How To Estimate Your Social Security Retirement Benefits In United States

Social Security Benefits available to the retired workers in United States depends upon the number of years they have worked and earned wages. The actual calculations are complex and can often leave the beneficiary somewhat baffled and at a loss. Here is a simple explanation of the basis that is followed for calculating these benefits, so as to help you have an idea of how much to expect in future.
How to Estimate Your Social Security Retirement Benefits in United States
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SOCIAL SECURITY RETIREMENT BENEFITS are calculated in a complex ways, so it may not always be possible to accurately calculate your benefit yourself. However, understanding the principles that are used to calculate it will give you sufficient indication of what is the likely benefit in your case. Subsequently you can get a more accurate approximation using the benefit calculator on the website of Social Security Administration, at .

Eligibility for Social Security Retirement Benefits

To be eligible for social security retirement benefits, you must have earned at least 40 credits for the QUARTERS in which you have earned a prescribed

minimum amount during the quarter. In 2007 the minimum earning required was $ 1000 per quarter to get a credit for it. One can get a maximum credit for four quarters every year. You need to have earned at least 40 quarterly credits before the age of retirement to become eligible for any social security retirement benefits.

The Basis for Calculating the Social Security Retirement Benefit

Retirement benefit is calculated using a complex formula, based on EARNED INCOME as the denominator, provided you have paid social security tax on it. Social security tax is also known as ‘Payroll tax’ or ‘Federal Insurance Contributions Act Tax’ (FICA). In case you have earned an income higher than what was subjected to social security tax, then only the income that was subjected to social security tax will be considered. In case, you received salary from States which were not subjected to social security tax, then it would also not be considered. For the year 2017, the maximum amount of earnings subjected to FICA was $127,200.

The various steps involved in calculating the retirement benefits are listed below in a simplified way.

  1. The earnings of the beneficiary for each of the years are converted to the current value by means of wage indexation, which is not the same as inflation indexing, and would generally lead to a somewhat higher value compared to inflation indexing.

  2. Now for the purpose of determining the eligible benefit for the beneficiary, the 35 years for highest earning is taken, while the income of other years is ignored. If the total number of years in which income was earned is less than 35 years, the income of other years will be taken as nil.

    Thus, working for less than 35 years can reduce your benefits to some extent.

  3. The indexed income of the 35 years of maximum income is summed up and divided by the number of months in those 35 years, i.e. 420, so as to obtain the AIME or the AVERAGE INDEXED MONTHLY EARNING. For example, a person with maximum taxable earnings after the age of 22 and retiring at the age 62 years will have an AIME of $9,784 in 2017.

  4. Once AIME is calculated, the PRIMARY INSURANCE AMOUNT (PIA) is calculated using a formula that is then used to determine the payment to the beneficiary. It is a sum of three separate percentages of portions of the AIME, fixed by SSA, divided by the “bend points” that change every year in accordance with the national average wage index. For example, in 2017, for Social Security 90 percent of the first $885 of a worker’s AIME was taken. For subsequent income 32 percent of the amount over $885 through $5,336 was taken along with 15 percent of any AIME amount over $5,336. This process, using bend points, gives a higher credit to initial dollars compared to additional dollars of income, in order to allow higher benefit to lower income workers. A person with maximum taxable earnings after the age of 22 and retiring at the age 62 years will have PIA of $2,888 in 2017.

  5. Once the benefits are calculated, they are adjusted in subsequent years for inflation, known as COST OF LIVING ADJUSTMENT or COLA.

The net result is your retirement benefit that you can expect to receive every month.

Use the SSA Calculator to Determine Your Benefits

A far easier way to calculate or estimate your social security retirement benefits could be to use the online calculator or estimator provided by the Social Security Administration online. It can be accessed from

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