I finally have an update to this article for accurate information go to http://offtopic.whiteboardcoder.com/2015/01/if-im-taking-social-security-and.html
My family recently had a medical scare with my father-in-law. After a lot of prayer and lots of doctor's visits he is back home and doing well. As a result of this brush with mortality my in-laws have let me into their financial planning some, so that if the worst may come to pass I can better help my mother-in-law with her finances.
My family recently had a medical scare with my father-in-law. After a lot of prayer and lots of doctor's visits he is back home and doing well. As a result of this brush with mortality my in-laws have let me into their financial planning some, so that if the worst may come to pass I can better help my mother-in-law with her finances.
As a result of all this I am learning about Social
Security and what it pays out in benefits.
My mother-in-law is fairly sure she is going to live into
her 90s so she delayed taking Social Security until turning 70 (which just
happened this last month).
My Mother-in-law is a rare bird. You would not figure she was 70. She works 50-80 hours a week at her job and
makes good money at it.
While I was helping her with her finances I looked at her
paystub and saw that Social Security was still coming out of it even though she
was now taking full social security. I
wondered if this was normal…. turns out it is.
In fact it turns out if you are working while taking social security
your new earnings may increase your S.S. benefit in the following year.
So how much?
So how much of an increase in S.S. monthly benefits can I
expect next year if I keep working this year?
I have dug through lots of Social Security pages and I have the answer
(or at least a close enough answer).
Here is the equation to figure out how much more S.S.
income you will get next year for the earned income you make this year.
That is nice and all, but what does it all mean?
Income:
The
Income you make this year that Social Security will be taxed againt (check out
your W-2 from last year for an estimate)
Low:
This
number is the lowest earning year out of the top 35 earning years that social
security has listed for you. But there
is a catch. Every year of income
reported on your Social Security report needs to be multiplied by an indexing
factor. This factor is to adjust
yesteryears dollars into today's dollars, to account for inflation. To get these indexing factors for you, head over to this web site. http://www.ssa.gov/oact/cola/awifactors.html
[1]
On this page enter the year you turned 62 and click on
Submit request. In the case of my
mother-in-law that was the year 2005
You will get a page like this with Years and Factors. Now what do you do with this?
You take your Social Security income for that year and
multiply it by this number.
So for example if you made $10,000 in 1960 you would
multiply that by 8.5011055 (assuming you
turned 62 in 2005) Giving you a total of $85,011 (think
of this as your old income adjusted for inflation)
As an example, let's say your 35th lowest
earning year (after using the indexing factor) was 1959 and you earned income
that year was $2,500. Using the indexing
factor of 8.8347295 your LOW would be $22,086.00.
This would tell you that to increase your S.S. benefits
next year (beyond the cost of living increase) you would have to earn more than
$22,086 this year.
If you have fewer than 35 years of income, which is the
case for my own mother, any money you earn this year will increase your
benefits next year.
colaF:
COLA
(Cost of Living) factor. You can find
the cost of living adjustments at this social security web site https://www.ssa.gov/oact/cola/colaseries.html
[2]
The cost of living adjustment is compounded annually by
the next cost of living adjustment. To
make life easier I made this cheat sheet for you which is accurate for 2013.
Year you turned 62
|
ColaF
|
2000
|
1.385
|
2001
|
1.338
|
2002
|
1.304
|
2003
|
1.286
|
2004
|
1.259
|
2005
|
1.226
|
2006
|
1.178
|
2007
|
1.140
|
2008
|
1.115
|
2009
|
1.054
|
2010
|
1.054
|
2011
|
1.054
|
2012
|
1.017
|
My mother-in-law turned 62 in 2005 so her ColaF would be
1.226 (for the year 2013)
This number will change next year when the new COLA number
comes out. Rumor is it will 1.5% if that
is the case multiply this number by 1.015.
In my mother-in-laws case this would result in a ColaF of 1.244
RA:
Retirement
Age. What age did you actually retire? This page http://www.ssa.gov/retirement/1943.html
[3] will show you what factor to use if you were born between 1943 and 1954. If you started taking social security after
the age of 66 you get a bump for every year you hold off taking social
security. The amount can be seen on this
page http://www.ssa.gov/retire2/delayret.htm
[4] or even better here http://www.ssa.gov/retire2/1943.htm
[5]
Here is a cheat sheet (for those born between 1943 and 1954)
Age started collecting Social Security
|
RA
|
62
|
0.750
|
63
|
0.800
|
64
|
0.867
|
65
|
0.933
|
66
|
1.000
|
67
|
1.080
|
68
|
1.160
|
69
|
1.240
|
70
|
1.320
|
70+
|
1.320
|
My mother-in-law did not start taking social security
until the age of 70 so her RA number is 1.320
Bracket:
Social
security has income brackets that reduce the amount they pay you, per bracket, if you made more money in your life. The first small bracket pays you 90% the
second pays 32% and the 3rd bracket pays 15%.
Although the bracket percentages do not change 90%, 32% and 15% the
money amount does change based on the year you turned 60.
Again here is a cheat sheet
Year you turned 62
|
1st bracket
|
2nd bracket
|
2000
|
$531
|
$3,202
|
2001
|
$561
|
$3,381
|
2002
|
$592
|
$3,567
|
2003
|
$606
|
$3,653
|
2004
|
$612
|
$3,689
|
2005
|
$627
|
$3,779
|
2006
|
$656
|
$3,955
|
2007
|
$680
|
$4,100
|
2008
|
$711
|
$4,288
|
2009
|
$744
|
$4,483
|
2010
|
$761
|
$4,586
|
2011
|
$749
|
$4,517
|
2012
|
$767
|
$4,624
|
2013
|
$791
|
$4,768
|
But this cheat sheet
is still hard to read so I made another one that I think is simpler.
Year you turned 62
|
1st bracket monthly income
|
2nd bracket monthly income
|
2000
|
$478
|
$1,333
|
2001
|
$505
|
$1,407
|
2002
|
$533
|
$1,485
|
2003
|
$545
|
$1,520
|
2004
|
$551
|
$1,535
|
2005
|
$564
|
$1,573
|
2006
|
$590
|
$1,646
|
2007
|
$612
|
$1,706
|
2008
|
$640
|
$1,785
|
2009
|
$670
|
$1,866
|
2010
|
$685
|
$1,909
|
2011
|
$674
|
$1,880
|
2012
|
$690
|
$1,925
|
2013
|
$712
|
$1,985
|
Look at the monthly
income brackets for the year you turned 62.
For the case of my mother-in-law that is 2005. That gives me a 1st income monthly
bracket of $564 and 2nd income bracket of $1,573.
Take these numbers
and multiply them by your ColaF number and then by RA number.
In the case of my
mother-in-law her ColaF number is 1.244 (assuming 2013 has a cost of living
adjustment of 1.5%). Her RA number is
1.32 because she waited till 70 to take full S.S. retirement.
1.244 x 1.32 = 1.64208
Multiply your 1st bracket income and 2nd by this
number.
For my mother-in-law
this means
$564 x 1.64208 =
$926.63
$1,573 x 1.64208
= $2,582.89
What does this mean?
This means that if
you are making less than $926.63 per month from social security
your bracket will
be 0.90
If your income from
social security is more than $926.63 but less than $2,582.89
your bracket will be 0.32
If your income from
social security is more than $2,582.89
your bracket will be 0.15.
Note: Make sure you are looking at what social security pays you before they automatically take out any medicare or taxes.
In the case of my
mother-in-law her bracket number is 0.32
(for those accountants in the crowd I did not figure the
case if your new income crosses a bracket I just assumed you would stay in one
even with new money)
Putting it all
together
Again here is the equation.
I don't want
to reveal my mother-in-laws current income but her current income subtracted
from her 35th lowest income year adjusted with her indexing factors is
$48,067.
Here are all of her variable numbers
·
(Income - Low)
= $48,067
·
colaF = 1.244
·
RA = 1.320
·
Bracket = 0.32
Giving me an equation that looks like this
Giving me a grand total of
$60.13 /mo
This tells me that she will make an additional $60.13 per
month next year from Social Security for the work she did this year.
That is not to be confused with the boost she gets next year because of COLA for
2013 predicted to be 1.5%. The COLA for 2013 is just a cost of living adjustment she
would get if she had earned income this year or not.
I will post on here again in January to see if my
calculations were right.
Hope someone finds this post useful. And for those of you working past your retirement age, my hats off to you this country needs more people like you.
References
[1] Indexing Factors For
Earnings
Visited 10/2013
[2] Cost-Of-Living Adjustments
Visited 10/2013
[3] Your full retirement age is
66
Visited 10/2013
[4] Retirement Planner: Delayed
Retirement Credits
Visited 10/2013
[5] Delayed Retirement: If You
Were Born Between 1943 And 1954
Visited 10/2013
[6] Benefit Formula Bend Points
Visited 10/2013
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