How Does the SSA Determine Retirement Benefit Payment Amounts?

Most American’s spend their entire adult lives working hard at our jobs. Our reward at the end of our long careers is the right to collect Social Security retirement benefits. These benefits are meant to provide income for people after they stop working so they have a means to pay their bills. You can be eligible for retirement benefits if you worked enough quarters at a job that requires you to pay into the Social Security system. Your monthly retirement benefit amount is determined by the amount you have paid into the system throughout your working years. Here is some important information about how your Social Security benefit is determined.

How Much Will Social Security Pay Me

Qualifying for Benefits

You must have earned at least 40 credits to qualify for Social Security retirement benefits.
You earn one credit for every $1,300 you earn. But, you can only earn a maximum of four credits per year.

Factors that Affect Your Benefit Amount

The primary factor for determining your retirement benefit is the amount of money you earned while you were working. The Social Security Administration (SSA) looks at the average amount of money you made in your 35 highest-earning work years before you turned 62. The SSA also looks at the age at which you start taking your benefits and any other sources of income you may have, such as a pension, when determining your benefit amount.

Factors That do not Affect Your Benefit Amount

Your benefit amount is not necessarily determined by the number of years you have worked and paid into the Social Security system. The SSA only looks at the 35 years in which you made the most money. Similarly, adjusting the amount of hours you work or accepting less pay as you near the end of your career will not negatively affect your benefit amount.

Calculating Your Social Security Amount

You can estimate the amount of your monthly retirement benefit by following these five steps:

  • Determine your total earnings. The SSA looks at the 35 years in which you made the most money, up to a maximum of $127,200 annually. Any years that you did not work count as zero income.
  • Divide the amount in step one by 420 months (35 years X 12 months a year) and round down to the nearest dollar. This number is your average indexed monthly earnings (AIME).
  • Determine your benefit amount at the age you are first eligible to receive full benefits. (90% of your first $885 of AIME) + 32% of AIME above $885 and through $5,336) + (15% of AIME above $5,336)
  • Determine your Benefit if you retire early. If you retire early and want to collect benefits, the amount you receive will be reduced.
  • Determine any reductions for earned income while you receive benefits. If you make any kind of income while you also receive retirement benefits, your payment amount will be reduced. For every two dollars you make, your retirement benefit will be reduced by one dollar.

If you have any questions about the amount of retirement benefits you will receive, contact the Clauson Law Firm today.


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