How much will my monthly benefit go up next year if I work this year?

Posted on Tuesday, October 22, 2013


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.

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.

Here is the page that lists the bracket ranges http://www.ssa.gov/oact/cola/bendpoints.html [6]

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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