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The Hidden Calculations in Your Social Security Benefit - MSN - 24/7 Wall St.
The SSA uses your highest 35 years of earnings to determine your Social Security benefit amount. What you do not see is that SS adjusts your earnings through age 59 for inflation, meaning they are valued at their current amount, not what they were when you earned them, when calculating your benefit. However, these increased amounts do not show on your Social Security earnings statement. If you earned $100,000 at age 45, it could be worth $172,000 when you turn 60. However, if you drop to $100,000 at age 62, those earnings may no longer increase your Social Security benefit.
If you do not have 35 years of earnings, zeros will be added to the calculation to make 35 years. As you can imagine, this will reduce your benefit. As you continue to work, any earnings will replace a zero and increase your benefit amount. Remember that each zero you replace is only 1/35 of the calculation, so it may not be a large increase.
Vilma Rios has written an article discussing wage indexing and some things to consider when preparing to retire. However, if you want to know what your earlier earnings are worth now, you can get the indexing factors for the year you turned 62 using SSA's "Wage Indexing" factors.
This posting is presented for informational purposes only and does not represent legal or financial guidance. Any opinions or interpretations presented are either those of the original author or, in the case of articles authored by the AMAC Foundation, are the opinions of AMAC Foundation staff, originally trained and accredited by the National Social Security Association (NSSA) and certified via the AMAC Foundation. Any links included in the article are valid on the posted date; socialsecurityreport.org cannot guarantee the duration of the links’ validity. NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (https://amacfoundation.org/services/) or email us at ssadvisor@amacfoundation.org. Because we are a non-profit organization, there is no charge for these services.