Retirement Planning

Ask Larry: Shouldn’t I Be Getting The Maximum Social Security Retirement Benefit?

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Today’s column addresses questions about whether there’s a universal maximum retirement benefit rate based on high income, when to file to ensure full unreduced benefits and how divorced spousal benefits are calculated and whether they affect other benefit rates. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, which markets Maximize My Social Security and MaxiFi Planner.

See more Ask Larry answers here.

Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.

Shouldn’t I Be Getting The Maximum Social Security Retirement Benefit?

Hi Larry, I started drawing my Social Security benefit at 70 in 2019. As I understand it, the maximum benefit for my retirement year was $3770. Factoring in the COLA increases for 2020 and 2021, by my calculations I am about $40 a month short of the maximum benefit.

This is confusing to me as I made the maximum contribution for 38 years of my 53 years working. I think maybe the issue has something to do with the inflation adjustment factors for years 1972-1977.

Even though I made the maximum contribution it appears that the adjusted amount for those years were insufficient to allow me to earn the maximum. Could you shed any light on my situation as it appears that in some cases paying the maximum contribution for 35 years isn’t sufficient to earn what I calculate would be the maximum benefit? Thanks, Mathew

Hi Mathew, It’s complicated but first note that there is no set maximum benefit rate.

The maximum benefit rate that can be paid to anyone at a given age depends on the year in which they turn 62 since their past earnings are indexed based on that year. Furthermore, a person’s benefit rate can potentially continue to increase indefinitely as long as they continue to work and earn enough to replace one of their previous highest 35 years of indexed earnings with a higher earnings year.

Assuming that you were born in 1949, the indexing factors for your year of birth can be found in section labeled 2011 in the following reference from Social Security’s operations manual (POMS): RS 00605.936 Indexing Factors for 2011 Eligibility. To calculate your indexed earnings for a given year, you would multiply your actual Social Security covered earnings up to the yearly maximum, by the indexing factor for that year. For example, if you earned at least $9,000 in 1972, your indexed earnings for that year would be $51,361.70 (i.e. $9,000 x 5.7068617).

In order to calculate your benefit rate manually, you need to a) compute your indexed earnings for each year, b) add up your highest 35 years of indexed earnings, and then c) divide by 420. That will give you your averaged indexed monthly earnings (AIME). You would then calculate your base primary insurance amount (PIA) using the bend point factors for people who turned age 62 in 2011 shown in RS 00605.905 1978 NS AIME PIA Chart.Once you calculate your base PIA, you would then need to add any Social Security cost of living increases (COLA) that occurred after 2011 in order to get your current PIA. You would then need to the percentage increase for any applicable delayed retirement credits (DRC) earned, which would add 32% to your PIA assuming that you started drawing your retirement benefits the month you reached 70.

By the way, my company’s software — Maximize My Social Security or MaxiFi Planner — is fully programmed to handle all of the calculations described above, so using our software would allow you to determine whether or not the benefit rate that you’re receiving is correct. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

What Month Should I File My Claim In Order To Get My Full Benefit Amount?

Hi Larry, I was born in June 1955 so my full retirement age is 66 and two months in August. To get my full benefits, what month should I file in advance to start? Do I need to wait the whole month of August to then file? Thanks, Arnold

Hi Arnold, If you want to receive your FRA rate, which is equal to your primary insurance amount (PIA), you would elect to claim your benefits in the month of August 2021. Your first payment would then be due on the second Wednesday of September 2021, since Social Security pays benefits a month behind.

Social Security allows you to apply for benefits up to four months in advance of the month that you want start your benefits, so you could file an application for benefits to start with August 2021 as early as April 2021. Best, Larry

Will My Husband’s Ex Start Getting A Higher Amount When My Husband Files For His Benefits?

Hi Larry, My husband and I have been married for 15 years. He is 66 and I am 60. When his ex turned 62, she began receiving divorced spousal benefits from his record. He on the other hand opted to wait until 66 and a few months to start taking his next month.

Will his ex be able to start receiving a higher benefit when he files, or will she stay with the same amount? Thanks, Joan

Hi Joan, The age your husband starts his benefits at has no effect on the calculation of his ex-wife’s divorced spousal benefit rate.

Unreduced divorced spousal benefits are based on 50% of the worker’s primary insurance amount (PIA), not 50% of the worker’s actual benefit rate. A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing their benefits at full retirement age (FRA).

Therefore, since your husband’s ex started drawing at 62, she’ll continue to receive a reduced divorced spousal rate no matter when your husband files for his benefits.

However, the fact that your husband’s ex started drawing divorced spousal benefits early wouldn’t cause her to receive a reduced survivor benefit in the event of your husband’s death. Divorced survivor benefit rates are calculated independently from divorced spousal rates, so if your husband’s ex is at least FRA at the time of your husband’s death, she could receive up to 100% of his benefit rate at the time of his death.

And just to clarify, whether or not your husband’s ex collects benefits on your husband’s record has absolutely no adverse effect on his benefit rate. Nor would it have any adverse effect on your potential spousal or survivor benefit rate. Best, Larry

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