There are an awful lot of people cheating on their taxes (not reporting tips, working under the table etc) that are unknowingly hurting themselves. The example in the table below uses 2020 bend points. 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. FIXED PERCENTAGES OF INCOME USED IN BEND POINTS CALCULATION. ", Social Security Administration. How Does Social Security Determine Your Benefit So, earnings made many years ago are worth more than earnings made in the last few years. According to Forbes contributor Andrew Biggs, a significant number of Americans rely on Social Security for 90% or more of their retirement income. Social Security Administration. One important idea behind Social Security is that workers can keep earning benefits for every dollar they pay into the retirement system for as long as they keep working. Alternatively, you could get there in just 10 years if you earned $43,080 per year. We use your total yearly earnings to calculate your Social Security credits. Click to learn more! The relevant bend points for each worker are those published in the year the worker first becomes eligible for benefits (age 62). 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). Is it capped at 1.5x the high earners benefit (in this case either earners benefit), so $63,702? Even if you earn and pay SS taxes on a ton of money for nine years, you're not getting squat. Column four shows annual indexed earnings (the second column x the third column). Doing the math results in a first bend point for 2019 of 926.22 (rounded to $926). David Kindness is a Certified Public Accountant (CPA) and an expert in the fields of financial accounting, corporate and individual tax planning and preparation, and investing and retirement planning. Then the average of all indexed earnings from the 35 highest-income years (from the fourth column above) is factored into the calculation. The spouse will qualify for social security on their own but curious how that benefits someone who already earns the 50% benefit from a higher earning spouse. My benefit at the time was $2,090.44. Market beating stocks from our award-winning service, Investment news and high-quality insights delivered straight to your inbox, You can do it. The second column shows the workers annual earnings that are subject to Social Security payroll tax. ", Social Security Administration. She is the founder and CEO of Sensible Money, a fee-only financial planning and investment firm. $6,172 per month * 420 months = $2,592,240. "Fact Sheet: 2022 Social Security Changes. If you choose to begin to receive benefits before you reach your full retirement age, one or both of the following calculations will apply: Therefore,if your FRA is age 66, your benefits would be reduced by 25% if you begin taking them at age 62. The taxes that fund Social Security come from the payroll tax, which is 6.2% for employees or 12.4% for self-employed individuals. It is used to calculate your AIME. However, you could attribute an assumed inflation rate to average wages to estimate the average wages going forward, and use those to create an estimate. Use the most recently published bend points to convert your AIME into a PIA. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed advisors advisor. Why Your Social Security Income Could Increase 5% (or More) in 2022 How many years of away was I (assuming I continue to earn more than the Social Security wage limit)? Yes she will. The 2022 Social Security Payment of Benefits should help make things a little easier. In 2022, the wage limit is $147,000. "The 2020 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds." To really see an increase of $1080/year in payments, youd have to earn (an index-adjusted) $100/month for 35 years (provided you were still below the first bend point, those were your top 35 years, etc.). Alternatively, you could get there in just 10 years if you earned $43,080 per year. The third column shows the wage index factors, as published in 2021. Or alternatively, you invest $100 once and you get $31 extra a year. Social Security Bend Points Explained - Getting Your Financial Ducks In Overview; We Are Local; ", Social Security Administration. Worth every penny. In that sort of scenario, the Social Security income would account for 45% of retirement spending! 9 Benefits Calculation Example For Person Now, 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. 3 of 9, Book Review: Nutshells - Planning Strategies for a Tax-Free, High-Income Retirement, History of the Individual Retirement Arrangement (IRA history), 16 Ways to Withdraw Money From Your 401k Without Penalty. 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. 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. How Much Will I Get in Social Security Benefits? - Investopedia The amount needed for a credit in 2023 is $1,640. Here, however, well go over how Bend Points are calculated each year. 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. 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. Social Security's got a problem on its hands. Yes, the ones SS sends you assumes youll be working until when you start taking benefits. On average, Social Security replaces about 40% of the average workers pre-retirement income. Understanding Social Security Bend Points | White Coat Investor A complex formula determines how your Social Security benefits are calculated. Of course, the deceased spouse must also have reached FRA before his/her death and before taking SS benefits for the survivor to get the full amount (or higher than the Primary Insurance Amount due at FRA if the deceased spouse waited until after FRA to collect). Frequently Asked Questions., Social Security Administration. ", Social Security Administration. You can use a copy of your Social Security statement that provides your earnings history to plug your own numbers into the formulas below. The first principle to know is that you must work and pay into Social Security for at least 40 quarters (10 years) to get anything from Social Security. 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. This results in an indexing factor for each year. The third principle is that Social Security only counts your best 35 years (420 months). Otherwise, incomes between $25,000 to $34,000 may have to pay income tax on up 50% of their Social Security benefits. FREE 15-Minute Consultation Bend Point Calculator Get current PIA formula bend points at https://www.ssa.gov/oact/cola/piaformula.html Input Panel Year of Birth Current Year 1st Bendpoint ($) Current Year 2nd Bendpoint ($) Assumed Increase Calculate Subscribe 0 Comments Join my FREE Facebook Member's Group Have a question about Social Security? The first 36 months would be calculated as 36 months times 5/9 of 1%plus24 months times 5/12 of 1%. Retiring before reaching that first bend point is actually pretty dumb given how awesome of an investment it is. 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. A different set of bend points is established each year. . ", Social Security Administration. Soc Security after 62 can function as a contingency fund when the Market tanks. If your spouse is already getting Social Security when you claim benefits, you are subject to the deemed filing rule. 2023 Getting Your Financial Ducks In A Row | Powered by WordPress. Any politician who messes with Soc Security would be thrown out of Office. 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 three exceptions to the deemed-filing rule for spouses. This idea is embedded in the first step, the calculation of your average indexed monthly earnings (AIME). 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 Social Security Administration publishes a new table of wage indexing factors each year, based on the current NAWI. 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. If you're married, your spouse will qualify for at least 50% of your full retirement age benefit for a total of $63,702. We are not doctors but you have some very relevant information to all who are interested in their finances. A nonworking spouse qualifies for half of the working spouses benefits, so each extra dollar a worker earns can actually be worth 1.5 times the benefits. Enter your earnings data from ssa.gov into the Social Security Calculator to learn whether or not youve passed the first and second bend points and what your expected benefit would be if you retired today. To understand this calculation, you need to go back to 1979, the year of the Three Mile Island disaster, the introduction of the compact disc and the Iranian hostage crisis. What are Social Security "bend points"? - Covisum Not a doctor, but still find lots of value in what you write. Average indexed monthly earnings (AIME) is used to determine the primary insurance amount (PIA) that values an individual's social security benefits. "Social Security Office Locator. If you do not have 35 years of earnings, a zero will be used in the calculation, which will lower the average. No, what were doing here is talking about all things financial; getting your financial house in order. 2022 Social Security Calculator - Physician on FIRE What's the Best Age to Take Social Security? To do this, the AIME is sectioned into three brackets (or segments) of earnings, which are divided by dollar amounts known as bend points. A credit, referred to as a "delayed retirement credit," is applied if you begin to receive benefits after your FRA. 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. 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. The number of credits you need depends on your age when you apply and the type of benefit you are applying for. The table that matters for your benefit calculation is the one published the year you turn 60. 1.0000000 . 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. Find that figure by taking 5/9 of 1%, or 0.56; multiply by 36 months to get 20%. 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. (BTW, long-time reader, first-time writer. 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. 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. Twitter: SterlingRaskie You can earn up to a maximum of 4 credits per year. Your Social Security benefit is decided based on your lifetime earnings and the age when you retire and begin taking payments. Successful investing in just a few steps. Benefit Formula Bend Points., Social Security Administration. PSA: The Social Security national average wage index and the "bend Therefore, if you turn age 62 in 2018, then your earnings would be indexed to 2016's AWI, which is $48,642.15. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. "Delayed Retirement Credits. Where is that point? There are a number of variables to consider, but very often what makes sense is for the lower earning spouse (LES) to claim SS at age 62 based on their own earning record, and then switch over to the higher-earning spouses (HES) benefits at a later date, allowing the HESss benefit to increase based on delaying the claim. Making the world smarter, happier, and richer. 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. Page 8. Immigrants Over 65 and Social Security Benefits, Qualifying for Social Security as a Legal Immigrant, How to Advise Non-U.S. Citizens on Social Security, Receiving Social Security Benefits Abroad, 9 Ways to Boost Your Social Security Benefits, 3 Reasons Why Your Social Security Check Was Short This Month, Pros and Cons of Taking Social Security Early, Average Indexed Monthly Earnings (AIME): Meaning, Overview, FAQ, Primary Insurance Amount: What it is, Calculations, and Examples, Social Security Reform: Legal Analysis of Social Security Benefit Entitlement Issues, The 2020 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, Get Your Social Security Benefit Verification Letter Online. 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. Note that she wont receive half of the benefit I can take at age 70, but rather half of the amount I would have gotten if I had started collecting at age 67, my full retirement age. most people fall somewhere between the two bendpoints, eg your average . How Much Is the Average Social Security Check? the bend points (13k/year and 80k/year) are critical for your retirement. Each year this figure is increased with the bend points. Note: Some Apple computers download the file as a zip file rather than a .xlsx file. This effectively adjusts past years contributions for wage inflation, making them more comparable to recent years. For each year, you take the average wages of your indexing year (which is the year you turn 60) divided by average wages for the years you are indexing, and multiply your included earnings by that number. In addition, my wife will be eligible for at least 50% of my benefit. For our example worker, who was born in 1953 and turned 60 in 2013, the highest 35 years of wages total $1,919,040. Subtract the 2nd bend point amount from the total AIME amount and multiply the difference by 15%. 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). Social Security has two progressive features and one regressive feature. You can use an estimated inflation rate to approximate future years' bend points to develop a pretty accurate approximation. Here are the bend points for calculating a worker's benefits in 2022. 2021 Physician on FIRE, All rights reserved. Here's Exactly How to Optimize for the $4,194 Social Security Monthly How Are the Social Security Trust Funds Invested? Not the case for FIRE folks. It turns out that in 2022 the first bend point comes at an AIME of $1,024. ", Social Security Administration. A Medicare Owners Manual, is updated with 2020 facts and figures. $147,000. Marketing cookies are used to track visitors across websites. Social Security Bend Points The Social Security benefits formula is designed to replace a higher proportion of income for low-income earners than for high-income earners. As you can see, minimum benefits become locked in based on calculations made between the ages of 60 and 62. To adjust your historical income using 2016's AWI, divide your age 60 AWI, or $48,642.15, by the AWI for each year you had earnings. - 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. The fundamental amount on which most Social Security benefits are based is the "primary insurance amount" (PIA). According to the AWI Series, in 1979 the Social Security Administration placed the AWI figure for 1977 at $9,779.44 AWI figures are always two years in arrears, so for example, the AWI figure used to determine the 2022 bend points is from 2020. Calculated by Time-Weighted Return since 2002. I just hope the politicians dont take away Social Security and Medicare now that we have reached the point where we are collecting. If you are in your late 50s and approaching retirement, you can create a useful model of your future benefits. After your AIME gets past the first bend point, the deal is not nearly as good. 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). Indexing Factors for Earnings., Social Security Administration. When you apply for your retirement benefit, youre also automatically deemed to be applying for spousal benefits, if youre entitled to them. She is now eligible for her own Social Security benefit. If you pay SS taxes on the Social Security wage limit every year for 35 years, you get zero credit for any additional earnings. WEP Impact Calculation Factors Getting Your Financial Ducks In A Row, Spotlight: Chained CPI Democratic Liberal Umbrella, How is the Maximum Social Security Benefit Calculated? This formula is based on something called "bend points.". Changing bend points and shifting away from the AWI to other inflation measures are among the ways lawmakers may try to protect Social Security, so would-be retirees will want to pay close attention to Congress in the coming years. Applying the bend points to this (see the Bend Point article for details) we come up with a tentative PIA of $2,293. 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). This compensation may impact how and where listings appear. "Receiving Benefits While Working. 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. A 60K yearly benefit functions as 1.5M bond portfolio using the 4% Rule. Learn how Social Security works. Your wages are indexed to the average wages for the year you turn 60. We'll assume you're ok with this, but you can opt-out if you wish. 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. I appreciate that you are still writing. Definition, Types, and History, 11 Social Security Calculators Worth Your Time, Contacting the Social Security Administration: A Quick How-To. Great article. The latest figures, which reflect how much working households spent on goods and services in August, suggest Social Security benefits could increase over 5% in 2022. Your email address will not be published. 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. There are two bend points, and both are adjusted for inflation each year. This formula uses your Primary Insurance Amount (PIA) calculated in the previous step. Pages 1-6. *The results were rounded and multiplied by 100 to create a percentage. David has helped thousands of clients improve their accounting and financial systems, create budgets, and minimize their taxes. List in column B the most recently published NAWI adjustment factors (year by year) as published by the SSA.

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