Minimum income to maximize SS benefits.

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SmallCityDave
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Minimum income to maximize SS benefits.

Post by SmallCityDave » Sat Mar 30, 2019 12:40 pm

I had breakfast with some friends last week they were telling me they were "earning" just enough to maximize what they would get back in SS benefits so they were are the ceiling and no more. In essence they were saying that if the "earned" $50k per year or $100k their SS benefits would be the same.

My question is is this true and if so what is that magic number.

Thanks and sorry if this has been asked before.

Traveler
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Re: Minimum income to maximize SS benefits.

Post by Traveler » Sat Mar 30, 2019 12:48 pm

Are they already retired and worried about income somehow offsetting SS? Or maybe they're talking about the income at which FICA taxes are no longer withheld ($132,900 for 2019)? Your question is a bit confusing.

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David Jay
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Re: Minimum income to maximize SS benefits.

Post by David Jay » Sat Mar 30, 2019 12:59 pm

Agree with Traveler, we do not know if you are talking about pre- or post-filing, also before or after FRA (full retirement age).

I suspect they are talking about earnings after filing for SS benefits and before FRA. Let us know...
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

mtmingus
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Re: Minimum income to maximize SS benefits.

Post by mtmingus » Sat Mar 30, 2019 1:11 pm

Likely they were taking about benefit taxiation. Earnings <= 25k for an individual or 32k as a couple so no tax on ss benefits. That’s tough to survive unless you withdraw some from Roth IRA.

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SmallCityDave
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Re: Minimum income to maximize SS benefits.

Post by SmallCityDave » Sat Mar 30, 2019 2:07 pm

David Jay wrote:
Sat Mar 30, 2019 12:59 pm
Agree with Traveler, we do not know if you are talking about pre- or post-filing, also before or after FRA (full retirement age).

I suspect they are talking about earnings after filing for SS benefits and before FRA. Let us know...
Sorry I didn't make that clear this is pre-filing and before full retirement age.

delamer
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Re: Minimum income to maximize SS benefits.

Post by delamer » Sat Mar 30, 2019 2:16 pm

Two issues:

1) Each year, there is a maximum salary on which Social Security payroll taxes are withheld.

For 2019, that amount is $132,900.

If you earn more than that amount, not only isn’t the excess taxed (for SS), but your future benefit will not be higher than someone who earned exactly $132,900. Obviously, this is looking at the effect of one year, not across all years.

2) If they have 35 years of earnings at the maximum salary, then earning less than the maximum in subsequent years won’t reduce their benefit amount: https://www.ssa.gov/pubs/EN-05-10070.pdf
Last edited by delamer on Sat Mar 30, 2019 2:25 pm, edited 1 time in total.

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David Jay
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Re: Minimum income to maximize SS benefits.

Post by David Jay » Sat Mar 30, 2019 2:18 pm

SmallCityDave wrote:
Sat Mar 30, 2019 2:07 pm
David Jay wrote:
Sat Mar 30, 2019 12:59 pm
Agree with Traveler, we do not know if you are talking about pre- or post-filing, also before or after FRA (full retirement age).

I suspect they are talking about earnings after filing for SS benefits and before FRA. Let us know...
Sorry I didn't make that clear this is pre-filing and before full retirement age.
SS withholding is required on very dollar of earnings up to $132,900 as Traveler stated. All earnings are considered for the “top 30” earning years and all earnings (up to the maximum) in the top 30 years are used in the calculation of average wages. So I do not understand how they would come up with a number like $50,000.

Is one of the individuals you were interacting with receiving Social Security Disability payments? That is the only earnings test I can come up with off the top of my head.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Rob1
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Re: Minimum income to maximize SS benefits.

Post by Rob1 » Sat Mar 30, 2019 5:09 pm

I wonder if they were taking about diminishing returns due to bend points. Due to the way SS benefits are calculated, there are two bend points that result in significantly lower benefit increases for each additional dollar paid into SS. Others here may be able to explain this in better detail.

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SmallCityDave
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Re: Minimum income to maximize SS benefits.

Post by SmallCityDave » Sat Mar 30, 2019 5:32 pm

David Jay wrote:
Sat Mar 30, 2019 2:18 pm
SmallCityDave wrote:
Sat Mar 30, 2019 2:07 pm
David Jay wrote:
Sat Mar 30, 2019 12:59 pm
Agree with Traveler, we do not know if you are talking about pre- or post-filing, also before or after FRA (full retirement age).

I suspect they are talking about earnings after filing for SS benefits and before FRA. Let us know...
Sorry I didn't make that clear this is pre-filing and before full retirement age.
SS withholding is required on very dollar of earnings up to $132,900 as Traveler stated. All earnings are considered for the “top 30” earning years and all earnings (up to the maximum) in the top 30 years are used in the calculation of average wages. So I do not understand how they would come up with a number like $50,000.

Is one of the individuals you were interacting with receiving Social Security Disability payments? That is the only earnings test I can come up with off the top of my head.
Not really they have LLC's so some of the money is a pass through/draw and some is income, SS withholding's are only applied/deducted from the income. No neither of them is receiving SS/Disability.

$50k was just an example, perhaps there is no difference in SS benefits if you make $200k or $250k for 35 years?

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SmallCityDave
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Re: Minimum income to maximize SS benefits.

Post by SmallCityDave » Sat Mar 30, 2019 5:41 pm

Rob1 wrote:
Sat Mar 30, 2019 5:09 pm
I wonder if they were taking about diminishing returns due to bend points. Due to the way SS benefits are calculated, there are two bend points that result in significantly lower benefit increases for each additional dollar paid into SS. Others here may be able to explain this in better detail.
Perhaps however they both make well over $133k so they might be paying themselves "only" $133k and taking a draw on the rest.

pasadena
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Re: Minimum income to maximize SS benefits.

Post by pasadena » Sat Mar 30, 2019 5:52 pm

I don't think the income used to calculate it is the same thing as the maximum taxable earnings for FICA taxes each year.

But the "magic number" is probably very difficult to calculate, because the earnings are indexed for inflation - so the "number" will be different for each year. Then divide those by 420, and you get your AIME. Then the benefit paid depends on your age (retirement age, FRA, beyond FRA).

https://www.investopedia.com/ask/answer ... enefit.asp

rkhusky
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Re: Minimum income to maximize SS benefits.

Post by rkhusky » Sat Mar 30, 2019 8:01 pm

Rob1 wrote:
Sat Mar 30, 2019 5:09 pm
I wonder if they were taking about diminishing returns due to bend points. Due to the way SS benefits are calculated, there are two bend points that result in significantly lower benefit increases for each additional dollar paid into SS. Others here may be able to explain this in better detail.
I think the first bend point is around $20K average over 35 years. The second is around $50K. Those are in today’s dollars.

You get about 90 cents on the dollar below the first point, 50 cents between the points, and 15 cents above the second bend point.

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Steelersfan
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Re: Minimum income to maximize SS benefits.

Post by Steelersfan » Sat Mar 30, 2019 8:38 pm

Here's a table of what the income level in years past that gets you the max SS benefit:

http://www.milefoot.com/math/businessma ... s/fica.htm

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teen persuasion
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Re: Minimum income to maximize SS benefits.

Post by teen persuasion » Sun Mar 31, 2019 10:54 am

rkhusky wrote:
Sat Mar 30, 2019 8:01 pm
Rob1 wrote:
Sat Mar 30, 2019 5:09 pm
I wonder if they were taking about diminishing returns due to bend points. Due to the way SS benefits are calculated, there are two bend points that result in significantly lower benefit increases for each additional dollar paid into SS. Others here may be able to explain this in better detail.
I think the first bend point is around $20K average over 35 years. The second is around $50K. Those are in today’s dollars.

You get about 90 cents on the dollar below the first point, 50 cents between the points, and 15 cents above the second bend point.
Actually, it's even lower after the first bend point - 32%, not 50%.

Spirit Rider
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Re: Minimum income to maximize SS benefits.

Post by Spirit Rider » Sun Mar 31, 2019 2:21 pm

teen persuasion wrote:
Sun Mar 31, 2019 10:54 am
rkhusky wrote:
Sat Mar 30, 2019 8:01 pm
I think the first bend point is around $20K average over 35 years. The second is around $50K. Those are in today’s dollars.

You get about 90 cents on the dollar below the first point, 50 cents between the points, and 15 cents above the second bend point.
Actually, it's even lower after the first bend point - 32%, not 50%.
Also, for 2019, using your average indexed monthly earnings (AIME) the first bend point is $926/month = $11,112/year and the second bend point is $5,583 * 12 = $66,996/tear.

The current primary insurance amount PIA bend points are at about $11K and $67K AIME respectively.

rkhusky
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Re: Minimum income to maximize SS benefits.

Post by rkhusky » Mon Apr 01, 2019 7:23 am

Thanks for the corrections. Here is a reference for the above: https://www.ssa.gov/oact/cola/piaformula.html

To summarize, you get 90% up to $11K/yr, 32% between $11K/yr and $67K/yr, and 15% greater than $67K/yr. SS is a flat tax on contribution, but progressive on payout.

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