How To Estimate Social Security Retirement Benefits
Retirement brings a lot of exciting life changes. In addition to much more free time than youre probably used to, youll have ample opportunities to pursue hobbies, volunteer or travel the world like youve always dreamed of doing. But in addition to these new possibilities, retiring can also bring changes to your finances. You wont be earning income in the same way, and this can make creating and sticking to a budget an even more important reality.
Part of successfully budgeting involves knowing how much money youll have available to spend and part of knowing how much youll be bringing in during retirement involves understanding your Social Security payment amounts. There are three methods of estimating how much money youll receive in Social Security benefits each month after retiring. While these processes wont give you exact amounts, youll end up with ballpark figures that help you draft a workable retirement budget. Heres how you can get started estimating.
How To Correct An Error On Your Social Security Statement
If you have evidence of your covered earnings in the year or years for which you think Social Security has made an error, call Social Securitys helpline at 800-772-1213, Monday through Friday, from 7 a.m. to 7 p.m. This is the line that takes all kinds of Social Security questions, and it is often swamped, so be patient. It is best to call early in the morning or late in the afternoon, late in the week, or late in the month. Have all your documents handy when you speak with a representative.
If you would rather speak with someone in person, call your local Social Security office and make an appointment to see someone there, or drop into the office during regular business hours. If you drop in, be prepared to wait, perhaps as long as an hour or two, before you get to see a representative. Bring with you two copies of your benefits statement and the evidence that supports your claim of higher income. That way, you can leave one copy with the Social Security worker. Write down the name of the person with whom you speak so that you can reach the same person when you follow up.
The process to correct errors is slow. It may take several months to have the changes made in your record. After Social Security confirms that it has corrected your record, request another benefits statement to make sure the correct information made it to your file.
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Work Until Full Retirement Age
Another step you can take to maximize your Social Security benefits is to work until your full retirement age . Originally, this number was set at 65. But it has been steadily creeping up, thanks to the passage of the Social Security Amendments of 1983 . Starting in 2000, the full retirement age has been increasing in two-month increments so that its 67 for people born in 1960 or later.
If you dont wait till your FRA, the earliest you can start receiving Social Security is 62 years old. However, your benefit will be reduced by up to 30% if your FRA is 67 in this case.
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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.
How Much Social Security Benefits Could Increase In 2023
Many types of benefits are paid out through the Social Security program, but retirement benefits for former workers and their spouses, survivors benefits, and disability benefits are some of the largest categories.
Here is how much the average beneficiary in each of those categories would receive next year following an 8.5% COLA.
- Retired workers: $1,814.94 per month
- Spouse of retired workers: $903.83
- Survivors: $1,443.77
- Disabled workers: $1,478.14
Alternatively, here is how much the average beneficiary in each of those categories would receive next year following a 9% COLA.
- Retired workers: $1,823.31 per month
- Spouse of retired workers: $907.99
- Survivors: $1,450.42
- Disabled workers: $1,484.95
Seniors should bear in mind that COLAs are designed to offset the impact of inflation. That means a monster COLA in 2023 won’t leave anyone with extra spending money. The unfortunate truth is that most of that extra income will be eaten away by rising prices. That means prudent financial planning is still critical.
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What Month Will I Get The Cola Increase
Even though the Social Security Administration will announce the adjustment this week, seniors and others on the program will have to wait until January to receive their higher payments.
While the COLA will actually go into effect with the December 2022 benefits, those payments will be made in January 2023.
Your January 2023 check will be sent based on your birth date:
- If your birthday falls on the 1st to 10th of the month, your payments arrive on the second Wednesday of the month. That means the first check with the 2023 COLA will land on January 11.
- If your birthday falls on the 11th to 20th, your payments come on the third Wednesday of each month. Your first 2023 COLA will arrive with your January 18 benefit.
- If your birthday falls on the 21st to 31st, your payments are scheduled for the fourth Wednesday of each month. Your first 2023 COLA will arrive with your January 25 check.
Adjust Your Pia For The Age You Will Begin Benefits
The final amount of Social Security retirement benefit that you receive is based on the age when you begin benefits.
The earliest you can begin retirement benefits is age 62 . You will get more by waiting until a later ageas late as age 70to begin receiving benefits.
Of course, another complex formula is used to determine how much more you will receive if you wait.
This formula uses your Primary Insurance Amount calculated in the previous step. This is the amount you will get if you start benefits at your full retirement age . Your FRA can vary, depending on the year you were born. For people born between 1943 and 1954, as in our example, the FRA is age 66.
For people born on January 1, the FRA is based on the year prior. Someone born on January 1, 1955, will have an FRA based on 1954.
A reduction is applied to your PIA if you begin benefits before your FRA. A credit, referred to as a “delayed retirement credit,” is applied if you begin to receive benefits after your FRA.
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How Are Your Social Security Benefits Calculated
Social Security uses your highest 35 years of earnings, indexed to a national average wage index, to calculate your primary insurance amount If you have fewer than 35 years of earnings, each year with no earnings will be entered as zero. You can increase your Social Security benefit at any time by replacing a zero or low-income year with a higher-income year.
There is a maximum Social Security benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2022, the maximum monthly benefit is $3,345. For someone filing at age 70, the maximum monthly amount is $4,194. And for someone retiring early, at age 62, the maximum monthly benefit is $2,364.
To estimate your benefits, use the Social Securitys online Retirement Estimator.
Theres A Social Security Spousal Benefit
Marriage is rewarded when it comes to Social Security. One spouse can take whats called a spousal benefit, worth up to 50% of the other spouses Social Security benefit. For example, if your monthly Social Security benefit is worth $2,000 but your spouses own benefit is only worth $500, your spouse can collect a spousal benefit worth $1,000 bringing in $500 more in income per month.
Just as the benefit based on your own work history is reduced if you claim it early, the same is true for a spousal benefit. That 50% figure is the maximum amount that only a spouse who is at least full retirement age is eligible for. Taking the spousal benefit early at, say, age 62, reduces the amount to as little as 32.5% of the higher earners benefit. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.
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At What Age Do You Plan To Retire
The age at which you retire can have a major effect on the size of the Social Security benefits youll receive. The longer you wait up until age 70, the more benefits you may be able to collect.
Enter the age at which you would like to retire and begin collecting benefits. You can get retirement benefits as early as age 62.
How Much To Save For Retirement
Naturally, the next question becomes: how much should a person save for retirement? Simply put, its an extremely loaded question with very few definite answers. Similar to the answer to the question of whether to retire or not, it will depend on each person, and factors such as how much income will be needed, entitlement for Social Security retirement benefits, health and life expectancy, personal preferences regarding inheritances, and many other things.
Below are some general guidelines.
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What Will My Social Security Benefits Be When I Retire And What About Those Of My Spouse
Your Social Security benefits can be estimated based on your average annual income, your current age and your age when you retire. Use our calculator to estimate your Social Security benefits during retirement.
For a more accurate and detailed estimate, visit the Social Security Administration website at www.ssa.gov where benefits can be determined based upon your exact earnings history and the exact date of your retirement.
How Do I Estimate My Monthly Retirement Benefits
You can estimate your monthly retirement benefits by calculating your PIA, the monthly benefit youre eligible to receive once you reach your FRA. To determine your PIA, the Social Security Administration uses your best 35 years of employment to arrive at your Average Indexed Monthly Earnings . If you havent worked for 35 years, some of the included earnings may be zero.
If you continue working after reaching your FRA, the SSA will automatically recalculate your benefits each year you continue to work. If your current income is greater than any of your previously calculated best 35 years, your benefits will be adjusted upward. The increase generally will be made in October of the following year but will be retroactive to January 1.
Social Security retirement benefits are automatically modified each year for cost-of-living adjustments , which are either positive or zero never negative. COLAs are based on the Consumer Price Index and have averaged between 1% and 2% over the past 10 years.
For more information, the SSA offers a helpful Social Security retirement calculator.
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How Are Social Security Payments Calculated
The SSA bases the Social Security entitlement on data gathered throughout your working life which is formed into an earnings record. This information is than used, with a three-part process, to calculate the size of payments:
Average Indexed Monthly Earnings The SSA uses your 35 best-paid years to calculate your AIME, which is essentially a snapshot of your historical earnings. The more you earn the higher your monthly entitlement can be, up to a maximum threshold of $142,800 .
Primary Insurance Amount Assuming that you wait until full retirement age before claiming Social Security, your PIA is the amount youll receive each month from the SSA.
Your PIA is comprised of
- 90% of the first $996 of your AIME
- 32% of any amount over $996 up to $6,002
- and 15% of any amount over $6,002
Age of claim If you decide to claim Social Security before you reach full retirement age the size of your monthly entitlement will decrease. This is done on a sliding scale, with more than a quarter of the payment size being lost if you claim at the age of 62. Alternatively, if you delay the payment until you are 70 you can add up to 30% to your payment amount.
Those who are considering early retirement should be aware that their Medicare benefits will not kick in until sixty-five, meaning that they will have to purchase insurance during the in-between period.
How The Ssacalculates Your Estimated Social Security Benefits
To calculate your Social Security benefit, the SSA will takeyour historical earnings and adjust them for inflation. This inflationadjustment goes through age 59 once you hit 60, your benefit amount is at facevalue at that point and into the future.
Then, the Administration takes your highest-earning 35 yearsof work and income history and calculates an average annual earnings amount.They they apply a formula that is specific to individuals who are 62 in thatcalendar year.
The result is your full retirement age benefit, also knownas your primary insurance amount or PIA.
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Social Security: When Can Your Benefits Be Garnished Due To Unpaid Debt
Because Social Security income is intended as a financial safety net for retirees and other qualified Americans, most benefits are exempt from garnishment, levies, attachments and other legal processes. However, there are a few exceptions.
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According to the Social Security Administrations Social Security Handbook, if you have any unpaid federal taxes, the IRS can levy your Social Security benefits. Your benefits can also be garnished to collect unpaid child support and/or alimony. In addition, Social Security benefits can be garnished in response to Court Ordered Victims Restitution.
Your benefits might also be reduced or offset to collect delinquent debts owed to other federal agencies, such as student loans owed to the U.S. Department of Education.
Garnishments apply to retirement, spousal and survivor benefits, and Social Security Disability Insurance payments. Supplemental Security Income payments cant be garnished or levied.
One thing to keep in mind is that there are limits on how much of your Social Security payment can be garnished, according to the AARP. If your federal income taxes are in arrears, for example, the IRS can take no more than 15% of your monthly Social Security benefit.
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Information Needed To Calculate Social Security Benefits
Keep in mind that the result youll get using our Social Security calculator is only an estimate, and calculates your potential benefits only. There may be other factors that affect the actual benefits youll receive, including the length of your work history, the type of jobs youve had, pensions youve earned and taxes you may have to pay on benefits.
This calculator doesnt account for situations in which eligible widows, ex-spouses or dependents may be able to collect someone elses Social Security benefits.
The amount of your Social Security benefit is generally based on your average income during your career. The formula is complicated but essentially gives you a percentage of your monthly income based on your earnings history. Our calculator will compute this for you.
To figure out your estimated monthly Social Security benefits, youll need to enter the following key pieces of information into the calculator:
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Average The Highest 35 Years
The Social Security benefits calculation uses your highest 35 years of earnings to calculate your average monthly earnings. If you do not have 35 years of earnings, a zero will be used in the calculation, which will lower the average. In the table below, the highest 35 years are listed in Column G.
Total the highest 35 years of indexed earnings, and divide that amount by 420, which is the number of months in a 35-year work history, to find the Average Indexed Monthly Earnings.
For our example worker, who was born in 1953 and turned 60 in 2013, the highest 35 years of wages total $1,919,040. Divide by 420 to get an AIME of $4,569.
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