The Retirement Formula Nobody Talks About (But Should)
I have been playing around with some AI tools lately to better understand how Social Security payouts actually work. It’s a topic we rarely discuss in this group, but we absolutely shouldn't completely discount it.
What I discovered is a textbook example of the law of diminishing returns.
For context, I have been taxed at the maximum Social Security wage limit for the last 18 years of my career. In digging into the math, I just learned about AIME (Average Indexed Monthly Earnings) and "Bend Points." The data is eye-opening.
Here is the breakdown: The government calculates your benefit using a tiered system. Once your average lifetime earnings hit specific thresholds (the bend points), the rate at which you accumulate future benefits drops drastically.
In summary: Once you reach that second bend point—which is where my current situation sits—working extra years or earning more money will not significantly increase your future Social Security check.
While Social Security shouldn't be the single determining factor in when you choose to retire, it is a piece of the puzzle. Everyone in this group should calculate exactly what bend point stage they are currently in.
18 Years, currently
$3,249 / month
Work 5 More Years
$3,520 / month
+$271 / month
Work 10 More Years
$3,790 / month
+$541 / month
Work Full 35 Years
$4,171 / month
+$922 / month
90% of the first $1,286 = $1,157.40
32% of the amount between $1,286 and $7,749 ($6,463) = $2,068.16
15% of the amount above $7,749 ($7,626) = $1,143.90
Maximum Possible Retirement Benefit at Age 67: $4,171 per month