Social Security is a primary form of income for many people that are retired and over the age of 62. Being able to figure out your benefit for each year is very important.
Much of the income that you receive is based on money that you put into the system. The formula for figuring out your Social Security benefit in any given year is made publicly available. For those that are trying to figure out their benefit for the 2021 calendar year, there are a variety of steps that need to be followed.
An Easy Way to Calculate Your Social Security Benefits
When you are looking for an easy way to calculate your Social Security benefits, the first part of the process is to know your averaged indexed monthly earnings (AIME). Your Social Security benefits are essentially based off of your entire earnings over the course of your career. When it comes to determining your Social Security benefits, the formula will calculate your average earnings over your 35-highest grossing years.
Figure Out Your AIME
The easy way to figure out your AIME is to use a schedule provided by the Social Security Administration. The calculation will also apply an inflation calculation, which will allow each year’s income to be reflected in 2021 dollars. For any given year in your calculation, you will also be limited to the Social Security cap. For 2021, the cap is based on a gross income of $142,800. Any income you earned above this point was not taxed and therefore will not provide social security income.
Full Retirement Age Calculation
Once you have figured out your AIME, the calculation and formula to figure out your Social Security benefits is pretty easy. The baseline for figuring out your Social Security benefits is for people that retire at their full retirement age, which is anywhere from 66 to 67 years in age, depending on the year in which you were born. Generally speaking, the lower your AIME is, the higher percentage of your income you will recapture each year in your benefit.
Contact Social Security Administration
However, rather than trying to determine for yourself the benefits you are entitled to, contact the Social Security office near you. Set up an appointment and there you can discuss and review your work record and contributions to determine your benefits.
Using Their Website
Another helpful method is set up an online account with the Social Security Administration. Its easy to do and will keep you up to date with the most current information. On their website, you will have access to online calculators. These calculators are very helpful in giving you an idea of your retirement benefits.
The easiest and quickest way to get a general estimate of your retirement benefits is to the quick calculator on the Social Security webpage. Simply, enter your birth date, your earnings for the current year and the month and day you wish to retire. Submit your information and you will receive an estimate of your benefits.
The retirement calculator on the SS website will give you a closer estimate of your benefits. It is more accurate because your record of earnings over the years are accessed through their secure website.
The online calculator will allow you to input your earnings for every year you worked yourself. As a result, the online calculator will be more accurate than the quick calculator.
For the more computer savvy individuals, the SSA provides a detailed calculator. It is actually a program that needs to be installed onto your computer. With it, you can calculate your benefits most accurately.
Early Benefit Claims
All people have the right to start taking their benefits as soon as they turn 62 years of age. However, the earlier you take the benefit, the more you will be penalized. For the 36 months prior to your full retirement date, your benefits will be reduced by five-ninths of one percent for each month, or 6.67% per year. For each month that is more than 36 months from your full retirement date, your benefit will reduce by five-twelfths of one percent, or 5% per year. It is important to remember that this is a permanent reduction that will affect your benefits for life.
While there are penalties for taking your benefit early, you can also benefit by taking it later. If you are able to wait one full year after your full retirement age to start taking your benefits, your annual benefit could increase by eight percent for the rest of your life. If you are able to wait four years until you start to take your benefit, your annual payment will increase by an impressive 32%. Overtime, this could calculate to a substantial amount of extra money.
Cost Of Living Adjustment
Generally speaking, there is a “cost of living” adjustment every year in your Social Security benefits. This is usually a small increase in benefits. For 2021, the adjustment is 1.3 percent increase. Medicare premiums will rise slightly by $3.90. This increase should preserve some of the Cost of Living adjustment increase.
Getting Your Full Benefit
You and your spouse have worked hard your entire lives so you want to ensure you receive your full Social Security benefit. By waiting until you reach full retirement age which is 66 years and 10 months, your benefits will increase. In fact, you will receive 29.2 percent more than if you retire at the age of 62.
Another benefit to waiting is the earnings limit. When you collect Social Security, there is a limit on the amount you can earn without your benefits being decreased. When you retire before your full retirement age, and continue to work, your earnings are affected. For example, in 2021,the limit is $18,960 a year. That means that for every $2.00 you earn above that, $1.00 will be held back from your social security check.
However, by waiting until the year of your fill retirement age, the earnings limit increases dramatically. You can earn up to $50,520 a year with $1 being held back for every $3 you earn above that. Better yet, if you wait until the month of your full retirement age, Social Security will stop holding back any money. There are no earnings limits.
Decide When To Retire
Of course, there are many factors to consider when deciding when to retire. Your health and family responsibilities are a priority. If you can reasonable continue to work, you will benefit in the long run.