PDF MyFRS FINANCIAL GUIDANCE PROGRAM We can repeat the exercise for the second bend point. Great tip thanks, I found that calculator and it is MUCH better than the basic my social security site, with links to other helpful places too. 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. The Social Security benefits formula is designed to replace a higher proportion of income for low-income earners than for high-income earners. The amount needed for a credit in 2023 is $1,640. My husband and I have just been through this process. What benefit would you get for that? So for quick reference if one spouse is close to the second bend (seems like a somewhat common place to be for a retiring high income professional), then the other spouses income only becomes beneficial some time after the first bend. Using the AIME from the earlier example of $10,141 and the bend points, we can calculate the primary insurance amount (PIA). Amazon:Author Page. Youre offline. Schedule of Social Security Benefit Payments 2022 Benefits paid on Birth date on. Secrets and strategies for the post-work life you want. 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. "National Average Wage Index. Next, you multiply each years earnings by a figure based on that year's National Average Wage Index (NAWI). Primary Insurance Amount (PIA): Shown on the Y axis, this is basically the Social Security benefit you will receive. I suspect your rule of thumb is accurate but Id have to do some number crunching to be sure. PDF Social Security A different set of bend points is established each year. That includes if you file early for your retirement benefit say, at 62, as in this scenario and switch to spousal benefits later. Then, multiply your historical earnings by every year's corresponding index factor to adjust them into 2016 dollars. The fundamental amount on which most Social Security benefits are based is the "primary insurance amount" (PIA). 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. My wife doesnt have a strong earnings history, and if she doesnt qualify with 40 quarters, or if her benefit would be less than half of mine, she can file for Social Security at full retirement age (67) and receive half of my FRA benefit as long as Im still alive, and she would receive my full benefit if I happen to leave this world before her. Your FRA varies depending on the year you were born. Because of how the wage indexing formula works, if you are not yet age 62, your calculation to determine how much Social Security you will get is only an estimate. In addition to this blog, youll find Jims writings all around the internet, as he is a regular contributor to Forbes.com, TheStreet.com, and FiGuide. To do that, the formula uses what are called bend points," which are adjusted for inflation each year. And the spouse would only get the full spousal benefit if she waited until her full retirement age to apply. Now the time is approaching to turn the tables and determine what the Social Security Administration (SSA) owes you. The taxes that fund Social Security come from the payroll tax, which is 6.2% for employees or 12.4% for self-employed individuals. you absolutely want to hit the 13k/year bend point, meaning you want to earn 90% match of your money. You can learn more about the standards we follow in producing accurate, unbiased content in our. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Subtract the 2nd bend point amount from the total AIME amount and multiply the difference by 15%. Our Goal is Your Success. 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). What are Social Security "bend points"? - Covisum This manual is available onAmazon at this link. In calculating the PIA, the SSA has established fixed percentages as multipliers (90%, 32%, and 15%), which are applied to the individual's AIME. Third Wednesday. You can earn up to a maximum of 4 credits per year. However, those who began receiving payments before May 1997 receive payments by the third day of each month. 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. Investopedia contributors come from a range of backgrounds, and over 24 years there have been thousands of expert writers and editors who have contributed. 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. Phone 630-40-DUCKS (630-403-8257) Feels like a long time to work for not that much more benefit. Assuming a normal retirement age of 67, the age of 62 is the earliest year a person can receive benefits or 60 months early. You can use an estimated inflation rate to approximate future years' bend points to develop a pretty accurate approximation. "Full Retirement and Age 62 Benefit by Year of Birth. Heres how to calculate your benefits so you know how to plan. Spouses who do not meet earnings requirements may receive up to 50% of their partner's PIA, but claiming benefits before reaching full retirement age can reduce this amount. 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 definitive resource in my experience is Mike Pipers book on Social Security. If you don't, you could end up disappointed with the amount of money you end up collecting from Social Security in retirement. $147,000. 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). Thanks!). We are not doctors but you have some very relevant information to all who are interested in their finances. I know you dont like hearing this, but none of your other writers quite produce the material you can. Scroll down to the year of your first recorded earnings and see your bend points and estimated benefit at the bottom of the spreadsheet. ", Social Security Administration. Your spouses 50% benefit is calculated on your FRA benefit. 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. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Benefits Planner: Survivors | If You Are the Survivor., Social Security Administration. *Please note that the calculation results are required to . Now, divide that by $137,700 and you'll get 3.3 years, about 17-18 years out of residency in my case. Old Age and Survivor's Insurance., Social Security Administration. 2021 Physician on FIRE, All rights reserved. Investing $149 and getting $1,080 EVERY YEAR FOR THE REST OF YOUR LIFE is an incredible investment.. 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. If it confused you, it might be confusing someone else. Have I Lost the Right to Collect Spousal Social Security Benefits Before My Own? Those amounts are indexed to the AWI, so they You are caring for a child who is under 16 or disabled. 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. 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. This will approximate your AIME. 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). This reduction will still apply when he/she switches over to spousal benefits, as well as to his/her own benefits taken at age 62. As of October 14, 2021, they are open, but the website states that most Social Security services do not require a visit to an office. 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. Benefit Formula Bend Points., Social Security Administration. Social Security Administration. 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. I spent a bunch of time crunching my own numbers and think I finally understand how SS works for the first time. For people born on January 1, the FRA is based on the year prior. 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. $6,172 per month * 420 months = $2,592,240. The second column shows the workers annual earnings that are subject to Social Security payroll tax. You can use a copy of your Social Security statement that provides your earnings history to plug your own numbers into the formulas below. 2% back on first $25,000 combined at gas stations & restaurants. Worth every penny. ", Social Security Administration. Social Security provides benefits to retirees, survivors, and disabled workers. Survivor benefits are not lower though, if I recall. No annual fee. Your PIA is calculated at age 62. Cost-of-Living Adjustment (COLA) Information., Social Security Administration. If you earn more than this amount, you can expect to have $1 withheld from your Social Security benefit for every $2 earned above the limit. This book includes all of the updates to retirement plans with passage of the SECURE Act. Same for disability. Application of COLA to a Retirement Benefit., Social Security Administration. People may also transact their business online, by phone, or through the mail. Primary insurance amount is a calculation, used with the average indexed monthly earnings (AIME), to determine a person's Social Security benefits. Theyre called bend points because they represent points on a graph of your AIME graphed by inclusion in calculating the PIA. 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. After all, any slight changes to these formulas could have a big impact on your lifetime benefits. Yes, but the lower earning spouse will take a permanent reduction in benefits because of the early filing (before his/her FRA). How much can Social Security recipients earn in 2022? Stock Advisor list price is $199 per year. How Does Social Security Determine Your Benefit If you create a model of your future benefits in a spreadsheet, hire a financial advisor to check your math and help you decide when you should retire. 5 Tips To Increase Your Social Security Check, When To Take Social Security: An Overview. Bend points from the year you turn 62 are used to calculate your Social Security retirement benefits. The end result is your average indexed monthly earnings, or your AIME. If the lower earning spouse takes benefits before her/his FRA, the benefit is permanently less. As a result, we are collecting gross $49,020/year for his benefit and $18,570/year on my spousal benefit for a total of $67,590/year. A spouse who qualifies for benefits on a workers record will receive half of the workers PIA, assuming they start benefits at their FRA. FREE Consultation NO ATTORNEY FEES UNLESS YOU WIN! Social Security for the Suddenly Singlecan be found on Amazon atthis link. All this depends on the age difference between the spouses, their relative health, their respective earnings records, and their ability to defer claiming beyond the retirement age. 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. If you pay SS taxes on the Social Security wage limit every year for 35 years, you get zero credit for any additional earnings. It already is paying out more in benefits than it collects in payroll taxes, and the trust fund it's relying upon to close the gap is expected to run dry in 2034, triggering an across-the-board 25% cut to benefits. Social Security Administration. Required fields are marked *. Soc Security after 62 can function as a contingency fund when the Market tanks. 2023 Getting Your Financial Ducks In A Row | Powered by WordPress. 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, the percentage of income that Social Security replaces could be much different for someone with a much lower or higher AIME. These include white papers, government data, original reporting, and interviews with industry experts. 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). Thanks. Social Security uses a series of "bend points" in its formula that make the first dollars you earn in a year more valuable than the later ones. Social Security: The Windfall Elimination Provision (WEP - Congress 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. Social Security Bend Points Explained Great informative blog post.. Jim Blankenship, CFP, EA It works best to do this in a Microsoft Excel spreadsheet, as follows: You also can fill in hypothetical values for estimated taxable Social Security earnings in future years until you plan to stop working. If you are in your late 50s and approaching retirement, you can create a useful model of your future benefits. He has also written five books on Social Security, IRAs, 401(k) plans, and Medicare. 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. ", Social Security Administration. The PIA and family maximum bend points from 1979 on shown in the following chart: To Link to this section - Use this URL: http://policy.ssa.gov/poms.nsf/lnx/0300605900 RS 00605.900 - List of RAW PIA and Family Maximum Computations - 11/10/2022 Batch run: 11/10/2022 11/10/2022 Social Security: Benefit Calculation Overview https://crsreports.congress.gov 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. There are two bend points, and both are adjusted for inflation each year. What Is the Full Retirement Age (FRA) for Social Security? 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. Also, you cant collect spousal benefits until the spouse applies for his/her own benefit. . Preference cookies enable a website to remember information that changes the way the website behaves or looks, like your preferred language or the region that you are in. "Average Indexed Monthly Earnings(AIME). Read More, In case of sale of your personal information, you may opt out by using the link. It turns out that in 2022 the first bend point comes at an AIME of $1,024. 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. Well, you'd get 90% on the first $1,024, 32% on the next $6,172 $1,024 = $5,148, and 15% on the next $12,250 $5,785 = $6,465 so. That bend point would be about $5,880 (in 2022 dollars). Your monthly payment will decrease or increase if you retire earlier or later than your full retirement age. If you wait beyond age 62, cost-of-living adjustments (COLAs) will be applied to your PIA for each year afterward. *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 compensation may impact how and where listings appear. Nowadays with more casual labor we have sorted out how to get poorer friends thru the Medicaid gap in our deep red state- if you dogsit another $2K worth, youll be able to afford health care! If I continue to work until age 70, that benefit will increase to perhaps $3,700 a month. In 2018, the first bend point occurs at $895 and the second occurs at $5,397. 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. Make Social Security's Benefit Structure More Progressive 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). 2023 - The White Coat Investor Investing & Personal Finance for Doctors. She is the founder and CEO of Sensible Money, a fee-only financial planning and investment firm. Benefit Formula Bend Points - Social Security Administration Unfortunately when I asked them for their SSNs, offering to increase their pay so their net remained the same, they quit- I guess they had other benefits from not officially earning anything. Alternatively, you could get there in just 10 years if you earned $43,080 per year. The bend. Investing $149 and getting $1,080 EVERY YEAR FOR THE REST OF YOUR LIFE is an incredible investment.