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Can someone please explain to me, in layman's terms, how does social security benefits work?
I'm 50 and when I got to the SS website and login to see my to-be-benefits, I find a number. Let's say $950 for example. After doing some reading on the subject, my understanding is that number is determined by taking your work history's highest 10 years net income and doing some math on those numbers (which I have no clue what it is) then come up with that $950 benefit, which I should be able to get when I retire at the age of 67...and of course if I claim my benefits later (i.e. at 70), then that number increases...
Up until now, it's not rocket science, per say, and I have a general idea of what to expect...
BUT a friend of mine told me that the number shown on SS benefits website ($950) is merely an estimate and that it ASSUMES that I will continue to work til the age of 67 or 70 and make approx the same income as I was making before...and that's where I get LOST. Because if they take into consideration the top 10 or highest paid 10 years and given that Ive already worked for 30+ years, then the top 10 years are behind me already, and that even if I make $0 til retirements, I have enough years "in the bag" from which they can take the top 10 years...
Can someone please clarify this matter and hep me understand it better...Also if my friend is right (which I'm almost certain he is), then is there a way to determine what my ESTIMATED SS benefits will look like if I work no more, but claim my benefits at 67...?
Your Social Security amount will be based on your average monthly indexed earnings for your highest 35 years of income. You must have at least 10 years (40 quarters) into the system to qualify for benefits, but your SS payment comes from your highest 35 years, indexed for inflation. If you do not have 35 years by the time you reach full retirement age, those years without earnings will be equal to 0 in the equation.
Social Security takes those highest 35 years, indexes them for inflation (so earnings from say, 1990, would be inflated to reflect the change in the price level since then) and totals the amount earned. They will then divide that amount by 420 (the number of months in 35 years) to get an average monthly earnings amount. From there, your average monthly earnings amount is put into a formula using "bend points" based on the year you were born, which results in your benefit amount at full retirement age.
And yes, Social Security formulas assume that you will continue at your current earnings until retirement. If your earnings decline between now and your full retirement age, it is likely that your Social Security payment will also decrease.
Thank you PartIrish! That helps!I meant to say the highest 35 years, not 10. I got that part mixed up, and thank you for clarifying that for me. So is there a formula to estimate my SS benefits, with the bend points and all, and assuming I stop working today? Cheers!
Yes, OP, there is a formula for SS to figure out your benefits amount.
If you read enough on the SS website, it explains exactly how that formula is used and what the results will be.
And, yes, they assume you will finish working out your working years at the current rate you are earning.
I'm 53, but will have some issues with mine as I have been collecting SSDI for a number of years. I am attempting to get more work credits in during my working years to increase my benefit as frankly, my SSDI doesn't help much with the bills anymore.
Even if I worked all remaining years I can, I will still have zero years added in. I only have 21 years of history, which already has two years of zero earnings buried in that. I can only manage another 15 years if I worked from now on in reality if I can manage that.
Since you have 35 years behind you, they'll use your highest earning years as your basis. They could be years early in your working career, as mine were, or they could be the highest last years you worked. For most people the later working years are the highest.
In my case I always worked two Jobs when I was younger before my health went South, so my earlier years were higher. Now I can't work much more than part time now. Many others who are my age may have declining earnings as they age as that seems to be what happened to many second half boomers like me, or like me, only not for medical reasons. I am making just about the same as I was earning in the late 80s.
I go by what SS says I will get, whether I transition directly from SSDI to SS or whether I add working years on a part time basis and have the new higher rate I am hoping to achieve before it becomes permanent for full actual retirement. Lol, that means I have some catching up to do.
The formula LOOKS confusing at first, but if you read it and follow the examples, you will understand it perfectly. The only variables will be IF they change things between now and when I collect.
If I can, I'll later add the exact pages link to SS website, on my phone now and the computer has the link stored for me.
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The SS administration periodically sends out a statement, and it shows every year that you paid into it. It's actually very interesting to see the difference. In my case, it starts at age 14 in 1966. My projected SS payment at full retirement age 67
is about $2,300, but if I work to age 70 will go up to just under $3,000. As long as I still enjoy my work, that difference is well worth another 3 years, and it will also make my pension higher.
Go to the SSA website and use their calculator. There you will have the option to enter your expected income for the years between now and your SS retirement age. It's simple.
Go to the SSA website and use their calculator. There you will have the option to enter your expected income for the years between now and your SS retirement age. It's simple.
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