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? You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed advisors advisor. 9 Benefits Calculation Example For Person The law states that we can store cookies on your device if they are strictly necessary for the operation of this site. For a while (up to the first bend point), your PIA goes up by 90 cents for every extra dollar of earnings you pay SS taxes on. The second column shows the workers annual earnings that are subject to Social Security payroll tax. Here are the bend points for calculating a worker's benefits in 2022. ", Social Security Administration. How Delayed Retirement Affects Your Social Security Benefits., Social Security Administration. jim@blankenshipfinancial.com Doing the math results in a first bend point for 2019 of 926.22 (rounded to $926). Market beating stocks from our award-winning service, Investment news and high-quality insights delivered straight to your inbox, You can do it. If you do not have 35 years of earnings, a zero will be used in the calculation, which will lower the average. 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). You'll basically need to earn at least the Social Security Wage Limit for 18 years. Thank you! Only if your spouse is not yet receiving retirement benefits. A different set of bend points is established each year. The FIRE Movement: How to Reach Financial Independence and Retire Early, Total = $922 + $1,647 + 970 = $3,539 per month or $42,468 per year. If you are not yet 62, your benefit calculation is only an approximation, as you do not yet know what the final bend point amounts for the year you turn 62 will be. "Social Security Benefit Amounts.". How much can Social Security recipients earn in 2022? The Social Security benefits formula is designed to replace a higher proportion of income for low-income earners than for high-income earners. Keep in mind Alternatively, you could get there in just 10 years if you earned $43,080 per year. if you are BELOW 13k/year lifetime average, then it's a good idea to work more to hit that number. 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. Before you learn about bend points, it helps to understand how Social Security calculates your average indexed monthly earnings (AIME). 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. Also a great illustration for paying housekeepers and nannys on the books. 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. Seems like a neat trick. But to understand exactly where it is, you have to understand how your AIME is calculated. David has helped thousands of clients improve their accounting and financial systems, create budgets, and minimize their taxes. 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. Social Security Administration. 1; st - 10. th. Facebook:Jim Blankenship 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? Some cookies are placed by third party services that appear on our pages. In 2022, the wage base for the Social Security tax will increase 2.9 percent, and Social Security benefits will increase 5.9 percent. I want you to pay attention to the general shape of the chart and to the axes. That works out to be about 40% of my age 70 benefit. How to Navigate Spousal Benefits Under New Social Security Rules. Divide by 420 and you get an AIME of $12,250. On average, Social Security replaces about 40% of the average workers pre-retirement income. Worth every penny. To make the world smarter, happier, and richer. ", Social Security Administration. 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. There are four ways the starting benefit can be permanently increased or reduced from the PIA calculated at age 62: All four points are related to your starting Social Security benefits. 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. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning. That number is then rounded to the next lowest dime. The end result is your average indexed monthly earnings, or your AIME. Youre offline. This compensation may impact how and where listings appear. That alternative would reduce the 15 percent PIA factor by 1 percentage point per year until it reached 5 percent in 2031. For a pre-retiree, I see Soc Security as having multiple uses to a long term investor. "National Average Wage Index. Early or Late Retirement?, Social Security Administration. 1.0000000 . ", Social Security Administration. 15% of $79 (the difference between $6,721 and $6,800) = $11.85, rounded down to $11.80. 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. How Are Social Security Spousal Benefits Calculated? 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. Well, it's not very far at all. "Receiving Benefits While Working. "Fact Sheet Social Security, 2023 Social Security Changes.". 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. When Do Social Security Benefits Start and End? In December 2022, 734,601 Social Security beneficiaries, or about 1% of all beneficiaries, had their benefits reduced by the GPO. Cumulative Growth of a $10,000 Investment in Stock Advisor, Join Over Half a 1 Million Premium Members And Get More In-Depth Stock Guidance and Research, Copyright, Trademark and Patent Information. My husband and I have just been through this process. $6,172 per month * 420 months = $2,592,240. If you're curious, you can view historical AWIsand index factors on Social Security's website. 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). When you're receiving Social Security benefits, you'll still have to pay income taxes, but you won't owe taxes on all of your benefits. 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. Is it capped at 1.5x the high earners benefit (in this case either earners benefit), so $63,702? Do Not Sell My Personal Information. The following factors go into the formula: Take a look at how these factors affect the benefits you will receive and how the Social Security Administration calculates its figures. 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. How Much Is the Average Social Security Check? Bend points are the portions of your average income (Average Indexed Monthly Earnings AIME) in specific dollar amounts that are indexed each year, based upon an obscure table called the Average Wage Index (AWI) Series. and Income Tax issues and concerns. If I continue to work until age 70, that benefit will increase to perhaps $3,700 a month. 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. Many people do not account for this when doing their own calculations, which can lead them to think that taking Social Security early is a better deal, when waiting is often the better deal. The formula for the Primary Insurance Amount (PIA) is the basic benefit formula. Second Wednesday. In the table below, our hypothetical worker, born in 1954, is eligible for full retirement at age 66. If youre below the first bend point, that would raise your PIA by $2.86* .9=$2.57, for an annual increase of about $31. If you plan to continue working after age 60, project the taxable earnings in the second column and use 1.0000 in the third for all future years. For people born between 1943 and 1954, as in our example, the FRA is age 66. 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. If youre interested in how Bend Points are used, you can see the article on Primary Insurance Amount, or PIA. This is a read only version of the page. Social Security: The Windfall Elimination Provision (WEP - Congress 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). Note: Some Apple computers download the file as a zip file rather than a .xlsx file. OK, let's get started then. Alternatively, you could get there in just 10 years if you earned $43,080 per year. PDF Issue Brief The final amount of Social Security retirement benefit that you receive is based on the age when you begin benefits. Here's how Social. The second principle to understand is that you must earn at least $1,510 (in 2022) per quarter to get credit for it. 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. Unclassified cookies are cookies that we are in the process of classifying, together with the providers of individual cookies. She (usually its the wife) receives max 50% of the benefits due at the recipients full retirement age, NOT age 70. List in column B the most recently published NAWI adjustment factors (year by year) as published by the SSA. We use your total yearly earnings to calculate your Social Security credits. I spent a bunch of time crunching my own numbers and think I finally understand how SS works for the first time. Numbers Retirement Plan Sponsors Need to Know for 2022 Program Operations Manual System (POMS) Effective Dates: 11/10/2021 - Present Previous | Next. Bend points from the year you turn 62 are used to calculate your Social Security retirement benefits. 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. The SSA performs a similar calculation for all past years in which any contributions were paid. To do this, the AIME is sectioned into three brackets (or segments) of earnings, which are divided by dollar amounts known as bend points. We'll assume you're ok with this, but you can opt-out if you wish. At any rate, now that we know these two numbers, we can jump back to 2020s AWI Series figure, which is $55,628.60. 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). Benefit Formula Bend Points., Social Security Administration. Applying the bend points to this (see the Bend Point article for details) we come up with a tentative PIA of $2,293. I appreciate that you are still writing. Benefits by Year of Birth., Social Security Administration. "Benefits for Spouses.". 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 should see the gender pay gap between Katie and I despite her working a lot more hours at WCI. After your AIME gets past the first bend point, the deal is not nearly as good. In 2022, the wage limit is $147,000. Your email address will not be published. 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. 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. Otherwise, incomes between $25,000 to $34,000 may have to pay income tax on up 50% of their Social Security benefits. Several other sites also republish his work. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. In 2022, the bend points are $1,024 and $6,172. "Social Security Office Locator. Primary Insurance Amount., Social Security Administration. And if its the latter, does the math change at all for the 24% booster (for delayed retirement)? Worst case scenario is after 2034; Soc Security gives you a 25% haircut. Investopedia contributors come from a range of backgrounds, and over 24 years there have been thousands of expert writers and editors who have contributed. This is from an AARP article on the subject. If one delays claim SSI to 70, ones spouse can only get 50% of one amount at ones FRA not his amount at 70. Any politician who messes with Soc Security would be thrown out of Office. The three MFB bend-points for 2022 eligibilities are $1,308, $1,889 and $2,463. The number of credits you need depends on your age when you apply and the type of benefit you are applying for. You get 90% of your AIME up to the first bend point (at an AIME of $1,024 in 2022). Smith Godios Sorensen Inc. 411 Wolf Ledges Parkway, Suite 400, Akron, OH 44311. "Indexing Factors for Earnings. This site uses different types of cookies. 3)Compute the cost-of-living adjustment (COLA) using the Consumer Price Index for the Elderly (CPI-E), effective December 2013. PDF Social Security Changes for 2022 - Society of Actuaries 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. Got all that? Benefits Planner: Survivors | If You Are the Survivor., Social Security Administration. You are eligible for Social Security disability benefits. 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. There are four ways to do this: On March 17, 2020, all Social Security offices were closed completely due to the COVID-19 pandemic. 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. You can get that maximum if you first claim benefits at your own full retirement age; the amount is reduced if you file earlier. If you pay SS taxes on the Social Security wage limit every year for 35 years, you get zero credit for any additional earnings. The definitive resource in my experience is Mike Pipers book on Social Security. The bend points are published each year by the Social Security Administration. Social Security for the Suddenly Singlecan be found on Amazon atthis link. They are most often on the steep part of the curve and benefit greatly from social security. Now, divide that by $137,700 and you'll get 3.3 years, about 17-18 years out of residency in my case. The spouse cannot receive 50% of the benefits the recipient gets at age 70. Phase in by increasing the first bend point 1.5 percent for newly eligible beneficiaries in 2013, 3.0 percent for newly eligible beneficiaries in 2014, , and 15 percent for newly eligible beneficiaries in 2022 and later. Bend points are income thresholds that are used to effectively reduce your AIME to the primary insurance amount (PIA) you'll receive from Social Security at full retirement age, or the age. If you cant locate your answer, drop me an email or give me a call well see what we can find for you. Toll Free: 877-230-5500. The third principle is that Social Security only counts your best 35 years (420 months). For all other types of cookies we need your permission. ", Social Security Administration. Making the world smarter, happier, and richer. The amount needed for a credit in 2023 is $1,640. 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. In this scenario, your PIA would equal 41% of your AIME. 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. Schedule of Social Security Benefit Payments 2022 Benefits paid on Birth date on. 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! Here is how they work. 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. Each year, Social Security publishes the national average wages for the year. Make Social Security's Benefit Structure More Progressive you absolutely want to hit the 13k/year bend point, meaning you want to earn 90% match of your money. After five years of writing and updating my Social Security Bend Point post and spreadsheet, I finally have surpassed bend point #2 with 2022 income. If you didn't earn for at least 35 years, the calculation uses $0 for all of the years you did not earn anything. This manual is available onAmazon at this link. Understanding Social Security Bend Points | White Coat Investor Your FRA can vary, depending on the year you were born. No annual fee. How Are the Social Security Trust Funds Invested? Social Security Search Menu Languages Sign in / up. "Am I Eligible for an In-person Appointment During the COVID-19 Pandemic? 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. That would be a great future blog post as Im sure there are many physicians married to a lower but not zero earner. We use your total yearly earnings to calculate your Social Security credits. We waited until I turned 66 (my FRA) and then I applied for my benefits. Retirement Benefits: Social Security Credits. How Social Security "Bend Points" Help You Get a Bigger Check Are Social Security Benefits a Form of Socialism? The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. FIXED PERCENTAGES OF INCOME USED IN BEND POINTS CALCULATION. Social Security Administration. Here's how to find it. I hope you find the answers youre looking for among the articles here, and perhaps a smile. "Benefit Calculation Examples for Workers Retiring in 2021. Why Your Social Security Income Could Increase 5% (or More) in 2022 As you can see, the chart starts out pretty steep. 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. This is a link to the Social Security site on the subject. Simply put, bend points are two points at which you receive diminishing returns in your benefit amount once you have reached a certain income threshold. Here's Exactly How to Optimize for the $4,194 Social Security Monthly It begins with the column on your Social Security statement that shows your taxed Social Security earnings year by year. That includes if you file early for your retirement benefit say, at 62, as in this scenario and switch to spousal benefits later. Those amounts are indexed to the AWI, so they Reduce Social Security Benefits for High Earners Then the average of all indexed earnings from the 35 highest-income years (from the fourth column above) is factored into the calculation. 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? You can use an estimated inflation rate to approximate future years' bend points to develop a pretty accurate approximation. If you were born in 1943 or later, your benefits will increase by 2/3 of 1% per month, or 8% per year, for each month that you are past your FRA when you begin to receive benefits. That's up from $885 and $5,336, respectively, in 2017 because AWI increased by about 1.13% between 2015 and 2016. This is the amount you will get if you start benefits at your full retirement age (FRA). You will get more by waiting until a later ageas late as age 70to begin receiving benefits. 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. 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. 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. Its possible that, over time, you and your employer together have paid more than $200,000 into the system on your behalf. He has also written five books on Social Security, IRAs, 401(k) plans, and Medicare. Mike Piper has written a great book on Social Security. If you wait beyond age 62, cost-of-living adjustments (COLAs) will be applied to your PIA for each year afterward. Eventually, you reach the second bend point, where that figure drops even further, to 15% of what you earned. I pulled her Social Security statement and plugged the numbers into the POF calculator, and this is what we ended up with: As you can see, her AIME was $1,842 and her benefit at 67 would have been $1,146.37. Your earnings history is shown on your Social Security statement, which you can now obtainonline. ", Social Security Administration. Though these facts create uncertainty, its also true that the quality of your retirement depends on your planningand you must start planning somewhere. 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). There are three exceptions to the deemed-filing rule for spouses. Scroll down to the year of your first recorded earnings and see your bend points and estimated benefit at the bottom of the spreadsheet. RS 00605.947 Indexing Factors for 2022 Eligibility - SSA That equals $5,550 per month or $66,600 a year, more than the median American household income. You can learn more about the standards we follow in producing accurate, unbiased content in our. How Are Social Security Benefits Affected by Your Income? ", Social Security Online. ", Social Security Administration. Social Security is designed as a "progressive" social insurance system, which means it replaces a greater part of average monthly pay for low-income workers than it does for high-income workers. Can a Divorced Person Collect Social Security From an Ex? It turns out that in 2022 the first bend point comes at an AIME of $1,024. Survivor benefits are not lower though, if I recall. Our Goal is Your Success. More specifically, when calculating your PIA, you only get credit for a certain percentage of your AIME up to each bend point, and those percentages are fixed by law. Social Security: Benefit Calculation Overview https://crsreports.congress.gov To be conservative, use a NAWI adjustment factor of 1.0000 in column B for all future years. Thanks. 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.
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