Planning for retirement can get complicated, but you can start by finding out how much you can receive from Social Security when you retire. The benefit amount can help you decide what you need to do to retire comfortably. Here is what you will need to know in order to start planning.
Full Retirement Amount
You will often hear of the PIA when people talk about Social Security. These initials stand for Primary Insurance Amount, and it’s the official way of saying ‘how much you get every month at the full retirement age.’ The SSA has a webpage where you can perform this calculation yourself.
How Social Security Is Calculated
The formula for finding your Primary Insurance Amount has multiple parts. The first step is to find the average amount you earned over your working life. That average is called the Average Indexed Monthly Earnings, or AIME. The formula for the AIME is:
- Social Security uses the highest 35 years of earnings to find the average amount that you earned for those years. Finding the average means adding up all the salaries for the years and then dividing by 35 years.
- Divide that average by 12
- Index that number against the national average salary from 2 years ago.
Once you have the AIME, you can find the PIA. The PIA is the sum of three percentages of your AIME. The formula goes like this:
- Find the bend points set for the current year. Bend points are the amounts that the SSA sets for dividing up the AIME.
- Find 90% of the amount in the first bend point. This year it is $996, so if your AIME is over $996, your first sum is 896.4.
- Find 32% of the amount of the AIME between the second and third bend point. The second bend point this year is $6002. For instance, if your AIME is $1200, then you subtract 996 from 1200, then find 32% of the result, which is 65.28
- If your AIME is higher than the 3rd bend point, take the amount left once you subtract that from your AIME and find %15 of this.
- Add the three percentages from the last three calculations. So, in our example, your PIA if your AIME is $1200, you add 896.40 to 65.28 to get what the SSA will send you every month when you retire.
– What is the Benefit Amount if You Enroll at 62
This discounted benefit amount you receive at 62 depends on what year you reach your full retirement age. Your full retirement age, or FRA, is the official age that the SSA considers the proper retirement age and depends on the year you were born. The full retirement age is 66 if you were born before 1954 and increases by steps until it reaches 67 for anyone born later than 1955.
If you retire at age 62, you have retired early. In that case, you receive only a percentage of your full PIA. How big that percentage is depends on how far you are from your FRA.
If your full retirement age is 67, the SSA takes 30% off of your PIA. Was your full retirement age 65? Twenty percent comes off of the PIA.
– When You’re 70
You get higher benefits if you wait to retire after your full retirement age. The percentage of the increase goes up each month that you delay filing for benefits until you reach 70. Each year you wait to file after your full retirement age increases your amount by 8% a year. So if you full retirement age is 66 you will receive an increase of 32% by waiting until 70 to file for Social Security.
How Much Can You Get In 2021
It helps here to know the maximum that you can get from all these calculations. These numbers assume that you have worked all 35 years or earned more than 40 work credits; it’s the most you get when you have played by every single one of the rules.
This maximum depends on your age when you file for retirement and how close you are to the full retirement age when you file.
In 2021, someone who files at age 70 can receive $3895.
If you retire at your FRA, you get $3113.
Retire at 62 and you can get $2324.
Planning for retirement requires knowing a lot of details, our Medicare and Social Security support services team of experts are available to help you with any question. Call us at 940-382-4700