How to Estimate Monthly Social Security Income Benefits

Social Security is an incredibly vital program for senior citizens in the US. The benefits given by social security is about one-third of all income among seniors. Remarkably, a majority of social security beneficiaries receive more than 50% f their income from their retirement. This makes it prudent for one to comprehend how the benefits are calculated.

Often, it can be difficult to anticipate how much you will receive from social security. If you have several years from retirement, it may be harder to predict the amount. Familiarizing yourself with how the authorities calculate your benefits can help you budget for retirement. Besides, this knowledge will help you boost your future social security payments. Here is how to estimate the amount you may get from the social security in retirement.

Familiarize yourself with the calculation

The relevant authority calculates social security payment using the 35 highest earning years in your career. They then adjust the count for inflation. In the event that you work for more than 35 years, the authority leaves out your lowest earnings years from the estimate. As a result, this leads to a higher payment. People who do not work for 35 years have zeros averaged into their social security payment calculation and get smaller payments.

For instance, workers who become eligible for social security payment can get their benefits by multiplying the first $895 indexed monthly earnings by 90 percent. Then, multiply the remaining earnings of up to $5,397 by 32 percent, and incomes over $5,397 by 15 percent. The sum of these three values, rounded off to the nearest 10 cents, is the initial payment amount. Notably, the cost-of-living adjustments and delayed retirement credits can increase payments above this amount.

Factor in your retirement age

Your age when starting social security plays a critical role in your payment amount. It is imperative to note that your monthly social security benefit reduces if you claim payment before retirement age. In most countries, the retirement age is between 66 and 70 depending on your birth year. You can boost monthly payments each month you delay claiming between your full retirement age and 70 years.

Subtract Medicare premiums

If Medicare premiums deducted from your social security plan, it may affect your payment. This year, the average Medicare premium is one hundred and thirty-four dollars per month. The law prohibits Medicare payment from decreasing social security payments for existing beneficiaries. Therefore, a hike in Medicare premium cannot be more than your annual Social Security cost-of-living adjustment.

Factor in income tax withholding

Many people pay income tax on their social security payments, particularly if they have other sources of retirement income. Nevertheless, if social security is the only source of income, you pay no takes on it. In case you have other sources of income such as pension, part-time work, interest, and dividends, then that income flows into the social security payment calculation formula. Consequently, you may have up to 22 percent of the social security payment withheld for income tax.

Calculate the average indexed monthly earnings (AIME)

This is one of the most essential things to do as you compute for an estimate of your social security income for retirement. How exactly will you calculate the average indexed monthly earnings (AIME)? Most notably, the AIME serves as the basis of Social Security retirement benefit. In the calculation of AIME, you ought to ass all 35 of the highest inflation-indexed income figures. Afterward, divide the total by 35 to get the annual average. To arrive at the AIME, the resulting figure should be divided by 12.

Determine the primary insurance amount (PIA)

After calculation, the AIME is then entered into a formula to determine the base retirement benefit. The figure obtained is known as the primary insurance amount (PIA). Note that the PIA is not necessarily the amount the Social Security Administration will pay you each month. You need to check the Social Security Administration website for more information.

Adjust for your claiming age

The PIA is the ultimate benefit that a person is entitled to if the claim is at full retirement age. At this age, a person is entitled to claim the full-calculated social security benefit. This period is deemed as the age at which a person takes the social security benefit on time. Nonetheless, Americans may choose to claim when they are between 62 and 70 years. In most cases, the average time to make a claim of the social security benefit is 62 years. Claiming the Social Security benefits before full retirement age may result to a permanently reduced benefit. On the other hand, choosing to delay Social Security beyond the full retirement age will result in a permanently higher benefit.