How To Estimate Social Security Benefits
There are several ways you can estimate Social Security payments, but some may be more accurate than others. These methods are:
- Creating a Social Security account. The SSA offers a free online portal, known as my Social Security, that allows you to review earnings reports and estimate future benefits.
- Using the SSAâs online benefits calculator. The SSA offers several online retirement calculators you can use to estimate your benefits. But keep in mind, these are rough estimates based on your earnings history and may differ from your future payouts.
- Visiting a local SSA office. While the SSA recommends using its site for help, you could also visit the closest office to get an estimate of future benefits. But like an online calculator, itâs important to take this estimate with a grain of salt. It doesnât consider changes in income that could affect your retirement benefits.
- Manually estimating your Social Security earnings. Calculating your Social Security retirement benefits manually requires a bit of math. Essentially, you adjust your wages for inflation, then input them into the Social Security benefits formula.
How The Federal Government Taxes Social Security Benefits
The government determines whether you owe taxes on your Social Security benefits by looking at your provisional income. This is your adjusted gross income , plus any nontaxable interest you have from your investments and half your annual Social Security benefit. For example, if you withdrew $40,000 from a 401, had no nontaxable interest, and earned $20,000 from Social Security in 2023, your provisional income would be $50,000.
How Does The Calculator Estimate My Retirement Benefits Payment
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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How Your Primary Insurance Amount Is Calculated
Once you have your AIME, you can calculate your primary insurance amount , the base rate for your Social Security payments. The PIA calculation relies on so-called âbend pointsâ that determine how much of your income will be replaced by Social Security benefits in retirement.
Think of bend points as similar to tax brackets, in that they determine a percentage of your benefits based on incremental buckets of earnings. There are three bend point buckets: one for 90% of income replacement, one for 32% and one for 15%.
These bend point buckets help give lower lifetime earners a higher percentage of income replacement, and higher lifetime earners a lower rate of income replacement, says Jim Blankenship, certified financial planner and author of âA Social Security Ownerâs Manual.
The dollar amounts of bend points are adjusted for inflation each year, but the percentages of each bend point are set by law and remain unchanged. AIME amounts are always rounded down to the nearest $0.10. For 2021, the bend points are:
⢠90% of the first $996 of your AIME, plus
⢠32% of your AIME between $996 and $6,002, plus
⢠15% of your AIME over $6,002
For a worker with an AIME of $6,250, the calculation would look like this:
⢠90% of $966 = $896.40, plus
⢠32% of $5,006 = $1,601.92, rounded down to $1,601.90, plus
⢠15% of $248 = $37.20
This worker would earn a monthly Social Security benefit of $2,535.50 .
What Is The Average Social Security Benefit At Age 62
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According to the Social Security Administration , if you were born between 1943 and 1954, your full retirement age is 66. By claiming at the age of 62, a hypothetical $1000 retirement benefit would be reduced by 25% and you would only receive $750 per month. A $500 monthly spousal benefit would be reduced to $350.
The greater the gap between age 62 and FRA, the higher the percentage of reduction in retirement benefits. For those born in 1960 or later, retirement benefits are reduced by 30% and spousal benefits are reduced by 35%. This means a $1000 retirement benefit would be reduced to $700 per month.
According to the SSAs 2021 Annual Statistical Supplement, the monthly benefit amount for retired workers claiming benefits at age 62 earning the average wage was $1,480 per month for the worker alone. The benefit amount for workers with spouses claiming benefits was $2,170 at age 62.
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Although claiming before FRA allows you to collect retirement benefits for a longer period of time, your benefit amount will be significantly reduced. The SSA says that if you delay your benefits until after FRA, you will be eligible for delayed retirement credits that would increase your monthly benefit.
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Can You Collect Social Security At 66 And Still Work
Yes. You can work while you receive Social Security retirement or survivors benefits.
When you reach your full retirement age, you can work and earn as much as you want and still get your full Social Security benefit payment.
However, if you start collecting benefits before your full retirement age, say at age 62, and if your earnings exceed the earnings limit, some of your benefit payments during the year will be withheld.
When you reach full retirement age, Social Security will pay you a higher monthly benefit.
Note that if you turn 62 in 2022, your full retirement age is 67.
What Is The Future Of Social Security
As of June 2022, the Social Security Trust Fund is projected to have enough resources to cover all promised benefits until 2035 when, absent a change from Congress, benefits would need to be cut for all current and future beneficiaries to about 80% of scheduled benefits.2 Over the longer term, changes to the full retirement age or means testingâwhich could reduce or eliminate benefits based on your other income sourcesâmay also be considered.
If you’re skeptical about the future of Social Security or wary of potential changes, you may be tempted to start benefits early, assuming that it’s better to have something than nothing. Regardless of your situation, if you are concerned about the future prospects for Social Security, then that’s a good reason to save moreâand earlierâfor your retirement.
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What Is The Best Age To Draw Social Security
Perhaps not surprisingly, age 62 is a popular age for retirees to claim Social Security, with more than 25% opting for this choice. After all, there’s definitely some appeal to getting what feels like free money from the government as soon as possible. And, for some retirees, this is the best choice.
Social Security Information You Can See Online
When you sign in to your online account, you’ll be able to view your Social Security statements. If you don’t yet receive benefits, you’ll see an estimate of the amount you could receive when you do retire.
There’s a table that shows your monthly benefit amounts if you retire — for instance, if you were born in 1960 or later, your chart may show retirement at 62 years old , 67 years old and 70 years old . Note that these retirement ages may change in the future. The longer you wait to retire, the more money you could receive per month.
You can also see your eligibility and earnings information. If you’ve worked at least 10 years, you’ll have enough work credits — you need 40 — to receive benefits. If you click on Review your Earnings Record, you’ll see your taxed Social Security and Medicare earnings for each year you worked.
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Retire Early Get Less Retire Later Get More
In 2000, Congress raised the full retirement age to help offset the financial costs of increasing life expectancies among Americans.
For those born in 1937 and earlier, full retirement remains at age 65. However, for those born after 1937, the full retirement age increases incrementally until those born in 1960 and after will have to wait until age 67 to receive full benefits.
Despite this, anyone who has paid into the system for at least 10 years can start receiving benefits as early as the first full month after reaching age 62. However, accessing benefits at 62 will permanently decrease the amount you may receive each month by 20 to 30 percent. Conversely, if you delay taking benefits past your full retirement age, your monthly benefits will increase until you turn 70 and reach the maximum benefit amount.
The decision to receive Social Security benefits before full retirement age is contingent on individual circumstances. Even the month in which you choose to begin benefits may make a difference. In addition, other benefits may be available if you are eligible. Not everyone has the financial flexibility to defer Social Security benefits, but if youre considering it, you must compare the advantage of increased monthly benefits against the cost of receiving benefits for fewer years.
How Much Social Security Will I Get
Every year you work, a portion of your income goes toward Social Security payroll taxes. By the time you retire, you could have paid thousands of dollars into Social Security. But how much will you get every month after you retire?
This guide breaks down how Social Security works plus how to estimate your monthly Social Security benefits.
Key Takeaways
- Social Security benefits might replace pre-retirement salary and can be an important part of retirement plans.
- Benefits depend on factors like date of birth, years worked and earnings history.
- The Social Security Administration calculates total benefits by adjusting past earnings for inflation, generating an average monthly income and putting that number into an insurance formula.
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What Income Reduces Social Security Benefits
If you start taking Social Security benefits before you reach full retirement age, any income you earn over the annual limit until you reach full retirement age will lower your benefit eligibility for that year. In 2022, if you are retired and haven’t reached full retirement age, the SSA will deduct $1 from your benefits for every $2 earned over $19,560. In the year you reach full retirement age, the SSA will deduct $1 for every $3 earned over $51,960. For the 2023 tax year, these thresholds are slightly higher, at $21,240 and $56,520, respectively.
How To Stop Social Security Check Payments
The SSA can not pay benefits for the month of a recipients death. That means if the person died in July, the check received in August must be returned. Find out how to return a check to the SSA.
If the payment is by direct deposit, notify the financial institution as soon as possible so it can return any payments received after death. For more about the requirement to return benefits for the month of a beneficiarys death, see the top of page 11 of this SSA publication.
Family members may be eligible for Social Security survivors benefits when a person getting benefits dies. Visit the SSA’s Survivors Benefits page to learn more.
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When You Choose To Start Taking Social Security Benefits
The yearâand even the month within that yearâthat you choose to begin taking Social Security benefits affects how much you receive each month. You can start claiming Social Security benefits early as age 62, the current early retirement age. But you wonât get your full PIA. Itâll be reduced based on how many months you have until your full retirement age. This reduction can really add up, topping in at as high as 30% for particularly early claimers.
You can avoid these surcharges on your PIA, of course, simply by waiting to start payments until your full retirement age. This is generally between ages 66 and 67, depending on when you were born.
You can even add onto your base amount by delaying when you start benefits. After you reach full retirement age, you can boost your benefits by up to 8% of your PIA annually simply by not claiming Social Security. These benefit increases are known as delayed retirement credits, and you can accrue them up to age 70.
An important note: These benefit rate changes are performed to provide roughly the same cumulative benefit over a lifetime, assuming a roughly average lifespan. In other words, if you start Social Security earlier, youâll probably claim it for longer someone with the same lifespan who delayed payments would claim them for less time. To provide them the same total benefit, earlier payments must be smaller and later benefits have to be larger to catch up.
How Much Of Your Social Security Is Taxable After Reaching Retirement Age
Notably, 85% of your Social Security is potentially taxable after retirement. What your income is at the time will determine how much of your benefits are taxed. If you file as an individual and your income is between $25,000 and $34,000, 50% of your benefits will be taxed. Any amount over $34,000 will qualify 85% of your benefits to be taxed. If you are married filing jointly, 50% will be taxable if your combined income with your spouse is between $32,000 and $44,000. Over $44,000, 85% of benefits are taxable.
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Your May Have To Pay Taxes On Social Security Benefits
Most people know that Social Security is funded by a tax on earnings, currently 6.2% for the employee . But some retirees dont realize that you may well have to pay income tax on Social Security benefits when it comes time to claim them. Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits havent been increased since then.
It doesnt take a lot of income for your Social Security benefits to be taxed. Your benefits wont be taxed if your provisional income is less than $25,000 if youre single or $32,000 if youre married. If youre single and your provisional income is between $25,000 and $34,000, or married filing jointly with provisional income between $32,000 and $44,000, up to 50% of your Social Security benefits may be taxable. If your provisional income is more than $34,000 on a single return or $44,000 on a joint return, up to 85% of your benefits may be taxable.
The Social Security Administration says about 40% of beneficiaries pay taxes on their benefits. Since the thresholds arent adjusted for inflation, the number of beneficiaries who pay taxes on Social Security benefits increases every year. The Social Security Trustees annual report estimates that taxes on Social Security will total $45.1 billion in 2022, up from $34.5 billion in 2021.
You may also have to paystateincome taxes on your Social Security benefits. See our list of the 12 States That Tax Social Security Benefits.
Retiring Early Before 35 Years Of Work History
For those who dont even have 35 years of historical income, though, the effect of retiring early can be even more substantial. For instance, if the individual above had been aiming to retire even earlier, then the reality is that social security early retirement age 55 likely doesnt even have 35 years of earnings history. As a result, the additional projected years of working through full retirement age would both fill out the remainder of the highest 35 years, and replace lower earning years with new higher years. The exclusion of both if retirement occurs early can be substantial.
As the chart above shows, projected Social Security benefits would include 8 more years of $125,000/year earnings to complete the 35-year earnings history, and the subsequent 8 years would further increase AIME by overriding 8 early years that were at lower income levels. As a result, projected Social Security benefits would be $2,854.42/month based on an AIME of $9,885.71/month . However, if the individual actually retires at age 50, and simply locks in the benefits hes actually earned, the 35-year AIME would be only $8,220.24, and Social Security retirement benefits would actually be just $2,606.21/month, not $2,854.42 as projected with continued work!
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What Does Aarps Social Security Calculator Do
The calculator provides an estimate of your Social Security benefits, based on your earnings history and age. Our tool also helps you see what percentage of daily expenses your payments can cover, and how you can increase your benefits by waiting to collect. It can also tell you how your retirement earnings will be affected if you keep working after you claim your Social Security benefit.