How to Calculate Your Social Security Benefits

Social security is an important part of our retirement. Most baby boomers rely on Social Security to provide income after they reach a certain age. Whether you’re retired or no longer able to work due to disability, Social Security is a safety net that provides you with needed income. However, the scope of social security benefits can often be unclear. Fortunately, there are many tools available that can help you find out exactly how much you will receive. Let’s take a look at how Social Security works to understand how benefits are distributed before moving on to calculating Social Security benefits.

How Social Security works

Social Security works by collecting mandatory financial contributions from workers in the United States and distributes those contributions to those eligible for Social Security. A portion of your paycheck is cashed and given to Social Security each month. This provides the necessary finances for those who are retired or unable to work due to disability. Once you are eligible to receive benefits, you can & nbsp; Apply for Social Security to start redeeming them without worrying about paying Social Security taxes.

When can I collect social security?

Once you’ve reached age 62 and are eligible to retire, you can start collecting Social Security benefits. If you are disabled before age 62, you can also start collecting Social Security benefits. Keep in mind, however, that people with disabilities go through a rigorous screening process to determine if they’re eligible for Social Security.

To receive Social Security benefits, a person must earn credits. These credits are earned over the years you have worked and count toward Social Security that you can collect. You will receive credit for every $1,300 you earn. However, you will only be able to earn four credits per year. You need 40 credits to qualify for retirement benefits if you were born after 1929. This qualifies as 10 years of work on average. Fortunately, fewer credits are needed to qualify for disability benefits.

Social Security Calculator

Let’s take a look at how much you can collect from Social Security when you’re eligible for retirement benefits. Your base earnings count toward your lifetime earnings. Depending on the year you started working, your maximum benefits are determined by an index factor that varies from year to year. Social Security will then calculate the average indexed monthly wage based on your highest-earning 35 years of work. These earnings are adjusted to reflect today’s wages. This means that you will receive the corresponding payment according to the year in which you are.

Once calculated, the highest total amount you have earned in 35 years is calculated as an average and then divided by how many months you were in those 35 years. This brings us to the Indexed Average Monthly Earnings (or AIME for short). Then the Social Security benefit formula is added to your AIME. This leads to the primary insurance amount or the PIA.

This is how the formula works. Keep in mind that this is a basic formula for people who decide at age 62. This formula varies by age.

  1. Take your AIME and round down to the nearest dollar
  2. Multiply the first $895 of your AIME by 90%
  3. Multiply the amount in Step 2 greater than $895 or less than or equal to $5,397 by 32%
  4. Multiply the amount in step 3 by 15% over $5,397
  5. Add up all the totals from steps 2 through 4 and round down to the nearest dollar. This will be your full pension at age 66.
  6. Multiply the amount from step 5 by 73.33%. This will be what you will receive monthly once you retire at age 62.