Passing the second SSA Bend Point - Reversible?

[AtlasShrugged?]

Bogleheads....I recently downloaded a spreadsheet for 'The Finance Buff' and filled in my data. I have passed the second bend point. Yay me.

Is it possible to go back below that second bend point? For instance, if you lose your job and are unable to find new employment. Or disability. Or is the deal that once you pass that second bend point - you passed it for life.

Thoughts?

[aristotelian]

I don't see how because it is based on your highest 35 years of earnings. Even if you never earned another penny, your highest 35 years is already in the books. But why would you want less SS?

[beardsworth]

I don't see how because it is based on your highest 35 years of earnings. Even if you never earned another penny, your highest 35 years is already in the books. But why would you want less SS?

I, too, was confused about why someone would, in the words of the thread title, want to know whether Social Security gains were "reversible." But since the OP then refers to some hypothetical future misfortunes in a person's working life, I think what's actually being asked is: Once you've achieved this, is there any way you could still lose it, i.e., have it taken away?

Unfortunately, I don't know the "official" answer, but aristotelian's response certainly makes common sense, that things could never again be worse than the 35 highest years already booked.

[Constant Chaos]

I don't see how because it is based on your highest 35 years of earnings. Even if you never earned another penny, your highest 35 years is already in the books. But why would you want less SS?

Passing the second bend point is not the same thing as having 35 years. It can be done, at least according to the finance buff's spreadsheet, in under 20 years.

[22twain]

IIRC the bend points are indexed according to the National Average Wage Index in the same way that your earnings are, in the year that you turn 60. Your bend points for that year are calculated the following year and used to calculate your benefits for age 62. They don't change afterwards.

Before that, your bend points don't even exist, technically. I used to estimate my future benefits by using then-current (pre-60) bend points, which increased from year to year along with the NAWI (they did decrease slightly in 2009), but I considered this as only an approximation for my future benefits in then-current dollars.

So it looks like if you stop paying into SS before age 60, or your high-35 years remain the same, your high-35 earnings are fixed. However, your indexed earnings increase along with the NAWI, and so do the current bend points. They stay in step with each other.

[terran]

This is how your Average Indexed Monthly Earnings (AIME) is calculated

Up to 35 years of earnings are needed to compute average indexed monthly earnings. After we determine the number of years, we choose those years with the highest indexed earnings, sum such indexed earnings, and divide the total amount by the total number of months in those years. We then round the resulting average amount down to the next lower dollar amount. The result is the AIME.

This means that your total earnings are all that really matters. So if you have enough total earnings to pass the 2nd bend point, then you've passed in forever even if you have a bunch of $0 income years counted in your highest 35 earning years. Based on the bend points posted here once you have passed lifetime earnings of $5336 x 35 years x 12 months = $2.24 Million you will have passed the 2nd bend point forever.

Since wages are indexed, as long as your cumulative indexed earnings pass the bend point in the year you do the calculation then they should continue to be indexed to pass in in the future.

Edited: Thanks to Lars_2013 for correcting my monthly vs annual earning mistake.

[AtlasShrugged?]

But why would you want less SS?

-- aristotelian....Who said I wanted less SSA? I spoke of incapacity.

I think what's actually being asked is: Once you've achieved this, is there any way you could still lose it, i.e., have it taken away?

....Beardsworth: Yes, you nailed it, that is what I was asking. I am definitely looking for the 'official' answer, assuming anyone actually knows.

So it looks like if you stop paying into SS before age 60, or your high-35 years remain the same, your high-35 earnings are fixed. However, your indexed earnings increase along with the NAWI, and so do the current bend points. They stay in step with each other.

-- 22twain...I think you gave the answer. As long as your indexed earnings are above the NAWI, you stay above the second bend point. Am I understanding you correctly?

[AtlasShrugged?]

But why would you want less SS?

-- aristotelian....Who said I wanted less SSA? I spoke of incapacity.

I think what's actually being asked is: Once you've achieved this, is there any way you could still lose it, i.e., have it taken away?

....Beardsworth: Yes, you nailed it, that is what I was asking. I am definitely looking for the 'official' answer, assuming anyone actually knows.

So it looks like if you stop paying into SS before age 60, or your high-35 years remain the same, your high-35 earnings are fixed. However, your indexed earnings increase along with the NAWI, and so do the current bend points. They stay in step with each other.

-- 22twain...I think you gave the answer. As long as your indexed earnings are above the NAWI, you stay above the second bend point. Am I understanding you correctly?

[Lars_2013]

This means that your total earnings are all that really matters. So if you have enough total earnings to pass the 2nd bend point, then you've passed in forever even if you have a bunch of $0 income years counted in your highest 35 earning years. Based on the bend points posted here once you have passed lifetime earnings of $5336 x 35 = $186,760 you will have passed the 2nd bend point forever. You could therefore, conceivably hit the 2nd ben point in as little as 2 years (not 1 year because income over $127,200 in 2017 is neither taxed nor counted for social security).

Since wages are indexed, as long as your cumulative indexed earnings pass the bend point in the year you do the calculation then they should continue to be indexed to pass in in the future.

This is conceptually correct but the math is wrong because you mixed up annual and monthly earnings. Lifetime earnings (adjusted using the wage index) would have to be $2,241,120 for someone turning 62 in 2017 in order to have hit the 2nd bend point. (Cumulative earnings of $2.24 million / 35 years / 12 months = $5336.) That's between 17 and 18 years of work at the current social security maximum of $127k.

[David Jay]

So it looks like if you stop paying into SS before age 60, or your high-35 years remain the same, your high-35 earnings are fixed. However, your indexed earnings increase along with the NAWI, and so do the current bend points. They stay in step with each other.

-- 22twain...I think you gave the answer. As long as your indexed earnings are above the NAWI, you stay above the second bend point. Am I understanding you correctly?

I made a spreadsheet to calculate my SS PIA, so I have been through the calculations. "22twain" (in your quote above) makes good assumptions, but they are assumptions.

His second paragraph makes point that no one has an official PIA until age 60. I know my wife's PIA with certainty because she turned 60 in 2016 and the NAWI for 2016 was released this October so I was able to perform the calculation. Nothing is "official" until age 60. Even after age 60, laws can (and sometimes do) change. Just look at the file-and-suspend rule changes in 2015.

[terran]

This means that your total earnings are all that really matters. So if you have enough total earnings to pass the 2nd bend point, then you've passed in forever even if you have a bunch of $0 income years counted in your highest 35 earning years. Based on the bend points posted here once you have passed lifetime earnings of $5336 x 35 = $186,760 you will have passed the 2nd bend point forever. You could therefore, conceivably hit the 2nd ben point in as little as 2 years (not 1 year because income over $127,200 in 2017 is neither taxed nor counted for social security).

Since wages are indexed, as long as your cumulative indexed earnings pass the bend point in the year you do the calculation then they should continue to be indexed to pass in in the future.

This is conceptually correct but the math is wrong because you mixed up annual and monthly earnings. Lifetime earnings (adjusted using the wage index) would have to be $2,241,120 for someone turning 62 in 2017 in order to have hit the 2nd bend point. (Cumulative earnings of $2.24 million / 35 years / 12 months = $5336.) That's between 17 and 18 years of work at the current social security maximum of $127k.

You're right, thanks for the correction. I have it right in my spreadsheets, but I goofed in my response.

[Zack59]

Is it concluded that if you are between 62 and 66 with zero income in the past 5 years and no income in the future your FRA benefit cannot be reduced only increased with COLA's? Regardless of having 35 years or not?

[marcopolo]

Not sure what happens in case wage and/or CPI deflation. Do the SS rules allow for Index multiplier of less than 1.0? If so, that could bring you back below the bend point sometime after you have passed it.

[David Jay]

Is it concluded that if you are between 62 and 66 with zero income in the past 5 years and no income in the future your FRA benefit cannot be reduced only increased with COLA's? Regardless of having 35 years or not?

Short of a change in the law, you are correct. You can also extend your statement back to age 60. You can't claim before age 62 but the calculation is done based on age 60 data.

Of course claiming before or after FRA will respectively decrease or increase your benefit.

[letsgobobby]

Deleted

[reimann]

For the sake of argument, I believe it also depends on how much per/YEAR

For instance, if I earn 3 million dollars in one year and nothing for the next 34 years, are my benefits the same as if I earn 3 million dollars spread over that 35 years?

[letsgobobby]

Deleted

[ResearchMed]

For the sake of argument, I believe it also depends on how much per/YEAR

For instance, if I earn 3 million dollars in one year and nothing for the next 34 years, are my benefits the same as if I earn 3 million dollars spread over that 35 years?

Yes, it matters, because of the SS ceiling. The amount of income that is considered for SS is capped each year, and the cap has slowly climbed over time.

However, within that annual cap (let's assume it's a constant 100k, though it is above that now), it wouldn't matter if you had two years at 75k each, vs. one year at 50k and one year at 100k.

RM

[tibbitts]

For the sake of argument, I believe it also depends on how much per/YEAR

For instance, if I earn 3 million dollars in one year and nothing for the next 34 years, are my benefits the same as if I earn 3 million dollars spread over that 35 years?

Yes, it matters, because of the SS ceiling. The amount of income that is considered for SS is capped each year, and the cap has slowly climbed over time.

However, within that annual cap (let's assume it's a constant 100k, though it is above that now), it wouldn't matter if you had two years at 75k each, vs. one year at 50k and one year at 100k.

RM

Also you need 10 years of minimum earnings to qualify for disability benefits, so $3M in one year would not meet that requirement.

[Dottie57]

So it looks like if you stop paying into SS before age 60, or your high-35 years remain the same, your high-35 earnings are fixed. However, your indexed earnings increase along with the NAWI, and so do the current bend points. They stay in step with each other.

Can you expand on this?

I had previously calculated my second bend point to be around $2.3 million in lifetime adjusted earnings over my highest 35 years.

But in another thread a respected poster says the bend point can occur between $3m and $5m, depending on the year born. This runs counter to my understanding and also sees counter to common sense.

Can you expand on the quote?

I have the Physician on fire spreadsheet. First of all the bendpoints are calculated on the inflation modified income amounts. So in 1972 I made under 1k in a part time job during high school. Adjusted for inflation the amount is 5k.

Look on the SSA.gov site for details of how the adjustment amounts are calc’d and how the bend points are calc’d.

[marcopolo]

The only scenario I can think of where one could fall back below the second bend point after passing it would be if we had deflation. I am not sure how Soc Sec would handle that. Technically, that could result in wage index multipliers of less than 1.0. I am not sure if the SS rules allow that in practice.

[letsgobobby]

Deleted

[neurosphere]

I haven't worked through all these spreadsheets and don't care to do so. What I'm trying to get at is a gestalt for how much a person has to earn over 35 working years to reach the second bend point. In my case it is about $2.3 million in 2015, 2016, 2017, or 2018 dollars. But your point is over long enough times and particularly when inflation has been high, my estimate will become less and less accurate. Using 1972 dollars, then, my estimate is that one needed $2.3/5 million in earnings over 35 years to reach the second bend point. That's around $450,000. But Fivek posted that some needed earnings over $3 million, which seems to adjust for inflation in the wrong direction.

I have not read the rest of this thread, and I'm likely proposing something which has already been said. But I don't think it's valid to think about "earnings" needed to reach a particular bend point, but rather only "indexed" earnings. And only earnings under the maximum (which is redundant with saying "indexed" earnings). And the year in which the earnings were earned are important (which is always relative to the year one turns 60).

Maybe it would be helpful to figure out the amount of indexed earnings needed to reach the second bend point for one who is 62 this year? Because then we have all the data needed to calculate the exact value. For anyone younger, assumptions would need to be made about wage-inflation in order to calculate the actual (indexed!) earnings needed to reach any particular bend point.

Also, letsgobobby, when talking about "today's" dollars for anyone not yet 62, one need's to specify whether you mean "wage dollars" or "price dollars". Because wage and price inflation move at different rates. So for a different set of inflation numbers, converting back to "today's dollars" will give you a different answer whether you mean wage-equivalence or price-equivalence.

[22twain]

I had previously calculated my second bend point to be around $2.3 million in lifetime adjusted earnings over my highest 35 years.

But in another thread a respected poster says the bend point can occur between $3m and $5m, depending on the year born.

That can't be correct, unless maybe he was trying to project the bend points far into the future. Here's a table of actual historical bend points, versus the year of eligibility (the year in which one turns 62):

https://www.ssa.gov/oact/cola/bendpoints.html

For someone who turned 62 in 1979, the second bend point is $1085 in indexed earnings per month, or $447,300 total indexed earnings (using the highest 35 years, i.e. 420 months, of indexed earnings).

For someone who turns 62 this year (2018), the second bend point is $5397 per month, or $2,266,740 total indexed earnings.

[soccerrules]

can any current retirees comment on if they calculated the indexed earnings to hit the 2nd bend point in years past ? What that number was/is ?

My assumption is that the the 2nd bend point has moved higher over the years but consistent with wage base, inflation, and indexing measures.

Although moving higher the PIA has stayed consistent for "today's dollars"

[neurosphere]

My assumption is that the the 2nd bend point has moved higher over the years but consistent with wage base, inflation, and indexing measures.

The bend points scale directly with only ONE measure: the Average Wage Index (https://www.ssa.gov/oact/cola/awiseries.html)

Many, including me, sometimes refer to changes in the wage index as "wage inflation". The other common measure of inflation is the Consumer Price Index, i.e. price inflation.

Future bend points will change along with wage inflation, but not price inflation (two different measures). Historically, wage inflation is higher than price inflation. So we all should be careful when thinking about past or future bend points in terms of "today's dollars", unless you define what you mean by "today" and "dollars", and also be careful with the word "inflation" when talking about SS.

[22twain]

The bend points scale directly with only ONE measure: the Average Wage Index (https://www.ssa.gov/oact/cola/awiseries.html)

The "gotcha" in comparing that table with the one that I linked to for the bend points is that a given year's bend points are determined using the AWI from two years previous.

To see this, calculate the ratio of the bend points, either the first one or the second one, for (e.g.) 2018 and 2010, then the ratio of the AWI for 2016 and 2008. The results are different only because of rounding error. When calculating the current year's bend points, I think the official calculation uses the 1979 bend points, the 1977 AWI, and the "current year - 2" AWI, then rounds off the results to the nearest dollar.

[neurosphere]

The bend points scale directly with only ONE measure: the Average Wage Index (https://www.ssa.gov/oact/cola/awiseries.html)

The "gotcha" in comparing that table with the one that I linked to for the bend points is that a given year's bend points are determined using the AWI from two years previous.

Yes, the bend points are based on the most recently available* wage data, and since there is almost a 2 year delay in reported wages, the most recent wage data for 2018 bend points are 2016 wages.

An example of that "n-2" calculation for 2018 that you mention is made explicit with the example at the end of this link: https://www.ssa.gov/oact/cola/piaformula.html

NS

*I don't mean to imply that the bend point formula uses "most recent" in the law which determines the calculation. If for some reason wage data become available in real time due to improved reporting or a magic spell, for example, the bend points which apply for a given year would still be based on the wages from the calendar year which is "two years" prior. The actual language, courtesy of sscritic, is (Sec. 215. [42 U.S.C. 415]): ...the national average wage index...for the "second calendar year preceding the calendar year for which the determination is made".

[ResearchMed]

Okay... so what IS the answer?

Given the changes that might reflect different things, IS it possible, once having passed the second bend point, to fall below it again?

I'm not sure that alone makes a huge difference in the benefits, if one falls just a bit under either bend point.
Alas, it's not like there is a bonus for passing "Go"

I'm not trying to be dismissive.
The question IS of interest, even if the amount of benefit reduction might only be "small".

Thanks.

RM

[latesaver]

This means that your total earnings are all that really matters. So if you have enough total earnings to pass the 2nd bend point, then you've passed in forever even if you have a bunch of $0 income years counted in your highest 35 earning years. Based on the bend points posted here once you have passed lifetime earnings of $5336 x 35 = $186,760 you will have passed the 2nd bend point forever. You could therefore, conceivably hit the 2nd ben point in as little as 2 years (not 1 year because income over $127,200 in 2017 is neither taxed nor counted for social security).

Since wages are indexed, as long as your cumulative indexed earnings pass the bend point in the year you do the calculation then they should continue to be indexed to pass in in the future.

This is conceptually correct but the math is wrong because you mixed up annual and monthly earnings. Lifetime earnings (adjusted using the wage index) would have to be $2,241,120 for someone turning 62 in 2017 in order to have hit the 2nd bend point. (Cumulative earnings of $2.24 million / 35 years / 12 months = $5336.) That's between 17 and 18 years of work at the current social security maximum of $127k.

You're right, thanks for the correction. I have it right in my spreadsheets, but I goofed in my response.

Just to clarify something - if one were to make $2.24M in one year, does that mean they've passed the second bend point? Or does only the $ you earn *up to the social security maximum* count towards the $2.24M?

[terran]

This means that your total earnings are all that really matters. So if you have enough total earnings to pass the 2nd bend point, then you've passed in forever even if you have a bunch of $0 income years counted in your highest 35 earning years. Based on the bend points posted here once you have passed lifetime earnings of $5336 x 35 = $186,760 you will have passed the 2nd bend point forever. You could therefore, conceivably hit the 2nd ben point in as little as 2 years (not 1 year because income over $127,200 in 2017 is neither taxed nor counted for social security).

Since wages are indexed, as long as your cumulative indexed earnings pass the bend point in the year you do the calculation then they should continue to be indexed to pass in in the future.

This is conceptually correct but the math is wrong because you mixed up annual and monthly earnings. Lifetime earnings (adjusted using the wage index) would have to be $2,241,120 for someone turning 62 in 2017 in order to have hit the 2nd bend point. (Cumulative earnings of $2.24 million / 35 years / 12 months = $5336.) That's between 17 and 18 years of work at the current social security maximum of $127k.

You're right, thanks for the correction. I have it right in my spreadsheets, but I goofed in my response.

Just to clarify something - if one were to make $2.24M in one year, does that mean they've passed the second bend point? Or does only the $ you earn *up to the social security maximum* count towards the $2.24M?

Right, only the amount you earn up to the social security maximum would count. You also don't pay social security tax on the amount over the maximum.

[latesaver]

This means that your total earnings are all that really matters. So if you have enough total earnings to pass the 2nd bend point, then you've passed in forever even if you have a bunch of $0 income years counted in your highest 35 earning years. Based on the bend points posted here once you have passed lifetime earnings of $5336 x 35 = $186,760 you will have passed the 2nd bend point forever. You could therefore, conceivably hit the 2nd ben point in as little as 2 years (not 1 year because income over $127,200 in 2017 is neither taxed nor counted for social security).

Since wages are indexed, as long as your cumulative indexed earnings pass the bend point in the year you do the calculation then they should continue to be indexed to pass in in the future.

This is conceptually correct but the math is wrong because you mixed up annual and monthly earnings. Lifetime earnings (adjusted using the wage index) would have to be $2,241,120 for someone turning 62 in 2017 in order to have hit the 2nd bend point. (Cumulative earnings of $2.24 million / 35 years / 12 months = $5336.) That's between 17 and 18 years of work at the current social security maximum of $127k.

You're right, thanks for the correction. I have it right in my spreadsheets, but I goofed in my response.

Just to clarify something - if one were to make $2.24M in one year, does that mean they've passed the second bend point? Or does only the $ you earn *up to the social security maximum* count towards the $2.24M?

Right, only the amount you earn up to the social security maximum would count. You also don't pay social security tax on the amount over the maximum.

that's what i figured. looks like i am up to $1.4M. i assume the first step is to take that and divide by (35*12) to get a monthly earnings amount. Where do i cross reference that number to determine the SS amount i would get if i retired today (at 38) and elected to take SS at 62/70?

[FoolMeOnce]

For the sake of argument, I believe it also depends on how much per/YEAR

For instance, if I earn 3 million dollars in one year and nothing for the next 34 years, are my benefits the same as if I earn 3 million dollars spread over that 35 years?

Yes, it matters, because of the SS ceiling. The amount of income that is considered for SS is capped each year, and the cap has slowly climbed over time.

However, within that annual cap (let's assume it's a constant 100k, though it is above that now), it wouldn't matter if you had two years at 75k each, vs. one year at 50k and one year at 100k.

RM

Only if you are talking about today's inflation-adjusted dollars. If your earned 75k nominal in 1990 and 50k nominal in 2018, you'd be better off than the opposite.

[terran]

that's what i figured. looks like i am up to $1.4M. i assume the first step is to take that and divide by (35*12) to get a monthly earnings amount. Where do i cross reference that number to determine the SS amount i would get if i retired today (at 38) and elected to take SS at 62/70?

Here are the instructions

You'll need to take a step back and multiply each of your year's earnings by the wage factors you'll find here (also found in the instructions I linked above) to get them in 2018 dollars. Once you add all of them up, you can divide by 420 as you say, or by 35 to get the annual instead of monthly amount. Next you'll multiply $895 by 90% and the amount over $895 but below $5397 by 32%. Add these together and you'd have you full retirement age benefit (currently 67, but seems likely to go up for a 38 year old among who knows what other changes.

So for example, if we use $1.4 million (remember your number is likely higher once you index for inflation) we get $1.4 million / 420 = $3,333.33. 90% x 895 + (3,333.33 - 895) x 32% = $1,585.77/month or $19,029.24/year at FRA of 67. These are 2018 numbers, so the actual numbers will be higher, but they'll be the equivalent to the extent that the wage index used by social security accurately matches inflation.

You can see the adjustments for starting at various ages here. Looks like you'd be looking at a 70% benefit at 62 of 1,110.039 and a 124% benefit at 70 of $1,966.35. These of course are based on current rules and current full retirement age, which as you'll see has consistently been raised depending on when you were born.

[soccerrules]

that's what i figured. looks like i am up to $1.4M. i assume the first step is to take that and divide by (35*12) to get a monthly earnings amount. Where do i cross reference that number to determine the SS amount i would get if i retired today (at 38) and elected to take SS at 62/70?

Here are the instructions

You'll need to take a step back and multiply each of your year's earnings by the wage factors you'll find here (also found in the instructions I linked above) to get them in 2018 dollars. Once you add all of them up, you can divide by 420 as you say, or by 35 to get the annual instead of monthly amount. Next you'll multiply $895 by 90% and the amount over $895 but below $5397 by 32%. Add these together and you'd have you full retirement age benefit (currently 67, but seems likely to go up for a 38 year old among who knows what other changes.

So for example, if we use $1.4 million (remember your number is likely higher once you index for inflation) we get $1.4 million / 420 = $3,333.33. 90% x 895 + (3,333.33 - 895) x 32% = $1,585.77/month or $19,029.24/year at FRA of 67. These are 2018 numbers, so the actual numbers will be higher, but they'll be the equivalent to the extent that the wage index used by social security accurately matches inflation.

You can see the adjustments for starting at various ages here. Looks like you'd be looking at a 70% benefit at 62 of 1,110.039 and a 124% benefit at 70 of $1,966.35. These of course are based on current rules and current full retirement age, which as you'll see has consistently been raised depending on when you were born.

Late saver- Terran has provided a good data point for you to consider, a few additional comments.
You would need to earn an additional $866K in indexed earnings to hit the 2nd bend point. In doing so that would add @ $660/mo to your FRA benefit (total $2,246.25/mo). At this point extra income earned does little to your benefit. For each $100K in indexed earnings you add $35.71/mo to your FRA benefit. The difference is after the 2nd bend point you receive only 15%. $100,000 / 420= $238.09 x .15= $35.71. Where as under the 2nd bend point at 32% = $76.18/mo for the same $100,000 in indexed earnings.
The biggest positives to continuing to work once you have reached the 2nd bend point are:
1) Covering current expenses
2) Not withdrawing from nest egg (it can grow)
3) Ability to delay SS to FRA and potentially past 67 where you earn a risk free guaranteed 8% return on your FRA SS Benefit

If you have a spouse, figuring out a claiming strategy is fun stuff. Different time, different thread topic. (search there are plenty)

[22twain]

The only scenario I can think of where one could fall back below the second bend point after passing it would be if we had deflation. I am not sure how Soc Sec would handle that. Technically, that could result in wage index multipliers of less than 1.0. I am not sure if the SS rules allow that in practice.

It's already happened. In 2008 the AWI was $41,334.97. In 2009 it was $40,711.61, a decrease of 1.51%. Two years later, the bend points dropped, from $761 and $4586 in 2010 to $749 and $4517 in 2011, a decrease of about 1.57%. The slightly different %'s are probably because of rounding off the final result of the bend point calculation.

But that wouldn't have put moved anyone from above the second bend point to below it. If they didn't have any new earnings to figure into the calculation, then both their total indexed earnings and the bend point would have decreased by the same %.

Okay... so what IS the answer?

Given the changes that might reflect different things, IS it possible, once having passed the second bend point, to fall below it again?

No, as far as I can tell. See above. More explicitly, in 2010 the second bend point corresponded to $4586 x 420 = $1,926,120 total indexed earnings.

Suppose you had exactly that much total indexed earnings in 2010, and didn't earn anything more afterwards.

The next year, the AWI decreased by 1.51%, so your total indexed earnings would have decreased by the same amount, to $1,897,036. (nearest dollar)

In the meantime, the second bend point decreased to $4517, corresponding to total indexed earnings of $4517 x 420 = $1,897,140. A slight difference from above, probably due to having rounded off the bend points to the nearest dollar. Close enough for government work, as they say.

If anyone can present an explicit example in which someone ends up above the second bend point in one year, then below it in a later year, please do so!

[JGoneRiding]

This is how your Average Indexed Monthly Earnings (AIME) is calculated

Up to 35 years of earnings are needed to compute average indexed monthly earnings. After we determine the number of years, we choose those years with the highest indexed earnings, sum such indexed earnings, and divide the total amount by the total number of months in those years. We then round the resulting average amount down to the next lower dollar amount. The result is the AIME.

This means that your total earnings are all that really matters. So if you have enough total earnings to pass the 2nd bend point, then you've passed in forever even if you have a bunch of $0 income years counted in your highest 35 earning years. Based on the bend points posted here once you have passed lifetime earnings of $5336 x 35 years x 12 months = $2.24 Million you will have passed the 2nd bend point forever.

Since wages are indexed, as long as your cumulative indexed earnings pass the bend point in the year you do the calculation then they should continue to be indexed to pass in in the future.

Edited: Thanks to Lars_2013 for correcting my monthly vs annual earning mistake.

I want to point out that it isn't actual earnings but rather earnings subject to ss taxes. Earnings not subject to tax aren't included in the bend points.

So say you are a super high earner and make 600k for 5 years but min money before and after, you might not hit the second bend point

[letsgobobby]

Deleted

[Monster99]

You can download the AnyPIA program from the ssa.gov website and run your actual wage data. The program will output wage indexed data and bend point calculations.

[bb]

If past wages and the bend points use the same indexing I don't see how once you meet the 2'nd bend point you could ever not meet it at some point in the future.

[marcopolo]

The only scenario I can think of where one could fall back below the second bend point after passing it would be if we had deflation. I am not sure how Soc Sec would handle that. Technically, that could result in wage index multipliers of less than 1.0. I am not sure if the SS rules allow that in practice.

It's already happened. In 2008 the AWI was $41,334.97. In 2009 it was $40,711.61, a decrease of 1.51%. Two years later, the bend points dropped, from $761 and $4586 in 2010 to $749 and $4517 in 2011, a decrease of about 1.57%. The slightly different %'s are probably because of rounding off the final result of the bend point calculation.

But that wouldn't have put moved anyone from above the second bend point to below it. If they didn't have any new earnings to figure into the calculation, then both their total indexed earnings and the bend point would have decreased by the same %.

Thanks for the clarification. That makes sense. I was thinking about the series of Average Wage Index values being reduced, but had not considered that the bend point thresholds are also adjusted by the same percentage. So, the net is still being just above the bend point.

[soccerrules]

Late saver- Terran has provided a good data point for you to consider, a few additional comments.
You would need to earn an additional $866K in indexed earnings to hit the 2nd bend point. In doing so that would add @ $660/mo to your FRA benefit (total $2,246.25/mo). At this point extra income earned does little to your benefit. For each $100K in indexed earnings you add $35.71/mo to your FRA benefit. The difference is after the 2nd bend point you receive only 15%. $100,000 / 420= $238.09 x .15= $35.71. Where as under the 2nd bend point at 32% = $76.18/mo for the same $100,000 in indexed earnings.
The biggest positives to continuing to work once you have reached the 2nd bend point are:
1) Covering current expenses
2) Not withdrawing from nest egg (it can grow)
3) Ability to delay SS to FRA and potentially past 67 where you earn a risk free guaranteed 8% return on your FRA SS Benefit

If you have a spouse, figuring out a claiming strategy is fun stuff. Different time, different thread topic. (search there are plenty)

$1.4m plus $866k = $2.28 million. Again, that magic $2.3 million figure which I approximated is the lifetime earnings in 2018 dollars required to hit the second bend point. no additional calculations required.

Other ways this info could be useful:

- one has to earn about $65,000 of SS eligible wages this year and every year for 35 years to reach the second bend point (in today’s dollars).

- if one is earning $100,000 per year, how many years will it take to reach the second bend point? About 23, assuming your taxable wages rise at about the rate of SS wage inflation.

- If one has earned, say, $1.5 million in today’s dollars, how many more dollars does one have to earn to reach the second bend point? About $800,000, in today’s dollars, as long as all earnings are within the 35 highest earning years.

I’m being somewhat loose with some language here. That’s the point. For most people, I think they just want a decent estimate of where they are on the SS curve. They’re not necessarily looking for a detailed calculation.

Bobby- maybe someone smarter than me can answer.
I think the 2nd Bend point earnings target is a moving number based on your first age of eligibility (62) for SS.

Looking back for someone that turned 62 in 1998 the max SS income taxed was $68,400. The second bend point paid out in dollars $2,875 in 1998. that is $1,207,500 in indexed earnings to hit that bend point - 2,875 * 420, (not $2.3M). For me not yet 62 that 1998 $68,400 is indexed to $115,992 in 2018 dollars.
My point is for someone turning 62 another 20 years down the road the 2nd bend point might be $3.4M in indexed earnings.

I believe the magic is for SS benefits based on indexed dollars the $1.2M (1998), $2.3M (2018) and hypothetical $3.4M(2038) all pay out the same inflation/wage adjusted SS benefit dollars. Although the actual dollars paid out to these 3 individuals will be different -- I am stating that SS is attempting to give all 3 the same purchasing power to account for inflation. I could be really out in left field.
That is my hypothesis.

[smitcat]

This is conceptually correct but the math is wrong because you mixed up annual and monthly earnings. Lifetime earnings (adjusted using the wage index) would have to be $2,241,120 for someone turning 62 in 2017 in order to have hit the 2nd bend point. (Cumulative earnings of $2.24 million / 35 years / 12 months = $5336.) That's between 17 and 18 years of work at the current social security maximum of $127k.

You're right, thanks for the correction. I have it right in my spreadsheets, but I goofed in my response.

Just to clarify something - if one were to make $2.24M in one year, does that mean they've passed the second bend point? Or does only the $ you earn *up to the social security maximum* count towards the $2.24M?

Right, only the amount you earn up to the social security maximum would count. You also don't pay social security tax on the amount over the maximum.

that's what i figured. looks like i am up to $1.4M. i assume the first step is to take that and divide by (35*12) to get a monthly earnings amount. Where do i cross reference that number to determine the SS amount i would get if i retired today (at 38) and elected to take SS at 62/70?

The only way to get a real exact SS you would get is to use the SSAgov calculator...
Go here...
https://www.ssa.gov/planners/calculators/

Select the "detailed" calculator and populate it with your exact earnings to date , the instructions will tell you how.
Then put in zeros for any year that you will be earning nothing (retired) in the future.
The results will refect you SS contirbutions to date and any future years that you elect to put in.

[letsgobobby]

Deleted

[soccerrules]

Bobby- maybe someone smarter than me can answer.
I think the 2nd Bend point earnings target is a moving number based on your first age of eligibility (62) for SS.

Looking back for someone that turned 62 in 1998 the max SS income taxed was $68,400. The second bend point paid out in dollars $2,875 in 1998. that is $1,207,500 in indexed earnings to hit that bend point - 2,875 * 420, (not $2.3M). For me not yet 62 that 1998 $68,400 is indexed to $115,992 in 2018 dollars.
My point is for someone turning 62 another 20 years down the road the 2nd bend point might be $3.4M in indexed earnings.

I believe the magic is for SS benefits based on indexed dollars the $1.2M (1998), $2.3M (2018) and hypothetical $3.4M(2038) all pay out the same inflation/wage adjusted SS benefit dollars. Although the actual dollars paid out to these 3 individuals will be different -- I am stating that SS is attempting to give all 3 the same purchasing power to account for inflation. I could be really out in left field.
That is my hypothesis.

But late saver is 38today. I am in my mid 40s. We weren’t born in the same year and have the same second bend point.

What has wage inflation been since 1998? $68,400*23= $1,573,200. If wage inflation has been approximately 50%, then the $2.3 million figure is again approximately correct. If wage inflation has been 20% or 90%, then my hypothesis is wrong.

like i said -- "I am not a smart man"
FWIW I went back and looked at my earnings starting in college and looked at the time/actual earnings it took to reach $2.3M in indexed earnings.
It took 26 years and roughly $1,580,xxx in real earnings. 15 years of the 26, I hit SS max. I think people would want to know what are the real earnings needed to hit the 2nd bend point.
If you don;t mind sharing I would be curious as to the real earnings it took for you to hit $2.3M in indexed -- is it the same $1,58M ? More ?

[BanquetBeer]

I found those numbers more useful. If I earn at or close to SS cutoff I know I can work for about 23-25 years and be at the 2nd bendpoint. 22+(23-25)=(45-47) years old. So close enough for an approximation.

I mean, if your budget is dependent on +/-$100 per month at age >66 maybe Work another year anyways.

[KlangFool]

like i said -- "I am not a smart man"
FWIW I went back and looked at my earnings starting in college and looked at the time/actual earnings it took to reach $2.3M in indexed earnings.
It took 26 years and roughly $1,580,xxx in real earnings. 15 years of the 26, I hit SS max. I think people would want to know what are the real earnings needed to hit the 2nd bend point.
If you don;t mind sharing I would be curious as to the real earnings it took for you to hit $2.3M in indexed -- is it the same $1,58M ? More ?

soccerrules,

In some cases, it is not necessary. For some people, if they added up all their social security taxed earning without index adjustment, they had reached the 2.3 million number. So, they know that they had crossed the second bend point without the index adjustment. They do not need to calculate further.

So, you may want to do that first.

KlangFool

[soccerrules]

like i said -- "I am not a smart man"
FWIW I went back and looked at my earnings starting in college and looked at the time/actual earnings it took to reach $2.3M in indexed earnings.
It took 26 years and roughly $1,580,xxx in real earnings. 15 years of the 26, I hit SS max. I think people would want to know what are the real earnings needed to hit the 2nd bend point.
If you don;t mind sharing I would be curious as to the real earnings it took for you to hit $2.3M in indexed -- is it the same $1,58M ? More ?

soccerrules,

In some cases, it is not necessary. For some people, if they added up all their social security taxed earning without index adjustment, they had reached the 2.3 million number. So, they know that they had crossed the second bend point without the index adjustment. They do not need to calculate further.

So, you may want to do that first.

KlangFool

Thanks Klang-
The discussion was someone earning enough dollars to hit the 2nd bend point and then stop working and if it is possible for that person to then fall below the 2nd bend point.
Your suggestion would not allow someone to stop working earlier if they waited for real earnings to reach $2.3M. In my case it would have been 6 more working years (27 to 33 years).

[KlangFool]

like i said -- "I am not a smart man"
FWIW I went back and looked at my earnings starting in college and looked at the time/actual earnings it took to reach $2.3M in indexed earnings.
It took 26 years and roughly $1,580,xxx in real earnings. 15 years of the 26, I hit SS max. I think people would want to know what are the real earnings needed to hit the 2nd bend point.
If you don;t mind sharing I would be curious as to the real earnings it took for you to hit $2.3M in indexed -- is it the same $1,58M ? More ?

soccerrules,

In some cases, it is not necessary. For some people, if they added up all their social security taxed earning without index adjustment, they had reached the 2.3 million number. So, they know that they had crossed the second bend point without the index adjustment. They do not need to calculate further.

So, you may want to do that first.

KlangFool

Thanks Klang-
The discussion was someone earning enough dollars to hit the 2nd bend point and then stop working and if it is possible for that person to then fall below the 2nd bend point.
Your suggestion would not allow someone to stop working earlier if they waited for real earnings to reach $2.3M. In my case it would have been 6 more working years (27 to 33 years).

soccerrules,

Okay. In my case, I had crossed the number without index adjustment. So, I do not need to calculate further.

KlangFool

[JGoneRiding]

Late saver- Terran has provided a good data point for you to consider, a few additional comments.
You would need to earn an additional $866K in indexed earnings to hit the 2nd bend point. In doing so that would add @ $660/mo to your FRA benefit (total $2,246.25/mo). At this point extra income earned does little to your benefit. For each $100K in indexed earnings you add $35.71/mo to your FRA benefit. The difference is after the 2nd bend point you receive only 15%. $100,000 / 420= $238.09 x .15= $35.71. Where as under the 2nd bend point at 32% = $76.18/mo for the same $100,000 in indexed earnings.
The biggest positives to continuing to work once you have reached the 2nd bend point are:
1) Covering current expenses
2) Not withdrawing from nest egg (it can grow)
3) Ability to delay SS to FRA and potentially past 67 where you earn a risk free guaranteed 8% return on your FRA SS Benefit

If you have a spouse, figuring out a claiming strategy is fun stuff. Different time, different thread topic. (search there are plenty)

$1.4m plus $866k = $2.28 million. Again, that magic $2.3 million figure which I approximated is the lifetime earnings in 2018 dollars required to hit the second bend point. no additional calculations required.

Other ways this info could be useful:

- one has to earn about $65,000 of SS eligible wages this year and every year for 35 years to reach the second bend point (in today’s dollars).

- if one is earning $100,000 per year, how many years will it take to reach the second bend point? About 23, assuming your taxable wages rise at about the rate of SS wage inflation.

- If one has earned, say, $1.5 million in today’s dollars, how many more dollars does one have to earn to reach the second bend point? About $800,000, in today’s dollars, as long as all earnings are within the 35 highest earning years.

I’m being somewhat loose with some language here. That’s the point. For most people, I think they just want a decent estimate of where they are on the SS curve. They’re not necessarily looking for a detailed calculation.

Thank you for the more condensed vs. I am not the OP but found this helpful.

I have 12 yrs between 60k and 100k during which inflation was lowish so I need 12 to 20 more to get to a second bend point adjusted to inflation of course. I appreciate the back of envelope calculations with rounder numbers!