2021 figures – compiled by Richard Rider using OpenAI technology
Social Security calculations, including the “bend points”
At what level does your social security (SS) contributions no longer earn you more benefits? In 2021, that annual figure was $117,040. Any SS payments you and your employer paid on income above that amount (up to the $142,800 in 2021) will not earn you a penny more in social security benefits. But almost NO ONE knows about this rip-off of the upper middle class.
Most people think that SS is a bad deal for the worker. But for most, SS is arguably a good to GREAT deal – IF you ignore the doomed nature of this Ponzi scheme. See below for details.
In the United States, there is no specific level at which Social Security contributions stop earning you additional benefits. Instead, the amount of benefits you receive is based on the amount of income you earned during your working years, and the age at which you start receiving benefits. But I’ve done the calculations for you.
Under the Social Security program, you earn credits based on the amount of money you pay in Social Security taxes. You can earn up to a maximum of four credits per year. The amount of money you need to earn to get one credit changes each year. In 2021, for example, you earn one credit for each $1,470 of wages or self-employment income you receive.
The amount of benefits you receive is based on the average of your highest-earning 35 years of work. If you have fewer than 35 years of earnings, the years in which you did not work will be counted as zero earnings. This means that even if you stop working and paying into Social Security, the benefits you receive will be based on the credits you have already earned.
However, if you continue to work and pay into Social Security after you become eligible for benefits, you may be able to increase the amount of your benefits by earning additional credits. This is because the amount of your benefits is based on your average earnings over your entire career, and continuing to work can increase your average earnings.
It’s worth noting that there are limits on the amount of benefits you can receive based on your income and the age at which you start receiving benefits. If you start receiving benefits before your full retirement age (which is currently 66 or 67, depending on the year you were born), your benefits will be reduced. If you start receiving benefits after your full retirement age, your benefits may be increased.
What are the “bend points” in social security?
In the United States, the “bend points” refer to the two income thresholds that are used to calculate the primary insurance amount (PIA) for Social Security benefits. The PIA is the amount of benefits you will receive if you start receiving benefits at your full retirement age (currently 66 or 67, depending on the year you were born).
The bend points are adjusted each year based on the average wage index. The bend points are used to determine the amount of benefits you will receive based on the amount of income you earned during your working years.
Here’s how it works:
1. First, the Social Security Administration (SSA) calculates your average indexed monthly earnings (AIME) based on your highest 35 years of earnings.
2. The SSA then uses the bend points to determine the amount of your PIA. The PIA is calculated by applying a formula to your AIME, which includes the bend points.
3. The formula for calculating the PIA is:
PIA = [(AIME – BP1) x PIA1] + [(BP2 – BP1) x PIA2] + [(AIME – BP2) x PIA3]
where:
• AIME is your average indexed monthly earnings
• BP1 and BP2 are the bend points
• PIA1, PIA2, and PIA3 are the applicable percentage factors
The bend points and percentage factors are adjusted each year based on the average wage index.
Here are the bend points and percentage factors for 2021:
• Bend points: $960 and $5,785 monthly — $11,520 and $69,420 annually
• PIA1 percentage factor: 90%
• PIA2 percentage factor: 32%
• PIA3 percentage factor: 15%
For example, in 2021, the bend points are $960 and $5,785. This means that if your AIME is below $960, the formula will use the PIA1 percentage factor to calculate your benefits. If your AIME is between $960 and $5,785, the formula will use the PIA2 percentage factor. If your AIME is above $5,785, the formula will use the PIA3 percentage factor.
In 2021, the maximum monthly Social Security payment, also known as the maximum primary insurance amount (PIA), is $3,148 for individuals who start receiving benefits at their full retirement age (currently 66 or 67, depending on the year you were born). That’s $37,776 annually.
In 2021, the wage base is $142,800. This means that you will pay Social Security taxes on the first $142,800 of your wages or self-employment income. If you earn more than $142,800 in 2021, you will not have to pay Social Security taxes on the amount that exceeds the wage base.
If you earned over $117,040 in 2021, the 6.2% you and your employer paid on the excess (up to the $142,800 max) would not earn you one penny more on our social security retirement. Almost no one know this.
The Social Security tax rate for 2021 is 6.2% for both employees and employers.
Many people think that — from a wager earner’s standpoint — SS is a bad deal. Actually, in most but NOT all cases, it’s a good to GREAT deal – if you ignore the fact that it’s an unsustainable Ponzi scheme.
For low-income people (income under $20,000) and for folks who game the system by working a few years parttime to get the minimum amount, it’s a FANTASTIC deal. A 90% SS payout based on most of their wages, with minimal contributions.
For the folks earning between about $20,000 to about $70,000, it’s STILL an excellent deal – again ignoring the trifling Ponzi factor. For those making more than $70K, it starts as a mediocre plan and degenerates into an AWFUL plan — the more that they make.
To keep the system going, benefits to the upper quarter of SS recipients will have to be slashed, or eliminated altogether. Perhaps for the upper 1/3 of recipients.
It’s worth noting that the bend points and percentage factors are used only to calculate the PIA, which is the amount of benefits you will receive if you start receiving benefits at your full retirement age. If you start receiving benefits before your full retirement age, your benefits will be reduced. If you start receiving benefits after your full retirement age, your benefits may be increased.