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How Does Social Security Calculate Benefits

Create A My Social Security Account

How to Calculate Your Social Security Benefits

To see all of your Social Security benefits online, you’ll first need to create a My Social Security account. Here’s what to do.

1. Go to ssa.gov on your browser and select my Social Security.

2. Next, click Create an Account.

3. You’ll be prompted to sign in with your ID.me account or login.gov account unless you created an account before Sept. 18, 2021. Note that you’ll need to create one of those accounts if you don’t have one.

4. Once you have an account, you’ll need to agree to the terms of service to continue.

5. Next, you’ll need to verify your identity. The Social Security Administration will send a one-time security code to your email that you’ll need to enter within 10 minutes to continue to your account.

You should now have access to all of your Social Security statements and other details online.

To Wait Or Not To Wait

Consider taking benefits earlier if . . .

  • You are no longer working and can’t make ends meet without your benefits.
  • You are in poor health and don’t expect the surviving member of the household to make it to average life expectancy.
  • You are the lower-earning spouse, and your higher-earning spouse can wait to file for a higher benefit.

Consider waiting to take benefits if . . .

  • You are still working and make enough to impact the taxability of your benefits.
  • Either you or your spouse are in good health and expect to exceed average life expectancy.
  • You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.

Fact #: Social Security Provides A Guaranteed Progressive Benefit That Keeps Up With Increases In The Cost Of Living

Social Security benefits are based on the earnings on which people pay Social Security payroll taxes. The higher their earnings , the higher their benefit.

Social Security benefits are progressive: they represent a higher proportion of a workers previous earnings for workers at lower earnings levels. For example, benefits for a low earner retiring at age 65 in 2021 replace about half of their prior earnings. But benefits for a high earner replace about 30 percent of prior earnings, though they are larger in dollar terms than those for the low-wage worker.

Many employers have shifted from offering traditional defined-benefit pension plans, which guarantee a certain benefit level upon retirement, toward defined-contribution plans s), which pay a benefit based on a workers contributions and the rate of return they earn. Social Security, therefore, will be most workers only source of guaranteed retirement income that is not subject to investment risk or financial market fluctuations.

Once someone starts receiving Social Security, their benefits increase to keep pace with inflation, helping to ensure that people do not fall into poverty as they age. In contrast, most private pensions and annuities are not adjusted for inflation.

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Fact #: Social Security Lifts Millions Of Older Adults Above The Poverty Line

Without Social Security benefits, about 4 in 10 adults aged 65 and older would have incomes below the poverty line, all else being equal, according to official estimates based on the 2021 Current Population Survey. Social Security benefits lift more than 16 million older adults above the poverty line, these estimates show.

An important study on retirement income from the U.S. Census Bureau that matches Census estimates to administrative data suggests that the official estimates overstate older people’s reliance on Social Security. The study finds that in 2012, 3 in 10 older adults would have been poor without Social Security, and that the program lifted more than 10 million older adults above the poverty line.

No matter how it is measured, its clear that Social Security lifts millions of older adults above the poverty line and dramatically reduces their poverty rate.

How Your Ssdi Payments Are Calculated

Calculator figures how much social security benefit is taxable

The severity of your disability will not affect the amount of SSDI benefits you receive. The Social Security Administration will determine your payment based on your lifetime average earnings before you became disabled. Your benefit amount will be calculated using your covered earnings. These are your earnings at jobs where your employer took money out of your wages for Social Security or FICA.

Your SSDI monthly benefit will be based on your average covered earnings over a period of time, which is referred to as your average indexed monthly earnings . The SSA uses these amounts in a formula to determine your primary insurance amount . This is the basic amount used to establish your benefit.

SSDI payments range on average between $800 and $1,800 per month. The maximum benefit you could receive in 2020 is $3,011 per month. The SSA has an online benefits calculator that you can use to obtain an estimate of your monthly benefits.

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Do You Get More Social Security At 63 Than 62

If you apply for Social Security at age 63, your monthly benefits will be decreased, but not as much as if you do so at age 62. A worker who was entitled to $1,000 per month at age 66 would get $800 per month at age 63, a 20% wage reduction. You will get 25% less if you join up at age 63 if your full retirement age is 67.

What Is A Social Security Card

Your Social Security card is an important piece of identification. You’ll need one to get a job, collect Social Security, or receive other government benefits.

When you apply for a Social Security number , the Social Security Administration will assign you a nine-digit number. This is the same number that is printed on the Social Security card that SSA will issue you. If you change your name, you will need to get a corrected card.

Also Check: My Social Security Benefits Calculator

How Much Social Security Will I Get If I Make $100000 A Year

Here are the Social Security benefits youll get if your annual income ranges from $30,000 to $100,000. Around $1,544 is the average Social Security payout. In order to help retirees manage their budgets in the face of rising inflation, up to a 6% cost-of-living increase is anticipated in their 2022 checks.

Will Your Expenses Decrease After You Retire

How To Calculate Social Security Benefits [3 Easy Steps]

Retirement could be more expensive than you expect.

If you’re planning an active retirement or carry a mortgage or other debt, retirement may be more expensive than you expect. Some regular expenses like your out-of-pocket health care costs will likely increase as you get older. You can protect your retirement lifestyle by reducing your largest expenses. You can also increase your regular income by claiming at your full Social Security benefit age or later. If you claim earlier, your monthly benefit could be reduced by as much as 30 percent.Create a retirement budget.

Retirement could be more expensive than you expect.

If you’re planning an active retirement or carry a mortgage or other debt, retirement may be more expensive than you expect. Some regular expenses like your out-of-pocket health care costs will likely increase as you get older. You can protect your retirement lifestyle by reducing your largest expenses. You can also increase your regular income by claiming at your full Social Security benefit age or later. If you claim earlier, your monthly benefit could be reduced by as much as 30 percent.Create a retirement budget.

Maintain your lifestyle by planning ahead.

Maintain your lifestyle by planning ahead.

Many people find retirement is more expensive than expected.

Many people find retirement is more expensive than expected.

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Fact #: Social Security Is Especially Beneficial For Women

Social Security is especially important for women, because they tend to earn less than men, take more time out of the paid workforce, live longer, accumulate less savings, and receive smaller pensions. Women represent more than half of Social Security beneficiaries in their 60s and 7 in 10 beneficiaries in their 90s. In addition, women make up 96 percent of Social Security survivor beneficiaries.

Social Security Bend Points

The Social Security benefits formula is designed to replace a higher proportion of income for low-income earners than for high-income earners. To do that, the formula uses what are called bend points,” which are adjusted for inflation each year.

Bend points from the year you turn 62 are used to calculate your Social Security retirement benefits. The example in the table below uses 2020 bend points. It works like this:

  • You take 90% of the first $960 of AIME.
  • You take 32% of the next $5,785 of AIME.
  • You take 15% of any amount over that $5,785.
  • You total those three numbers.

The result is your primary insurance amount, or PIA, the amount you will receive if you begin benefits at your Full Retirement Age .

Your PIA is rounded to the next lowest dime, and your benefit amount is rounded to the next lowest dollar.

Technically, your PIA is calculated and rounded to the next lowest dime, and then any inflation adjustments are applied. That number is then rounded to the next lowest dime. Next, any increase or decrease based on age is applied. That number is then rounded down to the next lowest dollar.

You can see current and historical bend points and the current year’s bend points on the Bend Formula Bend Points page of the Social Security Administration’s website.

In the example in the table below, you can see how the AIME calculated in the previous step was plugged into the bend point formula to calculate the PIA.

Read Also: Social Security Disability Spousal Benefits

What If I Continue Working In My 60s

Many people whose health allows them to continue working in their 60s and beyond find that staying in the workforce keeps them young and gives them a sense of purpose. If this sounds like something youâd like to do, know that working after claiming early benefits may affect the amount you receive from Social Security. Why? Because the Social Security Administration wants to spread out your earnings so you donât outlive them. If you claim Social Security benefits early and then continue working, youâll be subject to whatâs called the Retirement Earnings Test.

If youâre between age 62 and your full retirement age, and youâre claiming benefits, you need to know about the Earnings Test Exempt Amount, a threshold that changes yearly. For 2022, the Retirement Earnings Test Exempt Amount is $19,560/year . If youâre in this age group and claiming benefits, then every $2 you make above the Exempt Amount will reduce by $1 the Social Security benefits you’ll receive.

Contrary to popular belief, this money doesnât disappear. It gets credited back to you – with interest – in the form of higher future benefits. You may hear people grumbling about the Social Security âEarnings Taxâ, but itâs not really a tax. Itâs a deferment of your benefits designed to keep you from spending too much too soon. And after you hit your full retirement age, you can work to your heartâs content without any reduction in your benefits.

What If I Delay Taking My Benefits

10 free or cheap Social Security calculators to help you plan ...

If you retire sometime between your full retirement age and age 70, you typically earn a “delayed retirement” credit for your own benefits . For example, say you were born in 1960, and your full retirement age is 67. If you start your benefits at age 69, you would receive a credit of 8% per year multiplied by two . This means your benefit would be 16% higher than the amount you would have received at age 67.

Also Check: Social Security Benefits Worksheet For 2021 Taxes

Four Ways Benefits Can Be Increased Or Decreased

There are four ways the starting benefit can be permanently increased or reduced from the PIA calculated at age 62:

  • Starting benefits earlyBenefits may begin as soon as age 62, but they are permanently reduced for every month between the onset of benefits and FRA.
  • Delaying benefits beyond full retirement ageDelayed retirement credits can permanently increase benefits, and they are awarded for every month between FRA and a later onset of benefits.
  • Starting early and continuing to workIf you start benefits before your FRA and keep working, the SSA may deduct the part of your benefits that exceeds a threshold. However, any such deductions are not permanent. When you reach your FRA, the SSA recalculates your benefits and credits back any deductions.
  • Continuing to work, periodEven if you dont start benefits early, you can increase your benefits by continuing to work up to any age. Any year in which your indexed earnings are higher than one of your 35 previous highest years will boost your benefits. However, after age 60, you will not receive wage indexing, and after age 62, you will not receive bend point inflation indexing.

All four points are related to your starting Social Security benefits. Keep in mind that when your benefits start, the COLA will increase them annually. If you start benefits at age 66, your PIA automatically increases with the applicable COLAs from the years in which you turn 63 through 66.

Maximum Social Security Benefits You Can Get

The maximum monthly Social Security benefit available to someone retiring in 2021 is $3,895, which assumes that:

  • They worked 35 years or more
  • In their 35 top-earning years, their income met or exceeded the SSA’s maximum taxable amount, so that they paid the largest Social Security tax amount possible for each of those years
  • They are retiring at age 70, which entitles them to the maximum delayed retirement credit

For comparison, the table below lists the monthly benefits for workers who plan to retire in 2021 whose earnings met or exceeded the SSA maximum-taxable limit every year of their working lives, from age 22. This situation is far from typical, but it shows the impact of retirement age on Social Security benefits, isolated from other factors.

Maximum Social Security Benefit for Workers Retiring in 2021
Age

Read Also: How To Apply Social Security Retirement Benefits

How Does The Social Security Administration Calculate Benefits

Benefits also depend on how much money youâve earned in life. The Social Security Administration takes your highest-earning 35 years of covered wages and averages them, indexing for inflation. They give you a big fat âzeroâ for each year you donât have earnings, so people who worked for fewer than 35 years may see lower benefits.

The Social Security Administration also makes annual Cost of Living Adjustments, even as you collect benefits. That means the retirement income you collect from Social Security has built-in protection against inflation. For many people, Social Security is the only form of retirement income they have that is directly linked to inflation. Itâs a big perk that doesnât get a lot of attention.

How Does The Calculator Estimate My Retirement Benefits Payment

Why You MUST Know How to Calculate Your Social Security Benefit!

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.

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Checklist For Your Social Security Claiming Strategy

  • Know your numbers. Find out your FRA, earnings history, and estimated benefits.
  • Stay current. Sign up for your most current statements on SSA.gov.
  • Do the math. Use calculators on SSA.gov to check out your monthly benefit options.
  • Get the facts. Don’t succumb to myths use primary resources such as SSA.gov.

When To Apply For Benefits How Much Youll Get

AARP, Updated May 25 , 2022

All the information presented is for educational and resource purposes only. It is not intended to provide specific or investment advice. We don’t guarantee the accuracy of the tool and suggest that you consult with your advisor regarding your individual situation.

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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.

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