How are Social Security benefits calculated

Definition

Social Security benefit is the monetary benefits obtained by retired workers who have paid in to the Social Security system during their working years. It is paid to retired workers on a monthly basis. This tutorial explains you how to calculate the Social Security monthly retirement benefit.

Step1:

First, enter your actual earnings in Column B .The amount entered should not be more than the amount in Column A.

Year A Maximum earnings B Actual earnings C Index Factor D Indexed earnings
1952 3600 300014.46 
Step2:

Multiply the amounts in Column B by the index factors in Column C, and enter the results in Column D.

Year A Maximum earnings B Actual earnings C Index Factor D Indexed earnings
1952 3600 300014.4643380

Follow the same steps for rest of the values given in the table.

Step3:

Choose the maximum values of 35 years from Column D and add those values, which gives =$1251604

Step 4:

Calculate the Average Indexed Monthly Earnings (AIME). To calculate AIME, divide the result from Step 3 by 420 (i.e 35 Years x 12 Months). AIME = (35 Year total value) / (35 x 12) AIME= 1251604 / 420 = 2980.009

Step 5:

1. Social Security Administration (SSA) sets certain percentages and limits for calculating the bend points, by which the first bend point i.e $816 of the Average Indexed Monthly Earnings (AIME) should be multiplied by 90 percent. 2. The difference between $816 and the second bend point $4,917 must be multiplied by 32 percent. 3. If the amount is more than second bend point $4,917, then it must be multiplied by 15 percent. Else, the value is considered as 0.

Let us calculate the bend point values of the current year (2014) based on the above three rules of Social Security Administration (SSA).
Rule 1:

a. The first bend point i.e $816 of the Average Indexed Monthly Earnings (AIME) should be multiplied by 90 percent. Multiply $816 by 90% = 0.9 x 816 = 734.4

Rule 2:

b. The difference between $816 and the second bend point $4,917 must be multiplied by 32 percent. The result in step 4 i.e 2980.009 is less than $4,768. So, multiply $4,768 by 32%. = (0.32*(2980.009 - 816)) = 700.483

Rule 3:

c. If the amount is more than second bend point $4,917, then it must be multiplied by 15 percent. Else, the value is considered as 0. Multiply $4,768 by 15% = 4,768 x 0.15 = 715 715 is less than AIME value i.e. 4,768 So, consider it as 0.

Step 6:

Add the values obtained from a, b and c from Step 5. (a+b+c) = 734.4+692.482+0 = 1426.883 This is your estimated monthly retirement benefit at the age of 66, your full retirement age.

Step 7:

Multiply the amount received in Step 6 by 75%.This is your estimated monthly retirement benefit, if you retire at the age of 62. Monthly Social Security Benefits = 1426.883 (75/100) = $1070.162

Year A Maximum earnings B Actual earnings C Index Factor D Indexed earnings Bend Points First Bend Points second
 1952 3600 3500 14.46 50610 - -
 1953 3600 3600 13.69 49284 - -
 1954 3600 3700 13.62 50394 - -
 1955 4200 3800 13.02 49476 - -
 1956 4200 3900 12.17 47463 - -
 1957 4200 4000 11.8 47200 - -
 1958 4200 4100 11.7 47970 - -
 1959 4800 4200 11.15 46830 - -
 1960 4800 4300 10.73 46139 - -
 1961 4800 4400 10.52 46288 - -
 1962 4800 4500 10.02 45090 - -
 1963 4800 4600 9.78 44988 - -
 1964 4800 4700 9.39 44133 - -
 1965 4800 4800 9.23 44304 - -
 1966 6600 4900 8.7 42630 - -
 1967 6600 5000 8.24 41200 - -
 1968 7800 5100 7.71 39321 - -
 1969 7800 5200 7.29 37908 - -
 1970 7800 5300 6.95 36835 - -
 1971 7800 5400 6.62 35748 - -
 1972 9000 5500 6.02 33110 - -
 1973 10800 5600 5.67 31752 - -
 1974 13200 5700 5.35 30495 - -
 1975 14100 5800 4.98 28884 - -
 1976 15300 5900 4.66 27494 - -
 1977 16500 6000 4.39 26340 - -
 1978 17700 6100 4.07 24827 - -
 1979 22900 6200 3.74 23188 180 1085
 1980 25900 6300 3.43 21609 194 1171
 1981 29700 6400 3.12 19968 211 1274
 1982 32400 6500 2.96 19240 230 1388
 1983 35700 6600 2.82 18612 254 1528
 1984 37800 6700 2.66 17822 267 1612
 1985 39600 6800 2.55 17340 280 1691
 1986 42000 6900 2.48 17112 297 1790
 1987 43800 7000 2.33 16310 310 1866
 1988 45000 7100 2.22 15762 319 1922
 1989 48000 7200 2.14 15408 339 2044
 1990 51300 7300 2.04 14892 356 2145
 1991 53400 7400 1.97 14578 370 2230
 1992 55500 7500 1.87 14025 387 2333
 1993 57600 7600 1.86 14136 401 2420
 1994 60600 7700 1.81 13937 422 2545
 1995 61200 7800 1.74 13572 426 2567
 1996 62700 7900 1.66 13114 437 2635
 1997 65400 8000 1.57 12560 455 2741
 1998 68400 8100 1.49 12069 477 2875
 1999 72600 8200 1.41 11562 505 3043
 2000 76200 8300 1.34 11122 531 3202
 2001 80400 8400 1.31 11004 561 3381
 2002 84900 8500 1.29 10965 592 3567
 2003 87000 8600 1.26 10836 606 3653
 2004 87900 8700 1.21 10527 612 3689
 2005 90000 8800 1.16 10208 627 3779
 2006 94200 8900 1.11 9879 656 3955
 2007 97500 9000 1.06 9540 680 4100
 2008 102000 9100 1.04 9464 711 4288
 2009 106800 9200 1.06 9752 744 4483
 2010 106800 9300 1.03 9579 761 4586
 2011 106800 9400 1.0 9400 749 4517
 2012 110100 9500 1.0 9500 767 4624
 2013 113700 9600 1.0 9600 791 4768
 2014 117000 9700 1.0 9700 816 4917
 2015 118500 9800 1.0 9800 826 4980
 2016 127200 9900 1.0 9900 826 4980
 2017 127200 10000 1.0 10000 826 4980

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