How much will be in your Social Security retirement check and how much can you keep? These are burning questions for pensioners.
Even retirees who continue to work can rely heavily on this long-awaited monthly benefit.
Here we look at the determining factors behind the size of your check and how much money ends up in your wallet or pocket.
1. Your work history
Your “retirement age” means something very special to Social Security. You can stop working and throw all the retirement parties you want, but as far as Social Security is concerned, your retirement age is not when you quit work, but when you start receiving Social Security benefits.
To calculate the amount of your monthly benefit check, the Social Security Administration (SSA) uses a formula that takes into account:
- Your highest earning 35 years
- When do you start receiving Social Security benefits?
The SSA explains more about Your Retirement Age and When You Stop Working.
2. Your earnings history
The size of your Social Security checks also depends on how much you earned in those 35 highest-earning years.
The formula measures earnings, not performance. So maybe you worked at home, raising children or taking care of the elderly. Without those years of earnings, you are at a disadvantage.
When you don’t have 35 years of earnings, Social Security means $0 for each unearned year. A $0 year reduces your benefit amount, so it’s in your best interest to have as much income as possible in those 35 years.
Working for more than 35 years cannot hurt this calculation. In fact, you can increase your monthly retirement check if:
- You add years of earnings to replace years with zero earnings
- You alternate with lower earning years
The SSA has details in the Social Security Benefit Amounts section.
3. When were you born?
Your birthday is an important milestone for Social Security. Your birth date determines your “full retirement age,” which is the Social Security Administration’s measure of your benefits.
For those born between 1943 and 1954, the full retirement age is 66.
To keep Social Security financially sound, Congress took steps in 1983 to gradually raise the full retirement age. As a result, if you were born in 1960 or later, your full retirement age is 67. If you were born between 1954 and 1960, you can see your full retirement age on this SSA chart.
4. Your age when you claim
Social Security allows retirees to claim benefits and receive pension checks as soon as they turn 62.
But you can’t earn all the money you need at that moment. you must wait until your full retirement age. Claiming sooner reduces the amount of your monthly benefit, permanently.
If you wait even longer than your full retirement age, you may prefer to receive your Social Security benefit. This is also permanent.
The SSA’s “Deferred Retirement Credits” chart has details. Generally, you increase your monthly benefit for each month you delay claiming until age 70.
The maximum increase in your monthly allowance is 8%; you’ll get it by waiting until your 70th birthday before claiming benefits. There is no point in waiting longer. growth stops at that age.
5. The husband who worked
You may receive more from Social Security than your work record entitles you to. How: Claiming “Spousal Benefit”.
If your spouse has earned more than you (and is receiving benefits), you may be eligible for a higher payment of up to half of your spouse’s “primary insurance amount,” depending on the age at which he or she applied for Social Security.
You usually have to be at least 62 years old to do this. The benefit increases if you wait until full retirement age.
Spousal benefits may be available in some cases if you have a child under 16 or who receives SSI disability payments.
There are restrictions and requirements. Learn more about Social Security benefits for spouses.
6. State of the economy
When you receive Social Security checks, your monthly benefit is usually fixed.
But inflation hurts people on fixed incomes, so the Social Security Act tries to compensate with automatic cost-of-living adjustments (COLAs), a percentage increase to the monthly benefit.
These COLAs are based on the national inflation rate. When inflation is flat, the annual COLA is small or sometimes 0%. These days, when inflation is higher, COLA increases get bigger.
Scroll down on this page to view Social Security COLAs since 1975.
7. Whether you continue to work
Working provides an exception to the general rule that Social Security payments are fixed after you claim benefits.
Working after you collect benefits can increase your Social Security payment. Your benefit formula is recalculated once a year to include your new earnings.
“If your last year of earnings is one of your highest years, we recalculate your benefit and pay you any increase,” the SSA said. That’s because for each year of higher earnings, Social Security substitutes the lower-earning year in the formula.
However, there is a “but”. If you are under full retirement age, you may be able to temporarily reduce your benefit if you earn too much at work.
When you reach full retirement age, the penalty ends and your benefit amount is adjusted to compensate you for the period that benefits were withheld.
This retirement income calculator lets you test scenarios. SSA’s “Getting Benefits While Working” explains more and provides examples.
8. Whether you have other income
Do you have to pay taxes on your Social Security retirement income? Maybe.
If your income is below $25,000 for a single person or below $32,000 for a couple filing jointly, you will not pay federal income tax on your benefit checks, as the SSA explains here.
Otherwise, your allowance is taxed at up to 50% or 85% of the total amount. How much tax you pay depends on how you file federal taxes and your income from other sources.
9. Where do you live?
The IRS isn’t alone in wanting a piece of your benefit check. If you live in one of the 12 states that tax Social Security benefits, you may also owe state income tax on your benefit check.
The rules are different. Some states follow the federal rules for taxing Social Security. Others have their own approaches, says this AARP summary of state rules.