Quote:
Originally Posted by biker1
Your example of an $80K income at age 40 and a $95K income at age 75 is not correct. The income at age 40 will be adjusted (indexed) to current dollars and will exceed a value of $95K (this year) for choosing the high 35 years. Specifically, the index factor would be 3.23 so $80K at age 40 is worth $258K today. This exceeds $95K this year.
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Good catch on the ages I used and indexing. However, by my reading, your "3.23" indexing may be incorrect, as well. (I'm rushing this do to "honey do" work on the schedule, lol.)
Here's SSA's primer on indexing (snippet):
"Eligibility and indexing
Wage indexing depends on the year in which a person is first eligible to receive benefits. For retirement, eligibility is at age 62. So if a person reaches age 62 in 2020, then 2020 is the person's year of eligibility.
An individual's earnings are always indexed to the average wage level two years prior to the year of first eligibility. Thus, for a person retiring at age 62 in 2020, the person's earnings would be indexed to the average wage index for 2018."
In my example, I used the age of 75 which would be this year, 2020. Age 62, the first year of eligibility, would be 13 years prior, 2007 (and the person would have been born in 1945). According to SSA, then, the two-years-prior indexing would be indexed to the average wage index for 2005.
So, the index number should be 2.4248, no? But your main point is accurate about factoring in indexing to prior years.
Indexing Factors for Earnings