Retirement Benefits

Increasing Your Average Indexed Monthly Earnings Amount (AIME)

Posted on August 28, 2023 by Morgan Roopnarine - Retirement Benefits

What is increasing your average indexed monthly earnings (AIME)?

Your Social Security retirement benefit is based on your lifetime earnings. In general, if you were born after 1928, your benefit is calculated by averaging your 35 years of highest earnings to determine your AIME, then applying a benefit formula to that amount. To get the maximum payable monthly retirement benefit, your earnings in each of those 35 years has to equal the maximum earnings base (also called the contribution and benefit base) for that year. The maximum earnings base for 2021 is $142,800.

How does it work?

If you have earned less than the maximum base in any one of your earnings years, you can increase your AIME by working as long as you need to in order to replace that year of lower earnings with a year of higher earnings in the AIME calculation. This strategy is particularly effective if you can replace years of very low or zero earnings with years of higher earnings.

Rip worked continuously for 25 years before he was old enough to retire. However, when his retirement benefit was calculated, he had only 25 years of earnings, so 10 years of zero earnings had to be included in his AIME calculation. This lowered his AIME substantially and thus lowered his retirement benefit. So Rip decided to work 5 years longer so that his years of zero earnings would be replaced in the AIME calculation by his 5 years of higher earnings.

When is your AIME calculated?

When you become entitled to retirement benefits

At age 62, your AIME is calculated using your earnings up to and including age 61. Then a benefit formula is applied to your AIME to determine your primary insurance amount (PIA), upon which your retirement benefit will be based. Even if you choose to receive retirement benefits later, your PIA is established at age 62, although it will be recalculated later to account for money you earned after age 61.

When you have new earnings

The Social Security Administration (SSA) will automatically recalculate your AIME and PIA for any year you have new earnings–or earnings that were not included in the original AIME calculation–that are substantial enough to replace one of the 35 years in the benefit calculation. Because your AIME is calculated using your highest earnings years, this recalculation will always result in a benefit increase. This benefit increase is effective on January 1 following the year the earnings were paid.

Suzanne’s AIME was calculated in the year she turned 62 using her lifetime earnings up to and including age 61. However, Suzanne earned $40,000 during the year she turned 62, enough to replace a year of lower earnings in her AIME calculation. So the SSA automatically recalculated her AIME to include those earnings. When she began receiving retirement benefits three years later, her benefit reflected her new, higher AIME.

What earnings are used to calculate your AIME?

Earnings credited to your Social Security record

The earnings used to calculate your AIME are the earnings credited to your Social Security earnings record. This includes earnings both before and after retirement. If you’re employed in an occupation covered by Social Security, your employer reports your earnings annually to the SSA. If you’re self-employed, the IRS reports your earnings annually to the SSA. However, only wages or self-employment income up to the maximum earnings base for that year may be credited.

Earnings that are indexed and earnings that are not indexed

Most of the earnings used to calculate your AIME are indexed earnings, but some nonindexed earnings are also included. When calculating your AIME, the SSA first indexes (adjusts to reflect current wage amounts) any earnings you received after 1951 but before the year you turn 60. Next, the SSA picks out your highest 35 years of earnings to calculate your AIME. However, the SSA doesn’t just consider your indexed earnings in the calculation; it also considers your actual earnings (earnings you had at or after age 60, which are not indexed).

What earnings are not used to calculate your AIME?

Earnings that have not been credited to your Social Security record

The Wage and Tax Statement (W-2) that you receive from your employer reflects the amount of Social Security tax you have paid, as well as the amount of wages that should have been credited to your Social Security record that year. (Note: Your earnings reported to the SSA can’t exceed the maximum earnings limit for that year.) If you think your earnings have been incorrectly reported, contact the SSA to resolve the discrepancy.

Earnings not subject to Social Security taxes or the self-employment tax: There are many types of earnings that are not subject to Social Security taxes or the self-employment tax. Some of the most common types are listed as follows:

Social Security benefits
Payments under workers’ compensation law
Payments made to or from a qualified pension or annuity plan
Cash tips under $20 per month
Earnings under Civil Service Retirement System
Unemployment compensation

Because these types of income won’t count as earnings for Social Security purposes, don’t rely on them to help you increase your AIME.

When can this strategy be used?

You may be able to use this strategy when:

One or more years of little or no earnings will be included in your AIME calculation
You have earned less than the maximum during any of your 35 years of highest earnings

You will not be able to use this strategy if:

You have had maximum earnings in each of the 35 years included in the AIME calculation. In this case, you would not benefit from earning more because no earnings year can be replaced in the calculation by a year of higher earnings.

Strengths

You may increase your retirement benefit, as well as benefits for your family members

Anytime you increase your PIA (which is based on your AIME), your retirement benefit will increase. Because family members may also receive benefits based on your PIA, their benefits will increase as well when your PIA increases (as long as the family maximum doesn’t apply).

Tradeoffs

The difference between the new earnings and the old earnings may not be great enough to justify working longer

Before deciding to work additional years to increase your AIME, you should consider how much greater your new earnings will be than your old earnings. Say, for example, that your earnings during one of the 35 years used in the calculation are not much less than the maximum earnings allowed. In this case, the increase in the benefit you receive if you replace that year in the AIME calculation may not be substantial enough to justify working longer. However, if you have a year of no earnings included in your AIME calculation, you may profit more from substituting a year of high or maximum earnings for that year.

The additional payroll taxes you incur may limit the effectiveness of working longer

Your earnings during the additional years you work to try to increase your AIME will be subject to Social Security or self-employment payroll taxes. These taxes may lessen or eliminate the benefit you receive from working longer to increase your AIME.

Because Jasmine had a year of low earnings included in her AIME calculation, she decided that she could increase her AIME by working an extra year. So instead of retiring at age 62, she decided to postpone her retirement until age 63 and was able to substitute that year’s earnings of $40,000 for the year of low earnings in her AIME calculation. This increased her retirement benefit by $1 per month, or $12 per year. However, because she was self-employed, she had to pay 7.65 percent in payroll taxes on that year’s earnings, or $306. Therefore, it took Jasmine more than 25 years ($306 divided by 12) to make up the increased taxes she paid working an additional year to increase her AIME.

Increasing your AIME may only marginally affect your benefit if your AIME already falls in the top tier of the benefit formula

Once your AIME is calculated, a benefit formula is applied to it to determine your primary insurance amount (PIA). Because this benefit formula is weighted to favor low-income individuals, increasing your AIME may not be an effective strategy for you if your AIME is already in the top range of the benefit formula, because only 15 percent of your AIME will be affected.

Julio’s AIME was calculated to be $3,000 in 1998. The SSA figured Julio’s benefit (using 1998 bend points) by adding together three percentages of his AIME:

90% of the first $477	$ 429.30
32% of the AIME from $478 to $2,875	$ 764.04
15% of the AIME greater than $2,875	$ 18.75
	$1,212.09

Since Julio’s AIME was already in the top range of the benefit formula, he wouldn’t have benefitted much from extra earnings. If, for example, Julio had managed to increase his AIME to $3,200, here’s what would have happened:

90% of the first $477	$ 429.30
32% of the AIME from $478 to $2,875	$ 764.04
15% of the AIME greater than $2,875	$ 48.75
	$1,242.09

Even though Julio increased his AIME by $200 by working additional years, he only increased his monthly benefit by $30 (2.47 percent).

However, if Julio’s AIME was in the middle portion of the formula, he would have benefitted more from increasing his AIME. For example, if Julio’s AIME was calculated to be $2,600, here’s what would have happened:

90% of the first $477	$ 429.30
32% of the AIME from $478 to $2,875	$ 679.36
	$1,108.66

However, if he increased his AIME to $2,800, here’s what would have happened:

90% of the first $477	$ 429.30
32% of the AIME from $478 to $2,875	$ 743.36
	$1,172.66

In this case, when Julio increased his AIME by $200 by working additional years, he increased his monthly benefit by $64 (5.77 percent).

Note: Bend points for 2021 are $996 and $6,002.

Questions & Answers

Will earnings after retirement affect your AIME?

Yes. Any covered earnings you receive after you begin getting retirement benefits can be included in your AIME calculation. However, if you retire early and continue to earn income, you can only earn up to a certain amount (called the earned income limit) before you begin to lose benefits due to excess earnings. Conversely, if you don’t elect to receive early retirement benefits, the amount you earn by working won’t ever affect your benefit negatively. In addition, your earnings at the end of your career tend to be your highest ones, and they can then be substituted for lower ones in your AIME.

Discover how we can enhance your retirement with our range of Social Security planning solutions. Plus, stay connected through our informative newsletter. Join now by clicking here!

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Social Security: What Should You Do at Age 62?

Posted on May 4, 2023 by fsykes - Retirement Benefits, Social Security Benefits

Is 62 your lucky number? If you’re eligible, that’s the earliest age you can start receiving Social Security retirement benefits.

Although collecting early retirement benefits makes sense for some people, there’s a major drawback to consider: If you start collecting benefits early, your monthly retirement benefit will be permanently reduced. So before you put down the tools of your trade, there are some factors you’ll need to weigh before deciding whether to start collecting benefits early.

How much will your retirement benefit be?

Your Social Security retirement benefit is based on the number of years you’ve been working and the amount you’ve earned. Your benefit is calculated using a formula that takes into account your 35 highest earnings years. If you earned little or nothing in several of those years (if you left the workforce to raise a family, for instance), it may be advantageous to work as long as possible, because you’ll have the opportunity to replace a year of lower earnings with a higher one, potentially resulting in a higher retirement benefit.

If you begin collecting retirement benefits at age 62, each monthly benefit check will be 25% to 30% less than it would be at full retirement age. The exact amount of the reduction will depend on the year you were born. (Conversely, you can get a higher payout by delaying retirement past your full retirement age — the government increases your payout every month that you delay retirement, up to age 70.)

However, even though your monthly benefit will be 25% to 30% less if you begin collecting retirement benefits at age 62, your total lifetime Social Security benefits might be the same or higher than if you had waited until full retirement age to start collecting benefits. That’s because the longer you wait to claim Social Security, the shorter the time period over which you will receive benefit payments.

The following chart shows how much an estimated $1,000 monthly benefit at full retirement age would be worth if you started taking a reduced benefit at age 62.

Birth Year	Full Retirement Age	Benefit

1956	66 years, 4 months	$733
1957	66 years, 6 months	$725
1958	66 years, 8 months	$716
1959	66 years, 10 months	$708
1960 or later	67 years	$700

Source: Social Security Administration

If you want to estimate the amount of Social Security benefits you will be eligible to receive in the future under current law (based on your earnings record) you can use the Social Security Administration (SSA) Retirement Estimator. It’s available at the SSA website at ssa.gov. You can also sign up for a my Social Security account to view your online Social Security Statement at the SSA website. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

Have you thought about your longevity?

Is it better to take reduced benefits at age 62 or full benefits later? The answer depends, in part, on how long you live and how long you will need your money to last. Of course, no one can predict exactly how long they’ll live. But by taking into account your current health, diet, exercise level, access to quality medical care, and family health history, you might be able to make a reasonable assumption.

How much income will you need?

Another important piece of the puzzle is to look at how much retirement income you’ll need, based partly on an estimate of your retirement expenses. If there is a large gap between your projected expenses and your anticipated income, waiting a few years to retire and start collecting Social Security benefits may improve your financial outlook.

If you continue to work and wait until your full retirement age to start collecting benefits, your Social Security monthly benefit will be larger. What’s more, the longer you stay in the workforce, the greater the amount of money you will earn and have available to put into your overall retirement savings. Another plus is that Social Security annual cost-of-living increases are calculated using your initial year’s benefits as a base — the higher the base, the greater your annual increase.

Will your spouse be affected?

When to begin receiving Social Security is more complicated when you’re married. The age at which you begin receiving benefits may significantly affect the amount of lifetime income you and your spouse receive, as well as the benefit the surviving spouse would be entitled to, so you’ll need to consider how your decision will affect your joint retirement planning.

Do you plan on working after age 62?

Another key factor in your decision is whether or not you plan to continue working after you start collecting early Social Security benefits. That’s because income you earn before full retirement age may reduce your Social Security retirement benefit. Specifically, if you are under full retirement age for the entire year, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit ($21,240 in 2023).

In the year you reach full retirement age, different rules apply; $1 in benefits will be withheld for every $3 you earn over the annual earnings limit ($56,520 in 2023).

If your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the SSA recalculates your benefit when you reach full retirement age and omits the months in which your benefit was reduced.

Other considerations

In addition to the factors discussed here, other financial considerations may influence whether you start collecting Social Security benefits at age 62. How do other sources of retirement income factor in? Have you considered how your income taxes will be affected?

What about personal considerations? Do you plan on traveling, volunteering, going back to school, starting your own business, pursuing hobbies, or moving to a new location? Do you have grandchildren or elderly parents whom you want to help take care of? Every person’s situation is different.

For more information

Social Security rules can be complex. If you are interested in our Social Security planning options, learn more here! We understand retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Even if you start collecting Social Security benefits at age 62, remember that you still won’t be eligible for Medicare until you reach age 65. So unless you’re eligible for retiree health benefits through your former employer or your spouse’s health plan at work, you may need to pay for a private health policy until Medicare kicks in.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Estimating Your Social Security Benefits

Posted on April 19, 2023 by fsykes - Retirement Benefits, Social Security Benefits

What is estimating your Social Security benefits?

Estimating your Social Security benefits is particularly important when you are planning for retirement, although you may be interested in estimating survivor benefits or disability benefits as well. When planning for retirement, you should neither overlook nor overstate the value of your Social Security benefits. Predicting the future of Social Security is difficult, because to keep the system solvent, some changes must be made to it. The younger and wealthier you are, the more likely that these changes will affect you. But even if you retire in the next few years, remember that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said: “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built.” Estimating your Social Security benefits now will not only help you plan an effective long-term retirement strategy, but it can also help you understand what benefits might protect your family if you were to die or become disabled.

Obtaining a benefits estimate

You can estimate your retirement benefit online based on your actual earnings record using the Retirement Estimator calculator on the Social Security website, ssa.gov. You can create different scenarios based on current law that will illustrate how different earnings amounts and retirement ages will affect the benefit you receive. Other benefit calculators are also available that can help you estimate disability and survivor benefits. You can also sign up to view your Social Security Statement that contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

Understanding how your benefit amount is calculated

Your Social Security benefits will be based on your average lifetime earnings, expressed as your primary insurance amount (PIA). Calculating your PIA is complicated because some factors used in the benefit formula change annually. Instead of calculating it yourself, it’s easiest to obtain a benefit estimate directly from the SSA (see preceding section).

However, knowing how your PIA is calculated may be useful in benefit planning. Currently, the two PIA calculation methods most frequently used are:

The simplified old-start benefit method–This method is used if age 62, disability, or death occurred prior to 1979. It averages actual (not indexed) earnings and uses a table to calculate the PIA.
The wage indexing method–This method has been used since 1979. Indexing earnings is a way of adjusting them to reflect changes in wage levels throughout years of employment. This ensures that your benefits reflect increases in the standard of living. In general, the wage indexing method calculates your PIA by indexing your lifetime earnings up to and including the year you turn 59. Then, your highest earnings for a specific number of years (usually 35) are averaged and a benefit formula is applied to this figure to calculate the PIA.

Two other benefit computation methods are less frequently used:

“Special minimum” benefit tables are used sometimes to compute benefits payable to some individuals who have long periods of low earnings and who have at least 11 years of coverage.
Flat-rate benefits are provided to workers (and to their spouses or surviving spouses) who became age 72 before 1969 and who were not insured under the usual requirements.

How to calculate your PIA using the wage-indexing method

The wage indexing method can be used to calculate retirement, survivor’s, and disability benefits. However, the method used to calculate disability benefits is slightly different. The following discussion applies only to calculating your PIA for retirement and death benefits.

Follow these steps to calculate your PIA:

Count the number of years elapsed between 1951 (or the year you turned 22, if later) and the year you turned 61. If you were born in 1929 or later, this number will be 40.

Example(s): Peter retired from his job in 1992. He was 62. He turned 22 in 1952, so count the number of years between 1952 and 1991 (the year he turned 61). Forty years have elapsed.

Use the number of elapsed years to determine the number of benefit computation years. To do this, subtract five from the number of computation elapsed years. This figure will be used to calculate your average indexed monthly earnings (AIME). If you were born in 1929 or later, this number will be 35.

Example(s): Peter’s computation elapsed year figure is 40. 40-5=35. So, Peter’s benefit computation year figure is 35.

Use your earnings record to calculate your indexed earnings. To do this, use the appropriate table to determine what the indexing average wage was or will be in the year you turn 60. Then, look to see what the indexing average wage was in the year you are indexing. These figures become part of an indexing ratio applied to each year of earnings starting with 1951 and ending with the year you turn 59. (Earnings before 1951 are generally disregarded. Earnings in the year you turn 60 (your indexing year) and earnings in all later years are considered in calculating your PIA, but they are not indexed.) The indexing ratio can be expressed as the actual earnings in the year being indexed multiplied by the indexing average wage in the year you turned 60 divided by the indexing average wage in the year being indexed. The result will equal your indexed earnings for the year being indexed.

Example(s): Peter started working in 1951 and retired in 1992. For each year starting with 1951 and ending with 1989 (the year he turned 59), calculate his indexed earnings. His indexing year is 1990 (the year he turned 60). For example, Peter’s earnings in 1965 were $2,000. In 1965, the indexing average wage was $4,658.72. In 1990, the indexing average wage was $21,027.98. Calculate his 1965 indexed earnings:

$2,000 multiplied by $21,027.98 divided by $ 4,658.72 = $9,027.36

Tip: Actual earnings are earnings credited to an individual’s Social Security record. However, each year’s actual earnings are subject to a maximum earnings limit. If your earnings for the year you are indexing exceed the maximum limit, then you must substitute the maximum earnings limit amount for your actual earnings amount in the ratio.

Example(s): In 1965, the maximum earnings limit was $4,800. Had Peter’s actual earnings exceeded that amount, he would have replaced his actual earnings figure in the ratio with $4,800 to calculate his indexed earnings for 1965.

Once you have indexed your earnings for each year you have worked before age 60, you will be able to use those figures to calculate your average indexed monthly earnings (AIME).

Calculate your AIME by selecting your highest earnings for the benefit computation years (including any earnings not subject to indexing). Add these up and divide by the total number of months elapsed during these years.

Example(s): Peter had 39 years of indexed earnings and two years of earnings (1990 and 1991) not indexed but included in the calculation. Select his 35 highest earning years. The earnings for these years total $950,000. Divide this figure by 420 months (35 x 12). His AIME is $2261.90.

Calculate the PIA for the year you attain age 62 by applying percentages to certain dollar amounts of the AIME. The percentages are fixed, but the dollar amounts (called bend points) are adjusted each year for inflation.

Example(s): Peter attained age 62 in 1992. His PIA would be calculated using 1992 bend points–90 percent of the first $387 of his AIME, and adding 32 percent of the AIME in excess of $387 through $2,333, and adding 15 percent of the AIME in excess of $2,333. So, Peter’s PIA is calculated to be the sum of $348.30 (90 percent of $387) plus $599.65 (32 percent of $1,873.90) or $947.95, rounded to the next lower multiple of 10 cents, $947.90.

Bend points make calculating your future PIA difficult because the bend points for each year are only published on or before November 1 of the preceding year. For 2021, the bend points are $996 and $6,002.

Adjust your PIA to account for changes in the cost-of-living allowance (COLA) yearly.

Example(s): If Peter’s PIA was $947.90 when he retired in October 1992, then his PIA was adjusted for COLA in December 1992, and his January 1993 benefit check reflected the change.

Using your PIA to determine your benefit amount

Once the PIA has been calculated, all your benefits (and those of your family members who are dependent upon your Social Security record) will be based on this figure. Your PIA is the maximum benefit that you could receive once you become eligible.

Your maximum benefit may be payable if:

You retire at full retirement age
You are a widow or widower who is at least full retirement age
You are a disabled worker

In other circumstances, the benefits that you receive will be a certain percentage of your maximum benefit. For example, if you elect to receive early retirement benefits, your maximum benefit will be reduced by a certain percentage for each month of early retirement. If you or your family members are eligible for reduced benefits, the reduction will be expressed as a percentage of your PIA.

Example(s): Mr. Jones retired at age 66 (his full retirement age) after working for many years. His PIA was determined to be $1,176. He receives the maximum retirement benefit (100 percent of his PIA) so his monthly benefit check is $1,176. His wife retired at age 66 as well (her full retirement age). Since her own PIA was less, she decided to base her retirement income on her husband’s PIA. She is entitled to 50 percent of his PIA, so she receives a monthly benefit check of $588.

The following chart summarizes the relationship between your PIA and your eventual benefits:

Factors that can increase or decrease your benefit

Early retirement

If you elect to receive retirement benefits early (before full retirement age), your benefit will be reduced proportionately. You can elect to receive retirement benefits as early as age 62. For each month of early retirement, your total benefit will be reduced by 5/9 of 1 percent, up to 36 months, and by 5/12 of 1 percent thereafter. For example, if you elect to receive retirement benefits at age 62 and your full retirement age is 66, then you would receive approximately 25 percent less each month than you would at age 66.

Delayed retirement

If you delay receiving retirement benefits past full retirement age, you will receive a higher benefit when you retire. Late retirement may increase your average earnings (which may, in turn, increase your benefit). You will also receive a special delayed retirement credit. This credit is figured as a percentage of your Social Security benefit and is paid in addition to your regular benefit amount. It does not affect your PIA upon which your benefit is based.

This credit varies depending on the year in which you were born and how many months or years after full retirement age you retire (up to the maximum age of 70). For example, if your full retirement age is 67, you will earn an extra 8 percent of your benefit for every year you delay retirement up to age 70. This means that if you delay receiving your retirement benefit until age 70, your benefit payment will be 24 percent greater than it would have been if you began receiving retirement benefits at age 67.

Earnings during retirement

Any income you earn after you retire must be reported to the Social Security Administration and may temporarily reduce your retirement benefit if you have not yet reached full retirement age. However, some of your annual earnings are exempt and won’t affect your benefit.

Simultaneous benefits

Occasionally, you may be entitled to receive benefits based not only on your earnings record, but on someone else’s as well. This often happens when a married couple retires.

Example(s): Mr. Jones is not planning on retiring and receiving Social Security retirement benefits until he is 68. His PIA is $1,176. His wife, who is 63, wants to retire now, but she can’t begin receiving a spouse’s retirement benefit until her husband begins receiving his retirement benefits. However, since she is already over the age of 62, she can receive retirement benefits based on her own PIA. Her benefit, adjusted for early retirement, will be $400. Later, when her husband retires, she can receive her own retirement benefit and a spouse’s benefit of $188, the difference between her own worker’s benefit ($400) and the spouse’s benefit she would have received based on 50 percent of her husband’s PIA ($588).

A family maximum benefit applies

Your family may receive benefits based on your earnings record. There is, however, a limit to the amount of monthly benefit that can be based on an individual’s Social Security record. The limit varies but generally ranges from 150 to 180 percent of your PIA. Benefits to family members may be reduced if they exceed the family maximum. The formula used to compute the family maximum is similar to that used to compute the PIA.

If you are interested in our Social Security planning options, learn more here! We understand that retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Determining Your Retirement Income Needs

Posted on April 12, 2023 by fsykes - Retirement Benefits

What is it?

Determining your retirement income needs is a process that helps you identify your retirement planning needs based on your desired standard of living and the resources you’ll have available. Today, you can typically no longer rely on Social Security benefits and a company pension check to fulfill all your retirement income needs. Social Security benefits will probably satisfy only a fraction of your overall retirement income needs, and generous company pensions have largely been replaced in many cases with employer-sponsored retirement plans that are funded largely with employee dollars. A successful and rewarding retirement requires you to plan ahead in order to help ensure that you have sufficient retirement income to last you for your entire retirement. Determining your retirement income needs requires a discussion of the various stages of retirement planning, including preretirement, the transition into retirement, and retirement.

Preretirement

Your retirement is sometime in the future–maybe 10 years, maybe 30 years down the road. If so, you’ve got a little breathing room. The single biggest mistake that you can make right now is to put off thinking about your retirement. The more time you have, the more you can hope to accomplish, so the sooner you start, the better off you should be. You’ve got a lot to think about. There are many factors to consider, including your expected sources of retirement income, your retirement income needs, and how you can use those sources of retirement income to fulfill your retirement income needs.

The transition into retirement

If retirement is right around the corner, you’ve got some important decisions to make. If you haven’t done so, spend some time forming a good picture of your retirement financial position. To the best of your ability, estimate your retirement income and expenses as discussed in preretirement. As retirement approaches, though, you have to consider the impact of when you retire. Early retirement and delayed retirement, through choice or necessity, can raise certain issues you’ll want to understand.

Retirement

When you retire, there are still some retirement issues that you may need to consider. These include the effect of working during your retirement and the impact of other sources of income on your Social Security benefits. Also, required minimum distributions from your IRA or employer-sponsored retirement plan may be an issue.

If you are interested in our Social Security planning options, learn more here! We understand retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Determining Eligibility for Social Security Benefits

Posted on March 27, 2023 by fsykes - Retirement Benefits

What is it?

Before you receive any Social Security benefits, the Social Security Administration (SSA) will need to determine your eligibility. Remember that Social Security is an insurance system designed to pay you benefits during times of economic hardship. Just as a medical insurance plan representative must review your policy coverage before paying your surgical bill, a Social Security administrator must examine your Social Security record to ensure that you are eligible for the type of benefit for which you have applied. Determining your eligibility will mean finding answers to the following questions:

Have your earnings been subject to Social Security taxes?
What is your insured status?
Have you met the eligibility requirements specific to your benefit claim?
Have you filed your benefit claim?

Your earnings have probably been subject to Social Security taxes

Most people are covered by Social Security. Since Social Security is compulsory, most company employees, members of the armed forces, and self-employed persons participate and will someday be eligible for benefits. Two groups that are excluded from Social Security coverage are railroad workers whose work is covered by the Railroad Retirement Act and federal employees hired before 1984, who are covered under the Civil Service Retirement System (CSRS). Special coverage terms apply to other groups, including hospital interns, farm workers, members of religious orders, student nurses, newspaper vendors, and domestic workers. If you are covered by Social Security, you will know it when you look at your paycheck. Currently, 6.2 percent of your pay up to an annual limit of $160,200 (in 2023) is deducted each pay period. A 1.45 percent Medicare tax is also withheld from your pay (no annual limit applies). Your employer matches your tax payments. If you are self-employed, you pay a 15.3 percent self-employment tax on your net earnings to finance Social Security.

Your insured status affects your eligibility for benefits

Your insured status is the foundation of any benefit claim. You are considered insured when you have acquired a certain number of Social Security credits. These credits are also known as quarters of coverage. Covered workers receive credits based on their annual earnings. Every year, the earnings necessary to earn one credit increase according to how much the national average wage has increased. In 2023, you earn one credit for every $1,640 in earned income, up to a maximum of four credits per year.

Earning Social Security credits (quarters of coverage)

Credits earned are based on your total annual income

The number of credits you earn in a year depends upon how much money you made, not how many months you worked. For instance, if you work for two months in 2023 and make $3,280, you will have earned two credits ($1,640 x 2). If you work six months and make $3,280, you will also have earned two credits. To earn three credits, you would have to earn at least $4,920 ($1,640 x 3). To earn four credits for the year, you would have to make at least $6,560, the income required to earn the maximum number.

Credits are awarded in whole units only

If you earn $3,280 in 2023, you will earn two credits. If you earn $4,100, you will still earn only two credits, not two and one-half credits, since credits are awarded in whole units only.

Credits can be acquired at any age (even after retirement age)

You’re never too old to earn credits. Unless you’ve already reached the maximum credits possible (40 credits), any income you have that is subject to Social Security taxes can earn you more credits, even if you are already old enough to retire.

Credits can’t be lost once you’ve earned them

Once you earn the credits, they’re yours to keep, even if you never work again.

Credits don’t determine the amount of your Social Security benefit

The size of your benefit check has nothing to do with how many credits you have earned. They only determine what type of benefits for which you might be eligible.

Fully insured status versus currently insured status

Determining your insured status is important because if you have not acquired the credits necessary to receive Social Security benefits, your claim will be denied even if you meet other eligibility requirements. Generally, you need to be fully insured to receive Social Security benefits, but other requirements may also apply. Once you are fully insured you are also permanently insured and you will not lose your fully-insured status if you stop working under covered employment.

Obtaining fully insured status means that you are entitled to full Social Security benefits. To become fully insured you must:

Earn 40 credits (10 years in work subject to Social Security taxes) or
Earn at least one credit for each calendar year elapsing after the year in which you reached age 21 and before the year in which you reach age 62, die, or become disabled (whichever comes first), and earn at least six total credits

Example(s): Example A: John died after suffering a head injury. He was 45. He had earned 30 credits during his lifetime. Because he had earned at least one credit for every year that had elapsed between the year he turned 21 and the year he died, he was fully insured, and his survivors were entitled to benefits based on his Social Security earnings record.

Note: A special rule applies to survivors benefits. Even if you didn’t earn the number of credits needed before your death, your children and your spouse who is caring for the children can get benefits if you have credits for one and one-half year’s work (6 credits) in the three years just before your death.

Disability-insured status

If you have earned at least 20 credits during the last ten years and you are fully insured you have disability-insured status. Exceptions apply for those under age 31 and in certain other cases.

Before age 24: If you become disabled in or before the quarter you turn age 24, you generally must have earned six credits during the three-year period ending with the quarter your disability began
Age 24 to 31: You may qualify if you have credit for working half the time between age 21 and the time you became disabled
Age 31 or older: If you are disabled at age 31 or older, you generally need at least 20 credits in the last 10 years immediately before you became disabled. You can view a table that shows examples of how many credits you would need if you became disabled at various ages at the SSA website, ssa.gov.

Basic eligibility requirements for beneficiaries

In general, you can receive Social Security benefits if you meet the eligibility requirements for your type of claim. The following table outlines the basic requirements for beneficiaries but does not include all eligibility requirements.

When you file your claim for benefits, you may be asked to submit proof of age, family relationship, school attendance, and, in some cases, citizenship. These documents will be used to support your application for benefits and determine if you are eligible for them.

How you can file for benefits

Social Security benefits are not automatic. To receive benefits, you must apply for them online or by making an appointment at your local Social Security office or by calling the SSA (see below). You should file promptly in person, by mail, or by phone.

For retirement benefits: The SSA recommends that you apply for benefits three months before you want your benefits to start.
For survivor benefits: File for benefits in the month of the insured worker’s death. Each entitled person should file.
For disability benefits: You can file for benefits before you actually become entitled to benefits. If you file early (for example, before the five-month waiting period has ended), and your claim is approved, your application date is considered to be the first month you have satisfied the eligibility requirements.
For the lump-sum death payment: The beneficiary should file within two years of the insured person’s death.

If you have any questions about filing a benefit claim, or want information regarding eligibility for benefits, call the SSA at (800) 772-1213 or visit its website at ssa.gov.

Thank you for taking the time to read this article. We hope it has given you some insight into Social Security. If you have any questions or would like more information, please feel free to contact us. We would love to hear from you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Timing Your Earnings in Retirement to Optimize Your Social Security Retirement Benefit

Posted on March 21, 2023 by fsykes - Retirement Benefits, Social Security Benefits

What is this strategy?

If you work after you begin receiving Social Security retirement benefits, all or part of your retirement benefit may be withheld if your earnings exceed the retirement earnings test exempt amount. However, excess earnings won’t affect your benefit once you reach full retirement age, and it’s possible to time your earnings in retirement in order to optimize your benefit before full retirement age.

If you’re under full retirement age and earn more than the annual retirement earnings test exempt amount by working after you retire, you may be considering timing your earnings in retirement.

Remember, though, if your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the Social Security Administration recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced.

How to do it

Postpone your earnings

The easiest way to avoid having all or part of your Social Security benefit withheld due to excess earnings is to postpone your earnings. You can postpone your earnings in two ways:

The first way is to determine when you actually work and earn income: If you’re working for an employer, your wages are counted as income in the year you earn them. Because earnings at full retirement age or later will never reduce your Social Security retirement benefit, you might postpone working after retirement until you reach full retirement age if you expect to have excess earnings.

The second way is to postpone when you receive your earnings: If you’re self-employed, you can limit the effect of excess earnings on your retirement benefit by postponing when you receive your earnings. This is because earnings from self-employment are treated as earnings in the year they’re received.

Bunch your earnings

If you believe that all of your retirement benefit in one year will be withheld due to excess earnings, you may be able to bunch your earnings for that year in order to avoid affecting your benefits the following year.

Bunching your earnings from self-employment may help you avoid having your Social Security benefit withheld, but you should consider the overall tax implications. For example, if your earnings in one year are high enough, you may be subject to the additional Medicare payroll tax and the Medicare investment income surtax, or even be pushed into a higher income tax bracket, among other things. Consult a tax professional for help with your individual tax situation.

Time the start of benefits

Special rules apply to excess earnings during the first year of retirement. You might benefit from electing to begin receiving retirement benefits during a year in which you expect your earnings to be particularly high. During the first year you receive retirement benefits, if your wages from an employer are more than the annual retirement earnings test exempt amount, your retirement benefit will be reduced by the lesser of: (1) the reduction in benefits that would occur if the annual test applied, or (2) the benefit you received in the month or months that you earned more than 1/12th of the annual retirement earnings test exempt amount.

Consider the following case: Jeff retires on September 30 at age 62. Before he retires, he earns $80,000 during the year. In October, he begins working part-time and earns $1,000 per month for the last three months of the year. Even though his earnings for the year greatly exceeded the annual retirement earnings test exempt amount for that year, Jeff still receives a full Social Security benefit for October, November, and December. This is because his earnings in those months did not exceed 1/12 of the annual earnings test exempt amount for that year. However, beginning the following year, the annual retirement earnings test amount will apply to him because he will be beyond his first year of retirement.

This monthly test for excess earnings only applies if your wages are from an employer. If you are self-employed, the excess earnings test applies in a different manner.