How Will My Social Security Benefits Be Calculated
YourSocial Security benefits are based on your 35 highest-earning years of employment. There are a few adjustments made to account for inflation. If you have worked less than the requisite 35 years, you will likely see lower Social Security benefits in retirement.
The Social Security Administration calculated your Average Indexed Monthly Earnings or AIME to determine your final Social Benefits. The AIME is computed by dividing the sum of all your indexed wages by 420. Eventually, your actual Social Security benefit amount is calculated based on various factors, such as the age at which you start collecting benefits. Remember, the SSA will lower your benefits if you start taking them before full retirement age.
How Can I Get My Social Security Estimated Benefits?
Even if you are a long way from retiring, getting an estimate of your future Social Security benefits can be helpful. For those closer to full retirement age, you will likely want to check your Social Security benefits annually. You can register to view your official Social Security work history and estimated future Social Security benefits on the SSA site. Setting up an account is free.
How To Get The Top Social Security Benefits
So whether you need it for current bills or you can afford to invest it, exactly how much income does it take to qualify for the maximum Social Security benefits?
Your benefits are based on your earnings over your work career. Specifically, it is based on your 35 highest earning years.
But your benefits do not climb without limit the higher your yearly pay was. There’s a cap on how high your benefits can be. That’s the monthly maximum payout of $3,895.
Basically, there are two ways to figure out if you qualify for the maximum.
The longer, more detailed solution is to calculate an estimate of how much your individual benefits will be. Many financial sites offer calculators for this purpose. AARP.org and Bankrate.com are two.
How Much Social Security Will I Get If I Retire At Age 62
You can start receiving your Social Security retirement benefits as early as age 62.
However, receiving benefits before your full retirement age will means you will permanently receive a lower benefit amount, compared to what you would have received if you waited to start collecting benefits at your full retirement age.
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What About Taxes On Social Security
Social Security benefits may be taxable, depending on your “combined income.” Your combined income is equal to your adjusted gross income , plus non-taxable interest payments , plus half of your Social Security benefit.
As your combined income increases above a certain threshold , more of your benefit is subject to income taxâup to a maximum of 85%. For help, talk with a CPA or tax professional.
In any case, if you’re still working, you may want to postpone Social Security either until you reach your full retirement age or until your earned income is less than the annual limit. In no situation should you postpone benefits past age 70.
How Do You Become Eligible For Social Security Benefits
To be eligible for Social Security benefits in retirement, you must earn at least 40 “credits” throughout your career. You can earn up to four credits each year, so it takes 10 years of work to qualify for Social Security.
In 2022, you must earn $1,510 to get one Social Security work credit and $6,040 to get the maximum four credits for the year. And yes, that means that it is possible to have money withheld for Social Security and never get it back. The minimum is the minimum.
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Can You Collect Social Security At 62 And Still Work
Yes. You can work while you receive Social Security retirement or survivors benefits.
However, if you collect benefits before your full retirnement age, and you earn more than a yearly limit, Social Security may reduce your benefit amount.
If you are under full retirement age for the entire year, Social Security will deduct $1 from your benefit payments for every $2 you earn above the annual limit.
For 2022, that limit is $19,560.
In the year you reach full retirement age, Social Security will deduct $1 in benefits for every $3 you earn above a different limit.
In 2022, this limit on your earnings is $51,960.
They will only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year.
Or Go All The Way And Work Until 70
The longer you hold off receiving your Social Security benefits, up to age 70, the bigger your check. So each month after youve reached your FRA, your payout increases by roughly 0.7% percent , which amounts to 8% per year. If you wait till age 70 then, your payments will be 32% bigger than if you had started taking benefits at 66. Once you turn 70 though, there is no added benefit in postponing payments.
Of course, working until 70 isnt for everyone, and theres no penalty in claiming your benefits when you reach your FRA. At that time, you will receive 100% of your benefit. Its also not a sure thing that waiting until 70 maximizes your lifetime benefit. After all, should you pass away the following year, waiting that long will mean you received far less total benefits than if youd claimed them as soon as you were eligible to. So consider your life expectancy as you make this decision.
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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.
How The Cola Is Tied To Inflation
The COLA applies to about 70 million Social Security and Supplemental Security Income beneficiaries.
The change is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
The SSA calculates the annual COLA by measuring the change in the CPI-W from the third quarter of the preceding year to the third quarter of the current year.
Benefits do not necessarily go up every year. While there was a record 5.8% increase in 2009, the following two years had 0% increases.
“For seniors, because they spend so much on health care, those years were difficult,” Adcock said.
A similar pattern may happen if the economy goes into a recession, according to Johnson.
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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.
You Can Undo A Social Security Benefits Claiming Decision
There arent many times in life you can take a mulligan. But Social Security offers you the chance for a do-over. Lets say you claimed your benefit, but now regret the decision and wish you had waited. During the first 12 months of claiming benefits, you can withdraw your application. You will have to repay all of the benefits youve received, along with any spousal benefits, but when you restart benefits, youll receive a larger amount, just as you would have if you had delayed filing in the first place.
If it has been more than 12 months since you filed for Social Security, you cant withdraw your application and restart benefits at a later date. But early retirees who have returned to the workforce are not totally out of luck: Once you reach full retirement age, you can suspend benefits until age 70. This will enable you to earn delayed-retirement credits of 8% a year . This can add up to tens of thousands of dollars for many people, says William Meyer, chief executive of Social Security Solutions.
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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 pay state income taxes on your Social Security benefits. See our list of the 12 States That Tax Social Security Benefits.
How Much Will You Get From Social Security
As of March 2022, the average Social Security retirement benefit was $1,665 per month — far below the maximum. The program is designed to provide a benefit that replaces about 40% of the typical American’s pre-retirement income. It’s not intended to be sufficient as a person’s sole source of cash in retirement.
The best place to get a personalized estimate of your future benefit is to log in to your “my Social Security” account and view your most recent statement. Among other information, it will include an estimate of how big your benefit will be at full retirement age, as well as estimates for what you would receive if you claimed Social Security early or late, based on your actual work record.
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What Is The Maximum Social Security Benefit At Age 62
What is the highest Social Security check you can collect if you start receiving benefits at age 62?
In 2022, if you start collecting social security at age 62, the maximum Social Security benefit you can receive is $2,364.
However, if you retire at full retirement age in 2022, your maximum benefit would be $3,345.
Also, If you retire at age 70 in 2022, your maximum benefit would be $4,194.
What Are Some Things To Consider When Claiming Social Security Benefits
There are a number of things to consider when claiming Social Security benefits, including your age, your health, your financial situation, and your family history.
Your age is one of the most important factors to consider when claiming Social Security benefits. If you wait until you are full retirement age, you will receive the maximum benefit possible. For most people, this is age 66. If you start collecting benefits before you are full retirement age, your benefits will be reduced.
Your health is also a factor to consider when claiming Social Security benefits. If you are in good health and expect to live a long life, you may want to wait to claim benefits so that you can receive the maximum benefit possible. On the other hand, if you are in poor health or do not expect to live a long life, you may want to claim benefits sooner so that you can receive them for a longer period of time.
Your financial situation is another important factor to consider when claiming Social Security benefits. If you have other sources of income, such as a pension or an inheritance, you may be able to afford to wait longer to claim benefits. On the other hand, if you are relying solely on Social Security for income, you may need to claim benefits sooner.
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The Salary You Need To Make To Get The Maximum Social Security Benefit
There are a number of factors that affect your Social Security benefits, and your salary is just one of them. And its important to note that your benefit amount is not based on your last year or two in the workforce, but on your lifetime earnings, so even if you made a lot of money in your pre-retirement years, you might not get the maximum benefit amount.
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Social Security Auxiliary Benefits
In addition to the individual benefit the primary earner can claim, eligible family members each can claim auxiliary benefits of up to 50% of the primary earners benefits. The maximum family benefit comes into play when two or more family members claim auxiliary benefits based on one primary earners record.
For example, say a familys primary breadwinner retires at full retirement age and is eligible for a benefit of $2,000 a month. A non-working spouse with no earnings record who has reached full Social Security retirement age can claim an auxiliary benefit of $1,000 a month, equal to 50% of the primary breadwinners earnings record.
Combining the primary breadwinners $2,000 benefit with the spouses $1,000 auxiliary benefit makes a total of $3,000 in Social Security benefits for one family. There is no need to figure the maximum family benefit here, because it only applies when two or more family members claim benefits based on one persons earning record.
Now lets say also that the couple has an adult child who, because of a disability, is also eligible to be paid 50% of the primary breadwinners benefit. This would come to another $1,000 and, added to the benefits paid to the primary breadwinner and non-working spouse, bring the familys total benefit to $4,000.
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How Social Security Adjusts Family Benefits
Social Security adjusts the auxiliary benefits it pays to keep the family benefit below the maximum. The primary earners benefits are never reduced due to the family benefit exceeding the maximum allowed. Only auxiliary benefits are reduced.
The reduction gets distributed equally among the family members receiving auxiliary benefits. In the above example, the spouse and the child would each have their benefits reduced by $200 to keep the family benefit from exceeding the maximum of $3,600.
The benefits paid to each auxiliary recipient may change over time. For instance, minor dependent children getting auxiliary benefits will stop being eligible, in most cases, after age 18. As that happens, the auxiliary payments going to other family members increase up to the maximum.
Effect Of Delaying Retirement Benefits
1Represents Full Retirement Age based on DOB January 2, 1960
2PIA = The primary insurance amount is the basis for benefits that are paid to an individual
That higher baseline would last for the rest of your retirement and serve as the basis for future increases linked to inflation. While it’s important to consider your personal circumstancesâit’s not always possible to wait, particularly if you are in poor health or can’t afford to delayâthe benefits of waiting can be significant.
Be aware that if you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstances your Medicare coverage may be delayed and cost more if you don’t sign up at age 65. If you start Social Security benefits early, you’ll automatically be enrolled into Medicare Parts A and B when you turn age 65.
Your annual Social Security statement will list your projected benefits between age 62 to 70, assuming you continue to work and earn about the same amount through those ages. If you need a copy of your annual statement, you can request one or view it online on the Social Security Administration portal.
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