Thank you very much for replying, I'll read that a few times I'm sure
. While on topic....
SS statement says that if I keep working till retirement age, I'd get $3,618 monthly at age 67.
I stopped at 46. I read the SS website...
I"n the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month."
So....36 months x.55% reduction per month.... ok, I get dinged for 19.8% reduction? BUT then....
Age 67 minus age 46 is approx 252 months. x .41% (5/12) per month....
= 103% reduction.....meaning I'd have to *pay* monthly social security to the government, lol obviously that isn't right.
My age 67 benefit shows $3618 a month if I keep working.
I stopped at age 46, with about $300k Total FICA paid into the system.
Any guesses what SS benefit I'd get at retirement age if I don't work again?
(ALSO....PIA ' bend points' - the estimates you wrote of $366 and $171 -- would that be monthly bump, or yearly? )
I'm toying with the idea of *not* risking my nest egg to start another business - but rather just swallow pride, do some W-2 'job' work and maybe put a few more bucks away for my kids and bump a bit of my SS in the process.
This math is for when you claim, not for when you stop working. You can't claim before age 62, so claiming at 62 gets you 70% of your PIA, claiming at 67 gets you 100% and claiming at 70 gets you 124% of the PIA. Of course the longer you wait, the fewer checks you get.
It is simple on the SS web page to enter zero for future earnings to see a better estimate of your PIA.
Since you have some zeros or very small values, your benefit may rise enough to pay for the extra tax.
The SSA use the average wage index (grows much faster than CPI) to factor up your earnings up to age 60, so the numbers plugged into the final calculation for those early year earnings get quite a bit bigger than you might think - if your $37K earning year was in 1991, those earnings are factored up by 2.92 to get today's indexed earnings of $108,200 for instance.
They then sum your top 35 years of indexed earnings and divide by 12 to get your Average Indexed Monthly Earnings. As you continue to work you will be replacing some zeros or small early values with larger ones. (SecondCor521 gave a somewhat confusing answer here - the index uses
monthly earnings, so a year with $40,000 in earnings that replaces a year with zero, increases your monthly earnings by $40,000 / 420 months = $95/mo.)
Your AIME is put through a formula to get the Primary Insurance Amount (the amount you get at full retirement age). The PIA formula has two "bend points" to allow low wage earners to get a higher percentage of their working year earnings than high earners.
The first bend point is at an AIME of $1174/mo. Your PIA is 90% of your AIME below that.
In between $1174 and $7078, you add 32% of the amount above $1174.
For amounts above $7078/mo, you add 15%.
So to make up an example, if your AIME were $7500, your PIA would be:
0.9*1174 = $1056.60
+0.32*(7078-1174) = $1889.28
+0.15*(7500-7078) = $63.30
Grand Total =$3009.18, truncated to $3009.10.
The bend points are adjusted up annually by the Average Wage Index through age 60.
If you are above the first bend point and below the second, your PIA increases by 32% of the AIME. For your $40K/year example, the PIA would increase by 0.32 x the $95/month AIME increase = $30/mo. = $360/year. You pay 7.65% of $40K = $3060 to get those benefits, so over an average lifetime, you would still be a winner.
Once you reach the second bend point and only get 15% of the increase in AIME, then the math switches and working an extra year grows your lifetime benefit by much less than the extra tax you pay in. I had one year where the indexed earnings were $20K below the max and last year hit the max, replacing that older year. That meant I paid $11,245 in SS taxes last year. For that, my AIME went up by $20,000/420 = $47.6 and my PIA goes up by 15% of that, so $7.10/mo. This year, I have no more years below the max, so I paid $12,255 in SS taxes and get zero extra.
As to whether it's worth it, the eventual increase in SS benefit is a very small piece of the decision. Working gives you money, interaction and maybe purpose, but takes up your time, may force you to follow a schedule and may bring aggravation. Those are far bigger factors than a few $/mo many years in the future.
