When you are planning a retirement plan, one of the many questions that you should ask yourself and a citizen of the United States is, “How much will I be paid from social security benefits?” Learn how to calculate your social security payment.
The social benefits you enjoy are based on the total amount of your lifetime earnings. So if you earn $75,000 in a year, then you must have a good understanding of the total amount that you will be receiving from social security benefits.
How does Social Security figure out your monthly check?
The administration looks at your 35 years of working history to determine your total benefits. However, if you worked longer than 35 years, then your lowest earning years after being adjusted for inflation will be discarded.
Here is something you should note: if you worked a short time, you will end up getting zeros added to your work history; this will ultimately result in you having low overall average earnings.
Must read: Social security will give equal weight to your earnings each year of your working time. It is crucial to understand this so you will have it in your mind that earning $75, 000 for a year or two will immediately get you an increase in monthly benefits.
What will social security pay you if you earn $75, 000 a year?
If you earn 75,000 in a year in the United States, your AIME will be determined by your highest 35 years of index earnings. For better understanding, assuming Mr. James earns $75, 000 constantly for 35 years in a year, his AIME is obtained by calculating the sum of these indexed earnings and dividing it by the number of months in 25 years, which equals 420 months.
Your earnings equal $75,000 a year for 35 years.
- $75,000 per year x 35 years = $2,625,000
- $2,625,000 ÷ 420 months = $6,250 AIME
The social security agent will then apply the formula:
- 90% of the first $1,247 of your AIME
- 32% of your AIME between $1,247 and $7,509
- 15% of your AIME over $7,509
Given your AIME of $6,250, your PIA would be
- 90% of $1,247 = $1,122.30
- 32% of the remaining $5,003 ($6,250 – $1,247) = $1,600.96
Total PIA = $1,122.30 + $1,600.96 = $2,723.26 per month at full retirement age.
Keynote: In summary, with your $75, 000 earnings in a year, you will get $2,723.26 in a month.
Considering Full Retirement Age and Early Retirement
It is best to understand that the full retirement age varies depending on your year of birth; however, it is typically between the ages of 66 and 67. If you want to get your benefits before you reach your full retirement age, you will get reduced benefits.
Illustration: If at the age of 62, you have the option to receive your benefits, you might see a reduction of about 30%; however, if you delay your benefits until you are 70 years old, you will see a skyrocketing increase of about 8% per year.
