how to find out what your social security benefit will be

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Agreement how Social Security benefits are calculated can help you plan your financial future.

En español | Q. I'll be turning 66 soon and programme to apply for my Social Security retirement benefits. But I'm curious about something: How volition Social Security figure out how much money to transport me each month?

A. Thank you for this interesting question. I'll explicate how the folks at Social Security arrive at the magic number, but don't be surprised if the explanation gets a fleck complicated. Fortunately, there are computers that practice all the necessary calculations.

Information technology's worth noting that Social Security has had a lot of practice at this task. In June of last year, there were 43.7 million retired workers and their dependents receiving $57 billion a yr in benefits. The average monthly retirement do good this by January was $1,360.

Q. So how much will I get?

A. Concord on a minute, delight! Before we get into questions similar that, let's review a couple of basic concepts that will affect your do good. The first is that a Social Security do good 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.ii percent of your wages upward to a ceiling ($127,200 in 2017). Plus, your employer matches the six.two per centum payment for a full of 12.iv percent of your wages. (You likewise pay 1.45 percent of your wages, with an employer friction match, for Medicare. And if you earn more than than $200,000 a twelvemonth, you'll pay an additional 0.9 percent Medicare tax — as office of the Affordable Care Act.)

To even be eligible for retirement benefits, you generally need 10 years (40 quarters) of gainful employment. In 2017, you need to earn at to the lowest degree $1,300 in a quarter for it to count as a credit.

A last basic concept that volition affect your benefit is that, in principle, the more coin y'all earn during your working years, the higher your benefit will exist. There are limits to how high information technology can go, however, because wages above the ceiling aren't discipline to Social Security tax and aren't counted in your do good calculation.

OK, at present that we know the rules of the retirement road, let'south run across how Social Security figures out the dollars and cents that become your monthly benefit.

Each year that you've worked and filed an income tax return, your income figure has been transmitted to the Social Security Administration to become part of a crucial piece of accounting known as your work record.

The figures in this record volition form the ground of your benefit. But starting time, they undergo some numerical kneading to produce a calculation called average indexed monthly earnings (AIME).

See also: AARP Social Security Calculator

The purpose of the calculation is to adjust your career earnings to reverberate the changes in general wage levels that took place during the years of your career. The job that paid you lot, say, a $300 monthly income xl years ago, would yield quite a scrap more today.

Social Security says that the adjustments "ensure that a worker'due south future benefits reflect the general ascension in the standard of living that occurred during his or her working lifetime."

The side by side pace is to calculate your earth-shaking master insurance amount (PIA). It represents your basic retirement benefit at full retirement age — 66 for people born betwixt 1943 and 1954.

Q. How does that calculation work?

A. It starts with Social Security examining your earnings history — with an emphasis on the money you earned during your 35 highest-paid years.

That ways that if y'all worked 40 years, Social Security would use your highest-paid 35 years in its calculations and ignore the other five. If you worked only 25 years, Social Security would consider those 25 years and gene in an additional x years as zeros.

The calculation of your PIA is subject to a ready of percentages derived from the AIME, known every bit "bend points." Essentially, the PIA is the sum of three parts of your AIME. For instance: In 2017, retirees go 90 percent of the first $885 of the AIME, plus 32 per centum of any AIME dollars between $885 and $five,336, plus 15 per centum of AIME amounts above $5,336. Desire to know more? Have a look at this Social Security web folio.

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.

With your PIA in mitt, Social Security is fix to cutting your first check as a full-retirement-age retiree.

Q. Does the PIA affect other benefit amounts, too?

A. Yes. Commencement and foremost is your own do good corporeality should you retire "early" — meaning earlier full retirement age — or later on that historic period. Starting to receive benefits early on will reduce the amount, which is calculated as a discount of your PIA. The reason: If you showtime early on, you will get more payments for a longer catamenia of time, simply with smaller amounts of money in each payment.

Or you tin wait until age 70 and thereby earn a 32 percent bonus over your PIA from delayed retirement credits of 8 pct a year.

Every bit an instance, if your PIA worked out at $one,000, information technology would be discounted down to $750 if y'all took benefits at the earliest possible historic period, 62. If you decided to go for your maximum possible do good and put off collecting until age 70, your monthly payment would be $one,320. Y'all can learn more than from this Social Security pamphlet.

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

Stan Hinden, a former columnist for the Washington Post, wroteHow to Retire Happy: The 12 Most Important Decisions You lot Must Make Before You Retire.Have a question? Bank check out the Social Security Mailbox archive. If you don't find your reply at that place, send an email to the Social Security Mailbox.

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Source: https://www.aarp.org/retirement/social-security/info-2016/how-social-security-calculates-benefits.html

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