One of the issues to consider when planning for retirement is how much Social Security you might receive. Although many factors determine the amount of your benefits, a Social Security benefit calculator gives you a nice start. This calculator uses your current age, retirement age, income history, expected salary increases, and inflation to estimate the amount you can collect once you begin receiving Social Security benefits.
Remember that these figures are based on the data you provided and assumptions about the future of your income and inflation, so they will change. The calculator provides a snapshot that is specific to the data you provide, and actual Social Security benefits may differ according to how funds from different jobs are paid into your account, your earnings level, and when you retire.
How the calculator works: Inputs and variables
The Social Security calculator uses several key inputs to generate an estimate:
- Current Age: Your current age plays a crucial role in determining how long you will work and how much you’ll contribute to Social Security over your career.
- Age of Retirement: The age at which you plan to start receiving benefits is one of the most significant factors. The earlier you start, the smaller your monthly benefit will be. Conversely, delaying benefits until after your full retirement age (usually 66 or 67, depending on your birth year) can increase your monthly payments.
- Annual Income: Your total annual income will be used to estimate how much you contribute to Social Security. Keep in mind that the calculation assumes you work and earn a steady income. For married couples, the income for the non-working spouse can also be factored in for a spousal benefit.
- Expected Salary Increase: This allows you to estimate how much your income will grow each year. Adjusting for expected salary increases can provide a more realistic estimate of your future Social Security benefits.
- Expected Inflation Rate: The calculator also takes into account inflation, which erodes the purchasing power of money over time. This affects both the cost of living and the adjustments made to Social Security benefits each year.
Once you enter this information, the calculator will generate an estimate of your Social Security benefits. For example, if you retire at age 65 with an annual income of $166,385, you might expect to receive approximately $59,592 per year or $4,966 per month, which represents about 35.8% of your final year’s income.
The role of inflation and spousal benefits
Inflation happens to be one major factor that will determine the monthly amounts that will be awarded to you. The annual cost-of-living adjustment is generally for inflation in the Social Security benefit award. These are determined using the Consumer Price Index (CPI) which measures inflation. Historically, the long-term average for CPI has been 2.9% per year but can vary significantly.
For married couples, the calculator has a provision for calculating a potential spousal benefit in a situation where one spouse works. The spousal benefit under this condition will be computed to a maximum of 50 percent of the primary worker’s benefit, adding up to the total benefits drawn by the married couple. In the case where both spouses work and earn Social Security benefits, you would have to conduct two separate calculations: one for the one spouse, and that same process continues for the other spouse, commencing with their income, in that order.
The most important thing to appreciate is that Social Security benefits are on some sort of scale. Wealthier people generally pay more into the system of Social Security, and by the end of their lives, those wealthy people get higher benefits. In 2017, for example, the maximum social security benefit was $32,244, which means $2,687 a month for someone who would be single. For a married couple, that number would be the same multiplied by 1.5, assuming only one works.
In addition, the specific benefit amount depends on your work history. To gain the maximum benefit level, you would need to have maximum taxable income for most of your working lifetime. Additionally, once you exceed certain income levels, benefits begin to phase out.
Use the calculator as a guide
The Social Security calculator does give you something useful, but one should never lose sight of the fact that such an estimate is hypothetical, not an exact but rather a guesstimate. This changes as the income, age at retirement, as well as inflation changes, may vary from the actual benefit. Yet, the calculator gives you a fairly decent idea of what to expect and helps you budget for retirement more effectively.
