Working people may want to estimate how much Social Security they will get in retirement. The two ways to check are to read your annual Social Security statement and to go online to fill out an estimation form. Your estimate is based on the amount of your salary since you began working and paying into the Social Security system, and the age at which you begin collecting. You must be older than age 62 and must have completed 40 credits in a job covered by Social Security before receiving benefits.
Your Social Security Statement
Social Security sends out a statement to every employed American over age 25 each year. The statement includes the total amount you have contributed so far into the Social Security system and provides an estimate of your benefits after the age of 62.
How to Estimate Benefits Online
The U.S. government’s Social Security Online Web site offers a calculator where you can calculate the likely amount of your monthly Social Security benefit after you retire. You need to be permanently insured (described below) and have your earnings record to use the calculator. The AARP provides information on Social Security benefits and pages where you can estimate your benefits.
The amount of benefits received is based on:
• How many years you worked.
• How large or small your salary was.
• The age at which you begin receiving benefits.
How Benefits Are Calculated
Benefits are calculated using a complex formula found on the Social Security Web site at http://www.ssa.gov/OACT/COLA/piaformula.html. Benefits are based on “average indexed monthly earnings,” an average of your monthly income during 35 years or less of your working life. Three percentages of portions of the average indexed monthly earnings are added to derive the “primary insurance amount” (PIA).
Primary Insurance Amount
For a person who is age 62 in 2009, the PIA is calculated as:
• 90 percent of the first $744 of his average indexed monthly earnings, added to:
• 32 percent of his average indexed monthly earnings over $744 and up to $4,483, added to:
• 15 percent of his average indexed monthly earnings over $4,483.
The PIA amounts are the bend points of the 2009 formula, which includes figures from the national average wage index for each year back to 1951. Bend points are calculated to derive the monthly benefits the person would receive.
Actual Benefits May Vary
After you estimate your Social Security benefits, the actual amount of your benefits when you begin collecting them may vary due to the following factors:
• Social Security earnings and tables change over the years.
• Your earnings may increase or decrease before you retire.
• The age at which you begin receiving benefits may be older than calculated.
• Benefits are adjusted for inflation and cost of living.
Get More in Benefits by Working Longer
You can receive more Social Security benefits if you work past the minimum age of 62 and retire at the full retirement age of 67. Benefits are 30 percent of your primary insurance amount if you begin receiving them at age 62 compared with age 67. If you continue to work past age 67 up to age 69, you can earn “delayed retirement credits” that increase the percentage of benefits.
Be Fully Insured Before Receiving Benefits
Not only do you need to be age 62 or older to begin receiving benefits, you also need to be fully insured. To calculate if you are “fully insured,” add the number of “quarters of coverage,” also known as Social Security credits, you’ve earned per year. You need a minimum of one quarter to a maximum of four quarters per year. A quarter of coverage for 2009 is $1,090. To receive benefits, you must have earned a minimum of six quarters during your working life, and a maximum of 40. After having earned 40 quarters, you become “permanently insured” and therefore will not lose your coverage if you stop working.
Applying for and Receiving Benefits
When you are ready to receive Social Security benefits, you need to apply, provided you are over age 62 and have 40 credits or quarters. You will not receive benefits automatically. You can apply online or at a Social Security office.
Social Security benefits are delivered monthly through postal mail or deposited into Direct Deposit accounts. A new offer by the U.S. Treasury Department is Direct Express, through which recipients can receive monthly Social Security payments on prepaid debit cards. Requiring no additional fees, Direct Deposit and Direct Express allow seniors to receive their money faster than mailed checks and prevent checks from being lost or stolen.
