Tax Attic — June 25, 2009

Jerry Coon, Enrolled Agent

Jerry Coon, Enrolled Agent

How are Social Security benefits


The catching of fish in Canada was not quite as good this year as other years. The black flies and mosquitoes were not a problem, though. I guess they don’t like 50 degree and rainy weather either. However, the fishing was as good as ever.

As those of us who fish know, catching fish is only a small part of the whole story. I go to Canada fishing for walleye almost every year. I go with fellows whom I have been friends with for more than 30 years now. Around the campfire, along with a beer or two, we get to laugh about the stories of the trips we took over those 30-plus years.

Some of those stories are actually true and not embellished too much, like the time we almost ran over a moose between White River and Wawa. Scary, but I swerved right around him and we kept on going.

Another time, we hit a rock in the river and I flew out of the boat so fast I didn’t have time to even say “Ro……” before I hit the water. I lost my sunglasses but held onto my coffee cup and hat. They were good sunglasses too. I saw that rock quite clearly.

Yet another time, we were driving down the two-track to the boat launch and looked over to see a big black bear nonchalantly walking back toward our camp on the two-track going in the opposite direction. I don’t know, but I think he knew we weren’t going to be there to defend our property.

One time we bet one of the guys that he couldn’t leave the campfire, jump into the boat, go out into the lake, catch a fish and get back to his seat at the campfire within five minutes. He won the bet, too, with a nice pike. It’s just as impressive to me today as I write this as it was seeing him do it.

Another time, a mink figured out how to open the latch on our minnow buckets and eat all of our minnows. Smart-aleck little fellow, but it was probably quite a feast for him. He ate probably $20 worth of minnows before we got smart enough to put snap catches on our buckets. He never did figure out how to get those snap catches open, either.

Once we saw a loon go under and come up with at least a 20-inch walleye in its mouth. It took him about five minutes to eat that walleye, but eat it he did.

It is indeed fun going fishing and camping with guys you are comfortable with. I’m very grateful I have those guys that I call friends.

I would like to continue discussing our Social Security system and how benefits are calculated. To earn regular Social Security benefits, a taxpayer needs 40 credits. For 2009, one credit is earned for each $1,090 of earnings. Once the taxpayer earns $4,360, he has earned the maximum of four credits that can be earned for 2009. In effect, 40 credits is equal to 10 years worth of earnings.

           For a taxpayer who turns age 62 in 2009, the Social Security Administration (SSA) will review the earnings of the taxpayer in all of the years basically from birth until he turned age 62. To somewhat level the playing field, earnings in the years from birth until the age of 60 are indexed for inflation. Following is an example provided by the SSA of how indexing works.

A taxpayer earned $978 in 1965 when he was 18. The magic of indexing turns this $978 into indexed adjusted earnings of $8,482. In 1975, this taxpayer earned $14,100. Indexing turns this into earnings of $66,008. In 1985, he earned $31,589. Indexing turns this figure into earnings of $75,872. In 2005, $64,999 turns into $71,071.

Indexing is attempting to provide a current value of career earnings. The highest 35 of indexed adjusted earnings years are then added together and divided by 420, which is the number of months in 35 years. Dividing by 420 provides the taxpayer’s Average Indexed Monthly Earnings (AIME). This AIME figure is then used to calculate the taxpayer’s monthly retirement benefit.

For example, a taxpayer’s AIME is $6,000. The first $744 is multiplied by 90%. This equals $669.60. The next $3,739 is multiplied by 32%. This equals $1,196.48. The next $1,517 is multiplied by 15%. This equals $227.55. These three figures, $669.60, $1,196.48 and $227.55, are added together to get a total of $2,093.63. This is rounded down to $2,093. That is the taxpayer’s benefit at full retirement age of 66.

If the taxpayer chooses to begin drawing at age 62, multiply the $2,093 times 75% to get the reduced benefit available to the taxpayer today. That figure is $1,569.

The SSA has an online estimator that can be found at It’s quite easy to use if you are interested in finding out how much your potential benefit may be. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns
Action Tax Service on Northland Drive in Rockford.
His e-mail address is

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