Average Indexed Monthly Earnings (AIME) and social security; working past year in which you turn 60

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
mariezzz
Posts: 760
Joined: Mon Oct 02, 2017 11:02 pm

Average Indexed Monthly Earnings (AIME) and social security; working past year in which you turn 60

Post by mariezzz » Sat Mar 30, 2019 3:41 pm

Average Indexed Monthly Earnings (AIME) and social security

I found various sites online explicitly stating the first 2 points below. It seems the 3rd point must follow from the second point above. Is this correct?
  • AIME is calculated based on earnings through the year one reaches age 60. After the year in which you reach age 60, earnings per year are not indexed, instead they are counted at their actual value.
https://www.ssa.gov/OACT/COLA/piaformula.html
PIA formula bend points
The PIA is the sum of three separate percentages of portions of average indexed monthly earnings. The portions depend on the year in which a worker attains age 62, becomes disabled before age 62, or dies before attaining age 62.

https://www.ssa.gov/oact/cola/Benefits.html
An insured worker becomes eligible for retirement benefits when he or she reaches age 62. If 2019 were the year of eligibility, we would divide the national average wage index for 2017 (50,321.89) by the national average wage index for each year prior to 2017 in which the worker had earnings and multiply each such ratio by the worker's earnings. This would give the indexed earnings for each year prior to 2017. We would consider any earnings in or after 2017 at face value, without indexing. Then we would compute the AIME and use this amount in computing the worker's primary insurance amount for 2019.
  • Even if you have 35 years of earnings at the annual ceiling for paying into social security before age 60 (e.g., annual ceiling in 2019 was $132,900), there can be a benefit to continuing to work after age 60 since earnings are not indexed after age 60.
  • Additionally: for people who don't have 35 years of earnings at the annual ceiling: They actually get more 'bang for the buck' for high earnings years after age 60, compared to if those earnings had occurred prior to age 60, since earnings are not indexed after age 60.

User avatar
FiveK
Posts: 7228
Joined: Sun Mar 16, 2014 2:43 pm

Re: Average Indexed Monthly Earnings (AIME) and social security; working past year in which you turn 60

Post by FiveK » Sat Mar 30, 2019 9:22 pm

mariezzz wrote:
Sat Mar 30, 2019 3:41 pm
It seems the 3rd point must follow from the second point above. Is this correct?
  • Additionally: for people who don't have 35 years of earnings at the annual ceiling: They actually get more 'bang for the buck' for high earnings years after age 60, compared to if those earnings had occurred prior to age 60, since earnings are not indexed after age 60.
I don't think it "must follow." Indexing means that (for indexes greater than 1.0) an amount earned pre-60 is treated as a higher amount for the purpose of AIME calculation.

Below are a couple of spreadsheets and a web tool that work well for calculating an individual's SS benefit:
- The 'SocialSecurity' tab of the personal finance toolbox spreadsheet.
- The Downloadable Social Security Benefit Estimator (repost) - Bogleheads.org.
- Social Security Calculator

You could use any of these to do "what if...?" calculations.

User avatar
David Jay
Posts: 6797
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Average Indexed Monthly Earnings (AIME) and social security; working past year in which you turn 60

Post by David Jay » Sat Mar 30, 2019 9:32 pm

I agree with all of your statements about the rules.

However, much of your final two conclusions are dependent on specific circumstances. I found that due to variations in the AWI, some earlier years maximum adjusted to values exceeded later ceilings. So at least in theory new, higher values after age 60 may not actually replace an earlier year.

The other issue is that the difference from replacing an earlier year with a slightly higher value makes a very small difference in your benefit. In my case, my final work year replaced an earlier year that was about $5000 lower. The net increase in monthly benefit was less than two dollars per month. I am not working another year of my life for a buck-eighty a month.

(Edit) The math: (replacement year increase) / 35 * 0.15 / 12
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

22twain
Posts: 1950
Joined: Thu May 10, 2012 5:42 pm

Re: Average Indexed Monthly Earnings (AIME) and social security; working past year in which you turn 60

Post by 22twain » Sat Mar 30, 2019 11:58 pm

[nevermind]
Last edited by 22twain on Sun Mar 31, 2019 12:37 am, edited 1 time in total.
My investing princiPLEs do not include absolutely preserving princiPAL.

22twain
Posts: 1950
Joined: Thu May 10, 2012 5:42 pm

Re: Average Indexed Monthly Earnings (AIME) and social security; working past year in which you turn 60

Post by 22twain » Sun Mar 31, 2019 12:36 am

By chance, just a few hours ago, after reading a different SS thread, I constructed a table of "maximum indexed earnings" (i.e. maximum earnings subject to SS tax, times the indexing factor) for the situation described in the OP: a person who turns 62 this year and whose "indexing year" is age 60. The high-35 earning years are from 1984 through 2018.

Code: Select all

                                                 Maximum
              Maximum               Indexing     indexed
Year   age   earnings   wage index    factor	earnings
1984    27    $37,800   $16,135.07    3.1188    $117,890
1985    28    $39,600   $16,822.51    2.9913    $118,457
1986    29    $42,000   $17,321.82    2.9051    $122,015
1987    30    $43,800   $18,426.51    2.7310    $119,616
1988    31    $45,000   $19,334.04    2.6028    $117,124
1989    32    $48,000   $20,099.55    2.5036    $120,174
1990    33    $51,300   $21,027.98    2.3931    $122,766
1991    34    $53,400   $21,811.60    2.3071    $123,200
1992    35    $55,500   $22,935.42    2.1941    $121,771
1993    36    $57,600   $23,132.67    2.1754    $125,301
1994    37    $60,600   $23,753.53    2.1185    $128,381
1995    38    $61,200   $24,705.66    2.0369    $124,656
1996    39    $62,700   $25,913.90    1.9419    $121,756
1997    40    $65,400   $27,426.00    1.8348    $119,998
1998    41    $68,400   $28,861.44    1.7436    $119,260
1999    42    $72,600   $30,469.84    1.6515    $119,901
2000    43    $76,200   $32,154.82    1.5650    $119,252
2001    44    $80,400   $32,921.92    1.5285    $122,893
2002    45    $84,900   $33,252.09    1.5133    $128,483
2003    46    $87,000   $34,064.95    1.4772    $128,519
2004    47    $87,900   $35,648.55    1.4116    $124,081
2005    48    $90,000   $36,952.94    1.3618    $122,560
2006    49    $94,200   $38,651.41    1.3019    $122,643
2007    50    $97,500   $40,405.48    1.2454    $121,429
2008    51   $102,000   $41,334.97    1.2174    $124,177
2009    52   $106,800   $40,711.61    1.2361    $132,011
2010    53   $106,800   $41,673.83    1.2075    $128,963
2011    54   $106,800   $42,979.61    1.1708    $125,045
2012    55   $110,100   $44,321.67    1.1354    $125,005
2013    56   $113,700   $44,888.16    1.1211    $127,463
2014    57   $117,000   $46,481.52    1.0826    $126,667
2015    58   $118,500   $48,098.63    1.0462    $123,977
2016    59   $118,500   $48,642.15    1.0345    $122,592
2017    60   $127,200   $50,321.89    1.0000    $127,200
2018    61   $128,400          n/a    1.0000    $128,400
This year's maximum earnings are $132,900, which would just barely replace 2009, increasing the indexed earnings by $889, (middle-of-the-night brain fade... :oops:) which would replace the lowest year (not the highest!), 1988, for a gain of $15,776 in indexed earnings. That would lead to an increase in monthly benefit of about $5.60.

2020 would replace 1984, 2021 would replace 1985, 2022 would replace 2000, and so on, probably with roughly similar increases in benefits.
Last edited by 22twain on Sun Mar 31, 2019 10:34 am, edited 4 times in total.
My investing princiPLEs do not include absolutely preserving princiPAL.

petulant
Posts: 615
Joined: Thu Sep 22, 2016 1:09 pm

Re: Average Indexed Monthly Earnings (AIME) and social security; working past year in which you turn 60

Post by petulant » Sun Mar 31, 2019 9:41 am

Generally, due to the SS bend points, it's not profitable to try to maximize SS benefits by working more if you're in the ~$100K/year income club.

Topic Author
mariezzz
Posts: 760
Joined: Mon Oct 02, 2017 11:02 pm

Re: Average Indexed Monthly Earnings (AIME) and social security; working past year in which you turn 60

Post by mariezzz » Sun Mar 31, 2019 11:06 am

22twain wrote:
Sun Mar 31, 2019 12:36 am
By chance, just a few hours ago, after reading a different SS thread, I constructed a table of "maximum indexed earnings" (i.e. maximum earnings subject to SS tax, times the indexing factor) for the situation described in the OP: a person who turns 62 this year and whose "indexing year" is age 60. The high-35 earning years are from 1984 through 2018.

Code: Select all

                                                 Maximum
              Maximum               Indexing     indexed
Year   age   earnings   wage index    factor	earnings
1984    27    $37,800   $16,135.07    3.1188    $117,890
1985    28    $39,600   $16,822.51    2.9913    $118,457
1986    29    $42,000   $17,321.82    2.9051    $122,015
1987    30    $43,800   $18,426.51    2.7310    $119,616
1988    31    $45,000   $19,334.04    2.6028    $117,124
1989    32    $48,000   $20,099.55    2.5036    $120,174
1990    33    $51,300   $21,027.98    2.3931    $122,766
1991    34    $53,400   $21,811.60    2.3071    $123,200
1992    35    $55,500   $22,935.42    2.1941    $121,771
1993    36    $57,600   $23,132.67    2.1754    $125,301
1994    37    $60,600   $23,753.53    2.1185    $128,381
1995    38    $61,200   $24,705.66    2.0369    $124,656
1996    39    $62,700   $25,913.90    1.9419    $121,756
1997    40    $65,400   $27,426.00    1.8348    $119,998
1998    41    $68,400   $28,861.44    1.7436    $119,260
1999    42    $72,600   $30,469.84    1.6515    $119,901
2000    43    $76,200   $32,154.82    1.5650    $119,252
2001    44    $80,400   $32,921.92    1.5285    $122,893
2002    45    $84,900   $33,252.09    1.5133    $128,483
2003    46    $87,000   $34,064.95    1.4772    $128,519
2004    47    $87,900   $35,648.55    1.4116    $124,081
2005    48    $90,000   $36,952.94    1.3618    $122,560
2006    49    $94,200   $38,651.41    1.3019    $122,643
2007    50    $97,500   $40,405.48    1.2454    $121,429
2008    51   $102,000   $41,334.97    1.2174    $124,177
2009    52   $106,800   $40,711.61    1.2361    $132,011
2010    53   $106,800   $41,673.83    1.2075    $128,963
2011    54   $106,800   $42,979.61    1.1708    $125,045
2012    55   $110,100   $44,321.67    1.1354    $125,005
2013    56   $113,700   $44,888.16    1.1211    $127,463
2014    57   $117,000   $46,481.52    1.0826    $126,667
2015    58   $118,500   $48,098.63    1.0462    $123,977
2016    59   $118,500   $48,642.15    1.0345    $122,592
2017    60   $127,200   $50,321.89    1.0000    $127,200
2018    61   $128,400          n/a    1.0000    $128,400
This year's maximum earnings are $132,900, which would just barely replace 2009, increasing the indexed earnings by $889, (middle-of-the-night brain fade... :oops:) which would replace the lowest year (not the highest!), 1988, for a gain of $15,776 in indexed earnings. That would lead to an increase in monthly benefit of about $5.60.
2020 would replace 1984, 2021 would replace 1985, 2022 would replace 2000, and so on, probably with roughly similar increases in benefits.
Thanks everyone, for the replies, and especially the detail above - that's really helpful. Based on that, I guess technically the situation described in the 2nd bullet point in the OP is usually going to be correct, but the difference would be small, although if someone deferred SS until age 70, that would make it larger.
Even if you have 35 years of earnings at the annual ceiling for paying into social security before age 60 (e.g., annual ceiling in 2019 was $132,900), there can be a benefit to continuing to work after age 60 since earnings are not indexed after age 60.
But it does seem that the point I made in the 3rd bullet point - more bang for the buck from working into one's 60s - would apply to someone between the first & second bend points. This goes beyond the added benefit from replacing a year with a lower value (after indexing) in the 35 years averaged.

The table above suggests indexing doesn't make past wages 'equivalent' - there's a lot of variability in the indexed value (ignoring 2017 & 2018, which aren't indexed). The difference between the low in 1984 & high in 2009 is more than 10%.

Post Reply