If you are approaching retirement age, or are still in the middle of your career, understanding the Social Security program, and what income you can rely on when you retire will help you properly plan for your retirement.
Social Security Credits + Full Retirement Age
Eligibility for Social Security benefits based on your own work record depends on the total number of Social Security credits earned plus your full retirement age. For most Americans, after earning 40 Social Security “credits” or 40 quarters of coverage, they are eligible for Social Security benefits. In 2019, one Social Security credit was earned for every $1,360 in Social Security taxable income earned for a maximum of four credits and $5,440 in a calendar year.
The second requirement for eligibility into the Social Security program is reaching full retirement age. Full retirement age is based on the year you are born not the year you actually retire. For example, for people born between 1943 and 1954 the full retirement age for Social Security benefit calculation is 66. For those born after 1960, the full retirement age is 67. Today, you can retire as early as age 62 and as late as age 70. To determine what the full retirement age is for your year of birth click here.
How is your benefit amount determined?
The Social Security Administration (SSA) is responsible for determining your monthly Social Security benefit. To make the determination the SSA accesses your annual earnings throughout your entire work life. Only the first $132,900 you earned in 2019 is subject to Social Security payroll tax. Your inflation-adjusted earnings from your 35 highest-earning years are added up and divided by 420 to produce your average indexed monthly earnings, or AIME. If you have fewer than 35 years of Social Security covered employment, then zeros are added to fill in for the missing years. Your AIME number is then used in a formula to determine your primary insurance amount, or PIA.
The Social Security benefit formula for 2019 was:
- 90% of the first $926 of AIME, plus…
- 32% of the amount of AIME greater than $926 but less than $5,583, plus…
- 15% of the amount of AIME greater than $5,583.
How much does the average retiree get from Social Security?
Social Security benefits vary from person to person. SSA estimates that the average retired worked received a benefit of $1,461 in January 2019 with the cost-of-living-adjustment (COLA). COLA is determined annually and may increase the Social Security benefit if the inflation index rises. In 2019, the maximum Social Security benefit amount payable to someone filing for Social Security benefits was $2,861 per month. This amount is higher for people who choose to delay claiming their Social Security benefits.