Social Security & Early Retirement 2019: Know Your Bend Points!

Today’s post is anupdate to a previously published post. The figures have been updated for 2019, and the Social Security projection spreadsheet has been improved and updated with all new indexing factors.

Note that the results are your projected benefit in today’s dollars. It will rise with inflation each year, preserving your spending power.

If the calculator suggests you’ll have a monthly benefit of $2,000 and your 2 to 3 decades away from collecting, you can assume your benefit by then will be about double, assuming inflation continues at the historical rate of close to 3%.

Subscribe to download the spreadsheet used in this post and a whole bunch of other calculators to help you in your journey to financial freedom.




Social Security & Early Retirement 2019: Know Your Bend Points!



Social Security is something we aspiring retirees don’t spend much time talking about.

While we may notice how much we’ve kicked in ($8,239.80 from me and $8,239.80 from my employer in 2019), those of us planning to retire early tend to largely ignore it when calculating safe withdrawal rates and our annual cashflow. If we mention it all, it’s usually with an asterisk because it’s so far off and somewhat uncertain.

In all likelihood, some money will be there for us. The calculations may be different than they are today, but that’s true anytime we make projections based on current tax code, and that’s something we do a lot.

Based on the 2019 annual report from the Social Security Board of Trustees, the program is fully funded through 2035, and three quarters funded for the long term with many options to address the long term shortfall. Politics will play a role in deciding if that means decreased benefits, an older age at which they’re available, or an increase in the amount of salary subject to Social Security tax.

While we don’t know which way it will go, and it’s quite alright to plan as if it doesn’t exist (better safe than sorry), the reality is that Social Security will quite likely be a benefit to many of us in the latter portion of our early retirement. You may be retired and living without it for a decade or two (or even three), but I expect there will be something to collect when you’re in your sixties (or age 70 or even higher if the rules change).

There are some early retirees who should not plan on Social Security income. If you earned your money outside the U.S. and did not pay into the system, you’re out. If you failed to earn income for 10 years (40 three-month quarters of at least an inflation-adjusted $1,320 income (in 2019 dollars)), you’re not eligible. However, non-qualifying spouses married to someone who qualifies for Social Security can receive half their spouse’s benefit if taken at full retirement age (FRA).

Some government employees participate in an alternative pension system, but do not contribute to Social Security. Without those 40 quarters of contributions, there will be no Social Security benefit.

If you are considering an early retirement, I would strongly encourage you to aim for at least ten years of contributions to the Social Security system. Note that these don’t all necessarily have to be completed prior to pulling the FIRE trigger.

If you don’t have your ten years or 40 quarters in before retiring from your primary profession, you should plan on having at least some reportable income whether from a hobby job or self-employment of some kind until you’ve hit your 40 eligible quarters.


Know the Social Security Bend Points!


What are these bend points? They’re the two points at which you receive diminishing returns in your monthly benefit once you’ve earned a certain amount of money.

The money you’ve contributed over the years is used to calculate your Average Indexed Monthly Earnings (AIME). It’s an inflation-adjusted average of your monthly earnings over your most lucrative 35 years. If you work and contribute for fewer than 35 years, zeroes fill in the blanks.

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I’ll have a calculator for your AIME below, but essentially it’s your total inflation-adjusted earnings divided by 420.

What’s the significance of 420? In this case, it’s simply the number of months in 35 years. AIME is important in determining your monthly benefit when taking Social Security at full retirement age.


You get 90% of your AIME up to the first bend point (at an AIME of $895 in 2019).

You get 32% of your AIME between the first and second bend points (portion of AIME between $885 and $5,397 in 2019)

You get 15% of your AIME beyond the second bend point (AIME above $5,397 in 2019)


For visual learners, let’s use my middle finger as an example. Might as well throw in a couple of joints to accompany all this 420 talk.

The initial rate of rise in your expected benefit is quite steep until your contributions reach the first bend point (represented by my proximal interphalangeal joint). The slope is less steep between the first and second bend point (my distal interphalangeal joint), and it doesn’t rise all that much beyond the second bend point.


middle finger bend points

my first and only gig as a hand model


Clearly, building up your AIME to the first bend point at $926 is worthwhile. For every dollar up to $926, you’ll get 90 cents per month when you take Social Security at full retirement age (67 for those of us born after 1959). If you’re earning enough ($132,900 or more in 2019) to contribute the max to Social Security, you’ll hit the first bend point in a few short years.

Earning beyond the first bend point doesn’t do nearly as much for you, but you still get 32 cents for every dollar of AIME between the first bend point and the second at $5,583. Additional years of income between the bend points will make a noticeable difference in your eventual monthly benefit.

Once your Average Indexed Monthly Earnings reach the second bend point at $5,583, you’ll only receive 15 cents per dollar of AIME beyond that. Additional earnings give you vastly diminished returns at this level of AIME.

The bend points will increase annually with inflation, as will your AIME as older earnings will be worth more as time goes on. Once you’ve surpassed a bend point, you shouldn’t lose it, because your AIME will increase each year as the bend points grow larger.


Let’s Math.


Every time I create a new calculator, I learn some new spreadsheet tricks. This was perhaps the most labor-intensive one I’ve made thus far, but I think you’ll love it.

I’ve entered my information in the white boxes, copied and pasted directly from the website. You can sign in or create an account here to access a lifetime record of your earnings. You can also find out what your anticipated monthly benefit (known as Primary Insurance Amount or PIA) will be if you continue to work at your current pace until age 67.

However, if you’re reading this site that focuses on early retirement, there’s a good chance you won’t be working until age 67.


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I’ve created a calculator that will tell you whether or not you’ve reached the first and second bend point and will estimate your monthly benefit if you were to stop contributing now. To extrapolate further, each additional year working and contributing the max will add about $316 ($132,900 / 420) to your AIME.

This calculator is accurate for those of us born after 1960. The benefits will be slightly higher for our friends born before JFK became president — see this table for adjustments here.

These are my numbers. I had some grocery store and self-employment income before I started making big money as a resident in 2002. From 2006 to 2019, I’ve earned and contributed the max to Social Security for thirteen years of maximum earnings. Just 22 more quick years, and I can collect the biggest check possible!



As you can see, with an AIME of nearly $4,800, I’ve easily surpassed the first bend point, but I’m about $800 from the second bend point that currently exists at $5,583. It will take three more years of a maximum Social Security Contribution to surpass the second bend point.

If I continue to earn enough income as a blogger to reach that next bend point, that would be ideal, but at 32 cents on the dollar, I’m not all that concerned with growing my AIME. I’ll be even less enthused after that second bend point milestone is reached and an additional dollar of AIME is worth 15 cents in my future monthly checks.

Note that the primary purpose of this calculator is to show you if you’ve reached the bend points and how close you are if you haven’t. The estimate of the future benefit assumes that the program remains unchanged between now and the time you start collecting.

For early retirees, that’s probably many years off and the likelihood is that there will be changes in the interim, but it doesn’t hurt to see what would happen if the program were to remain more or less the same.


Calculate Your Social Security


I’ve created a page for you to enter your own numbers here on the 2019 Social Security Calculator, although it may be easier to simply download the calculator. If you’re not a subscriber, sign up and you’ll receive a link to download. You can opt out any time.



Our Plan for Social Security


Taking Social Security as soon as it’s available at age 62 results in a 30% penalty. I don’t like 30% penalties. That’s out.

At full retirement age, I get 100% of my calculated benefit. But each year that I hold off nets me an additional 8% per month for life. Unless I find myself in poor health, the smart money’s on the most money. I plan to delay my benefit until age 70.

Currently, doing so would give me over $30,000 a year, but if I were to reach that second bend point with four more years of maximum contributions, I’m looking at a benefit of about $35,000 a year (in 2019 dollars).

The max I could receive from an additional 18 years of work beyond that is about $45,000 per year according to the government website.


SSA estimate


That’s a gain of about $640 per year in Social Security payments for each additional year worked. You’ve heard of golden handcuffs; these are papier-mâché handcuffs. Know your bend points!

My wife has done a lot of hard work, but most of it has gone unrecognized by the Social Security Administration. Obviously, the SSA has never had to clean up after me or my kids. But not all hope is lost.


blond boys playing


As mentioned earlier, if she doesn’t qualify with 40 quarters, or if her benefit would be less than half of mine, she can file for Social Security at full retirement age (67) and receive half of my FRA benefit as long as I’m still alive,  and she would receive my full benefit if I happen to leave this world before her.

Note that she won’t receive half of the benefit I can take at age 70, but rather half of the amount I would have gotten if I had started collecting at age 67, my full retirement age. That works out to be about 40% of my age 70 benefit.

Also, there is no benefit to postponing to age 70 for a spouse claiming spousal benefits (but there is a penalty for claiming it early). It may still make sense to claim early, though.

It’s a no-brainer if the spouse’s benefit based on his or her own record will be lower than the spousal benefit. Collect one’s own benefit from age 62 to 67, then switch to the higher spousal benefit. Note: If you were born after 1953, this may no longer be an option.


To work out complicated scenarios, I recommend picking up CPA Mike Piper’s excellent resource, simply called Social Security Made Simple.


Between my wife and I, if I surpass the second bend point in 2022 and we start collecting my benefit and a spousal benefit when I am 70, we will potentially receive checks that add up to about $43,000 a year in today’s dollars, which is over half of our anticipated retirement expenses. Granted, we’re nearly three decades away from that eventuality, but it never hurts to think ahead.



What’s your plan for Social Security? Have you passed the first bend point? The second? Let us know below!


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