Thursday, June 16, 2022

How Do They Figure Social Security

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Myth #: Your Benefits Are Based Only On Wages You’ve Earned Before Age 65

How To Calculate When To Take Social Security In Under 3 Minutes

How your Social Security benefit is calculated can seem mysterious. However, it’s important to know a few essential facts to aid your claiming strategy. You can use the tools on SSA.gov to do the calculations.

  • Your benefit is calculated based on your highest 35 years of earnings they don’t have to be consecutive years or before age 65.
  • If you work past age 65, those earning years will be included, so long as they are high enough to be part of your highest 35 years.
  • Even working part-time after turning 65 may be part of your highest 35 years of earnings.
  • To be eligible for Social Security, you must have a minimum of 10 years of covered employment , which equates to 40 credits in the Social Security system.
  • If you don’t have 35 years with earnings, zeros will be included in the calculation.

Read Viewpoints on Fidelity.com: Social Security tips for working retirees

How Is Social Security Disability Or Ssi Calculated

If you are in the process of applying for Social Security disability benefits or Supplemental Security Income , you may be wondering what your maximum monthly benefit payment is. You can quickly find this out by contacting the Social Security Administration to receive an estimate or you can visit our website for a quicker response and use the disability calculator.

The monthly benefit for SSDI is based on a complex formula, while the benefit for SSI is relatively simple. Both formulas will be described in this article, as well as some general details about financial eligibility for these programs.

It is important to mention that if you believe that you are disabled, you should get started with your application right away, because there are many factors involved in determining your eligibility that the SSA will consider.

Earn Ssa Work Credits In Some Countries

You may not have enough credits from your work in the United States to qualify for retirement benefits. But, you may be able to count your work credits from another country. The SSA has agreements with 24 countries. If you earned credits in one of those countries, they can help you qualify for U.S. benefits.

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Understanding The Social Security Benefits Formula Is Important

Understanding the Social Security benefit formula is important, because you can shape your behavior to increase your benefits once you know the formula.

Throughout your career, you can work to increase your income so you have a higher average wage. If you have not worked for a full 35 years, you may also decide to work longer so you don’t have any years of $0 wages factored in or so you have fewer $0s figured in your average. Or, if you are earning a much higher wage at the end of your career, you could stay in the workforce longer so some years of higher wages replace years of lower earnings. Finally, you could opt not to claim benefits until at least full retirement age or later so you get at least your primary insurance amount — or more.

Since Social Security is such an important source of income in retirement, it’s worth learning how the Social Security benefits formula works and taking steps to maximize the benefits that will help support you as a senior.

How To Estimate Your Social Security Income

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Two facts are knownSocial Security benefits are not guaranteed, and some changes will be necessary to keep the system solvent in the future as millions of baby boomers retire and begin to receive their Social Security benefits. Though these facts create uncertainty, its also true that the quality of your retirement depends on your planningand you must start planning somewhere.

A good starting point is to figure out the dollar amount of the retirement benefits to which all of your years of Social Security contributions entitle you under current law. There are four ways to do this:

  • Visit a local Social Security office to get a record of your taxed Social Security earnings and an estimate of retirement benefits .
  • Visit the Social Security website and use one of its online benefit calculators to determine your retirement estimate based on your earnings record.
  • Wait until you decide to start receiving benefits, and let the SSA calculate the amount for you. However, this doesnt help you plan, and though the SSA can usually be counted on to determine benefits accurately, mistakes are sometimes made.
  • Calculate your own benefits using the step-by-step process described in this article. When you understand a few basic concepts, its not that difficult. One advantage of calculating your own benefits is that you can make decisions and consider trade-offs, such as whether you can afford to retire early or how much you can increase your benefits by continuing to work.
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    The Impact Of Early Retirement On Calculated Social Security Benefits

    Its crucial to recognize that the standard Social Security statement projects benefits assuming continued work, as it means that not working as late as full retirement age can reduce prospective benefits. Not because future benefits are actually reduced by stopping work early . But simply because projected statements assume continued work by default, such that its absence will still result in a lower actual benefit in the future than what was previously projected.

    However, the actual impact on Social Security benefits of stopping work before full retirement age varies heavily, depending on what the prospective retiree had already earned in benefits or more specifically, what additional years of work would have done to that individuals highest-35-years earnings history.

    Get Ssa Benefits While Living Overseas

    U.S. citizens can travel to or live in most, but not all, foreign countries and still receive their Social Security benefits. You can find out if you can receive benefits overseas by using the Social Security Administrations payment verification tool. Once you access the tool, pick the country you’re visiting or living in from the drop-down menu options.

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    Tips For Saving On Taxes In Retirement

    • Finding a qualified financial advisor doesnt have to be hard. Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
    • What you pay in taxes during your retirement will depend on how retirement friendly your state is. So if you want to decrease tax bite, consider moving to a state with fewer taxes that affect retirees.
    • Another way to save in retirement is to downsize your home. Moving into a smaller home could lower your property taxes and it could also lower your other housing costs.

    What Is A Social Security Card

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    Your Social Security card is an important piece of identification. You’ll need one to get a job, collect Social Security, or receive other government benefits.

    When you apply for a Social Security number , the Social Security Administration will assign you a nine-digit number. This is the same number that is printed on the Social Security card that SSA will issue you. If you change your name, you will need to get a corrected card.

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    How Ssi Differs From Ssdi

    SSI is slightly different from SSDI, although both programs are run by the Social Security Administration. SSI is a cooperative program between your state and the federal government.

    Supplemental Security Income is a program that is strictly need-based, according to income and assets, and is funded by general fund taxes. SSI is called a means-tested program, meaning it has nothing to do with work history, but strictly with financial need.

    SSI disability benefits are available to low-income individuals who havent earned enough work credits to qualify for SSDI.

    What Income Reduces Social Security Benefits

    If you start taking Social Security benefits before you reach full retirement age, any income you earn over the annual limit until you reach full retirement age will lower your benefit eligibility for that year. In 2021, if you are retired and haven’t reached full retirement age, the SSA will deduct $1 from your benefits for every $2 earned over $18,960. In the year you reach full retirement age, the SSA will deduct $1 for every $3 earned over $50,520. For the 2022 tax year, these thresholds are slightly higher, at $19,560 and $51,960, respectively.

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    When You Choose To Start Taking Social Security Benefits

    The yearand even the month within that yearthat you choose to begin taking Social Security benefits affects how much you receive each month. You can start claiming Social Security benefits early as age 62, the current early retirement age. But you wont get your full PIA. Itll be reduced based on how many months you have until your full retirement age. This reduction can really add up, topping in at as high as 30% for particularly early claimers.

    You can avoid these surcharges on your PIA, of course, simply by waiting to start payments until your full retirement age. This is generally between ages 66 and 67, depending on when you were born.

    You can even add onto your base amount by delaying when you start benefits. After you reach full retirement age, you can boost your benefits by up to 8% of your PIA annually simply by not claiming Social Security. These benefit increases are known as delayed retirement credits, and you can accrue them up to age 70.

    An important note: These benefit rate changes are performed to provide roughly the same cumulative benefit over a lifetime, assuming a roughly average lifespan. In other words, if you start Social Security earlier, youll probably claim it for longer someone with the same lifespan who delayed payments would claim them for less time. To provide them the same total benefit, earlier payments must be smaller and later benefits have to be larger to catch up.

    Signing Up For Social Security

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    There are three ways to apply for Social Security benefits:

    • Make an appointment at your local Social Security office to visit in person.
    • Apply by telephone by calling 1-800-772-1213.
    • Apply for Social Security online at www.socialsecurity.gov, a process that typically takes 15 to 30 minutes.
    • Your Social Security number
    • Your W-2 forms or self-employment tax return for the previous year
    • Your military discharge papers
    • Proof of U.S. citizenship or lawful alien status if you weren’t born in the United States

    In most cases, once you submit an application online, you’re done. There are no forms to sign and usually no documentation is required. Social Security will process your application and contact you if any additional information is needed.

    Tip: The Social Security Administration also handles enrollments for Medicare, so you should use the same process to sign up for Medicare three months before you turn 65even if you’re not ready to start receiving Social Security retirement benefits. You can apply for retirement benefits later.

    You’ll be automatically enrolled in Medicare Part A and Medicare Part B . Medicare Part B premiums are deducted from Social Security benefit payments. Because you must pay a premium for Part B coverage, you can turn it down. If you decide to enroll in Part B later on, however, you may have to pay a late enrollment penalty for as long as you have coverage. `

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    How Do I Increase My Social Security Benefits After Retirement

    To increase your monthly benefit, don’t start taking Social Security payments right when you reach full retirement age. The longer you wait, the more you’ll get each month. If you want to get the highest possible amount of Social Security benefits each month, you need to wait until age 70 to retire.

    Your Monthly Social Security Benefits Increase The Longer You Wait To Claim

    You can collect Social Security benefits as soon as you turn 62, but taking benefits before your full retirement age means a permanent reduction in your payments of as much as 25% to 30%, depending on your full retirement age.

    If you wait until you hit full retirement age to claim Social Security benefits, youll receive 100% of your earned benefits. But you can also get a big bonus by waiting to claim your Social Security benefits at age 70 your monthly Social Security benefit will grow by 8% a year until then. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting.

    Waiting to claim your Social Security benefits can help your heirs as well. By waiting to take her benefit, a high-earning wife, for example, can ensure that her low-earning husband will receive a much higher survivor benefit in the event she dies before him. That extra income of up to 32% could make a big difference.

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    What’s Full Retirement Age

    Full retirement age is when you’re eligible to receive full Social Security benefits. Your full retirement age depends on your birth year: Under current law, if you were born in 1955 or later, your full retirement age can be anywhere between age 66 and 2 monthsall the way up to age 67 for those born after 1959. If you were born before 1955, you’ve already reached age 66 and full retirement age.

    How To Calculate Your Social Security Benefits: A Step

    How To Calculate Social Security Benefits [3 Easy Steps]

    Its important for you to have a clear understanding of the process used to calculate your Social Security benefits. If you understand this calculation, you may be able to spot mistakes and fix them before its too late.

    Like anything with Social Security, the rules can seem complex at first. But once you get under the surface, they are actually pretty easy to understand. To help you, I distilled the several pages of calculation rules down into four easy-to-understand steps.

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    How Do I Calculate My 36% Raise On My Social Security Payment In 2012

    It was recently announced that anyone receiving Social Security or SSI payments will get a 3.6% raise in 2012. The big question everyone wants to know is exactly how much extra money they will be receiving next year? This article will show you how to calculate your Social Security raise as well as calculate the new total payment including the raise.

    What If I Take Benefits Early

    If you choose to receive your Social Security check up to 36 months before your full retirement age, be aware that your benefit is permanently reduced by five-ninths of 1% for each month.

    If you start more than 36 months before your full retirement age, the benefit is further reduced by five-twelfths of 1% per month, for the rest of retirement.

    For example, let’s assume that you stop working at age 62. If your full retirement age is 66 and 2 months you elect to start benefits at age 62, the reduced benefit calculation is based on 50 months. This means that the reduction for the first 36 months is 20% and 5.83% for the remaining 14 months. Overall, your benefits would be permanently reduced by 25.83%.

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    To Wait Or Not To Wait

    • Consider taking benefits earlier if
    • Consider waiting to take benefits if
    • Consider taking benefits earlier if You are no longer working and can’t make ends meet without your benefits.
    • Consider waiting to take benefits if You are still working and make enough to impact the taxability of your benefits.
    • Consider taking benefits earlier if You are in poor health and don’t expect the surviving member of the household to make it to average life expectancy.
    • Consider waiting to take benefits if You are in good health and expect to exceed average life expectancy.
    • Consider taking benefits earlier if You are the lower-earning spouse and your higher-earning spouse can wait to file for a higher benefit.
    • Consider waiting to take benefits if You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.

    Your Average Indexed Monthly Earnings

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    The SSA calculates your AIME by factoring in up to 35 years of your earnings. If you were to reach full retirement age before applying for Social Security benefits, the SSA would take an average of your annual income for your 35 highest earning years to find your AIME.

    When you become disabled before retirement age, the SSA realizes that you probably do not have 35 years of work history on your record, so it goes an extra step to determine how many years to use in the AIME calculation. The SSA does this by counting the number of years between the time you turned 21 and the year you became disabled, and then subtracting one-fifth of that total number of years or five years, whichever is less.

    Example of Determining the Number of Years to Include in Your AIME:

    • You become disabled at age 40.
    • 40 years 21 years = 19 years
    • Subtract the lesser of either one-fifth of those 19 years , rounded down , or five years.
    • So, 19 3 = 16 of your highest earning years that the SSA will use to determine your AIME.

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