Special Situation: Both People File Early
If your deceased spouse had filed for his/her own retirement benefit prior to his/her FRA and you file for your benefit as a survivor prior to your survivor FRA, then the math is a bit more complicated.
Specifically, your benefit as a survivor would be your deceased spouses PIA, but you must reduce that benefit as described above due to the fact that you filed early . Then, the resulting benefit is limited to the greater of:
- 82.5% of your deceased spouses PIA, or
- The amount your deceased spouse was receiving on the date of his/her death.
Social Security Statement Information
SSA must provide you with your Social Security Statement if you request it as long as youre at least 25 years old, have a Social Security number, and earn wages/net self-employment income. The statement must provide a record of your earnings an estimate of your current/to-date contributions to the Social Security program and an estimate of your current disability insurance/survivor benefits and future retirement benefits .
Important information, such as the number of work credits youve accumulated to date , is used by both SSA and the Centers for Medicare & Medicaid to calculate your future or current benefits. Both programs are based on your earnings and the taxes you pay into these programs.
Many people enjoy the ability to check their Social Security Statement online. Its more convenient and secure because, after establishing your Social Security My Account, you can check the information for accuracy any time. Its a wise idea to check your SSA earnings record at least once a year or more.
Your Social Security Statement also estimates the amount of dependents/survivors/ benefits that are potentially claimable on your work record:
In addition to important information about how to estimate your future Social Security benefits, the Social Security Statement includes a reminder to check and request a correction of your earnings record if its not correctly reported.
When Will You Collect
The SSA calculates your benefit amount at your full retirement age . This depends on the year you were born. FRA by birth year is:
- 19431954: age 66
- 1955: age 66 and two months
- 1956: age 66 and four months
- 1957: age 66 and six months
- 1958: age 66 and eight months
- 1959: age 66 and 10 months
- 1960 and later: age 67
The monthly amount you are eligible to receive at your FRA is considered your full benefit, but it is not your minimum or maximum benefit.
You have the option to file for early retirement as early as age 62. But, you may choose to delay taking your benefits until as late as age 70.
There are many reasons why you might choose to take early retirement or to delay it. That choice has a direct impact on the amount of your monthly payment. If you opt for early retirement, you are choosing a lower monthly payment for the rest of your life. By choosing to delay your benefit to any age between your FRA and age 70, you lock in an increase.
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How The Ssacalculates Your Estimated Social Security Benefits
To calculate your Social Security benefit, the SSA will takeyour historical earnings and adjust them for inflation. This inflationadjustment goes through age 59 once you hit 60, your benefit amount is at facevalue at that point and into the future.
Then, the Administration takes your highest-earning 35 yearsof work and income history and calculates an average annual earnings amount.They they apply a formula that is specific to individuals who are 62 in thatcalendar year.
The result is your full retirement age benefit, also knownas your primary insurance amount or PIA.
Whats Social Security For
As a general rule, Social Security replaces about 55% of a low earners pre-retirement salary, 41% of an average earners pre-retirement salary, and 34% of a high earners pre-retirement salary.
In no case, high, low, or average earner does it replace 100% of what someone is making, said Czarnowski. Rather, its meant to be a foundation to someones retirement income plan.
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Coordinating The Value Of Social Security With Other Retirement Assets
Notably, the factors that drive the value of Social Security also have an impact on the other assets in the retirement portfolio. As shown earlier, at higher interest rates, the asset value of Social Security is actually lower however, when returns are higher, the value of the rest of the retirement portfolio may be greater! In other words, Social Security provides a unique form of asset to hedge against the rest of the portfolio, because its an asset whose value increases as returns decrease!
Similarly, while the value of Social Security has been calculated here based on average life expectancy and average inflation assumptions, the reality is that the value of Social Security will increase further for those who live beyond life expectancy, and will rise substantially if inflation turns out to be higher . For instance, if you live to age 95 and inflation turns out to be 5% instead of 3%, the value of an average Social Security benefit is actually a whopping $717,000 !
So what do you think? Have you ever included the present value of Social Security benefits as an asset on the clients balance sheet? Would doing so make it easier to have the conversation about when/whether its best to delay Social Security benefits? Does this provide you with a different perspective on how to think about the value of Social Security?
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 this total 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.
|How to Calculate Your AIME for Social Security Benefits|
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How To Workaround An Inaccurate Social Security Benefits Estimate For Planning Purposes
Lets look at an example case to see how badly your SocialSecurity benefits estimate can skew your planning if you work with inaccuratenumbers and the simple adjustment you can make to get a more accurateprojection.
Jeremy got his first job in 1996 atthe age of 22. His starting pay was $40,000 per year and every year since, he earneda 3% raise. This gives him a 2019 salary of $78,943.When the SSA estimates his future benefits, they assume that the prior yearssalary will continue until his retirement at either age 62, 67 or 70.
So how does this affect theestimate?
To figure this out we can use the SocialSecurity Online Calculator . If we plug inJeremys earnings and use the todays dollars option, it gives him a benefitat age 67 of $2,452 per month. If you simplychange that to future dollars it changes the benefit at age 67 to$5,464 per month thats a $3,012 per month jump in benefits!
Which is why I offer this quickword of warning: dont use the inflation methodoption here to estimate your future benefit. Its too high. The assumptions they use are 4% or higher for future wageswhich will be applied to both your earnings andthe benefits formula.
Instead, you need to get under thehood and figure out for yourself how to calculate your benefit. I promise:its not that hard. For a step-by-step video,check out my guide on How To CalculateSocial Security Benefits
Social Security Calculation Step : Adjust For Filing Age
The easy way to look at it is to think about it in annual numbers.
Your benefit will be lower if you file at 62 and higher if you file at 70.
If you file after your full retirement age, your benefit will increase by 8% per year. If you file in the 3 year window immediately prior to your full retirement age your benefit will decrease by 6.66% per year of early filing. For anything more than 3 years before your full retirement age, your benefit will decrease by an additional 5%.
A lot of people dont want to retire on their birthday so its important to break this down by a monthly amount.
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How Are Social Security Spousal Benefits Calculated
To understand Social Security benefit calculations, you first need to understand one piece of jargon: primary insurance amount . A persons primary insurance amount is the amount of their monthly retirement benefit, if they file for that benefit exactly at their full retirement age.
A Social Security spousal benefit is calculated as 50% of the other spouses PIA. Note that the age at which the other spouse files for Social Security benefits doesnt affect this calculation.
Example: Jane files for her retirement benefit at age 63 and is therefore receiving a retirement benefit that is smaller than her PIA. Janes husband Bob files for a benefit as Janes spouse. Bobs spousal benefit will initially be calculated as 50% of Janes PIA.
If Jane had filed for retirement benefits after her full retirement age , Bobs benefit as Janes spouse would still be calculated as 50% of Janes PIA. Again, the age at which Jane files for retirement benefits does not affect the amount that Bob can receive as Janes spouse.
How Spousal And Survivor Benefits Work
If the higher earner waits to collect until age 70, his or her spouse, the lower wage earner, will receive 50% of the higher earners FRA benefit not 50% of the age 70 benefit. But should the higher earner die after collecting at age 70, the surviving spouse will receive the deceased’s age 70 benefit.
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Check Your Benefit Estimate Too
Checking your estimated Social Security benefit on your statement is another useful exercise, according to Czarnowski.
At one time, Social Security only informed you what your estimated benefit would be at three different ages: 62, your full retirement age and 72. The new statement is much more useful. It provides estimates of your monthly benefit at each age, from 62 to 70, including your full retirement age.
People have a better sense of what they can get from Social Security at different ages, said Czarnowski.
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How Does The Calculator Estimate My Retirement Benefits Payment
Our simplified estimate is based on two main data points: your age and average earnings. Your retirement benefit is based on how much youve earned over your lifetime at jobs for which you paid Social Security taxes. Your monthly retirement benefit is based on your highest 35 years of salary history. You can get your earnings history from the Social Security Administration .
Your Social Security benefit also depends on how old you are when you take it. You can start collecting at age 62, the minimum retirement age, but youll get a bigger monthly payment if you wait until full retirement age, which is 66 but is gradually moving to 67 for people born in 1960 or after. If you can wait until 70 to start collecting, youll receive your maximum monthly benefit.
A single person born in 1960 who has averaged a $50,000 salary, for example, would get $1,332 a month by retiring at 62 the earliest to start collecting. The same person would get $1,911 by waiting until age 67, full retirement age. And he or she would get $2,370, the maximum benefit on those earnings, by waiting until age 70. Payments dont increase if you wait to collect past 70.
Other factors affecting the size of your benefit include whether youve worked for state or local government for more than 10 years your Social Security payment may be decreased if you paid into the civil service retirement program, for example.
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What About The Lump
The lump-sum Social Security death benefit is a one-time payment of $255. If a person is already claiming spousal benefits at the time their spouse dies, that person does not need to submit a separate application for the lump-sum Social Security death benefit. The $255 will automatically be credited. Dependent children, though, will need to apply to receive the $255 payment.
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 2021, itâs $3,895/month for those who retire at age 70 . Multiply that by 12 to get $46,740 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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What Will My Social Security Benefits Be When I Retire And What About Those Of My Spouse
Your Social Security benefits can be estimated based on your average annual income, your current age and your age when you retire. Use our calculator to estimate your Social Security benefits during retirement.
For a more accurate and detailed estimate, visit the Social Security Administration website at www.ssa.gov where benefits can be determined based upon your exact earnings history and the exact date of your retirement.
Who Can Use The Retirement Estimator
You can use the Retirement Estimator if you have enough Social Security credits to qualify for benefits and you are not:
- Currently receiving benefits on your own Social Security record.
- Waiting for a decision about your application for benefits or Medicare.
- Age 62 or older and receiving benefits on another Social Security record.
- Eligible for a Pension Based on Work Not Covered By Social Security.
If you are currently receiving only Medicare benefits, you can still get an estimate. For more information, read our publication Retirement Information for Medicare Beneficiaries.
If you cannot use the Retirement Estimator or you want a survivors or disability benefit estimate, please use one of our other benefit calculators.
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Can My Surviving Spouse Claim My Social Security Death Benefits And Their Own Primary Benefits
Nope. Auxiliary benefits were designed to protect the non-working spouses and children of workers, not to provide extra money to surviving spouses whose work histories make them eligible for benefits on their own record.
A surviving spouse whose age and labor force participation make them eligible for primary Social Security benefits should not expect to receive full Social Security death benefits on top of their own check. The Social Security Administration wants to guard against what it considers excess benefits, so will adjust the benefits of anyone who is eligible for both spousal/death benefits AND primary benefits.
Social Security will pay out the larger of either the spousal/survivor benefits or the primary benefits, but not both. This is known as the Dual Entitlement Rule. So, if you consistently earned more than your spouse and your spouse predeceases you while youre both claiming Social Security, you wont get an income boost because your primary Social Security benefits are greater than the death benefits youre eligible for.
If youre a widow or widower youre eligible to claim death benefits beginning at age 60, or age 50 if youre disabled. You can claim auxiliary benefits while letting your own benefits grow until you reach age 70. Alternatively, you can claim your own benefits beginning at age 62 and wait until later to claim auxiliary benefits.
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The Value Is Even Higher For Married Couples
You might be shocked to learn that it’s not uncommon for benefits to be worth more than a million bucks for a married couple.
Take a couple who were both born in 1950. They each worked and earned decent wages. His benefit at full retirement age will be $2,668 a month. Hers will be $1,659 a month at full retirement age.
If they each claim their own benefit at their full retirement age, and he lives to age 85 and she lives to age 90, the present value of their lifetime benefits works out to about $941,000.
It used to be that he could file and suspend his benefit at age 66, thus allowing her to claim a spousal benefit. She would be able to claim a spousal benefit for four years, then switch to her own benefit when she reached age 70. He would begin his benefit at age 70. In this way, they could both get the delayed retirement credits that would allow them to collect the maximum monthly benefit amount.
But the Social Security Administration changed the rules for this file-and-suspend strategy, effective 2015. Now, when one individual suspends benefits, their spouse’s benefits are also suspended. This claiming strategy would have boosted the present value of their lifetime benefits to $1,057,000 back in the day.
These present value numbers were calculated using a for-fee online Social Security calculator called Social Security Timing. They assume a 2% annual increase in benefits due to inflation and a 5% discount rate, or rate of return that the lump sum would have to earn.