Analytics cookies help website owners to understand how visitors interact with websites by collecting and reporting information anonymously. If you didn't earn for at least 35 years, the calculation uses $0 for all of the years you did not earn anything. Then, 5/12, or 0.42, multiplied by the remaining 12 months, is 5% for a total of 25%. If you pay SS taxes on the Social Security wage limit every year for 35 years, you get zero credit for any additional earnings. Average indexed monthly earnings (AIME) is used to determine the primary insurance amount (PIA) that values an individual's social security benefits. Where are you in relation to the bend points? 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. The amount needed to earn 1 credit automatically increases each year when average wages increase. If you are a typical U.S. worker nearing retirement, you have been shoveling money into the Social Security system through payroll or self-employment taxes for decades. You can use a copy of your Social Security statement that provides your earnings history to plug your own numbers into the formulas below. Can a Divorced Person Collect Social Security From an Ex? There are three exceptions to the deemed-filing rule for spouses. How Do I Calculate My Social Security Breakeven Age? You are eligible for Social Security disability benefits. The fundamental amount on which most Social Security benefits are based is the "primary insurance amount" (PIA). Social Security: Benefit Calculation Overview https://crsreports.congress.gov Cookies are small text files that can be used by websites to make a user's experience more efficient. "Am I Eligible for an In-person Appointment During the COVID-19 Pandemic? That number is then rounded to the next lowest dime. $2,592,240/$147,000 = 17.6 years. Though these facts create uncertainty, its also true that the quality of your retirement depends on your planningand you must start planning somewhere. If the number of months exceeds 36, then the benefit is further reduced 5/12 of 1% per month. The regressive feature is that a high earner only has to pay Social Security taxes (12.4% of earned income6.2% from the employee and 6.2% from the employer) on a certain amount of earned income. Multiply that by 35 years and you get $5,145,000. Where is that first bend point anyway? Remember, you'll get some credit for your work prior to becoming an attending physician. "National Average Wage Index. "If You Were Born Between 1943 and 1954 Your Full Retirement Age Is 66. Why does it exist? "Retirement Benefits. Our Goal is Your Success. 2% back on first $25,000 combined at gas stations & restaurants. Not a doctor, but still find lots of value in what you write. if you are BELOW 13k/year lifetime average, then it's a good idea to work more to hit that number. Specifically, the first bend point is going up from $960 in 2020 to $996 in 2021, and the second is going up from. Technically, your PIA is calculated and rounded to the next lowest dime, and then any inflation adjustments are applied. ", Social Security Administration. Here are the bend points for calculating a worker's benefits in 2022. Keep in mind In the table below, see actual wages of $21,000 for 1984 in Column C. In column D are the average wages according to the National Wage Index. How do I earn Social Security credits and how many do I need to qualify Social Security's Bend Points: What Are They? | The Motley Fool *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. 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. The end result is your average indexed monthly earnings, or your AIME. Likewise, I could see how long it would take to maximize my Social Security benefit ($4,819,500 $2,012,902 = $2,806,598 / $137,700 = Another 20 years and 16-17 years between that second bend point and the maximum level). 2021 Physician on FIRE, All rights reserved. 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. Can My Retirement Pay and Social Security Be Garnished? They are most often on the steep part of the curve and benefit greatly from social security. https://www.whitecoatinvestor.com/single-income-versus-dual-income-families/, https://www.whitecoatinvestor.com/avoiding-the-second-income-trap-with-a-side-gig-for-the-stay-at-home-spouse/, https://www.whitecoatinvestor.com/whats-different-for-dual-income-couples/. We are constantly pushing to improve the quality of our writers, including me. If youre interested in how Bend Points are used, you can see the article on Primary Insurance Amount, or PIA. Notice that the index factor becomes 1.0000 in 2016, the year in which the worker turns 60, and it remains 1.0000 without changing for any future years of taxable earnings. Hope this helps you understand the bend points a little better. RS 00605.947 Indexing Factors for 2022 Eligibility - SSA If you cant locate your answer, drop me an email or give me a call well see what we can find for you. Keep in mind that the figures for the bend points are slightly lower in this exercise than they are in 2022, but I think it's worth showing you this anyway: As you can see, my AIME at the time was $4,793, so I was still a little bit below the second bend point of $5,875 and a long way away from maxing out my Social Security benefit. Those amounts are indexed to the AWI, so they ", Social Security Administration. Twitter:BlankenshipFP/Financialducks Calculated by Time-Weighted Return since 2002. The bend. David has helped thousands of clients improve their accounting and financial systems, create budgets, and minimize their taxes. Table data source: Social Security Administration. But they're still very good, especially below that first break point. 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. He has also written five books on Social Security, IRAs, 401(k) plans, and Medicare. I spent a bunch of time crunching my own numbers and think I finally understand how SS works for the first time. ", Social Security Administration. 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 See below for more on the books. your Retirement, Education Funding, 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. 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.
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