how the social security benefits are calculated

Part 1 Calculating Your Average Indexed Monthly Earnings (AIME) Download Article

1. List your yearly earnings. Your Social Security benefit is based on your average indexed monthly earnings (AIME).
2. Adjust earnings to account for inflation. If you have earnings decades in the past, the SSA increases these amounts so that all income is expressed in today's dollars.
3. Add up your income for the 35 highest years. ...
4. Divide your total by 420. ...

More items...

Full Answer

How do you determine your Social Security benefit amount?

• For earnings that fall within the first band, you multiply by 90%. That is the first part of your benefit.
• For earnings that fall within the second band, you multiply by 32%. That is the second part of your benefit.
• For earnings that are greater than the maximum of the second band, you multiply by 15%. This is the third part of your benefit.

How do you estimate your Social Security benefit?

Key Points

• Social Security benefits may not be as high as you think.
• The average benefit is going up in 2022.
• Your benefit could be above or below average, depending on your wages over your career.

How to calculate your projected Social Security benefit?

• For every dollar of average indexed monthly earnings up to $926, you’ll get 90 cents per month in benefits.
• For every dollar of average indexed monthly earnings between $927 and $5,583 you’ll get $.32 cents per month in benefits.
• For every dollar of average indexed monthly earnings beyond $5,583 you’ll get $.15 cents per month in benefits.

What is the formula to determine social security?

With that in mind, the 2019 formula is:

1. % of the first $926 of AIME.
2. % of AIME greater than $926, but less than $5,583.
3. % of AIME greater than $5,583.

Benefit Calculators

The best way to start planning for your future is by creating a my Social Security account online. With my Social Security, you can verify your earnings, get your Social Security Statement, and much more – all from the comfort of your home or office.

Online Benefits Calculator

These tools can be accurate but require access to your official earnings record in our database. The simplest way to do that is by creating or logging in to your my Social Security account. The other way is to answer a series of questions to prove your identity.

Additional Online Tools

Find your full retirement age and learn how your monthly benefits may be reduced if you retire before your full retirement age.

What percentage of a spouse's Social Security benefit is a PIA?

If you're married, the PIA will also figure in any benefit amount that your spouse would be due, generally 50 percent of your PIA if the spouse turns on the tap at full retirement age. The PIA is also the basis of a survivor's benefit and a child's benefit.

What is the effect of Social Security on lower income earners?

The effect of these calculations is that a Social Security benefit "replaces" more of the income of lower-wage earners than it does for higher-wage earners. The effect is to help level the playing field in retirement between workers of different income levels.

How many years of work do you have to work to get Social Security?

It starts with Social Security examining your earnings history — with an emphasis on the money you earned during your 35 highest-paid years. That means that if you worked 40 years, Social Security would use your highest-paid 35 years in its calculations and ignore the other five.

What is PIA in Social Security?

The next step is to calculate your all-important primary insurance amount (PIA).

Why do I get my unemployment benefits early?

The reason: If you start early, you will get more payments for a longer period of time, but with smaller amounts of money in each payment .

Is Social Security an earned benefit?

The first is that a Social Security benefit is an earned benefit. It's not a freebie. We Americans earn our benefits by working for many years and paying the Social Security tax in each of those years. That tax is 6.2 percent of your wages up to a ceiling ($127,200 in 2017).

Is there a limit to how high a salary can go on Social Security?

There are limits to how high it can go, however, because wages above the ceiling aren't subject to Social Security tax and aren't counted in your benefit calculation. OK, now that we know the rules of the retirement road, let's see how Social Security figures out the dollars and cents that become your monthly benefit.

What is the Social Security wage base?

In 2019, the base is $132,900, an increase of $4,500 from last year. The wage base is the maximum amount of income on which Social Security taxes must be paid. “If a person works (fewer) than 35 years, missing years are filled in with zeros.

How many credits do you need to get full retirement?

To qualify for your full benefit, you must have accrued a certain number of credits. If you were born after Jan. 2, 1929, you need 40 credits (or 10 years of work) to receive your full retirement benefit. In 2019, you must earn $1,360 to get one credit. You may earn up to four credits per calendar year.

What is the foundation of a retirement plan?

Experts often say that the foundation of a retirement plan is like a three-legged stool, with the legs of the stool being Social Security, employer-sponsored retirement benefits and personal savings. Social Security benefits will be a big portion of monthly retirement income for many Americans, and it helps to know how the benefits are calculated.

Can you get a reduced Social Security if you claim early?

You get a reduced benefit if you claim benefits early, and you get a higher benefit if you delay claiming benefits up to age 70. “Claiming Social Security early results in a permanent pay cut from what your benefit would be at full retirement age,” warns Greg McBride, CFA, Bankrate’s chief financial analyst.

How long do you have to be a Social Security employee to get full benefits?

Anyone who pays into Social Security for at least 40 calendar quarters (10 years) is eligible for retirement benefits based on their earnings record. You are eligible for your full benefits once you reach full retirement age, which is either 66 and 67, depending on when you were born.

How does Social Security affect retirement?

Social Security benefits in retirement are impacted by three main criteria: the year you were born, the age you plan on electing (begin taking) benefits and your annual income in your working years. First we take your annual income and we adjust it by the Average Wage Index (AWI), to get your indexed earnings.

What age do you have to be to claim Social Security?

If you claim Social Security benefits early and then continue working, you’ll be subject to what’s called the Retirement Earnings Test. If you’re between age 62 and your full retirement age, and you’re claiming benefits, you need to know about the Earnings Test Exempt Amount, a threshold that changes yearly.

How long do I have to work to get Social Security?

To get your social security benefits we do a couple things. First we assume that you have or will work for 35 years before electing social security benefits (this is needed to calculate your benefits) We then take your income and we adjust it by the Average Wage Index (AWI), to account for the rise in the standard of living during your working ...

How much will Social Security be in 2052?

starting in 2052 at age 66: $48,771. The earliest you can begin receiving benefits is at age 62. Spouse's annual Social Security benefit. The earliest you can begin receiving benefits is at age 62. Social Security Benefits Accounting for Inflation: 1st year of benefits through age 95.

Does Social Security protect against inflation?

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. It’s a big perk that doesn’t get a lot of attention.

Is Social Security a tax?

You may hear people grumbling about the Social Security “Earnings Tax”, but it’s not really a tax. It’s 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 heart’s content without any reduction in your benefits.

What is the benefit estimate?

Benefit estimates depend on your date of birth and on your earnings history. For security, the "Quick Calculator" does not access your earnings record; instead, it will estimate your earnings based on information you provide. So benefit estimates made by the Quick Calculator are rough. Although the "Quick Calculator" makes an initial assumption ...

How old do you have to be to file for Social Security?

You must be at least age 22 to use the form at right. Lack of a substantial earnings history will cause retirement benefit estimates to be unreliable. Enter your date of birth ( month / day / year format) / /. Enter earnings in the current year: $. Your annual earnings must be earnings covered by Social Security.

How old do you have to be to use Quick Calculator?

You must be at least age 22 to use the form at right.