Social Security Benefits Estimator Retirement

Income And Percent Of Income To Save

Deciding what percentage of your annual income to save for retirement is one of the big decisions you need to make when planning. If youre just starting out on your retirement planning journey, saving any amount is a great way to begin. Just keep in mind that youll need to keep increasing your contributions as you grow older.

So how much is enough? Financial services giant Fidelity suggests you should be saving at least 15% of your pre-tax salary for retirement. Many financial advisors recommend a similar rate for retirement planning purposes.

But even then, the 15% rule of thumb assumes that you begin saving early. It also assumes youd be comfortable replacing 55% to 80% of your pre-retirement income. If you start later or expect youll need to replace more than those percentages, you may want to contribute a greater percentage of your income.

The Social Security 2023 Cola: Good Bad And Ugly News For Retirees

Social Security benefits have fallen behind inflation this year, leaving many retired Americans in a difficult position. In fact, more than seven in 10 retirees rank rising prices as their biggest financial concern right now, according to Goldman Sachs.

Fortunately, Social Security benefits are adjusted for inflation on an annual basis, and recipients will get a historic 8.7% cost-of-living adjustment in 2023. That is largest COLA enacted in more than four decades and the fourth-largest COLA in history. Generally speaking, that is a positive development for retired workers, though there are a few caveats.

Heres the good, the bad, and the ugly news related to Social Securitys 2023 COLA.

Calculate My Social Security Income

These days thereâs a lot of doom and gloom about Social Securityâs solvency – or lack thereof. And regardless of whether you think Social Securityâs future is secure, the fact remains that you shouldnât plan on living exclusively off your Social Security benefits. After all, Social Security wasnât designed to make up a retireeâs entire income.

Still, many people do find themselves in the position of having to live off their Social Security checks. And even if you have other income sources in retirement, Social Security can make up a significant part of your retirement income plan. That’s why itâs important to know all the rules surrounding eligibility, benefit amounts, taxation and more.

Do you need help managing your retirement savings? To find a financial advisor who serves your area, try our free online matching tool.

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Primary Insurance Amount Calculation

For 2022, the SSA established the first bend point as $1,024 and the second bend point as $6,172. Using the AIME from the earlier example of $10,141 and the bend points, we can calculate the primary insurance amount .

Below are the steps to calculating the PIA:

• Multiply the first $1,024 of the person’s AIME by 90% = $921.60
• Subtract the 1st and 2nd bend point and multiply that difference by 32% = $5,148*.32 = $1,647.35*
• Subtract the 2nd bend point amount from the total AIME amount and multiply the difference by 15%. = $3,969*.15 = $595.35

*Please note that the calculation results are required to be rounded down to the next lower multiple of 10 cents.

• The PIA is the sum of the three calculation results: = $3,164.30

*The multipliers90%, 32%, and 15%are set by law and do not change annually. The bend points are inflation-indexed but only through age 62. PIA is effectively locked in at age 62.

Assumptions Required To Estimate How Much Money You Need To Retire

All retirement calculators require the same basic inputs to work their magic your retirement age, life expectancy, inflation, investment return, portfolio size, and expected retirement expenses. These are the required assumptions, and every calculator must have these inputs. No exceptions allowed because the math requires these inputs.

The fundamental problem is many of these required assumptions are tantamount to forecasting the future, which is impossible. Unless you have a crystal ball or can read goat entrails, then the future is unknowable. It cannot be predicted with sufficient reliability to bet your financial future on.

Related:How Your Financial Advisor is Taking 75% of Your Retirement Income Video, PDF download, or Audio.

The industry standard approach for dealing with these unknowable assumptions is to apply historical average estimates. The implication is the past is indicative of the future. For example, the historical average inflation rate in the United States has approximated 3% so most experts recommend using 3% for your future inflation projection.

Similarly, consider the life expectancy assumption. Nobody can know when they are going to die. The whole idea is ridiculous.

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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.

You can maximize your benefits even if you work fewer hours or stop working.

You can maximize your benefits even if you work fewer hours or stop working.

Consider working in your 60s for an extra boost to your income and savings.

Consider working extra years in your 60s for an extra boost to your income and savings

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Results Are Shown At 1 July

• Your projected total super balance is shown at 1 July after you reach the age indicated on the chart.
• Your projected income results are shown for the financial year beginning on 1 July after you reach the age indicated on the chart. For example the super balance shown for age 65 is the balance at 1 July after your 65th birthday.
• The projection assumes that you and your partner will retire on the 1 July after reaching the selected retirement age.

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Social Security For Retirement

The biggest determinant of retirement benefit amount is lifetime earnings since the benefit is based largely on the average of a persons 35 highest-earning years. Because the SS tax is regressive, in retirement, lower-income earners will have a higher portion of their SS retirement benefits paid out in relation to their lifetime earnings than higher-income earners. Another important determinant of benefit amount is the age at which a person applies for retirement benefits.

SS is designed to replace about 40% of the average American workers pre-retirement income. This value is dependent on each individuals work history higher-income earners will receive larger SS checks than lower-income earners, but the check will be a smaller percentage of their pre-retirement income. SS is not intended to be a sole source of retirement income, and as such, it is advisable to have other forms of income in retirement. This can take the form of anything from rental property income to annuities, mutual funds, or even tax-shielded retirement plans such as a 401 and/or IRAs.

Full Retirement Age

When to Apply for Social Security Retirement Benefits

• The immediate need for cash
• Life expectancy
• Relative age, income, and health of spouse

Social Security Credits

Receiving Retirement Benefits Outside of the U.S.

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.

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Enhanced To Include Divorced Widowed And Government Pension Offset /windfall Elimination Provision Benefits

The Social Security Retirement Income Estimator is general in nature, was developed for educational use only, and is not intended to provide financial, legal, fiduciary, accounting or tax advice, nor is it intended to make any recommendations. Applicable laws and regulations are complex and subject to change. Please consult with your financial professional regarding your situation. For legal, accounting or tax advice consult the appropriate professional. The calculations are based on data you provided. The calculations have been reviewed by American International Group, Inc. and an independent consultant. The calculations represent AIGs and the consultants understanding of the Social Security rules, as of July 2021, for determining individual, spousal and survivor benefits. However, neither AIG nor the consultant makes any guarantees as to the accuracy of these calculations or applicability to your individual circumstances, and cannot be held liable for a direct or incidental loss resulting from the use of information provided by this tool.

The estimates on your Social Security Statement that you have entered are for a future retirement age and assume you will be working until you reach that age. Therefore, the estimates for benefits provided by this tool at specific ages may not match the exact values shown on your Social Security Statement.

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Indirect Cost Ratio / Indirect Costs

• We assume that the indirect costs are charged as a % of your balance are charged mid-year on average.
• We assume that these fees are tax deductible within super and that tax deductions are credited before deducting these fees from the returns that are applied to your account.
• We make a default assumption of 0% indirect costs.

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The States In Question

There are 12 states that currently tax Social Security benefits in some way:

North Dakota was on this list until recently, so congratulations to all the North Dakotans who are benefiting from the adjustments to the states tax code. Even if your state is listed above, you still might not owe any taxes on Social Security benefits. Many of them have deductions and income thresholds to protect seniors who are living on strict budgets.

Image source: Getty Images.

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How To Calculate Your Social Security Benefit

Calculating your estimated Social Security benefit is no easy task. Your best bet may be to request a Social Security benefits estimate from the SSA. This will contain an estimate of your benefit at age 62, at your FRA, and at age 70, based on your current work history.

In addition to these estimates, the SSA also has a series of Social Security benefits calculators that can help you plan for retirement. You can also use this calculator from AARP to estimate the best age to start claiming your benefits.

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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.

Factors That Can Affect Your Benefit

Early retirement If you elect to receive retirement benefits early, your benefit is proportionately reduced. You can elect to receive retirement benefits as early as age 62, but for each month of early retirement, your total benefit will be reduced by 5/9 of 1 percent, up to 36 months, and by 5/12 of 1 percent thereafter. For example, if you elect to receive retirement benefits at age 62 and your full retirement age is 66, then you would receive approximately 25 percent less each month than you would if you retired at age 66.

Delayed retirement By contrast, you receive more if you delay receiving retirement benefits past full retirement age. Late retirement may increase your average earnings and you also receive a special delayed retirement credit. This credit is figured as a percentage of your Social Security benefit and is in addition to your regular benefit, but doesnt affect your PIA.

The delayed retirement credit varies depending on when you were born and how many months or years after full retirement age you retire . For example, if you were born in 1944 , you will earn an extra 8 percent of your benefit for every year you delay retirement up to age 70. This means that if you delay receiving your retirement benefit until age 70, your benefit payment will be 32 percent larger than if you began receiving retirement benefits at age 66.

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Social Security In The Us

Before Social Security , care for the elderly or disabled in the U.S. wasnt a federal responsibility if they werent cared for by family, it fell into the hands of municipalities or states. This changed in 1935 when the Social Security Act was first established in the U.S. by President Franklin Roosevelt. The first taxes were collected starting in January 1937, which enabled monetary assistance to qualified Americans with inadequate or no income. Originally, SS was just a program that paid out retirement benefits, but a 1939 change added survivors benefits for a retirees spouse and children. In addition, in 1956, disability benefits were added.

Today, SS in the U.S. plays a very important role in keeping a lot of older Americans out of poverty. For most Americans in retirement, it is their major source of income, and for a significant percentage, it is their only source of income, even though SS was never intended to be a full replacement of income. On average, SS pays lower-wage earners higher relative benefits than higher-wage earners. In addition, lower-wage earners tend to pay less tax and are more likely to receive social insurance disability income and survivor benefits. SS is sometimes referred to as Old Age, Survivors, and Disability Insurance .

Social Security Facts

Create A My Social Security Account

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.

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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.