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Subject:  Re: Retirement savings benchmark Date:  1/22/2013  5:28 PM
Author:  JAFO31 Number:  71299 of 100984


JAFO31 writes - <<<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."

Thanks. I was aware of the inflcation points, from prior reserach but not current AIME amounts because they are indexed and I had not looked at the numbers for several (or more) years.

Social Security is expected to replace about 40 percent of pre-retirement earnings of average earners; 80 percent for the lowest earners; and 27 percent for those at the maximum taxable wage base of $80,400 [2001], according to the Social Security Administration.

"The benefit formula is a three step formula based on AIME (Average Indexed Monthly Earnings). The annual earnings on which this average earnings figure is based have the same caps as were used on the tax side. The formula for the benefit is then 90% of the first $x of AIME plus 32% of the next $y of AIME plus 15% of the balance of AIME. x and y are indexed yearly." (Christian Folls board - 2004]

Regards, JAFO
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