The Motley Fool Discussion Boards

Previous Page

Retirement Discussions / Retired Fools

URL:  http://boards.fool.com/quotyour-benefits-are-based-on-your-average-30361364.aspx

Subject:  Re: another social security question Date:  11/5/2012  10:21 AM
Author:  alstroemeria Number:  18047 of 19741

"Your benefits are based on your average lifetime earnings." I thought that benefits were based on the highest 30 years of your earnings. Which is it? (Or is it something else altogether?)

SSA uses the highest 35 years of SS-taxable income, but the calculations are more complex than that. First they translate older years' earnings (5+ years old) into current dollars. Then they apply different formulae to 3 (IIRC) income brackets. It's similar to progressive taxation: there's a proportionally higher return on lower income levels. This is because the system was designed to keep elders out of poverty--higher earners are more likely to have significant savings and pensions. As an example, my husband earned twice as much as me on average over the years, but I'll get 70% of h