Calculating Social Security Benefit
The majority of Americans are qualified to join Social Security if they’ve completed 10 years of work. Once you qualify, how much money you’ll receive from Social Security benefits is determined by a complex formula which converts your past wages into current dollars and then adjusts that number lower at specific income levels called “bend points.”
Social Security determines your benefit on your highest 35 years od adjusted income divided by 420, the number of months that create 35 years. This provides your average indexed monthly earnings or AIME.
The Social Security Administration (SSA) uses the bend point multiplies to determine your maximum monthly Social Security benefit at your full retirement age. Full retirement age is based upon the individual’s birth year, so if you were born in 1956 your FRA is 66 years and 4 months, and if you were born during or after 1960, it’s 67 years old.
For 2017, the calculations reveal that the average monthly Social Security check is $1,377 with a maximum benefit of $2,687 a month. But in 2018 Social Security’s cost of living adjustment (COLA) and an increase in income that succumbs to payroll taxes will raise the average and maximum Social Security stipend benefit to $1,404 and $2,788.
So How Can You Get the Biggest Check?
Social Security typically replaces about 40% of your pre-retirement income, so if you earn less than the maximum benefit that’s subject to payroll taxes, a pay raise will be the best chance to get the biggest benefit possible, according to the article. In 2017, payroll taxes are collected on income earned up to $127,200. However, they’ll be collected on income up to $128,700 to adjust for inflation.
If you’re currently receiving Social Security and you’ve at your full retirement age, then a pay bump will still be able to give your benefit stipend a raise due to Social Security recalculating your benefit amount annually.
If your current income is already at the maximum taxable income point, then you should be focused on how many years you’ve worked. Social Security uses the highest 35 years of your work history regarding income to find your benefit stipend. If you haven’t worked for at least 35 years then continue to will replace any potential zeros in your Social Security calculation. If you’ve worked for more than 35 years, but your income is currently higher than it was at the start of your career, you can still work to help remove low-income years that may be lowering your benefit stipend amount.
You could also utilize delayed retirement credits to help get a bigger check as well. If you choose to not collect benefits until after your full retirement age, then those credits can increase your stipend by 8% per year, up until age 70. Delayed retirement credits can be used to increase you benefit stipend above the maximum Social Security payment; this means if you qualify for the maximum amount, waiting a few more years to obtain Social Security could help tremendously. For example, if you qualify for the maximum $2,788 in 2018, you’ll receive 129.33% of that amount if you wait to claim benefits until the age of 70. This will give you $3,605 each month.
While it’s easy to get fixated on maximizing your Social Security check, you need to make sure to not only consider payment when reviewing your retirement options. You’ll want to compromise on your wish to get the maximum Social Security benefit with your spouse’s and your health and retirement plans.
You can read the full article here.