Sunday, April 6, 2014

Social Security: How to Estimate Monthly Retirement Benefit?

All workers paying FICA (Federal Insurance Contributions Act) and SECA (Self Employed Contributions Act) taxes for 40 quarters of credit (QC) or more on a specified minimum income or more are "fully insured" and eligible to retire at age 62 with reduced benefits and higher benefits at full retirement ages of 65, 66 or 67 depending on your birth date.[10]




How Is Your Social Security Monthly Retirement Benefit Calculated?


Social Security benefits are based on your lifetime earnings. Your actual earnings are adjusted or “indexed” to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. They apply a formula to these earnings and arrive at your basic benefit, or “primary insurance amount”. This is how much you would receive at your full retirement age—65 or older, depending on your date of birth.

On www.socialsecurity.gov, it provides a worksheet. People born after 1952 can use this worksheet, but their actual benefit may be higher due to additional earnings and benefit increases. This worksheet[1] copied from www.socialsecurity.gov web site shows how to estimate the Social Security monthly retirement benefit you would be eligible for at different retirement ages:
  1. Enter your actual earnings in Column B, but not more than the amount shown in Column A. If you have no earnings, enter “0.”
  2. Multiply the amounts in Column B by the index factors in Column C, and enter the results in Column D. This gives you your indexed earnings, or the approximate value of your earnings in current dollars.
  3. Choose from Column D the 35 years with the highest amounts. Add these amounts. $_________
  4. Divide the result from Step 3 by 420 (the number of months in 35 years). Round down to the next lowest dollar. This will give you your average indexed monthly earnings. $_________
  5. Step 5:
    • a. Multiply the first $816 in Step 4 by 90%. $_________
    • b. Multiply the amount in Step 4 over $816 and less than or equal to $4,917 by 32%. $_________
    • c. Multiply the amount in Step 4 over $4,917 by 15%. $_________
  6. Add a, b and c from Step 5. Round down to the next lowest dollar. This is your estimated monthly retirement benefit at age 66, your full retirement age. $_________
  7. Multiply the amount in Step 6 by 75%. This is your estimated monthly retirement benefit if you retire at age 62. $_________




If you were born before 1952, please go online at www.socialsecurity.gov or contact Social Security for your worksheet.

References

  1. Your Retirement Benefit: How It Is Figured
  2. Social Security Potluck
  3. The Lifetime Income Series: Making Sense of the Retirement Plan Alphabet Soup: myRA, IRA, Roth, SEP, SIMPLE, PSP, 401k, 403B, DBP, etc.
  4. A New Study Paints a Rosier Retirement Picture (or is it?)
    • The chances of Social Security benefits staying the same are slim, given that the Social Security system continues to pay out more than it takes in, according to the 2013 Trustees Report on Social Security. The report also claims that the Social Security fund for retirees is on track to become insolvent in 2033.
  5. How Social Security Trust Funds Will Change Private Retirement Income
    • There are no real assets, but instead the social security trust funds consist of $5 trillion of unfunded liabilities.
  6. Social Security and Medicare for Expatriates: What You Must Know
    • Social Security benefits are generally available to all U.S. citizens wherever they live, with the only exceptions being places like North Korea, where sanctions prevent money transfers. 
  7. Plan a Satisfying Retirement (good)
  8. How 6 Types of Retirement Income Are Taxed
    • Whether or not you're taxed depends on what's known as your provisional income: your adjusted gross income plus any tax-free interest plus 50% of your benefits. If provisional income is between $25,000 and $34,000 if you're single, or between $32,000 and $44,000 if you're married, up to 50% of your benefits is taxable. If it exceeds $34,000 if you're single or $44,000 if you're married, up to 85% of your benefits is taxable.
  9. Why Smart People Take Social Security Benefits Early
    • The Social Security benefit formula adjusts monthly payments so that someone living to average life expectancy should receive about the same amount of benefits over their lifetime regardless of which age they claim.
  10. Social Security: Should You Retire at Age 62?  (Travel To Wellness)
  11. When Is Social Security Taxable?
    • The general idea is that for every dollar of extra income you earn above the lower threshold (i.e., Single: $25,000; Joint filers: $32,000), $0.50 of your Social Security benefits will be subject to tax.  bove the upper threshold (Single:  $34,000; Joint filers: $44,000), each extra dollar of income adds $0.85 to the total benefits that the IRS will tax.
    • How to estimate your extra income?
      • The first step is to add up all your income, including what would ordinarily be tax-exempt income from municipal bond interest, and then add in one-half of your Social Security benefits for the year. If you're over the $25,000 or $32,000 initial thresholds, then some of your benefits might be taxable.
  12. 3 Retirement Rules Of Thumb That Really Work
    • Save 15% a year
    • Create an investment portfolio based on your age
    • For retirement withdrawals, start with the 4% rule. 
  13. How Your Earnings Record Affects Your Social Security
  14. When and How Social Security Checks Are Delivered
  15. Does an IRA Distribution Count as Income to Social Security?
    • IRA distributions won't directly affect your Social Security benefits. Because of the way the tax laws work, though, they can lead to higher taxes if you don't take steps to avoid them.
    • Even though distributions from IRAs can increase your taxable income, they're never counted for purposes of benefit forfeiture.
  16. Retirement Estimator (SSA)