The portion of your pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits.
But reality is as described above - the highest earning 35 years of your lifetime earnings record are used to determine your average monthly career earnings (adjusted for inflation), and that 35-year lifetime average becomes the basis for your Social Security benefit.
Although you need at least 10 years of work (40 credits) to qualify for Social Security retirement benefits, we base the amount of your benefit on your highest 35 years of earnings.
Social Security
We base your retirement benefit on your highest 35 years of earnings and the age you start receiving benefits.
No, your Social Security benefits do not depend on the last three or five years of work.
Those who make $40,000 pay taxes on all of their income into the Social Security system. It takes more than three times that amount to max out your Social Security payroll taxes. The current tax rate is 6.2%, so you can expect to see $2,480 go directly from your paycheck toward Social Security.
If you claim benefits with fewer than 35 years of earnings, Social Security credits you with no income for each year up to 35. For example, if you worked for 30 years, there will be five zeroes in your benefit calculation. If you continue working, each year with earnings displaces a zero.
Key Takeaways. Some American workers do not qualify for Social Security retirement benefits. Workers who have not accrued the requisite 40 credits (roughly 10 years of employment) are not eligible for Social Security.
Social Security benefits are based on your lifetime earnings. Your actual earnings are adjusted or “indexed” to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most.
No 40 Credits, No Retirement
Social Security requires a minimum of 40 credits for retirement benefits, whether you take early retirement at age 62 or wait until your full retirement age which can vary from 65 to 67, depending on the year of your birth. If you don't have the 40 credits, you don't draw any retirement.
Anyone born in 1929 or later needs 10 years of work (40 credits) to be eligible for retirement benefits. How many credits you need for disability benefits depends on how old you are when your disability began.
The first full special minimum PIA in 1973 was $170 per month. Beginning in 1979, its value has increased with price growth and is $886 per month in 2020. The number of beneficiaries receiving the special minimum PIA has declined from about 200,000 in the early 1990s to about 32,100 in 2019.
Social Security replaces a percentage of your pre-retirement income based on their lifetime earnings. The portion of your pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits.
To qualify for retirement benefits, you need 40 Social Security credits. You earn credits by paying Social Security tax on your income, and you can earn up to four per year. In 2022, $1,510 in earnings equals one credit; you earn four credits after making $6,040 for the year.
The only people who can legally collect benefits without paying into Social Security are family members of workers who have done so. Nonworking spouses, ex-spouses, offspring or parents may be eligible for spousal, survivor or children's benefits based on the qualifying worker's earnings record.
The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2022, your maximum benefit would be $3,345. However, if you retire at age 62 in 2022, your maximum benefit would be $2,364. If you retire at age 70 in 2022, your maximum benefit would be $4,194.
For 2022, the special minimum benefit starts at $45.50 for someone with 11 years of coverage and goes to $950.80 for workers with 30 years of coverage. A financial advisor can help you plan your retirement taking into account your Social Security benefits.
The amount of earnings it takes to earn a credit may change each year. In 2022, you earn one Social Security or Medicare credit for every $1,510 in covered earnings each year. You must earn $6,040 to get the maximum four credits for the year.
If you don't have enough work credits for disability, you still may be able to qualify for disability benefits, however you will need to apply for Supplemental Security Income (SSI) Benefits. SSI Benefits is a needs-based program.
That adds up to $2,096.48 as a monthly benefit if you retire at full retirement age. Put another way, Social Security will replace about 42% of your past $60,000 salary. That's a lot better than the roughly 26% figure for those making $120,000 per year.
If you make $120,000, here's your calculated monthly benefit
According to the Social Security benefit formula in the previous section, this would produce an initial monthly benefit of $2,920 at full retirement age.
For example, the AARP calculator estimates that a person born on Jan. 1, 1960, who has averaged a $50,000 annual income would get a monthly benefit of $1,338 if they file for Social Security at 62, $1,911 at full retirement age (in this case, 67), or $2,370 at 70.