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.
They base much of the income that you receive 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 2022 calendar year, there are a variety of steps that need to be followed.
Retirement Calculator Tips
Retirement is not something that you can plan for on the fly. You need to know your retirement goals and calculate how much money you will need when retirement arrives. Many online tools help retirement calculators determine what they need, but it’s essential to be smart about which ones you choose!
This article will offer some tips and tricks for using retirement calculators effectively to calculate retirement needs.
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). They essentially base your Social Security benefits 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 2022 dollars.
For any given year in your calculation, you will also be limited to the Social Security cap. For 2022, they base the cap on a gross income of $147,000. 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 they entitle you 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 to set up an online account with the Social Security Administration. It’s 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 on 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 they will be penalize you. 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, there is a “cost of living” adjustment every year in your Social Security benefits. This is usually a small increase in benefits. For 2022, the adjustment is 5.9 percent increase. Medicare premiums will rise by $22. This increase should still 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 2022, the limit is $19,560 a year. That means that for every $2.00 you earn above that, they will hold back $1.00 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.
Basing Your Needs on Current Income
One retirement calculator that many people turn to is the retirement planner. Unfortunately, retirement planners can be less than helpful if you base your needs on income at this time instead of what will happen when retirement arrives.
It’s best to look at how much money you have saved so far and calculate retirement from there. If it’s not enough to retire right away, then start putting more aside now rather than waiting for something to change!
Basing Your Needs on Future Income
They usually gear the retirement calculator based on future income towards those who expect their salary or wages in retirement to remain unchanged as they age into the subsequent phases of life. However, even if this is true for you, things may change unexpectedly during retirement – a retirement calculator will help you plan for these retirement unknowns.
Basing Your Needs on Existing Retirement Savings
A retirement calculator based on existing retirement savings can be a great way to get an idea to calculate retirement, but don’t expect them to provide any guarantees that your retirement needs will be met! This is because so many factors could change during retirement, including future salary and wages and health care costs, among others.
Working With Multiple Calculators
When appropriately used, multiple retirement calculators can give you a more accurate picture of how much money you’ll need when it comes time to retire. A retirement calculator also allows you to make some reasonable adjustments if they differ from one another too much.
Redefine Your Lifestyle
It is imperative to know what kind of life you want to live after retirement to calculate retirement. It would be best if you made adjustments where necessary to cut on your spending. Calculate retirement by the savings at hand. If they are not enough, resist the temptation of retiring now and try putting aside more savings!