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|Subject: Re: Retirement savings benchmark||Date: 1/22/2013 3:59 PM|
|Author: intercst||Number: 71298 of 75888|
Paying maximum FICA for more than 35 years does not increase SS benefits.
That's true. The other interesting thing about Social Security is that a Maximum FICA worker gets very little credit for about the last half of his earnings and FICA taxes paid.
There are two bend points in the Social Security formula for calculating your monthly benefit. For 2012, you get a 90% credit for your first $749 in average indexed monthly earnings (AIME) subject to FICA, a 32% credit for AIME between $749 and $4,517 per month, and a 15% credit for everything over $4,517. Someone who paid the maximum FICA tax for the past 35 years and retired in 2012 at age 62 would have average indexed monthly earnings of a bit more than $8,000. To keep your benefit within the second bend point where you get a 32% credit on your earnings, your FICA wages would have to average about 57% of the maximum FICA wage over the past 35 years. To stay within the first bend point where you get a 90% credit, you'd have to earn less than 10% of the maximum FICA wage over 35 years -- a near-poverty level wage.
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