How much will you get from social security? It depends on these 3 factors | Economic news
Millions of seniors rely on Social Security benefits to make ends meet in retirement. In fact, about one in four workers expect their monthly check to be their primary source of retirement income, according to a 2022 report from the Transamerica Center for Retirement Studies.
Knowing how much you can expect to receive in benefits can make planning for your retirement easier, and three factors will determine the amount of your future benefits.
1. The duration of your career
To calculate your benefit amount, the Social Security Administration takes an average of your wages over the highest-earning 35 years of your career. This number is then adjusted for inflation and the result is your base benefit amount.
If you worked less than 35 when you start claiming benefits, zeros will be added to your average to account for the time you haven’t worked. This will reduce your average earnings and lower your benefit amount.
2. Your career earnings
Your income plays a major role in how much you collect from Social Security. The higher your income, the more you will collect each month – up to a point.
This point is the salary cap, which is the highest income subject to social security contributions. Once you exceed this limit, your benefit amount will not increase, regardless of your income.
The salary cap changes from year to year to account for inflation, but for 2023 it will be $160,200 per year. The more you earn up to that point each year, the higher your benefit will be.
3. The age at which you start claiming
You can file for Social Security benefits at age 62 or any later age, but the age at which you start claiming will affect your monthly payments.
To receive your base amount (or the full amount you are entitled to based on your work record), you will need to wait until your full retirement age (FRA) to file. Your FRA will depend on your year of birth, but it will be somewhere between 66 and 67.
If you start claiming before your FRA, your payments will be permanently reduced by up to 30%. But if you wait until after your FRA to claim (up to age 70), you will receive the full amount of your benefits plus a bonus of up to 32% per month.
How to check your benefit amount online
Even if you’re still years away from retirement, you can see an estimate of your future benefit amount by viewing your Social Security statements online.
To do this you will need to create a mySocialSecurity account, if you haven’t already. From there, you can check your income history and see an estimate of your expected monthly payment based on your actual salary.
There are a few things to keep in mind when checking your benefit amount online:
- Your actual benefit amount may be higher or lower. If you still have many years left in your career, your future earnings could have a significant impact on the amount of your benefits. So it may be wise to get into the habit of checking your benefit amount every few years to see how it changes with your income.
- This estimate assumes that you will claim from your FRA. The estimate you see online is the total amount of your benefits based on your income. If you end up depositing before your after your FRA, it will affect the size of your monthly payments.
- You won’t see an estimate unless you qualify for benefits. To qualify for retirement benefits, you will generally need to have worked and paid Social Security taxes for at least 10 years. If you are not yet eligible, you will not see an online estimate.
Social Security benefits can be important in retirement, and having at least a general idea of how your benefits are calculated will make it easier to prepare for the future.
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