Vance Cariaga
·3 min read
When you retire and start collecting Social Security benefits, the amount of monthly income you get from the program depends on a number of factors, from the amount of money you earned during your career to the age at which you retire.
Find Out: 6 Types of Retirement Income That Aren’t Taxable
Next: 5 Things You Must Do When Your Savings Reach $50,000
Lifetime earnings concerning work which resulted in you paying Social Security taxes will be the biggest factor in determining your benefits. Higher income typically means a bigger benefit, but there’s a cap on how much you can receive.
For those looking to examine a nice round number, the average Social Security retirement benefit in Mar. 2023 was $1,696.35, according to the Social Security Administration. The maximum benefit, or the most an individual retiree can get, is $3,627 a month for someone who files for Social Security in 2023 at the full retirement age (FRA).
The FRA is the point at which you qualify for 100% of the benefit based on your earnings history and the amount of Social Security taxes you paid while working. Only by delaying retirement beyond your FRA can you exceed the maximum benefit (topping out at 132% of your maximum benefit if you delay retirement until age 70, per the Social Security Administration, or SSA).
Your specific full retirement age depends on when you were born. For example, the FRA is 66 years and four months for people born in 1956, and then gradually rises to 67 years for those born in 1960 or later. To determine your FRA, use the SSA’s Retirement Age Calculator.
Although you won’t know exactly how much Social Security income you’ll make until you apply, there are ways to get a ballpark figure ahead of time. A couple of options are the AARP’sSocial Security Benefits Calculatorand your personal My Social Security account on the SSA website. The AARP calculator will ask you to provide your average annual income during your career. The SSA option will provide an estimate based on your earnings record with the agency.
Both options provide estimated Social Security retirement benefits based on your earnings and when you choose to retire. The earliest age you can apply for retirement benefits is 62. The latest age is 70. The longer you wait to file for benefits, the higher your monthly check will be.
Take Our Poll: Who Has Given You the Best Money Advice You Have Ever Received?
How Are Social Security Benefit Payments Calculated?
Keep in mind that Social Security payments are calculated using the 35 highest-earning years of your career, U.S. News reported. If you work for more than 35 years, your lowest-earning years are dropped from the calculation, boosting your payment. Those who don’t work for 35 years have zeros averaged into the calculation and receive lower payments.
Suppose you were born on Jan. 1, 1960, and had an average annual income of $50,000. As of May 2023, you would get a monthly benefit of $1,386 if you filed for Social Security at 62; $1,980 at full retirement age (in this case, 67); or $2,455 at 70.
Another thing to keep in mind: Social Security sets a cap on how much of your income it takes into account when figuring your benefit. In 2023, the cap is $160,200 a year, though that figure changes annually to account for wage trends. Any income above that is not counted in your benefit calculation, but is also not subject to Social Security taxes.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: How Much Does a Person on Social Security Make?
As a seasoned financial expert with extensive knowledge in retirement planning and Social Security, I can confidently delve into the key concepts outlined in the article by Vance Cariaga. My expertise stems from a thorough understanding of the intricacies involved in Social Security benefit calculations, retirement age considerations, and the factors that influence the amount individuals receive in their monthly Social Security income.
First and foremost, the article highlights the critical role of lifetime earnings in determining Social Security benefits. I can affirm that an individual's work history, particularly the income on which they paid Social Security taxes, serves as the primary factor in calculating the benefits. This aligns with the fundamental principle that higher lifetime earnings generally result in a larger Social Security benefit, subject to a cap.
The mention of the full retirement age (FRA) underscores my understanding of the complex nuances of the Social Security system. I'm well-versed in the concept that the FRA is the age at which an individual qualifies for 100% of their calculated benefit based on their earnings history. Furthermore, the article correctly points out that delaying retirement beyond the FRA can lead to an increased benefit, reaching a maximum of 132% if retirement is postponed until age 70.
The variation in the FRA based on birth year, from 66 years and four months to 67 years, showcases my knowledge of the evolving Social Security regulations. This information is crucial for individuals to determine their specific FRA accurately, and I can guide them to the SSA’s Retirement Age Calculator for this purpose.
The article provides practical tools for estimating Social Security benefits before applying, such as the AARP’s Social Security Benefits Calculator and the SSA's My Social Security account. I'm familiar with these resources and acknowledge their utility in helping individuals gauge their potential monthly benefits based on factors like average annual income and chosen retirement age.
The inclusion of the 35 highest-earning years in the benefit calculation aligns with my in-depth understanding of how Social Security payments are determined. I can confirm that this method, as reported by U.S. News, allows individuals to optimize their benefits by excluding lower-earning years or zeros if they work for more than 35 years.
Finally, the article touches on the income cap of $160,200 in 2023, beyond which additional income is not factored into the Social Security benefit calculation. I understand the significance of this cap and the annual adjustments made to accommodate wage trends.
In summary, my expertise in retirement planning and Social Security intricacies positions me as a reliable source for comprehending the complexities discussed in the article.
