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 Credits Are Earned
Since 1978, when you work and pay Social Security taxes, you earn up to a maximum of four credits per year.
The amount of earnings it takes to earn a credit may change each year. In 2021, you earn one Social Security or Medicare credit for every $1,470 in covered earnings each year. You must earn $5,880 to get the maximum four credits for the year.
During your lifetime, you might earn more credits than the minimum number you need to be eligible for benefits. These extra credits do not increase your benefit amount. The average of your earnings over your working years, not the total number of credits you earn, determines how much your monthly payment will be when you receive benefits.
Read our publication, “How You Earn Credits,” for more information.
Check The Social Security Administration’s Math
Your statement includes a record of the earnings on which you’ve paid taxes and an estimate of the benefits you will receive at various retirement ages: 62, 67, and 70. It is always wise for you to check the SSA’s numbers. Don’t be surprised if you uncover an error. Some government-watchers estimate that the SSA makes mistakes on at least 3% of the total official earnings records it keeps.
When you check your record, make sure that the Social Security number noted on your earnings statement is your own, and make sure the earned income amounts listed on the agency’s records mesh with your own records of earnings as listed on your income tax forms or pay stubs.
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How Can I Estimate My Retirement Benefits
Once you have your AIME, you can calculate the percentages of the three different sections of your AIME and add them up, based on the PIA formula. You can also receive an estimate by creating a personal Social Security account with the Social Security Administration.;
However, bear in mind that your actual benefits may look different from your estimate. This is because laws regarding benefit amounts may change and your earnings may continue to alter over time. In addition, your benefits will be adjusted for living costs at the time you start receiving benefits.5
Here’s How To Estimate Your Social Security Benefit From Your Salary
Fortune tellers use crystal balls, tea leaves, and tarot cards to see the future. Thankfully, you don’t have to resort to psychic tools and mystical arts to predict your Social Security benefit. The Social Security Administration opts for a more concrete approach, in the form of online calculators and other estimators.
In 2020, the average Social Security benefit is $1,503 monthly and the maximum benefit is $3,790. A six-figure salary translates into a benefit that’s between those two numbers — but where the benefit lands, exactly, is influenced by other factors beyond your current income. Your income in prior years, your age today, and the timing of your benefits claim are also important. If you’re willing to make some assumptions, it is possible to estimate your future monthly Social Security benefit.
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.
Claiming Social Security After Your Full Retirement Age Increases Benefits
You can also wait as late as age 70 to start collecting Social Security benefits. Doing so boosts your retirement benefits. Theres no incentive to wait after age 70 to claim Social Security.;
Heres how your benefit will increase if you wait to claim Social Security:
- If you delay claiming until age 68, your benefit will increase by 8%
- If you delay claiming until age 69, your benefit will increase by 16%
- If you delay claiming Social Security until age 70, your benefit will increase by 24%
Using this example, if you were eligible for a Social Security retirement benefit of $1,000 per month at your full retirement age of 67, the benefit would increase to $1,080 if you delay claiming until age 68; $1,160 if you delay to age 69; and $1,240 if you delay to age 70.;
Once again, the delayed retirement credits accrue monthly, not annually, so every month you wait beyond age 67 will net you a slightly bigger monthly check from Social Security.
- SEE MORE How to Estimate Your Social Security Benefits
All contents copyright 2021 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC
Should You Trust Your Social Security Benefits Estimate
If youre building a retirement income plan , Social Security will likely play a role. As such, you need to know whatto expect in Social Security benefits when constructing your plan to ensure itworks.
Unfortunately, your Social Security benefits estimate from the statements you can pull from the Social Security Administration is not the best source of information on what to expect in the future.
The issue lies with the omissions that the Administrationmakes with their estimate methodology. To understand why this is a problem, weneed to start with a basic overview of the calculation used to create yourSocial Security benefit estimate.
How Does The Social Security Administration Calculate Benefits
Benefits also depend on how much money youâve earned in life. The Social Security Administration takes your highest-earning 35 years of covered wages and averages them, indexing for inflation. They give you a big fat âzeroâ for each year you donât have earnings, so people who worked for fewer than 35 years may see lower benefits.
The Social Security Administration also makes annual Cost of Living Adjustments, even as you collect benefits. That means the retirement income you collect from Social Security has built-in protection against inflation. For many people, Social Security is the only form of retirement income they have that is directly linked to inflation. Itâs a big perk that doesnât get a lot of attention.
What Is The Cola Allowance
A COLA is a boost in income that keeps pace with the cost of living.
It is calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers , which measures changes in the cost of popular goods and services.
The COLA rises when inflation and CPI-W increase.
While this means additional social security benefits, you might have to spend more to cover living costs.
According to the Labor department, the consumer price index spiked by 5.4% in July compared with the same month last year.
However, when the CPI-W falls, then social security recipients are typically denied a COLA.
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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Get Ssa Benefits While Living Overseas
U.S. citizens can travel to or live in most, but not all, foreign countries and still receive their Social Security benefits. You can find out if you can receive benefits overseas by using the Social Security Administrations payment verification tool. Once you access the tool, pick the country you’re visiting or living in from the drop-down menu options.
Where Theproblems Start With Your Benefits Estimate
This seems straightforward enough but when the SocialSecurity Administration actually runs this calculation, they tend to work withinaccurate data that leads to a bad result for your estimate.
The biggest problem? Theyassume that todays numbers will not change! Two key components of theSocial Security calculation for your estimated benefit amount have no adjustments built in for futuregrowth.
This means that these problems are worse for people who areyounger because they have more years of future earnings, and the calculationsassumptions of o% growth, ahead of them. When you compound that initial errorover time, you end up with an estimated result that is extremely far from thepotential reality.
The good news is that as you get closer to retirement, yourbenefit is based on actual numbers and is more reliable. To further understandthis, we can look at it as two separate problems:
PROBLEM #1 They DontInflate Your Future Earnings
Your calculation likely works just fine if you are at leastage 62. By that time, you have enough years of real earnings to run through thecalculation, and thus dont need the Social Security Administration to estimate your future earnings.
If there were no earnings in the last year, theyll look attwo years prior and make the same assumption. If you dont have earningsrecorded for the past two years theyll assume that the future earnings will be$0.
PROBLEM#2 They Use Todays Formula
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How To Stop Social Security Check Payments
The SSA can not pay benefits for the month of a recipients death. That means if the person died in July, the check received in August must be returned. Find out how to return a check to the SSA.
If the payment is by direct deposit, notify the financial institution as soon as possible so it can return any payments received after death. For more about the requirement to return benefits for the month of a beneficiarys death, see the top of page 11 of this SSA publication.
Family members may be eligible for Social Security survivors benefits when a person getting benefits dies. Visit the SSA’s Survivors Benefits page to learn more.
Find Your Estimated Social Security Benefit
Finding your Estimated Social Security Benefit is simple. The Social Security Administration has an Online Benefits Calculator that you can use in one of two ways; it will estimate your benefit based on your actual earnings record, or, estimated your benefits based on your expected future earnings that you input. Both calculators can be found here:
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I Cant Remember My Childs Social Anyway We Can Look It Up
If you had your child as a dependent on a previous tax return, you can find their SS number there.
Otherwise, you need to Contact the Social Security Administration at www.ssa.gov.
Social Security numbers are confidential information, so they are not available online, except from some fee-based services that I dont think that I would trust.
How To Check Your Estimated Social Security Benefit
For a long time, the Social Security Administration sent annual updates to current and future Social Security beneficiaries, to fill them in on what their expected benefits are. However, the SSA no longer does that, and now requires those interested to check themselves.
For a long time, the Social Security Administration sent annual updates to current and future Social Security beneficiaries, to fill them in on what their expected benefits are.
However, the SSA no longer does that, and now requires those interested to check themselves.
WFAA recently demonstrated how to do exactly that- by signing up on Social Securitys website.
. Sign in, and itll tell you if you have worked enough already to eventually get a monthly benefit. The site will also reveal what your monthly payment is likely to be, based on your actual earnings history, the report says. You can also drag an interactive bar to see how much less you would get if you draw social security early at 62, versus waiting for the maximum payment you would get by waiting until youre 70 to tap Social Security. You can print your information or save it and come back every year to re-check.
Such an account also allows citizens to do various other things, including getting estimates for the benefits of their spouse, check their application status, and setting up direct deposit, their mailing address, and other information.
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Is There A Maximum Benefit
Yes, there is a limit to how much you can receive in Social Security benefits. The maximum Social Security benefit changes each year. For 2021, itâs $3,895/month for those who retire at age 70 . Multiply that by 12 to get $46,740 in maximum annual benefits. If that’s less than your anticipated annual expenses, youâll need to have additional income from your own savings to supplement it.
How Much Will My Social Security Payments Be
In 2019, the average monthly social security benefit for retired workers was $1,471.1;Whether this amount seems like a lot or a little will depend on your current income. Most financial advisors agree that you’ll need approximately 70 percent of your pre-retirement earnings to comfortably maintain your pre-retirement standard of living; however, if you have average earnings, Social Security payments will only replace approximately 40 percent of that income.2; If you have a higher income, this percentage will be lower, as the payments are replacing less of your previous earnings. If you have a lower income, the percentage is higher.2
Regardless of your pre-retirement income, most individuals will need to supplement their social security benefits through other means, such as savings, investments, or a pension. But how can you know how much more youll need if you want to live well during retirement? To understand how to best prepare, you can start by estimating what your Social Security payments may be.;
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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:
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Social Security Statement Information
SSA must provide you with your Social Security Statement if you request it as long as youre at least 25 years old, have a Social Security number, and earn wages/net self-employment income. The statement must provide a record of your earnings; an estimate of your current/to-date contributions to the Social Security program ; and an estimate of your current disability insurance/survivor benefits and future retirement benefits .
Important information, such as the number of work credits youve accumulated to date , is used by both SSA and the Centers for Medicare & Medicaid to calculate your future or current benefits. Both programs are based on your earnings and the taxes you pay into these programs.
Many people enjoy the ability to check their Social Security Statement online. Its more convenient and secure because, after establishing your Social Security My Account, you can check the information for accuracy any time. Its a wise idea to check your SSA earnings record at least once a year or more.
Your Social Security Statement also estimates the amount of dependents/survivors/ benefits that are potentially claimable on your work record:
In addition to important information about how to estimate your future Social Security benefits, the Social Security Statement includes a reminder to check and request a correction of your earnings record if its not correctly reported.