How Much Will My Social Security Payments Be?

How Much Will My Social Security Payments Be?

In 2019, the average monthly social security benefit for retired workers was $1,471.¹ Whether this amount seems like a lot or a little will depend on your current income. Most financial advisors agree that you'll need approximately 70 percent of your pre-retirement earnings to comfortably maintain your pre-retirement standard of living; however, if you have average earnings, Social Security payments will only replace approximately 40 percent of that income.²  If you have a higher income, this percentage will be lower, as the payments are replacing less of your previous earnings. If you have a lower income, the percentage is higher.²

Regardless of your pre-retirement income, most individuals will need to supplement their social security benefits through other means, such as savings, investments, or a pension. But how can you know how much more you’ll need if you want to live well during retirement? To understand how to best prepare, you can start by estimating what your Social Security payments may be. 

READ: What is the Social Security Leveling Option for Pensions?

What is the Social Security PIA Formula?

If deciding to receive benefits at the normal retirement age, the “primary insurance amount” (PIA) is  the monthly benefit you would receive.³ Currently, the normal retirement age for full Social Security benefits is age 66 years and 2 months for people born in 1955, and will gradually rise to 67 for those born in 1960 or later. For those eligible in 2020, your PIA is the sum of three different portions of your average indexed monthly earnings (AIME):⁴

• 90 percent of your first $960 average indexed monthly earnings 
• 32 percent of your average indexed monthly earnings between $960 and up to $5,785
• 15 percent of your average indexed monthly earnings over $5,785³

To find your average indexed monthly earnings, you’ll need the years with the highest indexed earnings from 35 years of earnings, which you can find on your Social Security statement. You can go to the Social Security Administration's Benefit Estimator here to find that out.  Once you have those high-earning years, you can find the average, which is your AIME.⁴ 

How Can I Estimate My Retirement Benefits? 

Once you have your AIME, you can calculate the percentages of the three different sections of your AIME and add them up, based on the PIA formula. You can also receive an estimate by creating a personal Social Security account with the Social Security Administration. 

However, bear in mind that your actual benefits may look different from your estimate. This is because laws regarding benefit amounts may change and your earnings may continue to alter over time. In addition, your benefits will be adjusted for living costs at the time you start receiving benefits.⁵

3 Factors That Impact Your Retirement Benefits

1. Lifetime Earnings

Since your benefits are a sum of percentages based on your earnings, higher lifetime earnings mean higher benefits, whereas lower earnings, or gaps in earnings, results in lower benefits.²

2. Age

If you opt to receive benefits before your full retirement age, your benefits will be lower. On the other hand, if you wait to receive retirement benefits until after your full retirement age, your benefits might be higher.²

3. Employment

Paying for social security looks different for those who are self-employed, work for a federal, state, or local government, or work outside of the United States.² If you are in one of those categories, it’s important to understand how this may affect your benefits during retirement.

See: Retirement Checklist: 6 Things To Do Before Claiming Social Security

Preparing for your post-work days may also look like reflecting on what you want your lifestyle to be during that time. By estimating your Social Security payments, you have a better idea of the other steps you might need to take, such as opening a retirement savings account, so you can experience your envisioned retirement.

Find Your Estimated Social Security Benefit

Finding your Estimated Social Security Benefit is simple. The Social Security Administration has an Online Benefits Calculator that you can use in one of two ways; it will estimate your benefit based on your actual earnings record, or, estimated your benefits based on your expected future earnings that you input. Both calculators can be found here:

https://www.ssa.gov/benefits/calculators/

1. https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
2. https://www.ssa.gov/planners/retire/r&m6.html
3. https://www.ssa.gov/oact/COLA/piaformula.html
4. https://www.ssa.gov/oact/progdata/retirebenefit2.html
5. https://www.ssa.gov/benefits/retirement/estimator.html