Larry - I started drawing my Social Security benefit at age 70 in 2019 The maximum benefit for my retirement year was $3770. Factoring in the COLA increases for 2020 and 2021 I am about $40 a month short of the maximum benefit. This is confusing as I made the maximum contribution for 38 years of my 53 years working. I think 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 the maximum benefit.
Hi,
It's complicated. First of all, 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 reach age 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): https://secure.ssa.gov/apps10/poms.nsf/lnx/0300605936. 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 $9000 in 1972, your indexed earnings for that year would be $51,361.70 (i.e. $9000 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 the following section of POMS: https://secure.ssa.gov/apps10/poms.nsf/lnx/0300605905. 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 effective with the month you reached age 70.
By the way, our software (https://maximizemysocialsecurity.com/purchase) 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.
Best, Jerry
