How to Calculate Your Projected Social Security Benefit

Factors That Affect How Much You'll Get in Retirement

Woman reviewing her social security benefits

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Social Security retirement benefits are often a critical component of a secure retirement. Most financial planning experts will factor in Social Security benefits as a source of income when assisting clients in determining how much they need to save for retirement expenses.

The amount of a future Social Security benefit is by its nature an estimate, though. That's because a person who is eligible for Social Security gets a monthly benefit based on two factors:

  • How much money they earned during their working career
  • The age they choose to start to receive benefits

Let's look at how each of these impacts how much Social Security you will get in retirement.

Your Work History

First and foremost, to be eligible for Social Security retirement benefits, you or your spouse (or your ex-spouse or deceased spouse) must have earned a minimum of 40 credits over your working career. How those credits are calculated is rather complex, but most financial experts simply say that you will likely qualify as long as you have worked for at least 10 years.

Your spouse's (or ex- or deceased spouse's) work history can make you eligible for a spousal benefit that might influence your total Social Security benefit. The Social Security Administration provides more info about this option.

But your work history is not only used as part of the qualification criteria; it is also used to determine the amount of your full retirement benefit. In calculating your full monthly retirement benefit, the Social Security Administration (SSA) considers your highest-earning 35 years of work history. If you worked for less than 35 years, however, then you will have years where the SSA simply uses zero for your earnings.

Not surprisingly, the higher your earnings over those 35 years, the greater your retirement benefit will be—as the greater contribution you have made to the program through FICA taxes. Note, however, that the same amount that's used to determine how much of your income is subject to the Social Security tax is also used as the upper limit of income for calculating your benefits. This amount is $137,700 in 2020 and $142,800 in 2021.

When You Collect

The benefit amount calculated based on your working history assumes that you take retirement at your full or normal full retirement age, which is dependent on the year you were born. Full retirement age (FRA) by birth year is as follows:

  • 1937 or earlier: age 65
  • 1938–1942: age 65 plus a few months, depending on the year
  • 1943–1954: age 66
  • 1955–1959: age 66 plus a few months, depending on the year
  • 1960 and later: age 67

The monthly benefit you are eligible to receive at your FRA is what it is considered your full benefit, but it is not the minimum or maximum benefit you can receive.

Retirees have the option to file for early retirement as early as age 62 but may also choose to delay taking their benefits until as late as age 70. While there are many strategic reasons why you might choose to take early retirement or to delay, that choice has a direct impact on the amount of your monthly benefit. By opting for early retirement (any time between age 62 and your FRA), you are opting for a lower monthly benefit for the rest of your life. By opting to delay your benefit to any age between your FRA and age 70, you effectively guarantee a permanent increase in the amount of your monthly benefit.

Although your benefit increases every year in retirement due to the annual cost of living allowances, these increases are always based on your previous year’s benefits. Therefore, once you take a reduced early retirement benefit, all of your future benefits will be smaller than they would have been had you delayed retirement until your normal retirement age or later.

How to Calculate Your Social Security Benefit

Calculating your estimated Social Security retirement benefit is no easy task, which is why the SSA has made it possible for workers to go online or call and request a Social Security benefits estimate (Form SSA-7004) directly from the administration. This estimate will contain an estimate of your benefit at age 62, your FRA, and at age 70 based on your current work history.

In addition to these estimates, the SSA also has a series of Social Security benefits calculators including a "quick calculator" that can aid you in planning for retirement with Social Security. You can also use the calculator provided by the AARP to estimate the best age to start claiming your benefits.