How Does Retiring Early Impact Social Security Benefits?

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Our family’s goal was to achieve financial independence assuming we will have no Social Security benefits. Our full retirement ages are over two decades away and future cuts are likely. We decided to consider any benefits we may receive as a bonus and haven’t paid much attention to Social Security.

Money surrounding Social Security card

I recently shared that I’ve been helping my parents with their finances as they transition into retirement. Seeing how valuable their Social Security is has been eye opening.

With a paid off home and cars and a low tax-burden in retirement, they live a comfortable lifestyle with most of their expenses covered by their Social Security benefits and a very small pension. 

They need little money from their investment portfolio. This means they could have saved substantially less and retired sooner or spent substantially more on the way to retirement.

Seeing this made me realize that ignoring Social Security can be an expensive mistake. So I sought out to answer three questions:

  1. What are our Social Security benefits as things stand today? 
  2. What impact does retiring early have on future Social Security benefits? 
  3. How should we incorporate uncertain future Social Security benefits into our financial projections?

How You Accumulate Social Security Benefits

It’s important to start with a basic understanding of how Social Security works. Social Security functions similarly to a pension, replacing a portion of your earnings. 

Your benefit in retirement is dependent on your “Taxed Social Security Earnings” over your lifetime. Social Security calculates your benefit based on the average of your highest 35 years of earnings. You must have at least ten years of earnings to qualify for Social Security retirement benefits.

The program is most beneficial to lower earners. They have a higher percentage of their income replaced by Social Security benefits in retirement. As you earn more, a smaller portion of your income is replaced by Social Security in retirement.

To better understand how you accumulate Social Security benefits and how retiring early impacts your benefits, it is important to understand the terms AIME, PIA, and bend points.

Understanding AIME and PIA

AIME are your average indexed monthly earnings. Social Security adjusts your income for inflation that occurs over your working lifetime. This ensures future benefits aren’t destroyed by inflation in the years between when you earn them and when you receive them.

For example, my first year of having taxed Social Security earnings was 1995. The $2,920 of income I earned cutting grass and making pizzas in 1995 is currently worth over double that amount, $6,163, in 2020 dollars after multiplying by 2.1106823 to adjust for inflation since 1995. 

The $82,556 I earned in my last year of working as a physical therapist in 2017 is worth $85,548 in 2020 after applying the much smaller multiplier of 1.0362449 for 2017. This smaller inflation adjustment is due to earning these dollars more recently.

You can find the inflation adjustment multipliers by year on the Social Security website.

PIA is your primary insurance amount. PIA is calculated based on your AIME over your highest earning thirty-five years. This is the basis for the Social Security benefits you will receive in retirement. 

Understanding Bend Points

The next important concept to understand is applying bend points to determine your retirement benefits. The concept of bend points is analogous to our progressive income tax system. It is designed to benefit lower earners more and be progressively less beneficial to higher earners.

The dollar amounts of your PIA change from year to year based on inflation. The percentages are fixed by law. 

Up to the first bend point, your income is replaced at 90% of your AIME. In 2020 the first bend point is $960. If your AIME is exactly $960, you will qualify for a monthly benefit of $864 at your full retirement age.

AIME above the first bend point up to the second bend point, $5,785 in 2020, is replaced at only 32%. For example, someone with a PIA of $1960 would be exactly $1000 over the first bend point. They would receive an additional $320/month. The total monthly benefit in this scenario is $1,184.

Above the second bend point up to the maximal amount, income is replaced at only 15%. Thus, you do not accrue benefits in a linear fashion. They become progressively less generous at each bend point.

Dollars earned up to the first bend point produce nearly three times the benefit of those between the first and second bend points. Those dollars in turn produce more than twice the retirement benefit of dollars earned above the second bend point.

The Impact Of Early Retirement

Retiring before accumulating 35 years of taxable earnings means having years of zero (or very low) taxed earnings factored into your average earnings. This will lower your AIME and PIA.

This is especially important if your PIA has not reached the first bend point. Up to the first bend point income is replaced at 90%. Social Security replaces progressively less of your income as your PIA passes the first and second bend points.

How much you value these benefits is an individual decision that depends on what other assets you have to support you in retirement. How much confidence you have in the Social Security system remaining viable by the time you are eligible for benefits may also impact your decision.

In any case, it is worth knowing where you stand with regards to accumulating Social Security benefits. Then, you can make an educated decision.

Differentiating Between Retiring Early And Claiming Benefits Early

Before we discuss determining what Social Security benefits you’ve accumulated, it is important to make a distinction between retiring early and claiming Social Security benefits early. They are two entirely different discussions.

Let’s focus on retiring early, meaning to stop earning or drastically reduce your taxable wages. This will impact the Social Security benefit you accumulate over your working lifetime if you have not yet accumulated 35 years of earnings. It will also impact you if you have accumulated 35 years of earnings, and if the earnings you are forgoing later in life would be greater than the earnings you have already accumulated. Either scenario will decrease the average earnings compared to your potential top 35 years of earnings.

However, retiring early will not cause you to lose any benefits you’ve already accumulated.

Claiming Social Security benefits prior to your full retirement age is an entirely separate decision. Full retirement age is currently between 66 and 67 years of age depending on your date of birth. This may be increased in the future to reflect increasing life expectancy. You can calculate your full retirement age here.

You may claim Social Security retirement benefits as early as age 62. This will reduce your monthly retirement benefit.

Conversely, you can delay receiving benefits beyond your full retirement age. In this scenario, you will claim a larger monthly benefit when you do begin. 

You can find Social Security rules related to claiming retirement benefits at this link. Darrow discussed this decision making process in detail in this blog post.

Projecting Your Social Security Benefits

You can obtain your estimated Social Security benefit by setting up an online account with “my Social Security.” You can then access your earnings records and estimated benefits on their website.

When calculating your estimated benefits, Social Security assumes you will continue to work until your full retirement age. They project future benefits based upon your earnings from the two most recent years. Therefore, the benefits you eventually receive may be more or less than the projections depending on your actual future earnings.

The website also makes it clear that the law can change between now and when you apply to receive retirement benefits. Directly from the website:

“Your estimated benefits are based on current law. The law governing benefit amounts may change. Congress has made changes to the law in the past and can do so at any time.”

This stipulation combined with projected funding shortfalls are why we haven’t placed much emphasis on Social Security planning in the past. 

Placing too much faith in your projected earnings probably isn’t wise. This is particularly true the further out you are from claiming benefits. Still, I’ve realized being ignorant and ignoring benefits you’ve earned isn’t a valid strategy either. 

Adjusting Social Security Benefits for Future Earnings

On the “my Social Security” website, you can use their Retirement Calculator to experiment with the impact of different levels of ongoing income on your Social Security retirement benefits.

My estimated benefit at full retirement age is $1,869 a month based on my twenty-five years of earnings between 1995 and 2019. Over the last two years, I’ve had very little income taxable by Social Security, totalling less than $6,000.

I first changed the calculator to assume future earnings to be $0. This had almost no effect on my estimated benefit, lowering it to $1,852 a month. 

Entering $90,000 for future earnings raised my estimated benefit by almost $1,000/month at full retirement age to $2,737. At first glance, this seems like a fair amount of money to leave on the table by retiring early. 

However, obtaining this level of benefit would require working full-time 19 more years. That would give me ten more years to complete 35 years of earnings, plus replace the eight years on my earnings record when in college and early retirement when income was less than $10,000/year, plus my first year of work as a physical therapist when I made only $22,500 working half a year. 

Next, I looked at the impact of working part-time in semi-retirement. I’ve recently written about how friendly the tax code is for semi-retirees who earn small amounts of income after leaving their careers. What is the impact of part-time work on Social Security benefits?

If I made just $1,000 a month ($12,000 a year) in semi-retirement, my benefit at full retirement age would jump by over $100/month from $1,869 to $1,981 a month. Making $2,000/month ($24,000/year) would increase my benefit to $2,144 a month.

Determining Your Inflation Adjusted Benefits

One piece of information that is not clear from the Social Security site is where your PIA is relative to the bend points. This information is important to determine how impactful working longer would be on your future Social Security benefits.

Remember, up to the first bend point, your income is replaced at a rate of 90%. Between the first and second bend points the replacement rate drops to 32%. It drops further, to 15%, beyond the second bend point.

Also, remember that both your earnings and the bend points are adjusted for inflation. Once you’re AIME has surpassed a bend point, it shouldn’t drop below it. 

Knowing where you stand will let you know how impactful more earnings will be on your future benefits, allowing you to make a more informed decision. Again, you must make all decisions related to Social Security knowing the rules can change at any point.

You can determine the relationship between your AIME and the bend points by multiplying your Taxed Social Security Earnings found in your Earnings Record by the inflation adjustment multiplier for each year

An easier way to do this is to enter your earnings record for each year into the Physician on FIRE Social Security calculator. It provides information that is hard to decipher directly from the “my Social Security” website, including the sum of your top 35 years of indexed earnings, your AIME, and whether you’ve reached the first and second bend points.

Should You Retire Early?

When you should retire and how much Social Security benefits impact that decision are complex and personal  issues that must be answered based on our individual circumstances. I’m sharing my personal numbers and thought processes to provide an example. 

There is no hard and fast rule to tell you if you are in position to retire early. There are scenarios when working more would not impact your Social Security retirement benefit at all. In other situations, retiring too soon would be an expensive decision.

When Does Earning More Not Help You At All?

Your PIA is based on your AIME from your thirty-five highest earning years. If you work beyond thirty-five years and your ongoing earnings are not greater than the inflation adjusted earnings already on your earnings record, you won’t receive any additional Social Security benefit.

Let’s use this example. You started working at age 20. Your starting salary was $50,000 a year adjusted to 2020 dollars. You never made less than that over the next 35 years. At age 55, you decide to cut back to part-time work that will pay you $40,000 a year.

You and your employer will each pay 6.2% Social Security taxes (or you will pay both portions if you’re self-employed) on that $40,000, a total of $4,960 Social Security tax. These earnings will not increase (or decrease) the size of the Social Security benefit you will qualify for at your full retirement age, because it doesn’t increase the average from your best earning 35 years.

To be clear, there are financial and personal benefits that may be derived from working longer. But the extra work and corresponding taxable income will not have any impact on the size of your Social Security earnings record in this scenario.

When Will Working More Substantially Increase Benefits?

On the flip side, there are times when working more will substantially improve your Social Security benefits. The first is common. The other two are presumably rare, but worth mentioning.

If you don’t have enough other assets to comfortably support your retirement needs, it makes sense to work longer to simultaneously allow more time to build assets, delay spending down the assets you do have, delay claiming Social Security to get a larger monthly benefit when you do claim, and increase the Social Security benefit you earn if you are completing 35 years of earnings history or potentially increase your benefit if replacing lower earning years with higher earning ones.  

Another scenario when it would make sense to work more is for those working toward an extreme “FIRE style” retirement. Those who have not achieved 10 years of earnings records, do not qualify for Social Security retirement benefits. It almost always makes sense to at least continue part-time work until you achieve an earnings record of at least ten years. Otherwise you will leave all the Social Security retirement benefits you have otherwise earned on the table.

The other scenario where it would be hard to justify not working longer is if earnings have not met the first bend point as described above. Up to that point, every dollar of AIME is replaced in retirement at a rate of 90%. This is a lot of money to leave on the table. After the first bend point, income is replaced at 32% of your AIME and then 15% after the second bend point.

The Gray Area

Many people close to traditional retirement age have few assets outside of their primary residence. They will rely heavily on Social Security to support them in retirement. Doing everything possible to optimize Social Security, both maximizing the benefit earned and optimizing the claiming decision, is wise.

Most readers of this blog do not fit that description. Many of you have accumulated significant assets to help support your spending needs in retirement. 

The question becomes whether it is worth it to work longer, knowing that as your earnings exceed the bend points you achieve diminishing returns from a Social Security program that may reduce your benefits by the time you are eligible to receive them. 

Gaining a better understanding of Social Security benefits gives Kim and I two take home lessons.

1st Take Home Lesson: The Impact of Early Retirement On Social Security Benefits

The first lesson applies to how we consider Social Security with regards to deciding on future work. 

I was able to achieve a PIA well beyond the first bend point based on a twenty-five year work history, with most of the benefits coming from my sixteen highest paid years. This gives me a projected benefit of $1,869 at my full retirement age.

In my case, working full-time for nearly two more decades would add less than $1,000/month to that benefit. That is not enough to make me regret leaving my career early. Increasing Social Security benefits will essentially remain a non-factor as an incentive for Kim, who has a similar earnings record, as she decides on how much to continue to work going forward.

Take the time to understand what your current benefits are and what impact future earnings have on them. This will help make as educated a decision as possible as the rules stand today.

2nd Take Home Lesson: The Value of Social Security Benefits

The second lesson relates to how we will project our future Social Security benefits when running retirement scenarios in our preferred retirement calculator. Previously, we underestimated how valuable the benefits could be. 

We have no way of knowing how the program will change in the future. So we just threw up our hands and ignored what Social Security benefits will mean for us.

Kim and I currently have similar earnings records. If we each get our benefits as projected, we would receive nearly $4,000/month at our full retirement age. That would more or less cover our current living expenses. 

Our Social Security benefit is valuable, even if future benefits are substantially reduced. The program is popular enough that it’s unlikely to ever completely go away. We won’t ignore it in retirement calculations going forward.

However, it is also widely known that Social Security is underfunded. It’s unlikely that we will receive our full projected retirement benefit in 20+ years when we reach full retirement age.

Moving forward, we’ll pay a bit more attention to our benefits, checking them annually. When running retirement simulations we’ll run multiple scenarios with 25%, 50%, 75% and 100% of our currently projected benefits. 

The 25% and 100% scenarios will represent our best guess at absolute worst and best case scenarios. The 50% and 75% scenarios represent our best guess on the likely range of values of our future Social Security benefits based on our knowledge of it today.

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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. After achieving financial independence, Chris began writing about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. Chris also does financial planning with individuals and couples at Abundo Wealth, a low-cost, advice-only financial planning firm with the mission of making quality financial advice available to populations for whom it was previously inaccessible. Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He has spoken at events including the Bogleheads and the American Institute of Certified Public Accountants annual conferences. Blog inquiries can be sent to Financial planning inquiries can be sent to]

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  1. Chris

    I found your analysis to be correct however in my opinion you left out a very important scenario. How is the surviving spouse affected by the death of the first spouse? The amount the surviving spouse is eligible to collect is directly affected by the decision to claim benefits early, at FRA or at age 70 by the spouse that died. If both spouses are in good health, the social security benefit is not required to live on at age 62, it may make sense for the higher wage earner to delay benefits until at least FRA or age 70. This is especially true for couples who will use the social security benefit as a larger portion of their retirement income, when the first spouse dies they will lose one of the social security benefits and possibly a pension. It makes sense to at least investigate how the surviving benefit will be affected by early or delayed commencement of monies.

    1. Rick

      I don’t disagree, but there is a lot written about the claiming decision and relatively little about how retiring early (not claiming benefits early as I tried to distinguish in the body of the post) impacts the accumulation of SS benefits. That’s what I wanted to focus on here. For claiming decisions, I recommend checking out Mike Piper’s Open SS Calculator: and Darrow has written here in more detail regarding the claiming decision:


    1. Thanks for sharing that Bill. Fascinating read. I see it was published in April. I’m curious to research if there have been any further developments there since.

    2. I was going to point out that the AWI factors aren’t based on inflation, but instead on wages. This page gives the details.

      I use this data in my Social Sec spreadsheet. Instead of copying the factors every year, I just need to add the last year’s Average Wage amount, and it calculates all the factors for me.

  2. Great article Chris and I commend your effort to explain a very complex issue. One thing Ill disagree with you on though is the viability of the system. And you are certainly not the only one who thinks SS funding is in danger.

    Increasing funding for SS is as easy as raising the income cap isnt it? The current income cap on paying our 6.2% is about $138000. That cap has always slowly gone up and Its not news anyone hears about. I dont know how that decision is made but Ive never heard it being discussed as a political issue. So a person making double $138,000 only pays 3.1%.

    I think its safe to say that a majority of folks are not going to have an issue with higher earners paying a little more if the cap ever becomes a political issue. If it does, vote for the party you think really does want to maintain SS far into the future.

    1. Thanks Mitch. Many experts seem to think that there are a number of reasonable ways to fix SS (unlike Medicare which is a much bigger problem). However, as with everything in Washington, I doubt any of these changes will be made until we reach the point of being unable to make payments. I just don’t see a lot of forward thinking politicians on either side of the aisle, so we’ll have to wait and see how things play out when the time comes.


  3. Great article, Chris. Despite trying to educate myself on Social Security in the past, I was not familiar with the bend points. Thanks for highlighting that area of the benefit.

    1. Thanks Marty. The information is all available on the SS website, but the terminology is confusing and it is not easy to see where you are relative to the bend points. I highly recommend checking out the Physician on FIRE calculator linked in the article for that. It just requires cutting and pasting your earnings from the SS website over to the calculator.


  4. Please do not mentally concede that Social Security will be cut. Once we accept that it will be cut it will be easier for the bureaucrats to take this life-saving benefit away. My parents retired in 1984 in their mid-60s with $5,000 of savings, $11,000 annual pension and Social Security. They’re both dead and had accumulated an astounding $250,000 in savings upon death. Social Security has kept people of extreme poverty. We must fight for it. We can’t trust the average person to realize the benefits of the stock market. Most people live day-to-day and don’t think of their future. My parents barely had an education and the only investment my dad ever made was a Ponzi scheme ran by his church minister. Social Security let them live a worry free life when their bodies could no longer toil in the mill.

    1. Great article. As you imply the sweet spot is getting an average that hits the
      second bend point and retiring early. At that point getting the additional 15% above the third bend point is costly since the additional ss taxes just don’t give that much more in monthly income.

      1. Agree Ed that with many things including taxes, ACA subsidies, and SS it is vital to learn the rules. So many people, including me for the longest time, get turned off by the complexity of these programs and don’t bother to learn the rules. I don’t think that complexity is an accident, as the system depends on many people paying far more into the programs than they’ll ever get out of them. Once people realize that, they realize that these programs are beneficial to early retirees or semi-retirees who work and earn less. It just isn’t worth the effort to work so hard if there is something else you’d rather be doing with your time.


    2. Bob,

      You make an interesting point about not making it easier to take this important program away by just accepting that it will happen. My wife and I were just talking the other day about how we have been so turned off in politics that we ignore them to the point of being uninformed and thus part of the problem. This is something I’ve been thinking a good bit about recently.

      Thanks for the thoughtful comment.


  5. Chris,
    Thanks for another interesting article. It is amazing to me the intricacies of decision making at all stages of the financial journey.

    One issue that my spouse and I are facing is the marginal effects of taxation of social security income. We are making quite a bit of SS income as well as investiment income.

    We have decided to move into a nice CCRC which means our expenditures in retirement will go way up with only a portion of the expense being deductible. I am finding it extremely difficult to game out what amounts of money to move from taxable to non taxable vehicles in order to minimize the tax burden.

    As you say in your article, people make decisions earlier on that have big impact later when Social Security comes in to the picture. When I was deciding whether to put money in a roth vs regular Ira, I didn’t even think about that effecting taxes on my social security payments.

    1. robb,

      It is challenging to see how all of the pieces of the puzzle fit together. This is why we decided to partner with the Pralana Gold calculator ( ). After countless hours of research Darrow determined it provide the most detailed ability to model scenarios and accurate calculations for an affordable price.

      One word of caution, even the output from the best software is only as good as the data you can input. There are so many unknown variables that you can never be certain. As I described with a SS system, it is bound to change, but nobody know how or when. You have to make the best decisions with the information available such that you can live with the consequences regardless of how things play out.

      Hope that helps more than further confuses/frustrates. 🙂


  6. My husband retired early from General Motors with a good pension and they continued to pay his supplement early out money until he was 64 years old and able to receive 95 percent of his full social security. He had retired at 53. I kept working as an RN and just this year gave up my very part time work as an RN in a nursing home due to COVID fears. Mind you, I worked loads of overtime in hospital during the HIV crisis, the Superbugs crisis, MRSA crisis, the new tuberculosis bacteria crisis, etc so I did serve the people for 43 years. My highest pay was about 84000 but I mostly made in the 40’s and 50’s per year and of course, early on, it was in the teens and 20’s per year when nurses were so poorly paid. That being said, I was able to start drawing spousal social security when I turned 66 of just over 1,000 a month. I am now 69 and will draw my own social security on my own record next year which as of right now will be just under 3200. Since our monthly expenses are around 3300 a year having paid off home and cars and no bills other than living expenses we are sitting well. We have funded our iras and 401ks for decades back to the old times when EF Hutton speaks everyone listens era. We have yet to touch that money. We make my husbands RMDs as required but we turn around and reinvest it. We were able to give our granddaughter 10 percent down on her new build home and closing costs. We were able 27 years ago to give our daughter 5000 toward her home purchase but back then it was all we could afford without getting into those accounts which we never did. Those retirement accounts were totally off limits. When you look at the fact that my husband as an hourly GM worker and myself as an RN could budget and save and invest, most anyone with a reasonably good job can do it. We have owned boats and average sized homes, not mega mansions. Frugally shopped for clothes, food and everything in between. Have been on cruises and trips and enjoyed life. Back to the main point, yes, social security is important. As you can see, mine alone will cover our basic need at present. My husbands social security, his pension and my small pension are gravy right now but will be there in accounts when inflation increases our expenses. Thankyou for social security. If it had not become part of the general fund in the past, no one today would need to worry so much. Sorry this is so long, I tend to get on a roll when young people insist they just can’t make it. You have to sacrifice in the beginning years and many are not willing to do that.

    1. Thanks for sharing your story Jeanne and congratulations to your and your husband for what you’ve accomplished. I agree with you whole heartedly.

      If you follow personal finance in mainstream media or on social media, you’ll find people constantly taking shots at the ideas of FIRE. Recently COVID was going to be the end of the FIRE movement. The new narrative that seems to be the trend is that our message is elitist, privileged, and inaccessible to most people.

      The facts are that yes people in the FIRE movement have been adversely impacted by the pandemic. Who hasn’t? But who is better positioned than people with years of savings vs. those who are living paycheck to paycheck when a pandemic hits that shuts down the economy?

      Yes, people who achieve FI like your household and mine tend to have above average incomes. But many people make far more money and save little to nothing.

      There are plenty of people telling others why things are bad and life is hard. We need more people showing what is possible.

      Rant over. Thanks for sharing your story and enjoy the fruits of your labor.


  7. Nicely written especially with the details of the “Bend Points “.
    Another important consideration is related to SSDI or Social Security Disability Insurance requirements. As well as the need to meet SSDI requirements because only after receiving SSDI benefits for 24 months, are they then eligible for Medicare.
    Those requirements are complex…generally, they have accumulated 20 social security credits in the last 10 years prior to the onset of disability (normally four credits per full or partial year); one additional credit is required for every year by which the worker’s age exceeds 42. (
    This is a concern I have for my daughter and son-in-law who talk of early retirement.

    1. Great point Mark. Thanks for pointing that out.

      I may cover this in a separate article and I tried to take care to use “retirement benefits” as much as possible throughout the article as opposed to “SS benefits” as there is more than one SS benefit and they have different rules that govern them. It just gets too confusing to try to cover all of that in one blog post.


  8. I personally can’t see SS completely cut. W-2 workers have contributed way too much into the system to see zero return from this tax. Politially, I just can’t see the general public let this happen. I use a 70% of projected benefits as my guess for what the system will payout when I retire based on the projection that future tax revenues to Social Security should pay 79% of scheduled benefits in 2035.

    Another big uncertainty is the benefits received from Medicare once retired. I would expect out-of-pocket expenses to rise dramatically as this program becomes unsustainable. I ballpark that rougly half of my SS will go to the medicare premiums and uncovered routine medical expenses.

    Both are total wild-ass guesses but discounting SS completely in retirement planning, I agree, is overly conservative.

    1. I agree with you in principle Phillip. We are conservative and so initially figured better to not count on anything for planning purposes. However, the benefits are too valuable to be ignored in planning. Our approach going forward is similar to, but less confident than, yours in assuming we will receive something, but not what is currently being projected by SS.


  9. Great article. As you imply the sweet spot is getting an average that hits into the
    second bend point and retiring early. At that point getting the additional 15% above the third bend point is costly since the additional ss taxes just don’t give that much more in monthly income. Since most of us make the most near the end of our careers, we get less “return” from SS once we get into the higher salaries and are lifetime monthly average pushes above the third bend point.

    1. Agree Ed. Both my wife and I are well beyond the first bend point and shy of the second. If we can continue to earn relatively small amounts of money in semi-retirement over the ensuing decades, we’ll get the bonus of pushing our SS closer to the second bend point while earning in a tax-efficient way ( ) That makes sense to me. Killing ourselves to make money we don’t need when we could be enjoying life, while paying higher marginal tax rates and receiving diminishing returns on SS as we blow past the second SS bend points doesn’t.


  10. I appreciate this info, Chris! Despite having read Mike Piper’s book on SS, I found this info on bend points and whether or not it was financially worthwhile to work more, to be new info (either I forgot reading it in Mike’s book, or it wasn’t clearly mentioned).

    As I planned for retirement from full-time work (which I did 5 years ago now), like you, I tried to avoid putting too much reliance into availability of my Social Security benefits when I eventually reached the age when I could claim it. Back then, I tended to use the number that was estimated on my SSA annual statement, which wasn’t good, because I was NOT planning to continue working until FRA!

    Later, I focused on just making sure I was going to get in 35 years of taxed income – when I retired in 2015, I’d hit 39 years.

    Lately, I’ve thought about whether it would be worthwhile to do a few “side gigs” to earn enough to replace some of those lower-earnings years (e.g., income from a summer job in high school) with higher earnings. That’s where your info on bend points has been helpful – being well beyond the second bend point, the benefit of earning enough to replace some years of earnings has less attraction. But what I really found enlightening was the Physician on FIRE calculator you pointed to, in your article. That showed me that the inflation factors on many of those early, low-earning years were significant enough that making more in part-time work now would require putting in a LOT more hours than I’d thought – enough that it’s worth much more to me to have those hours to spend on other things!

    1. GAH,

      Thanks for the feedback and glad you found this helpful. I agree that the POF calculator helped make that information clear that was not readily available from the SS site without doing a bunch of calculations by hand.


  11. Good article of social security. However, your past wages are NOT indexed to inflation. They are indexed to the national average wage index ( While average wage/salaries tend to follow inflation, the average age also depends on employment and productivity of workers. For a stark example, look at 2009 — average wages DECLINED 1.5%, but inflation was +2.7%. And I expect 2020 will be a larger negative adjustment because of the mass unemployment due to COVID.

    1. Kevin S,

      You make valid points that I was lazy in my language. Wages do tend to follow inflation, but the way SS adjusts wages is specific to wage inflation and not general inflation.

      You also make a good point about this year where we are experiencing inflation at least in certain areas (food and housing) but average wages are likely to fall due to high unemployment. See Bill’s comment and linked articles above for more info on this.

      Thanks for the thoughtful comment.


  12. I would submit that one of the reasons Social Security may have a funding problem is because it is exceedingly “ungenerous” to people that spend long amounts of time in the labor force. It compels people that work for a long time to subsidize people that don’t (for whatever reason).

    1. I understand why you did not dwell on Social Security early on in planning your early retirement. When it comes to funding Social Security, those who pursue FIRE are actually contributing to its problems, although I don’t know if its a big deal or not. However, the system does rely on the taxes paid into the system by current wage earners to fund the payouts to current recipients. Shrinking the workforce by retiring early adds to the funding shortfalls the system is already experiencing as a result of slower population growth, resulting in fewer people entering the workforce, along with longer life expectancies. I believe the architects of the system assumed workers would delay retirement until “normal” retirement age. If my benefits are reduced when I’m eligible to collect, I’ll have to admit that I’m partly to blame.

      1. Gerry,

        I agree that SS relies on high earners continuing to pay into the system beyond the point where they will get much (or possibly anything) more out of the system. By opting out by retiring early, I think we are further contributing to future shortfalls (although we’re such a minority of the population, probably not by much). Thus if they decided to do some type of means testing or change the formula for paying out benefits in a way that punishes those with less years paid into the system, our benefits could see a severe cut. That said, the most common solutions to funding SS that I’ve seen are increasing full retirement age, slightly cutting benefits, or removing the cap on taxation of high earners. These scenarios wouldn’t impact us much or at all.


  13. Hi Chris, great job explaining the intricacies of the Bend Points and the fact that we only get 15% credit beyond the Bend Point 2. I’ve run multiple scenarios on but had never fully understood why there’s so little impact on benefits from continued “contributions”. Thank you for sharing this information!

    If this were to be more widely understood, I wonder if we’d see more people retiring early instead of assuming that they have to keep paying into Social Security right up until retirement. The wasted contributions are even more dramatic for the self-employed who are paying 12.4% instead of 6.2% in FICA.

    With regard to replacing an annual contribution from one of your prior highest 35 with a current or future year contribution, the impact on the average is slightly different than your explanation. If your current or future year earnings are greater than the indexed wages for the lowest of your top 35, then your average will go up. It doesn’t need to be higher than the average, just higher than the lowest year. Nevertheless, with the reductions after the Bend Points, it won’t often make sense to continue earning solely to bump up the SS benefit. It is really useful to use the PoF SSA Calculator to run scenarios for your individual situation to understand the various impacts.

    1. Thanks Robert. Hope all is going well your way.

      I noted in response to a comment above that our SS (and tax and as a subset of that ACA subsidy rules) systems are extremely complex and I don’t think it’s an accident. Most people simply don’t take time to learn the rules. And as you note, that can be an expensive mistake.

      I agree that you’re right about future earnings needing to be higher only than your lowest year to increase your average. I’m not seeing where I said otherwise though. If you can point that out, I’ll change it to make it more clear.

      Also agree that the PoF calculator really simplifies the work of figuring out where you sit relative to the bend points and is a useful tool.


  14. One other item that I think isn’t paid enough attention to with social security is “death benefits” when you have kids. Especially in the world of FIRE. For our family, if I died, Survivor benefits would pretty much cover all our expenses until the kids graduate high school. That number is rarely included in life insurance calculations, so I suspect lots of people end up getting more insurance than they would really need it.

    1. That’s a good point that I’ve thought about but never taken the time to write about. Another commenter likewise pointed out disability benefits of SS. For the purposes of this article, it was already pretty long focusing on the retirement benefits.

      Thanks for reading and chiming in.


  15. Thanks. Your explanations simplify some very complicated calculations for many.

    I haven’t met a subject yet that I couldn’t build a spreadsheet for and Social Security is no exception. I built one for my wife and I years before we reached age 62. It incorporates everything you talked about plus spousal benefits and had quite a few variables I could easily change. I have two points to make…

    First, I don’t know how exactly the estimates are done by the SSA on their website or on the yearly mailed estimates we used to get. But they were always slightly less than my spreadsheet calculated. The best I could figure in analyzing it is that the SSA estimates do not include inflation for future years. My spreadsheet calculated future inflatiin adjustments using an average of the inflation for all our working years, which I admit is just a guesstimate, but is I think a better estimate than 0%.

    My second point is that deciding when to start taking Socisl Security income benefits to maximize lifetime benefits, although not directly related to the main point of your article, is often over-simplified by news media and others. My job was eliminated at the end of 2016 and at age 61 and deciding to no longer work (with my wife age 62 and many years out of the job market), I had to decide when to start taking benefits for both of us. I could choose to live off our investments for a few years or start taking SS benefits for one or both of us at age 62. Besides the obvious calculations of maximizing SS benefits, once I factored in the lost investment income from reducing my investment balances, I found that we were better off starting benefits at age 62. I realize that their is more risk in this case, relying more on market increases, but I figured we could withstand some hits on this.

    1. Thanks for reading Pete.

      Point one, I view the estimates as that, estimates that get you in the ball park. There is a lot of uncertainty on a personal level as to future earnings and also on a systemic level to changes in the program. I personally don’t spend any mental energy trying to get more specific and as noted in the post will use a broad array of possible outcomes to get reasonable best and worst case scenarios and a range of more likely scenarios.

      Point 2, yes the decision is complex. Beyond what you note about amount of money collected from SS and future investment returns, I would add that you really need to consider taxes in the calculation. One argument for delaying is that you have a longer period with more control over your income to do tax planning moves like Roth conversions prior to RMDs and SS payments, then have a greater SS benefit which provides inflation protected income and longevity insurance.

      All that said, you have to run your own numbers as there is no one size fits all solution.


  16. I retired slightly early but already had 35 years of maximum social security earnings recorded by then. My first year of work after college I made $18,000 but the maximum Social Security income cut off was $17,800. And every year after that my pay increased faster than the amount of pay subject to Social Security taxation. So after getting 35 years into the system at the max rate there is zero penalty for retiring early, which I did at the age of sixty. I won’t draw until age 70 because I don’t need the income and since my wife has an excellent chance of outliving me for many years the math is crystal clear to delay my filing until 70. At 70 the estimated amount we’ll get is right at $66,000.

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