If you are not a watchmaker, don't worry about it!

Feb 27, 2021,06:42 AM
 

I saw this interesting explanation of retirement benefits in the USA, and the author used a clock or watch maker as his example:


There are two kinds of people in the world. Those who just want to know the time and those who want to take the watch apart to see how it works. Most of us fall into the first category, but there are always those who need to disassemble the watch, examine it, and then try to put it back together. And wait, there is a group in the middle, who might want to know a bit more than the first set, but they aren’t prying open their watches!

When it comes to retirement benefits, there are those same three kinds of people:

People With Questions 

1. I just want to know what my $$ benefit is going to be.

2. I want a general idea of how my benefit will be figured. I don’t need all the nitty-gritty details.
 
3. I want to know exactly how the government comes up with my retirement benefit number!


Answers

1. Social Security retirement benefit is a percentage of your average monthly income, using your highest 35 years of earnings, adjusted for inflation.

2. Social Security folks look at your earnings history and take your highest 35 years (they don’t have to be consecutive). If you don’t have 35 years of work, the SSA uses zero for every year with no earnings. Then they index each past year of earnings for inflation, using a different adjustment factor for each year, AND each adjustment factor varies based on your year of birth. 

For example, if you were born in 1949 and earned $20,000 in 1980, SSA multiplies those earnings by an inflation adjustment factor of 3.25, resulting in $65,000 as your 1980 earnings. HOWEVER, if you were born in 1950 and earned $20,000 in 1980, the inflation factor is 3.33, resulting in $66,600 as your 1980 earnings, and so on.

3. Your “primary insurance amount,” or PIA refers to the base number upon which all calculations are based. PIA is established for your age 62 (as described above). When SSA assembles your highest 35 years of earnings, they use those up to age 62. The PIA is adjusted for any earnings after age 62, and cost-of-living adjustments authorized for Social Security after your age 62. Earnings after age 60 are not indexed for inflation; they are calculated at current dollar value only. So those  (unadjusted) earnings may not be part of your “highest 35 years” and they won’t increase your payment.  Then SSA adds up your highest 35 years of inflation-adjusted earnings, then divides by 420 (the number of months in 35 years) to get average inflation-adjusted monthly income.

The final calculation includes the “social” part of Social Security. The lower your average wage during your working years, the higher percentage return you get in your check. The formula depends on your year of birth. As an example, for someone born in 1949: Take the first $749 of average monthly income and multiply it by 90 percent; up to the next $3,768 of your average monthly income is multiplied by 32 percent; and any remainder is multiplied by 15 percent. Add the amounts to get your monthly Social Security benefit, from which your Medicare premiums are subtracted (but that’s a different subject).

NOTE: If you start to collect before 62, or wait until 70, your benefit increases according to this table:


As you can see, Social Security retirement benefit calculations are pretty messy. So you don't want to be a watchmaker? “Don’t worry about it.”  








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Guess I'll be eating a lot of beans . . .

 
 By: Dr No : February 27th, 2021-07:29
. . . and cabbage 'til I'm 70.
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Does this also apply to;

 
 By: Jurry : February 27th, 2021-08:57
Those who don’t live in the US but live outside the US?
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I don’t know, sorry, but I would assume so

 
 By: cazalea : February 27th, 2021-10:49
I was just captivated by his analysis. Converting to WPS lingo we get: 1. Just tell me the time 2. Thanks for the time; BTW Is that a quartz watch? Or do you have to wind it? 3. So you are telling me Spring Drive is a mechanical watch up to the escapement... 
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