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In one sentence: if my wage if $350k per year vs $200k per year, does that affect what monthly social security benefit, because they maxed out the contribution in the same way.

I saw from ChatGPT and Bard:

Social Security retirement benefits are calculated based on your highest 35 years of earnings. This is called your Average Indexed Monthly Earnings (AIME). The AIME is calculated by first indexing your earnings to reflect changes in general wage levels over time. Then, the 35 highest years of indexed earnings are averaged to get the AIME. The AIME is then used to calculate your Social Security retirement benefit.

So if my first year's wage out of college was $35k, then if I work till I am 67, when my wage is easily $200k, then replacing $35k with $200k can easily raise my monthly social security benefits when I retire.

However, what if it is a wage $200k vs $180k, or a wage of $350k vs $200k? Since it already max'ed out the amount to contribute to FICA, so shouldn't a wage of $350k not matter as compared to $200k? But the quoted text above sounds like it does matter.

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  • Have you tried running this through the estimators on the government's social security website?
    – keshlam
    Jun 23, 2023 at 6:26
  • running it through the estimator can get some numbers, but I still would like to find out the principles of how it works Jun 23, 2023 at 8:39

1 Answer 1

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The ChatGPT is not a very good source for factual information, unfortunately.

The quote is technically correct, but can be misinterpreted if not understood in context. The "highest 35 years of earnings" refer to the highest earnings subject to the FICA/SE taxes, which are capped. Earnings above the cap are not considered, and the SSA sees these years as if you had earnings at the cap.

So if the cap is 180K and you earned 300K, your earnings for SSA purposes for that year would be 180K. If you look carefully at your W2, the relevant amount would be reported in box 3 (as opposed to box 1 which is your earnings for income tax purposes, or box 5 which is your earnings for Medicare tax purposes). For self-employed individuals, that would be the amount on line 9 of the Schedule SE. For the year 2022 both are capped at $147K, for the year 2023 the cap is $160,020.

Once you had 35 years of earnings at or above cap for each of the years - you've accumulated your maximum social security benefit, and any additional tax paid will add nothing to your benefit. You'll still be paying the tax though.

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  • simply if some numbers go into box 1 or box 5, it doesn't matter. What matters is how they calculate the "highest 35 years". So it is good to know: once it reaches the cap, then it is as if it is the cap. So do you know what about year 1992, for example: can that be checked out online? I'd imagine since wages could be 1/3 in 1992 as of today, then the cap could be $50k or so Jun 23, 2023 at 8:38
  • oh I was able to find out on some webpages: 1991 53,400; 1992 55,500; 1993 57,600... 2011 106,800 ... I think this maybe official: ssa.gov/oact/cola/cbb.html Jun 23, 2023 at 8:42
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    Ssa.gov is definitely official. ChatGPT is known to flat-out invent plausible statements and should never be trusted as an information source; it's an impressive toy, but it's a toy, and has no understanding of what it says and no ability to say "I don't know". Ask it to explain why the earth is flat or water is dry and it will do so.
    – keshlam
    Jun 23, 2023 at 12:44
  • yet so many people are afraid of this "toy". It can be dangerous, for example, if the corporate offices use "AI" to make decisions, who to lay off, who to hire and who to reject though Jun 24, 2023 at 5:27

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