Receiving regular pension payments during retirement is easy. What isn’t so easy is the way the benefit is calculated. Today we will be breaking down one of the three components of the benefit formula; Social Security breakpoint.
If you’ll recall the benefit formula, you’ll see that the breakpoint appears in two places:
25% X Final average pay up to Social Security breakpoint X Credited service up to 35 years
5% x Final average pay in excess of Social Security breakpoint X Credited service up to 35 years
5% x Final average pay X Credit service over 35 years
The Social Security breakpoint is the average of the Social Security maximum wage bases. It is based on your year of birth and is calculated as an average over a 35-year period ending with the last day of the year in which you reach normal retirement age for Social Security. The Social Security maximum wage base is published by the Social Security Administration and is subject to change each year. Your breakpoint amount will be based on the table in effect when you retire from active service or terminate employment, if earlier.
Here is a visual example:
Again, no need to worry about the actual calculation because Lockheed Martin will provide a pension benefit for you! Now you are a bit more informed on one of the factors they use in the formula.