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How To Calculate Expected Social Security Benefits

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How Social Security Benefits Are Projected At Retirement

How to Calculate Your Social Security Benefits

As noted earlier, Social Security benefits are calculated as an income replacement rate based on 35 years of your historical earnings . Which means when youre just getting started in your career as a teenager or 20-something, most of your 35-year average of earnings would be $0s, and any projection of Social Security benefits based on actual earnings would be near $0 in the early years. You wouldnt really know how well your Social Security benefits were on track to replace your income in retirement until you actually had 35 working years to see the cumulative benefit .

Accordingly, the Social Security Administration provides a regular statement to project future Social Security benefits, assuming that you will continue to earn at your current income level . This is shown as your estimated taxable earnings per year after 2017 on the front page of the Social Security benefits statement. And projected benefits on the Social Security statement assume that amount will continue to be earned in every year until full retirement age which can substantially change the individuals historical earnings for calculating benefits .

Example 2. Andrew is a 32-year-old whose income has averaged about $35,000/year over the past 12 years . For the past 2 years, his annual salary is up to $48,000/year.

How To Check Your Earnings Record

How might check your earnings record? In the past, Social Security mailed you a statement that contained your earnings record and benefit estimate. Today, however, you need to create a my Social Security account to review your earnings record. You can do that at .

When checking whether your earnings record is correct or not, keep the following in mind. One, theres no statute of limitations on correcting errors related to wages, according to Kurt Czarnowski, a principal at Czarnowski Consulting.

A person needs to provide proof of what the correct amount of earnings was, Czarnowski said at a recent National Association of Personal Financial Advisors conference. But even if it’s something back in 1976, if happen to have W-2, can make that correction.

Thats not true, however, when it comes to correcting self-employment income errors on your Social Security statement. You have only three years, three months and 15 days to correct those errors, Czarnowski explained.

When Should I Start Collecting Social Security

Ultimately, the decision of when to begin collecting Social Security is one you have to make. It depends on your age, your health status, how much you spend and how much you have saved. Its generally best to start collecting as late as you can, because you get a larger monthly payment, which is adjusted for inflation each year.

Consider a retiree who was born in 1950 and averaged $50,000 a year in salary. If she has $3,000 a month in expenses, her Social Security check would cover 48 percent of her expenses if she started Social Security at age 62. If she waited till age 70, her check would cover 84 percent of her expenses. Every year she delays retirement, her Social Security payout which is adjusted annually for inflation rises by about $1,635.

Traditionally, the retirement system in the U.S. has been a three-legged stool: Social Security, savings and pensions. Social Security was never intended to be the sole source of income for retirement. Increasingly, however, employers have been moving away from their employer-sponsored pension plans in favor of tax-deferred retirement savings accounts, such as 401 plans.

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Theres An Annual Social Security Cost

One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is quite valuable its the equivalent of buying inflation protection on a private annuity, which can get expensive.

Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government. In 2021, Social Security beneficiaries saw a 1.3% COLA in their monthly Social Security benefits.

The Kiplinger Letter predicted in September that the COLA for 2022 could be 6%, which would be the largest adjustment since 1982. The final COLA for 2022 will be announced on Oct. 13.

Heres what COLAs have been in other recent years:

  • 2009: 5.8%
  • 2021: 1.3%

When Will I Receive My Social Security Check

How To Determine Social Security Benefits At Retirement

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.

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Find Out Your Estimated Social Security Benefits

Periodically checking your estimated Social Security benefits serves several purposes: It helps you plan for retirement and allows you to check for and correct errors.

The Social Security Administration keeps a database of your earnings record and work credits, tracking both through your Social Security number. You can see this information on your Social Security Statement, which is available to everyone age 25 and over. The Social Security Statement also gives you an estimate of the benefits you’ll receive at retirement age, which can play an important role in your financial planning.

How Do You Calculate Your Social Security Taxes

“Social Security taxes” can refer to taxes paid into the Social Security system or taxes paid on Social Security benefits. The taxes that fund Social Security come from the payroll tax, which is 6.2% for employees or 12.4% for self-employed individuals.

When you’re receiving Social Security benefits, you’ll still have to pay income taxes, but you won’t owe taxes on all of your benefits. Those whose total annual income tops $34,000 will pay income tax on 85% of their Social Security benefits. Otherwise, they will pay income tax on 50% of their Social Security benefits.

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How Inflation Impacts Your Pia

Your PIA is calculated at age 62. If you wait beyond age 62, cost-of-living adjustments will be applied to your PIA for each year afterward.

If you have already had most of your 35 years of earnings, and you are near age 62 today, the age 70 benefit amount you see on your Social Security statement will likely be higher due to these cos- of-living adjustments. Many people do not account for this when doing their own calculations, which can lead them to think that taking Social Security early is a better deal, when waiting is often the better deal.

In the table below, our hypothetical worker, born in 1954, is eligible for full retirement at age 66. The column on the right shows the effect of inflation for waiting beyond age 62 to take their benefits.

Effect of Age on Claiming Benefits
Year

What If I Continue Working In My 60s

How to Calculate Social Security Benefit & When to Claim

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.

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Social Security Benefits Calculator: How Much Will You Get Based On Your Salary

This benefit can be claimed as soon as possible

By 2022, Social Security beneficiaries receive a 5.9% increase, considered the largest boost in benefits in 39 years.

Next year’s benefit is a substantial boost over the 1.3% that retirees saw in 2021.

The maximum monthly payment will be $4,194, while the average benefit will be less than $1,657, according to various reports.

The cost-of-living adjustment increase, an average benefit of $1,657 per month, will be approximately $92 per month for most retired workers.

Claiming Social Security Benefits At The Right Time Means More Money In Your Pocket Here’s A Guide To Everything From Knowing Your Full Retirement Age To Taking Social Security Spousal Benefits

For many Americans, Social Security benefits are the bedrock of retirement income so maximizing this stream of income is critical.

The rules for claiming Social Security benefits can be complex, but this guide will help you successfully navigate the details. Educating yourself can ensure that you claim the maximum amount to which you are entitled.

Here are 12 essential details you need to know.

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When Can This Benefit Be Claimed

This benefit can be claimed as soon as possible, although sometimes it is best to wait until your Full Retirement Age to receive it in full.

For those born in 1960 or later, the age is 67, while for others the age is 66. For each year you delay your claim for Social Security benefits beyond your full retirement age, benefits increase by 8%, up to age 70.

Beware The Social Security Earnings Test

Social Security Benefits â The Kid Picked Last for Dodgeball

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 2021 is $18,960. 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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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.

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 Does Aarps Social Security Benefits Calculator Do

The calculator provides an estimate of your Social Security benefits, based on your earnings history and age. Our tool also helps you see what percentage of daily expenses your payments can cover, and how you can increase your benefits by waiting to collect. It can also tell you how your retirement earnings will be affected if you keep working after you claim your Social Security benefit.

You Can Claim Social Security Benefits Earned By Your Ex

How To Calculate Social Security Benefits [3 Easy Steps]

Just because you’re divorced doesn’t mean you’ve lost the ability to get a Social Security benefit based on your former spouse’s earnings. You can receive a benefit based on his or her record instead of a benefit based on your own work record if you were married at least 10 years, you are 62 or older, and you are single.

Like a regular spousal benefit, you can get up to 50% of an ex-spouse’s benefit — less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex-spouse’s record has no effect on his or her benefit or the benefit of your ex’s new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still start collecting Social Security based on the ex’s record, though you must have been divorced for at least two years.

Note: Ex-spouses can also take a survivor benefit if their ex died after the divorce, and, like any survivor benefit, it will be worth up to 100% of what the ex-spouse received. If you remarry after age 60, you are still eligible for the survivor benefit.

A claiming strategy if youre divorced: Exes at full retirement age who were born on January 1, 1954, or earlier can apply to restrict their application to a spousal benefit while letting their own benefit grow.

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How To Calculate Your Social Security Benefit

Calculating your estimated Social Security benefit is no easy task. Your best bet may be to request a Social Security benefits estimate from the SSA. This will contain an estimate of your benefit at age 62, at your FRA, and at age 70, based on your current work history.

In addition to these estimates, the SSA also has a series of Social Security benefits calculators that can help you plan for retirement. You can also use this calculator from AARP to estimate the best age to start claiming your benefits.

What If I Dont Know My Expected Salary Increase

Generally, our salaries increase steadily as we progress through our working lives, adapting to ever-changing needs. Typically, many people can expect a 2% increase averaged out over their career. If you believe that this does not apply to you, or you would just not like to count on it, you can just type 0% for this box, or a smaller amount such as 1%. The intention of the Social Security Benefits Calculator is simply to provide an estimate, so you can afford to be slightly incorrect.

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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

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