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# Social Security Benefits Formula 2021

## Calculate My Social Security Income

How is Your Social Security Benefit Taxed in Retirement?

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.

## 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.

## Is There A Maximum Benefit

Yes, there is a limit to how much you can receive in Social Security benefits. The maximum Social Security benefit changes each year. For 2022, itâs \$4,194/month for those who retire at age 70 . Multiply that by 12 to get \$50,328 in maximum annual benefits. If that’s less than your anticipated annual expenses, youâll need to have additional income from your own savings to supplement it.

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## Benefit Reduction If Taken Before Full Retirement Age

When calculating benefits for early retirement, there are one or two calculations, depending on how early benefits are taken. Assuming a normal retirement age of 67, the age of 62 is the earliest year a person can receive benefits or 60 months early.

The benefit is reduced by 5/9 of 1% for each month before the normal retirement age , up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of 1% per month.

For example, let’s say that a person wants to retire at 62, leading to a 60-month reduction from the normal retirement age of 67. The first 36 months would be calculated as 36 months times 5/9 of 1% plus 24 months times 5/12 of 1%.

• First 36 months: 5/9 = .5555 * 1% = .005555 * 36 months = .19999 or 20%*
• Remaining 24 months: 5/12 = .416666 * 1% = .00416666 * 24 months = .0999 or 10%
• In other words, benefits would be reduced by 30% if taken at age 62.

*The results were rounded and multiplied by 100 to create a percentage.

## Maximum Social Security Benefits You Can Get

The maximum monthly Social Security benefit available to someone retiring in 2021 is \$3,895, which assumes that:

• They worked 35 years or more
• In their 35 top-earning years, their income met or exceeded the SSA’s maximum taxable amount, so that they paid the largest Social Security tax amount possible for each of those years
• They are retiring at age 70, which entitles them to the maximum delayed retirement credit

For comparison, the table below lists the monthly benefits for workers who plan to retire in 2021 whose earnings met or exceeded the SSA maximum-taxable limit every year of their working lives, from age 22. This situation is far from typical, but it shows the impact of retirement age on Social Security benefits, isolated from other factors.

Maximum Social Security Benefit for Workers Retiring in 2021
Age

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## How To Calculate Social Security Benefits

This article was written by Jennifer Mueller, JD. Jennifer Mueller is an in-house legal expert at wikiHow. Jennifer reviews, fact-checks, and evaluates wikiHows legal content to ensure thoroughness and accuracy. She received her JD from Indiana University Maurer School of Law in 2006.There are 10 references cited in this article, which can be found at the bottom of the page. This article has been viewed 68,132 times.

Understanding how much youll receive each month in Social Security benefits is a big part of retirement planning. The average is around \$16,000 a year, but the actual amount youll receive depends on how much money youve put into the system. The Social Security Administration and other groups have online calculators that can help you estimate your benefits, but to calculate them more exactly youll have to calculate your average indexed monthly earnings to find your primary insurance amount. This amount must then be adjusted up or down to account for the age you decide to retire.XResearch source

## Calculating Your Primary Insurance Amount

Now that we’ve determined your AIME, we can begin with the process in the second step, calculating your primary insurance amount, or PIA.

The PIA is the amount that your Social Security benefit would be if you filed for benefits to begin at exactly your full retirement age . At any other age, even a month before or a month after your full retirement age, your PIA is multiplied by an increasing or decreasing factor to determine your benefit amount.

To calculate your PIA, we first need to know what bend points are applicable to you, based on your age. Bend points are portions of your AIME, and the amount of each bend point is multiplied by a specific percentage to determine your PIA.

Bend points are determined for each year, based on figures that were originally determined in 1977. The 1977 bend points were \$180 and \$1,085. These bend points have been indexed annually over the years, such that for 2022 the bend points are \$1,024 and \$6,172. For 2021, the bend points were \$996 and \$6,002. The bend points for your situation are always from the year you reach age 62.

If your AIME calculates to more than the second bend point, you would take any amount over the second bend point and multiply that amount by 15%.

Then you take the three figures from your bend points and add them together. From our example, that means \$921.60 + \$952.32 + \$0 = \$1,873.92. This is rounded down to the nearest dime, so \$1,873.90 is the PIA for our example.

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## 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.

## Earnings In Covered Employment 19372020

Social Security and Your CalPERS Pension

People contribute to Social Security through payroll taxes or self-employment taxes, as required by the Federal Insurance Contributions Act and the Self-Employment Contributions Act . The maximum taxable amount is updated annually on the basis of increases in the average wage. Of the 175 million workers with earnings in Social Securitycovered employment in 2020, about 6% had earnings that equaled or exceeded the maximum amount subject to taxes, compared with 3% when the program began and a peak of 36% in 1965. About 83% of earnings in covered employment were taxable in 2020, compared with 92% in 1937.

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## Social Security’s Maximum Payment May Surprise You

If you’re retiring and you qualify for Social Security‘s maximum benefit, you could pocket \$3,895 per month in Social Security income in 2021. You’ll only collect that much money if you begin receiving benefits at 70 years or older, though. The maximum amount you can collect this year if you file at age 62 is \$2,324, and the maximum paid if you’re 66 is \$3,113.

However, you should know Social Security’s formula is complex and collecting the maximum benefit depends on many things, including the length of your work history. Here’s how Social Security calculates maximum benefits and what you can do to get the biggest possible payout.

Image source: Getty Images.

## Choosing When To Retire Is A Difficult Decision For Many Americans The Difference In What You Could Receive May Make The Difference Down The Road

Americans who have earned 40 credits toward claiming Social Security retirement benefits can choose to start receiving their hard-earned entitlement before reaching full retirement age. Those who are 62 can choose to file for retirement benefits.

However, doing so could permanently reduce their future monthly payments by almost 30 percent. So how much can you expect to get depending on your age when you retire?

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## New Awards To Workers 19802020

Awards to retired workers increased considerably over the past four decades, at a higher rate than that by which awards to disabled workers increased. The annualized rate of increase over the period from 1980 to 2020 is 1.9% for retired workers and 1.1% for disabled workers. The annual number of awards to retired workers rose from 1.6 million in 1980 to 3.4 million in 2020, while for disabled workers it increased from 397,000 in 1980 to 620,000 in 2020.

## Beware The Social Security Earnings Test

Bringing in too much money in earned income can cost you if you continue to work after claiming Social Security benefits early. With what is commonly known as the Social Security earnings test for annual income, you will forfeit \$1 in benefits for every \$2 you make over the earnings limit, which in 2022 is \$19,560. Once you are past full retirement age, the earnings test no longer applies, and you can make as much money as you want with no impact on benefits.

Any Social Security benefits forfeited to the earnings test are not lost forever. At your full retirement age, the Social Security Administration will recalculate your benefits to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full years worth of benefits to the earnings test, at a full retirement age of 66 your benefits will be recomputed and increased as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.

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## Find Your Social Security Full Retirement Age

You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. But first you have to know what it is.

Also known as normal retirement age, your Social Security Full Retirement age is the age at which youre entitled to 100% of the Social Security benefits youve earned. FRA is 66 for beneficiaries born between 1943 and 1954 it gradually increases to 67 for beneficiaries born in 1960 or later. If you take benefits before FRA, your benefits will be reduced. If you file at age 62, for example, benefits will be as much as 30% lower. More on that in a moment.

## The Impact Of Medicare Changes

Medicare costs are decreasing, which is good news for seniors. Medicare announced in September that it would be reducing premiums by about 3% for most people with a Medicare Part B plan. The typical plan will drop by \$5.20 per month, lowering the standard payment most pay to \$164.90 per month. Health care costs are a big portion of many seniors monthly budgets, and any reduction here is a good thing.

One key concern, though, comes from some higher earners who may get bumped up to the next tax bracket with the COLA increase. Specifically, those who earned over \$97,000 as an individual or \$194,000 as a couple in 2021 will pay more than the standard Part B premium as well as pay more for Part D drug plans. For some, that could be a concern going forward.

## Doing A Breakeven Analysis And Other Ways To Decide How Soon To Start

If youre about to retire, you may be wondering whether you should start claiming your hard-earned Social Security benefits now. Here are a few key factors to consider in making that decision.

Also Check: How Do I Calculate My Retirement Benefits

## Who Is Eligible For Social Security Benefits

How To Calculate Taxes on Your 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 – youâll 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: Youâre eligible for Social Security Benefits if youâve paid into the system for at least a decade, but your actual benefits will depend on what age â between 62 and 70 â you begin to claim them.

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## How Social Security Calculates Benefits

Social Security benefits are based upon how many years you work, the amount of money subject to payroll taxes you earned over your career, and when you first start receiving benefits.

You can start collecting benefits as young as age 62, but you’ll only receive 100% of your benefit amount if you claim Social Security at full retirement age, which ranges from age 66 to age 67 for people born after 1943. If you claim earlier than full retirement age, your benefit amount is reduced. If you claim later than full retirement age, your benefit is increased because of delayed retirement credits.

To determine if you qualify for Social Security’s maximum benefit, Social Security adjusts your historical annual income for inflation and then calculates your average monthly income based upon your highest 35 earning years. If you don’t have 35 years of income, zeros are included in the formula for those years, reducing your benefit and ensuring you won’t qualify for the maximum possible amount.

Once Social Security has calculated your average monthly income, it reduces that amount at specific income levels called bend points to determine your primary insurance amount, or the benefit you’ll receive if you claim at full retirement age.

## 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.

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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## Fact #: Social Security Benefits Are Modest

Social Security benefits are much more modest than many people realize the average Social Security retirement benefit in January 2022 was about \$1,614 per month, or about \$19,370 per year. For someone who worked all of their adult life at average earnings and retires at age 65 in 2022, Social Security benefits replace about 37 percent of past earnings. Social Securitys replacement rate fell as the programs full retirement age gradually rose from 65 in 2000 to 67 in 2022.

Most retirees enroll in Medicares Supplementary Medical Insurance and have Part B premiums deducted from their Social Security checks. As health care costs continue to outpace general inflation, those premiums will take a bigger bite out of their checks.

Social Security benefits are also modest by international standards. The U.S. ranks just outside the bottom third of developed countries in the percentage of an average workers earnings replaced by the public pension system.

Social Security is important for children and their families as well as for older adults. Over 6.5 million children under age 18 lived in families who received income from Social Security in 2019. That number included nearly 2.8 million children who received their benefits as dependents of retired, disabled, or deceased workers, as well as others who lived with parents or relatives who received Social Security benefits.

Social Security lifted 1.1 million children above the poverty line in 2020, as the chart shows.

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