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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Social Security benefits have always been a crucial part of , but now more than ever Americans are relying on their monthly benefit check as their main source of income during their retirement years. According to the National Academy of Social Insurance, Social Security is the sole source of income for roughly 20 percent of Americans aged 65 and older, while more than 80 percent of people in this age group each month. Experts often say that the foundation of a retirement plan is like a three-legged stool, with the legs of the stool being Social Security, employer-sponsored retirement benefits and personal savings. Determine if you have enough credits
The first step is to determine whether you are entitled to Social Security benefits. In order to qualify for Social Security benefits, you need to accrue 40 credits. If you were born after Jan. 2, 1929, you need 40 credits (or 10 years of work) to receive Social Security benefits. In 2022, you must earn $1,510 to get one credit. You may earn up to four credits per calendar year. You must earn $6,040 to get the full four credits. “If you are self-employed, you earn Social Security credits the same way employees do,” says certified financial planner Alexey Bulankov, senior and financial advisor at Merrill Lynch. The amount you would receive at your full retirement age, which ranges from age 65 to 67, depending on the year you were born, is called the primary insurance amount, or PIA. The not-so-secret formula to calculating Social Security benefits
The formula for calculating your PIA is based on the average indexed monthly earnings, or AIME, in the 35 highest-earning years after age 21, up to the Social Security wage base. In 2022, the base is $147,000, an increase of $4,200 from last year. The wage base is the maximum amount of income on which must be paid “If a person works (fewer) than 35 years, missing years are filled in with zeros. If they have worked more than 35 years, only the highest-earning years will be considered,” says Charles C. Scott, founder and president of Pelleton Capital Management, a financial services firm in Scottsdale, Arizona. Earnings from a worker’s 35 highest-earning years are tallied at age 62 and indexed for inflation, resulting in the AIME, Bulankov says. The AIME is “divided into three segments, called bend points (which are adjusted each year for inflation), giving you the worker’s PIA,” says Scott. Here are the bend points for calculating a worker’s benefits in 2022. The benefit is the sum of the following elements: 90 percent of the first $1,024 of averaged indexed monthly earnings 32 percent of earnings between $1,024 and $6,172 15 percent of earnings above $6,172 For example, a 62-year-old born in 1957 whose total indexed earnings over her 35 highest-earning years were $2.5 million would have an AIME of $5,952.38 ($2,500,000 / 420 work months = $5,952.38). The first bend point, $1,024 of the AIME, is multiplied by 90 percent, resulting in $921.60. This worker then earned an incremental $4,928.38 (or $5,952.38 minus $1,024). This figure is multiplied by 32 percent, resulting in $1,577.08. The worker had no earnings above $6,172, so there’s no benefit at this level. Add those figures up, and it comes to $2,498.68. Benefit amounts are rounded down to the next-lowest dime, so this worker’s PIA, which is the amount she would receive if she waits until her full retirement age (66 + 6 months) to collect Social Security, is $2,498.60 Bend points and formulas are set annually by the Social Security Administration. When to start taking Social Security benefits
Certain factors can change the amount to which you are entitled, such as or delaying benefits past the full retirement age. Government workers receiving pension benefits may not be eligible to receive Social Security. You get a reduced benefit if you claim benefits before full retirement age (as early as age 62), and you get a higher benefit if you delay claiming benefits, up to age 70. “Claiming Social Security early results in a permanent pay cut from what your benefit would be at full retirement age,” warns Greg McBride, CFA, Bankrate chief financial analyst. “Better still is that each year you delay Social Security after your full retirement age and up until age 70 results in an 8 percent increase — a permanent pay raise, if you will, above the benefit you’d have received at full retirement age,” McBride says. Social Security calculations can be complicated, but understanding how your benefit is determined can help you plan for retirement. You also can estimate your benefits by using the SSA’s Social Security Retirement Estimator. It’s a good idea to go to the SSA website and create an account so you can get your Social Security statement online. Go to to review your statement. SHARE: Libby Wells covers banking and deposit products. She has more than 30 years’ experience as a writer and editor for newspapers, magazines and online publications. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Related Articles