Checking Your Social Security Earnings Record
How confident are you that your Social Security earnings record is accurate?
Unless youve checked it recently, you shouldnt be too sure.
Mistakes in an individuals Social Security earnings record are actually much more common than most people think. In tax year 2012 alone, the Social Security Administration reported $71 billion in wages that could not be matched to an individuals earnings record! The good news is that the Social Security Administration has a system for sorting out some of these mistakes and assigning the earnings to the correct record. But nearly half of the mismatches are never corrected. That means that in 2012 there were approximately $35 billion in wages that was never credited to an individuals Social Security history.
How Your Benefit Amount Is Determined
Your average lifetime earnings, otherwise known as your Primary Insurance Amount , determine your Social Security benefits. As you can guess, calculating your PIA is complicated because some factors in the formula change annually. Its easiest to get that benefit estimate directly from the SSA, however, knowing how your PIA is calculated is useful in retirement planning. Currently, the two most frequently used PIA calculation methods are:
The simplified old-start benefit methodEvolved from the original 1939 Act formula, this method is used if, prior to 1979, you turned 62 years old, became disabled, or death occurred prior to 1979. It averages actual earnings and uses a table to calculate PIA.
The wage indexing methodIn use since 1979, this method indexes earnings to adjust them to reflect changes in wage levels throughout years of employment, ensuring that your benefits reflect increases in the standard of living. Through this method, your PIA is reached by indexing lifetime earnings up to and including the year you turn 59. Then, your PIA is calculated by averaging your highest earnings for a specific number of years and a benefit formula is applied.
How To Estimate Your Social Security Income
Two facts are knownSocial Security benefits are not guaranteed, and some changes will be necessary to keep the system solvent in the future as millions of baby boomers retire and begin to receive their Social Security benefits. Though these facts create uncertainty, its also true that the quality of your retirement depends on your planningand you must start planning somewhere.
A good starting point is to figure out the dollar amount of the retirement benefits to which all of your years of Social Security contributions entitle you under current law. There are four ways to do this:
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How To Create A My Social Security Account
If you dont already have an account, you can create one anytime. However, only beneficiaries who created an account prior to Nov. 17 will receive their 2022 COLA notice online.
Its a good idea to create an online account for other reasons, too especially if you receive Social Security or SSI benefits.
With a MySocialSecurity account you can also:
- Request a new Social Security card.
- Set up or change direct deposit.
- Get your Social Security tax form .
- Print a benefit verification letter.
- Change your address.
To create an account, youll need to do the following:
Whether you have an online account or not, you can expect to receive a paper notice in the mail in upcoming weeks.
Social Security Increase : How To Calculate Your New Payment
The cost-of-living adjustment will mean an average increase of about $92 each a month for most retired workers, bringing the average benefit of $1,657 per month.
Social Security beneficiaries are slated to receive a 5.9% increase in 2022, the biggest boost in benefits in 39 years.
The cost-of-living adjustment will mean an increase of about $92 a month for most retired workers, bringing the average benefit to $1,657 per month.
The Social Security Administration will be sending out letters to beneficiaries detailing how much increase they will see but you can do a little math to find out how your payment will change.
MSN explains it this way: The easiest way to calculate your benefit is by taking your current monthly payment then multiplying it by 5.9%. Add that amount to the original payment and you will see the increase that will be reflected in your check.
There is something important to keep in mind, however. Medicare Part B premiums are increasing from $140.50 to $170.10, MSN reported. The increase of $29.60 will be taken directly from Social Security checks so whatever increase is added to your existing benefits, you will have to deduct $29.60 to get the final amount.
This years benefit is a substantial boost over the 1.3% retirees saw in 2021. Securitys annual increase, or COLA, is determined each year using the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W, based on the data through the third quarter.
When will new payments start?
Getting From Here To There
The difference in however much you have in investments today and the amount you need in retirement gives an idea of your current shortfall. Depending on how far you are from retirement, this might be easy to make up or not. Note that these estimates are based on todays dollars so you need to take into consideration some sort of estimated inflation rate.
A fee-only CERTIFIED FINANCIAL PLANNER professional can help you walk through all of these estimates. We can also help fine-tune the numbers to take into account things like inflation, goals, and future life-changes. Another important task is estimating returns for your investment portfolio based on your current holdings. Taking the time to do planning today can help assure enjoying your retirement years without stressing over making ends meet. Want to schedule a chat? Just Start Here and well arrange a time to talk.
Investment advisory services are offered through Cast Financial LLC , a registered investment advisor located in Nebraska. Cast Financial is registered in NE & SC. Cast Financial may only transact business in those states in which its registered or qualifies for an exception or exclusion from registration requirements.
Lost Or Stolen Federal Payments
Report your lost, missing, or stolen federal check to the agency that issued the payment. It’s usually one of these paying agencies. If your documentation indicates it’s a different agency, and you need its contact information, look in the A-Z Index of U.S. Government Departments and Agencies.
To get an update on your claim, contact the Treasury Department Philadelphia Financial Center at 1-855-868-0151, option 1.
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.
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.
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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|
Primary Insurance Amount Calculation
For 2022, the SSA established the first bend point as $1,024 and the second bend point as $6,172. Using the AIME from the earlier example of $10,141 and the bend points, we can calculate the primary insurance amount .
Below are the steps to calculating the PIA:
- Multiply the first $1,024 of the person’s AIME by 90% = $921.60
- Subtract the 1st and 2nd bend point and multiply that difference by 32% = $5,148*.32 = $1,647.35*
- Subtract the 2nd bend point amount from the total AIME amount and multiply the difference by 15%. = $3,969*.15 = $595.35
*Please note that the calculation results are required to be rounded down to the next lower multiple of 10 cents.
- The PIA is the sum of the three calculation results: = $3,164.30
*The multipliers90%, 32%, and 15%are set by law and do not change annually. The bend points are inflation-indexed but only through age 62. PIA is effectively locked in at age 62.
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D You Can Stop Working And Not Begin Receiving Your Retirement Benefits
We calculate your benefits based on your highest 35 years of earnings. If you stop working before you have 35 years of earnings, or you have low earnings for some years, this will affect your benefit calculation. However, if you wait to start benefits after you reach full retirement age, your benefits will increase for each month you do not receive them until you reach age 70. There is no incentive to delay filing for your benefits after age 70.
If you are not receiving your Social Security benefits when you turn 65, you will need to apply for Original Medicare three months before you turn 65. If you dont sign up for Medicare Part B when youre first eligible at age 65, you may have to pay a late enrollment penalty for as long as you have Medicare coverage.
Get The Ssa To Help You Make Your Best Guess
The Social Security Administration has created several calculators to try to make it easier to come up with reasonable estimates of what your benefits will be. In particular, four calculators can give you benefit estimates with varying degrees of sophistication and precision:
Finally, one place where you can always get a basic estimate that’s tailored reasonably well to your past work history is from your Social Security benefits statement. The SSA now mails out paper statements only once every five years, but you can always access yours via the internet from the mySocialSecurity website.
Until it’s actually time to file, you can’t know for certain how much your Social Security monthly benefits will be. Yet by looking at estimates, you’ll likely get close enough to be able to make good plans about your retirement finances.
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How To Calculate Social Security Benefits
If youd just like a ballpark estimate of your benefit, the Social Security Administration offers a quick calculator to give you a sense of your potential benefit. This calculator simply asks for your current annual salary, your birth date and your projected retirement date, although it does allow you to fill in your actual income by year to get a more accurate estimate.
This estimate does not take early or late application for benefits, taxes and Medicare, or COLA increases into account. Youll likely need to download the Social Security Administrations full calculator software or work with a financial advisor to determine your full benefits considering those factors.
Knowing how much you can expect to receive in Social Security gives you an important piece of your retirement income puzzle. With that in hand, you can make the financial plans you need for a secure and fulfilling retirement.
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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How To Calculate Your Social Security Benefits: A Step
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.
Social Security Estimated Benefits
The next tab is the estimated benefits tab. Clicking here will show you the estimated benefits based on three different retirement ages. 1. Your full retirement age . 2. Age 70, which is the age that gives the maximum monthly payment to you. 3. Your early retirement age, which for me is age 62. That doesnt sound early to me, but thats what the social security department believes.
Lower down on this page it shows you how much in social security benefits you could expect were you to become disabled prior to reaching your full retirement age. Even lower it shows how much money your spouse and/or child might qualify for if you were to die this year. A bit morbid perhaps but it is good to know that the benefits you paid are not necessarily lost and that your family might get help from these benefits.
By the way, are you curious about how social security benefits are calculated? Heres a document that the social security administration provides that explains the formula used. Its basically based on the 35 years in which you earned the highest wages and then some calculations are done on that total.
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Know The Impact Of Continuing To Work
When you claim Social Security at 62, know that you are subject to a cap on wage income. For every $2 you earn above the cap, your Social Security benefit is reduced by $1. The cap changes annually, but it’s $18,960 in 2021. If you expect to earn $1,000 monthly from Social Security, it only takes wage income of about $43,000 to wipe out your benefit entirely.
Once you reach your FRA, the earnings restriction falls away. You can work and earn as much as you want, without any reduction to your benefit.
Easy Ways To Estimate Your Retirement Savings Goals
Setting a clear goal for retirement savings is one of the first steps in planning for your future. Establishing a target amount to save can help you estimate how much to invest each month and let you track your progress. And it can help you estimate when you’re ready to retire.
Some people might feel overwhelmed and won’t know where to start when calculating what they’ll need to save for retirement. But there are two really simple approaches that everyone can use to get a fairly good idea of what their retirement number should be.
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