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How Much Will Social Security Pay You?

Posted by Elliot Marks

Many retirees depend on Social Security benefits for a large portion of their monthly income after retirement. If you are nearing retirement age, you're probably wondering, "How much does Social Security pay?" On the other hand, if you become disabled and unable to work, will Social Security disability payments be enough to get you by? While the exact formula to calculating your payments is highly secretive, there are some ways that you can estimate your payments accurately. There are a number of factors that go into this calculation such as your earnings history, work credits, retirement age, and age at which you begin receiving benefits. Using the steps outlined in this article, you should understand how Social Security payments work and how much you can expect to receive when you begin your benefits.

What Does an Average Social Security Payment Look Like?

Social Security Retirement Money

Before we begin discussing specifics of your situation, we will take a look at the average Social Security benefit so that you will get an idea for the ballpark range of your benefits. First, you should know that the Social Security Administration never intended these benefits to be a full replacement for your income after retirement. You can expect that your retirement benefits from SSA will replace approximately 40% of your pre-retirement income. So, if you were earning $50,000 before retirement, know that Social Security will likely only pay you around $20,000 per year. You should be saving your own money for retirement as well in a 401K or IRA so that you can use those savings to maintain your standard of living.

Similarly, Social Security disability benefits are not going to replace your full-time income from your earnings before your disability. In fact, disability payments are typically lower than retirement benefits, so many people on disability often struggle to make ends meet. This is another reason that many people rely on additional Social Security benefit programs like Medicare and others for extra help. Let's take a look at some averages for 2021.

The average payments for 2021 will be slightly higher than payments in 2020. The SSA will be increasing payments by 1.3% due to a recently approved cost of living adjustment, or COLA. The average retiree in 2021 will receive $1,543 in monthly benefits. A person receiving disability payments can expect their average monthly income to be $1,277 per month. As you can see, it would be difficult to survive on that payment alone.

How Do You Calculate Your Own Social Security Payment?

Now that we have talked about the average Social Security check, you are probably wondering how you can determine how much your own personal benefit will be. That requires digging a little deeper into the question, "How is Social Security calculated?" There are several factors that go into calculating your specific payment.

There are also many steps that go into the overall calculation. You'll need to calculate your average indexed monthly earnings (AIME), determine your bend points, factor in any adjustments to your primary insurance amount (PIA), and a few other things. This might seem overly complicated, but we plan to spell it out for you so that it is easy to understand. Take things one step at a time, and you are sure to reach a result that is very close to your actual payment amount.

Step #1: Calculate Your AIME

This step requires a little math, and is easiest completed using a spreadsheet and computer. You will need to calculate your average indexed monthly earnings over your entire work history. The theory behind this is that your past earnings are adjusted for inflation. For instance, if you earned $50,000 in the year 2000, that is worth more than earning $50,000 in 2021. The Social Security Administration releases a table of wage indexing factors each year that is used for this calculation.

You will first need to gather your Social Security taxable earnings for each year of your work history. The easiest way to do this is by looking at your earnings record on the Social Security statement that you receive each year. Then, you will need to multiply your earnings in each year by that year's indexing factor. The full listing of index values for all previous years can be found on SSA.gov website. This will give you your indexed income for each year across your entire lifetime earnings.

When calculating your benefits, Social Security uses your 35 highest years of earnings. So, even if you have worked more than 35 years, you will take your 35 highest indexed values and arrive at an average. Simply add up those 35 years and divide by 35. Once you have your yearly average, simply divide by 12 to get your monthly amount. You should now have your AIME. It is easiest to create a table as shown below:

Calculate AIME

Once you have your indexed earnings for each year, average your 35 highest years and divide by 12 to get a monthly amount. If you do not have 35 years of earnings, then you must add ‘0’ for the years in which you had no income to get to a total of 35 years.

Step #2: Calculate Your Bend Points

Pay attention because this part can get a little confusing. You will use your AIME to calculate your primary insurance amount by multiplying the AIME through a series of bend points. The theory behind this is that Social Security is intended to help lower income recipients more than those with higher incomes. So, the lower your income, the higher percentage of your income it will replace. Let's jump into the process.

There are two points in your average earnings (AIME) where your benefits will bend or skew. Those points are adjusted for inflation each year. The multiplier for your earnings within these points is set by law and does not change each year. So, for 2021 the bend points are located at $996 and $6,002, and the multipliers are 0.9, 0.32, and 0.15. The total calculation for PIA would equal 90% of earnings up to $996 plus 32% of earnings between $996 and $6,002, and 15% of earnings above $6,002.

So, let's say your average indexed monthly earnings were $7,000 from Step 1. You could calculate your PIA by doing the following: (996 * 0.9) + (5006 * .32) + (998 * .15) = 2648.02. The amount is rounded to the nearest tenth, so your PIA in this case would be $2,648. The calculation is a little complicated, but certainly doable if you pay attention and take your time. Now that you have your primary amount, you need to check for any adjustments.

Step 3: Adjustments to PIA

The first step to adjusting your primary amount is determining whether any COLA adjustments need to be made. The bend points that you used in step two are applied during the year in which you turn 62. If COLA adjustments are made in the years until you reach full retirement age, then you would need to apply those COLA adjustments to your calculation to get your new PIA.

Next, the age at which you decide to start your benefits plays a big role in your PIA as well. If you decide to start your benefits early, then you'll need to make another adjustment. You can begin receiving benefits at age 62, but your benefit can be reduced by as much as 30% if your retirement age is 67. There is approximately a 6% reduction for every year that you begin your benefits early.

On the flip side, you can increase your benefits by waiting later to begin receiving them. You can wait as late as age 70, and your monthly Social Security benefit amount increases by around 7% each year that you wait. These delayed retirement credits max out at age 70, so there is no reason to wait longer than that to begin your payouts since you will have already reached your maximum benefit. Once you make these adjustments to your PIA, you should have a very good estimate of the amount that you will receive from Social Security retirement benefits.

Create a My Social Security Account

What if there were a much easier way to estimate your benefits than performing all those complicated calculations mentioned above? Thankfully, there is! Simply create a My Social Security account to access all your information on the SSA.gov website. This account will allow you access to many Social Security services online.

This account will allow you to estimate your monthly payment with the click of a few buttons. Your earnings history will already be loaded in your account, and the software will perform all the necessary calculations like your average wage, bend points, and adjustments. Simply tell the calculator when you plan to retire, and it will automatically perform your benefit calculation. It couldn't be easier!

In addition to calculating benefits, this account will give you access to many other useful services. You can use this account to request a replacement Social Security card should you lose your or have it stolen. Another great feature is checking eligibility or the status of an application. If you have applied for retirement benefits, disability insurance (SSDI) benefits, or SSI benefits, you can check on the status of your application right there on the website.

FAQ

How Much Do You Have to Earn To Get Maximum Social Security?

In 2021, the maximum monthly payment you can receive at full retirement age is $3,113. Using the current bend points, that means that you would need to earn about $120,000 per year to reach the maximum benefit level. The maximum Social Security payroll tax per year is $17,707.20. This equates to roughly $140,000 of taxable income.

Does Social Security Pay For Life?

Yes, Social Security benefits are paid for life once they begin. Disability payments continue as long as the person is considered disabled. In some cases, family Social Security benefits allow spouses or dependents of deceased workers to receive benefits. Children's benefits may also pay up until the child reaches age 18.

Do I Have To Pay Taxes On My Social Security Benefits?

It is very possible that you may have to pay taxes on your benefits. If your total income is less than $25,000, then you likely won't owe any taxes. However, as your benefits increase, you may be required to pay income tax on up to 85% of your benefits.

What If My Local Social Security Office is Closed Due to COVID-19?

Due to the current pandemic, local offices remain closed to walk-in traffic. Your best option is utilizing your My Social Security account and attempting to complete your request online. You can also call SSA at 800-772-1213. In some limited cases, in-person appointments can be made for people unable to complete their request online or over the phone.

Conclusion

If you are getting close to retirement age and wondering, "How much can you earn on Social Security," then you have come to the right place. You can use the details described above to get a very good estimate of your monthly payments and calculate your own benefits. Thankfully, the Social Security Trust Fund is funded with Social Security taxes enough to pay full benefits through 2034, though some changes may be needed at that time to continue operating like normal. You can choose to manually perform the calculation or make it easy on yourself and use your online account. No need to overcomplicate things!

Elliot Marks

Elliot Marks

Author & Social Security Advisor

Elliot Marks has spent over 10 years providing clear and concise information to help Americans navigate the complex nuances of social security and many other government services in the United States. Elliot has a passion for helping those in need of these services to be able to find timely access to news and information that is relevant and helpful to their daily lives.

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