04/26/2023
How to Calculate Your Social Security Payment
Social Security payments are calculated using the 35 highest-earning years of your career and are adjusted for inflation. If you work for more than 35 years, your lowest-earning years are dropped from the calculation, which results in a higher payment. Those who don't work for 35 years have zeros averaged into the Social Security calculation and get smaller payments.
"When it's time to calculate your benefits, the Social Security Administration will look at your highest 35 years of earnings, and earnings before your 60th birthday are indexed for inflation – meaning that while your earnings may have crept up over your career, the money you earn this year may not be one of your highest-earnings years after indexing," says Jim Blankenship, a certified financial planner at Blankenship Financial Planning in New Berlin, Illinois, and author of "A Social Security Owner's Manual."
For a worker who becomes eligible for Social Security payments in 2023, the benefit amount is calculated by multiplying the first $1,115 of average indexed monthly earnings by 90%, the remaining earnings up to $6,721 by 32%, and earnings over $6,721 by 15%. The sum of these three amounts, rounded down to the nearest 10 cents, is the initial payment amount. Cost-of-living adjustments and delayed retirement credits can boost your payments above this amount.
Factor in Your Social Security Retirement Age
Your age when you start Social Security plays a big role in your payment amount. Your monthly Social Security benefit is reduced if you claim payments before your full retirement age, which is typically age 66 or 67, depending on your birth year. You can boost your monthly payments for each month you delay claiming between your full retirement age and age 70.
Married couples have more claiming options. Married individuals are eligible for Social Security payments equal to 50% of the higher-earning spouse's payment if that's more than the payments based on their own work record. Spousal payments are reduced if you claim them before your full retirement age. You can also claim payments based on an ex-spouse's work record if the marriage lasted for at least 10 years. A spouse can claim survivor's payments if the higher-earning spouse passes away first. Couples should coordinate when they claim payments to maximize their benefit as a couple and to potentially qualify for higher payments for a surviving spouse.
