Social Security Benefits are a vital source of income for many Americans, providing financial support in retirement, those who qualify for disability benefits, or in the event of a loved one’s death. Calculating your Social Security Benefits is essential to help plan for your financial future and ensure that you make the most of this benefit.
In this guide, we will provide the steps on how to calculate your Social Security Benefits for 2023 and beyond.
How to Estimate Social Security Benefits
To estimate your Social Security Benefits, follow these steps:
1. Create a Social Security Account
Create an account on the Social Security website to view your earnings record and estimated benefits.
2. Review Social Security Statement
Your Social Security Statement estimates your benefits based on your earnings record.
3. Use online tools
Many online calculators are available to help estimate your Social Security Benefits based on various scenarios, such as claiming at different ages or working part-time in retirement.
4. Consult a financial advisor.
A financial advisor can help you understand your options and make well-informed decisions about your Social Security Benefits.
Understanding How to Calculate Your Social Security Benefits
Learn how to calculate your Social Security benefits, a crucial aspect of retirement planning. A worker’s average lifetime earnings determine their Social Security benefits. The Social Security Administration (SSA) considers an individual’s income for the 35 highest earning years when calculating benefits. The SSA also considers a worker’s age when they claim benefits and how long they’ve worked to determine the number of benefits they’ll receive.
In addition, SSA also considers cost-of-living adjustments (COLA) when calculating benefits. COLA is an annual increase in benefits to account for inflation. It means that as prices rise, the benefits of a Social Security recipient will increase as well.
Increases in COLA (cost of living adjustment) for 2023
Compared to the 5.9 percent adjustment for 2022, the Social Security Administration increased benefit checks in 2023 by 8.7 percent. Since 1981, when the COLA was 11.2 percent, this is the highest COLA.
Social Security benefits for retirees increased by $146 monthly last January, thanks to the 8.7 percent adjustment. As a result, retirees got average checks worth $1,827 rather than $1,681. The expected payout for couples who received benefits has raised by $238, from $2,734 to $2,972.
Since 1975, the Social Security Administration has correlated the cost of living adjustments with the urban wage earner and clerical worker CPI-W. To calculate the COLA, the SSA compares the third-quarter CPI-W from the current year to the third-quarter CPI-W from the previous year. Following changes in the CPI-W, the Social Security Administration modifies the COLA.
Maximum taxable income increase
The Social Security Administration will apply Social Security taxes to earnings up to $147,000 in 2022. It is a standard rate of 6.2 percent of a worker’s income.
However, in 2023, the maximum taxable income was raised to $160,200, requiring a higher percentage of a worker’s salary subjected to this tax. This adjustment is due to a higher average wage across the United States.
Social Security benefits are also increasing.
In 2023, the Social Security benefit for an individual retiring at the full retirement age of 67 years old will increase from $3,345 to $3,627. Anyone born after 1960 can receive this maximum benefit if they wait until 67 to retire.
On the other hand, those who retire before their full retirement age will receive a reduced benefit. Additionally, those who retire after the full retirement age can maximize their benefit.
Factors Affecting Social Security Benefits
Several factors can affect the amount of Social Security Benefits you receive. These include below:
a. Age of Retirement
The age when an individual reaches the age of eligibility to receive retirement benefits from a pension or retirement savings plan such as a 401(k). Generally, the retirement age is linked to one’s age at the time of employment, typically set at 65. Depending on the type of plan, one may be eligible to receive benefits earlier or later than age 65.
b. Work History and Earnings
Your earnings history and the number of work credits you have earned will impact your benefit amount. These credits and earnings can be used to determine the number of benefits you are eligible to receive.
c. Benefit Reductions and Increases
Depending on your circumstances, your benefit amount may be reduced or increased. Your benefits may be reduced if you receive other types of income, such as Social Security benefits, a pension, or earnings from employment. Your benefits may be increased if you are disabled, have dependent children, or are caring for a disabled spouse or child.
d. Delaying Benefits
You can delay receiving Social Security Benefits until age 70, which can result in a higher benefit amount. It can be beneficial for those who can work longer or have other sources of income that can help them in retirement. However, it is important to consider that delaying benefits also means forgoing the income for a longer period.
Tips for Maximizing Social Security Benefits in 2023
To maximize your Social Security Benefits, consider the following tips:
- Claiming Strategies
There are different claiming strategies available to help you maximize your benefits. For example, delaying benefits can result in a higher benefit amount.
Your Social Security retirement benefits increase by 5% to 7% each time you put off filing for them. Between the early retirement age of 62 and your full age of retirement of 66 and two months, and climbs to 67 for those born after 1960, you can typically retire.
You’ll earn more money if you can wait until you’re old enough to retire. If you wait until you’re 70 to apply, your benefits increase by 8%. Why 70? Your benefit is at its maximum at this time.
- Working in Retirement
Continuing to work in retirement can increase your earnings, which can also increase your Social Security Benefits.
You need at least 40 work credits for Social Security retirement benefits. Depending on your income, you could earn up to four credits per year. In 2023, earning $1,640 will gain you one credit, while $6,560 will bring you four.
While determining your benefits, the Social Security Administration considers your 35 highest earning years. If you have no income in a year, the average for that year will be $0.
Working longer hours can be especially advantageous for individuals who have taken time out to raise their family or for other reasons. It’s crucial to remember that if you enroll in Social Security early, keeping up with your employment could temporarily reduce your benefit. Also, a woman’s salary may rise higher than a man’s later in life, boosting the potential benefit of working.
Even if you weren’t eligible for Social Security during your first employment, if you work for an additional year or two following your first job, you might be able to get benefits.
- Taxes and Social Security Benefits
Be aware that your Social Security Benefits may be subject to taxes, depending on your income.
Self-employed people frequently work to reduce the portion of their income liable to payroll taxes while filing for Social Security. Short-term tax increases may produce larger lifetime income after accounting for inflation.
Check out this video below on 5 Social Security myths that you probably believe.
Credits: Wesley Evans
FAQs
When will I be eligible to get Social Security benefits?
You are eligible when:
- Your eligibility for retirement benefits from Social Security depends on your birth year. If you were born before 1938, you are eligible to retire at age 65.
- If you were born before 1938, you are eligible to retire at age 65. If you were born between 1938 and 1942, your retirement age ranges from 65 years and two months to 65 years and ten months.
- For those born from 1943 through 1954, the retirement age is 66.
- If you were born between 1955 and 1959, your retirement age ranges from 66 years and two months to 66 years and ten months.
- If you were born after 1960, your retirement age is 67.
Although you can start receiving Social Security benefits at age 62, your benefits will be permanently reduced if you do so. If your full retirement age is 66 and you take retirement benefits at 62, you will receive 25% fewer benefits.
To receive higher retirement benefits, you can wait until you are 70 years old. This is the maximum benefit period for anyone born in 1943 or later.
What criteria are needed to be eligible?
To be eligible for Social Security benefits, you must have worked a minimum of 10 years and have paid into Social Security.
Additionally, you must be at least 62 years old for retirement benefits. You may qualify for certain disability benefits, survivor benefits, or other types of Social Security benefits at any age, depending on your circumstances. If you are not a U.S. citizen, you must meet certain residency requirements to be eligible for Social Security benefits.
Can I receive Social Security benefits if I work?
Yes, you can receive Social Security benefits while you are still employed. However, there are certain limits regarding the number of earnings you can make while collecting benefits.
How much do I need to pay upfront for Social Security?
You do not need to pay anything upfront for Social Security benefits. Payroll taxes deduct money from your paycheck to fund Social Security.
Up to $147,000 in income, Social Security will require employees to pay 6.2% of their salary (160,200 in 2023). Employers also contribute 6.2% of the total. Self-employed people must pay both parts, or 12.4%, of their income.
Conclusion
If you are approaching retirement age, it’s important to understand how to calculate your Social Security benefits for 2023. To do this, you need to know your full retirement age based on the year you were born and understand how your benefits will be affected if you start receiving them at age 62 or wait until age 70. Additionally, if you’re interested in getting information about Medicare, consider contacting us at Medicare Made Simple. You can use my Plan Finder Tool if you’re interested in Medicare Advantage Plan.
