How Much Will I Get in Social Security Benefits?

Earnings Earlier than and After Indexing
12 months	Nominal earnings	Indexing issue	Listed earnings
2009	106,800	1.1948	127,604
2010	106,800	1.1672	124,658
2011	106,800	1.1317	120,871
2012	110,100	1.0975	120,833
2013	113,700	1.0836	123,209
2014	117,000	1.0465	122,439
2015	118,500	1.0113	119,839
2016	118,500	1.0000	118,500
2017	127,200	1.0000	127,200
2018	128,400	1.0000	128,400
2019	132,900	1.0000	132,900
2020	137,700	1.0000	137,700
2021	142,800	1.0000	142,800

Supply: Social Safety Administration.

The second column reveals the employee’s annual earnings which are topic to Social Safety payroll tax. The third column reveals the wage index components, as revealed in 2021. Column 4 reveals annual listed earnings (the second column x the third column). Discover that the index issue turns into 1.0000 in 2016, the 12 months wherein the employee turns 60, and it stays 1.0000 with out altering for any future years of taxable earnings. In the event you plan to proceed working after age 60, venture the taxable earnings within the second column and use 1.0000 within the third for all future years.

The desk above reveals solely a section of the employee’s earnings (from 2009 to 2021) out of a piece historical past that spanned 40 years. The Social Safety web site has a full desk. The SSA performs the same calculation for all previous years wherein any contributions have been paid. Then the typical of all listed earnings from the 35 highest-income years (from the fourth column above) is factored into the calculation.

To do that, add up the very best 35 years and divide by 35, or to get month-to-month quantities, take the sum and divide by 420 (35 years x 12 months) to reach at your AIME. On this case, the earlier 35 top-earning years add as much as $4,259,563, so the AIME is calculated to be $10,141.

Step 2: Bend Your Advantages

The subsequent step is to transform your AIME right into a main insurance coverage quantity (PIA) by working it by means of a calculation known as “bend factors.” Social Safety is designed as a “progressive” social insurance coverage system, which implies it replaces a better a part of common month-to-month pay for low-income employees than it does for high-income employees. The bend factors implement this skew relative to every employee’s AIME.

There are two bend factors, and each are adjusted for inflation annually. The related bend factors for every employee are these revealed within the 12 months the employee first turns into eligible for advantages (age 62). The bend factors are revealed annually by the Social Safety Administration. In calculating the PIA, the SSA has established mounted percentages as multipliers (90%, 32%, and 15%), that are utilized to the person’s AIME.

Major Insurance coverage Quantity Calculation

For 2022, the SSA established the primary bend level as $1,024 and the second bend level as $6,172. Utilizing the AIME from the sooner instance of $10,141 and the bend factors, we are able to calculate the first insurance coverage quantity (PIA).

Beneath are the steps to calculating the PIA:

• Multiply the primary $1,024 of the individual’s AIME by 90% (.90*$1,024) = $921.60
• Subtract the first and 2nd bend level and multiply that distinction by 32% ($6,172-$1,024) = $5,148*.32 = $1,647.35*
• Subtract the 2nd bend level quantity from the overall AIME quantity and multiply the distinction by 15%. ($10,141-$6,172) = $3,969*.15 = $595.35

*Please be aware that the calculation outcomes are required to be rounded all the way down to the subsequent decrease a number of of 10 cents.

• The PIA is the sum of the three calculation outcomes: ($921.60 + $1,647.35 + $595.35) = $3,164.30

*The multipliers—90%, 32%, and 15%—are set by legislation and don’t change yearly. The bend factors are inflation-indexed however solely by means of age 62. PIA is successfully locked in at age 62.

Step 3: Changes to PIA

In our instance above, the employee’s advantages have been based mostly on 2022 figures, however often, the SSA adjusts the extent of advantages based mostly on the tempo of rising costs within the financial system—known as inflation. The adjustment is named a cost-of-living adjustment (COLA).

For instance, Social Safety and Supplemental Safety Earnings (SSI) beneficiaries will obtain a 8.7% COLA in 2023; they acquired 5.9% COLA in 2022, however the COLA was simply 1.3% for 2020 and 1.6% for 2019.

PIA determines the month-to-month Social Safety profit that will likely be acquired within the first 12 months of advantages by a employee who begins advantages at their full retirement age (FRA), which is 66 for people born between 1943 and 1954, will increase by two months annually for these born after 1954, and reaches 67 for these born in 1960 and thereafter. A partner who qualifies for advantages on a employee’s report will obtain half of the employee’s PIA, assuming they begin advantages at their FRA.

Profit Discount if Taken Earlier than Full Retirement Age

When calculating advantages for early retirement, there are one or two calculations, relying on how early advantages are taken. Assuming a standard retirement age of 67, the age of 62 is the earliest 12 months an individual can obtain advantages or 60 months early.

The profit is lowered by 5/9 of 1% for every month earlier than the conventional retirement age (67), as much as 36 months. If the variety of months exceeds 36, then the profit is additional lowered 5/12 of 1% monthly.

For instance, to illustrate that an individual needs to retire at 62, resulting in a 60-month discount from the conventional retirement age of 67. The primary 36 months can be calculated as 36 months instances 5/9 of 1% plus 24 months instances 5/12 of 1%.

• First 36 months: 5/9 = .5555 * 1% = .005555 * 36 months = .19999 or 20%*
• Remaining 24 months: 5/12 = .416666 * 1% = .00416666 * 24 months = .0999 or 10%
• In different phrases, advantages can be lowered by 30% (20% + 10%) if taken at age 62.

*The outcomes have been rounded and multiplied by 100 to create a proportion.

4 Methods Advantages Can Be Elevated or Decreased

There are 4 methods the beginning profit may be completely elevated or lowered from the PIA calculated at age 62:

• Beginning advantages early—Advantages might start as quickly as age 62, however they’re completely lowered for each month between the onset of advantages and FRA.
• Delaying advantages past full retirement age—Delayed retirement credit can completely improve advantages, and they’re awarded for each month between FRA and a later onset of advantages.
• Beginning early and persevering with to work—In the event you begin advantages earlier than your FRA and maintain working, the SSA might deduct the a part of your advantages that exceeds a threshold. Nevertheless, any such deductions are usually not everlasting. While you attain your FRA, the SSA recalculates your advantages and credit again any deductions.
• Persevering with to work, interval—Even when you don’t begin advantages early, you may improve your advantages by persevering with to work as much as any age. Any 12 months wherein your listed earnings are increased than one in all your 35 earlier highest years will increase your advantages. Nevertheless, after age 60, you’ll not obtain wage indexing, and after age 62, you’ll not obtain bend level inflation indexing.

All 4 factors are associated to your beginning Social Safety advantages. Understand that when your advantages begin, the COLA will improve them yearly. In the event you begin advantages at age 66, your PIA (decided at age 62) robotically will increase with the relevant COLAs from the years wherein you flip 63 by means of 66.

Find out how to Calculate Social Safety Advantages in Excel

In case you are in your late 50s and approaching retirement, you may create a helpful mannequin of your future advantages. It really works greatest to do that in a Microsoft Excel spreadsheet, as follows:

• Utilizing a current Social Safety assertion, record in spreadsheet column A your taxable Social Safety earnings 12 months by 12 months.
• Listing in column B essentially the most lately revealed NAWI adjustment components (12 months by 12 months) as revealed by the SSA.
• Multiply columns A and B and output the consequence to column C.
• Determine in column D the 35 highest values in column C. Add these collectively and divide the sum by 420 (seeing as there are 420 months in 35 years). This can approximate your AIME.
• Use essentially the most lately revealed bend factors to transform your AIME right into a PIA.

You can also fill in hypothetical values for estimated taxable Social Safety earnings in future years till you intend to cease working. To be conservative, use a NAWI adjustment issue of 1.0000 in column B for all future years.

A monetary advisor who totally understands this course of may also help confirm your calculations, advise you on when to begin Social Safety advantages, and estimate the longer term advantages you may anticipate to obtain.

The Backside Line

Understanding this advantages calculation course of might mean you can have elevated confidence that your advantages are pretty safe, no matter any future actions taken by Congress to take care of Social Safety shortfalls. The SSA has invested huge assets within the data, methods, and software program required to carry out these calculations for hundreds of thousands of People. As you may see, minimal advantages change into locked in based mostly on calculations made between the ages of 60 and 62. While you transfer into that age vary, you might be much less weak to any modifications made to the system sooner or later.