How To Get Money From Your Social Security Number

How To Get Money From Your Social Security Number – You may expect to receive money from the government when you retire, but how much you get depends on the Social Security benefit formula. Many do not understand how this formula works or when it applies, but it is not too difficult to figure out as long as you are comfortable with some basic calculations. Below, we will break it down step by step so you can better estimate how much money you will get from the program.

The Social Insurance formula is what the government uses to determine your basic insurance amount (PIA). That’s the benefit you’re entitled to if you sign up at your full retirement age (FRA). This is 67 for every person born in 1960 or later.

How To Get Money From Your Social Security Number

Before the government can use the benefit formula, it must calculate your average monthly income (AIME). This is your average monthly income over the 35 years of your highest income, adjusted for inflation. We’ll talk more about calculating that below.

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When the government finds out your AIME, it enters the Social Security formula for the year you turn 62. The result is your PIA. But that’s not always the same as your monthly payment.

Some people choose to apply for Social Security before or after their FRA. If you apply early, you can start receiving benefits as soon as you turn 62. You’ll get more checks this way, but each one will be smaller. You can also delay benefits and your check will grow a little each month until you reach the maximum benefit at age 70.

In both of these cases, the government performs additional calculations to determine how to adjust your PIA to determine your final monthly benefits.

The Social Security formula for 2023 — which applies to anyone born in 1961 — is as follows:

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In the formula above, $1,115 and $6,721 are known as the inflection points. These are the only parts of the Social Security benefits formula that change from one year to the next. You can find diversion points for each previous year on the Social Security Administration’s website.

If you simply want to know how much your Social Security check will be if you enroll at a certain age, you can find that out by creating a My Social Security account. But if you want to understand how the government arrived at this number, you can copy its work by taking the following steps:

The federal government keeps track of how much you paid in Social Security taxes each year on your income records. You can see this on your Social Security account.

For most people, their real income and the income they pay in Social Security taxes are the same. But this is not always the case for high income earners. In 2022, for example, you only pay Social Security taxes on the first $147,000 you earn. In 2023, this amount will increase to $160,200. So if your income statement shows $147,000 in 2022, that’s not a mistake, even if your actual income for the year is much higher.

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The government uses the Average Wage Index (AWI) to adjust your wages for inflation to accurately reflect the years you earned the most. You can see the AWI for all previous years going back to 1951 on the Social Security Administration website.

The AWI you use to adjust your wages is the one you were working for in the year you turned 60. You divide this AWI by the year you are adjusting the wages. The result is your index. Multiply this by your income as reported on your income statement for that year to get your adjusted salary.

For example, if you turned 60 in 2021, you would use the 2021 AWI of $60,575.07 as your target. If you earned $50,000 in 2015 and want to calculate your adjusted gross income for that year, you would do the following:

If that’s too much math for you, you can skip the first step and go straight to the index points. The Social Security Administration maintains lists of all index factors for all years. You just have to enter the year you turn 60 and it will give you index points to use. So all you have to do is multiply the index factors of your income for the appropriate year.

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After you adjust your income for inflation, the total income from your 35 years of maximum income. If you have not earned an income for at least 35 years, then total your income for all the years you worked.

Next, divide this sum by 420 — the number of months in 35 years — which will give you your AIME. It may not be as high as you’d expect if you’ve worked for less than 35 years because you’ll have some zero earnings factored into your calculation.

Once you know your AIME, you can enter the Social Security retirement benefits formula as described above. But remember to choose the right formula for your age. You must use the one that was in effect the year you turned 62 regardless of whether you signed up for benefits at that age.

The results you get from this step will give you your PIA. If you choose to enroll in your FRA, that’s also how much you’ll get in benefits. But if you enroll before or after your FRA, there are a few extra steps to calculate your monthly benefits.

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To do this step, you need to know what your FRA is. Here’s a table to help you figure that out:

For example, if your FRA is 66 and you claim 62, you will lose 5/9 of 1% of your paycheck for each of the first 36 months you claim early. So you would multiply (((5/9) x 0.01) x 36) x 100 and get a 20% discount. But that’s not all.

Then, you have to add an additional 5/12 of 1% to your monthly claim check between 62 and 63. So you take (((5/12) x 0.01) x 12) x 100 and you have an extra 5% discount. Combined, the two steps above result in a 25% smaller claim check at 62 as opposed to waiting until 66.

For those who choose to defer benefits past FRA, the process is very similar. You add 2/3 of 1% per month to your FRA. However, this only continues until you reach 70. After that, your profit will not grow anymore.

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The five steps above will tell you what kind of benefits you’re entitled to based on your work history and the age you’re claiming, but that’s not always the same as your take-home pay. Medicare seniors have their Part B premiums automatically deducted from their Social Security checks.

In 2022, that’s $170.10 a month, but it drops to $164.90 in 2023. If you’re not yet on Medicare, you won’t have to worry about this until you sign up.

The final step in calculating your take-home Social Security benefits is to round your answer from Step 6 to the nearest dollar. Even if the result of the previous step was $1,680.99, you would still be down to $1,680 instead of accumulating to $1,681.

Each year the government administers a cost of living adjustment (COLA) to help seniors’ Social Security checks keep up with inflation. But it doesn’t include the COLA in your take-home paycheck. It adds to your PIA.

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If you want to calculate the size of your paycheck next year, look at your PIA for the current year and add the COLA. For example, the 2023 COLA is 8.7%, so you would take the 2022 PIA and multiply it by 1.087 to get the 2023 PIA. You then continue with Steps 5 to 7 above to determine your new home benefit next year.

Once you understand how the government calculates Social Security benefits, you can use this information to maximize your benefits. For example, if you didn’t know that the government based your benefits on your 35 years of highest earnings, you may have retired before you worked that long. That would result in zero income years being included in your benefit calculation.

Understanding how your FRA plays into your benefit calculation can also help you choose the best time to sign up. This depends on your life expectancy and financial circumstances.

You can use the steps above to calculate your benefits at different age claims. Then multiply each of these benefits by 12 months to get your annual benefit estimate. You then multiply this number by the number of years you expect to claim the estimated lifetime benefit. For example, if you expect a $2,000 monthly check at your 67 FRA and believe you will live to 87, you will have an estimated lifetime benefit of $240,000.

Social Security Payments Will Continue If Government Shuts Down

Everything you need to know about Social Security benefits This government program supports those in need, using private tax dollars.

What you should know about Social Security COLAs Social Security COLAs are inflation-based Social Security increases.

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