Do your earnings at the point of retirement impact Social Security benefits?

Do the amount of earnings at the time of retirement affect the value of one's SS benefits? Or are SS benefits determined by the total amount you have contributed throughout the years?

Social Security, Peri-Retirement
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April 2017
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Yes and yes!  But replacing lower earning years by continuing to work may not have the impact you would expect. This is especially important to understand if you hate your work or your work is physically and/or psychologically wearing you down. Here's how SS calculates your monthly benefit:

  1. First, they pick the highest 35 earning years. If you haven't worked 35 years, then they'll include zero earnings for enough years to total 35.
  2. Then, they bring each one of those years forward into today's wages. For example, suppose you earned $20,000 in 1990 and you make $40,000/yr now. Guess what the multiplier is for 1990 wages, about 200% or $40,000. So working another year would not eliminate 1990 from your top 35!
  3. Then they total all 35 years' earnings and divide by 35 years of months or 420 to get your AIME (average income monthly earnings).
  4. Finally, they subject your AIME to three calculations. The first $885 of your AIME is multiplied times 90%. $886 through $5,336 wages are multiplied by 32%. Everything above $5,337 is multiplied by 15%. The results are added together to get your PIA (primary insurance amount which is the same as your full retirement age benefit). If your PIA is higher than $2,639, then $2,639 is your maximum PIA in 2017.

Whew! As you can see, the idea is to skew benefits toward lower earning participants, which is appropriate since the program was designed to primarily benefit the elderly poor.

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