Just imagine – marching into your boss’s office and proclaiming you are done. Then promptly marching into the Social Security office and demanding your check.
Ok, it doesn’t quite happen like that. But you and I work for decades, paying social security taxes year after year, but what exactly will the payout be? Those nearing retirement can get a good estimate from the Social Security Administration using their online tool, but you can see what your benefit is slated to be if you setup your account on the SSA’s website.
Let’s start with the quick & dirty Quick Calculator the SSA has freely available. The user inputs his or her date of birth, current earnings, and future retirement date. Once you input those few items, the results page shows your estimated monthly benefit and additional disability & survivor benefits that can be helpful to know from a financial planning and risk management perspective.
A quick calculator is nice, but what if you are doing detailed cash flow planning for your golden years. You want to know what your monthly SSA check will be using all of the available variables. The SSA can tell you that figure when you setup your SSA account. But let’s dive into what variables make up your retirement benefit. Perhaps you still have time in your working years to beef up your benefit.
Your benefit is of course based on what you have contributed through payroll taxes during your career. Keep in mind though, a social security check is not huge money compared to the typical retiree’s spending. The average benefit is $1,500 per month while the most you can receive is about $3,800 (if you want until age 70 to begin benefits).
There are certain ‘bend points’ in determining your ‘primary insurance amount’ that ultimately makeup your social security benefit. There are a lot of odd-sounding terms that go into all of this, but the formula is designed so that lower-income individuals can still get a sizable check if they earn a base amount of income during their working years. Remember, it is your earnings, not the amount of taxes you paid or the number of credits you’ve earned, that determine your benefit amount. For example, the first $1,000 per month of income during your career counts massively to your retirement benefit while monthly income above $6,000 hardly counts at all.
So that is a little background on what determines how much you get. To find ‘your number’, we recommend setting up your ‘my Social Security’ account on the SSA website. You will enter in your personal information and go through the steps, but when you finally reach your benefits page, you will see some interesting and very useful information.
The SSA will show you your estimated monthly benefit at the top of the Overview page. There are also 3 other tabs we can explore. For the Overview section, your Estimated Benefit at Full Retirement age is displayed in all its glory along with your most recent year of reported earnings. You can download and print your full benefit statement through a link in this section. Further down on the page is an additional calculator you can play with along with information on replacing your social security card.
The next page is the Estimated Benefits section. This page displays shows your benefit based on your current earnings rate – so there are some assumptions going on here. What is very useful though is that it shows benefits if you where to begin at age 62, your Full Retirement Age (FRA), and at age 70 – which is often a critical question many individuals ask themselves as they near retirement – at what age do I want to file for benefits? The Estimated Benefits area also shows your estimated disability benefit if you were to become disabled today. Family, survivor, and Medicare benefit information is also showed.
A quick note – If you were born before 1938, your FRA is 65. Because of a 1983 law change, the FRA will increase gradually to 67 for people born in 1960 and later.
The third and fourth pages are your earnings record history and information to replace important documents.
It can be information overload when looking at all of your social security benefit information. But the SSA website is helpful in that it shows you ‘your (estimated) number’. It is not just a simple calculator. It’s important to understand that the older you are and closer to retirement you are, the more accurate the estimates will be.
Here’s the point
- Many variables determine your social security benefit.
- Use the SSA’s “my Social Security” account page to access your estimated monthly benefit; the older you are, the more accurate the estimate will be.
- The account page will also show you the different benefit amounts based on if you were to take benefits early, at FRA, or delay to age 70.
- Data is great, but turning that into useful information to augment your financial plan is critical. That’s where TFC is here to help. We will use those SSA figures to optimize your retirement plan.
Action items
- Sit down with us at TFC to turn that data into your best retirement plan.
- If you are still working, let’s use this information to see what other areas of your financial life we can improve upon to get you on the best footing (401(k)s, IRAs, pensions etc).
- Let’s decide when it makes sense for you to start taking benefits – 62, FRA, or 70. It’s a big question – let the experts at TFC guide you through it all.
Photo by Aaron Burden on Unsplash