Social Security benefits are typically computed using "average indexed monthly earnings." This average summarizes up to 35 years of a worker's indexed earnings.
No, your Social Security benefits do not depend on the last three or five years of work.
Social Security
We base your retirement benefit on your highest 35 years of earnings and the age you start receiving benefits.
Obtaining Your Work History From the SSA
Fortunately, the SSA maintains a record of your work history to help. This is because Social Security benefits are based in part on contributions you made through past withholdings of earnings from each paycheck.
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 earn $75,000 per year, you can expect to receive $2,358 per month -- or about $28,300 annually -- from Social Security.
Social Security benefits are typically computed using "average indexed monthly earnings." This average summarizes up to 35 years of a worker's indexed earnings. We apply a formula to this average to compute the primary insurance amount (PIA).
How Social Security Benefits Are Calculated. Qualifying for Social Security in the first place requires 40 work credits or approximately 10 years of work. 2 To be eligible to receive the maximum benefit, you need to earn Social Security's maximum taxable income for 35 years.
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 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.
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.
But if you can supplement your retirement income with other savings or sources of income, then $6,000 a month could be a good starting point for a comfortable retirement.
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.
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.
Based on our calculation of a $2,790 Social Security benefit, this means that someone who averages a $100,000 salary throughout their career can expect Social Security to provide $33,480 in annual income if they claim at full retirement age.
If you earned $20,000 for half a career, then your average monthly earnings will be $833. In this case, your Social Security payment will be a full 90% of that amount, or almost $750 per month, if you retire at full retirement age.
California. In America's most populous state, some 4.3 million retirees who collect Social Security can expect to receive an average $1,496.13 per month from the program in 2020, or $17,953.56 over the course of the year. California is another state where benefits are below average for the U.S.
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.
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.
DEFINITION: The special minimum benefit is a special minimum primary insurance amount ( PIA ) enacted in 1972 to provide adequate benefits to long-term low earners. 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.
Key takeaways. If you claim Social Security at age 62, rather than wait until your full retirement age (FRA), you can expect a 30% reduction in monthly benefits. For every year you delay claiming Social Security past your FRA up to age 70, you get an 8% increase in your benefit.
Average Retirement Expenses by Category. According to the Bureau of Labor Statistics, an American household headed by someone aged 65 and older spent an average of $48,791 per year, or $4,065.95 per month, between 2016 and 2020.
So yes, to collect just over $4,000 per month, you need well over a million dollars in retirement accounts. To be safe, we'll round that up to $1.5 million for the rest of the steps.