Estimating your Social Security benefits can be challenging, particularly when retirement is still several years away. However, understanding the calculation process for your benefits can assist you in planning your retirement budget and potentially increasing your future Social Security payouts. It is therefore important to have a thorough understanding of these data and their application.
Due to an 8.7% increase in the Social Security cost-of-living adjustment, the average Social Security benefit rose to $1,827 per month in 2023, up from $1,681 in 2022. For those who retire at full retirement age, the maximum possible Social Security benefit is $3,627 in 2023. To attain this payment, a worker would need to earn the current maximum taxable amount of $160,200 for 2023 throughout a 35-year career.
Determining Your Social Security Benefit Amount
Social Security benefits are determined by taking into account the top 35 income-earning years throughout your career, with adjustments made for inflation. When you have worked for over 35 years, the years with the lowest earnings are excluded from the computation, leading to an increased benefit. Conversely, individuals who have not worked for a full 35 years will have zeros factored into the calculation, resulting in a reduced Social Security payment.
In 2023, for an individual qualifying for Social Security benefits, the payment is determined as follows: 90% of the initial $1,115 of average indexed monthly earnings, 32% of any remaining earnings up to $6,721, and 15% of earnings exceeding $6,721. The sum of these three values, rounded down to the nearest dime, establishes the initial benefit amount. Factors such as cost-of-living adjustments and deferred retirement credits can further increase the payment beyond this initial calculation.
Taking Your Social Security Retirement Age into Account
Your age at the time you start receiving Social Security greatly impacts your payment amount. Monthly benefits are reduced if you begin claiming before reaching your full retirement age, typically 66 or 67, based on your birth year. By delaying the claim between your full retirement age and 70, you can increase your monthly payments.
Married couples have additional claiming options. A married individual may be eligible for Social Security benefits equal to 50% of the higher-earning spouse’s payment if it’s greater than the amount based on their own work record. If claimed before full retirement age, spousal payments are reduced. Moreover, if a marriage lasted at least 10 years, you can claim benefits based on an ex-spouse’s work record. A spouse is eligible for survivor’s benefits if the higher-earning spouse passes away first. To maximize their combined benefits and potentially qualify for higher payments for a surviving spouse, couples should strategize when to claim their payments.