Is it true that your social security benefits are based on the last few years of your salary?

Question

A friend who is nearing retirement says that she has to earn as much as possible for the last few years before she retires so that she can get the most social security benefits. Is it true that if you change jobs and make less money (in a less stressful job!) that it will affect what you get at retirement?

Answer 1

For the most accurate answer, go to http://www.ssa.gov

Answer 2

Actually yes, it is based on the your overall credits etc. here is a complete explanation:

A worker's Social Security benefits—either retirement or disability—are based upon his/her time and earnings in Social Security-covered employment and the age at which s/he leaves the labor force.

The number on which most initial Social Security disability, survivors, and retirement benefits are based is called the Primary Insurance Amount (PIA). It is reached through a two-step calculation: 1) the Average Indexed Monthly Earnings calculation, and 2) application of the PIA formula rates.

Average Indexed Monthly Earnings1
First, a worker's 35 highest-earning years2 are indexed to wage growth3, up to the year the worker turns age 60. These wage-indexed annual earnings are then averaged (divided by 35 years), and divided by 12 months, to get a monthly amount. The result is called the Average Indexed Monthly Earnings (AIME). The AIME expresses a worker's lifetime earnings in terms of today's wage levels.

Answer 3

I believe it is calculated off of the total amount you paid IN over your entire career. A guy who makes $100,000.00 a year pays more into the system each year hypothetically at least would get more out than a guy who made minimum wage his whole life.

Earning lots in your later years would increase you benefit only slightly. You're better off investing in a good mutual fund and earning your own retirement money. (Ask a professional for advice...)

Answer 4

I don't know about other countries, but in the USA, your Social Security Benefits are not based on your last few years of income. They are based on all your income, but only the highest 35 years of income are used in the calculation. If you didn't work at least 35 years, then zeros are added for the missing years.

If your last few years are higher than any of the previous years, then those larger few years will affect your final benefit numbers, but not by much. You can't expect to make a killing by working your butt off during the last few years. It just doesn't work that way. And that's because the last few years are only a small part of a total of 35 years that are going to be used in the calculation.

But on the bright side, if your friend is not making big bucks, she'll be happy to learn that to make things fairer for everyone, the Social Security formulas allow lower income people to receive benefits based on a larger percentage of their income than higher income people get. That doesn't mean that poor people will receive larger benefit payments than richer people, it just means that they (lower income people) will get back more per dollar earned than the rich people will. The system works that way so that poor people who didn't make much money while working for a living won't get screwed in the end. Reading about all of this in at the Social Security Website (www.ssa.gov) caused me to have added respect for the Social Security Administration. The system appears to be fair and protective of lower income people who most likely worked just as hard as richer people, but simply didn't get paid as much for their work. Some rich people might think that some of the lower income people were types that didn't really work hard, were taking advantage of the system by living on unemployment checks, etc., but the system takes all of that into account too. Those unemployment checks come back to bite them. The whole system seems very fair. Well, from what I can understand of it anyway.

If you (or your friend) want to find out what your Social Security benefits will be by the time you retire, you can use a calculator at the Social Security Website. It's very easy to use. I use it every now and then just to see where I stand with my benefits. All you do is type in your income numbers for all the years you've worked, and what you expect to earn each year in the future. Then you click on the calculate button, and it shows you what your going to get. You can have the calculator give you the amount in today's dollars or future dollars (whichever you want). I prefer today's dollars because I can then compare the amount with what it costs me to live today. In other words, if I were to receive $2000 per month in today's dollars, could I live on that amount today? But when you ask yourself that question, you need to take into consideration what your expenses would be like when you retire. For example, would you still have a house payment to make, or would your house be paid for already? Would you still be spending big bucks for a wardrobe, or would you be living in jeans. Would you be driving as much as you did when you had to drive to work every day, or would you just be going for casual walks in the neighborhood or along the beach?

If you don't know what you've earned over the years, the Social Security Administration will gladly send you a statement that contains that information. Just go to their site and ask for it, or call them and ask for it. Their toll free number is 1-800-772-1213 and they answer their phones from 7 a.m. to 7 p.m.

Good luck, and if you're close to retirement, don't kill yourself during the last few years. I think that the SSA calculators will show you that it's not worth it. Try it both ways to see for yourself. First type "normal numbers" into the calculator, then type "killing yourself working" numbers into it. I think that when you compare the results, you'll decide that the difference isn't worth it.

PS: For the second part of your question. I'd get the less stressful job and not worry about it. The less stressful job might cost you a measly ten or twenty bucks per month, but allow you to live ten or twenty years longer. In other words, stress kills, and people who work a stressful job just to make an extra ten or twenty bucks more per month probably won't live long enough to spend it. Protect your health (by avoiding stress) and you'll live longer and get to spend more of those slightly smaller benefit checks.

Answer 5

I just retired and your social security check is determined by how much you paid into the fund over all the years you paid into it.......of course if you make a lot the last couple years......you are just paying more into the fund resulting in a larger monthly check.......

Answer 6

That was once true. Now it is based on your total income in your life. This is better because there were people who manipulated the system and made it look like they made real good money there last 3 yrs and got the max.

Answer 7

Based upon your salary on your last 3 years on the job.

Answer 8

Here's how it works you must have a certain amount of hours and quarters worked prior to retirement. They go back several years and find the average amount paid in then they pay benifits accourding to this formula.

Answer 9

no. its based on your earnings since youve been in the system