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How To Calculate My Social Security Benefits When I Retire

Are Social Security Benefits Taxable

How Social Security Retirement Benefits Are Calculated [3 Easy Steps]

If you have a lot of income from other sources, up to 85% of your Social Security benefits will be considered taxable income. If the combination of your Social Security benefits and other income is below $25,000, your benefits wonât be taxed at all. The amount of your benefits that is subject to taxes is calculated on a sliding scale based on your income. Money that Social Security recipients pay in income taxes on their benefits goes back into funding Social Security and Medicare.

If your retirement income is high enough that your benefits are taxable, how do you pay those benefits? You can ask Social Security for an IRS Voluntary Withholding Request Form if youâd like the government to withhold taxes from your Social Security benefits. Otherwise, youâre expected to file quarterly tax returns to pay these taxes over the course of the year.

That covers federal income taxes. What about state income taxes? That depends. In 12 states, your Social Security benefits will be taxed as income, either in whole or in part the remaining states do not tax Social Security income.

How Social Security Benefits Work

As mentioned above, your Social Security benefits are funded through payroll taxes. You typically pay about 6.2% of your paycheck into Social Security up to a taxable maximum income of $147,000 for 2022. If youre self-employed, youll pay the entire 12.4% up to the maximum.

Although youll pay toward Social Security with every paycheck, your money isnt held for you. Instead, your taxes go into a pool to pay for people currently collecting benefits.

More than $1 trillion was collected from payroll taxes for Social Security in 2020. The Social Security retirement benefit you will receive will primarily be paid for by people working when you start collecting.

Do You Expect To Live A Long Life

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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How To Calculate The Impact Of A Benefit Cut

Covisum, a provider of Social Security claiming software, recently updated its calculator to reflect the Social Security trustees latest projections. That includes a free version for consumers and a more complex paid version for financial advisors.

Another product, Maximize My Social Security, lets consumers evaluate which claiming strategy might best suit them for a $40 annual fee. It also has a separate version for financial advisors.

The free Covisum calculator can help individuals do a quick calculation based on their benefits alone and some key facts year of birth, full retirement age benefit amount, percentage of the benefit cut and the year that benefit cut occurs.

So someone turning their full retirement age this year, for example, can calculate the effect of a 23% reduction in benefits starting in 2034, as well as the effect of no benefit cut.For each scenario, the calculator will show the value of claiming either at age 65 or age 70, and when beneficiaries stand to get the maximum amount possible from the program.As beneficiaries live longer, the value of waiting to claim until 70 goes up, as demonstrated in the difference in total benefits per the tools calculations.

To be sure, the free calculator is just a starting point when it comes to getting a sense of the trade-offs when claiming Social Security, according to Joe Elsasser, founder and president of Covisum.

What If I Change My Mind

How To Calculate Social Security Retirement

If you receive Social Security benefits at a reduced rate but then change your mind, you have the option of withdrawing your application within the first 12 months of receiving benefits and paying back to the government what you’ve already received . Then, you could restart benefits at a later date to take advantage of a higher payout. Be aware that you’re limited to one withdrawal per lifetime.

For example, let’s say you elected to receive early benefits at age 62 but then decided to go back to work at age 63. You could withdraw your Social Security application, pay back the years’ worth of benefits you received, go back to work, and then wait until your full retirement age to restart your benefit checks at a higher level.

Once you reach full retirement age, another option is to voluntarily stop benefits at any point before age 70 to receive delayed retirement credits . Benefits will automatically restart at age 70 at a higher amountâunless you choose to start taking benefits before then. Note that when you withdraw your application or stop your benefits after full retirement age, you must specify if your Medicare coverageâif you have itâshould be included in the withdrawal.

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Weigh Taking Early Retirement Benefits Against Full Retirement Benefits

A Tea Reader: Living Life One Cup at a Time

People nearing retirement can implement a number of strategies to cover living expenses during their post-working years. Although retirement plans, such as 401s and IRAs, are part of a retirement strategy for many, Social Security benefits are the most common source of income among retirees. The benefit is a guaranteed amount that you can start receiving as early as age 62, or you can wait until 70 to receive the highest monthly payment.

Various factors impact how much Social Security income you get when you start claiming benefits. To determine the optimal age to start taking benefits, you need to calculate your Social Security breakeven age to ensure that you balance payments versus longevity.

How Long Will You Live In Retirement

Based on current estimates, a 65 year old man can expect to live approximately 18 years in retirement, and a 65 year old woman can expect to live about 20 years, but many people live longer. Planning to live well into your 90s can help you avoid outliving your income.

The worksheet takes into account some factors that impact your retirement savings. First, investing – because it involves risk. Second, inflation – because todays dollars will usually buy less each year as the cost of living rises. Your target savings rate includes any contributions your employer makes to a retirement savings plan for you, such as an employer matching contribution. If, for example, you are in a 401 plan in which you contribute 4 percent of your salary and your employer also contributes 4 percent, your saving rate would be 8 percent of your salary.

If you are not currently saving this amount, dont be discouraged. The important thing is to start saving even a small amount and increase that amount when you can. Come back and update this worksheet from time to time to reflect changes and track your progress.

Here are a few tips on how to save smart for retirement:

To track other resources you may have in retirement, start by getting your Social Security statement and an estimate of your retirement benefits on the Social Security Administrations website, www.socialsecurity.gov/mystatement.

Get started today for a secure financial future!

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Your Social Security Money Is Based On Your Income

The amount of money you make during your career plays an important role in determining how much money youll receive from Social Security. If you work a total of 45 years, only the highest 35 years of earnings would count toward your benefit amount. For example: If you earned $35,000 for the first 10 years of your employment history and $55,000 for 35 years, only the $55,000 income would count .

How To Calculate The Social Security Breakeven Age

How to Calculate Your Social Security Benefits

Your Social Security breakeven age is the point in your life when the total of those lower benefits comes to equal the total of benefits that you would have received if you had waited to take your benefits at FRA, or even later.

For example, if you were born in 1960, your FRA is 67. If you choose to begin receiving Social Security income at age 62, which will be in 2022, then your FRA benefit will be reduced by 30%. Assuming that the full monthly benefit would be $1,000, you will be left with a monthly Social Security check of only $700.

If a co-worker with the same birth date and similar earnings history elects to receive their benefit at FRA five years later, then their benefit will be $1,000 each month. For the first five years, you received a total of $42,000 , while your co-worker received nothing, so you are ahead. Once your co-worker starts receiving benefits, however, they get $300 more each monthor $3,600 more each yearthan you do. So when will your co-worker catch up to you in total benefits?

Lets divide the amount by which you are ahead by the higher amount per year that your co-worker receives. The answer is when you are both 78 years and eight months, or 11.67 years after your FRA. After this point, your co-worker will earn more over their lifetime than you will.

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Why You Can Trust Bankrate

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.

Our reporters and editors focus on the points consumers care about most how to save for retirement, understanding the types of accounts, how to choose investments and more so you can feel confident when planning for your future.

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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Why Did The Full Retirement Age Change

Full retirement age, also called “normal retirement age,” was 65 for many years. In 1983, Congress passed a law to gradually raise the age because people are living longer and are generally healthier in older age.

The law raised the full retirement age beginning with people born in 1938 or later. The retirement age gradually increases by a few months for every birth year, until it reaches 67 for people born in 1960 and later.

What A Social Security Break

How Does Social Security Work? Top Questions Answered

In a nutshell, a Social Security break-even calculatorcan tell you when the best age is to start taking Social security benefits, in terms of how much money you could expect to receive over time. Going back to the previous example, lets assume that you track your benefit amounts over a 10-year, 20-year and 30-year period. Heres how your total benefits received would look over each of those periods, for all three starting points.

Your cumulative benefits after 10 years:

  • $144,000, starting at age 62
  • $122,400, starting at age 66
  • $52,800, starting at age 70

Your cumulative benefits after 20 years:

  • $288,000, starting at age 62
  • $326,400, starting at age 66
  • $316,800, starting at age 70

Your cumulative benefits after 30 years:

  • $432,000, starting at age 62
  • $530,400, starting at age 66
  • $580,800, starting at age 70

You can see that youd draw the most Social Security benefits in total if you wait until age 70 to start taking them, assuming you live to age 100. But that could be a big if when youre not in the best health.

What you have to keep in mind when using a Social Security break-even calculator is that the numbers are hypothetical. They dont take into things that could affect your ability to draw benefits or how far those benefits might go, such as:

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Explore How The Age You Start Collecting Social Security Affects Your Retirement Benefits

The calculator bases your benefit estimate on current formulas from the Social Security Administration. Your answers are anonymous. Because we do not access or use your Social Security earnings record, these are rough estimates.

Your estimated benefits:

Select claiming ages on the graph to see how your estimated benefit changes.

Claiming at age Age 67 is your full benefit claiming age.

Compared to claiming at your full benefit claiming age.

Social Security retirement benefits are not designed to be your sole source of retirement income, but waiting even one month will increase your benefits.

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.

How to Calculate Your AIME for Social Security Benefits
A

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Continuing Benefits & Deductions

Health Coverage

If you’re currently a member of the CalPERS Health Program, you must meet specific requirements to continue your health insurance coverage into retirement, or maintain the right to re-enroll in the future after retirement.

To continue your CalPERS health benefit coverage after retirement, you must meet both of the criteria below:

  • Be enrolled in a CalPERS health plan upon separation from employment, either in your own name or as a dependent
  • Retire within 120 days of your separation from employment

If you don’t meet both requirements before you retire, you’ll lose all future rights to be in the CalPERS Health Program. If your family members are included in your CalPERS health plan at the time of your death, their enrollment will continue automatically if they’re eligible for and receive a monthly allowance.

Public Agency or School Members

If your employer doesn’t contract with CalPERS for health benefits, contact your employer to determine if your benefits will continue.

Dental Coverage

To continue dental coverage into retirement, you must:

  • Be enrolled in a state-sponsored dental plan on the date of your separation from employment
  • Retire within 120 days of your separation

Long-Term Care

If you’re enrolled in CalPERS Long-Term Care and have premiums deducted from your paycheck, you’ll need to call 982-1775 before you retire to find out how to continue your premium deductions.

Other Deduction Payments

Key Investing And Retirement Definitions

How much your Social Security benefits will be if you make $30,000, $35,000 or $40,000

401: This is a plan for retirement savings that companies offer employees. A 401 plan gives employees a tax break on money they contribute. Contributions are automatically withdrawn from employee paychecks and invested in funds of the employees choosing .

Compound interest: The interest you earn on both your original deposit and on the interest that original deposit earns. For example, a $1,000 investment earning 6% compounded annually could become roughly $4,300 in 25 years.

Contribution limits: The IRS puts limits on the amount of money that can be contributed to 401s and IRAs each year. These limits sometimes change from year to year.

Financial advisor: A financial advisor offers consumers help with managing money. Financial advisors can advise clients on making investments, saving for retirement, and monitoring spending, among other things. A financial advisor can be a professional, or a digital investment management service called a robo-advisor.

IRA: An individual retirement account is a tax-advantaged investment account individuals use for retirement savings.

Income: The money you get from working, investing, or providing goods or services.Inflation: This happens when the price of goods and services increases as time passes. The result is a decrease in purchasing power, or the value of money.

Nest egg: A sum of money you have set aside for the future in this case, retirement.

Returns: The money you earn or lose on an investment.

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