Your filing cabinet?

[Ken]

One separate comment. It is the formula they use to calculate your benefits that they do not reveal. I don't think they want anyone to know what it is.

No, they reveal it. There are no secrets. It is just too complicated to explain in a one-page brochure.

It is explained here: https://www.ssa.gov/oact/cola/Benefits.html
And here are some examples showing the math: https://www.ssa.gov/oact/ProgData/retirebenefit1.html

Step 1: First they look at your lifetime earnings record and add up your highest 35 years. If you have less than 35 years of earnings, they add up however many years you have. Every year's earnings total is inflation adjusted to the median income for that year so that your earnings in 1980 are equal in weight to your earnings in 2020. Note, if you have years in which you earned more than the maximum they only count earnings up to the maximum.

Step 2: Divide the your total earnings in your 35 best years by 420* (the number of months in 35 years). This will give you a number between zero and $13,350. $13,350 is the earnings cap in 2023, anything above that doesn't count towards your social security benefit. This is your average indexed monthly earnings (AIME).

*Note. Technically they don't add zeros for years up to 35, but by diving by 420 the effect is the same as if they had.

Step 3: Calculation of your Primary Insurance Amount (PIA) which is done as follows with two bend-points (using 2023 numbers, they change every year)

Your PIA is calculated as:

• 90% of the first $1,115 of AIME, plus
• 32% of AIME between $1,115 and $6,721, plus
• 15% of AIME over $6,721 (up to $13,350)

So, for example, someone who earned an inflation-adjusted average of $50,000 per year for 35 years will have an AIME of $4,167 ($50,000 / 12). And this person's PIA would be calculated as follows:

$1,115 X 90% = $1003.50
$3,052 X 32% = $964.65 ($4,167 - $1,115 = $3052)
-------------------------------------------------------------------
TOTAL: $1,980.14 monthly social security payment.

However this is only the amount if this person retires at the full retirement age of 67. It is reduced by a percentage (I think about 8%) for every year they retire early down to the earliest date of age 62 or increased for every year they delay retirement up to age 70.

Note. The bend points increase by inflation every year so these calculations are only for someone retiring in 2023. For someone contemplating retirement in 2023 they should look at their bend points. If their AIME is lower than the first bend point of $1,115 in 2023 it is to their benefit to keep working since they get 90% credit for any additional dollars earned up to the first bend point. If their AIME is between the first and second bend points they get 32% credit for any additional earnings. And if they are already above the second bend point then they don't get much credit (15%) if they keep working. And if their AIME is already at the cap of $13,350 no additional amount of work will raise their benefit. They are already at the maximum.

There are all kinds of online social security calculators, some free, some paid, where you can input all your earnings history and look at an infinite number of scenarios to figure out how to maximize your benefit by adjusting your retirement date and adding additional amounts of projected future earnings until retirement. And there are additional complexities if you are married since your spouse can claim their own benefit or 1/2 of yours and there are additional complexities if you and your spouse are different ages.

[Neto]

Thanks, Ken. I will look into this. I read through it quickly, so will need to read it more carefully, as for instance I have no idea (yet) what "bend points" are. If I manage to understand the formula, I'll compare my calculations to what they show on the different reports they have sent to me. (My full retirement age was 66 & 2 months. I'm now past 68. Trying to decide if I should go ahead & file as soon as I quit working, or if I should wait until 70.)

[Ken]

Thanks, Ken. I will look into this. I read through it quickly, so will need to read it more carefully, as for instance I have no idea (yet) what "bend points" are. If I manage to understand the formula, I'll compare my calculations to what they show on the different reports they have sent to me. (My full retirement age was 66 & 2 months. I'm now past 68. Trying to decide if I should go ahead & file as soon as I quit working, or if I should wait until 70.)

Bend points are what makes social security progressive.

You get more 90% credit for your low income earnings up to about the poverty line.
You get 32% credit for your middle income earnings
You get 15% credit for your high income earnings

The two bend points are the dollar amounts where the formula switches from 90% to 32% and again from 32% to 15%

For 2023 the bend points were $1115 and $6,721 and the cap was $13,350. If we convert those to annual salary they come to $13,380 and $80,652 and $152,200.

The decision about when to retire and draw social security is supposed to be actuarily neutral. Which means if you have the lifespan of the average person born in your year then you break even no matter which retirement date you pick.

So if you are healthier than average and likely to live longer than the average person born the same year as you then you you will maximize your lifetime benefits if you wait. if you are sicker than the average person then file early to maximize your lifetime benefits. Also since women live longer than men and the formula is gender-neutral, women should usually wait until 70 if they can afford it since that will maximize their lifetime benefits.

The way I look at it, social security is insurance for outliving your other personal and private assets and savings. So I'm treating it that way and planning to delay until 70 to lock in a higher lifetime payment. That means if all our other finances collapse when we are age 90 or something, as least we have maximized our social security as a safety net. But that also requires being able to wait until age 70 which many people can't afford to do.

Also if you are married, your spouse will inherit your benefit when you die (or vice versa) if it is larger than theirs. So delaying until age 70 will also benefit your spouse if they outlive you. Conversely, if you retire early, you are locking your spouse into a lower lifetime benefit if they outlive you. Something to consider especially if you have a younger and healthy spouse who might substantially outlive you.

[Ken]

Note: I think I figured out where people are getting the 10 year figure for Social Security cited above by Josh and others.

10 years is the MINIMUM number of years that you must work in a job that pays into social security in order to qualify for a benefit. Someone who has paid into social security for less than 10 years doesn't qualify for a benefit (there are some exceptions but this is generally the case).

Social Security calculates this on a quarterly basis, each quarter you work gives you one credit and you need a minimum of 40 credits to qualify for a benefit. So someone who just works 6 months a year or just works summers might need to work longer than 10 years to accrue 40 credits. Here is an explainer: https://www.ssa.gov/myaccount/assets/ma ... nefits.pdf

But once you qualify by reaching the minimum of 40 credits to qualify,, your benefit amount is still based on your best 35 years of earnings history.

[Neto]

Note: I think I figured out where people are getting the 10 year figure for Social Security cited above by Josh and others.

10 years is the MINIMUM number of years that you must work in a job that pays into social security in order to qualify for a benefit. Someone who has paid into social security for less than 10 years doesn't qualify for a benefit (there are some exceptions but this is generally the case).

Social Security calculates this on a quarterly basis, each quarter you work gives you one credit and you need a minimum of 40 credits to qualify for a benefit. So someone who just works 6 months a year or just works summers might need to work longer than 10 years to accrue 40 credits. Here is an explainer: https://www.ssa.gov/myaccount/assets/ma ... nefits.pdf

But once you qualify by reaching the minimum of 40 credits to qualify,, your benefit amount is still based on your best 35 years of earnings history.

OK. That's then where ignoring the fact that we paid SS taxes as self-employed persons during our time in Brazil cuts our expected SS payback, because w/o those years, I do not have 35 years total. At least that's my understanding of it at this point. Judging from the experience of other former WBT Brazil branch members, I think that the SS office will accept it when they see the facts laid out. It would just make me more comfortable if they hadn't suddenly decided to cut it out of our records for the 2022 report.

[Josh]

Thanks, Ken. I will look into this. I read through it quickly, so will need to read it more carefully, as for instance I have no idea (yet) what "bend points" are. If I manage to understand the formula, I'll compare my calculations to what they show on the different reports they have sent to me. (My full retirement age was 66 & 2 months. I'm now past 68. Trying to decide if I should go ahead & file as soon as I quit working, or if I should wait until 70.)

It depends on how long you think you will live.

[Ken]

Thanks, Ken. I will look into this. I read through it quickly, so will need to read it more carefully, as for instance I have no idea (yet) what "bend points" are. If I manage to understand the formula, I'll compare my calculations to what they show on the different reports they have sent to me. (My full retirement age was 66 & 2 months. I'm now past 68. Trying to decide if I should go ahead & file as soon as I quit working, or if I should wait until 70.)

It depends on how long you think you will live.

Also how long you think your spouse will live if you are married and they will be relying on your social security after you die.

Once you pick a retirement date you lock in your future social security payments for life. Not just your life but also for your spouse's life (unless their earnings history and own social security payment is higher than yours).

[Ken]

OK. That's then where ignoring the fact that we paid SS taxes as self-employed persons during our time in Brazil cuts our expected SS payback, because w/o those years, I do not have 35 years total. At least that's my understanding of it at this point. Judging from the experience of other former WBT Brazil branch members, I think that the SS office will accept it when they see the facts laid out. It would just make me more comfortable if they hadn't suddenly decided to cut it out of our records for the 2022 report.

It's not really the years, its the amounts. They just sum up your 35 highest earnings years (inflation adjusted) and divide by 420. So for your time in Brazil the relevant question isn't so much how many years it was. The relevant question is how much total earnings went unreported.

[Neto]

OK. That's then where ignoring the fact that we paid SS taxes as self-employed persons during our time in Brazil cuts our expected SS payback, because w/o those years, I do not have 35 years total. At least that's my understanding of it at this point. Judging from the experience of other former WBT Brazil branch members, I think that the SS office will accept it when they see the facts laid out. It would just make me more comfortable if they hadn't suddenly decided to cut it out of our records for the 2022 report.

It's not really the years, its the amounts. They just sum up your 35 highest earnings years (inflation adjusted) and divide by 420. So for your time in Brazil the relevant question isn't so much how many years it was. The relevant question is how much total earnings went unreported.

No earnings went unreported by me (on Form 1040). They had all of those figures on the annual reports up until the 2022 report. If they do not count those years in Brazil, then I don't have 35 years, so if I am understanding correctly, then not recognizing that data WILL affect the total of the 35 highest years, because even though those years were low, they were more than zero.

(My wife is 3 1/2 years older than I. She is already receiving SS benefits, and needed to do that, because of some eye issues that require monthly injections to prevent further vision loss. The full costs of that medication are extremely high, like thousands of dollars every time.)

[Josh]

What Neto is getting that is that you don't get credit for years you are a permanent resident of another country. On the flip side, you aren't obligated to pay OASDI or self employment tax either.