Monday, May 16, 2022

How To Calculate My Social Security Monthly Benefit

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Social Security Calculation Step : Aime Calculation

How Social Security Retirement Benefits Are Calculated [3 Easy Steps]

Now, all you have to do is extract the highest 35 years of indexed earnings.

If youre still working and dont have 35 years, youll need to estimate what your future earnings will be and apply the indexing factors just as you would for actual historical earnings. This is where you can start to play around with the numbers to see the various impacts of retiring early, or working later or maybe having variable earnings close to retirement.

Once you have your highest 35 years in the last column, you just need to sum them up and divide by 420. You divide by 420 because thats the number of months in 35 years and we need to get your average earnings expressed as a monthly number.

Once you do this, congratulationsyou have your AIME and have finished the first step of the calculation. Its downhill from here.

NOTE: If you die before accumulating 35 years of earnings, there is an alternate calculation. See my article If You Die Early: How To Calculate Social Security Survivors Benefits.

Child Benefits With Child Support Calculations

If the child’s caregiver receives child support, the SSA treats it as unearned income and will include a two-thirds of it in the childs countable income. Also, only child support that is actually received will be counted if the non-custodial parent fails to pay support, it doesn’t have an effect on the childs SSI benefit.

How To Correct An Error On Your Social Security Statement

If you have evidence of your covered earnings in the year or years for which you think Social Security has made an error, call Social Security’s helpline at 800-772-1213, Monday through Friday, from 7 a.m. to 7 p.m. This is the line that takes all kinds of Social Security questions, and it is often swamped, so be patient. It is best to call early in the morning or late in the afternoon, late in the week, or late in the month. Have all your documents handy when you speak with a representative.

If you would rather speak with someone in person, call your local Social Security office and make an appointment to see someone there, or drop into the office during regular business hours. If you drop in, be prepared to wait, perhaps as long as an hour or two, before you get to see a representative. Bring with you two copies of your benefits statement and the evidence that supports your claim of higher income. That way, you can leave one copy with the Social Security worker. Write down the name of the person with whom you speak so that you can reach the same person when you follow up.

The process to correct errors is slow. It may take several months to have the changes made in your record. After Social Security confirms that it has corrected your record, request another benefits statement to make sure the correct information made it to your file.

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Calculating Ssdi: Covered Earnings

If you are eligible for SSDI benefits, the amount you receive each month will be based on your average lifetime earnings before your disability began. This is the only factor that determines your benefit amount, although it may be reduced if you’re receiving disability payments from other sources . In other words, your SSDI benefit amount is not based on how severe your disability is, and unlike SSI, you cannot be denied SSDI because you have too much unearned income or too many resources .

Your past earnings must be covered under the Social Security program in order to count towards the amount of SSDI benefits you will receive. “Covered earnings” are wages you have received from jobs that have paid into Social Security. If you have received a paycheck that had money withheld for “Social Security taxes” or “FICA,” the wages you made at that job are covered earnings and will count toward calculating your benefit amount. Most wages are covered earnings.

Your SSDI payment will be based on your average covered earnings over a period of years, known as your average indexed monthly earnings . A formula is then applied to your AIME to calculate your primary insurance amount the basic figure the SSA uses in setting your actual benefit amount.

For example, someone in their fifties who made $100,000 for the past few years might expect a disability payment of $2,500 per month. Someone in their fifties who made $60,000 per year might expect a disability payment of $2,000 per month.

How To Calculate Social Security Benefits In Excel

Calculating Taxable Social Security Benefits

If you are in your late 50s and approaching retirement, you can create a useful model of your future benefits. It works best to do this in a Microsoft Excel spreadsheet, as follows:

  • Using a recent Social Security statement, list in spreadsheet column A your taxable Social Security earnings year by year.
  • List in column B the most recently published NAWI adjustment factors as published by the SSA.
  • Multiply columns A and B and output the result to column C.
  • Identify in column D the 35 highest values in column C. Add these together and divide the sum by 420 . This will approximate your AIME.
  • Use the most recently published bend points to convert your AIME into a PIA.

You also can fill in hypothetical values for estimated taxable Social Security earnings in future years until you plan to stop working. To be conservative, use a NAWI adjustment factor of 1.0000 in column B for all future years.

A financial advisor who fully understands this process can help verify your calculations, advise you on when to start Social Security benefits, and estimate the future benefits you can expect to receive.

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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.

Calculating Average Indexed Monthly Earnings

The caveat to calculating an average of a workers highest 35 years of historical earnings is that in the distant past, earnings were typically lower not just because the worker might have been earlier in his/her career, but simply because inflation lifts average wages over time . For instance, the chart below is an example of one worker’s hypothetical historical earnings, with a high point in the early years but in general a slow upward trend to earnings over time.

Accordingly, when Social Security determines the 35-year average of earnings, it first inflation-adjusts those earnings into current dollars using the National Average Wage Index. Technically, this is done by inflation-indexing all historical earnings into a base year that was 2 years before the individual turned 62 and first became eligible for benefits. Thus, a 62-year-old in 2016 will have historical earnings inflation-adjusted to the 2014 wage index in general, Social Security benefits are indexed to wage levels 2 years before becoming eligible at age 62, which means indexed to the individuals age 60. This ensures that benefits based on historical average wage calculation isnt indirectly reduced simply due to the fact that wage inflation hadnt yet occurred in the past.

Once inflation-adjusted earnings have been calculated throughout all the working years, its possible to determine which were the highest 35 years of earnings that will be included in the Social Security benefits calculation .

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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.

Reduction For Early Filing

How To Calculate Social Security Benefits [3 Easy Steps]

If you file for a survivor benefit prior to your survivor full retirement age, your benefit as a survivor will be reduced.

Specifically, if you file as early as possible , then your benefit as a survivor will be 71.5% of what it would have been if you waited until your survivor FRA.

From there, your survivor benefit increases proportionately until you reach your survivor FRA. For example, if you file for your survivor benefit halfway between age 60 and full retirement age, the amount you receive will be 85.75% of the amount that would have received if you waited until FRA.

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Social Security For Retirement

The biggest determinant of retirement benefit amount is lifetime earnings since the benefit is based largely on the average of a person’s 35 highest-earning years. Because the SS tax is regressive, in retirement, lower-income earners will have a higher portion of their SS retirement benefits paid out in relation to their lifetime earnings than higher-income earners. Another important determinant of benefit amount is the age at which a person applies for retirement benefits.

SS is designed to replace about 40% of the average American worker’s pre-retirement income. This value is dependent on each individual’s work history higher-income earners will receive larger SS checks than lower-income earners, but the check will be a smaller percentage of their pre-retirement income. SS is not intended to be a sole source of retirement income, and as such, it is advisable to have other forms of income in retirement. This can take the form of anything from rental property income to annuities, mutual funds, or even tax-shielded retirement plans such as a 401 and/or IRAs.

Full Retirement Age

Retirement Benefits While Working

When to Apply for Social Security Retirement Benefits

  • The immediate need for cash
  • Life expectancy
  • Relative age, income, and health of spouse

Social Security Credits

Receiving Retirement Benefits Outside of the U.S.

Measuring The Impact Of Additional Working Years On Social Security Benefits Calculation

So given these dynamics for calculating Social Security benefits, what are the consequences of someone continuing to work and adding in more years of income either leading up to becoming eligible for retirement benefits, or even in their 60s and beyond as they are already eligible for benefits?

As noted earlier, for Social Security the income replacement tiers are always the same percentages with the same thresholds, regardless of how long someone worked . Thus, regardless of the number of years worked, the formula to convert the AIME into PIA will always be the same, even with additional working years.

However, what does change with additional working years is the calculation of the AIME itself. Since the AIME is calculated based on the highest 35 years of earnings and they can even be non-consecutive years then additional working years that add to the highest-35, and knock off a prior lower income year, can increase the AIME calculation, and therefore the amount of Social Security benefits.

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Four Ways Benefits Can Be Increased Or Decreased

There are four ways the starting benefit can be permanently increased or reduced from the PIA calculated at age 62:

  • Starting benefits earlyBenefits may begin as soon as age 62, but they are permanently reduced for every month between the onset of benefits and FRA.
  • Delaying benefits beyond full retirement ageDelayed retirement credits can permanently increase benefits, and they are awarded for every month between FRA and a later onset of benefits.
  • Starting early and continuing to workIf you start benefits before your FRA and keep working, the SSA may deduct the part of your benefits that exceeds a threshold. However, any such deductions are not permanent. When you reach your FRA, the SSA recalculates your benefits and credits back any deductions.
  • Continuing to work, periodEven if you dont start benefits early, you can increase your benefits by continuing to work up to any age. Any year in which your indexed earnings are higher than one of your 35 previous highest years will boost your benefits. However, after age 60, you will not receive wage indexing, and after age 62, you will not receive bend point inflation indexing.

All four points are related to your starting Social Security benefits. Keep in mind that when your benefits start, the COLA will increase them annually. If you start benefits at age 66, your PIA automatically increases with the applicable COLAs from the years in which you turn 63 through 66.

How To Calculate Your Social Security Benefits: A Step

Free Social Security Calculator Tool: Estimate Your ...

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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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%.

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.

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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.

How To Calculate The Marginal Social Security Benefit Increase For Additional Years Of Income

How to Calculate Your Social Security Benefits

Of course, the caveat is that determining whether an upcoming years worth of earnings may be higher than historical inflation-adjusted earnings requires first determining what those historical earnings were on an inflation-adjusted basis. This can be estimated by first obtaining the individuals Social Security work history, which can be found by logging into the individuals My Social Security online account, or drawn directly from his/her Social Security statement. Once those historical earnings are found, they can be adjusted using the National Wage Index adjustment factors , to determine what the inflation-adjusted historical earnings amounts really were.

Obtaining the list of year-by-year historical earnings from the Social Security work history record is ultimately necessary for two reasons. First, its necessary to determine which of the three bend points the Social Security income replacement rates will apply, as theres a big difference in benefit between the 90%, 32%, and 15% levels! Second, having historical inflation-adjusted earnings makes it possible to compare the upcoming years earnings to the lowest historical inflation-adjusted year, to determine the income difference and prospective increase in AIME.

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