Minimum income to maximize SS benefits.

[SmallCityDave]

I had breakfast with some friends last week they were telling me they were "earning" just enough to maximize what they would get back in SS benefits so they were are the ceiling and no more. In essence they were saying that if the "earned" $50k per year or $100k their SS benefits would be the same.

My question is is this true and if so what is that magic number.

Thanks and sorry if this has been asked before.

 

[Spock]

Are they talking about the max amount of income SS tax is applied to ($132,900)
or the max income they can make while drawing SS before SS benefits are reduced ($17,640) ?

 

[Rianne]

I had breakfast with some friends last week they were telling me they were "earning" just enough to maximize what they would get back in SS benefits so they were are the ceiling and no more. In essence they were saying that if the "earned" $50k per year or $100k their SS benefits would be the same.

My question is is this true and if so what is that magic number.

Thanks and sorry if this has been asked before.

Great question. Here it is
https://www.investopedia.com/ask/an...ive-my-social-security-retirement-benefit.asp

 

[ProspectiveBum]

SS uses your top 35 years of earnings to calculate your benefit. If you’ve been paying the max into SS for more than 35 years, it’s true that whether you earn $50k or $100k in subsequent years would have no impact on the benefit paid when you collect.

OP, is this the scenario you’re referring to?

 

[SmallCityDave]

SS uses your top 35 years of earnings to calculate your benefit. If you’ve been paying the max into SS for more than 35 years, it’s true that whether you earn $50k or $100k in subsequent years would have no impact on the benefit paid when you collect.

OP, is this the scenario you’re referring to?

Sorry I didn't make my question more clear, what is the magic amount that they need to make to get that maximum amount from SS. It looks like the maximum benefit for 2019 is $2861 per month so how much do you need to earn to get that benefit.

 

[Rianne]

Good luck figuring this out...



"First, all wages are indexed to account for inflation. Wages from previous years are multiplied by a factor, based on the years in which each salary was earned and the year in which the claimant reaches age 60, to give an amount comparable in buying power based on the current value of the dollar. Accounting for this valuation change is important, because a salary of $14,000 was far more impressive in 1954 than it is today."


"Once all wages have been indexed, the Average Indexed Monthly Earnings, or AIME, is computed by dividing the sum of all indexed wages by 420 (35 years of months – so months when you didn't work, if you worked fewer than 35 years are figured in as zeros). The benefit amount is then calculated based on factors such as the year in which collection begins, whether the claimant has reached full retirement age and whether the claimant continues to work while collecting benefits."

 

[Dtail]

^^^
And thus the friends have probably not calculated their maximum payments to this amount of accuracy.

 

[copyright1997reloaded]

A great spreadsheet where you can play with and understand the calculations: https://onedrive.live.com/view.aspx?resid=57275E04E871FED8!5734&ithint=file%2cxlsx&authkey=!AGBZ_VHIKgY-ufQ


Boggleheads discussion where the author of the spreadsheet discusses it: https://www.bogleheads.org/forum/viewtopic.php?t=231913

ETA: I used this to do some what if calculations, e.g. what if I had stayed at mega corp and maxed out vs my low paying teaching gig, what if I stop now vs going to 65, etc. In general, the answer is "not much" compared to the current number.

 

[SmallCityDave]

Good luck figuring this out...



"First, all wages are indexed to account for inflation. Wages from previous years are multiplied by a factor, based on the years in which each salary was earned and the year in which the claimant reaches age 60, to give an amount comparable in buying power based on the current value of the dollar. Accounting for this valuation change is important, because a salary of $14,000 was far more impressive in 1954 than it is today."


"Once all wages have been indexed, the Average Indexed Monthly Earnings, or AIME, is computed by dividing the sum of all indexed wages by 420 (35 years of months – so months when you didn't work, if you worked fewer than 35 years are figured in as zeros). The benefit amount is then calculated based on factors such as the year in which collection begins, whether the claimant has reached full retirement age and whether the claimant continues to work while collecting benefits."

So much for me asking a simple questions

 

[bada bing]

For a maximum SS benefit, you need 35 years of maximum contributions. The wages subject to tax are capped at an amount indexed to inflation. So pick any 35 years on the chart and earn at least the cap for all 35 years.

Just a note that from a return on contribution standpoint, SS is an extremely regressive payback and there is little benefit gained for the last dollars paid into a maximum record.

 

[Perryinva]

It’s a fairly futile question, since the maximum Average Indexed Monthly Earnings increases every year, along with the bend points. For 2019, to calculate your PIA at FRA, the first $926 is multiplied by 90% so counts for $833 of the monthly amount. The amounte between $926 & $ 5583 is multipled by 32% so counts for the next $1490. The amount after $5583 is multiplied by 15%. But that amount is determined by your total indexed average earnings which for 2019 will be around $10,200, so can add roughly $692 to the total. So the max PIA is roughly $3015 at age 66.66 in 2019 dollars for a person that turned 61 in 2019. So if your average indexed earnings were 55% of the maximum, you get approximately 77% of the amount a max Earner gets. Very roughly, that corresponds to someone that consistently earned for the last 35 years about $67k year or for instance, max earned for about 20 years, since it is only the total amount that counts, divided by 420. I still think 23% is more than a little benefit, but whether it is worth it or not is subjective. If you consistently made over the max limit, its not like it was any further effort to capture that last 23%.

The reality is that the sooner you stop earnings that are FICA taxed, in order to retire early, the farther behind the actual total falls compared to someone that max earned the last years through age 61.

Of course, for many, 35 max years is normal and still “early” at 60.

 

[Independent]

For a maximum SS benefit, you need 35 years of maximum contributions. The wages subject to tax are capped at an amount indexed to inflation. So pick any 35 years on the chart and earn at least the cap for all 35 years.

Just a note that from a return on contribution standpoint, SS is an extremely regressive payback and there is little benefit gained for the last dollars paid into a maximum record.

+1

If the question is "How much do I have to earn to get the maximum SS retirement benefit?", the answer is easy --

Earn at least the wage base for 35 years. People usually know if they have earned more than the wage base because that's where the SS payroll tax disappears and they notice a bump in take home pay.

 

[BeachOrCity]

Yea the calculations are complicated but I think the real key is just to ensure you have a 35 year average that gets you to the second inflation indexed bend point. The FICA taxes for the meager incremental benefit over this point really are not worth it.
So look at ones 35 year history. Put in zero for years not worked and google SS bend points for a table of wages. For many people 20 years of good income gets them past the second bend point

 

[Perryinva]

I guess it really depends on how much you want to have for income vs when you want to stop working. Typically the higher your working income, the higher you want your retirement income to be. While I am sure on this forum there are people that earned $250k plus a year for 20 years, then retired at 42 with a steady FIRE income of $65k, that is not the normal path. As my income and lifestyle increased/improved, I found I wanted more retirement income to maintain that life. So pursuing that just automatically increased my SS earning to beyond max for over 35years. Whether the last 23% of SS income was “worth it” was never a consideration. It came with the territory. What I do agree with, is that it is particularly frustrating to continue to pay the max in to SS once you already have 35 years of max. You are getting essentially ZERO ROI for those deductions. So once my severance pay stops in 16 months, I will have paid over $40k in to FICA & Medicare for which I realized about $20/mo benefit by replacing indexed max earnings from the early ‘80s with new maxed earnings today. And the FICA to be taken out in 2020 will count for nothing what so ever.

So while I always LBMMs, it was not SO much below that that’s where I wanted to retire at. When I was in my 30s, a lifetime retirement income of $60k would have seemed a no brainer to FIRE. 30 years later that crept up to $120k plus. But then, I never disliked my job either.

 

[scrabbler1]

Yea the calculations are complicated but I think the real key is just to ensure you have a 35 year average that gets you to the second inflation indexed bend point. The FICA taxes for the meager incremental benefit over this point really are not worth it.
So look at ones 35 year history. Put in zero for years not worked and google SS bend points for a table of wages. For many people 20 years of good income gets them past the second bend point

I agree. I have 23 years of wage earnings, some full-time and some part-time. I am right near the top of the second bend point (32%). the "sweet spot" IMHO where my projected SS benefit is at its highest without having to work forever to earn it.

 

[SnowBound]

Yea the calculations are complicated but I think the real key is just to ensure you have a 35 year average that gets you to the second inflation indexed bend point. The FICA taxes for the meager incremental benefit over this point really are not worth it.
So look at ones 35 year history. Put in zero for years not worked and google SS bend points for a table of wages. For many people 20 years of good income gets them past the second bend point

+1! (I just did this in the spreadsheet, getting an extra $4 of SS a month working for past age 57).

 

[Sunset]

The other annoying thing about SS earnings, is when I have less than 35 yrs, but do very occasional work and make some extra $$ in retirement.
SS does not count it as it is below their minimum amount.
It does not raise my zeros at all.

 

[brucethebroker]

On this topic-had interesting conversation with a 30 year old +/- about the high income earners getting away with only paying FICA on the first $118,500 (?) of income. "Not fair!"

I tried explaining that FICA taxes were unique because your SS benefits are based upon your contributions, but only up to a certain point, then they are "capped". Eventually, putting more money in will not significantly increase your benefits.

But those comments did not matter. It still "isn't fair". Tax the rich, I guess.

 

[COcheesehead]

On this topic-had interesting conversation with a 30 year old +/- about the high income earners getting away with only paying FICA on the first $118,500 (?) of income. "Not fair!"

I tried explaining that FICA taxes were unique because your SS benefits are based upon your contributions, but only up to a certain point, then they are "capped". Eventually, putting more money in will not significantly increase your benefits.

But those comments did not matter. It still "isn't fair". Tax the rich, I guess.

It’s up to $132,900 this year.

 

[pb4uski]

So much for me asking a simple questions

I created an Excel workbook that replicates the worksheet on page 2... then input your earnings from your earnings statement. Mine worked out within $1 as I recall.

https://www.ssa.gov/pubs/EN-05-10070.pdf

 

[Dtail]

I created an Excel workbook that replicates the worksheet on page 2... then input your earnings from your earnings statement. Mine worked out within $1 as I recall.

https://www.ssa.gov/pubs/EN-05-10070.pdf

Did you find that the SS calculator programs were accurate right before taking the actual amount?

Edit - I now remember you might not have taken it yet.

 

[pb4uski]

^^^ Yes, not yet collecting SS... I'm only 63.