Many people are confused as to how Social Security calculates the amount of benefits you will receive.
I have listed the basics below in an effort to help demystify the calculation.
- To calculate your Social Security benefits, Social Security uses the highest 35 years of “covered” work. These years do not have to be consecutive.
- These 35 years are indexed for inflation, except after 60 there is no inflation factor.
- If you have fewer than 35 years, those years are counted as zero.
- Check your Social Security statement online to make sure all years are accounted for.
- From this, Social Security calculates your “Primary Insurance Amount” – your monthly benefit.
- Your “Full Retirement Age” is when you may collect 100-percent of your monthly benefit. For people born between 1943-1954, that age is 66.
- If you elect to take benefits before your “full retirement age,” the amount will be reduced by as much as 25 percent.
- If you wait to collect benefits after your “full retirement age,” you earn “delayed retirement credits.” This is a yearly increase of 8 percent. If you wait until age 70 to claim benefits, your monthly amount will be 32-percent higher.
- The difference in the benefit amount between claiming benefits early at 62 and claiming later at 70 is 76 percent.
- Benefits are adjusted yearly for Cost of Living Adjustments (COLAs). There is no COLA for 2016.
- If you work between ages 62-65, your benefits will be withheld $1 for every $2 in earnings above $15,720.
- In the year you reach “full retirement age,” your benefits will be withheld $1 for every $3 in earnings above $41,880.
- After you reach “full retirement age,” there is no limit on how much you can earn. Your benefits will not be withheld.
To learn more about Social Security planning, contact Mister Social Security today!