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"The Social Security Board of Trustees today released  its annual report on the long-term financial status of the Social  Security Trust Funds. The combined asset reserves of the Old-Age and  Survivors Insurance, and Disability Insurance (OASDI) Trust Funds are  projected to become depleted in 2034, the same as projected last year,  with 77 percent of benefits payable at that time." --  7/13/2017 - Social Security Trustees Report.

As  mentioned in the quote above from the recently released Social Security Trustees Report, the "trust funds" will be depleted in 2034. That is  the year I (Bill) turn 66 - one year prior to my full retirement age!!!

I  am not the only one concerned about maximizing my future Social  Security benefits. Those considering retiring ask questions such as, "How will my early retirement impact my future Social Security benefits?" or "If I work longer, will that boost my benefit?"

When answering these questions, the most important thing to understand is that your Social Security benefit is based upon your highest 35 years of earnings history (these years do not have to be consecutive). These earnings only include earnings UP TO   the Social Security tax limit (currently $127,200) because earnings  above this figure are irrelevant to the calculation of your benefits.  This Social Security earnings history is then adjusted to today's  dollars via the application of the Social Security "wage indexing  factors". This is best understood with a visual example.

Below is  a hypothetical worker's 40 years of earnings. Naturally,  since it is  not inflation adjusted, the highest earnings will generally  be more  recent due to the effect of inflation. Below, the same earnings history is adjusted using the Social Security wage indexing factors to show the earnings history in today's dollars. It makes sense to inflation adjust past earnings in order to avoid penalizing benefit calculations as a result of inflation. Of these 40 years, Social Security only considers the highest 35 years (represented by the blue bars). Therefore, the remaining five years (red bars) are ignored in the calculation of benefits.

So, will working an additional year increase this worker's Social Security benefit? The lowest income year of the 35 years occurred in 1997 with indexed income of $44,000. Therefore, if you can earn more than $44,000 by working an additional year, the new wage will replace the $44,000 wage used in the calculation of your Social Security benefits. Obviously the higher the wage (up to $127,200) the better.

However, let's say a client does not have 35 years of Social Security earnings history. They only worked for 30 years. Naturally, any additional years of income will be valuable as it will be replacing a $0 earnings year in the calculation.

Most clients have 35+ years of strong earnings history with almost all years at or above the maximum earnings level used in the calculation of benefits. The picture below illustrates a 40 year indexed earnings history, with 35 years (blue bars) at the maximum earnings level. (302) 239-1654 | Hockessin, Delaware WealthWindow Login | TD Ameritrade Login | ShareFile Login