Social Security deductions after maxing out Social Security benefit?

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lhl12
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Social Security deductions after maxing out Social Security benefit?

Post by lhl12 » Tue Jun 04, 2019 9:18 am

In another year I will have worked for 35 full years at the maximum level for Social Security benefits. My understanding is that at that point my eventual Social Security benefit is "maxed" and cannot go any higher (other than for inflation adjustments).

I intend to continue to work for a few more years after I reach that milestone. What happens to my Social Security payroll deductions after I've maxed out my benefit? Does my employer know that I am maxed out, and stop deducting? Or do they continue to deduct at the normal rate without having any impact on my eventual benefit (in effect, causing my future payroll deductions to be lost)? Or does something else happen?

If my future payroll deductions simply disappear, that is a fairly significant disincentive to keep working, which seems odd. Does anyone else have any experience with this situation?

Longdog
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Re: Social Security deductions after maxing out Social Security benefit?

Post by Longdog » Tue Jun 04, 2019 9:35 am

They will continue to be deducted as they always have been. No benefit to you, but beneficial to others. Another thing to be aware of (but for you its too late to do anything about) is that due to the way social security benefits are calculated, once you reach what is called the "second bend point" every additional year of working beyond that time has a very modest beneficial impact on your future social security benefits. For someone reaching the maximum social security withholding each year, I believe that time occurs somewhere around the 18th year, though I could be off a little on that number. After that point, you are helping others in the system more than you are helping yourself. Look up "social security bend points" to learn more about the topic.

:sharebeer
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cheese_breath
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Re: Social Security deductions after maxing out Social Security benefit?

Post by cheese_breath » Tue Jun 04, 2019 10:27 am

lhl12 wrote:
Tue Jun 04, 2019 9:18 am
In another year I will have worked for 35 full years at the maximum level for Social Security benefits. My understanding is that at that point my eventual Social Security benefit is "maxed" and cannot go any higher (other than for inflation adjustments)...
You're "maxed" in the sense that only 35 years worth of earnings count in figuring your benefits, but they're the 35 highest earnings years. So it's possible some later, higher earnings years could knock some earlier, lower earning years out of the calculation.
The surest way to know the future is when it becomes the past.

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Svensk Anga
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Re: Social Security deductions after maxing out Social Security benefit?

Post by Svensk Anga » Tue Jun 04, 2019 10:31 am

Your SS benefit may continue to increase after 35 full years, but it will be slower than if you had zero earnings years in your record. If you make more in the current year than in an old year in your 35-year record, in inflation adjusted terms, the current year earnings bump that old year out of the record. Your 35-year average earnings will go up and your benefit will increase. How much depends on the difference between inflation adjusted old year earnings and current year earnings and where you fall on the bend point curve.

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lhl12
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Re: Social Security deductions after maxing out Social Security benefit?

Post by lhl12 » Tue Jun 04, 2019 11:46 am

Right, but in this case I will have 35 years at the Social Security maximum. So, I believe it shouldn't be possible for a future year to "bump" a prior year since all 35 years are already max'ed out.

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Re: Social Security deductions after maxing out Social Security benefit?

Post by Longdog » Tue Jun 04, 2019 11:49 am

Svensk Anga wrote:
Tue Jun 04, 2019 10:31 am
Your SS benefit may continue to increase after 35 full years, but it will be slower than if you had zero earnings years in your record. If you make more in the current year than in an old year in your 35-year record, in inflation adjusted terms, the current year earnings bump that old year out of the record. Your 35-year average earnings will go up and your benefit will increase. How much depends on the difference between inflation adjusted old year earnings and current year earnings and where you fall on the bend point curve.
He claims that he maxed out every year for the past 35 years. Maybe I'm mistaken, but I think that means in inflation-adjusted terms he has accumulated the maximum benefit, since the max salary of 35 years ago is adjusted upward in the benefits calculation and contributes the same as maxing out the salary this year.
Steve

22twain
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Re: Social Security deductions after maxing out Social Security benefit?

Post by 22twain » Tue Jun 04, 2019 11:56 am

Longdog wrote:
Tue Jun 04, 2019 11:49 am
the max salary of 35 years ago is adjusted upward in the benefits calculation and contributes the same as maxing out the salary this year.
Not quite. See the table in this post:

viewtopic.php?f=2&t=277289&p=4466735#p4466735
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: Social Security deductions after maxing out Social Security benefit?

Post by cheese_breath » Tue Jun 04, 2019 11:59 am

lhl12 wrote:
Tue Jun 04, 2019 11:46 am
Right, but in this case I will have 35 years at the Social Security maximum. So, I believe it shouldn't be possible for a future year to "bump" a prior year since all 35 years are already max'ed out.
You're right. But.....
(1) You keep paying money you'll never collect on thereby helping to keep SS afloat just a little longer, or....
(2) You retire in disgust thereby creating an opening for some needy job seeker.

Every cloud has a silver lining.
The surest way to know the future is when it becomes the past.

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Re: Social Security deductions after maxing out Social Security benefit?

Post by Longdog » Tue Jun 04, 2019 12:35 pm

22twain wrote:
Tue Jun 04, 2019 11:56 am
Longdog wrote:
Tue Jun 04, 2019 11:49 am
the max salary of 35 years ago is adjusted upward in the benefits calculation and contributes the same as maxing out the salary this year.
Not quite. See the table in this post:

viewtopic.php?f=2&t=277289&p=4466735#p4466735
Yeah I thought there might be some noise in there. So “almost the same”
Steve

megabad
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Re: Social Security deductions after maxing out Social Security benefit?

Post by megabad » Tue Jun 04, 2019 12:48 pm

lhl12 wrote:
Tue Jun 04, 2019 9:18 am
If my future payroll deductions simply disappear, that is a fairly significant disincentive to keep working, which seems odd. Does anyone else have any experience with this situation?
Why is it a significant disincentive to you? Actually your situation is very normal (reaching a point at which SS benefit increases slow). If you think in this manner, than I would think a bigger disincentive would be the many millions you have [hopefully] accumulated in your retirement accounts over 35 years of having a great income. If the job felt "incentivized" before, I can't imaging why not receiving a tiny increase in SS benefit flips it to negative territory now. I suppose you could find a job that doesn't require you to pay Social Security OA payroll taxes (and likely pays significantly less) if it bothers you.
Last edited by megabad on Tue Jun 04, 2019 1:06 pm, edited 1 time in total.

Topic Author
lhl12
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Re: Social Security deductions after maxing out Social Security benefit?

Post by lhl12 » Tue Jun 04, 2019 12:57 pm

Longdog wrote:
Tue Jun 04, 2019 11:49 am
Svensk Anga wrote:
Tue Jun 04, 2019 10:31 am
Your SS benefit may continue to increase after 35 full years, but it will be slower than if you had zero earnings years in your record. If you make more in the current year than in an old year in your 35-year record, in inflation adjusted terms, the current year earnings bump that old year out of the record. Your 35-year average earnings will go up and your benefit will increase. How much depends on the difference between inflation adjusted old year earnings and current year earnings and where you fall on the bend point curve.
He claims that he maxed out every year for the past 35 years. Maybe I'm mistaken, but I think that means in inflation-adjusted terms he has accumulated the maximum benefit, since the max salary of 35 years ago is adjusted upward in the benefits calculation and contributes the same as maxing out the salary this year.
Correct (or will be correct in two more years).

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lhl12
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Re: Social Security deductions after maxing out Social Security benefit?

Post by lhl12 » Tue Jun 04, 2019 12:59 pm

megabad wrote:
Tue Jun 04, 2019 12:48 pm
lhl12 wrote:
Tue Jun 04, 2019 9:18 am
If my future payroll deductions simply disappear, that is a fairly significant disincentive to keep working, which seems odd. Does anyone else have any experience with this situation?
Why is it a significant disincentive to you? Actually your situation is very normal (reaching a point at which SS benefit increases slow). If you think in this manner, than I would think a bigger disincentive would be the many millions you have [hopefully] accumulated in your retirement accounts over 35 years of having a great income. If the job felt "incentivized" before, I can't imaging why not receiving a tiny increase in SS benefit flips it to negative territory now. I suppose you could find a job that doesn't require you to pay payroll taxes (and likely pays significantly less) if it bothers you.
I have considered switching jobs, but isn't it that case that if I become an independent contractor (receiving a 1099 instead of a W-2) it gets even worse, because now I need to pay both halves of the Social Security tax?

Topic Author
lhl12
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Re: Social Security deductions after maxing out Social Security benefit?

Post by lhl12 » Tue Jun 04, 2019 1:00 pm

lhl12 wrote:
Tue Jun 04, 2019 12:57 pm
Longdog wrote:
Tue Jun 04, 2019 11:49 am
Svensk Anga wrote:
Tue Jun 04, 2019 10:31 am
Your SS benefit may continue to increase after 35 full years, but it will be slower than if you had zero earnings years in your record. If you make more in the current year than in an old year in your 35-year record, in inflation adjusted terms, the current year earnings bump that old year out of the record. Your 35-year average earnings will go up and your benefit will increase. How much depends on the difference between inflation adjusted old year earnings and current year earnings and where you fall on the bend point curve.
He claims that he maxed out every year for the past 35 years. Maybe I'm mistaken, but I think that means in inflation-adjusted terms he has accumulated the maximum benefit, since the max salary of 35 years ago is adjusted upward in the benefits calculation and contributes the same as maxing out the salary this year.
Correct (or at least will be correct after two more max years).

Topic Author
lhl12
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Re: Social Security deductions after maxing out Social Security benefit?

Post by lhl12 » Tue Jun 04, 2019 1:01 pm

Longdog wrote:
Tue Jun 04, 2019 11:49 am
Svensk Anga wrote:
Tue Jun 04, 2019 10:31 am
Your SS benefit may continue to increase after 35 full years, but it will be slower than if you had zero earnings years in your record. If you make more in the current year than in an old year in your 35-year record, in inflation adjusted terms, the current year earnings bump that old year out of the record. Your 35-year average earnings will go up and your benefit will increase. How much depends on the difference between inflation adjusted old year earnings and current year earnings and where you fall on the bend point curve.
He claims that he maxed out every year for the past 35 years. Maybe I'm mistaken, but I think that means in inflation-adjusted terms he has accumulated the maximum benefit, since the max salary of 35 years ago is adjusted upward in the benefits calculation and contributes the same as maxing out the salary this year.
Correct (or at least will be correct after two more max years).

megabad
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Re: Social Security deductions after maxing out Social Security benefit?

Post by megabad » Tue Jun 04, 2019 1:05 pm

lhl12 wrote:
Tue Jun 04, 2019 12:59 pm
megabad wrote:
Tue Jun 04, 2019 12:48 pm
lhl12 wrote:
Tue Jun 04, 2019 9:18 am
If my future payroll deductions simply disappear, that is a fairly significant disincentive to keep working, which seems odd. Does anyone else have any experience with this situation?
Why is it a significant disincentive to you? Actually your situation is very normal (reaching a point at which SS benefit increases slow). If you think in this manner, than I would think a bigger disincentive would be the many millions you have [hopefully] accumulated in your retirement accounts over 35 years of having a great income. If the job felt "incentivized" before, I can't imaging why not receiving a tiny increase in SS benefit flips it to negative territory now. I suppose you could find a job that doesn't require you to pay payroll taxes (and likely pays significantly less) if it bothers you.
I have considered switching jobs, but isn't it that case that if I become an independent contractor (receiving a 1099 instead of a W-2) it gets even worse, because now I need to pay both halves of the Social Security tax?
Well I would argue that technically you always pay both sides of the tax if you owe it despite what your pay stub explicitly states. But I meant a job where you don't actually owe the Social Security OA payroll taxes. There are numerous local government jobs that fit the bill in my area. Somehow I doubt most of them (ie. police officers and firefighters) are making quite as much as you though :happy

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Re: Social Security deductions after maxing out Social Security benefit?

Post by #Cruncher » Tue Jun 04, 2019 3:33 pm

cheese_breath wrote:
Tue Jun 04, 2019 10:27 am
You're "maxed" in the sense that only 35 years worth of earnings count in figuring your benefits, but they're the 35 highest earnings years. So it's possible some later, higher earnings years could knock some earlier, lower earning years out of the calculation.
Correct. This can be illustrated with SSA's Case B figures from Benefit Calculation Examples for Workers Retiring in 2019. It shows that after working 40 years through 2018, this worker who earned the maximum contribution base every year, had Average Indexed Monthly Earnings (AIME) of $9,300. But if he had stopped working five years earlier, his AIME would have been only $9,001. The $299 increase occurred because, in computing the AIME over 35 years, the indexed earnings during the last five years replaced lower indexed earnings in 1979-1982 & 1988.

Code: Select all

      Indexed    Largest                 Formula
Year Earnings   35 Years   AIME   Incr   Benefit   Incr

Code: Select all

1979   89,546     89,546
1980   92,908    182,454
1981   96,796    279,250
1982  100,086    379,336
1983  105,157    484,493
1984  105,161    589,654
1985  105,666    695,320
1986  108,840    804,160
1987  106,700    910,860
1988  104,477  1,015,337  2,417         1,252.52
1989  107,198  1,122,535  2,673  10.6%  1,334.44  81.92
1990  109,509  1,232,044  2,933   9.7%  1,417.64  83.20
1991  109,897  1,341,941  3,195   8.9%  1,501.48  83.84
1992  108,622  1,450,563  3,454   8.1%  1,584.36  82.88
1993  111,771  1,562,334  3,720   7.7%  1,669.48  85.12
1994  114,519  1,676,853  3,993   7.3%  1,756.84  87.36
1995  111,195  1,788,048  4,257   6.6%  1,841.32  84.48
1996  108,609  1,896,657  4,516   6.1%  1,924.20  82.88
1997  107,040  2,003,697  4,771   5.6%  2,005.80  81.60
1998  106,382  2,110,079  5,024   5.3%  2,079.28  73.48  <==
1999  106,954  2,217,033  5,279   5.1%  2,117.53  38.25 
2000  106,375  2,323,408  5,532   4.8%  2,155.48  37.95
2001  109,623  2,433,031  5,793   4.7%  2,194.63  39.15
2002  114,609  2,547,640  6,066   4.7%  2,235.58  40.95
2003  114,642  2,662,282  6,339   4.5%  2,276.53  40.95
2004  110,682  2,772,964  6,602   4.1%  2,315.98  39.45
2005  109,326  2,882,290  6,863   4.0%  2,355.13  39.15
2006  109,400  2,991,690  7,123   3.8%  2,394.13  39.00
2007  108,317  3,100,007  7,381   3.6%  2,432.83  38.70
2008  110,768  3,210,775  7,645   3.6%  2,472.43  39.60
2009  117,756  3,328,531  7,925   3.7%  2,514.43  42.00
2010  115,038  3,443,569  8,199   3.5%  2,555.53  41.10
2011  111,543  3,555,112  8,465   3.2%  2,595.43  39.90
2012  111,507  3,666,619  8,730   3.1%  2,635.18  39.75
2013  113,700  3,780,319  9,001   3.1%  2,675.83  40.65

2014  117,000  3,807,773  9,066   0.7%  2,685.58   9.75
2015  118,500  3,833,365  9,127   0.7%  2,694.73   9.15
2016  118,500  3,855,069  9,179   0.6%  2,702.53   7.80
2017  127,200  3,882,183  9,243   0.7%  2,712.13   9.60
2018  128,400  3,906,106  9,300   0.6%  2,720.68   8.55
Longdog wrote:
Tue Jun 04, 2019 9:35 am
Another thing to be aware of ... is that due to the way social security benefits are calculated, once you reach what is called the "second bend point" every additional year of working beyond that time has a very modest beneficial impact on your future social security benefits.
The right two columns illustrate this. The value of the 2nd bend point for Case B is $4,980. The AIME exceeds this in 1998 after working 20 years. Note how the benefit increase for each additional year worked drops off after this point. For example, each additional year worked 1989-1997 increases the monthly benefit between $81 and $88. But each year worked 1999-2013 increases it only between $38 and $42. The increase for each additional year worked 2014-2018 only increases the monthly benefit between $8 & $10, because of the "double whammy" of having reached 35 years of earnings and having passed the 2nd bend point.

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Re: Social Security deductions after maxing out Social Security benefit?

Post by surfstar » Tue Jun 04, 2019 4:12 pm

Apparently you like your job / working in general - congrats. Figure that the "extra" SS tax is there to offset all those who wish to never work that long for various reasons (can't, don't want to, etc)

:sharebeer

bberris
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Re: Social Security deductions after maxing out Social Security benefit?

Post by bberris » Tue Jun 04, 2019 8:16 pm

Maybe your feelings about Social Security are influenced by the epithet "deduction". FICA is a tax. You are not contributing to your retirement with this deduction; you are paying a tax. True that your retirement benefits under SS are heavily influenced by your earnings and FICA taxes you paid, but the money paid does not directly benefit yourself in the way that, for example, your 401k deduction does.

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Re: Social Security deductions after maxing out Social Security benefit?

Post by HueyLD » Sat Jun 08, 2019 6:51 pm

lhl12 wrote:
Tue Jun 04, 2019 9:18 am
In another year I will have worked for 35 full years at the maximum level for Social Security benefits. My understanding is that at that point my eventual Social Security benefit is "maxed" and cannot go any higher (other than for inflation adjustments).

I intend to continue to work for a few more years after I reach that milestone. What happens to my Social Security payroll deductions after I've maxed out my benefit? Does my employer know that I am maxed out, and stop deducting? Or do they continue to deduct at the normal rate without having any impact on my eventual benefit (in effect, causing my future payroll deductions to be lost)? Or does something else happen?

If my future payroll deductions simply disappear, that is a fairly significant disincentive to keep working, which seems odd. Does anyone else have any experience with this situation?
Your social security benefit can continue to increase after 35 years of earning at the maximum level subject to SS tax. The max level is known as the contribution and benefit base (cbb).

For years age 62 and before, the annual earnings amount is adjusted relative to the age 62 cbb. If annual earnings amount is at least the cbb amount, the adjustment will result in earnings equal to the age 62 cbb. Therefore, if you will have 35 years of actual annual earnings >= the cbb, each of the 35 years will be adjusted to your age 62 cbb for the calculation of your primary insurance amount (PIA).

For years after age 62, the annual earnings amount is used as is. If your earnings amount is >= the cbb, your earnings will be the cbb for that year. This new cbb should be higher than the age 62 cbb, unless there is a recession when the national average wage index may actually decrease. So, any amount higher than the age 62 cbb will increase your social security benefit because the higher amount will replace a lower amount in the 35 years earlier.

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Re: Social Security deductions after maxing out Social Security benefit?

Post by JoeRetire » Sat Jun 08, 2019 10:23 pm

lhl12 wrote:
Tue Jun 04, 2019 9:18 am
I intend to continue to work for a few more years after I reach that milestone. What happens to my Social Security payroll deductions after I've maxed out my benefit? Does my employer know that I am maxed out, and stop deducting? Or do they continue to deduct at the normal rate without having any impact on my eventual benefit (in effect, causing my future payroll deductions to be lost)? Or does something else happen?
As long as you work, you'll continue to pay social security taxes and you employer will continue to pay their share as well. You prior history doesn't change that.

If that deduction is enough disincentive to cause you to want to stop working, then stop working. Seems odd to me to think that 6.2% would matter that much to someone who has maxed out social security for 35 years so far. But you get to choose.

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GerryL
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Re: Social Security deductions after maxing out Social Security benefit?

Post by GerryL » Sun Jun 09, 2019 12:18 am

GPTH (Great Problem To Have).
I'm guessing you didn't just earn the max that is subject to FICA but exceeded FICA limits many years. Congratulations.

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Re: Social Security deductions after maxing out Social Security benefit?

Post by bada bing » Sun Jun 09, 2019 9:29 am

Welcome to the club. I will reach 35 years capped contributions this year with another 9 years
of earnings that were taxed and excluded from my "top 35". :annoyed

It is a common misconception that SS is an "earned entitlement". If you check the fine print you
will find that technically you don't own anything by virtue of your contributions, nothing is
guaranteed. The benefit formula used to calculate benefits today is subject to change by
action of Congress, or by inaction of Congress after the "trust fund" is exhausted. The
benefit and taxation formula will almost certainly change.

The longstanding benefit calculation for SS pay has a heavy dose of redistribution built into
it. Lower income and shorter career workers get several times the benefit out of SS per dollar
contributed compared to workers with records above the second bend point. It can be argued
that there is a 3rd "phantom" bend point that you pass when you have amassed 35 years of
capped contributions. Past this 3rd phantom bendpoint the payback is effectively zero for
further contributions. It could be thought of as just an extension of the philosophy that devalues
"contributions" as a worker passes the first and second bend points in their earnings record.

In any case, you will get effectively nothing for further enforced "contributions".

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Re: Social Security deductions after maxing out Social Security benefit?

Post by Allan » Sun Jun 09, 2019 5:51 pm

The only thing worse than 35 yrs of maxing out the Soc Sec contribution and continuing working, is to be self-employed and contributing both sides as employee and employer. Don't get me wrong, I'm thankful for the income that has allowed me to do this. But I am contributing both sides knowing that I will get no or little return. And also paying the maximum in medicare. I guess that's just the way it is.

JoeRetire
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Re: Social Security deductions after maxing out Social Security benefit?

Post by JoeRetire » Mon Jun 10, 2019 6:53 am

bada bing wrote:
Sun Jun 09, 2019 9:29 am
In any case, you will get effectively nothing for further enforced "contributions".
Pretty much the same as many taxes.

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