Will My Benefit Rate Be Adversely Affected If I Don't Have Maximum Earnings This Year?

Dec 27 2016 - 11:30am

Larry - Doing end-of-year tax planning and a question about raising my salary for 2016 to reach the 2016 maximum ($118,500). I will be 66 in Aug 2017; my plan is to defer taking my social security until age 70 - projected benefit at FRA is $2,575, and $3,498 at age 70.
On 4 of the last 5 years (and 7 of the last 10) I have "maxed out" my salary - wages in excess of the SS contribution limit. This year I am at $102,400 to date -- I have taken the required compensation amount from my prof corp (per my CPA) to meet the fiscal year requirements.

Is it to my advantage to pay myself a bonus of $16,100 prior to 12/31/16 to increase my comp to $118,500 for 2016? Will it adversely affect my SS benefit at age 70 if I don't do it? Is this something your software can address?

Thank you.

Hi,

To answer your last question first, yes the maximization software available on this website allows you to enter projected earnings, permitting you to judge the effect of additional earnings on your Social Security benefit rate.

Social Security retirement benefits are based on an average of a person's best 35 years of inflation adjusted earnings. Your 2016 earnings, even without the bonus, will certainly be among your best 35 years used to compute your benefit amount. A difference of $16,100 in earnings this year would have a relatively small impact on your 35 year earnings average, which may well not be worth the additional taxes that you'd be required to pay. My guess is that the resulting difference in your full retirement age benefit rate would be less than $10, but the software could give you a much more precise approximation.

Best, Jerry