Social Security benefits are calculated based on your earnings history and the age at which you start receiving benefits. Here’s a general overview of how it works:
Earnings Record: Social Security looks at your lifetime earnings to determine your benefits. They use your highest-earning 35 years of work. If you have less than 35 years of earnings, they’ll include zeros for the missing years.
Average Indexed Monthly Earnings (AIME): Your earnings are adjusted for inflation to reflect current dollars. This adjusted figure is then averaged over your 35 highest-earning years to get your AIME.
Primary Insurance Amount (PIA):
The AIME is used to calculate your PIA, which is the amount you’ll receive at full retirement age (FRA). The formula for calculating the PIA involves applying a progressive benefit formula to different portions of your AIME:
90% of the first $1,115 of AIME
32% of AIME over $1,115 but below $6,721
15% of AIME over $6,721 (these thresholds change annually)
Adjustments for Age:
Full Retirement Age (FRA): If you start benefits at your FRA, you’ll receive your full PIA.
Early Retirement: If you start benefits before your FRA (as early as age 62), your benefits will be reduced. The reduction is about 5/9 of 1% for each month before your FRA up to 36 months, and 5/12 of 1% for additional months.
Delayed Retirement: If you delay benefits past your FRA (up to age 70), you’ll receive increased benefits. This increase is about 8% per year of delay.
Cost-of-Living Adjustments (COLAs): Social Security benefits are adjusted annually based on changes in the cost of living, which helps maintain the purchasing power of your benefits over time.
Social Security benefits
Social Security benefits are designed to provide financial support to retirees, disabled individuals, and survivors of deceased workers. Here’s a breakdown of the key types and how they generally work:
1. Retirement Benefits
- Eligibility: To qualify for retirement benefits, you need to have earned 40 “credits” through working and paying Social Security taxes. You earn up to four credits per year.
- Full Retirement Age (FRA): The age at which you receive 100% of your calculated benefit. It varies based on your birth year, ranging from 66 to 67. You can start receiving benefits as early as age 62, but at a reduced rate.
- Benefit Calculation: Based on your 35 highest-earning years, adjusted for inflation. Benefits are calculated using a formula applied to your Average Indexed Monthly Earnings (AIME).
2. Disability Benefits
- Eligibility: To qualify, you must have worked a sufficient number of years and have a medical condition that prevents you from working for at least 12 months or is expected to result in death.
- Benefit Amount: Determined based on your AIME, similar to retirement benefits.
3. Survivors Benefits
- Eligibility: Paid to family members of a deceased worker, including spouses, children, and in some cases, parents. The amount depends on the deceased’s earnings record and relationship to the survivor.
- Types of Survivors Benefits:
- Widows/Widowers: Can start receiving benefits as early as age 60 (or age 50 if disabled).
- Children: Benefits can be paid to minor children, or to disabled children if they were disabled before age 22.
4. Spousal Benefits
- Eligibility: A spouse can receive up to 50% of the worker’s benefit if the worker has reached FRA. A divorced spouse may also qualify if the marriage lasted at least 10 years.
5. Supplemental Security Income (SSI)
- Eligibility: SSI is a separate program from Social Security and provides financial assistance to people who are aged, blind, or disabled and have low income and limited resources.
- Benefit Amount: Based on financial need, rather than earnings history.
6. Cost-of-Living Adjustments (COLAs)
- Social Security benefits are adjusted annually to keep up with inflation, helping to maintain the purchasing power of benefits over time.
How to Apply
- Online: You can apply for Social Security benefits through the Social Security Administration (SSA) website.
- In-Person: Visit your local Social Security office.
- By Phone: Call the SSA’s toll-free number for assistance.
Important Considerations:
- Taxes: Depending on your total income, a portion of your Social Security benefits may be subject to federal income taxes.
- Work While Receiving Benefits: If you work while receiving benefits before reaching your FRA, your benefits may be reduced based on your earnings. However, once you reach FRA, your benefits will no longer be reduced regardless of your earnings.