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How Much Social Security Will I Get?
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Last Updated on: 27th April 2021, 03:51 am
Social Security is a vital component of most people's retirement income picture. But it's just one of the three “legs” on the retirement income stool – the others being employer retirement plans (401ks, pensions, etc.) and private savings.
So unless you are diligently saving money for retirement in your employers' plans, in your IRAs, and in your personal accounts, the answer for most readers, unfortunately, will be ‘not enough!'
That said, Social Security is uniquely important for most retirees because, unlike savings in mutual funds and other investment accounts, it's a source of income that you cannot outlive.
Social Security is designed to provide about 40% of your pre-retirement wages per month in benefits. This is assuming that all your pre-retirement wages were subject to Social Security taxes. Your remaining income needs will have to come from the other two legs of the retirement income stool – that is, your pension and workplace retirement plans and your own private retirement savings.
Everyone’s situation is different. But as of 2021, the average individual monthly Social Security benefit is $1,543 per month, according to information from the Social Security Administration.
The maximum individual monthly benefit is $3,148 month. That is the current (2021) maximum for someone retiring at Full Retirement Age, explained below.
Table of Contents
Understanding “Full Retirement Age”
Full Retirement Age, or FRA, is a key concept to understand. Your FRA is the age at which you can claim your full, unreduced retirement benefit from Social Security.
When Social Security was enacted in the 1930s, the FRA was set at age 65. For those just now entering the window for claiming Social Security benefits at age 62, the FRA is age 66 years and 10 months.
If you were born in the year 1960 or later, your FRA will be age 67.
At Full Retirement Age – you will qualify for 100 percent of your Social Security benefit.
You can apply for a reduced benefit as early as age 62. But the longer you can put off taking Social Security benefits, the greater the monthly benefit you will eventually receive when you do apply.
IMPORTANT: You don’t have to start taking benefits just because you reach your FRA. In fact, it may make sense to wait. Even after you reach Full Retirement Age, the Social Security Administration continues to increase your eventual monthly benefit — until you reach age 70, under current rules. At that point, there is no longer any advantage to delaying your Social Security benefits: They won’t get any higher, and by delaying you just miss out on your benefit for every month you wait.
How are Social Security Benefits Calculated?
Your Social Security benefit is based on the 35 highest-paying years of your career, after an adjustment for inflation. The system applies a mathematical formula to your earnings history (up to and including the year in which you turn age 60) to produce your Primary Insurance Amount, or PIA. This is the amount you will receive if you retire at your full retirement age.
If you work longer than 35 years, then the system drops your lowest-earning years from the equation. Only the 35 highest years will count in the equation.
If your working career spans less than 35 years, or you spent time out of the workforce, you will have a lower monthly benefit since you would have some zero-income years.
By design, the algorithm slightly favors lower-income earners.
Tracking Contributions and Estimating Your Benefit
You can easily track your Social Security contributions to date, and estimate your future benefits by creating a My Social Security account.
With My Social Security, you can:
- View your earnings record to date;
- See how much you (and your employers) have paid into the Social Security program;
- Estimate how much you may receive once you start taking benefits, under different scenarios;
- Estimate your benefit should you become disabled;
- Estimate what surviving family members may receive if the primary beneficiary passes away;
- Update your address or bank account information for direct deposit.
Tip: It’s a good idea to create your My Social Security account early and revisit it once each year or two. This way, you can address mistakes in your earnings record while you still have documentation readily at hand.
Subtract Medicare Premiums
If you enroll in Medicare, the Social Security Administration will deduct your Medicare Part B premiums from your monthly check. As of 2021, the Medicare Part B premium is $148.50 per month. It’s adjusted annually for inflation, as are your Social Security benefits.
Most people don't have to pay a premium for Medicare Part A. But depending on your circumstances, you may elect to have Medicare Part C (Medicare Advantage), and Medicare Part D (prescription drugs) deducted from your monthly Social Security check, as well.
The Marriage Benefit
If you're married, you have the option to claim 50% of your spouse's benefit. This usually makes sense if one spouse has a higher earning history than the other, or if one partner spent significant time out of the workforce.
You can also claim benefits based on an ex-spouse's record, provided the marriage lasted at least ten years.
In either case, your spousal benefits will be lower if you take them before full retirement age.
Married couples should consider coordinating the timing of their benefits claims to maximize their overall benefit.
Working in Retirement
Many people choose to remain in the workforce after they begin receiving Social Security benefits. If you work and are at your Full Retirement Age or older, you will still receive your full monthly Social Security benefit. But working before reaching your FRA may reduce your Social Security benefits.
If you were born January 2, 1959, through January 1, 1960, your full retirement age for retirement insurance benefits is 66 and 10 months. If you are younger than your FRA during the entire year 2021, the Social Security Administration will deduct $1 from your monthly benefit for every $2 you earn above $18,960.
If you reach your Full Retirement Age in 2021 or later: The government will deduct $1 from your benefits for each $3 you earn above $50,520. This continues until the month in which you reach your FRA.
Once you reach your FRA, however, your benefits will increase to compensate you for any benefits deducted because you remained in the workforce before your full retirement age.
Example: You begin taking benefits when you turn 62 in 2021. Your monthly benefit is $920 per month. Then, you return to work and have 12 months of benefits withheld. When you reach your FRA of 66 years and 10 months, The Social Security Administration will recalculate your monthly benefit to a higher $985 per month, with inflation adjustments, for life.
Had you worked full-time and earned so much between age 62 and your FRA that your income cancels out your Social Security benefits entirely, then you would be credited even more: Upon your reaching Full Retirement Age, the IRS would pay you $1,300 per month, with inflation adjustments, for life.
Income Tax Withholding
Depending on your income, up to 85% of your Social Security benefits may be subject to income tax.
If you anticipate being subject to income tax on your Social Security benefits, you can elect to have part of your monthly benefit withheld. By filling out a Voluntary Withholding Request, you can choose to withhold 7%, 10%, 12%, or 22% of your Social Security Benefit. You will get any amounts withheld credited back to you when you file your income tax returns.
If you receive a government pension, the Social Security Administration will reduce your benefit by two-thirds of your government pension. So if your pension is $1,200 per month, your Social Security benefit will be reduced by $800. Similar rules apply to spousal and widow(er)’s benefits.
If two-thirds of your government pension amounts to more than your entire projected Social Security retirement benefit, your Social Security could be reduced to zero.
If you choose a lump-sum retirement benefit from your government job, the Social Security Administration will still reduce your benefit as if you had elected to take the monthly income option.
There are several exceptions to these pension offset rules, however, which you can read about here.
Tips for Maximizing Your Social Security Benefits
- Try to delay taking Social Security as long as possible, up until age 70. The exception is if you are in poor health or have reason to expect you will not live to the average life expectancy for people your age. If this is the case, you may be better off taking benefits early.
- If you retire before taking Social Security benefits, use your taxable sources of income first. These include retirement accounts such as traditional IRAs, 401(k)s, and 403(b)s. Use these to generate income to live on early in retirement. Save your tax-free income sources, such as Roth IRAs and municipal bonds, for after you begin taking benefits. This may help you reduce or eliminate the effects of the Social Security Tax Trap.
- Work for at least 35 years. This eliminates the number of ‘zero years’ in your Social Security benefit. This is especially important if you cannot claim spousal benefits.
- Take a side job. Income and Social Security taxes from your side job will count towards your Social Security benefit in future years – up to an earnings cap of $142,800 as of 2021.
- Stay married for at least ten years. Once you have been married ten years, you may claim a spousal Social Security benefit. This is especially valuable for spouses who stayed at home or worked part-time to raise children.
- Stay in the workforce. The Social Security Administration continues to credit the earnings of Social Security beneficiaries who are still working. If you have one or more working years after claiming benefits that turn out to be among your highest-earning years, the government will adjust your benefit accordingly in future years.
However, be aware that significant income from working may cause your Social Security benefits to be subject to income tax. And if you have not reached your Full Retirement Age, your benefits may be reduced by $1 for every $2 or $3 you earn. Again, these deducted amounts are credited back to you when you reach your Full Retirement Age.