Increasing SS PIA by working again

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restingonmylaurels
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Increasing SS PIA by working again

Post by restingonmylaurels » Wed Feb 14, 2018 2:07 pm

I am looking at what it would take to increase one's Social Security Primary Insurance Amount (PIA), the benefit paid in retirement, by going back to work in the years before full retirement.

It seems that your PIA is calculated based upon your earnings up to the SS max in the highest-earning 35 years of work. This is then run through a formula which indexes the earnings during those 35 highest earning years up to current pay levels and then divides the total by 420 months and finally multiplies that monthly amount by certain percentages to get your monthly benefit payment.

But if one did not work or work in the U.S. for all 35 years, then there are missing amounts that could be added to by returning to work.

As far as I can tell, the incremental increase in monthly SS benefit (PIA) one would get is $3.57 for every $10,000 of new earnings per year. So if someone went back to work at a $50,000 annual salary for one year, they would then be adding $17.85 to their monthly SS benefit payment when they reach full retirement ago. Five years of the same would add $89.25 to their monthly SS benefit.

Can someone please agree or disagree with this calculation?

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AtlasShrugged?
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Re: Increasing SS PIA by working again

Post by AtlasShrugged? » Wed Feb 14, 2018 2:37 pm

Can someone please agree or disagree with this calculation?
resting....Why have questions? Download their benefit calculator. It is available on the SSA website.
“If you don't know, the thing to do is not to get scared, but to learn.”

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prudent
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Re: Increasing SS PIA by working again

Post by prudent » Wed Feb 14, 2018 2:39 pm

I'm no expert on PIA calculations but i know it's not quite that simple. Benefit amounts don't increase on a straight line. Lower income people get a larger benefit with respect to their lifetime earnings.

As an example, here is the description from the SS site:
For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2018, or who dies in 2018 before becoming eligible for benefits, his/her PIA will be the sum of:
(a) 90 percent of the first $895 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $895 and through $5,397, plus
(c) 15 percent of his/her average indexed monthly earnings over $5,397.

restingonmylaurels
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Re: Increasing SS PIA by working again

Post by restingonmylaurels » Wed Feb 14, 2018 2:49 pm

prudent wrote:
Wed Feb 14, 2018 2:39 pm
I'm no expert on PIA calculations but i know it's not quite that simple. Benefit amounts don't increase on a straight line. Lower income people get a larger benefit with respect to their lifetime earnings.

As an example, here is the description from the SS site:
For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2018, or who dies in 2018 before becoming eligible for benefits, his/her PIA will be the sum of:
(a) 90 percent of the first $895 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $895 and through $5,397, plus
(c) 15 percent of his/her average indexed monthly earnings over $5,397.
Yes, that is the basis for my calculation but I did not want to over-math my question. If one takes $10,000 / 420 months * 15% (assuming one is already over that threshold before considering additional work), that works out to the $3.57 per month benefit increase I mentioned.

123
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Re: Increasing SS PIA by working again

Post by 123 » Wed Feb 14, 2018 2:50 pm

There is also an "indexing" feature that depends on the year you attain age 60. Wages you earned in the years before the year you attained age 60 are indexed (generally increased) whereas earnings in the year you are 60 or older are just taken at face value, without indexing, this has a tendency to reduce the value of earnings in later years, though anything is likely better than a zero year.

The indexing formula is dependent on the year an individual attains age 60. So the effect of additional years of work would depend on how many of them were before the year the worker turns 60 versus that year or later. The other thing to consider is that a worker could return to work in the year following the year they attain full retirement age and they would not be subject to the "retirement test", (benefit reduction to to current earnings) and their potentially higher earnings could be used to calculate higher benefits. Of course they then could suffer from the IRS sword of more SSA benefits being taxable due to other income.
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mptfan
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Re: Increasing SS PIA by working again

Post by mptfan » Wed Feb 14, 2018 3:06 pm

restingonmylaurels wrote:
Wed Feb 14, 2018 2:07 pm
As far as I can tell, the incremental increase in monthly SS benefit (PIA) one would get is $3.57 for every $10,000 of new earnings per year. So if someone went back to work at a $50,000 annual salary for one year, they would then be adding $17.85 to their monthly SS benefit payment when they reach full retirement ago. Five years of the same would add $89.25 to their monthly SS benefit.

Can someone please agree or disagree with this calculation?
I think your conclusion is generally correct, assuming you already passed the second bend point in the PIA formula, and assuming you have not yet reached the maximum benefit.

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Watty
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Re: Increasing SS PIA by working again

Post by Watty » Wed Feb 14, 2018 3:17 pm

One thing to keep in mind is that in some situations if your PIA increases then your spouses benefit could also increase by half of that amount in some situations.

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David Jay
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Re: Increasing SS PIA by working again

Post by David Jay » Wed Feb 14, 2018 10:40 pm

restingonmylaurels wrote:
Wed Feb 14, 2018 2:07 pm
It seems that your PIA is calculated based upon your earnings up to the SS max in the highest-earning 35 years of work. This is then run through a formula which indexes the earnings during those 35 highest earning years up to current pay levels...
This sequence is backwards. Each past year of earnings is indexed to the AWI (average wage index) for that year. Then the top 35 earnings years are selected.

In general (without verifying the math) you are correct. If you have a zero year and replace it with a $50,000 year, you will increase your PIA by about $18 or so. The most dramatic way to increase yourself our actual benefit is to delay claiming benefits.
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restingonmylaurels
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Re: Increasing SS PIA by working again

Post by restingonmylaurels » Thu Feb 15, 2018 4:13 am

Thanks for all the calculation confirmations. In summary, if one were to work an additional five years at $50,000 annually and then live 20 years in retirement after full retirement age, they would add $21,420 in total to their SS retirement benefits received. Everyone has their own way but to me, the additional benefit does not seem worth it in exchange for adding five more working years to one's life.

ivk5
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Re: Increasing SS PIA by working again

Post by ivk5 » Thu Feb 15, 2018 5:13 am

For quick back-of-the-napkin calculations, with good explanations, check this out https://socialsecurity.tools/app.html

Not super flexible but pretty easy to use/understand - you can easily paste in your full SS earnings record and model what impact would be of X many more years of Y income

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Re: Increasing SS PIA by working again

Post by JW-Retired » Thu Feb 15, 2018 8:09 am

restingonmylaurels wrote:
Thu Feb 15, 2018 4:13 am
Thanks for all the calculation confirmations. In summary, if one were to work an additional five years at $50,000 annually and then live 20 years in retirement after full retirement age, they would add $21,420 in total to their SS retirement benefits received. Everyone has their own way but to me, the additional benefit does not seem worth it in exchange for adding five more working years to one's life.
Hope you realize that the huge benefit of working the additional 5 years would probably be you could afford to delay taking SS because of the work income? Even with the same work record, taking SS at 70 instead of 62 gives you a 75% bigger SS check.
JW
e.g., https://www.ssa.gov/pubs/EN-05-10147.pdf
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Re: Increasing SS PIA by working again

Post by JPH » Thu Feb 15, 2018 8:30 am

If you take a pay cut near the end of your career or go to part-time work could it negatively affect your benefits?
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lostinjersey
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Re: Increasing SS PIA by working again

Post by lostinjersey » Thu Feb 15, 2018 8:37 am

I’ve looked at this pretty closely. My general opinion is that once you hit the second bend point, the increase in benefits isn’t really worth getting excited about.

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Re: Increasing SS PIA by working again

Post by halfnine » Thu Feb 15, 2018 8:43 am

restingonmylaurels wrote:
Thu Feb 15, 2018 4:13 am
Thanks for all the calculation confirmations. In summary, if one were to work an additional five years at $50,000 annually and then live 20 years in retirement after full retirement age, they would add $21,420 in total to their SS retirement benefits received. Everyone has their own way but to me, the additional benefit does not seem worth it in exchange for adding five more working years to one's life.
Beyond the 2nd bend point and only taking into consideration SS benefits, I concur.

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Re: Increasing SS PIA by working again

Post by Tamales » Thu Feb 15, 2018 9:28 am

restingonmylaurels wrote:
Wed Feb 14, 2018 2:07 pm

As far as I can tell, the incremental increase in monthly SS benefit (PIA) one would get is $3.57 for every $10,000 of new earnings per year.
Can someone please agree or disagree with this calculation?
Just to clarify, you're not adding $10k to AIME, right? You're adding 10k to the sum of the top 35 indexed annual earnings (let's call that ST35IE for short)?

If so, I think your estimate is right.
You can check it by working backwards from AIME (AIME is ST35IE/35/12).

I posted some graphs here: viewtopic.php?p=3771718#p3771718
If you look at the 4th graph down, above the 2nd bend point a $30k increase in annualized AIME yields a $4500 increase in annualized PIA (see the labels on the graph: from $81k;$29195 to $111k;$33695).
In other words, every $10,000 increase in annualized AIME yields a $1500 increase in annualized PIA. A slope of .15, just as you'd expect above the 2nd bend point.

Divide the $1500 by 420 (to translate back to the ST35IE figure) gives your $3.57 monthly, per $10k increase in ST35IE.

That's kind of a sad increase, I'd say.

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Re: Increasing SS PIA by working again

Post by Watty » Thu Feb 15, 2018 9:37 am

restingonmylaurels wrote:
Thu Feb 15, 2018 4:13 am
Thanks for all the calculation confirmations. In summary, if one were to work an additional five years at $50,000 annually and then live 20 years in retirement after full retirement age, they would add $21,420 in total to their SS retirement benefits received. Everyone has their own way but to me, the additional benefit does not seem worth it in exchange for adding five more working years to one's life.
A few more things;

You would want to check the details but as I recall you need 40 quarters, ten years, of working under Social Security and Medicare to qualify for them.

In addition to working full time earning $50,000 you should also look at the impact of working part time and earning $10,000 a year.

Another way to look at the value of the increase in Social Security would be to see how much it would cost to buy an immediate annuity that pays the same amount.

By working five more years the person would also have another quarter of a million dollars in income and they would also have reduced the number of years of retirement they would need to fund from 25 to 20. They will also likely get employer provided health insurance and be able to money into a Roth or IRA.

I retired by the time I was 59 and like many people I played a lot with spreadsheets looking at various scenarios. The years between when I retired and when I start Medicare and Social security when I need to pay for my own health insurance and don't have any Social Security income will by far be when I need the most income from my investments except for if I need to pay a nursing home some day. At least with my numbers each extra year I worked made a significant difference in my numbers without even considering Social Security.

The flip side is doing a lot of things like travel or being real active will be harder or perhaps impossible as you age. I figured that up to about the age of 75 or so would likely be the best years of my retirement because even if my health remains relatively good I will still slow down a lot by then. For someone that is 60 that would be 15 "best" retirement years. To work five more of those would cost a third of your best years. It is an extreme case but I also know someone that was working until he was 65 and could get Medicare even though he could have afforded to retire. He had been in OK health but he unexpectedly died one weekend two months before he turned 65 so he did not have any retirement.

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Re: Increasing SS PIA by working again

Post by macman_65 » Thu Feb 15, 2018 10:33 am

JPH wrote:
Thu Feb 15, 2018 8:30 am
If you take a pay cut near the end of your career or go to part-time work could it negatively affect your benefits?
No. The year with the reduced pay will either be one of the highest 35 indexed salaries or it won't be.
It won't knock off a year that had a higher indexed salary.

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Re: Increasing SS PIA by working again

Post by David Jay » Thu Feb 15, 2018 11:02 am

JPH wrote:
Thu Feb 15, 2018 8:30 am
If you take a pay cut near the end of your career or go to part-time work could it negatively affect your benefits?
I am not sure exactly which question you are asking:
1. Will benefits be higher if you work longer? Typically Yes, especially if you currently have fewer than 35 years of earnings.

2. Will your current earned benefits be reduced if you stop working? No (with the caveat that the inflation calculation could affect things a bit at the margin). Your payments based on your work history through 2017 will not be reduced if you stop working.

One caution on #2 (above), this applies to your benefits as calculated today with your current earnings history. The SS website makes some presumptions about how long you will continue to work so numbers displayed on "MySocialSecurity" will be affected.
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Re: Increasing SS PIA by working again

Post by JoeRetire » Thu Feb 15, 2018 11:18 am

restingonmylaurels wrote:
Thu Feb 15, 2018 4:13 am
Thanks for all the calculation confirmations. In summary, if one were to work an additional five years at $50,000 annually and then live 20 years in retirement after full retirement age, they would add $21,420 in total to their SS retirement benefits received. Everyone has their own way but to me, the additional benefit does not seem worth it in exchange for adding five more working years to one's life.
If the increase to your PIA is the only factor you are considering, then it seems unlikely that working five years for $50,000 per year is worthwhile.

Of course that is never the only factor to consider. There is five years of $50,000 income that is worth something. There is the potential to delay the start of social security benefits that is worth something. There may be spousal/survivor benefit increases that would be worthwhile. There may be decreased company-subsidized health insurance costs that are worth something. There may be pension effects. Etc, etc.

Trying to make a work/don't work decision based solely on increased SS PIA seems silly.

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Re: Increasing SS PIA by working again

Post by mptfan » Thu Feb 15, 2018 11:54 am

JoeRetire wrote:
Thu Feb 15, 2018 11:18 am
Trying to make a work/don't work decision based solely on increased SS PIA seems silly.
I don't see where the OP said he was doing that.

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Re: Increasing SS PIA by working again

Post by restingonmylaurels » Fri Feb 16, 2018 10:09 am

Watty wrote:
Thu Feb 15, 2018 9:37 am
The flip side is doing a lot of things like travel or being real active will be harder or perhaps impossible as you age. I figured that up to about the age of 75 or so would likely be the best years of my retirement because even if my health remains relatively good I will still slow down a lot by then. For someone that is 60 that would be 15 "best" retirement years. To work five more of those would cost a third of your best years. It is an extreme case but I also know someone that was working until he was 65 and could get Medicare even though he could have afforded to retire. He had been in OK health but he unexpectedly died one weekend two months before he turned 65 so he did not have any retirement.
You have nailed it on the head for my way of thinking, I would much rather spend those 15 years doing what I want to do instead of chasing a small amount of incremental income I do not really need.

I think the people on this discussion might be of an age to remember something I would like to query. SSI requires at least 10 working years and the calculation is based on the highest earning 35 years. Does anyone remember a time when SSI was calculated based upon your 10 highest earning years? I may be conflating the two periods just stated but my memory of more than a decade ago is that is how the SSA used to do the calculation. I could be totally wrong in that, so would appreciate any old memories.

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Re: Increasing SS PIA by working again

Post by Tamales » Fri Feb 16, 2018 10:41 am

I can't say I've traced the calculation history back to 1935, but it has always been based on a 'working lifetime' of earnings. It's hard to imagine there being a time when 10 years was considered a typical working lifetime.

edit: it looks like it started out where the benefit amount was based on the sum of all your lifetime earnings, regardless of how many years that was:
https://www.ssa.gov/history/1935chart1.html
Initially, benefits were paid as a lump sum. Monthly benefits didn't start until 1940.

Somewhere along the way, the highest 35 years became part of the calculation...

edit #2: I can't even find in the current law describing the calculation ( https://www.law.cornell.edu/uscode/text/42/415 ) where the highest 35 years comes into play. Search for 35 (as number or text) and it's nowhere to be found.

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Re: Increasing SS PIA by working again

Post by David Jay » Fri Feb 16, 2018 2:09 pm

Tamales wrote:
Fri Feb 16, 2018 10:41 am
edit #2: I can't even find in the current law describing the calculation ( https://www.law.cornell.edu/uscode/text/42/415 ) where the highest 35 years comes into play. Search for 35 (as number or text) and it's nowhere to be found.
Here is a description of the calculation on the Social Security website: https://www.ssa.gov/OACT/ProgData/retirebenefit1.html
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Re: Increasing SS PIA by working again

Post by ivk5 » Fri Feb 16, 2018 2:10 pm

Tamales wrote:
Fri Feb 16, 2018 10:41 am
edit #2: I can't even find in the current law describing the calculation ( https://www.law.cornell.edu/uscode/text/42/415 ) where the highest 35 years comes into play. Search for 35 (as number or text) and it's nowhere to be found.
That's because for most people/cases it's the result of subtracting five from the 40 years that elapse between (ETA: and excluding) attaining age 21 and 62. Search for the definitions of "benefit computation years" and "number of elapsed years."
42 USC § 415(b)(2)(B)(iii): the term “number of elapsed years” means ... the number of calendar years after 1950 (or, if later, the year in which the individual attained age 21) and before the year in which the individual died, or, if it occurred earlier (but after 1960), the year in which he attained age 62
42 USC § 415(b)(2)(A): The number of an individual’s benefit computation years equals the number of elapsed years reduced—
(i) in the case of an individual who is entitled to old-age insurance benefits (except as provided in the second sentence of this subparagraph), or who has died, by 5 years
Last edited by ivk5 on Fri Feb 16, 2018 2:13 pm, edited 1 time in total.

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Re: Increasing SS PIA by working again

Post by ivk5 » Fri Feb 16, 2018 2:10 pm

[duplicate]
Last edited by ivk5 on Fri Feb 16, 2018 2:13 pm, edited 1 time in total.

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Re: Increasing SS PIA by working again

Post by letsgobobby » Fri Feb 16, 2018 2:13 pm

restingonmylaurels wrote:
Thu Feb 15, 2018 4:13 am
Thanks for all the calculation confirmations. In summary, if one were to work an additional five years at $50,000 annually and then live 20 years in retirement after full retirement age, they would add $21,420 in total to their SS retirement benefits received. Everyone has their own way but to me, the additional benefit does not seem worth it in exchange for adding five more working years to one's life.
After the second bend point, it is very much a "bad deal" to keep paying into SS.

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Re: Increasing SS PIA by working again

Post by Tamales » Fri Feb 16, 2018 8:57 pm

ivk5 wrote:
Fri Feb 16, 2018 2:10 pm
Tamales wrote:
Fri Feb 16, 2018 10:41 am
edit #2: I can't even find in the current law describing the calculation ( https://www.law.cornell.edu/uscode/text/42/415 ) where the highest 35 years comes into play. Search for 35 (as number or text) and it's nowhere to be found.
That's because for most people/cases it's the result of subtracting five from the 40 years that elapse between (ETA: and excluding) attaining age 21 and 62. Search for the definitions of "benefit computation years" and "number of elapsed years."
42 USC § 415(b)(2)(B)(iii): the term “number of elapsed years” means ... the number of calendar years after 1950 (or, if later, the year in which the individual attained age 21) and before the year in which the individual died, or, if it occurred earlier (but after 1960), the year in which he attained age 62
42 USC § 415(b)(2)(A): The number of an individual’s benefit computation years equals the number of elapsed years reduced—
(i) in the case of an individual who is entitled to old-age insurance benefits (except as provided in the second sentence of this subparagraph), or who has died, by 5 years
Well, thanks for providing the secret decoder ring on that ivk5. I don't know what you mean by "ETA: and excluding" but I presume it has something to do with 62 minus 21 being 41 not 40.

I can only assume I'm missing some historic context here, on why it had to be written in such a convoluted fashion.

I also notice that the word "bendpoints" is absent. Apparently this is the related text: "...to the extent that such earnings do not exceed the amount established for purposes of this clause by subparagraph (B)"

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Re: Increasing SS PIA by working again

Post by ivk5 » Sat Feb 17, 2018 2:12 am

Tamales wrote:
Fri Feb 16, 2018 8:57 pm
I also notice that the word "bendpoints" is absent. Apparently this is the related text: "...to the extent that such earnings do not exceed the amount established for purposes of this clause by subparagraph (B)"
No, see the progressive percentage calculations described in section (a)(1)(A) and (B).

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