How to Calculate SOCIAL SECURITY BENEFITS

Because Social Security benefits are an

important source of income for retirees,

knowing how much you will receive is a

critical part of the retirement planning

process.

The good news is that figuring this

out isn’t hard.

In short, the size of your monthly benefits

is a function of your lifetime earnings.

Or, more specifically, it’s based on an

inflation-adjusted average of your 35

highest-earning years.

Ok, that’s a little complicated, so let’s

break it down.

The first thing the Social Security

Administration does to calculate

your benefits is to adjust your

past earnings to reflect inflation.

Let’s say, for example, that you

earned $50,000 in 1985.

In today’s dollars, after accounting

for inflation, that would be worth

nearly $100,000!

$-

$25,000

$50,000

$75,000

$100,000

1985 1990 1995 2000 2005 2010 Today

How Much is $50,000 in 1985 Dollars Worth Today?

Next, after normalizing your earnings

for inflation, the SSA takes an average

of your 35 highest-earning years.

Let’s assume this comes out to be

$75,000 a year, or $6,250 a month.

The monthly figure is then inputted

into a three-tiered formula, which

gives you progressively less credit

for higher levels of income.

90%

Less than $816 $816 to $4,917 Over $4,917

You get credit for 90% of your first

$816 in average monthly earnings…

32%

Less than $816 $816 to $4,917 Over $4,917

32% for earnings between

$816 and $4,917…

15%

Less than $816 $816 to $4,917 Over $4,917

And 15% for average monthly

earnings above $4,917.

Based on this, someone who earned an

inflation-adjusted average of $75,000 a

year during their 35 highest-earning years

would receive $26,952 in annual Social

Security benefits if they apply for them at

full retirement – i.e., 66.

That equates to 36% of our

hypothetical retiree’s pre-

retirement income.

Needless to say, this probably

wouldn’t be enough to support

someone who previously earned

so much more.

In fact, most retirement experts say

we need at least 70% of our pre-

retirement income to continue living

comfortably in our twilight years.

This is why retirees need to think of

other ways to maximize the size of

their benefits even if they’ve already

reached retirement.

For example, a couple in Seattle

recently discovered a handful of

little-known “Social Security secrets”

that can boost a retiree’s income

by as much as $60,000.

They were shocked by how easy

it was to actually take advantage

of the loopholes.

And although it may seem too

good to be true, it's 100% real.

A MarketWatch reporter even

estimated that if more Americans

knew about these loopholes, the

government would have to shell

out an extra $10 billion every year!

Sounds interesting, doesn’t it?

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could increase your income in retirement,

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