Friday, May 13, 2022

How To Calculate My Social Security Benefit Amount

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Your Monthly Benefits For Ssdi Is Not Based On Your Disability

How to Calculate Your Social Security Benefits

The amount that you receive for Social Security disability is based on your earnings before you became disabled. Your payment is not based the severity of your disability, however your current income must be below a certain threshold to be eligible for SSDI. If you receive payments for your disability from other government sources, your monthly payment for SSD may be lowered.

How To Calculate Your Social Security Break

Deciding when to take Social Security retirement benefits is important because it can directly affect your benefit amount. While you can technically start taking benefits as early as 62, youd receive them at a reduced amount. On the other hand, you could delay taking benefits up to age 70. Calculating your Social Security break-even age can help you decide when the best time is to begin taking benefits. You can do that using a Social Security break-even calculator. Additionally, it may behoove you to consult with a financial advisor about when its best for your particular situation to begin receiving Social Security benefits.

Beware The Social Security Earnings Test

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, 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 disappears, 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 Social Security Benefits Formula Is Progressive

Social Security, in general, is meant to replace about 40% of pre-retirement income. As you can see, the formula works to do that for most workers. Remember our example of a person with an AIME of $6,190.48. His primary insurance amount came to around $2,414 which is about 39% of his average inflation-adjusted wage.;

However, the Social Security benefit formula is progressive. A progressive system redistributes income from people with higher lifetime average earnings to people with lower lifetime average earnings. It’s easy to see that the benefits formula is progressive, because you get benefits equal to 90% of your AIME if you earned only a small amount of money — but those who earned larger amounts get an ever-decreasing percentage of AIME factored into their benefits.

The result of this formula is that;the ratio of lifetime benefits received by someone with lower earnings is higher, relative to payroll taxes paid, than the ratio of benefits-to-taxes-paid for a higher-earner. While higher earners do tend to live longer and collect benefits for more years, this only partly offsets the progressiveness of the benefits formula.;

Theres An Annual Social Security Cost

Social Security Benefits  The Kid Picked Last for Dodgeball

One of the most attractive features of Social Security benefits is that every year the government adjusts the benefit for inflation. Known as a cost-of-living adjustment, or COLA, this inflation protection can help you keep up with rising living expenses during retirement. The Social Security COLA is quite valuable; its the equivalent of buying inflation protection on a private annuity, which can cost a pretty penny.

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 will see a 1.3% COLA in their monthly Social Security benefits.;

The Kiplinger Letter forecast in March that the 2022 COLA would be 3%, which would be the largest increase since 2012 when Social Security benefits ticked up 3.6%.;;

Heres what COLAs have been in other recent years:

  • 2009: 5.8%
  • 2021: 1.3%

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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.

How Much Your Payout May Increase

In 2021, the Social Security COLA was 1.3%, which included roughly 70 million Americans.

The 6.2% projected increase for next year comes after the allowance climbed to;4.7% in May;and;6.1% in July.

Based on the 1.3% figure, the average social security payout amounts to $1,543 a month for a total of $18,516.

At 6.2%, those receiving social security benefits could see an additional $95.67 a month.;

Meanwhile, those receiving the maximum benefit of $3,895 could get an extra $241.49 per month.

The SSA is set to;announce the next COLA in October. When the new COLA is set, it is slated to go into effect in January 2022.

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How Long Can You Stay On Each Page

For security reasons, there are time limits for viewing each page. You will receive a warning if you dont do anything for 25 minutes, but you will be able to extend your time on the page.

After the third warning on a page, you must move to another page. If you do not, your time will run out and your work on that page will be lost.

How To Calculate Your Social Security Benefits: A Step

How To: Calculate Your Retirement Benefits

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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Spousal Benefit Reduction Due To Own Retirement Benefit

If you are receiving a retirement benefit of your own, your benefit as a spouse will be reduced by the greater of:

  • your PIA or
  • your monthly retirement benefit.
  • Example: In addition to receiving a benefit as Janes spouse, Bob is also receiving a retirement benefit of his own. Because he is entitled to a retirement benefit of his own, he will not receive the full spousal benefit . Instead, his spousal benefit will be reduced by the greater of a) his own PIA or b) his monthly retirement benefit.

    Calculating Your Combined Income

    Your combined income determines whether or not you owe taxes on your Social Security benefits. You can calculate yours by adding up:

  • Your nontaxable interest
  • Half of your annual Social Security benefits
  • Your AGI is your annual income minus certain tax deductions, like tax-deferred retirement contributions. Married couples filing jointly must consider both partners’ incomes and deductions. If you have municipal bonds or some tax-exempt savings bonds, you might also have nontaxable interest. Calculating half of your annual Social Security benefits is pretty straightforward. You can create a my Social Security account if you’re not sure how much you’re set to receive in benefits.;

    So someone with an AGI of $25,000 with $2,000 in nontaxable interest and $14,000 in annual Social Security benefits would have a combined income of $34,000 .;

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    Checklist For Your Social Security Claiming Strategy

    • Know your numbers. Find out your FRA, earnings history, and estimated benefits.
    • Stay current. Sign up for your most current statements on SSA.gov.
    • Do the math. Use calculators on SSA.gov to check out your monthly benefit options.
    • Get the facts. Don’t succumb to myths; use primary resources such as SSA.gov.

    Applying To Delay Your First Payment

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    If you received a letter from us and want to delay your first payment:

    Examples of delaying Old Age Security

    Delaying 1 year

    Michael turned 65 in July 2019. If he decides to delay receiving the Old Age Security pension for 1 year, his monthly amount will increase by 7.2% to account for the 12-month deferral period from August 2019 to July 2020.

    If Michael’s payment amount is $549.89 per month, his increased monthly payment would be $589.48.

    Delaying 5 years

    Rita will be turning 65 in December 2019. If she decides to delay receiving the Old Age Security pension for the maximum deferral period of 60 months, her monthly amount will increase by 36% at age 70 .

    If Rita’s payment amount is $549.89 per month, her increased monthly payment would be $747.85.

    Delaying with an earlier start date than the date of application

    John could receive his Old Age Security pension in August 2018 and he decided to delay receiving it. In December 2019, John applied for Old Age Security. He writes on his application that he would like his benefit to be effective as of October 2019, 3 months earlier than his application date. His monthly benefit amount will then increase by 8.4% to account for the 14-month period from August 2018 to September 2019. The monthly increase does not apply to the period from October 2019 to December 2019.

    If John’s payment amount is $549.89 per month, his increased monthly payment would be $596.08.

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    Average Indexed Monthly Earnings

    To calculate your AIME, the administration takes each year’s income throughout your working life and adjusts it for inflation . It then caps those adjusted incomes at the taxable maximum for Social Security. The agency then takes the 35 highest-earning years and calculates an average monthly income from them. This is your AIME.

    For people who worked more than 35 years their lowest-earning years are dropped from the calculation. For people who worked less than 35 years the Social Security Administration calculates a “$0” in place.

    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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    Determine Wages For Each Year You Worked

    You can get your earnings records from the Social Security Administration. Simply sign into mySocialSecurity;and click “View Earnings Record.” You will need to create an account if you don’t already have one.

    Your earnings record will list your wages for every year you worked and paid into the Social Security system. However,;you’re only given credit for wages you paid Social Security tax on.

    There’s a maximum annual limit on wages subject to Social Security tax. No income earned above the annual limit counts toward determining your benefits. In 2019, the maximum earnings subject to Social Security tax are;$132,900. If even if you earned $132,900.01 or above, wages for 2019 for Social Security purposes would be recorded as $132,900.;

    Apply The Social Security Benefits Formula To Aime

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    Once you know your AIME, put it into the Social Security benefits formula using the bend points in effect in the year that you turn 62. The table below shows the bend points that have applied in recent years:

    Year

    If you turn 62 in 2019, the bend points to use in your Social Security benefits formula are $926 and $5,583. So, if your AIME was $6,190.48 as calculated above, here’s how your benefits would be calculated:

    • 90% of $926 = $833.40
    • 15% of $6,190.48-$5,583 = $91.12

    Your primary insurance amount would be $833.40 + $1,490.24 + $91.12 = $2,414.76.;

    If you turned 62 in 2018, different bend points apply: $895 and $5,397. So, if your AIME was $6,190.48, your primary insurance amount in 2018 would be $2,365.16:

    • 90% of the first $895 = $805.50
    • 32% of $5,397-$895 = $1,440.64

    $805.50 + $1,440.64 + $119.02 = $2,365.16.;

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    What Is The Social Security Benefits Formula For 2019

    The Social Security benefits formula that applies to determine your primary insurance amount is the formula in effect when you turn 62. The percentage of AIME you receive never changes, but the bend points do. In 2019, the bend points are $926 and $5,583. So, if you turn 62 in 2019, the Social Security benefits formula that would apply to determine your benefits is:

    • 90% of the first $926 in AIME
    • 32% of the amount of AIME between $926 and $5,583
    • 15% of the amount equal to or greater than $5,583 in AIME

    Your Disability Payment Is Based On Your Average Lifetime Earnings Before You Became Disabled The Severity Of Disability Does Not Factor In Although Payments From Other Sources Can

    Unlike Supplemental Security Income , which also pays benefits to people who are disabled and unable to work but is based on limited income and resources, SSDI requires that you have worked and paid Social Security taxes for a certain length of time.

    The average SSDI payment is currently $1,277. The highest monthly payment you can receive from SSDI in 2021, at full retirement age, is $3,148. This article covers how the monthly benefit is calculated.

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    What A Social Security Break

    In a nutshell, a Social Security break-even calculator can tell you when the best age is to start taking Social security benefits, in terms of how much money you could expect to receive over time.;Going back to the previous example, lets assume that you track your benefit amounts over a 10-year, 20-year and 30-year period. Heres how your total benefits received would look over each of those periods, for all three starting points.

    Your cumulative benefits after 10 years:

    • $144,000, starting at age 62
    • $122,400, starting at age 66
    • $52,800, starting at age 70

    Your cumulative benefits after 20 years:

    • $288,000, starting at age 62
    • $326,400, starting at age 66
    • $316,800, starting at age 70

    Your cumulative benefits after 30 years:

    • $432,000, starting at age 62
    • $530,400, starting at age 66
    • $580,800, starting at age 70

    You can see that youd draw the most Social Security benefits in total if you wait until age 70 to start taking them, assuming you live to age 100. But that could be a big if when youre not in the best health.

    What you have to keep in mind when using a Social Security break-even calculator is that the numbers are hypothetical. They dont take into things that could affect your ability to draw benefits or how far those benefits might go, such as:

    Now You Know How The Social Security Benefit Formula Works

    Free Social Security Calculator Tool: Estimate Your ...

    Now you know exactly how the Social Security benefit formula works. To sum it all up:

    So, while the Social Security benefits formula may seem simple since you’re just adding up different percentages of your average earnings over 35 years depending how much you earn, there’s obviously a lot more to applying the formula than first meets the eye.;

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    Maximum Social Security Benefits Example

    Say that someone who turns 62 in 2021 will reach FRA at 66 years and 10 months, with earnings that make them eligible at that point for a monthly benefit of $1,000. Opting to receive benefits at age 62 will reduce their monthly benefit by 29.2% to $708 to account for the longer time they could receive benefits, according to the Social Security Administration. That decrease is usually permanent.

    If that same individual waits to get benefits until age 70, the monthly benefit increases to $1,253. The larger amount is due to the delayed retirement credits earned for the decision to postpone receiving benefits past FRA. In this example, that higher amount at age 70 is about 77% more than the benefit they would receive each month if benefits started at age 62, or a difference of $545 each month.

    A Social Security Administration calculator can give you more-personalized information. Of course, the best time for someone to start taking Social Security benefits depends on a variety of factors, not just the dollar amount of the benefit. Things such as current income and employment status, other available retirement funds, and life expectancy must also be factored into the decision.

    Costs Of Living Adjustment

    The COLA is an annual adjustment to your Social Security benefits based on inflation. It changes each year based on the Consumer Price Index for Urban Workers and Clerical Workers . For workers who do not retire at their earliest retirement age, it is applied cumulatively to the PIA.

    For example, the COLA in 2018 was set at 2%. If the worker from our example above chooses not to retire at 62, his PIA will still be adjusted upward to a resulting PIA of 2,339.40.

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