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", Social Security Administration. Summary: PWBM projects that Democratic presidential candidate Bernie Sanders' Social Security reform plan would reduce the program's conventional 75-year imbalance by 2.3 percent of current law taxable payroll, leaving a remaining imbalance equal to 1.2 percent of current law taxable payroll. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Of course, another complex formula is used to determine how much more you will receive if you wait. "If You Were Born Between 1943 and 1954 Your Full Retirement Age Is 66. You're going to have to earn millions over your career to get to the second bend point, but if you work a full 35 years, that's just $2,592,240/35 = $74,064 per year, certainly not out of reach for a professional who works a full career. But I wondered where she was at in relation to the bend points and especially whether her benefit was higher than 50% of mine. 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. "The 2020 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds." Subtract the 2nd bend point amount from the total AIME amount and multiply the difference by 15%. To Link to this section - Use this URL: This formula is based on something called "bend points.". Investopedia contributors come from a range of backgrounds, and over 24 years there have been thousands of expert writers and editors who have contributed. However, those who began receiving payments before May 1997 receive payments by the third day of each month. It assumes the employee has worked from 1982 through 2021. If you have already had most of your 35 years of earnings, and you are near age 62 today, the age 70 benefit amount you see on your Social Security statement will likely be higher due to these cost-of-living adjustments. Stock Advisor list price is $199 per year. Then the average of all indexed earnings from the 35 highest-income years (from the fourth column above) is factored into the calculation. It turns out that in 2022 the first bend point comes at an AIME of $1,024. Thank you! Doing the calculations for yourself involves understanding what AIME, NAWI, bend points, PIA, and COLA all mean and applying them. most people fall somewhere between the two bendpoints, eg your average . Yes, you and your employer invest $149 a year throughout your career in exchange for $1,080 a year during retirement. Secrets and strategies for the post-work life you want. Current year's AWI Series divided by 1977's AWI figure, times the bend points for 1979 equals your current year bend points So here is the math for 2022's bend points: $55,628.60 / $9779.44 = 5.6883 5.6883 * $180 = $1,023.89, which is rounded up to $1,024 - the first bend point There are two bend points, and both are adjusted for inflation each year. ", Social Security Administration. Therefore, If your FRA is 66, your benefits would be increased by 32% by waiting until age 70 to begin (8% per year times four years). Marketing cookies are used to track visitors across websites. In addition to this blog, youll find Sterlings writings all around the internet. Social Security benefits pay for the lion's share of the retirement of most Americans. Understanding Social Security Bend Points | White Coat Investor For example, let's say that a person wants to retire at 62, leading to a 60-month reduction from the normal retirement age of 67. How Does Social Security Determine Your Benefit If my wife gets a job, she wont also pay social security tax, will she? ", Social Security Administration. Is it true that a lower-earning spouse (but still with 40+ quarters of earnings) can take his/her own social security payment early (at age 62) and then once he/she reached FRA (67) then switch to 1/2 of spouses benefit? What's the Best Age to Take Social Security? Also available on Audible! Updated November 24, 2021 Social Security: Benefit Calculation Overview and Income Tax issues and concerns. For 2022, the SSA established the first bend point as $1,024 and the second bend point as $6,172. The number of credits you need depends on your age when you apply and the type of benefit you are applying for. To make the world smarter, happier, and richer. If the number of months exceeds 36, then the benefit is further reduced 5/12 of 1% per month. SSA - POMS: RS 00605.900 - Social Security Administration Worst case scenario is after 2034; Soc Security gives you a 25% haircut. The more you earn, the lower the percentage of your working wages that you will receive. Your email address will not be published. *2022 Social Security wage base = $147,000 15 Bend Points For Person Turning Age 62 in 2022 90% of the first $1,024 of earnings 32% of earnings over $1,024 up to $6,172 15% of earnings over $6,172 Primary Insurance Amount (PIA) 16. This will approximate your AIME. FREE Consultation NO ATTORNEY FEES UNLESS YOU WIN! 5 Tips To Increase Your Social Security Check, When To Take Social Security: An Overview. It spit this out when I first did this in 2020. Doing the math results in a first bend point for 2019 of 926.22 (rounded to $926). How Much Will I Get in Social Security Benefits? - Investopedia In December 2022, 734,601 Social Security beneficiaries, or about 1% of all beneficiaries, had their benefits reduced by the GPO. The prospect of a 25% pay cut to retirees won't be popular, but neither are fixes being proposed in D.C. to repair the problem. We are not doctors but you have some very relevant information to all who are interested in their finances. Analysis of the Sanders Plan for Social Security You should see the gender pay gap between Katie and I despite her working a lot more hours at WCI. Since Social Security will make up at least a significant minority of our retirement income, it is important to understand how it works. 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. Are Social Security Benefits a Form of Socialism? Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Independent financial advice: IRA, Social Security, income tax, and all things financial, Home Social Security Bend Points Explained. Mike Piper has written a great book on Social Security. Investing $149 and getting $1,080 EVERY YEAR FOR THE REST OF YOUR LIFE is an incredible investment.. Indexing Factors for Earnings., Social Security Administration. If you earn at least $1,510 x 4 = $6,040 in a year, you get credit for four quarters that year. You can learn more about the standards we follow in producing accurate, unbiased content in our. 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). You are caring for a child who is under 16 or disabled. Overview; We Are Local; Click to learn more! How Are the Social Security Trust Funds Invested? After many years without earnings while we were raising our children, Katie started working for The White Coat Investor a few years ago, allowing her to get to her 40 required quarters. "Indexing Factors for Earnings. "Am I Eligible for an In-person Appointment During the COVID-19 Pandemic? Our Goal is Your Success. 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. My husband and I have just been through this process. Social Security's Bend Points: What Are They? | The Motley Fool No annual fee. How do I earn Social Security credits and how many do I need to qualify Next, any increase or decrease based on age is applied. Im not sure how these first figures were calculated its safe to assume that they are part of an indexing formula set forth quite a while ago. 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). PDF MyFRS FINANCIAL GUIDANCE PROGRAM He was not a doctor although he was a professional, and he did work many years with an income just above the maximum income that was taxed for Social Security. The first progressive feature is that up to 85% of Social Security income is taxed in retirement, but only if you have significant other income (defined as $34,000 single or $44,000 married filing jointly in total income, including the Social Security benefit). The end result is your average indexed monthly earnings, or your AIME. Can I file for my Social Security at 62 and switch to spousal benefits later? The bottom 70 percent of newly eligible beneficiaries would receive the same benefits as under current law; the top 30 percent of newly eligible beneficiaries (those whose AIME was at or above the new bend point) would receive smaller benefits than under current law. At any rate, now that we know these two numbers, we can jump back to 2020s AWI Series figure, which is $55,628.60. 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. The table that matters for your benefit calculation is the one published the year you turn 60. This is a fantastic investment. To do that, the formula uses what are called "bend points," which are adjusted for inflation each year. For example, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 8.7% COLA in 2023; they received 5.9% COLA in 2022, but the COLA was just 1.3% for 2020 and 1.6% for 2019. The table above shows only a segment of the workers earnings (from 2009 to 2021) out of a work history that spanned 40 years. After your AIME gets past the first bend point, the deal is not nearly as good. However, the percentage of income that Social Security replaces could be much different for someone with a much lower or higher AIME. In this case, the previous 35 top-earning years add up to $4,259,563, so the AIME is calculated to be $10,141. Applying the bend points to this (see the Bend Point article for details) we come up with a tentative PIA of $2,293. ", Social Security Administration. Specifically, Social Security indexes your past earnings depending on the year in which you turn 62, which is the soonest you can begin collecting benefits. Why buy an annuity? Those born from the 21st-31st receive payments by the fourth Wednesday. Market beating stocks from our award-winning service, Investment news and high-quality insights delivered straight to your inbox, You can do it. Here's how Social. It works like this: The result is your primary insurance amount, or PIA, the amount you will receive if you begin benefits at your Full Retirement Age (FRA). Here's How the Social Security Benefit Calculation Is Changing Next Use the most recently published bend points to convert your AIME into a PIA. Because there's a lag time to updating AWI, indexing always relies upon the AWI figure from two years prior to the age you turn 62, or your age 60 AWI. She is now eligible for her own Social Security benefit. No, both can get their full benefit. - Forbes, Using Capital Gains and Losses to Help With a Roth Conversion, Windfall Elimination Provision May Impact Spousal Benefits but not Survivor Benefits, Roth Conversion While Receiving 72t Payments, Social Security: Average Indexed Monthly Earnings (AIME) Explanation, Meet the Goddess of Good Luck: The Richest Man in Babylon, Pt. Interesting that I learned that in between the time I wrote this post (like a year ago) and when it was published. PDF Social Security: Benefit Calculation Overview - Federation of American I consent to the use of following cookies: Necessary cookies help make a website usable by enabling basic functions like page navigation and access to secure areas of the website. To do this, the AIME is sectioned into three brackets (or segments) of earnings, which are divided by dollar amounts known as bend points. Numbers Retirement Plan Sponsors Need to Know for 2022 You get 32% of your AIME between the first and second bend points (portion of AIME between $1,024 and $6,172 in 2022) You get 15% of your AIME beyond the second bend point (AIME above $6,172 in 2022) For visual learners, let's use my middle finger as an example. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. The Chase Ink Business Cash offers 5% back on up to $25,000 spent on cell and landline service, internet, cable TV, and at office supply stores. To get there, you're going to have to make a lot more money, and you probably won't do it in just 10 years. Your wages are indexed to the average wages for the year you turn 60. 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. When you move into that age range, you may be less vulnerable to any changes made to the system in the future. Still a great strategy, even if not mentioned here. Once you have calculated your average indexed monthly earnings (AIME), you'll plug that number into a formula to determine your primary insurance amount, or PIA. A financial advisor who fully understands this process can help verify your calculations, advise you on when to start Social Security benefits, and estimate the future benefits you can expect to receive. However, I dont think the reduction applies to survivor benefits if the widow/widower has reached FRA, even if he/she took his/her own benefits or spousal benefits before his/her FRA. Schedule of Social Security Benefit Payments 2022 Benefits paid on Birth date on. It is also available in aKindle version. Those born on the 11th-20th receive payments by the third Wednesday. Continuing to pay FICA after the 2nd bend point is essentially worthless, nearly a pure tax. Read More, In case of sale of your personal information, you may opt out by using the link. Each year this figure is increased with the bend points. List in column B the most recently published NAWI adjustment factors (year by year) as published by the SSA. I know you dont like hearing this, but none of your other writers quite produce the material you can. You will get more by waiting until a later ageas late as age 70to begin receiving benefits. These include white papers, government data, original reporting, and interviews with industry experts. The Social Security Administration publishes a new table of wage indexing factors each year, based on the current NAWI. Unexplored in this article are opportunities for spouses of high earners to collect their own benefits early and then switch over to half their spouses later, increasing their total benefit amount. Social Security will adjust your 2008 earnings by dividing $48,642.15 by 2008's AWI of $41,334.97 to get an indexing factor of 1.1768. It begins with the column on your Social Security statement that shows your taxed Social Security earnings year by 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. "Benefit Calculation Examples for Workers Retiring in 2021. Social Security Bend Points Explained - Getting Your Financial Ducks In Read our, Step 2: Calculate YourPrimary Insurance Amount (PIA). The final amount of Social Security retirement benefit that you receive is based on the age when you begin benefits. 2023 Getting Your Financial Ducks In A Row | Powered by WordPress. Home; About Us. Social . 1.0000000 . When you understand a few basic concepts, its not that difficult. But an additional dollar paid to her pays income, Medicare, and Social Security taxes. 3)Compute the cost-of-living adjustment (COLA) using the Consumer Price Index for the Elderly (CPI-E), effective December 2013. If you also figure in the time value of money on these contributions, your total contribution to the system could be twice as much. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. To do that, the formula uses what are called bend points," which are adjusted for inflation each year. So if theres a dual income couple that maxes out social security for 35 years, whats the max possible payout? Definition, Types, and History, 11 Social Security Calculators Worth Your Time, Contacting the Social Security Administration: A Quick How-To. RS 00605.947 Indexing Factors for 2022 Eligibility - SSA Soc Security after 62 can function as a contingency fund when the Market tanks. Only 39 quarters? And if youve come here to learn about queuing waterfowl, I apologize for the confusion. No, what were doing here is talking about all things financial; getting your financial house in order. Step 1:Use your earnings history to calculate yourAverage Indexed Monthly Earnings (AIME).Step 2:Use your AIME to calculate yourprimary insurance amount (PIA).Step 3:Use your PIA, and adjust it for the age when you will begin receiving benefits. Social Security benefits are payments made to qualified retired adults and people with disabilities, and to their spouses, children, and survivors. Seems like a neat trick. Can I Collect Social Security While I'm Still Working? Am I Eligible for an In-person Appointment During the COVID-19 Pandemic? Reduce Social Security Benefits for High Earners Now the time is approaching to turn the tables and determine what the Social Security Administration (SSA) owes you. Hope this helps you understand the bend points a little better. "Fact Sheet Social Security, 2023 Social Security Changes.". A credit, referred to as a "delayed retirement credit," is applied if you begin to receive benefits after your FRA. Or is it $42.468 *2 ? Even for high-income professionals, the target audience of this blog, Social Security will be a significant portion of retirement spending. Too bad, so sad. *Please note that the calculation results are required to . Her benefit is now higher than 50% of mine, so at least we're getting something for those additional taxes we're paying. What Is the Maximum Social Security Benefit? Amazon:Author Page. If your downloaded file ends in .zip or any other file extension, change it back to .xlsx and youll find that you have a working spreadsheet. 15% of $79 (the difference between $6,721 and $6,800) = $11.85, rounded down to $11.80. Survivor benefits are not lower though, if I recall. This is from an AARP article on the subject. ", Social Security Administration. 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. This book is narrowly-focused on divorcee Social Security strategies and rules. Im not sure thats true about the reduction to future spousal benefits from filing at 62. Straighten out your financial life today! ", Social Security Administration. A good starting point is to figure out the dollar amount of the retirement benefits to which all of your years of Social Security contributions entitle you under current law. 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! Otherwise, incomes between $25,000 to $34,000 may have to pay income tax on up 50% of their Social Security benefits. I always worried about the maids I knew of my friends families who continued working long into their senior years, probably since they had no alternative having been paid off the books (and in our town were often the major bread winner for children and grandchildren still). It functions as a tax preferred, inflation adjusted, no-default bond. However, the program is designed to replace more of the income of a low earner than a high earner, and that's where bend points come into play. 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. "Full Retirement and Age 62 Benefit by Year of Birth. If you were born in the first 10 days of your birth month, then you receive payments by the second Wednesday of the month. So here is the math for 2022s bend points: 5.6883 * $180 = $1,023.89, which is rounded up to $1,024 the first bend point, 5.6883 * $1,085 = $6,171.81, rounded up to $6,172 the second bend point. The top spousal benefit is 50 percent of your husbands or wifes primary insurance amount (the retirement benefit he or she is entitled to at full retirement age, which is 66 and 4 months for people born in 1956 and is gradually increasing to 67). Any politician who messes with Soc Security would be thrown out of Office. 2021 Physician on FIRE, All rights reserved. Your lifetime earnings are converted to a monthly average based on the 35 years in which you earned the most, adjusted for inflation. To do this, add up the highest 35 years and divide by 35, or to get monthly amounts,take the sum and divideby 420 (35 years x 12 months) to arrive at your AIME. There are an awful lot of people cheating on their taxes (not reporting tips, working under the table etc) that are unknowingly hurting themselves. Those earnings are converted to a monthly insurance payment based on your full retirement age. "Social Security taxes" can refer to taxes paid into the Social Security system or taxes paid on Social Security benefits. This annual limit of included wages is called the"Contribution and Benefit Base"and is shown as Max Earnings in Column H in the table. The lower earning spouse will get the higher of either her/his own benefit or 50% of the higher earning spouses benefit at the higher earning spouses FRA. Alternatively, you could get there in just 10 years if you earned $43,080 per year. The two PIA bend-points for workers first becoming eligible for benefits in 2022 (that is, born in 1960 with respect to retired-worker benefits) are $1,024 and $6,172. So I believe the full benefit at age 70 would be $73,894 instead of $78,990. For our example worker, who was born in 1953 and turned 60 in 2013, the highest 35 years of wages total $1,919,040. Though these facts create uncertainty, its also true that the quality of your retirement depends on your planningand you must start planning somewhere. Not the case for FIRE folks. Social Security will not pay the sum of your retirement and spousal benefits; youll get a payment equal to the higher of the two benefits. You are eligible for Social Security disability benefits. The formula for the Primary Insurance Amount (PIA) is the basic benefit formula. Primary insurance amount is a calculation, used with the average indexed monthly earnings (AIME), to determine a person's Social Security benefits. Well, it's not very far at all. Note that the spousal benefit is 50% of your benefit at full retirement age, NOT your benefit at age 70, so it's not quite 150% of your age 70 benefit. Each year, Social Security publishes the national average wages for the year. If a typical physician retires with a $2 million nest egg, that would only support retirement spending of perhaps $80,000 per year. Have I Lost the Right to Collect Spousal Social Security Benefits Before My Own? Phone 630-40-DUCKS (630-403-8257) It all gets added together. A spouse who qualifies for benefits on a workers record will receive half of the workers PIA, assuming they start benefits at their FRA. 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. Latest Cost-of-Living Adjustment., Social Security Administration.