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How To Calculate Social Security Benefits Formula

At What Age Can You Start To Receive Social Security Benefits

How to Calculate Your Social Security Benefits

The age you begin receiving your retirement benefit affects how much you will receive in monthly Social Security benefits.

There are three factors about when you retire that affect the benefits you receive:

Full Retirement Age

Full retirement age, or FRA, is the age when you are entitled to 100 percent of your Social Security benefits.

Depending on the year you were more, your Social Security full retirement age is between age 65 and 67.

Claiming Social Security benefits before the full retirement age will lower your monthly payments.

You can increase your retirement benefits by waiting past your FRA to retire.

Early Retirement Age

You can start receiving your Social Security retirement benefits as early as age 62.

However, your benefit amount will be cut. Thats because you are collecting benefits earlier than your full retirement age .

Delayed Retirement Age

When you delay benefits beyond your full retirement age, the amount of your retirement benefit will continue to increase up until age 70.

There is no incentive to delay claiming your Social Security benefits after age 70.

Social Security Calculation Example

Take someone who turned 62 in 2018. He has worked since he was 32 and each year earned an inflation-adjusted income of \$60,000. His AIME would be:

• \$80,000 x 30 + \$0 x 5 = \$2,400,000
• \$2,400,000 / 35 = \$68,571
• \$68,571 / 12 = \$5,714

Since our sample recipient has turned 62 this year, benefits will be fixed to the 2018 bend points even if he doesn’t retire until 67. His PIA would therefore be:

• 90% x \$895 = 805.50, +
• 32% x = \$1,440.64 +
• Added together for a total monthly benefit of \$2,293.60

How Social Security Is Calculated Summary

Heres the bottom line about how Social Security is Calculated:

Every years earnings are indexed for inflation, and then the 35 highest are considered when calculating your benefit.

Next, the 35 highest inflation-adjusted years are added together and averaged, to arrive at your lifetime average Social Security earnings.

This amount is divided by 12 to determine your Average Indexed Monthly Earnings .

Lastly, once your monthly average is determined, it is applied to this formula to determine your Primary Insurance Amount .

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Sign Up For Medicare At Age 65

Even if you continue working past that age, you should sign up for Medicare at 65 anyway. Medicare penalizes people who dont sign up at age 65, even if they plan to retire at 70 or later. If you wait until later to sign up, your coverage may see a delay when you finally decide to enroll. Additionally, your Medicare Plan B monthly premiums increase 10% for every 12-month period that you were eligible for coverage but didnt sign up.

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 youÃ¢d 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 donÃ¢t outlive them. If you claim Social Security benefits early and then continue working, youÃ¢ll be subject to whatÃ¢s called the Retirement Earnings Test.

If youÃ¢re between age 62 and your full retirement age, and youÃ¢re 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 youÃ¢re 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 doesnÃ¢t 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 Ã¢Earnings TaxÃ¢, but itÃ¢s not really a tax. ItÃ¢s 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 heartÃ¢s content without any reduction in your benefits.

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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 dont guarantee the accuracy of the tool and suggest that you consult with your advisor regarding your individual situation.

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How Does This Years Cola Compare To Previous Increases

Since 1975, Social Security benefits have been adjusted automatically every year based on increases in the cost of living. Previously, lawmakers would have to vote for increases, meaning years could go by before retirees saw a bump in their checks.The 8.7% increase announced for 2023 is the largest since 1981, when it was 11.2%.

The biggest increase ever, 14.3%, was in 1980, when the US was in the middle of a deep recession. In fact, all the highest COLA were in the late 1970s and early 1980s.

 Year

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What Is The Maximum Amount You Can Earn While Collecting Social Security In 2020

In 2020, the yearly limit is \$18,240. During the year in which you reach full retirement age, the SSA will deduct \$1 for every \$3 you earn above the annual limit. For 2020, the limit is \$48,600. The good news is only the earnings before the month in which you reach your full retirement age will be counted.

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Social Security Benefits Formula 2023

How To Calculate Social Security Benefits [3 Easy Steps]

The Social Security formula for the year 2023 — which applies to anyone born in 1961 — is as follows:

• Multiply the first \$1,115 of your AIME by 90%.
• Multiply any amount between \$1,115 and \$6,721 by 32%.
• Multiply any amount over \$6,721 by 15%.
• Add the results from the three steps above and round to the next lowest \$0.10.
• So for example, if your AIME was \$3,000, you would do the following:

• Multiply the first \$1,115 by 90%, giving you \$1.003.50.
• Multiply the remaining \$1,885 by 32%, giving you \$602.20.
• Multiply any amount over \$6,172 by 15%, giving you \$0.00.
• Add the results from the three steps above, which gives you \$1,605.70.
• In the formula above, \$1,115 and \$6,721 are known as the bend points. These are the only parts of the Social Security benefits formula that change from one year to the next. You can find the bend points for any previous year on the Social Security Administration website.

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How Social Security Works

The Social Security Administration uses a multi-step formula to calculate just how much any given American gets in benefits. Factors include marriage, lifetime contributions, work history and more. But the purpose is always the same: to make sure that everyone who works has a safety net for retirement. To understand just how important that is we have to recall how senior citizens lived before President Franklin Roosevelt’s administration invented this program.

Although precise measurement hadn’t yet begun, most estimates suggest that in 1934 approximately half of all seniors lived in poverty. Most estimates suggest that this figure would have changed little over the past 84 years without the Social Security program. Instead, by 1959 this figure had fallen to 35%. By the year 2000 only 1-in-10 seniors lived in poverty, a number that has stayed largely consistent to this day. In many very real ways, Social Security created the concept of retirement.

Of course, there’s still far to go. Nearly a third of seniors still live within 200% of the poverty line, and many more still struggle to pay their bills.

Social Security Benefit Calculator

Social Security benefits can be an important factor to consider in your future retirement income. Use this calculator to estimate what your retirement benefit amount could be.

An Ameriprise advisor can look at your overall financial picture and provide personalized advice to help you meet your retirement income goals.

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How Much Social Security Will I Get If I Only Worked 10 Years

You need at least 10 years of work to qualify for Social Security retirementbenefits.

The Social Security Administration will calculate how much you will get in benefits based on your highest 35 years of earnings.

However, If you do not have 35 years of earnings by the time you apply for Social Security, your benefit amount will be lower than it would be if you worked 35 years.

In an example provided by AARP, a single person born in 1960 who has averaged a \$50,000 salary, would get \$1,349 a month by retiring at 62.

However, the same person would get \$1,927 by waiting until age 67, the full retirement age.

Furthermore, he or she would get \$2,389, the maximum benefit on those earnings, by waiting until age 70.

As mentioned earlier above, Social Security benefits do not increase if you wait to collect past age 70.

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.

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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.

Who Is Eligible For Social Security Benefits

Anyone who pays into Social Security for at least 40 calendar quarters is eligible for retirement benefits based on their earnings record. You are eligible for your full benefits once you reach full retirement age, which is either 66 and 67, depending on when you were born. But if you claim later than that – you can put it off as late as age 70 – youÃ¢ll get a credit for doing so, with larger monthly benefits. Conversely, you can claim as early as age 62, but taking benefits before your full retirement age will result in the Social Security Administration docking your monthly benefits.

The bottom line: YouÃ¢re eligible for Social Security Benefits if youÃ¢ve paid into the system for at least a decade, but your actual benefits will depend on what age Ã¢ between 62 and 70 Ã¢ you begin to claim them.

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Adjust Your Wages For Each Year For Inflation

The government uses the Average Wage Index to adjust your wages for inflation so it can accurately pick out the years you’ve earned the most. You can view the AWI for all previous years going back to 1951 on the Social Security Administration’s website.

The AWI you use to adjust your wages is the one that was in effect in the year you turned 60. You divide this AWI by the AWI for the year you’re adjusting wages for. The result is your index factor. Multiply this by your income as reported in your earnings record for that year to get your index-adjusted wages.

For example, if you turned 60 in 2021, you’d use the 2021 AWI of \$60,575.07 as your benchmark. If you earned \$50,000 in 2015 and you want to calculate your index-adjusted income for that year, you’d do the following:

• Divide the 2021 AWI of \$60,575.07 by the 2015 AWI of \$48,098.63, giving you an index factor of about 1.259.
• Then you’d multiply your \$50,000 in income from 2015 by 1.259 to give you an index-adjusted income of \$62,950 for that year.
• If that’s a little too much math for you, you can skip the first step and go straight to the indexing factors. The Social Security Administration keeps lists of all the indexing factors for all years. You just have to enter the year you turn 60 and it will give you the index factors to use. Then all you have to do is multiply those indexing factors by your income for the appropriate year.

Do Benefit Recalculations Occur Automatically

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

Typically, yes, benefit recalculations occur automatically. As long as you are paying your Social Security taxes properly, the Social Security Administration should receive a copy of your earnings record each year. Upon receiving your income information for the previous year, they will recalculate your benefit amount to determine whether your Social Security check needs to be increased. If you are only working part-time and earning a small amount of money, it is not likely to increase your benefits. However, if you are earning a significant amount of money, you can expect that your own benefit will increase.

If you suspect that your benefit amount should have increased, but you do not see a change in your Social Security check, you should contact the Social Security Administration. You can also view your earnings report through a My Social Security account to make sure that they received your latest earnings.

COLA recalculations also occur automatically each year, and any increases associated with those adjustments take effect in January. Typically, the Social Security Administration will release the amount of the increase in October or November of the year prior to the year in which the adjustment takes effect.

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How Are Social Security Benefits Calculated

Learn how Social Security benefits are calculated, and the important factors that could increase or decrease your monthly benefits.

If you paid Social Security taxes during your working years, you may be eligible to receive at least one form of Social Security benefits. However, due to the many factors that Social Security considers to calculate benefits, it can be difficult to estimate the benefits you will receive in retirement.

When calculating Social Security benefits, the Social Security Administration considers your highest 35 years of earnings and adjusts these earnings for inflation to calculate your average indexed monthly earnings . SSA then takes your AIME and uses it to determine your primary insurance amount , which is your full retirement benefit at the full retirement age.

Spouses Survivors And Dependents

Spouses, survivors and qualifying dependents can collect Social Security benefits based on the primary insured’s PIA.

A spouse can claim 50% of the primary worker’s full PIA if they retire at the Normal Retirement Age or if they are caring for a qualified child. A spouse who is not caring for a qualified child and who retires after 62 but before their Normal Retirement Age will get reduced benefits down to a low of 32.5% of the primary worker’s benefit.

A qualifying child can claim up to 50% of a retired worker’s benefits or, if they are a surviving child, up to 75% of a deceased worker’s benefits. However, in cases where a family has multiple claimants , the combined family benefit is capped at between 150 – 180% of the primary worker’s benefits.

Finally, a surviving spouse who has reached their Normal Retirement Age can opt to collect their deceased spouse’s benefits instead of their own. In this case, they will receive 100% of the primary worker’s benefits. A younger widow/widower who is caring for a qualified child can collect 75% of the primary worker’s benefits.

You can only collect under one benefits program. Any beneficiary who qualifies for multiple sources of income will receive the higher of their qualifying benefits.

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Do You Plan To Continue Working In Your 60s

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.

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