If you are more than a few years away from retiring, it may not be easy to estimate how much money you will get from Social Security when you reach retirement age. However, becoming familiar with the process by which your benefit will be calculated can assist you in preparing a budget for retirement and even increase the amount of future Social Security payments you receive. The following is a guide that will help you estimate how much money you will get from Social Security when you retire:
Consider the Average Social Security Payment
When January 2023 rolls around, the average monthly income from Social Security is anticipated to be $1,827. In 2023, an individual who retires at the full retirement age is eligible to receive the maximum Social Security payment of $3,627. To be eligible for this Social Security benefit, a worker must have worked for 35 years and earned a total of at least the maximum taxable amount, presently $160,200 for 2023.
How to Calculate Your Social Security Payment
Your top 35 years of earnings are averaged together and then adjusted for inflation to determine how much you will get in Social Security benefits. If you have worked for more than 35 years, the years you made the least amount of money are removed from the computation, leading to a larger reward. Those who don't contribute to Social Security for 35 years or more may have their payouts reduced since zeros will be averaged into the computation.
Factor in Your Social Security Retirement Age
Your age when you begin receiving Social Security benefits is a significant factor in determining how much you will receive. If you start receiving Social Security benefits before you reach your full retirement age, which is normally between 66 and 67 years old, depending on the year you were born, your monthly benefit will be decreased. Your monthly payments are eligible for an increase for every month you postpone claiming your benefits between the time you reach your full retirement age and the age of 70.
When filing a claim, married couples have more options. People who are married are eligible to receive Social Security payments equal to half of the amount their higher-earning spouse receives if that amount is higher than the amount they would receive based on their own work record.
Your retirement benefit will be reduced if you receive spousal payments before you reach full retirement age. If the marriage lasted for at least ten years, you may be eligible to receive payments based on an ex-spouse's job history. If one spouse dies away before the other, the surviving partner may be eligible for survivor's benefits. To get the most out of their benefits as a team and to increase the chances of qualifying for larger payments for a surviving spouse, married couples should coordinate the timing of their benefits claims.
Subtract Medicare Premiums
Many seniors' Medicare Part B premiums are paid for by having money withdrawn from their Social Security checks. In 2023, the monthly premium for Medicare Part B will be a regular amount of $164.90. Because it is against the law for Medicare Part B payments to reduce Social Security payments for existing beneficiaries, a premium increase for Medicare Part B cannot be higher than your annual cost-of-living adjustment for Social Security.
Some people may experience a reduction in their Social Security check owing to their Part D medication premium rather than their Part B premium, according to Tricia Neuman, executive director of the Program on Medicare Policy at the Kaiser Family Foundation. Medicare Part D does not have a hold harmless clause. Plans for Medicare Part D have varying costs associated with them, and beneficiaries may move between them once a year during open enrollment.
Remember Income Tax Withholding
Many retirees are subject to paying income tax on the money they get from Social Security, particularly if they have additional sources of retirement income. According to Dana Anspach, you are exempt from paying taxes on your Social Security benefits if that is the sole income you get.
The IRS website states that anything from zero to 85 percent of your Social Security payments may be subject to taxes, depending on whether you have additional income sources such as IRA withdrawals, pension, interest, part-time employment, and dividends. The IRS uses a formula that includes your total income from all sources, including Social Security, pensions, IRA withdrawals, part-time work, interest, and dividends. You can choose to have 7%, 10%, 12%, or 22% of your Social Security benefits withheld to pay your federal income tax bill.