Social Security Calculation Example
Take someone who turned 62 in 2018. He has worked since he was 32 and each year earned an inflation-adjusted income of $60,000. His AIME would be:
- $80,000 x 30 + $0 x 5 = $2,400,000
- $2,400,000 / 35 = $68,571
- $68,571 / 12 = $5,714
Since our sample recipient has turned 62 this year, benefits will be fixed to the 2018 bend points even if he doesn’t retire until 67. His PIA would therefore be:
- 90% x $895 = 805.50, +
- 32% x = $1,440.64 +
- 15% x = $47.55
- Added together for a total monthly benefit of $2,293.60
Social Security For Spouses And Survivors
Spousal benefits are available to current or widowed spouses aged 62 or older. Applications for spousal benefits are not valid until the other spouse files for their own benefits. It is possible for a non-working spouse to be eligible for a spousal benefit based on their working spouse’s benefit. Based on the working spouse’s age of retirement, the spousal benefit can be up to half of the working spouse’s benefit.
A widow or widower can collect a survivor benefit as early as age 60, given that the marriage lasted more than nine months. This requirement is waived if the widow or widower has a child under the age of 16. In the case where both individuals in a married couple are receiving SS benefits, and one dies, the widow or widower can continue receiving their own benefit or their spouse’s, but not both. It is also possible for a widow or widower to switch benefits in retirement. For instance, if the deceased spouse was scheduled to receive larger benefit amounts at age 70, the widow or widower can first file for their own benefits, then claim their former spouse’s benefits later in order to maximize payments.
A person who is divorced, who was married for more than 10 years and has not remarried, can receive benefits based on their ex-spouse’s work history as long as the divorced person meets all of the following conditions:
The ex-spouse’s benefits can also be claimed even if the ex-spouse has not filed for their own benefits, as long as both parties are above age 62.
Myth #: Your Benefits Are Based Only On Wages You’ve Earned Before Age 65
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.
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What If I Continue Working In My 60s
Many people whose health allows them to continue working in their 60s and beyond find that staying in the workforce keeps them young and gives them a sense of purpose. If this sounds like something youâd like to do, know that working after claiming early benefits may affect the amount you receive from Social Security. Why? Because the Social Security Administration wants to spread out your earnings so you donât outlive them. If you claim Social Security benefits early and then continue working, youâll be subject to whatâs called the Retirement Earnings Test.
If youâre between age 62 and your full retirement age, and youâre claiming benefits, you need to know about the Earnings Test Exempt Amount, a threshold that changes yearly. For 2021, the Retirement Earnings Test Exempt Amount is $18,960/year . If youâre in this age group and claiming benefits, then every $2 you make above the Exempt Amount will reduce by $1 the Social Security benefits you’ll receive.
Contrary to popular belief, this money doesnât disappear. It gets credited back to you – with interest – in the form of higher future benefits. You may hear people grumbling about the Social Security âEarnings Taxâ, but itâs not really a tax. Itâs a deferment of your benefits designed to keep you from spending too much too soon. And after you hit your full retirement age, you can work to your heartâs content without any reduction in your benefits.
Beginning Benefits Before Fra
If you choose to begin to receive benefits before you reach your full retirement age, one or both of the following calculations will apply:
- 5/9 of 1%:;Your benefits are reduced by 5/9 of 1% per month, up to a maximum of 36 months, depending on how many months you have until you reach FRA.
- 5/12 of 1%:;If you are more than 36 months away from reaching FRA, the reduction above is applied, and then for the number of months greater than 36, the;benefit is further reduced 5/12 of 1% per month.
Therefore,;if your FRA is age 66, your benefits would be reduced by 25% if you begin taking them at age 62. Find that figure by taking 5/9 of 1%, or 0.56; multiply by 36 months to get 20%. Then, 5/12, or 0.42, multiplied by the remaining 12 months, is 5% for a total of 25%.
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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.
How Is Social Security Calculated
There is a three-step process used to calculate the amount of Social Security benefits you will receive.
Step 1:;Use your earnings history to calculate your;Average Indexed Monthly Earnings .Step 2:;Use your AIME to calculate your;primary insurance amount .Step 3:;Use your PIA, and adjust it for the age when you will begin receiving benefits.
You can use a copy of your Social Security statement that provides your earnings history to plug your own numbers into the formulas below.
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Windfall Elimination Provision Calculator
The Windfall Elimination Provision is poorly understood and catches a lot of people by surprise.;
This calculator will tell you:
- The amount of Social Security benefit you can expect after the WEP reduction
- The number of substantial earnings years you already have;
- How additional years of substantial earnings will affect the WEP penalty
The Calculation Can Be Complicated
Depending on your income and filing status, up to 85% of your Social Security benefit can be taxable:
- If youre single, a combined income between $25,000 and $34,000 means that up to 50% of your benefits could be taxable. A combined income greater than $34,000 means that up to 85% of your benefits could be taxable. Of course, if your combined income is less than $25,000, none of your Social Security benefits are subject to tax, as I discussed in the previous section.
- If youre married and file a joint tax return, then a combined income between $32,000 and $44,000 puts you in the 50% taxable range, and income over $44,000 means that up to 85% of your benefits are taxable.
- If youre married and file separately, up to 85% of your benefits can be taxed, regardless of your income.
Notice that I said up to 50% or 85% of your benefits is taxable. Its not a simple of multiplication, and there are several variables that determine the actual amount of taxable Social Security benefits.
The formula to figure out how much of your Social Security income may be taxable is rather complicated, and you can see an example of it on page seven of IRS Publication 915. Or, better yet, if you have information about your other income, you can use a Social Security tax calculator to calculate this amount.
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What Does American Association Of Retired Persons Social Security Benefits Calculator Do
For example, the AARP calculator estimates that a person born on January 1, 1959, valued at $ 50,000, would receive a monthly income of $ 1,264 if he entered SS at the age of 62, $ 1,785 at retirement age. in total , or $ 2,237 for 70. The AARP tool can also provide you with middle age statistics, measure the impact on your continued retirement benefits and help you budget for your retirement age.
You can also find basic interest rates by calling the Social Security Administration on 800-772-1213. But remember, no matter where you get the numbers, they are estimates, not promises. Your actual benefit will vary, perhaps significantly, depending on income fluctuations, living expenses adjustments, or even if you continue to work after seeking benefits and changes in the Social Security Act.
Please keep in mind, Social Security sets the cap on how much money you earn in terms of earning your profits. By 2021 the cap is $ 142,800 . Any of the above income is not included in your income calculation .
Best Social Security Calculators To Help You Decide When To Claim Revealed
- Alice Grahns, Senior Digital Consumer Reporter
- 7:40 ET, Aug 18 2021
HOUSEHOLDS should use a social security calculator to help decide when to claim the benefits for retirement.
When you claim social security is a key factor affecting how much you receive each month, so it’s important to consider beforehand.
The average monthly benefit in 2021 is $1,543, with the;maximum set at $3,895.
To;receive the full amount, you’ll need to work at least 35 years, boost your earnings and wait until your full retirement age to begin claiming.
If you were born in 1960 or later, your FRA is 67. For others, it’s 66 and a specific number of months.
You can start claiming benefits before your FRA at the age of 62, but your benefit amount will be reduced for each month that you claim early.
And if you claim as early as possible when you hit 62, your monthly benefit amount will be slashed by up to 30% for the rest of your life.
Meanwhile, if your FRA is 67, you’ll get a 24% boost in benefits every month if you wait to claim until you hit 70.
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When Will I Receive My Social Security Check
The Social Security Administration’s payment calendar helps recipients plan for payments. If you were born in the first 10 days of your birth month, then you receive payments by the second Wednesday of the month. Those born on the 11-20 receive payments by the third Wednesday. Those born on the 21-31 receive payments by the fourth Wednesday. However, those who began receiving payments before May 1997 receive payments by the third day of each month.
Who Is Eligible For 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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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|
They Range From Simple To Sophisticated
Social Security is a government program serving about 65 million people, so you might use one word to describe it: complicated. Hats off to the Social Security Administration , though. It produces one of the best government websites, using plain English to explain its rules. It also has plenty of calculators and worksheets to help.
We pulled together some of our favorites. Keep this list handy next time youre sifting through the maze of Social Security rules and regulations. You won’t need all 11, but some of them will likely help answer some of your questions as you start to plan.
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Who Is Eligible To Collect Social Security Retirement Benefits
Workers who are at least age 62 and who have worked at least 10 combined years at jobs for which they paid Social Security taxes are eligible for Social Security retirement benefits. In many cases, spouses, widows and divorcees are eligible for Social Security retirement benefits based on a spouses or ex-spouses earnings history. Unmarried children 18 and younger can also get survivors benefits. You must be a U.S. citizen or lawful alien to collect benefits.
Employees With Limited Social Security Debts
Can You Get Social Security If You Have Never Worked? No, because the small need to collect Social Security retirement benefits does enough work. The SS Administration defines sufficient work as obtaining 40 Social Security loans. Specifically, by 2021, a person gets one debt out of $ 1,470 each in salary, and can get four high debts a year. Therefore, 40 debts equals ten years of operation.
If you earn a minimum wage of $ 7.25 an hour, you will need 202.75 hours of work to get one social security loan. By working only 17 hours a week and 50 weeks a week on this salary , you can earn higher credit per year. This means that even those who work part-time to go to school or care for a child or those who work part-time because they do not get a full-time job can accumulate SS debts without much hassle.
The credits received are timeless, so anyone leaving employees with nearly 40 credits may consider going back and doing the little extra work they need to qualify. You can check the amount of credits you have so far by opening a Social Security account on the Social Security website and downloading your SS statement.
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Social Security Facts Eligibility & How Much Social Security Will I Get
- Some American employees do not qualify for Social Security retirement benefits.
- Employees who have not received the required 40 credits are eligible for Social Security.
- Some government employees and railways are eligible for Social Security.
- Retired American immigrants and some retired immigrants to the U.S. unable to collect Social Security benefits.
- Divorced spouses who have been married for less than 10 years cannot claim benefits based on their ex-spouses income.
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.
Your estimated benefits:
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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