How Is Social Security Calculated
Nov 26, 2017 at 11:03AM The Social Security retirement benefit calculation formula is based on a few variables. It takes your 35 highest-earning years into account, as well as your full retirement age and the age at which you choose to start collecting your retirement benefit. Here's how this calculation method works for 2018, and how early or late retirement could affect your benefits. Primary insurance amount First of all, if you're already collecting Social Security benefits, your 2018 benefit will not be recalculated using the method I'm about to describe. Your current monthly benefit will simply be adjusted according to the, or COLA.
How Is Social Security Calculated For 2017
Image source: Getty Images. For new beneficiaries, the first step in calculating Social Security benefits is to determine your primary insurance amount, or PIA.
This is the amount of your monthly Social Security retirement benefit if you choose to start collecting your benefits at your full,. The calculation is done as follows:. Animation in sugar carlos lischetti pdf free. The Social Security Administration maintains a list of your annual earnings, up to each year's Social Security. Each year is indexed for inflation, and the top 35 years are averaged together and divided by 12. This figure is your average indexed monthly earnings.
Unlike many retirement programs, such as pensions, Social Security is not calculated by applying a formula to your last few years' earnings. What many people don't.
This average is then applied to a formula to calculate your PIA. For 2018, this formula is 90% of the first $896 in averaged indexed monthly earnings, 32% of the amount between $896 and $5,399, and 15% of the amount in excess of $5,399. What is your full retirement age?
Depending on what year you were born, your full retirement age is between 66 and 67 years of age, and in 2018, people who first become eligible for Social Security benefits (born in 1956) have a full retirement age of 66 years and four months. Here's a quick guide to determine your full Social Security retirement age. Early or late retirement Americans who qualify for Social Security retirement benefits can choose to start collecting their monthly benefits at any time between ages 62 and 70.
However, starting before or after full retirement age has a permanent effect on your benefits. If you choose to start Social Security early, your benefit is reduced by certain percentages, depending on how long before full retirement age you chose to claim your benefit. For the first 36 months before full retirement age, your PIA is reduced at an annual rate of 6 2/3%, or five-ninths of 1% per month. Beyond 36 months early, the PIA is further reduced by 5% per year, or five-twelfths of 1% per month. For example, if you claim Social Security four years before you'll reach full retirement age, your PIA will be reduced by a total of 25%. That's 6 2/3% for each of the first three years (for a total of 20%) and an additional 5% for the fourth year.
On the other hand, starting Social Security retirement benefits after you reach full retirement age will result in an increase of your PIA. Specifically, for every year you choose to delay your retirement benefits, you'll be given a permanent 8% boost, until as late as age 70. If your full retirement age is 66, that translates to a 32% increase in monthly benefits. A real-world example Let's say you were born in 1955 and earned an inflation-adjusted average of $50,000 per year throughout your career, which translates to $4,167 per month. Based on the PIA formula listed earlier, you would be entitled to a monthly benefit of $1,853 at full retirement age.
How Is Social Security Calculated For 2017
Since your full retirement age is 66 years and two months, you would have to start your benefit at exactly this age to receive that monthly amount. If you wanted to claim your benefit in 2018 when you turn 63, you would have three years and two months before reaching full retirement age. Based on the reduction rule, you'd have a total reduction of about 20.83%, which would reduce your monthly retirement benefit to $1,467.