Benefit Calculation Overview - Federation of American