How much social security will I get? A step-by-step guide – The Motley Fool

The good news is that the structure of the formula remains the same every year, which means that the multiplier factors of 90%, 32% and 15% do not change. Only income thresholds, also known as "curvature points", change from year to year ($ 895 and $ 5,397 in the 2018 formula). If you are trying to determine your social security benefit and have had 62 years before 2018, you can find historical turning points on the SSA website.

Step 6: Adjust according to your required age

The amount of primary insurance, or PIA, is the social security benefit to which you would be entitled if you decide to claim benefits from exactly your full retirement age. This is the age at which you would be entitled to claim all of your calculated social security benefit, and this is often the age at which you take social security "on time". However, Americans can choose to claim at any time between age 62 and 70, and the majority do not claim benefits at the age of full retirement. In fact, the most common age for social security is 62 years old – as soon as possible.

If you choose to apply for social security before reaching retirement age, social security benefits will be reduced permanently, while deciding to delay your social security

We'll see how much your benefit decreases or increases depending on your filing date, but first, here's a quick chart to help you find your full retirement age:

Data source: SSA.

If you do not apply for Social Security retirement benefits at retirement age, the effect on your monthly benefit will depend on your delay or delay. Here's how your PIA will change depending on when you claim benefits:

• If you claim social security no later than 36 months before the retirement age, your benefits will be reduced by 0.56% per month that you claimed earlier. This represents 6.67% per annum during the three years preceding retirement age.
• If you claim social security more than 36 months before your retirement age, your benefits will be reduced by 20% more 0.42% per month beyond 36 months earlier (ie 5% per year).
• If you claim social security after your full retirement age, your benefit will be permanently increased by 0.67% for each month you choose to delay. These benefits are called deferred retirement credits.

An example of calculation of social security

Consider an example. We will say that you are 62 in 2018 (then you were born in 1956) and you want to estimate how much you can expect from social security if you claim your benefit this year. We will say that you worked for 40 years and that the average monthly indexed income of your 35 highest-paid years is $ 6,000. (Note: This covers steps 1 to 4, as previously noted.)

To calculate your PIA, the amount you can expect at retirement age, we can include $ 6,000 in the benefit formula described in step five:

• 90% of the first $ 895 = $ 805.50
• 32% of the amount greater than $ 895 and less than or equal to $ 5,397 = $ 1,440.64
• 15% of the amount greater than $ 5,397 = $ 90.45

The addition of the three parts of the formula gives us an AIP of $ 2,336.59. This is the amount at which you would be entitled to full retirement age of 66 years and four months plus the cost of living adjustments that are given by that time.

However, if you chose to apply for your retirement benefit at age 62, it would be four years and four months before the retirement age. Under the reduction formula described in step six, your monthly benefit would be reduced by 26.67% in total. So, if you claim social security as soon as you reach the age of 62 this year, you will receive a monthly retirement benefit of $ 1,713.50, or about $ 623 less per month only if you waited for the age of full retirement. On the other hand, if you had to wait until age 70, your benefit would be increased to $ 3,022.

In short, the age at which you decide to claim social security is large difference.

Here's how to get a rough estimate of your benefits

This formula may seem a little complicated and it is the case. In addition, this poses some problems, especially if you are not 62 years old or older. For example, you do not know for sure how much you will earn for the rest of your career, and it's impossible to know what the flex points of the social security formula will be at age 62.

However, if you want a good estimate of the amount of your future social security benefits, there is a simple way to do this without any calculation: check your latest Social Security statement.

The SSA produces annual social security returns for all US workers and you can find yours by creating a "my Social Security" account on www.ssa.gov if you have not already done so. Your statement contains an estimate of your full pension benefits based on your actual work history and estimated future earnings. In addition, your social security statement can tell you the estimated effect of the early or late claim, the amount of disability benefits if you become disabled, and how much your survivors may be entitled to if you die prematurely. , and eligibility information for Medicare sickness benefits.

In summary, your social security statement contains valuable information, and all Americans should take a few minutes to read theirs once a year.

What if you did not work? An overview of the benefits of the spouse

As I mentioned earlier, if you did not work or if your career earnings were low compared to your spouse's, a spousal benefit based on your work record could be available to you. retirement income.

Here is the general idea of ​​how it works. Your own retirement benefit (if any) will be calculated and paid first. If your calculated retirement benefit is less than half of your spouse's retirement benefits, the HSO can pay you a spousal benefit to make up the difference. In other words, if your spouse is entitled to a monthly benefit of $ 2,000 at full retirement age (their PIA), a spousal benefit may allow you to earn a maximum retirement income of $ 1,000. per month.

There are some important points about whether you think you (or your spouse) are eligible for a spousal benefit.

• To receive a spousal benefit, the major income earner must also receive his / her own benefits.
• There is no separate claim for a spousal benefit; the SSA will automatically take into account your marital status and pay you the most important type of benefit.
• Spousal benefits may be permanently reduced if they are claimed before the age of full retirement of the recipient of the spousal benefit. In my example of a couple whose spouse who earns the most money is entitled to a benefit of $ 2,000 at the retirement age, a spouse who has never worked would have not entitled to $ 1,000 unless
• The rates of reduction of spousal benefits are slightly different from those of normal retirement benefits. If claimed before the age of full retirement, spousal benefits will be reduced by approximately 0.69% per month up to 36 months in advance and 0.42%. % for each month beyond 36 years.
• Unlike social security pension benefits, spousal benefits do not include deferred retirement credits. In other words, there is no financial reason to wait until the age of full retirement to claim a spousal benefit.

A word on inflation

Inflation is another factor that could affect the amount you receive from social security, especially if you are unable to claim your benefit for a few years.

Every year, Social Security offers beneficiaries cost-of-living adjustments, or strokes, to help retirees maintain the purchasing power of their benefits. Under current legislation, social security work injury benefits are based on the Consumer Price Index for urban employees, or CPI-W.

Thus, during a given year, if the Bureau of Labor Statistics (BLS) determines that the CPI-W has increased by 2%, the Social Security Administration will increase benefits by 2%. Over several years, if not decades, cost-of-living adjustments can have a significant impact on the amount of social security benefits you receive.

The bottom line is that if you are trying to get an estimate of your to come up The benefits of social security, it is important to keep in mind that the calculation methods described here, as well as the estimates in your social security statement, are all available. aujourd & # 39; hui dollars.

For example, if you are now 62 years old, you calculate the amount of your primary insurance at $ 2,000 per month, and the cost of living adjustments average 3% per year, you will receive about $ 2,250 a month. the age of retirement to claim your benefit.

Is social security broken? What happens if it is?

Although the financial situation of social security is too complex to be examined in detail here, I would like to address a common misconception that social security is broken.

Social Security is not broken. In fact, social security has reserves of nearly $ 3 trillion and the program was in surplus last year. For the moment, social security has a lot of money.

That being said, the program is expected to post a deficit in 2018 and the annual deficit is expected to increase over time. In a nutshell, the combination of baby boomers who are retiring en masse and the longer life expectancy of Americans will lead to more people receiving social security benefits for longer periods. According to the latest projections, social security reserves will be depleted by 2034 if nothing is done.

To be perfectly clear, if the Social Security reserves exhaust as expected, this does not mean that the benefits will disappear. The new payroll taxes should be sufficient to cover 77% of all promised benefits. Therefore, in the worst case, we are talking about an overall reduction of 23%. However, history tells us that Congress will do Something before the money runs out – even if it's a short-term solution.

Could the benefit formula or full retirement age change?

As a final reflection, keep in mind that the financial future of Social Security is not really bright, it is likely that some kind of reform package will have to be put in place.

At this point, one may wonder how Congress will correct social security, but the options are reduced to two basic categories: tax increases and benefit reductions. Tax increases are the most popular option among the American public because most people say that it is important to preserve social security benefits for future generations.

However, a form of benefit reduction could certainly be part of a package of reforms. The generalized reductions are extremely unpopular, but other forms of benefit reduction could include a further increase in the full retirement age or a change in the benefit formula.

Now, virtually all the people in power who have expressed an opinion on the issue want to keep Social Security exactly the same for those who are retired or retired, so if you are over 50, you are not going to pay for it. probably not much to worry about. On the other hand, if you are younger, there is a good chance that the calculation of your social security benefits will be a little different.