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Calculate Your Social Security Benefit

How Does The Calculator Estimate My Retirement Benefits Payment

How to Calculate Your Social Security Benefits

Our simplified estimate is based on two main data points: your age and average earnings. Your retirement benefit is based on how much youve earned over your lifetime at jobs for which you paid Social Security taxes. Your monthly retirement benefit is based on your highest 35 years of salary history. You can get your earnings history from the Social Security Administration .

Your Social Security benefit also depends on how old you are when you take it. You can start collecting at age 62, the minimum retirement age, but youll get a bigger monthly payment if you wait until full retirement age, which is 66 but is gradually moving to 67 for people born in 1960 or after. If you can wait until 70 to start collecting, youll receive your maximum monthly benefit.

A single person born in 1960 who has averaged a $50,000 salary, for example, would get $1,349 a month by retiring at 62 the earliest to start collecting. The same person would get $1,927 by waiting until age 67, full retirement age. And he or she would get $2,389, the maximum benefit on those earnings, by waiting until age 70. Payments dont increase if you wait to collect past 70.

Other factors affecting the size of your benefit include whether youve worked for state or local government for more than 10 years your Social Security payment may be decreased if you paid into the civil service retirement program, for example.

A Couple Of Concernstaxes And Medicare Premiums

This all sounds like good news so far, but you should also be aware that continuing to work past 70 could cost you a bit more in taxes and Medicare premiums.

  • Required Minimum Distributions increase your taxable incomeIf you have traditional retirement accounts, you must take an RMD at age 70½ or 72 depending on your birthday. This is considered ordinary income and could possibly push you into a higher tax bracket, especially as you continue to earn other taxable income. Not only would that possibly increase your income tax bill, youd also most likely have to pay taxes on your Social Security benefits as I describe next.
  • Increased income may make your Social Security benefits taxableThe percentage of your Social Security benefits subject to income tax will depend on your annual income. Currently, if youre a single filer and make $25,000 to $34,000, up to 50 percent of your benefits may be taxed for income over $34,000, up to 85 percent of benefits may be taxed. Current limits for married filing jointly are $32,000 to $44,000 and over $44,000 respectively.
  • Higher income might mean higher Medicare Part B and D premiumsSimilarly, you may be charged more for Medicare premiums if you earn over a certain amount. For 2022 those thresholds are $91,000 for single filers and $182,000 for married filing jointly. However, if you still have healthcare coverage through an employer, you may be able to delay taking Part B and possibly Part D.

How To Calculate Your Social Security Benefit

Calculating your estimated Social Security benefit is no easy task. Your best bet may be to request a Social Security benefits estimate from the SSA. This will contain an estimate of your benefit at age 62, at your FRA, and at age 70, based on your current work history.

In addition to these estimates, the SSA also has a series of Social Security benefits calculators that can help you plan for retirement. You can also use this calculator from AARP to estimate the best age to start claiming your benefits.

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Three Ways To Reduce The Taxes That You Pay On Benefits

Is Social Security taxable? For most Americans, it is. That is, a majority of those who receive Social Security benefits pay income tax on up to half or even 85% of that money because their combined income from Social Security and other sources pushes them above the very low thresholds for taxes to kick in.

But there are three strategies you can useplace some retirement income in Roth IRAs, withdraw taxable income before retiring, or purchase an annuity, to limit the amount of tax you pay on Social Security benefits.

Beginning Benefits Before Fra

Calculator figures how much social security benefit is taxable

If you choose to begin to receive benefits before you reach your full retirement age, one or both of the following calculations will apply:

  • 5/9 of 1%: Your benefits are reduced by 5/9 of 1% per month, up to a maximum of 36 months, depending on how many months you have until you reach FRA.
  • 5/12 of 1%: If you are more than 36 months away from reaching FRA, the reduction above is applied, and then for the number of months greater than 36, the benefit is further reduced by 5/12 of 1% per month.

Therefore, if your FRA is age 66, your benefits would be reduced by 25% if you begin taking them at age 62. Find that figure by taking 5/9 of 1%, or 0.56 multiply by 36 months to get 20%. Then, 5/12, or 0.42, multiplied by the remaining 12 months, is 5% for a total of 25%.

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How Do You Calculate Provisional Income For Social Security Tax

To determine what portion of your Social Security benefits may be taxed, begin with your adjusted gross income . Then add any tax-exempt interest received from investments plus half of your Social Security benefits.

In short: PI = AGI + tax-exempt interest + .

  • AGI. The IRS defines AGI as gross income minus adjustments to income. Gross income includes your wages, dividends, interest, capital gains, retirement distributions and business income as well as any other income. Potential adjustments may include items such as contributions to a retirement account, alimony payments or education expenses.
  • Tax-exempt interest. This is interest from investments that don’t incur taxes, such as municipal bonds. While you’re not being taxed on this, it is included for purposes of calculating your provisional income.
  • Social Security benefits. You’ll only include half of your benefits in the calculation. You can look to the Social Security Benefit Statement you receive each January, which shows the total amount of benefits you received the previous year.

Experienced Legal Counsel You Can Trust

Whatever your issue with SSDI or SSI, I can offer you sound answers based on decades of experience both hearing disability cases for the SSA and helping clients with their claims and appeals. Iâm here to help people receive the benefits they deserve when they need them.

If youâre located in or near Raleigh, North Carolina, or Roanoke Rapids, Fayetteville, or Greensboro, feel free to reach out to me with your disability claims issues at Lloyd King Law Firm PLLC.

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Why Retiring At 62 Is A Good Idea

Probably the biggest indicator that its really ok to retire early is that your debts are paid off, or theyre very close to it. Debt-free living, financial freedom, or whichever way you choose to refer it, means youve fulfilled all or most of your obligations, and youll be under much less strain in the years ahead.

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Do You Plan To Continue Working In Your 60s

How To Calculate Social Security Benefits [3 Easy Steps]

Working in your 60s will help you maximize your income and savings.

Your benefits are based on your highest 35 years of earnings. Each year of work can add higher earnings to your record by replacing years with low earnings such as those when you were a student, were unemployed, or took time off to care for someone. When you work and wait to claim until age 70, you can increase your monthly benefit by more than 75 percent! Working in your 60s also gives you more time to save on your own for retirement.Review your earnings record on my SocialSecurity.

Working in your 60s will help you maximize your income and savings.

Your benefits are based on your highest 35 years of earnings. Each year of work can add higher earnings to your record by replacing years with low earnings such as those when you were a student, were unemployed, or took time off to care for someone. When you work and wait to claim until age 70, you can increase your monthly benefit by more than 75 percent! Working in your 60s also gives you more time to save on your own for retirement.Review your earnings record on my SocialSecurity.

You can maximize your benefits even if you work fewer hours or stop working.

You can maximize your benefits even if you work fewer hours or stop working.

Consider working in your 60s for an extra boost to your income and savings.

Consider working extra years in your 60s for an extra boost to your income and savings

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What Is Social Security Tax

The Social Security program was established in 1935 to provide financial support for retired workers when they reach age 65. Benefits are financed by payroll taxes, which are split between employees and employers.

In 1939, the program broadened its focus to include survivors insurance, which supports the families of deceased workers. Over the following decades, Social Security added disability, health insurance and supplemental income benefits for low-income workers.

Social Security For The Disabled

People who are disabled, are dependents of retired or disabled workers, or are surviving spouses/children may also receive benefits. Note that this is supplementary information and that the Social Security Calculator only provides calculations for retirement benefits.

The SSA’s definition of disability refers to total disability, so partial or short-term disabilities are not qualified for benefits. Under the SSA’s rules, a person is disabled only if they meet all of the following conditions:

  • They cannot do work they did before
  • The SSA decides that they cannot adjust to other work because of their medical condition
  • The disability has lasted or is expected to last at least one year or to result in death

Benefits usually continue until beneficiaries are able to work again. Disability beneficiaries that reach full retirement age will have their benefits converted into retirement benefits, with the amount remaining the same. It is against the law to receive both disability and retirement benefits at the same time.

Social Security Disability Insurance

Supplemental Security Income

In some situations, it is possible to receive both SSDI and SSI. This usually happens when a qualified application for SSDI is granted low enough an SSDI benefit to make the applicant also eligible for SSI.

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The Framework For Income Taxes On Social Security Benefits

The key to determining whether youll owe tax on a portion of your Social Security checks is whats called provisional income. Take your gross income, add in tax-exempt interest, and then add one-half of your total Social Security payments for the year. If that figure is above $25,000 for singles or $32,000 for joint filers, youll potentially owe tax on at least part of what you get from Social Security.

Image source: Getty Images.

Exactly how much gets added is complicated, as it depends on how far your provisional income exceeds those thresholds. From $25,000 to $34,000 for singles and $32,000 to $44,000 for joint filers, the maximum included amount is 50% of your benefits. Above those higher thresholds, up to 85% of your benefits can get taxed.

So, with that background, heres how you can ease the blow and pay less to the IRS.

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The Impact Of Early Retirement On Calculated Social Security Benefits

AARP

Its crucial to recognize that the standard Social Security statement projects benefits assuming continued work, as it means that not working as late as full retirement age can reduce prospective benefits. Not because future benefits are actually reduced by stopping work early . But simply because projected statements assume continued work by default, such that its absence will still result in a lower actual benefit in the future than what was previously projected.

However, the actual impact on Social Security benefits of stopping work before full retirement age varies heavily, depending on what the prospective retiree had already earned in benefits or more specifically, what additional years of work would have done to that individuals highest-35-years earnings history.

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Theres An Annual Social Security Cost

One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is significant. Its the equivalent of buying inflation protection on a private annuity, which can get expensive.

Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government . In 2023, Social Security beneficiaries will likely see a 9.7% COLA in their monthly Social Security benefits, the biggest increase since 1981. The COLA for 2023 will be announced on October 13.

Heres what COLAs have been in other recent years:

Calculate Your Bend Points

This step allows you to calculate your primary insurance amount . Social Security is set up so that lower income workers have a higher percentage of their wages replaced upon retirement. The more you earn, the lower the percentage of your working wages that you will receive. These different tiers, or bend points, are set by law. Here is how they work. Your PIA is calculated by finding the sum of 90% of your AIME up to $926, 32% of AIME between $926 and $5,583, and 15% of AIME above $5,583. For example, if you have an AIME of $800, then your PIA would be $720 per month. Now it is time to make any necessary adjustments to your PIA.

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When Should I Start Collecting Social Security

Ultimately, the decision of when to begin collecting Social Security is one you have to make. It depends on your age, your health status, how much you spend and how much you have saved. Its generally best to start collecting as late as you can, because you get a larger monthly payment, which is adjusted for inflation each year.

Consider a retiree who was born in 1950 and averaged $50,000 a year in salary. If she has $3,000 a month in expenses, her Social Security check would cover 48 percent of her expenses if she started Social Security at age 62. If she waited till age 70, her check would cover 85 percent of her expenses. Every year she delays retirement, her Social Security payout which is adjusted annually for inflation rises by about $1,649.

Traditionally, the retirement system in the U.S. has been a three-legged stool: Social Security, savings and pensions. Social Security was never intended to be the sole source of income for retirement. Increasingly, however, employers have been moving away from their employer-sponsored pension plans in favor of tax-deferred retirement savings accounts, such as 401 plans.

Do You Expect To Live A Long Life

How Social Security benefits are calculated on a $50,000 salary

Many people live longer than they expect.

Because Social Security provides guaranteed income for life, it’s especially valuable to you when you reach age 80 and beyond. Claiming benefits at your full Social Security benefit age or later could be a good way to secure your monthly income during your later years. Your benefit increases the longer you wait to claim, up to age 70, and is adjusted annually with the cost of living. If you live into your 80s but claim at age 62 instead of your full retirement age or later, your total lifetime benefits will be lower by thousands of dollars.Calculate your expected longevity.

Claiming at your full benefit age could still make sense for you.

We understand it’s difficult to make predictions. You may want to plan for the possibility that you may spend 20 or more years in retirement. On average, a woman reaching age 65 today will live to age 87, and a man will live to age 84. Waiting to claim as long as you can could still make sense for you if you are married, are the higher earner in the household, and want your surviving spouse to keep the highest monthly benefit after you die. Remember, you can claim at any point between age 62 and 70. Each additional month that you wait to claim gives you a permanent increase in your monthly benefit which becomes more valuable as you age.Calculate your longevity.

There’s a good chance that you’ll live into your 80s and beyond.

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Primary Insurance Amount Calculation

For 2022, the SSA established the first bend point as $1,024 and the second bend point as $6,172. Using the AIME from the earlier example of $10,141 and the bend points, we can calculate the primary insurance amount .

Below are the steps to calculating the PIA:

  • Multiply the first $1,024 of the person’s AIME by 90% = $921.60
  • Subtract the 1st and 2nd bend point and multiply that difference by 32% = $5,148*.32 = $1,647.35*
  • Subtract the 2nd bend point amount from the total AIME amount and multiply the difference by 15%. = $3,969*.15 = $595.35

*Please note that the calculation results are required to be rounded down to the next lower multiple of 10 cents.

  • The PIA is the sum of the three calculation results: = $3,164.30

*The multipliers90%, 32%, and 15%are set by law and do not change annually. The bend points are inflation-indexed but only through age 62. PIA is effectively locked in at age 62.

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