Social Security benefits come in many forms, and beneficiaries rely on those payments to meet their monthly financial obligations. Many rely solely on this income, while others rely partially on their monthly payments from the Social Security Administration. When planning for retirement, it is crucial that people can determine how much their monthly benefit is going to be. This helps retirees plan their budget and make the decision on when to retire and start their benefits. So, just how much does Social Security pay, and how can you determine how much you will receive? Keep reading as we tell you exactly how to calculate your Social Security benefits, as well as give you information on average payment amounts.
Average Social Security Checks For 2022
As of January 2022, the average Social Security retirement benefit is $1,657 per month. This is an increase of about 6% from the payments in 2021. This year, we saw a much higher than normal cost-of-living adjustment. This is because the consumer price index saw inflation soaring and the cost of goods and services increasing rapidly. Each year, SSA makes an adjustment to payments based on the consumer price index. If the cost of goods rises, then payments will go up accordingly. However, if the price index decreases, the payment amounts will remain the same. You will not see a decrease in your monthly payment.
For Americans on Social Security disability benefits, the payments are not quite as high. The average SSDI payment in 2022 is $1,358. Again, this is higher than the 2021 amounts, but, on average, the SSDI benefit amount is always lower than the retirement benefit amount. Supplemental Security Income (SSI) benefits are the lowest of the three benefit types. Average SSI payments in 2022 are about $600 per month. You can quickly see that this amount is not enough for most people to cover their living expenses. This is why SSI recipients automatically qualify for other types of assistance in most cases. These other assistance programs may include food stamps, housing assistance, Medicaid, or other programs.
Calculating Your Own Social Security Benefits
So, how is Social Security calculated? While the calculation for determining your benefit amount is somewhat complex, it is not impossible to calculate your Social Security benefits on your own. Here is what you need to do.
#1. Calculate Your AIME
First, you will need to calculate your average indexed monthly earnings or AIME. You will need access to your full earnings history. Your benefit payments are based on your lifetime average wages, so go ahead and gather this information. You can find this on prior tax returns or your Social Security statement. Once you have access to your lifetime earnings, select the 35 highest amounts. If you did not work for at least 35 years, then you will need to use zero for the years in which you do not have an amount.
Once you have these amounts, then they need to be indexed to the current year based on the tables provided by the Social Security Administration. This accounts for inflation and adjusts your prior years’ earnings to current dollars. For example, if you earned $50,000 in 2010, then that amount may be indexed to $55,000 for 2022. You can find a complete list of wage index values on SSA.gov. Once your annual amounts are indexed, then you should add them together and divide them by 420 to arrive at your monthly amount.
#2. Calculate Your Bend Points
Once you have your AIME, then you will need to determine the bend points. These bend points vary based on your AIME amount, and you can find a table of bend points on the SSA’s website. Your Social Security payments are derived from your primary insurance amount. The bend points help you calculate the primary insurance amount by adding a percentage of your AIME within certain pay ranges. In 2022, you will receive 90% of the first $1,024 of your AIME, 32% of your AIME between $1,024 and $6,172, and 15% of your AIME over $6,172. After performing this calculation, you will be left with your primary insurance amount. It will then need to be adjusted accordingly.
#3. Make Necessary Adjustments To PIA
If you start your benefits at full retirement age, then no adjustments usually need to be made. You will receive 100% of your PIA. However, if you start your benefits early, then your retirement income will be lowered. Starting benefits at age 62 will result in a 25% reduction to your monthly Social Security benefit. However, you can earn delayed retirement credits by waiting to start your benefits later. If you wait past full retirement age, you can increase your monthly payments. These credits max out at age 70, so there is really no reason to wait any longer to claim Social Security.
My Social Security Account Benefit Estimator
If performing all those calculations to determine your Social Security income sounds too complex, then relax! There is a much easier way for future Social Security beneficiaries to get an estimate of their benefits. The Social Security Administration provides a free Social Security estimator on its website. The first thing you need to do is create a My Social Security account at www.ssa.gov. This account will provide you access to your Social Security statement, earnings history, and the benefits estimator.
This calculator makes it extremely easy to estimate your benefits based on different scenarios. You can select different retirement ages and see how that will affect your benefit payment. In addition, you can make adjustments to future earnings. For instance, you might receive a 5% raise each year which will have a big impact on your total earnings over your lifetime. The benefit estimator will allow you to make these adjustments to get a very accurate estimate of how much your monthly payments will be at retirement. This is an extremely useful retirement planning tool, and you should consider using it when looking at your personal finances to determine your retirement goals.
How To Maximize Your Social Security Payments
Social Security is often one of the main sources of income for retirees. For that reason, it is wise to make plans to get the most money possible from these benefits. So, how can you maximize the amount of money that you get from Social Security? Here are a few Social Security tips to maximize your benefit amount.
— Max Out Your Earnings
One of the things that will have the biggest impact on your future benefits is to max out your earnings during your working years. The more Social Security taxes you pay while you work, the more money you will receive once you retire. Remember that in 2022, the Social Security tax limit is $147,000. If you can max out your earnings to this amount, then you can potentially receive the maximum Social Security benefit when you retire. The maximum benefit per month is $4,194 for someone who retires at age 70 in 2022. Also, remember to claim all money you earn on your income taxes to increase your taxable earnings, especially if you are self-employed. If you do not pay taxes on money earned while working, it will not be counted toward your income for Social Security purposes once you retire.
— Work At Least 35 Years
You may remember from assignments in school that a zero has a detrimental effect on your overall average. The same applies to Social Security benefits. Since your benefit amount is calculated using your 35 highest years of income, working less than 35 years has a substantial negative impact on your Social Security check. Suppose you only work for 30 years. This means that your income will be considered zero for five years in the calculation of your benefit amount. Using a zero, especially when you use a zero for multiple years, can greatly reduce the amount of your benefits. If you are physically able, you should do everything you can to work the full 35 years to max out your earnings and potentially get the max Social Security benefit when you retire.
— Delay Starting Your Benefits
If you are financially able to delay starting your benefits, this can significantly impact how much you get. Waiting just a couple of years can increase your monthly payment by as much as $800 in some cases. Remember that those payments will last for your lifetime, so that amount can really add up. On the flip side, starting your benefits too soon will have the opposite effect. Starting your benefits a few years before retirement age can reduce them by as much as 25%. Again, since these payments last for the rest of your life, you could lose out on a lot of money. In addition, your spouse might receive lower spousal benefits and survivor benefits for the rest of his or her life. Though it is inevitable in some cases, you should do everything you can to wait as long as possible to start your benefits. Since your delayed retirement credits will max out at age 70, there is no need to wait past this age to start your payments.
— Time Your Spousal Benefits Right
Remember that your spouse is also entitled to benefits based on your earnings record. If you were the primary earner, then make sure that those spousal benefits are sequenced properly to receive the highest amount possible. This comes into play when your spouse qualifies for both spousal benefits and his or her own benefits. If you were the primary earner, it typically makes the most sense for your spouse to claim spousal benefits as soon as they qualify. By doing this, they can continue to let their own benefit accrue. Upon reaching age 70, they can switch to their own benefit, which is then as high as possible. You may consider consulting a financial planner to help you with the timing and sequencing of spousal benefits to max out the amount that you can receive.
The Bottom Line
The average Social Security retiree can expect to receive about $1,600 per month in benefits. Remember that Medicare Part B premiums may be deducted from this amount if you choose to enroll in Part B health care coverage. Disabled workers on Social Security Disability Insurance (SSDI) can expect an average payment of around $1,300, and SSI recipients get about $600 per month. Don’t forget that your dependents might also be eligible for benefit payments based on your earnings history. This applies to both retired workers and disabled workers.
Frequently Asked Questions
How do you find out how much Social Security you will receive?
Many people wonder, “How much Social Security will I get?” There are a couple of ways to find out how much your payments will be. First, you can calculate your own benefit payments. This method is pretty complex and cumbersome, and you will need access to your lifetime earnings history. The easiest way is to use the Social Security benefits estimator on your My Social Security account. This calculator allows you to estimate your benefits based on future earnings and retirement age. This tool makes it extremely easy to estimate benefits based on different scenarios.
How much does Social Security pay for people with disabilities?
The average SSDI payment in 2022 is about $1,300 per month. These payments are made from the Social Security trust funds, just like retirement benefits. However, since most disabled workers have not paid as many Social Security taxes as retirees, the benefits tend to be a little lower.
How much will Social Security pay me at 65?
For most people, full retirement age is either 66 or 67. If you start your benefits at age 65, then your benefit amount will be reduced. You can use the Social Security Administration’s online benefit estimator to determine how much you will receive if you retire and start benefits at age 65. It is likely to be about 10% less than your full retirement amount.