Q. My wife and I are 57 years old. We have a net worth of 1.1 million dollars. The bulk of this is in IRA’s managed by Fisher Investments and equity in our home. I recently changed jobs and my income is considerably less. It will be two or three years before my income increases to its former level.

When looking at my Social Security benefits online I noticed a note below the benefits section. It said my benefits would remain the same as long as I make \$113,000 per year until I retire. Since this won’t happen, what kind of decrease in benefits should I expect? How is it calculated? —R.W., Coppell, Texas

A. Answering your question takes a few steps, so please be patient. Social Security benefits are calculated from your highest 35 years of earnings. Each year of earnings is adjusted to produce your average indexed monthly earnings. That figure, in turn, is treated by a formula that determines your primary insurance amount (PIA). That figure, your PIA, is the basis for your actual benefit.

The PIA formula gives credit to your contributions at three levels of income. At the first level, currently up to \$816 a month, you get 90 percent credit. Between that amount and \$4,917 a month, you get 35 percent credit. And for PIA over \$4,917 a month the crediting rate is only 15 percent.

The result of this sharp reduction in the crediting rate as your income rises is that your benefits don’t increase rapidly after you hit what in Social Security language is the second “bend point” of \$4,917 a month.

So you’ve got some perverse good news: you can earn a good deal less than \$113,000 in coming years and your ultimate Social Security benefit won’t be dramatically affected, particularly since the number of years of lower earnings added to your record will be a small portion of the 35 years used in the calculation.

It is also possible that your PIA will actually rise. If that happens, your benefit will increase even though the last years of earnings were lower than recent years. How can that be? Simple, if some of the next few years replace earlier years with zero earnings or relatively low earnings, your PIA calculation will increase because the better earnings will push out the lower earnings.

Q. Unfortunately, my wife is a teacher at a Catholic school where the only savings plan that has a match (3 percent of salary) is a TIAA-CREF 403(b) plan.
One approach is to only participate at the 3 percent of income rate. This will allow her to capture the 3 percent school match. She could invest additional money in a brokerage account using low-cost index exchange traded funds.

But how can my wife liquidate the 403(b) plan, either before or after she stops working at the school? —R.B., Richardson, TX

A. This situation isn’t as unfortunate as you think. TIAA-CREF is one of the “good guys”— their fund expenses are relatively low, as are the insurance expenses they put into their variable annuity contracts. So the plan your wife has is probably better than the vast majority of the offerings out there for teachers in both private and public schools. According to the Morningstar variable annuity database, for instance, an average of all the sub-accounts offered by TIAA-CREF would result in a product with a total cost (fund cost plus insurance cost) of 1.09 percent.

If we add all the thousands of entries from other insurance companies, the average all-in cost nearly doubles to 2.06 percent a year. So don’t beat up too hard on the plan. There are plans that cost less, but the vast majority has higher expenses.

To make the most efficient use of money your notion of capturing the match by saving 3 percent at the school and investing other savings in a low-cost index ETF portfolio at a discount brokerage firm IRA account will do nicely. With little effort, she’ll be able to manage her additional savings for 0.20 percent a year. If she keeps her investing very simple, the cost can be under 0.10 percent a year.

When she stops working at the school she can do a 1035 exchange and enjoy a tax-free transfer of her 403(b) account to her brokerage rollover IRA account. If you have other questions about 403(b) plans, try a visit to www.403bwise.com.